The Chilling Effect of International Investment Disputes: Limited Challenges to State Sovereignty

Abstract

Despite suggestions that international investment disputes impose a chilling effect on governments’ autonomy to set regulatory policies, we lack empirical confirmation of the phenomenon and what explains its heterogeneity across countries. Using a novel dataset of nine anti-smoking regulations in ninety-two countries from 1973 to 2016, I confirm the presence of the chilling effect, but also its boundaries. I show that countries have been significantly slower in implementing two anti-smoking policies formally challenged under investment law, while the adoption of seven undisputed regulations in this issue area continued unimpeded. Qualitative evidence from respondent and third-party governments confirm the policy-specificity of the chilling effect and show that both developed and developing countries were affected by the chill, albeit differently. By providing the first empirical confirmation of a regulatory chill and by defining its limited scope in one of the most high-profiled international investment disputes to date, my findings indicate that, even though multinational corporations can constrain state sovereignty, their effects are not necessarily expansive or indefinite.

Interpreters of International Economic Law: Corporations and Bureaucrats in Contest over Chile's Nutrition Label

“…We believe that our analytical and methodological approach can help scholars better understand the operation of international economic law well beyond the legal architecture of the WTO. For example, our approach could help to assess the popular argument that the proliferation of international investment treaties and the consequent rise of investor‐state‐dispute‐settlement (ISDS) has caused a “regulatory chill,” understood as “governments [failing] to regulate in the public interest in a timely and effective manner because of concerns about ISDS” (Tienhaara 2018: 232; see also Crosbie and Thomson 2018; Moehlecke 2020; Thow and McGrady 2013). In one potential case of regulatory chill, lawyers for the pharmaceutical corporation Novartis sent a series of letters to the Colombian government in 2016, asserting that the health ministry's administrative process for issuing compulsory licenses for the cancer drug Glivec was in violation of Colombia's fair and equitable treatment obligations in the Colombia‐Switzerland Bilateral Investment Treaty (Source 30).…”

Investment agreements and the fragmentation of firms across countries

“…Driven by the uncertainty over creating potential arbitration cases and the legal as well as economic costs of being the target of arbitration, governments have become reluctant to implement policies that might trigger arbitration (Wellhausen 2016). These effects are policy-specific and most pronounced for countries concerned about the threat of arbitration (Moehlicke 2019). Where firms negotiate with governments over the implementation of new policies in the shadow of potential arbitration, firms therefore gain new sources of leverage.…”

Do Investor–State Dispute Settlement Cases Influence Domestic Environmental Regulation? the Role of Respondent State Capacity

“…6 However, case costs are not the only costs associated with participation in the investment treaty regime. Being on the recipient end of ISDS cases has been found to negatively influence states' ability to attract foreign investment (Allee and Peinhardt 2011), and although ISDS tribunals can only award monetary remedies, the cost of facing ISDS cases may scare states away from passing further legislation -what has been labelled "regulatory chill" (Moehlecke 2020). It is unclear whether the Telekom Malaysia and Hamester cases influenced legislation in Ghana in any way, but there is evidence indicating that Ghanaian regulation has been influenced by threats of ISDS from foreign investors.…”

“…The existing literature, largely based on case studies and anecdotal evidence, holds that developing countries are most in risk of regulatory chill due to ISDS claims (Tienhaara 2011(Tienhaara , 2018Tobin 2018). However, with the exception of Moehlecke (2020), no studies have looked at the relationship between inwards ISDS cases and subsequent regulation in a systematic manner. We first present a typology of the different types of regulatory chill we might observe from ISDS.…”