“Super-protections” for global corporations – New Dutch study of ISDS

March 17, 2021: The February 2021 action by the German energy company RWE to sue the Netherlands government using the Investor-State Dispute Settlement (ISDS) provisions of the Energy Charter Treaty has provoked a Dutch institute to compare investor rights under Dutch and EU law with investor rights under the 1994 ECT and the recent Canada – Europe Comprehensive Economic and Trade Agreement (CETA).

RWE wants €1.4 billion (A$2.2 billion) to compensate for expected losses from the December 2019 Dutch law to phase out coal-fired power stations by 2030. Huge claims for dubious calculations of future lost profits are allowed under ISDS, which are not generally allowed in national systems.

The Netherlands-based Centre for Research on Multinational Corporations responded by commissioning a study of how investment treaties and investor-state dispute settlement (ISDS) grant foreign investors greater rights than Dutch and EU law.

The study was conducted by the University of Amsterdam International Law Clinic, focused on four important elements of investment protection and compared the rights of companies under the ECT, CETA, Dutch civil and administrative law and the EU non-contractual liability regime.

During the CETA parliamentary debate in the first half of 2020, Ms Sigrid Kaag, the Dutch Minister of Foreign Trade, argued that CETA provides the same level of protection for investors as Dutch law and that signing on to CETA would not increase the risk for damages claims against the Dutch government. She also suggested that the ECT upholds a similar standard of investment protection as Dutch law, implying that concerns over investment treaties are misguided.

The most important conclusion from the study is that companies under investment treaties and ISDS have a better chance of receiving (higher) compensation than under Dutch and EU law.

The study identified four main areas in which foreign investors enjoy greater rights under the ECT and CETA.

  • The structure of arbitration proceedings under the ECT and CETA provides arbitrators with financial incentives to rule in favour of foreign investors, while the lack of transparency safeguards under the ECT prevent the general public and civil society from critically evaluating arbitration cases;
  • Foreign investors do not have to challenge a measure in an administrative court first, but can directly gain monetary compensation for having to comply with a disputed law or regulation;
  • The open-ended wording and expansive interpretations of substantive investment protections in ISDS constrain the public interest regulation in a way Dutch and EU law do not. Although CETA qualifies certain substantive ISDS standards, it still creates more legal uncertainty and restricts the regulatory space more than Dutch or EU law.
  • Foreign investors can obtain higher amounts of compensation under the ECT and presumably under CETA as well.