From an opinion piece in the National Interest:
A U.S.-EU deal may simultaneously reverse important trends governing international investment. ...
While ISD clauses are widespread, they usually exist within the context of treaties between states characterized by economic asymmetries. For instance, of the more than 2000 bilateral investment treaties (BITs) worldwide, none exist between two advanced industrial countries. The United States generally embraces investor-state dispute clauses; both their model free-trade agreement (FTA) and BIT contain such language. However, it is far from certain that a US-EU treaty would include an ISD clause. Generally, advanced industrial countries have shown they are more interested in promoting legal regimes that protect "their" multinationals while they are less willing to cede jurisdiction over investment disputes in which they might be defendants. For instance, Australia has decided to drop ISD clauses from its BITs and FTAs after it was sued by Philip Morris, who used an Australia-Hong Kong BIT to establish ICSID jurisdiction. In an economic version of mutual deterrence, the economic strength of the US and EU provides incentives for both to avoid these clauses.
There is growing dissatisfaction with the costs of ISDs: India and South Africa recently announced broad reviews of such clauses. Thus, it is unlikely such clauses could persist if the U.S. and EU decide to not subject themselves to such extraterritorial juridical measures. A lasting legacy of a U.S.-EU agreement, then, could be the dismantling of foreign investor-led suits against states. Such a movement away from ISDs may actually prove beneficial to long run economic integration, since ISDs tend to create duplicated layers of juridical authority that generate confusion and make it harder for governments to intercede in investor-state disputes in ways that support for deep economic integration. Further, there is some evidence that states with ISDs tend not to pursue meaningful domestic legal reforms. If ISDs contribute to the persistence of partial economic reforms that ultimately impede broad-based growth, then removing them may spur economic development.
What will the U.S. and EU do on this issue? The High Level Working Group report suggests more of the same. But I wonder if there will be any re-thinking as the negotiations progress.
