Less than a year ago, the Transatlantic Trade and Investment Partnership (TTIP) was cruising to success. Never mind that the actual negotiations had not yet begun; reactions on both sides of the Atlantic were glowing. European politicians tripped over each other in praising the initiative. The protectionist trolls showed their face, but this time to support a trade initiative. Now the opinion has shifted – and if the new TTIP critics are to be believed, the single issue that has swung them into opposition is investor-state disputes settlement (ISDS), the right for investors to call for arbitration against a state.

ISDS is a surprising candidate for frustrating Europe’s trade negotiations. No other part of the world has so many bilateral investment treaties (BITs) with rights for arbitration as Europe. Germany alone has 147 BITs on the books. And no other part of the world is using BITs as much as Europe. Of all the known ISDS cases, European investors filed more than half of them. And that share increases over time: in 2012 and 2013 European investors represented two thirds of all known ISDS cases.

The recent ‘Repsol case’, the arbitration between the Spanish energy major and the Argentinian government, is a good example of the value of ISDS. Like the majority of other cases, it concerned a sector with a high degree of political interference. And like almost half of all ISDS disputes concluded since 2003, it was settled between the parties before a ruling by the arbitration tribunal.

Resolving disputes through consultation is a key part of arbitration. And it is an element of dispute resolution that is not found in regular courts presiding over cases where an investor has sued the government. But that is not the only reason why the argument by ISDS critics, that disputes between foreign investors and a state should be processed in the regular court system, is just an abstract point, interesting for academic seminars but less relevant in the real world.

There are two other flaws. First, if national courts should be used to settle matters based on investment protection, then governments would have to be forced to transpose the content of investment-protection treaties into law. That is not the case today. You do not find crisp and clear legislation in many countries that manifests the principle of national treatment and non-discrimination, the central parts of investment-protection treaties. And even if there were, states can change relevant laws and regulations, sometimes suddenly to fit a political whim. In the ‘Repsol case’, for instance, the Kirchner government in Argentina changed the law to allow for an uncompensated expropriation of Repsol’s assets in Argentina.

This BIT-based model of resolving international investment disputes is not ideal. But for a system of investment protection to actually work, it needs either ISDS based on the current model or it needs to be anchored in a treaty involving a court that can instruct a government to change the laws when it has been found to err on the wrong side of basic principles of like treatment.

The World Trade Organization (WTO) is an example: its dispute-settlement system can rule against a country’s laws. Likewise, the European Court of Justice can instruct an European Union member state to pass new laws that are consistent with the EU legislation. But these two examples are based on far stronger treaties – treaties that do not exist in the field of international investment rules.

The ‘Repsol case’ also showed the benefits of anchoring investment treaties in the EU rather than having it done by individual member states. And this goes to the heart of the new opposition to ISDS in new EU trade accords. Ever since investment issues became part of EU policy in the Lisbon treaty some governments have regretted handing away their power to do their own BITs. But a common EU investment policy will be helpful to European investors faced with intentional discrimination or unfair practices. Policy will now be anchored in a larger economic context. The lesson from the ‘Repsol case’, which got a very strong EU reaction even if it was brought under a BIT between Spain and Argentina, is that that the larger context reinforced the significance of Argentina’s misbehaviour. The EU could display the significance of the full economic relation between Argentina and Europe. The political and economic risks to Argentina of not seeking an arbitrated resolution got bigger.

As the EU now, after the Commission’s consultation on ISDS, begins to ponder its approach to international arbitration, it should choose to improve BIT and ISDS policy, at the very least by making the system of international arbitration more transparent. But the only viable option is to do so on the basis of the current BIT model. Forming a WTO-like system is preferable but politically impossible. And going back to the old ‘gunboat diplomacy’-like ways of resolving disputes is only an option for those countries and companies that can make their way in the world with the force of economic power.