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On April 10, 2015, Professor Andrea Bjorklund, McGill University Faculty of Law, moderated a lively panel discussing the role of Investor-State Dispute Settlement (“ISDS”), in particular in the context of the proposed Transatlantic Trade and Investment Partnership (“TTIP”), concerns about ISDS, and potential alternatives. The panelists were Mark Kantor, independent arbitrator, Georgetown University Law Center; Professor Ursula Kriebaum, University of Vienna; Simon Lester, Cato Institute; and Professor Jason Yackee, University of Wisconsin Law School.
Andrea Bjorklund kicked off the debate by asking whether the present system of international investment law is based on problems that arose decades ago. Simon Lester agreed that the emphasis appears to have shifted from expropriation to the fair and equitable treatment standard, whose broad scope needed to be better defined, perhaps on the basis of a catalogue of problems. Mark Kantor replied that sufficient data was available, in particular given the trend toward publishing awards. Ursula Kriebaum agreed and also referred to the large number of cases before the European Court of Human Rights involving the protection of property rights. With respect to the US-EU relationship, however, Jason Yackee doubted that ISDS was really needed to encourage and protect foreign investment. After all, investment flows across the Atlantic were already large, and no instances of systematic mistreatment of foreign investors have been identified on either side, which ISDS could address.
Andrea Bjorklund next asked whether investment treaties have had a verifiable, positive impact on investment flows. Mark Kantor responded that while some studies suggested no correlation, others did find a correlation, but only if other factors were present as well, such as a bill of rights, an independent judiciary, and other treaties, such as free trade agreements. He explained that all of these factors together contributed to a general notion that a particular country was a relatively safe place in which to invest, and that investors generally would not look only at discrete factors, such as whether an investment treaty was in place. Jason Yackee agreed that it was not plausible that Europeans, for example, were presently withholding investments in the United States only because of the absence of an investment treaty. Conversely, United States investors might be concerned about employment laws in Europe, but an investment treaty would not change that. In any event, investors lose most ISDS cases. Ursula Kriebaum pointed out that the U.S. Government apparently believed ISDS was needed when it concluded bilateral investment treaties with most countries in Eastern Europe in the 1990s, and that there have been a number of cases brought on the basis of those treaties. Mark Kantor added that the absence of ISDS might not prevent foreign investment but more likely raised its cost because investors then would seek to secure higher margins.
Andrea Bjorklund’s following question to the panelists related to the effect on negotiations with third countries, such as China, if the EU and the US agreed to drop ISDS from the TTIP. Jason Yackee responded that China in fact appeared to favor ISDS, as could be seen from reports about its ongoing negotiations with Australia. Mark Kantor added that, according to a recent announcement by China, the text of a China-U.S. investment treaty had been agreed, which included ISDS.
Turning to concerns about ISDS, Andrea Bjorklund then asked whether ISDS has had any verifiable impact on host State environmental and health legislation. Ursula Kriebaum remarked that while there was a perception of regulatory chill, ISDS did not target host State legislation but only its application. In that regard, ISDS could have a beneficial effect because it could not be assumed that host States will always act properly. Indeed, most States provide for court review of administrative action, and in certain States courts even have the power to overturn legislation. Jason Yackee agreed, adding that the critics of including ISDS in the TTIP are challenged in identifying its problems.
Andrea Bjorklund followed up by asking whether it was appropriate to deal with ISDS by carving out certain sensitive industries or sectors, such as tobacco or health. Jason Yackee referred to the NAFTA, which contains a number of sector exceptions. Nonetheless, the unequal treatment resulting from such carve-outs presented a rule-of-law problem.
Andrea Bjorklund’s final question to the panelists was whether domestic courts could be a viable alternative to ISDS. Jason Yackee remarked that an empirical study was needed to examine how domestic courts handle claims by foreign investors against the United States. Simon Lester noted that State-to-State dispute resolution worked in the trade area without any concern of politization. Andrea Bjorklund noted that State-to-State dispute resolution presented the difficulty for the investor of having to motivate its home State government to pursue the claim. Mark Kantor added that the core problem with respect to the TTIP was that the EU had taken over the core competence for foreign investment and now sought to negotiate the same standards for all of its Member States, despite the fact that the EU does not have a single justice system.
Eckhard Hellbeck is counsel with White & Case LLP in Washington, DC. His practice focuses on international arbitration and public international law.