Winning and Losing in Investor–State Dispute Settlement

• Date: 01 March 2019
• DOI: http://doi.org/10.1111/ablj.12136
• Published date: 01 March 2019
• Author: Tim R Samples

American Business Law Journal

Volume 56, Issue 1, 115–175, Spring 2019

Winning and Losing in Investor–

State Dispute Settlement

Tim R Samples*

As tensions between investors’ rights and sovereign power escalate, investor–state

dispute settlement (ISDS) has become a focal point of backlash and controversy. As

a result, ISDS now embodies two opposing currents in international law: (1) the

erosion of sovereignty that accompanied economic globalization, trade frameworks,

and investment treaties following the Second World War and (2) more recently,

reassertions of sovereignty prompted by recent backlashes against the global eco-

nomic order. This article measures and evaluates outcomes of the ISDS system for

sovereign participants. Using the best available data, this article contributes more

detailed assessments of sovereign winners (home states of claimants) and sovereign

losers (respondent states) in the ISDS system. This article also considers the distri-

bution and the proportional impact of outcomes for sovereign participants, both of

which are fundamental in the legitimacy debates surrounding the ISDS system.

INTRODUCTION

New stresses have raised serious doubts about the status quo of the inter-

national legal system.

1

Perhaps not since the Second World War has the

*Assistant Professor of Legal Studies, Terry College of Business, University of Georgia. Spe-

cial thanks to Sebastian Puerta and Andrew Teal for their invaluable research assistance.

Additional thanks to Marı

´a Agostina Schell, Rachel Wellhausen, Juan Jose

´Cruces, Stephen

Park, as well as colleagues, friends, and family, for their comments and encouragement. I

am also grateful for comments and suggestions received from presentations at the Kelley

School of Business at Indiana University and the Facultad de Derecho (Law School) at la

Universidad de Buenos Aires. I also appreciate support from a Terry-Sanford Award as well

as a 2017-18 Core Fulbright U.S. Scholar Award, both of which greatly facilitated this

research.

1

See,e.g., Harlan G. Cohen, Multilateralism’s Life Cycle, 112 AM.J.INT’LL. 47, 47 (2018).

©2019 The Author

American Business Law Journal ©2019 Academy of Legal Studies in Business

115

global economic order faced such existential questions.

2

Important multi-

lateral frameworks are collapsing or under pressure: the European Union

after Brexit and the uncertain future of the North American Free Trade

Agreement (NAFTA) are just two examples.

3

Behemoth trade deals such

as the Trans-Pacific Partnership (TPP) and the Transatlantic Tradeand the

Investment Partnership (T-TIP) are either dead or on life support.

4

Since

China’s accession to the World Trade Organization (WTO) in 2001, inter-

national trade liberalization has stalled.

5

Now it may be in reverse.

6

While

drawing conclusions about the new shape of the international landscape is

a difficult task, there are increasingly observable trends that cast doubts on

the trajectory and future of the modern global order.

7

Over time, investor–state dispute settlement (ISDS) has embodied two

opposing currents in international law: (1) the erosion of sovereignty that

accompanied economic globalization, trade frameworks, and investment

treaties following the Second World War

8

and (2) more recently, the reasser-

tion of sovereignty prompted by backlash against the global economic order.

9

ISDS has gone from a specialized, almost obscure area of international law to

an inflammatory “blogosphere term” in less than two decades.

10

As a sign of

2

See The Rules-Based System Is in Grave Danger,ECONOMIST (Mar. 8, 2018), https://www.

economist.com/news/leaders/21738362-donald-trumps-tariffs-steel-and-aluminium-would-

be-just-start-rules-based-system (“Not since its inception at the end of the second world war

has the global trading system faced such danger.”) [hereinafter Grave Danger].

3

See generally Robin Niblett, Liberalism in Retreat,FOREIGN AFFAIRS (Jan./Feb. 2017).

4

See Vera Korzun, The Right to Regulate in Investor–State Arbitration: Slicing and Dicing Regula-

tory Carve-Outs,50V

AND.J.TRANSNAT’LL. 355, 357 (2017) (discussing the TPP in the context

of ISDS backlash).

5

See Martin Wolf, Davos 2018: The Liberal International Order Is Sick,FIN.TIMES (Jan.

23, 2018), https://www.ft.com/content/c45acec8-fd35-11e7-9b32-d7d59aace167 (last visited

Apr. 25, 2018).

6

See Grave Danger,supra note 2.

7

See Cohen, supra note 1, at 48.

8

See Jeswald W. Salacuse & Nicholas P. Sullivan, Do BITs Really Work?: An Evaluation of Bilat-

eral Investment Treaties and Their Grand Bargain,46H

ARV.INT’LL.J. 67, 77 (2005) (addressing

the sovereignty tradeoffs for states that sign investment treaties).

9

See supra notes 1–6 and accompanying text.

10

Gary C. Hufbauer, ISDS Controversy,TRADE &INVESTMENT POLICY WATCH—PETERSON INSTI-

TUTE FOR INTERNATIONAL ECONOMICS (May 13, 2015, 10:00 AM), https://piie.com/blogs/trade-

116 Vol. 56 / American Business Law Journal

the times, even popular media outlet Buzzfeed weighedinonISDSinan

extensive multipart special investigative report.

11

Often a component in

trade and investment treaties, ISDS provides investors with rights to bring

claims directly against sovereigns in arbitration.

12

ISDS frequently—and

controversially—pits sovereign powers to regulate against investors’ rights.

13

ISDS is a flashpoint issue in the broader backlash against the global

economic order.

14

Early on, opposition to ISDS was mostly limited to

antiglobalization and environmentalist movements.

15

But backlash

against ISDS has widened in recent years—ranging from high-profile

treaty withdrawals in Latin America to trade strategy recalibrations in

Australia, India, Indonesia, and South Africa.

16

Concerns over ISDS dog-

ged the TPP

17

and temporarily derailed trade negotiations between

Canada and the European Union.

18

Chapter 11, the investment chapter

investment-policy-watch/isds-controversy (“Thanks to the battle over the [TPP], ISDS has

now become a blogosphere term.”).

11

Secrets of a Global Secret Court,BUZZFEED, https://www.buzzfeed.com/globalsupercourt (link-

ing to several special reports about ISDS) (last visited Apr. 25, 2018).

12

See Salacuse & Sullivan, supra note 8, at 77.

13

Stephan W. Schill, Enhancing International Investment Law’s Legitimacy: Conceptual and Meth-

odological Foundations of a New Public Law Approach,52V

A.J.INT’LL. 57, 63–67 (2011)

(explaining controversies related to investment treaties); Guillermo Aguilar Alvarez & Wil-

liam W. Park, The New Face of Investment Arbitration: NAFTA Chapter 11,28Y

ALE J. INT’LL.

365, 399 (2003) (discussing tensions between investor rights and host state interests).

14

See,e.g., William Mauldin, Arbitration Provision Emerges as Flashpoint in NAFTA Overhaul,

WALL ST. J. (July 19, 2017), https://www.wsj.com/articles/arbitration-provision-emerges-as-

flashpoint-in-nafta-overhaul-1500408335.

15

See,e.g., Lucien J. Dhooge, The Revenge of the Trail Smelter: Environmental Regulation as

Expropriation Pursuant to the North American Free Trade Agreement,38A

M.BUS. L.J. 475, 479

(2001) (referencing environmental opposition to NAFTA investor–state proceedings).

16

See,e.g., Kavaljit Singh & Burghard Ilge, Opinion, India Overhauls Its Investment Treaty

Regime,F

IN.TIMES:BEYONDBRICS (July 15, 2016) (describing India’s recalibration of treaty

practices in response to ISDS concerns). For a broader discussion of actions taken by sover-

eigns to limit ISDS risks, see infra Part I.E.

17

See,e.g., Elizabeth Warren, Opinion, The Trans-Pacific Partnership Clause Everyone Should

Oppose,W

ASH.POST (Feb. 25, 2015), https://www.washingtonpost.com/opinions/kill-the-

dispute-settlement-language-in-the-trans-pacific-partnership/2015/02/25/ec7705a2-bd1e-

11e4-b274-e5209a3bc9a9_story.html.

18

Jessica Murphy, Why the Canada-EU Trade Saga Is Far from Over, BBC NEWS (Nov. 3, 2016),

http://www.bbc.com/news/world-us-canada-37826855 (reporting on how ISDS became a

stumbling block in trade negotiations).

2019 / Winning and Losing in ISDS 117