Investor State Dispute Settlement

Abstract

This paper scrutinises the Investor-State Dispute Settlement (ISDS) mechanism, which allows foreign investors to sue host governments for any regulations that might directly or indirectly affect private investments. It gives investors rights over hoststates -and local populations -in international arbitration tribunals. The focus of this article is a critical examination of how the ISDS institutionalises a framework of exceptionality that is characteristic of neoliberal capitalism; one that centres upon the institutionalisation of subjecting public regulation to the rationality of the market. We argue that this privatised quasi-legal arena is incompatible with the rule of law, human rights and socially emancipatory practices. What this reveals is that the political and economic dynamics that mobilise and shape international investment law are characterised by capitalist class relations. The article concludes with some reflections upon the marketization of public regulation through the ISDS, where profitability and cost-reduction are prioritised over human and environmental rights.

The unsustainable political economy of investor–state dispute settlement mechanisms1

“…Out of the 983 claims, almost 36% were decided in favour of the state, almost 30% were decided in favour of the investor and almost 22% were settled, while over 11% were discontinued and 2% were decided in favour of neither party (UNCTAD, 2019) (see Supplementary Online Figure 1, available at: https://journals.sagepub.com/home/ras). In the settled cases, it can be assumed that some sort of compensation has been paid; hence, the number of cases that benefit foreign investors is clearly in the majority (Ciocchini and Khoury, 2018).…”

“…Most ISDS arbitrators are commercial arbitrators, men, people from the upper reaches of the top 1% of incomes and individuals from the Global North (Gaukrodger, 2017;Klett, 2016;OECD, 2018). Hence, it has been argued 'that ISDS presents fundamental contradictions to the rule of law; it has a business bias and a lack of transparency and accountability in its arbitration procedures which is anything but impartial' (Ciocchini and Khoury, 2018).…”

“…ISDS must therefore be seen as a post-colonial mechanism institutionalising and continuing the asymmetrical global power relations developed in the colonial period (Ciocchini and Khoury, 2018;Friedan, 2006). This explains why ISDS cases brought against EU countries from about 2010 created great political consternation.…”

“…ISDS claims have been used not only to deter the termination of privatisations, but also: to challenge public health regulations, for example, as in Phillip Morris v Australia with regards to enacting tobacco packaging regulations that required a graphic health warning; to claim compensation for renewable energy policies, for example, in Spain, Italy and Germany; and to challenge changes in labour laws on wages, for example, as in Veolia v Egypt, where the French firm sued Egypt over an increase in its minimum wage (Klett, 2016), and the Italian mining investors who sued South Africa for compensation over its black empowerment policies introduced to redress some of the injustices of apartheid in South Africa (Burianski and Parise Kuhnle, 2018). The fact that ISDS mechanisms have enabled foreign investors to privately challenge the legislation, regulations and judicial or administrative rulings of host states has meant that international arbitration tribunals have created a 'regulatory chill', meaning the prevention of regulatory protections and policies for fear that an investor could take states to arbitration (Ciocchini and Khoury, 2018;Kynast, 2019). In the COVID-19 pandemic, companies could use ISDS to claim compensation from governments for measures taken to protect the country from COVID-19, regardless of national laws permitting such public interest policies (CEO, 2020).…”

“…To date, academic discussion around ISDS arbitrations, as well as the policy discussions of civil society organisations, have been quick to point to the power given by ISDS mechanisms to multinational corporations to weaken the state's capacity to protect the public interest (Ciocchini and Khoury, 2018;Eberhardt et al, 2018;Johnson et al, 2015). This is in line with a broader strand of critical scholarship that focuses on the power of elite agencies, overemphasises the coherence of neoliberalism and downplays the agency of those who resist its logic (Morton, 2007).…”