COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes
Date: 2017-09-13
Institutions: Directorate-General for Trade and Economic Security, European Commission
Subjects: common commercial policy, direct investment, foreign investment, international convention, international court, international investment, international negotiations, multilateral relations, settlement of disputes, trade dispute

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   EUROPEAN COMMISSION  Brussels, 13.9.2017  SWD(2017) 303 final   COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Recommendation for a Council Decision authorising the opening of negotiations for a Convention establishing a multilateral court for the settlement of investment disputes  {COM(2017) 493 final} {SWD(2017) 302 final}  
 
 
Executive Summary Sheet 

Impact  assessment  on  the  Recommendation  for  an  authorisation  to  open  negotiations  for  a 
Convention establishing a multilateral court for the settlement of investment disputes 

A. Need for action 

Why? What is the problem being addressed?  
In  recent  years,  the  inclusion  of  investor-state  dispute  settlement  (ISDS)  in  trade  and  investment  agreements 
has become subject to increased public scrutiny and questioning. Lack of or limited legitimacy, consistency and 
transparency as well as the absence of a possibility of review have been identified as problems stemming from 
ad  hoc  ISDS  which  is  based  on  the  principles  of  arbitration.  To  address  these  limitations,  the  EU's  approach 
since  2015  has  been  to  institutionalise  the  system  for  the  resolution  of  investment  disputes  in  EU  trade  and 
investment agreements through the inclusion of the Investment Court System (ICS). However, due to its bilateral 
nature, the ICS cannot fully address all the aforementioned problems. Moreover, the more ICSs are included in 
EU agreements, the more complex the management will be for the Commission and more costly it will be for the 
EU budget, which will bear part of the operating costs of the ICS. 

What is this initiative expected to achieve?  
The  initiative  aims  at  setting  up  a  framework  for  investment  dispute  resolution  that  is  permanent,  independent 
and legitimate; predictable in delivering consistent case-law; allowing for an appeal of decisions; cost-effective; 
transparent and efficient. It seeks to align the EU's policy in investment dispute resolution with the EU's global 
approach  in  other  areas  of  international  governance  and  international  dispute  settlement  favouring  multilateral 
solutions.  

What is the value added of action at the EU level?  
A  multilateral  reform  of  investment  dispute  settlement  could  not  be  carried  out  at  the  Member  State  level 
inasmuch  as  it  would  fail  to  cover  all  existing  investment  treaties,  leaving  out  those  concluded  by  the  EU. 
Member States do not have competence for all the matters that would be dealt with in this initiative, which are 
either of the exclusive or shared competence of the EU. 

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
Option  1  (baseline  scenario)  means  that  the  EU  would  continue  to  negotiate  ICSs  in  its  bilateral  investment 
agreements while ISDS would continue to exist insofar as the treaties that utilise it have not been phased out. 
Option 2 envisages that the EU and the Member States renegotiate Member States' bilateral investment treaties 
and the Energy Charter Treaty (ECT) to align the dispute settlement provisions therein with the ICS. 
Under Option 3, the arbitration rules governing ISDS would be reformed to be in line with the principles of ICS. 
Option 4 envisages the creation of a permanent multilateral appeal instance. 
Option 5 foresees the creation of a permanent multilateral investment court. According to its preferred features, 
the court would include a First Instance and an Appeal composed by a number of adjudicators to be determined 
by  the  workload.  They  would  be  appointed  for  a  fixed  period  of  time  and  would  meet  high  qualification  and 
ethical requirements. They would be appointed by an independent body and hear cases allocated on a random 
basis. Resort to the Appeal Tribunal would be possible in cases of manifest errors in the appreciation of facts, in 
addition to procedural errors and substantial errors of law. The court would rely on a secretariat and states would 
be  able  to  become Contracting  Parties  as  per  an  opt-in  system. Possible  assistance  to  SMEs  and  developing 
countries  should  be  considered.  Costs  should  be  allocated  according  to  Contracting  Parties'  level  of 
development and the possibility to charge user fees should not be excluded.  
Option 6 implies the negotiation of multilateral substantive rules on investment protection as a wider framework 
for the negotiation of multilateral dispute settlement provisions. 
Option 7 foresees improving ISDS in bilateral EU investment agreements and in the ECT. 
Under Option 8,  ISDS would be phased  out and  disputes between foreign  investors and host states  would  be 
decided by the domestic courts of the host state.  

Who supports which option?  
The  non-profit  sector  broadly  supports  the  principles  that  underpin  the  option  to  establish  a  permanent 
multilateral  investment  court,  notably  permanency,  independence  and  detachment  of  adjudicators  from  the 
disputing parties. Business groups see the potential of this option but are concerned that the new regime for the 

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appointment  of  adjudicators  may  lead  to  a  loss  of  valuable  expertise  and  that  the  possibility  to  appeal  may 
prolong proceedings. Academia and legal practitioners are generally in favour of reforming the current system so 
that it is in line with the principles of domestic and international judicial systems.  

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?  
The establishment of a multilateral investment dispute settlement mechanism featuring the preferred sub-options 
would  bring  added  legitimacy  to  investment  dispute  resolution  by  detaching  adjudicators  from  the  disputing 
parties  and  safeguarding  their  independence.  Proceedings  would  be  streamlined  thereby  saving  costs  to 
investors  and states. The permanency of the  court would contribute to greater predictability of case-law which 
would also contribute to faster decisions and may indeed avoid disputes in the first place. The appeal instance 
would contribute to legal correctness and promote consistency.  
The  multilateral  investment  court  would  address  at  the  global  level  issues  raised  by  ISDS  that  are  only 
addressed  by  the  ICS  at  the  bilateral  level.  It  would  promote  strong  multilateral  cooperation  and  good  global 
governance, inasmuch as the court would aim to secure inclusiveness of all interested countries and ensure that 
countries' level of development not be an obstacle to an effective use of the court. It would simplify EU policy-
making since it would progressively replace  bilateral ICSs that will have been included  in EU  agreements  and 
ISDS mechanisms included in investment treaties of Member States. 

What are the costs of the preferred option (if any, otherwise main ones)?  
The annual budgetary impacts of the multilateral investment court with its preferred features are estimated to be 
around  EUR  5.4  million  for  the  EU  and  Member  States.  This  estimate  would  cover  the  remuneration  of  14 
permanent adjudicators (9 at First Instance and 5 at Appeal) and 42 members of staff (3 members of staff per 
adjudicator) which is assumed to be a reasonable number from which to start. These assumptions are based on 
other  international  courts  and  tribunals  and  a  repartition  key  of  the  total  costs  among  45  Contracting  Parties 
(including the EU, its 28 Member  States and  16 third countries) taking into account their level of development 
(following  the  IMF  quota  system).  The  actual  costs  will  depend  on  the  number  of  adjudicators,  size  of  the 
secretariat  and  number  of  Contracting  Parties  (inter  alia)  which  cannot  be  precisely  established  at  this  stage. 
Moreover, these parameters are likely to evolve over time, leading to variations in the costs.  
Since the multilateral court initiative only addresses procedural (i.e. dispute settlement) rules and not substantive 
rules (included in underlying investment agreements), and therefore it will not grant additional grounds to bring 
cases, financial implications related to the payment of damages are considered irrelevant. 

How will businesses, SMEs and micro-enterprises be affected?  

The preferred option will ensure investors' access to a legitimate, independent and effective dispute settlement 
system  regardless  of  their  size  and/or  turnover.  Proceedings  under  the  court  are  expected  to  be  shorter  and 
therefore less costly for investors, considering that no time will have to be spent on appointing adjudicators and 
that arguments will be more focused thanks to the enhanced predictability and consistency of interpretation of 
substantive investment provisions. SMEs may benefit from additional assistance to take account of their lower 
turnover.  

Will there be significant impacts on national budgets and administrations?  
Based on the assumptions explained above, it is estimated that the court would cost around EUR 2.7 million to 
EU Member States' budgets annually. This will be less than what the baseline scenario costs to EU and Member 
State budgets (estimated at around EUR 9 million). 

Will there be other significant impacts?  
The  multilateral  investment  court would  alleviate  the  administrative  burden by centralising  all  disputes  under  a 
single set of procedural rules. As the multilateral investment court initiative only addresses procedural rules and 
not  substantive  rules,  no  relevant  environmental  or  social  impacts  are  expected  to  result  from  it.  Minor  social 
impacts are anticipated regarding the professional opportunities of the arbitrator/judge community in becoming 
adjudicators under the court. The same applies to the professional opportunities of potential staff of the court's 
secretariat. 

D. Follow up 

When will the policy be reviewed?  
The  Commission will carry out regular annual monitoring once the  multilateral court is operational. It  will  also 
regularly  audit  the  use  of  the  EU's  financial  contributions  to  the  costs  of  the  court.  An  evaluation  of  the 
functioning  of  the  multilateral  investment  court  will  be  undertaken  when  it  has  been  in  force  for  a  sufficient 
period of time allowing availability of meaningful data.  

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