Multilateral talks started in late 2017 under the auspices of the Working Group III of the United Nations Commission on International Trade Law (UNCITRAL).

The talks have been split into three phases:

(1) Identifying the concerns regarding the ISDS,

(2) Assessing the desirability of reforms for identified concerns, and if so,

(3) Recommending action and reform options to the UNCITRAL Commission. Phases (1) and (2) were concluded in the previous session

European Commission President Juncker pledged for the replacement of the ‘outdated’ investor-state dispute settlement (ISDS) system that had governed most international investment agreements (IIA), so far.

The prevalent ISDS system is an arbitrator-based system that enables disputes to be settled whenever an investor (the claimant) considers that a State (the respondent) has infringed its obligations under relevant IIAs.

Following a public consultation and impact assessment conducted by the European Commission in 2016-2017, the Council mandated the latter in March 2018 to negotiate a convention establishing a Multilateral Investment Court (MIC) on behalf of the European Union and its Member States.

 

Multilateral Investment Court and European Law

The Commission has replaced the ISDS mechanism with bilateral ICS in recently negotiated international investment agreements — including those with Canada, Mexico, Singapore, and Vietnam; the agreements also include provisions anticipating the transition from the bilateral ICS to a permanent MIC.

On 30 April 2019 and following a request submitted by Belgium in 2017 regarding the investment agreement between Canada and the EU, the Court of Justice of the European Union confirmed the compatibility of an ICS with the Treaties of the European Union (CJ 01/17).

In a resolution of 8 July 2015 on the Transatlantic Trade and Investment Partnership, the European Parliament requested the replacement of ISDS with a new system.

It subsequently supported the establishment of a multilateral solution to investment disputes in a resolution of 5 July 2016 on a future strategy for trade and investment.

The European Parliament considered the inclusion of the new bilateral ICS in CETA and the EU-Vietnam Free Trade Agreement (FTA), a stepping-stone towards achieving that goal and is expected to elaborate its position on the negotiations establishing a MIC in the near future.

Currently, disputes between international corporations and countries are settled through the Investor-State Dispute Settlement (ISDS) system. The cases usually involve demands for compensation by investors on account of policy changes brought about by the state in areas such as the environment, nuclear power etc., even if these laws are aimed at protecting people’s health or the environment.

These disputes are adjudicated by ad hoc tribunals or domestic courts. However, the EU has, in 2016, pushed for certification of its proposal for the establishment of a Multilateral/World Investment Court (MIC). The MIC system seeks to establish one court for all such disputes between corporations would directly be able to approach it and settle their disputes, thereby circumventing domestic courts. The disputes concerning the interpretation of Bilateral Investment Treaties (BITs) would be adjudicated by salaried judges.

 

India opposed MIC?

The primary reasons cited by the EU for the establishment of the MIC are the inconsistency of verdicts by ad hoc/domestic courts, multiplicity of proceedings and the need to protect corporations from the conflicting interests of the state and its judicial system. While India has staunchly opposed the MIC, the EU has consistently attempted to corner India by using the India-EU Free Trade Agreements as a bargaining chip.

India and other developing countries have severely criticised the EU’s proposal of establishing a World Investment Court at the WTO, where the then Commerce Minister Nirmala Sitharaman had clearly stated that India shall not allow investors to drag the country to a MIC

 

MIC only allows investors to file cases against governments

The disputes are fought in the MIC, corporations can firstly, circumvent a country’s domestic laws and secondly, avoid having to face the aforementioned organisations, which cannot file cases in the MIC since the MIC only allows investors to file cases against governments. Thus, the system of MIC appears to crystallise the privileged position of the investors vis-a-vis its disputes against governments.

 

Conclusion

The EU, in a bilateral meeting with India, also indicated that it would hold free trade talks with India only after concluding a new bilateral investment treaty (BIT) with India.