Intimidating Sovereigns

In this chapter, the impact of investor–state dispute settlement (ISDS) on countries is examined more closely. Examples are given of how governments have changed their decisions to favour investors under ISDS pressure. As knowledge of ISDS continues to grow, state institutions face more pressure to avoid offending those most able to finance claims. Predictably, governments have responded to ISDS by institutionalizing ‘regulatory chill’; that is, by reconfiguring the state apparatus to privilege the ultra-wealthy, creating immeasurable potential losses for those who do not own wealth abroad. It is now reasonable to expect that such chill happens in all countries exposed to ISDS claims by wealthy investors and having at least some institutional capacity to identify and manage the risks.

Special Access to Public Funds

In this chapter, it is explained how investor–state dispute settlement (ISDS) treaties give protections to investors that would be impossibly expensive to provide to all. This more favourable treatment bolsters the position of investors within the state by allowing them alone to invoke billion-dollar risks to threaten governments. Further, the arbitrators who decide whether to award compensation to an investor have an apparent financial interest in doing so, since they depend on investors for future claims and business. This pro-claimant incentive extends to lawyers, experts, and arbitration houses that play important roles in ISDS. Judicial oversight is limited or non-existent; indeed, courts themselves can be condemned by ISDS arbitrators, and compensation ordered, without further judicial review. Under many treaties, compensation can even be ordered in secrecy, thus hiding the implications of the treaties’ inequality.

Fortifying Inequality

In this chapter, foreign investor protections are introduced as a symbol and guarantor of global inequality. Backed by the most powerful adjudicative mechanism in international law, these protections benefit 255,000 people whose combined wealth exceeds that of 80 per cent of the world’s adult population, about four billion people. They lead one to ask if the one hundred companies responsible for most industrial greenhouse gas emissions, for example, are so vulnerable or helpful to others as to deserve extraordinary international protection. Commonplace arguments in favour of investor–state dispute settlement (ISDS) are surveyed and criticized. The promotional role of the ISDS industry of arbitrators, lawyers, and experts, for which ISDS has generated to billions in fees, is also highlighted, focusing on arbitrators whose pro-investor interpretations laid a foundation for the explosion of ISDS.

Fault Lines and the Future of ISDS

In this chapter, it is argued that removing foreign investor protections is a feasible and important step to re-invigorate the institutions needed to confront pressing concerns of humanity. By limiting government capacity to employ the policy levers recommended by scientists to protect society from climate-related damage, for example, investor–state dispute settlement (ISDS) hampers state action to confront a global emergency. Reform efforts in Europe, North America, and developing or transition countries are surveyed, and the deleterious role of the ISDS industry is revisited. Countries are encouraged to terminate their ISDS treaties to bolster their position in relation to ISDS reform. If ISDS continues to expand, however, a foreseeable outcome is that it will ultimately play a role in the collapse of society.

The Most Powerful Protections

In this chapter, it is elaborated how ISDS treaties give extraordinarily broad and powerful protections to foreign investors, but not to others, many of whom are far more vulnerable. The protections go well beyond those available for victims of torture, for example, who rely on relatively weak international safeguards to protect them from abuse by states and corporations alike. The treaties establish these protections without creating corresponding responsibilities for foreign investors. Often, they allow foreign investors to avoid courts and adjust their nationalities to access ISDS, while closing the ISDS process to all but the investor and the sued country’s government. For most people, the best hope for protection, even if a faint one, lies with the institutions of their own country, the very institutions that ISDS is used to intimidate and constrain.

Activation of the Treaties

In this chapter, it is shown how investor–state dispute settlement (ISDS) was activated in the 1990s through a series of pro-investor innovations, laying the foundation for hundreds of later claims. Enterprising lawyers saw the potential of the treaties, if interpreted liberally. Some lawyers became the arbitrators who quietly handed a string of victories to claimants, just as hundreds of new ISDS treaties were being signed by governments. Since the rush of treaties began to ebb around 1996, investors have brought nearly 1,000 claims, compared to four claims before that year. Thus, the 1990s were an incubation period for ISDS; one might also call it the product development phase of the ISDS industry.

Origins of ISDS Treaties

In this chapter, it is explained how investor–state dispute settlement (ISDS) treaties originate in the efforts of former colonial powers and international organizations, especially the World Bank, to constrain newly independent countries. The treaties grew slowly in the 1970s and 1980s and then very rapidly in the 1990s, setting the stage for today’s litigation boom. A new legal industry began to grow too, pursuing an opportunity, which arbitrators helped to create, to feed on the carcass of the pre-ISDS sovereign. In addition, institutions like the World Bank’s International Centre for Settlement of Investment Disputes, the Permanent Court of Arbitration, and the Stockholm Chamber of Commerce sought to attract the claims that brought business to the house.