Investor-State Dispute Settlement Mechanisms in EU Trade Agreements

ABSTRACT
Investor-State Dispute Settlement (ISDS) mechanisms have become one of the most contested elements of modern international trade and investment law. As the European Union has assumed exclusive competence over foreign direct investment following the Lisbon Treaty, it has sought to replace traditional arbitration-based ISDS with a reformed Investment Court System (ICS) embedded in its new-generation trade agreements such as the Comprehensive Economic and Trade Agreement (CETA) with Canada and the EU-Vietnam Investment Protection Agreement (EUVIPA). This paper examines the evolution of ISDS within EU trade agreements, analysing the structural, procedural, and normative shifts the EU has introduced to address long-standing criticisms of opacity, inconsistency, and democratic deficit associated with ad hoc investor-state arbitration. Drawing on doctrinal analysis of treaty texts, key arbitral awards, and CJEU jurisprudence, the paper argues that while the ICS represents a meaningful structural improvement, fundamental tensions between investor protection and states’ right to regulate remain unresolved. The paper further considers the EU’s proposal for a Multilateral Investment Court (MIC) and its prospects for systemic international reform, concluding with recommendations for greater transparency, appellate coherence, and alignment with sustainable development objectives.