Investment Arbitration: Promoting the Rule of Law or Over-Empowering Investors? A Quantitative Empirical Study

Abstract

Investor-state arbitration, also called investment arbitration, is often accused of harming developing states facing economic hardship for the benefit of a wealthy few from the Global North. Its proponents respond that it is the only available means to resolve disputes impartially, and that its increased use clarifies international law. In this article, the authors investigate the empirical manifestations of the uses and functions of investment arbitration, with an original dataset that compiles over 500 arbitration claims from 1972 to 2010. The study reveals that until the mid-to-late 1990s, investment arbitration was mainly used in two ways. On the one hand, it was a neo-colonial instrument to strengthen the economic interests of developed states. On the other, it was a means to impose the rule of law in non-democratic states with a weak law and order tradition. But since the mid-to-late 1990s, the main function of investment arbitration has been to provide guideposts and determine rights for investors and host states, and thus to increase the predictability of the international investment regime. In doing so, however, it seems to favour the 'haves' over the 'have-nots', making the international investment regime harder on poorer than on richer countries.

Do Hard Economic Times Lead to International Legal Disputes? The Case of Investment Arbitration

“…Against this background, we have investigated in earlier research (Schultz and Dupont, ) to what extent investment arbitration fulfills three broad functions distilled from the literature in law: Does investment arbitration serve to champion and strengthen the interests of economic powers of the North to the detriment of political powers of the South? Or does it serve to strengthen or impose the domestic rule of law in the host state of the investment?…”

EU Investors versus EU States: International Arbitration of Investment Disputes

“…Specifically, we follow Donaubauer and Nunnenkamp (2018) and account for the respondent state's 33 In a similar vein, Schultz andDupont (2014, p. 1157) argue that 'we only know whether a given case was won and by whom', whereas 'we are ignorant of the benchmark of rightful winners and departures from the benchmark'. These limitations notwithstanding, Schultz and Dupont (2014) regard (descriptive and econometric) examinations of ISDS outcomes to be useful. 34 To show that our findings do not depend on the (simple) logit estimator, we additionally report results based on probit and corrected logit (see below for details).…”

Towards a New Heuristic Model: Investment Arbitration as a Political System

“…Since then, however, this is no longer a representative use of the system by investors. Instead, they appear to use it in order to vindicate their rights without much further qualification, 112 although dysfunctional rule of law institutions in the host states still constitute a political risk that increases the likelihood that there will be an arbitration claim. 113 Perhaps surprisingly, and in contradiction to what Beth Simmons has found, 114 it seems that not even the materialisation of economic political risk -economic crises or hardship in the host statecharacterises the situations in which investors file investment arbitration claims, as both our previous research 115 and our contribution to this Special Issue suggest.…”