ISDS in Action

The legal imagination framing ISDS practice is closely related to how arbitrators connect storytelling with the interpretation of investment treaties and other relevant laws. This chapter examines several influential awards, placing the facts of each dispute within the broader social and political context of the investment, the conflict, and the economic sector. The analysis highlights how arbitrators think of foreign investment relations, and the extent to which they focus on, or silence, issues of distribution, recognition, and embeddedness. The cases are discussed chronologically in order to identify what has changed—and what has not—in arbitrators’ reasoning. Cases covered in this chapter include Santa Elena v. Costa Rica, Metalclad v. Mexico, TecMed v. Mexico, SD Myers v. Canada, Methanex v. USA, Glamis v. USA, Chemtura v. Canada, Occidental v. Ecuador 2, Philip Morris v. Uruguay, and Eli Lilly v. Canada.

Local Communities and ISDS

Foreign investors and states frequently cooperate to facilitate investment projects in the natural resource sector. National elites tend to be involved in these cases, acting like partners to the foreign investors, because they often benefit economically and have an interest in the continuation of extractivism. Meanwhile, local communities are in a weak position, with limited or no public support and few legal options. They may still resist a project, sometimes forcing the state to cancel it, yet cancellation may only be a pyrrhic victory. Foreign investors can rely on investment treaties and ISDS to interpret and enforce the political signals and givings granted by the host state. The cases analysed in this chapter show how ISDS tribunals overlook investor misconduct and the context of extractivist projects while making local communities invisible.

Introduction

The role of the business leaders, bankers, and lawyers who promoted investment treaties and ISDS in the post-World War II period remains controversial. The introductory chapter argues that these norm entrepreneurs and their professional associations created a legal imagination about foreign investment relations which remains alive and well in both international investment law and ISDS awards. Their contribution to the progressive development of the law consisted of ideas as much as practice, particularly the way in which they collated their ideas into a vision of foreign investment relations. The chapter introduces the main features of this legal imagination, including the relevance of certain interpretations of property and contracts. It claims that grasping this imagination calls for a transnational law method, and concludes with an overview of the book.

Givings and ISDS

Foreign investment is associated with efficiency, economic growth, and jobs. Investors emphasize the benefits of potential projects, but also ask for regulatory givings to ensure economic returns and to minimize their exposure to host-country risks. At times, international organizations have likewise highlighted both the benefits of foreign investment and the importance of incentives to attract new projects. If states were to implement these business-friendly regulations, investors might then come in, but many would count on investment treaties and ISDS to interpret and enforce sectoral regulation, representations, or specific commitments. Disputes related to the 2001 Argentine crisis and the Spanish solar energy industry show that in such circumstances, when a controversy leads to ISDS cases, arbitrators often put foreign investment relations within a transactional model, making regulatory reforms more difficult if projects fail, local expectations are disappointed, or circumstances drastically change.

Foreign Investor Rights and Investment Relations

Investment treaties and ISDS serve not just to resolve disputes between states and foreign investors. Through interpreting foreign investor rights, they also help structure foreign investment relations. This chapter leaves the norm entrepreneurs of the late 1950s and 1960 aside to develop an analytical framework for examining how the rights of foreign investors can contribute to defining their role in and relations with states and local communities. It examines the type of rights that make foreign investment projects, their purpose, and different ways of looking at the interface between these rights, states’ right to regulate, and local communities. A transnational and socio-legal approach to property and contracts informs the analysis. The remainder of the chapter focuses on the importance of ISDS for foreign investor rights, examining the normative and distributive implications of this dispute resolution mechanism.

Competing Imaginaries and the 1970s

The long 1970s was a difficult time for those promoting investment treaties and ISDS. OECD members had not adopted a multilateral convention, and the Global South was demanding a change in the rules of the game. The norm entrepreneurs’ self-confidence was decreasing. In this challenging context, the International Chamber of Commerce took the initiative and put forward a conception of foreign investor obligations consistent with investment treaties and ISDS. This move conceded little to the Global South: the best companions to strong foreign investor rights are weak or even voluntary investor obligations. For a while the outcome was uncertain, as different imaginations competed for the space of international investment law. This chapter examines some of these competitors, including the 1974 UN report on the impact of MNCs, the US position on the topic, and the 1974 UN Charter of Economic Rights and Duties of States.

The Rise of Investment Treaties and ISDS in the 1990s and Since

In the early 1980s, many countries had not signed investment treaties or joined the ICSID Convention. Neither was there any ISDS practice. This situation changed quickly, however, as the views of the norm entrepreneurs of the 1950s and 1960s became part of the global consensus on development thinking. In the 1990s, the World Bank and UNCTAD put themselves at the forefront of efforts to promote investment treaties and ISDS, a task for which they had the support of organizations such as the American Bar Association. The investment treaty network rapidly expanded, most states joined ICSID, and the first ISDS cases emerged. Some arbitrators acted as pioneers of a new legal field, while others wrote in celebration of the fact that the proposals of the 1960s had now become law. Crucially, they also resolved the disputes in the background of the legal imagination.

The Norm Entrepreneurs of the 1950s and 1960s

In the post-World War II period, business leaders, bankers, and their lawyers decided it was their time to write the rules of the global economy. They felt that the nationalization of the Anglo-Iranian Oil Company (in 1951) and of the Suez Canal (in 1956), together with increasing state economic intervention all around the world, warranted a call for action. They formed a coalition to enable and safeguard a world of free enterprise; promoting and protecting foreign private investment was a top priority. This chapter examines who these norm entrepreneurs were, their networks, and how they captured the space of international investment law to advance their world-making project. As individuals and through professional associations, they imagined quite detailed institutions and standards for this legal field. They discussed foreign investor rights, indirect expropriation, fair and equitable treatment, the internationalization of contracts, reliance, the inadequacy of local remedies, and the crucial role of international arbitration.

Conclusion

The final chapter summarizes how investment treaties and ISDS increase the calculability of foreign investors to the detriment of states and local communities, shaping foreign investment relations more generally. This outcome is the result of the standards included in investment treaties, as interpreted by ISDS tribunals, as much as the silencing of specific issues and actors in these arbitrations. For the legal imagination that dominates international investment law, the chapter shows, what is excluded is as important as what is protected. The book concludes by highlighting how current discussions about reforming investment treaties and ISDS are also embedded in this dominant imaginary. The lesson to be learned from the norm entrepreneurs of the 1950s and 1960s is that ideas alone are not enough to transform the rules governing the global economy.