The Outsized Costs of Investor–State Dispute Settlement

The negotiation of several mega-treaties in 2015, including the Trans-Pacific Partnership (TPP), the Trans-Atlantic Trade and Investment Partnership (TTIP), the EU-Canada Comprehensive Economic and Trade Agreement (CETA), and other regional agreements, has generated substantial public discussion about the protections and privileges afforded to multinational enterprises through the investor–state dispute settlement (ISDS) mechanism in these treaties. ISDS has increasingly raised concerns among certain governments and civil society groups, particularly as a growing number of ISDS cases involve investors challenging a range of governmental measures taken in good faith and in the public interest, including measures related to environmental protection, public health and safety, and financial stability. Even representatives of international businesses – the purported beneficiaries of these texts – have voiced concerns about the costs of ISDS proceedings, uncertainty regarding outcomes of disputes, and an absence of rules to ensure the independence and impartiality of arbitrators.

The TPP negotiating parties deflected the underlying concerns about ISDS by assuring constituents that ISDS would be included in the TPP in an improved “21st century” form, resolving the controversial elements. When the text of the TPP was released in November 2015, it became evident that while the ISDS mechanism in the TPP includes some changes around the margins, its basic elements remain generally unchanged. Therefore, a cost-benefit analysis of ISDS remains essential. There are two fundamental questions: Is ISDS effective or necessary to produce its purported benefits? And do the potential benefits outweigh the costs? An analysis of ISDS as included in the TPP shows that the costs outweigh the alleged benefits, and alternative strategies should be employed to protect investors and promote the rule of law

Lise Johnson and Lisa Sachs, AIB Insights, Volume 16, No 1, 2016-02

Authors

Lise Johnson

Senior Fellow

Lisa Sachs

Director

Themes

• International Investment Law