Those promoting investor-state dispute settlement (ISDS) are running into a pretty serious public relations problem. ISDS is now the dominant mode for resolving disputes between foreign investors and host states. It is premised on handing authority over to tribunals composed of investment law experts to determine whether a violation of investment treaty terms has occurred and, if so, the quantum of damages that is owed. The system has given rise to worrying concerns not only in states in the global South but also in the global North.
European objections were made abundantly clear in European Commission consultations in 2014 concerning the inclusion of ISDS in a new trade and investment agreement with the United States (the Transatlantic Trade and Investment Partnership, or TTIP). When negotiations were suspended because of ISDS fears, the European Union heard from more than 150,000 online respondents who expressed worries about threats to democracy, chilling effects on policy innovation, and foreign investors’ ability “to circumvent domestic courts, laws or regulations.” These concerns are not imaginary. When NAFTA came into force in 1994, the Government of Canada abandoned, under threat of an investment dispute, an initiative that would have required plain packaging of tobacco products. This is the same proposal that precipitated recent investor threats against both Australia and Uruguay. Plain packaging has turned into such a flashpoint that it has been carved out of the Trans-Pacific Partnership Agreement. No other policy change is accorded this degree of solicitude.
Restoring legitimacy to ISDS was an ambitious task for the European Commission to take on. The proposed solution, in the context of TTIP negotiations, was a new “investment court” (so described in an EU concept paper) with a tribunal of first instance and another tribunal to hear appeals. Indications are that US negotiators are not happy with the initiative. Canada, by contrast, is now on its front lines. The Comprehensive Economic and Trade Agreement (CETA), between Canada and the European Union, includes this new arbitral mechanism, although it does not refer to the mechanism as a “court.” The parties, moreover, are committed to transforming the mechanism into a multilateral one by negotiating similar commitments with other states.
While this might look like a welcome improvement, the arbitral mechanism in CETA amounts to so modest a change that it is unlikely to make much difference to arbitral outcomes. The personnel eligible for appointment to the new arbitral mechanism, after all, are no different from those already steering ISDS in problematic directions. Members of the tribunal of first instance are expected to have “demonstrated expertise” in international investment law. They shall be on monthly paid retainers for single five-year periods, renewable once, and are paid the usual rate when hearing disputes as members of sitting tribunals. Arbitrators will continue to remain dependent upon investors — and only those with sufficiently deep pockets — to finance litigation against states. These reforms do little, then, to remove the financial incentives tribunal members already have to read treaty standards expansively so as to ensure future employment. Moreover, with terms of up to 10 years, an elite corps of investment lawyers will control outcomes for lengthy periods of time.
The appellate tribunal also will be staffed with investment law experts. Only limited grounds are available to an appellate tribunal to modify or reverse a tribunal’s award. The grounds modestly expand on those already available for annulment under the International Centre for Settlement of Investment Disputes (ICSID) Convention.
There are, admittedly, some advantages to the new model. CETA imposes minimal ethical obligations on arbitrators, who now must avoid conflicts of interest and refrain from acting as legal counsel, expert or witness in other disputes. This should prevent some of the recurring conflicts of interest that continue to dog ISDS. An appellate body may also produce more consistency in treaty interpretation and, possibly, in outcomes.
The most serious deficiency with the new CETA tribunal system is that it does not remedy the principal defects of ISDS. These concern not only the personnel that enforce treaty standards, but the standards themselves. The treaty disciplines enforced by this cadre of investment lawyers remain mostly intact. This is because CETA’s investment chapter looks like almost every other investment treaty. It sets exceedingly high standards for the protection of foreign investors. To take but one example from among many, government measures that have the effect of significantly curbing returns on investment can amount to a denial of “fair and equitable treatment” if there is lack of “due process” or the presence of “manifest arbitrariness.” These are hardly precise or knowable standards. It is somewhat amusing that investors insist upon transparency and certainty in their relations with host states, yet these are entirely lacking for states and the citizens they represent.
A clause reaffirming the “right to regulate” in order “to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals” is meant to curb overreaching by arbitrators. It is unlikely to generate, however, any meaningful constraint on the power of investment lawyers and tribunals. That is because the regime of investor rights confers on this elite corps of lawyers — experts in international investment law, as required by CETA’s text — enormous discretion. As the regime’s enforcers, arbitrators have immense room to maneuver in determining whether governments have run afoul of treaty obligations. This is why a right to regulate is unlikely to restrain arbitral activism.
The ISDS system, it is said, is experiencing a crisis of legitimacy. If not a crisis, it surely has a public relations problem. In either case, the so-called investment court does not remedy its principal defects. We can anticipate the system to continue to generate anxiety, periodic crises and further proposals for reform. ISDS, from this perspective, can hardly be described as a system representing a stable global consensus, enforcing universal standards of protection. It is more like a wobbly house of cards.
 See United Nations Conference on Trade and Development, World Investment Report 2015: Reforming International Investment Governance (New York and Geneva: United Nations Conference on Trade and Development, 2015), c 4.
 EC, Commission Staff Working Document, Report: Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement, SWD, 2015, 3 final at 14, online at <http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf>.
 See David Schneiderman, Constitutionalizing Economic Globalization: Investment Rules and Democracy’s Promise (Cambridge: Cambridge University Press, 2008) at 120–29.
 EC, Commission, Concept Paper: Investment in TTIP and beyond: The Path for Reform (2015) at 11, online: <http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF>.