Ius Gentium

University of Baltimore School of Law's Center for International and Comparative Law Fellows discuss international and comparative legal issues

The Trans-Pacific Partnership’s Investor-State Dispute Settlement Provision : A Baby Step toward Legitimacy

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Esther Grenness

In Senator Elizabeth Warren’s (D-MA) op-ed published in the Washington Post in February 2015, she excoriated the Investor-State Dispute Settlement (ISDS) provision of the Trans-Pacific Partnership (TPP) free-trade agreement.[1] In her op-ed, she painted the ISDS provision as a nefarious tool by which multinational corporations could “tilt the playing field” in their favor.[2] This would undermine U.S. sovereignty by enabling foreign corporations to take the United States to a corporate-lawyer-infested arbitration panel and slough off regulations designed to protect the public.[3] And the cherry on top? All this would occur without a day in U.S. courts and the legal bill would be dumped on the backs of U.S. taxpayers.[4]

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Even though Warren’s op-ed was in response to the as yet unfinished agreement, opposition has remained steadfast against the TPP.  With such a visceral reaction to a single provision of a free-trade agreement, one would think that ISDS provisions were something new to U.S. involvement in the investment treaty world. This is far from the case. There are currently over “3,000 agreements worldwide [that] utilize some form of ISDS, and the United States is party to 50 such agreements.”[5]

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While ISDS provisions are nothing new, they are still highly controversial. The line between private and public law is blurred. According to Stephen Schill, “investor-State arbitration is better analogized with judicial review of governmental conduct under administrative (or constitutional) law at the domestic level or international judicial review.”[6] Because investor-State arbitral decisions affect entire nations, the reality is that ISDS functions as “an instrument of global governance” where “public law values of equality, predictability, transparency, and democratic control of decision-making” come into play.[7] This is the foundation of the major objections to the practice of ISDS. The processes is notorious for the lack of transparency, the inability for third parties to participate or have a voice in the process, the risk of improperly biased arbitrators, and the lack of appealable decisions. Furthermore, without a consistent body of law from which to draw, a decision under one treaty can violate a provision in another treaty.[8]

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Even with these very real and valid concerns about the whole ISDS system, the ISDS provision in the TPP is not the demon it has been made out to be. It follows on the heels of revisions to the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules and the Mauritius Convention, which expanded third-party participation in disputes and increased transparency in the process.[9] The Mauritius Convention, in particular, has the potential to expand this transparency “to the entire treaty-based international investment regime as it stood on 1 April 2014.”[10] Indeed, the TPP’s ISDS requirements are among the most liberalized and transparent of any trade agreement reached to date. The provision requires publication of the documents, and it allows concerned third parties to participate as amicus curiae.[11] Most significantly, the provision requires not just application of the rules of the treaty itself, but also the application of relevant rules of international law.[12] This takes ISDS jurisprudence beyond the scope of a “treaty-by-treaty approach to investment law reform.”[13] The “normative pull”[14] of the decisions reached under the TPP will have more gravity, which brings the international investment body of law closer to the goal of consistency.

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However, the TPP does not currently have a method by which decisions may be appealed (although this may be changed at a later date).[15] Enter the Trans-Atlantic Trade and Investment Partnership (TTIP). Although not finalized, the European Commission has proposed an almost complete overhaul of the ISDS system, whereby the arbitrators would be permanent appointees with demonstrated neutrality (perhaps already appointed to a judicial function in their home state.)[16] This is all highly controversial and in a complete state of flux, but the general trend in the formation of investment treaties is moving toward a more liberalized, public oriented approach to Investor-State Dispute Settlement.[17] While the procedural process may slow significantly,[18] the legitimacy of the whole system will grow.

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There are a myriad of issues posed by ISDS; however, the TPP is a step in the direction of legitimizing the ISDS process. The TPP’s ISDS provision is not a multinational corporation’s nefarious tool for tilting the judicial balance in its favor. In a world of an increasingly interconnected, globalized economy with exponential growth, there are bound to be growing pains and stumbling blocks along the way. The TPP’s ISDS provision is a step in the right direction, small as that step may be.

 

 

[1] The Trans-Pacific Partnership (TPP) is an enormous free-trade agreement between the United States, Canada, Australia, Mexico, Japan, Malaysia, Peru, Vietnam, Chile, Brunei, Singapore, and New Zealand. The United States signed the agreement on February 4, 2016, but the agreement hasn’t yet been submitted to Congress for a vote. The TPP contains an Investor-State Dispute Settlement (ISDS) provision, where disputes between foreign investors and States are to be settled via arbitration rather than going through the domestic court system. Investors have standing to challenge sovereign actions, such as state-imposed regulatory measures. The TPP member countries represent around 40% of global gross domestic product (GDP) (https://ustr.gov/tpp/overview-of-the-TPP); Warren, Elizabeth. 2015. “The Trans-Pacific Partnership Clause Everyone Should Oppose.” Washington Post, February 25: 3. Accessed February 2, 2016.

[2] (Warren 2015)

[3] (Warren 2015)

[4] (Warren 2015)

[5] Malawer, Stuart. 2015. “Looking at Dispute Resolution In the Trans-Pacific Partnership.” New York Law Journal, December 8: 4. Accessed January 30, 2016.

[6] Schill, Stephan. 2013. “The Public Law Paradigm in International Investment Law.” EJIL: Talk! December 3. Accessed February 1, 2016. http://www.ejiltalk.org/the-public-law-paradigm-in-international-investment-law/.

[7] (Schill, The Public Law Paradigm in International Investment Law, 2013)

[8] Levine, Eugenia. 2011. “Amicus Curiae in International Investment Arbitration: The Implications of an Increase in Third-Party Participation.” Berkeley Journal of International Law 29 (1): 200-224 at 218

[9] Schill, Stephan. 2015. “The Mauritius Convention on Transparency: A Model for Investment Law Reform?” EJIL: Talk! April 8. Accessed January 29, 2016. http://www.ejiltalk.org/the-mauritius-convention-on-transparency-a-model-for-investment-law-reform/.

[10] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[11] (Malawer 2015)

[12] (Malawer 2015)

[13] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[14] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[15] (Malawer 2015)

[16] Lawson, Alex. 2015. EU Floats Overhaul of Investment Arbitration Process. Law360, May 5. Accessed January 30, 2016.

[17] (Schill, The Mauritius Convention on Transparency: A Model for Investment Law Reform? 2015)

[18] (Levine 2011) at 219

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Author: Ius Gentium

Ius Gentium is a legal forum for the University of Baltimore School of Law's Center for International and Comparative Law Fellows to write on and discuss international and comparative legal issues.

One thought on “The Trans-Pacific Partnership’s Investor-State Dispute Settlement Provision : A Baby Step toward Legitimacy

  1. I definitely see where the ISDS provisions are seen as controversial, given the lack of appeals process, and the US’s responsibility for the legal bills if a dispute were to arise. If the agreement as a whole will bolster trade activity and policy for the better, perhaps this will be (perceived as) a “necessary evil” of moving forward in this aspect of international relations.

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