How will investments be protected in TTIP?
An investment may suffer damage as a result of unlawful action by a foreign government. If this happens, investors can claim compensation through the courts or an international arbitration tribunal. The Dutch government believes that investment protection measures in TTIP must meet several requirements. As negotiations have halted, no progress is being made on this topic.
Why do investments need protection?
The Netherlands invests a great deal abroad and foreign businesses invest a lot in the Netherlands. These are small and larger investments by individuals and companies and can take many different forms. They may relate to intellectual property, opening a new office abroad or building a large infrastructural project.
As investments are often long-term, legal certainty is important for investors. In addition, Dutch investors abroad must be able to count on fair and equal treatment.
The Netherlands therefore makes Bilateral Investment Treaties (BITs) with other countries. BITs set out how foreign investors are to be treated on both sides. They focus on basic principles like equal treatment and fair compensation if property is seized. These minimum principles are guaranteed by law in the Netherlands, but not in all countries. That is why they have to be laid down in international agreements.
International arbitration tribunal
If an investment suffers damage due to unlawful action by a foreign government, the investor must have access to a fair process. This could happen through the local courts. But the legal system does not work the same way in all countries as it does in the Netherlands. In some countries, for example, domestic courts do not have to take account of rules laid down in international agreements. And there is no law in the US forbidding discrimination against foreign companies.
Many BITs therefore contain a clause on investor-to-state dispute settlement (ISDS). In international arbitration the parties appoint independent arbiters who decide on the case. This can lead to the investor receiving compensation.
Concerns about ISDS
There are concerns about provisions for investment protection in BITs. The Dutch government takes these concerns seriously. It is working hard to improve agreements to prevent them being abused. TTIP offers an opportunity to modernise existing agreements and renew the current system.
Proposal to improve investment protection
The Dutch government wants the Netherlands to be able to make its own policy without running the risk of legal challenges by investors. For that reason, together with other countries, it proposes the following improvements in investment protection:
- The government must be able to change its policy on, for example, the environment, health care or social security, without facing compensation claims from investors.
- Arbitrators must be independent and make high quality decisions. That could be ensured by introducing a code of conduct. Or by setting up a permanent dispute settlement body, such as an international investment court or secretariat.
- It must be possible to appeal against arbitration decisions.
- The decisions of an arbitration tribunal or investment court may not conflict with the administration of justice at national level.
These proposals are described in Investment in TTIP and beyond - the path for reform. In November 2015, the European Commission presented its proposal for a reform of investment protection, the Investment Court System (ICS), in TTIP. ICS can in time replace bilateral ISDS-mechanisms.