ISDS: Not a Problem in the Past, Not a Problem in the Future
Investor State Dispute Settlement (ISDS) is one of the largest concerns regarding TTIP, since it allows US companies to sue EU states if they believe they are treated unfairly and are losing profits. Several EU countries already have ISDS in place, however, and it has not been as detrimental as some believe. Legislators do, however, have the right to adopt whatever rules and regulations they think would uphold or further the 'public interest' – however they define it.
One of the main criticisms about TTIP concerns its impact on our very democracy. Some claim that with an EU-US trade deal in place, US firms could use a system known as investor-state dispute settlement (ISDS) to sue EU states for any measure which somehow hurt their profits – such as raising workers' wages or protecting groundwater from contamination. And that they could do so regardless of who enacted the measure in question – be it the government itself, a national regulator, or even a trade union.
This would mean that already cash-strapped governments, which were democratically elected, would then have to think twice before adopting new measures to protect people or the planet – for fear of the 'compensation' they'd have to pay out to businesses as a result. This would result in us socializing all the costs of doing business, privatizing all the profits – and undermining our democracy to boot. A worrying scenario indeed. There's just one problem with it: it's not true.
Let's look at what is true. Well, first, several individual EU countries do have a system in place already which allows US companies to use a system known as investor-state dispute settlement if they think an EU government has treated them unfairly. This system certainly has its drawbacks. I'm the first to concede that. In 2009, however, the Lisbon Treaty handed responsibility for investment policy to EU institutions. Since then, I've argued consistently that we need to fix the shortcomings. This would ensure we protect foreign investors from clearly unfair treatment. I make no apology for that, but it would also guarantee, in black and white, legislators' right to adopt whatever rules and regulations they think would uphold or further the 'public interest' – however they define it.
A brief glance at recent history is instructive. Several EU countries already have investment pacts with the US. Some signed these well before they became EU members. Take Poland, for example. It signed its investment pact with the US back in 1990. Only in 2004 did it join the EU. Doing so meant adopting a draft of EU health, safety, labor, environmental and privacy laws – laws that were new for Poles, and which in most cases set the world's highest standards.
Yet, at no point, has there been any question of US firms challenging Poland's right to do so. So, we at the European Commission believe this fear is exaggerated and unfounded.
Alexander Walford is a communications officer of the European Commission in Brussels. He has a Master's degree in European Studies from The London School of Economics, and he specializes in US-EU Trade.
This article was published in the first of three theme weeks for our project "TTIP: Myths vs Reality". An introduction of the articles for the week can be found here, and introductions of the other two weeks can be found at the top of the TTIP Forum.
- EU's Litmus Test in the Western Balkans
- It's the State of our Democracy, Stupid! Why Transatlantic Relations are in Trouble
- The Reverse Trump Effect: EU Populist Movements After Trump Took Office
- Smaller and Larger Nations: Concert of Big Powers or Fair Balance of Interests?
- The Trump-Merkel Summit: After the Storm, a Vital Trans-Atlantic Agenda