European Court says States should decide on ISDS

On 16 May 2017, the Court of Justice of the European Union (CJEU) issued the long-awaited landmark Opinion 2/15 on the EU-Singapore Free Trade Agreement (FTA). According to the CJEU, the agreement falls under the EU’s powers, but not entirely. EU Member States’ national and regional parliaments and the European Parliament must ratify some important provisions regarding investors, particularly ISDS.

While it was clear that tariffs and quotas can be exclusively agreed by the European Commission, the new-style trade agreements, covering regulatory powers, intellectual property, investment, government procurement, competition and sustainable development were challenging many powers of member states. The European Commission moved to resolve these conflicts by asking the CJEU to rule on whether the European Commission could sign and ratify the EU – Singapore Free Trade Agreement.

The Opinion determines that provisions on non-direct investment and Investor-State Dispute Settlement (ISDS), must be decided by Member States.

This recognises the democratic right of states to manage foreign investments of a portfolio nature, and allows the state to veto any move to ISDS, which would allow foreign investor corporations to avoid the national judicial system in any disputes that may arise.

This will have an immediate effect on the shape of the proposed EUSFTA, and will certainly affect any EU trade and investment agreement with the UK after Brexit. It will influence the way any EU – Australia FTA may be structured.

The decision recognises the basic conflict between corporate power and democratic rights, which has resulted in the world-wide campaigns against ISDS.

See longer report here.