Amid ongoing public concern about the potential overreach of international legal protections for foreign investors, the Brussels-based European Commission has unveiled a proposal to respond to such criticisms. 

The Transatlantic Trade and Investment Partnership (TTIP) could liberalise trade flows between Europe and the US, but critics on both sides of the Atlantic worry that its investment provisions could give foreign investors too much leeway to challenge laws, regulations and other forms of (arguable) mistreatment before special international arbitration tribunals. 


Investor lawsuits against other countries – especially high-profile claims by the Philip Morris tobacco company against Australia and Uruguay – have captured public attention and highlighted the potentially intrusive reach of such international treaties. 

Responding to such criticisms, the European Commission has now sketched out a proposed 'court' that would adjudicate FDI disputes brought by US investors against EU countries (and vice versa). 

On the face of it, the proposals help to lend more legitimacy to the ad-hoc arbitration process that is currently used to resolve one-off disputes between foreign investors and their host states. The European Commission's proposal would see the selection of a 15-person roster of 'judges' who would be the only adjudicators of disputes under any future US-EU agreement. Furthermore, judges would need to refrain from moonlighting as advocates in other cases for investors or governments. (One of the current knocks on arbitration is that many arbitrators are not wholly disinterested in the legal cases before them because they may have their own clients whose fortunes hinge to some extent on the very same legal questions that are under arbitration.) 

The European Commission proposal would also make any legal rulings appealable if judges have made legal errors. This would address another knock on the present system: that a preference for 'finality' means that the rulings of arbitrators are accorded considerable deference, even if they have erred in their legal analysis. 

Despite the European Commission's preference for a more judicial system for FDI disputes, it remains to be seen whether US negotiators embrace its ideas. Even if negotiators see merit in some of the ideas, they need to pass muster within a US political system which distrusts many international institutions. 

There is some irony here though. For years, the US Senate has ratified international investment protection treaties that give ad-hoc panels of arbitrators the ability to review and second guess US laws and courts when the treatment of foreign investors is at issue. However, if those very same oversight powers are handed to a body that is expressly branded as an international 'court', this might be a political non-starter in Washington. 

Luke Eric Peterson is the publisher of a news and analysis service focused on FDI disputes.