Investor-State Dispute Settlement in US Law, Politics and Practice: The Debate Continues

Investor-State Arbitration Series, Paper No. 9

August 30, 2016

The United States has more than 45 bilateral investment treaties (BITs) that include investor-state dispute settlement, but prior to the Trans-Pacific Partnership (TPP), only two partners to these agreements, Canada and Singapore, have been developed countries. The debate over the advisability of including ISDS continues, even though the North American Free Trade Agreement (NAFTA) ushered in an era of transparency in BITs and investment chapters. It is also considerably more difficult for foreign investors (American or otherwise) to successfully challenge as regulatory takings non-discriminatory government actions designed to further environmental goals or protect public welfare. In the United States, the opponents of ISDS — organized labour, environmental groups and other non-governmental organizations (NGOs), and some (mostly Democratic Party) members of Congress — have offered many of the same objections for decades. They attack ISDS as, inter alia, providing foreign investors with greater rights than US nationals in US courts; allowing public policy decisions to be made by unelected arbitrators; permitting secret proceedings; encouraging US enterprises to move production and jobs abroad, thereby causing US job losses and favouring enterprises over people; and “chilling” normal government regulation, by the US states in particular. (Many of them are opposed to trade agreements — any trade agreements — in general.)

Because of the substantial risk that if ISDS were to be abandoned governments would again be subject to strong political pressures to formally or informally espouse investor claims and make such claims the key factor in their foreign relations with the host countries, and to further US objectives to secure broad recognition of host states’ obligations to treat foreign investment in accordance with US views of customary international law, presidents Ronald Reagan, George H. W. Bush, Bill Clinton, George W. Bush and Barack Obama have all supported ISDS. Negotiating objectives in the United States’ June 2015 Trade Promotion Authority (TPA) and the content of the TPP investment chapter reflect the latest stages in this post-NAFTA evolution, including the provision of a higher level of host government regulatory flexibility. Various related factors, including dozens of NAFTA investment claims against the three NAFTA parties, have supported this result. The creation of an ISDS mechanism as a means of relieving the US government from undertaking directly the settlement of investment disputes involving its citizens, and the evolution of US investment protection provisions into a process that is significantly more friendly to host governments and to regulation, are the principal themes of this paper.

Part of Series

Investor-State Arbitration

Launched in November 2014, this project addresses a central policy issue of contemporary international investment protection law: is investor-state arbitration (ISA) suitable between developed liberal democratic countries? The project reviews legal and policy reactions to ISAs taking place within these countries and summarizes the substantive grounds upon which claims are being made and their impact on public policy making by governments. The project reviews, critically assesses and critiques arguments made in favour and against the growing use of ISA between developed democracies — paying particular attention to Canada, the European Union, Japan, South Korea, the United States and Australia, where civil society groups and academic critics have come out against ISA.

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