Why States Should Have ISDS: The Private Sector Perspective

Abstract

The system of International Investment Agreements and the Investor State Dispute Settlement provisions contained therein was developed primarily for the benefit of international investors; this was seen as a method of increasing the flow of foreign direct investment into developing nations which would benefit developing countries.

While the views of governments, international organizations and NGOs have been solicited and welcomed regarding changes to the system of IIAs and ISDS, the view of industry/investors has not been heard often.

This paper looks at the views of industry and investors on these topics; their views are quite opposite to those commonly put forward by the others.

One of the key elements is the perspective that sophisticated enterprises that care about sustainability issues such as human rights, environmentalism, corruption free operations, are well aware of the benefits that IIAs provide, particularly with the obligations of the state are enforceable through ISDS. These provide security to the enterprise to invest. Without them, they are less likely to invest in the state. Instead, exploitative capital will flow into the state. Exploitative capital does not have concerns regarding sustainability, human rights, corruption, environmental issues, as the only goal of exploitative capital is to make maximum profits as quickly as possible.

Investors are now aware that in the absence of ISDS provisions, there are no legal venues for an investor to have a claim adjudicated. Even with ISDS provisions in place, states will rarely settle claims prior to a final arbitration award. Yet, the movement towards replacing arbitration with mediation, thereby depriving the investor of any legally binding award is seen as exacerbating the problem of states not settling claims. With that system, they will have no motivation to settle via mediation since there is no potential for a binding award to be made against them if they refuse to settle via mediation.

Many of the fears expressed regarding investors misusing the ISDS provisions have been shown to be misguided, particularly now with processes in place to quickly stop clearly unmeritorious claims, as well as the cost of bringing such claims being so high.