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Reform of the ISDS mechanism

The EU promotes a reformed approach to investment dispute settlement.

Trade topics
  • Dispute settlement

To ensure the highest standards of legitimacy, transparency and neutrality, the EU has been promoting since 2015 a reformed approach to investment dispute settlement both in bilateral and multilateral investment agreements:

  • In its bilateral investment negotiations, the EU includes the Investment Court System (ICS) and more circumscribed standards of investment protection which also recognise the States’ right to regulate. The ICS is an institutionalised adjudicative body with high standards of independence, transparency and legitimacy, which replaces the old model of arbitral tribunals established ad hoc for specific disputes.
  • On the multilateral level, the EU pursues the establishment of a Multilateral Investment Court through intergovernmental discussions at the United Nations Commission on International Trade Law. Once established, the Court would replace the existing old-style arbitral tribunal established under thousands of existing bilateral investment treaties (BITs) and the ICS.
  • The EU is engaged in a process of modernising the Energy Charter Treaty (ECT), which includes bringing the protection rules and dispute settlement mechanism in line with the EU's modernised approach.

The EU implemented this new policy in the Comprehensive Economic and Trade Agreement (CETA) with Canada, and in the agreements with Vietnam, Singapore and Mexico. It also continues to pursue it in ongoing bilateral negotiations with other trading partners.  

Investment cases against the EU/Member States

At the moment, the ECT is the only agreement in force containing an investor-to-state dispute settlement mechanism to which the EU is a party.

On 23 July 2014, the European Parliament and Council adopted a regulation to establish a legal and financial framework for investor-to-state dispute settlement. It manages any possible financial responsibility deriving from investor-to-state dispute settlement by allocating between the EU and the Member States the financial responsibility on the basis of who adopted the treatment responsible for a breach of the agreement. It also deals with who would defend a particular case.

In 2012, the EU adopted a regulation creating a set of rules for bilateral investment agreements between individual EU members and non-EU countries, so as to make sure that they are consistent with EU law and with the EU’s investment policy.

This also requires Member States to keep the Commission informed of cases against them.

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