Some critics suggest that investor-state arbitration (ISA) is unnecessary and should be left out of international investment agreements (IIAs) altogether. Others argue that it may be needed in IIAs between developed nations that are mostly capital exporters, on the one hand, and developing countries that require foreign capital to promote development, on the other, but that it is unwarranted in IIAs that developed countries enter into among themselves. They reason that developed countries have robust legal frameworks and institutions, including responsive judiciaries, that adequately protect private investment and, therefore, ISA can safely be omitted from such IIAs without any detriment to foreign investors or their investments.

This paper addresses some of the flaws in the arguments that have been advanced in support of this position, as well as some of its implications, especially the reaction that might be expected from developing countries if developed countries were to back away from ISA in their dealings with other developed nations but continue to demand its inclusion in their agreements with developing countries.


Part of Series

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.
  • Hugo Perezcano Díaz was the deputy director of International Economic Law at CIGI.