Investor to State Dispute Settlement (ISDS) mechanisms

Date - 08 / 05 / 2018

Investor to State Dispute Settlement (ISDS) mechanisms

Investor to State Dispute Settlement (ISDS) mechanisms: A comparison of evolving legal approaches in Brazilian and Latin American with the European Union

(Daniele Bianchi and Kirstyn Inglis1)


The reform of Investor-to-State Dispute Settlement (ISDS) and potential alternatives to it, is a priority for the EU today. Foreign direct investment (FDI) by the European Union in Brazil and Latin America is considerable, and vice versa.2 Various forms of settling disputes between investors and states are incorporated into agreements carrying FDI.


Classical ISDS mechanisms have become increasingly contentious in recent years, and with the growth in the number of ISDS agreements, public fears that investors may gain control of sensitive areas of public policy have grown also (see Section 2). Compared to State-to-State Dispute Settlement (SSDS) mechanisms, investor-to-state dispute settlement mechanisms are criticized for enabling companies and multinationals the potential to undermine a country’s public policy objectives with the threat to national sovereignty that this implies. Justifications for ISDS boil down to states’ provision for protection of investors in order to progress with their development goals. However, the core drivers of globalization are changing rapidly and the rise of countries capable of exponential growth, accentuates the negatives to ISDS, including the lack of democratic accountability of and scrutiny over third country investors, the use of private arbitrators, the secrecy of proceedings and rulings, and no participatory rights for third parties holding a direct interest in the process.


To date, investment protection has been confined to case-specific international agreements, rather than through overarching bilateral agreements. Legally speaking, these agreements span the public international law basis of the treaties and the public law nature of the relationship between the investor and sovereign state concerned, and asymmetry between states in international agreements further complicates multilateral approaches to reforming ISDS. At EU level, Foreign Direct Investment was included in the European Union’s powers under the Common Commercial Policy under the Treaty of Lisbon (ToL) in 2009, but such initiatives when involving ISDS reform remain complex and must respect the EU Member States’ competences3. Thus, the entry into force of the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada in September 2017 is preliminary: all the EU Member States must ratify it, raising again the spectre of political resistance to its ISDS clause as experienced in 2016, particularly in the Belgium State of Wallonia. The ISDS mechanisms in CETA must respect the delineation between EU and Member State competences established by the Court of Justice of the European Union (CJEU) in May 2017, and Belgium raised important questions for the CJEU in September 2017 on the compatibility of CETA with EU law, even before the preliminary entry into force of CETA4 (see Section 3.1).




1 Daniele Bianchi, PhD, researched this paper during his term as Research Fellow at the Instituto de Estudos Brasil Europa of the University of Sao Paulo. He is Advisor-Senior Legal Expert of the Legal Service of the European Commission and contracting Professor at Sorbonne University in Paris. Kirstyn Inglis, PhD, is Visiting Professor at the Institute for International Relations (IRI) of the University of Sao Paulo, and Vice-Coordinator of the project Brazil-C-EU, a project co-financed under the Erasmus+ Programme of the European Union (Jean Monnet Support to Institutions). All views expressed here are the authors’ alone.
2 See the Europa website, Foreign Direct Investment Statistics updated to April 2017, to be found at last visited on 18 December 2017. As at end-2015, EU outward FDI stocks in Latin America were EUR 490.2bn (7.1% of global EU outward FDI). In terms of inwards FDI into the EU, Brazil was in 4th place among states investing in the EU in 2015, and Mexico in 8th place, the former accounting for EUR 127.6bn and the latter, EUR 36.5bn: see Table 2, to be found at,_EU-28,_end_2012%E2%80%932015_(billion_EUR)_YB17.png, last visited on 18 December 2017.

3 See Consolidated version of the Treaty on the Functioning of the European Union [2008] OJ C 115/47, Art. 207(1) “The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and ser-vices, and the commercial aspects of intellectual property, foreign direct investment, the achievement of uniformity in measures of liberalisation, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action”.
4 See Belgian Ministry for Foreign Affairs, Foreign Trade and Development Co-operation, Minister Reynders Submits Request for an Opinion on CETA, of 6 September 2017, to be found at, last visited on 19 December 2017. For the form and content of the request, see CETA : Belgian Request for an Opinion from the European Court of Justice, to be found at, undated, last visited on 19 December 2017


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