The European Commission says that the Investor State Dispute Settlement mechanism (ISDS), which should be included in the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States, would motivate standardization of the level of protection for firms across EU member states. ISDS is meant to protect foreign direct investment of companies against illegal rulings in the countries in which these companies operate. It gives firms an opportunity to take legal action against a country whose legislation might have a negative influence on their business activity.
The Commission hopes that the TTIP deal will provide more protection to investors since to this day, firms have been mostly relying on diplomacy to sort out their disputes with foreign government. Their only possibility was often to lobby and get support from their own country’s diplomats. Brussels moreover hopes that the TTIP will eventually replace the bilateral agreements that currently exist between particular EU member states and the U.S. The Commission thinks that these smaller agreements do not provide a comparable level of protection to entrepreneurs.
However, ISDS has not been embraced by all EU member countries. Neither Germany not France, eurozone’s major economies, wish to see the ISDS mechanism embedded in the final TTIP. The Commission has been trying to mitigate criticism of the mechanism by pointing out the problems of the current system, under which the parties can choose their own arbitrator leading to possible conflicts of interest. Although different experts have commented both in favor of as well as against the ISDS, the Commission is convinced that “the alternatives are not as efficient as the Dispute Settlement mechanism, especially as we are talking about the opinions of 28 different states”.