ISDS (Investor-State Dispute Settlement), an extrajudicial means of arbitrating disputes in international trade agreements, has been back in the news lately due to agreement among a number of nations to forge ahead with the Trans-Pacific Partnership (minus the United States). Overlooked because of that news, ISDS recently received a fatal blow from the European Union’s Court of Justice (CJEU), the highest court of the EU.
The CJEU took up a longstanding case referred to it by Germany’s high court. Achmea, a Dutch financial services and insurance company initiated an ISDS action against Slovakia, a member of the European Union. Slovakia had made changes to its policies and regulations that Achmea felt unfairly impacted its business in that country.
The Netherlands and the former Czechoslovakia had signed a bilateral trade treaty which remained in effect after the latter nation split in two. That treaty included an arbitration clause to settle disputes via the ISDS mechanism and therefore the matter went before an ISDS tribunal.
The tribunal ruled in favor of Achmea, awarding it approximately $27 million to be paid by the nation of Slovakia. Because the tribunal sat in Frankfurt, Germany, the Slovakian government filed an appeal to the German courts, where the matter climbed to Germany’s highest court, the Bundesgerichtshof. That court decided the matter rose to even higher levels than national interest, being a supranational affair that should be in the jurisdiction of the European Union’s high court and thus it referred the case to the CJEU.
Opinions and briefs — both pro and con — were filed by a myriad of parties, including at least 15 member nations as well as the European Commission itself, the executive body that administers the EU. Three days ago, on March 6, the CJEU delivered its verdict.
It found that ISDS arbitration is unlawful and conflicts with the laws and supreme treaties that form the basis for the European Union. ISDS infringes on the sovereignty of both the member nations as well as the paramount European Union itself.
On those grounds, the Court finds that, by concluding the BIT [bilateral investment treaty], Slovakia and the Netherlands established a mechanism for settling disputes which is not capable of ensuring that those disputes will be decided by a court within the judicial system of the EU, only such a court being able to ensure the full effectiveness of EU law. In those circumstances, the Court concludes that the arbitration clause in the BIT has an adverse effect on the autonomy of EU law, and is therefore incompatible with EU law.
What does this mean? By rejecting the premise that ISDS can be used to settle disputes between corporations and member nations, the court has effectively barred ISDS from use anywhere in the European Union. That affects every trade agreement that the EU has negotiated around the world with dozens and dozens of other countries. The court has made it clear that ISDS tribunals are not empowered to make rulings that affect the EU member states and that such disputes must be settled by national courts, with right of appeal to the EU’s Court of Justice.
In Europe — and the rest of the world when it deals with Europe — ISDS is dead and buried. Now on to the rest of the planet …