Investor-state Dispute Research Articles

Investment treaty reforms to prevent developing country regulatory chill from causing global warming

Developing countries have more than 1300 investment treaties with developed countries. Investment treaties are often alleged to constrain developing countries' climate policies. This paper examines four treaty reforms that are often suggested as remedies to such regulatory chill. It considers an investment treaty that protects a stranded developed country investment in a developing country. The reforms are compared with regard to whether they can induce the developing country to regulate the investment, and their political attractiveness. The reforms are shown to have features that seem to have gone unnoticed in the debate. Exclusion of investor-state dispute settlement (ISDS) may be ineffective due to a hold-up problem, and if effective requires unlawful regulation by the host country. A shortening of a sunset period applicable to unilateral withdrawal can postpone regulation. A reduction in the amount of stipulated compensation can induce the developing country to phase out the stranded investment, but will require a compensation payment from the developing country to the developed country investor. The reform with best potential to address stranded investment problems appears to be an increase in a carve-out from the compensation requirement for measures with sufficiently positive climate effect.

Identifying Problems of International Investment Law (IIL) and Evaluating the Focus of Reform Initiatives

The normative structure of international investment law is highly asymmetrical. Generally, current IIAs grant investors significant substantive and procedural rights, while States and affected communities often lack equivalent safeguard. In recent years, scholars have critcised and identified many problems including human rights concerns ingrained in the international investment law framework. The States and other stakeholders also raised many concerns regarding international investment agreements and investor-State dispute settlement. Moreover, there’s agreement on the need for comprehensive reform of IIL to make ISDS effective. Yet, issues with ISDS go beyond systemic flaws, also entrenched in substantive deficiencies in existing IIAs. Furthermore, the current legitimacy crisis provides a unique chance to amend the international IIAs comprehensively. However, the WGIII and ICSID reform initiative primarily focuses on procedural aspects of ISDS, avoiding substantive issues raised by various stakeholders. While procedural reforms are essential, resolving substantive issues is equally necessary.

Unpacking Legitimacy Perceptions of Investment Dispute Settlement: Effects of Outcome and Procedure

Abstract How do citizens perceive different avenues for resolving investor–state disputes in case of an unfavorable decision? In this article, I argue that the interplay between procedure- and outcome-related considerations influences citizens’ legitimacy beliefs toward investor-state dispute settlement (ISDS) systems. First, an unfavorable ISDS ruling should decrease public legitimacy beliefs in the country that got sued. Second, the type of dispute settlement mechanism should influence legitimacy beliefs, leading to different assessments of the legal proceedings. I fielded a survey experiment in France, Germany, and the United States to test these theoretical expectations. The findings confirm that an unfavorable ISDS ruling has a strong negative effect on public perceptions of the legal proceeding, but further show that appropriate design choices can boost public legitimacy beliefs. These results have important implications for the debate about ISDS reform and the scholarship on legitimacy in global governance. The impact of unfavorable decisions on public legitimacy beliefs has been widely overlooked.

Sustainable Development as a Wicked Problem in Investment Arbitration

Abstract References to ‘sustainable development’ and ‘sustainability’ can be found in decisions of investment arbitration tribunals and submissions from disputing parties. By relying on the concept of ‘wicked problem’, this article highlights the failure to articulate any clear relevance of sustainable development in the adjudication of investment disputes and structural limitations imposed by investor-State dispute settlement (ISDS). It proceeds in four steps. First, the article defines wicked problems and their distinguishing properties. Second, it shows how tribunals have used sustainable development in a way that evidences these distinguishing properties. Third, in light of submissions from respondent States and claimants, the article shows that ISDS imposes structural limitations on narratives that relate to sustainability and sustainable development. Finally, it examines the discussions on sustainability under the umbrella of the United Nations Commission on International Trade Law Working Group III and stresses the need for a political resolution outside ISDS proceedings.

Challenges of Mediating Investor-State Disputes

Abstract Mediation has gained a lot of traction in the context of ISDS in the past few years. There are many who truly believe that this could be an alternative to highly costly and lengthy investor-State arbitrations and litigations. States have started to include mediation in their investment treaties; institutions have designed separate mediation rules and procedures specifically for investor-State disputes. The 2022 International Dispute Resolution Survey from the Singapore International Dispute Resolution Academy (SIDRA) is a testament to this positive trend towards investor-State mediation. In the 2022 SIDRA Survey, the respondents signal increased acceptance of mediation in ISDS. Despite these trends, the use of mediation in investor-State disputes appears to be very limited. During the 2022 SIDRA Survey qualitative interviews, the SIDRA tried to enquire about the users’ perspective on the Survey results on mediation and the prospect of the use of mediation for investor-State matters. This article examines the challenges of using mediation in ISDS to propose possible solutions to overcome these challenges. Section II presents the 2022 SIDRA Survey results. Section III outlines and examines user insights collected during qualitative interviews. Section IV proposes possible measures to eliminate the obstacles hindering the use of mediation by States. Section V draws final conclusions.

Clive Palmer’s claims against Australia for billions renew pressure to remove investor rights to sue governments from trade agreements

AbstractThe Australian debate over Investor-State Dispute Settlement (ISDS) sharpened in 2023 because Australian mining billionaire Clive Palmer, having previously registered his mining company in Singapore, has claimed to be a Singaporean investor. He is using ISDS provisions in the 2012 ASEAN-Australia-New Zealand Free Trade Agreement and the amended 2017 Singapore-Australia Free Trade Agreement to sue the Australian government for a total of A$410 billion in three separate claims. This article uses Cox’s critical theory framework developed by Schneiderman to explain the historical development and power dynamics of ISDS, the contest between its business supporters and social movement critics, and the impact of this contest on governments. It then analyses the Palmer claims and explores the global debate about ISDS, including its increased use by fossil fuel companies against government regulation of carbon emissions, which has led to increased resistance from social movements and governments. ISDS is also being reviewed by the United Nations and World Bank institutions which provide arbitrators for its tribunals and by the Organisation for Economic Co-operation and Development. The conclusion assesses the debate over whether ISDS can be reformed and its future viability.

The (Political) Economics of Bilateral Investment Treaties—The Unique Trajectory of Brazil

Brazil, after signing several traditional Bilateral Investment Treaties without ratifying them, recently shifted towards a different type of bilateral investment agreement, i.e., Investment Cooperation and Facilitation Agreements. Two claims have been made in the literature regarding the transition from traditional Bilateral Investment Treaties to Investment Cooperation and Facilitation Agreements—Claim #1: The non-ratification of the traditional BITs has not harmed Foreign Direct Investment into Brazil, a claim which puts into question the purpose of Bilateral Investment Treaties. Claim #2: While Investment Cooperation and Facilitation Agreements avoid some of the problems of traditional Bilateral Investment Treaties, on balance they are less effective than traditional Bilateral Investment Treaties would have been. We examine the two claims from an empirical economic point of view. We build on the literature about Brazil’s position vis-à-vis Bilateral Investment Treaties, which must be viewed by an amalgamation of (i) a historical legacy; (ii) domestic initiatives, and (iii) a particular U-turn in the political debate. Using empirical evidence on Foreign Direct Investment effects of Bilateral Investment Treaties, the following conclusions emerge: With regard to claim #1, empirical evidence in general as well as specific to Brazil suggests that Brazil has forgone Foreign Direct Investment by not ratifying traditional Bilateral Investment Treaties. Concerning claim #2, while Investment Cooperation and Facilitation Agreements include alternative dispute settlement mechanisms, which aim at a better compliance of states with the Investment Cooperation and Facilitation Agreements’ rules, rather than the compensation of foreign investors, the lower stringency of the State–State dispute settlement mechanism compared to Investor–State dispute settlement mechanism makes Investment Cooperation and Facilitation Agreements less effective. Yet, this weakening effect must be weighed against the effects on Foreign Direct Investment from innovative clauses in Investment Cooperation and Facilitation Agreements, which are absent in many traditional Bilateral Investment Treaties.

Discourses of ISDS reform: a comparison of UNCITRAL Working Group III and ICSID processes

Abstract The reform of investor-state dispute settlement (ISDS) has been tackled by the International Centre for Settlement of Investment Disputes (ICSID) and United Nations Commission on International Trade Law (UNCITRAL) Working Group (WG) III. Despite different objectives, both processes have relied on written submissions from various stakeholders. What are the structures and the narratives underlying the discourses of ISDS reform in these organizations? This article explores the content of 172 submissions by using mixed methods. It demonstrates that UNCITRAL WG III has involved less structured submissions whose content has expanded the initial mandate, with narratives encapsulating deeper disagreement among participants. By contrast, ICSID operated through a common pattern across submissions and a stronger focus on procedural issues, with less disagreement revealed in its narratives. The article proceeds in three steps. First, it compares the structure of discourses for each reform process by aggregating the content of submissions through computational analysis. Second, it relies on critical discourse analysis to reveal narratives that have emerged in each process. Lastly, the article explores submissions from actors who have participated in both processes to illustrate how they have navigated the tension between structures and narratives when reforming international investment arbitration.

Contextual Impartiality: A New Approach to Assessing Impartiality in Investor-State Dispute Settlement

Abstract This article proposes a new approach to assessing impartiality in investor-State dispute settlement (ISDS). It builds on earlier work that criticises the current doctrine of impartiality in ISDS which applies irrespective of the role and context in which arbitrators are called to decide a dispute. Drawing on empirical findings, moral philosophy and psychology, this article proposes the idea of contextual impartiality. As is argued, a contextual approach offers an understanding of impartiality which better corresponds to the foundational value of trust in ISDS which is founded on the method of party appointment of arbitrators. Under this approach, the question is not whether an arbitrator can meet universal standards of impartiality irrespective of the context within which the arbitrator operates. Rather, the critical distinction is between permissible and impermissible partiality which depends on whether the individual is reasonably expected to act partially because of their circumstances. In this respect, the article identifies open-mindedness as a fundamental feature of a contextual approach to impartiality and a bright line between permissible and impermissible partiality.

Assessing public health implications of free trade agreements: The comprehensive and progressive Trans‐Pacific Partnership Agreement

AbstractIn 2016, the United Kingdom voted to exit the European Union, which was surrounded by political and social uncertainty. The United Kingdom now negotiates its own trade agreements, and in March 2023, it agreed to join the Comprehensive and Progressive Trans‐Pacific Partnership Agreement (CPTPP). A health impact assessment (HIA) was undertaken in 2022–23 to predict the potential impact of the CPTPP on the health and well‐being of the Welsh Population. This paper explores the HIA findings and highlights the value of the approach in engaging with stakeholders and informing policymakers. This HIA followed a standard five‐step approach which involved a literature review to identify potential health impacts, qualitative interviews with cross‐sectoral stakeholders and the development of a community health profile. The HIA identified potential impacts across the wider determinants of health and specific vulnerable population groups. Investor state dispute settlement mechanisms, economic uncertainty and loss of regulatory policy space were identified as key pathways for health impacts. The findings have been beneficial in informing decision‐makers to prepare for the CPTPP in Wales using an evidence‐informed approach. This work has demonstrated the value of a HIA approach that uses a transparent process to mobilise a wide range of evidence, resulting in transferrable learning.

The Reform of International Investment Law: Whose Rule of Law?

Abstract Public and political controversies over Investor–State Dispute Settlement (ISDS) have prompted reform processes in international investment law, at bilateral, regional and multilateral levels, with different actors shaping the future of international investment governance. In its essence, the options for the ISDS reform reflect the diverging perspectives on the rule of law in international law. Ultimately, they present a choice about who should control power over States’ action in issues of public importance – the States who have created the system, or international investment tribunals who have shaped the legal development of the system. This paper considers the application of the rule of law as a normative meta-principle to international investment law and its dispute settlement, and it sheds light on different perspectives of this concept, as they shape the ongoing ISDS reform(s).

The Danger of the Interpretation of Facts: Legal Uncertainty in the Spanish Saga Cases

Enhancing legal certainty is one of the main values that are sought in the investor–state dispute settlement system. The importance of legal certainty is strengthened in the case of renewable energy investments, which are in the global public interest, long-term and capital-intensive up-front. The first part of the paper presents the importance of legal certainty in investment arbitration in general, its limits and its importance in the context of the green energy transition. In addition, it addresses the special features of renewable energy investments. The second part of the paper analyses from the perspective of legal certainty the Spanish renewable energy cases initiated under the Energy Charter Treaty (ECT), which deal with similar factual and legal issues. In this respect, the paper presents the varying weight tribunals gave to the important facts that led them further to conclude whether Spain breached the fair and equitable treatment standard, and if so, whether the investor was entitled to full compensation or a reasonable rate of return. In addition, it presents different approaches to perceiving the stability provision of Article 10 (1) of the ECT. The paper concludes that it remains uncertain to what extent RE investors will be protected under the ECT’s stability condition in the case of fundamental or small-scale changes. Although one group of arbitrators may argue that the fundamental change triggers per se a breach of a stability condition, others may argue that for the breach to be established, the host state’s measures must be arbitrary, unreasonable or discriminatory. Moreover, the threat to legal certainty might not only be the vague provisions of the ECT but also the significant discretion tribunals have towards the interpretation of facts, leading to different outcomes. Indeed, it is at the discretion of arbitrators to consider whether the timing of investment, presence of evidence indicating possible regulatory changes, and the reasonable rate of return prescribed in Spain’s domestic law will be relevant or irrelevant.

Reconciling International Climate Law and the Energy Charter Treaty through the Use of Integrative Interpretation in Arbitration

The conflicting objectives of the Energy Charter Treaty’s (ECT) protection of fossil fuel investments and climate change mitigation can reveal themselves in investor state dispute settlement (ISDS). As neither the modernization nor the termination of the ECT is likely, ECT arbitration will continue to exist. This article, therefore, examines the reconciling potential of integrative interpretation in climate relevant ECT arbitrations. An integrative interpretation is not only prescribed by the international rules of treaty interpretation, but can also be found in the practice of international dispute settlement. However, international climate law has not yet been taken into account by a single ECT tribunal. Although some hurdles and uncertainties remain in practice, examples of extraneous treaty use, as well as the reasoning of the judgments of recent climate litigation, show that ECT ISDS has the potential to reconcile climate change and energy investment interests in the future.

Enforcement of Multilateral Trade Regulation by Non-State Actors – Desirable and Feasible?

Abstract Since its inception, the inter-state dispute settlement system of the World Trade Organisation has generally been praised for effectively protecting the rule of law in international trade relations. While the relatively recent dismantling of this system does not necessarily mean the end of the WTO nor of the binding nature of its rules, the current crisis may be a good opportunity to reconsider the role of the rule of law in international trade relations and the ways in which it could further be accommodated. One suggestion, occasionally raised in the past, would be strengthening the enforcement of WTO rules by opening it to private action, either before national courts or through international adjudication. After all, the latter has been widely available to foreign investors covered by thousands of international investment agreements in force for decades. This contribution recalls the reasons behind the current lack of private enforcement of WTO law and argues that developments in international trade relations and experiences with investor-state dispute settlement are likely to work against rather than in favor of its introduction in the foreseeable future. Increased transparency and institutionalisation of non-state actors’ role in trade enforcement is therefore recommended instead.

Involvement of National Courts in the Recognition of Investor-state Dispute Settlement Awards--A Comparative Analysis of ICSID and UNCITRAL

Involvement of National Courts in the Recognition of Investor-state Dispute Settlement Awards--A Comparative Analysis of ICSID and UNCITRAL

EU resilience in investment protection: a case for revisiting and reinforcing the loyalty principle in EU external relations

Abstract This article explores the concept of European Union (EU) resilience in the area of investment protection and Investor–State dispute settlement. The article adopts a functional approach to investment protection and suggests that reforming dispute settlement procedures in line with current Commission initiatives is key to promoting open strategic autonomy for the EU. Support for those initiatives is however weak, also among EU Member States. It is argued that EU resilience requires new tools for more unity and coherence in external EU action, both generally and for the reform of Investor–State dispute settlement in particular. The tool devised here is an increased loyalty standard coupled with a justification test, based on both a modernized comprehensive reading of loyalty obligations in primary law and the effectiveness principle and rationale as applied in case law. The novel approach promises significantly better results in terms of commanding coherence in external action while fully respecting the principle of conferred powers. It challenges traditional power dynamics, but incorporates a bold vision for external EU action that is truly autonomous and assertive.

Article: The 2019 BLEU Model BIT: BLEU’s Vision of the Future of Investment Protection

This article compares the 2019 BLEU model bilateral investment treaty with the older 2002 version. After an overview of the BLEU’s role as a major actor in international investment law, the authors argue that the changes introduced by the 2019 Model BIT reflect the EU’s policy towards foreign investment protection. The drafters of the 2019 Model BIT were inspired by the EU-Canada Comprehensive Economic and trade Agreement and the European Commission’s proposal to establish a Multilateral Investment Court. The 2019 Model BIT marks a shift from liberalization of foreign direct investment (FDI) to the protection of the sovereign powers, in particular the State’s right to regulate, and the curtailing of investment protection presented as a response to the investment protection system’s misuse and abuse by investors. By placing certain limitations to substantive standards of protection, placing strong emphasis of sustainable development objectives and advocating a reform of the investor-State dispute settlement (ISDS), the 2019 BLEU Model BIT puts forward a vision for the future of investment protection that departs from the Washington Consensus of economic liberalization but also enables the investment protection system to survive in the face of the so-called backlash against ISDS and the criticism of civil society.

Article: The FET Standard between Treaty Reform and ISDS Practice: An Analysis of the Modernized ECT

The Modernization of the Energy Charter Treaty (ECT) counts as a prominent attempt to better incorporate climate change considerations into an investment treaty that is highly impactful from a climate change perspective. Among other initiatives, reform efforts in the ECT Modernization have led to amendments of key standards of treatment providing the substantive legal basis for claims by foreign investors. Focusing on the Fair and Equitable Treatment (FET) standard, this article contrasts the new treaty provision under Article 10 of the ‘modernized’ ECT with consolidated interpretations of the FET standard in previous arbitral practice. Building on such a jurisprudential analysis, this article evaluates the extent to which reformed standards of investment protection in the Modernized ECT can lead to an increased likelihood of climate-aligned outcomes in investor-State disputes, thereby providing an analytical assessment as to the potential of the newly introduced ECT provisions on FET – which may also serve as benchmark for further reforms of international investment agreements (IIAs) – to expand regulatory space for host States and support the adoption of more stringent climate policies. Fair and Equitable Treatment, Energy Charter Treaty, Modernization, Investor-State Dispute Settlement, Climate Change, Regulatory Space, Investment Arbitration, Fossil Fuels, Legitimate Expectations, Treaty Reform

Article: Sorting the Building Blocks of Investor-State Dispute Settlement Reform: Recent Developments from the UNCITRAL Working Group III

The United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII), as the main forum the reform of investor-state dispute settlement (ISDS), continues to deliberate an ambitious agenda of reform areas of high priority. Recently, the WG marked an important milestone with the adoption of the first reform instruments on the conduct of adjudicators and investment mediation. Nevertheless, the most challenging ‘building blocks’ of reform remain to be addressed, including the systemic reform proposal for a standing mechanism, which would transform the landscape of ISDS as we know it. This chapter first captures the progress of the WGIII as it stands today, focusing in particular on the first reform instruments – the Codes of Conduct for Arbitrators and Judges in International Investment Dispute Resolution, the UNCITRAL Notes on Mediation, and UNCITRAL Guidelines for Mediation in Investment Disputes. Then, it outlines the issues that remain on the agenda of the WGIII, in particular the standing investment court, appellate mechanism, the Advisory Centre and other procedural and cross-cutting issues. The chapter concludes with reflections on the overall dynamics of the WGIII and the lessons learned thus far that could contribute to the effectiveness of the deliberations ahead.

Enhancing Investor-State Dispute Resolution: Suggestions to Optimize the Effectiveness of Cooling-Off Clauses in International Investment Agreement Negotiations

Abstract The cooling-off clause in international investment agreements, intended to foster amicable dispute resolution before arbitration, often causes varied tribunal interpretations and jurisdictional disputes due to its unclear drafting. This article aims to comprehensively explore the cooling-off clause, covering its definition, the beginning and ending points of the cooling-off period, function, and enforceability in investor-state dispute settlement practice. It also delves into two different approaches adopted by investment tribunals in case of non-compliance with the cooling-off clause. Drawing from this analysis, the article provides recommendations for Vietnam as a host state to ensure the effective application of this clause.