A key issue in trade and investment agreements is the resolution of disputes in
cases where commitments are (allegedly) not met.
For trade, there is an established dispute settlement mechanism within the WTO. FTAs, which need
to be compatible with WTO rules, can specify the WTO as designated forum to
resolve disputes or agree on alternative procedures for partners, ranging from
consultation mechanisms, arbitration or the establishment of standing bodies.
In contrast, for investment there is no unified set of rules on investment
protection and investment dispute resolution at the moment. The existing
investment agreements contain rules for treatment of foreign investment and
provide for investors to bring disputes.
Agreements typically refer to different
sets of arbitration rules. Basically, the current system of Investor-State Dispute
Settlement allows investors to resort to international arbitration (on the basis of
different sets of rules) when they see obligations included in BITs violated.
Usually, disputes are adjudicated by ad hoc tribunals of arbitrators appointed by
the parties to the dispute and tribunals are disbanded afterwards.
The current system of ISDS has been criticised from different sides and for
various reasons. Notably, these include potential disadvantage for developing
countries which potentially face claims for compensation from investors, low
public trust in an ad hoc system, and increasing complexity with the spread of
BITs. However, it is still pending a thorough reform.
At the same time, dispute
resolution for investment has become one of the most difficult issues in the
public debate about 2 generation trade agreements like CETA in Europe (but
also beyond) ISDS in brief.