Summary
This Note concludes that the Tietje, Baetens and Ecorys study fails to notice essential shortcomings of investor-to-state arbitration. Modern democratic societies separate powers: legislature, government, and courts. Investor-to-state arbitration on the other hand concentrates power. The ISDS system gives arbitrators the power to review all decisions by legislatures, governments, and courts, but does not observe the separation of powers, lacks basic institutional safeguards of judicial independence, creates perverse incentives, and gives the US an unfair advantage.
Specifically, the study
- does not mention serious issues with the fair and equitable (FET) standard,
- presents a stabilisation clause (changes to laws are only allowed if compensation is paid) as uncontroversial,
- presents an aspirational definition of indirect expropriation, which is industry friendly, not democracy friendly, as the accepted definition under international law,
- does not mention that in investment treaties investor rights trump human rights,
- does not mention serious sovereign debt issues,
- does not mention that ISDS lacks conventional institutional safeguards for independence: tenure, prohibitions on outside remuneration by the arbitrator and neutral appointment of arbitrators,
- does not mention that a for-profit asynchronous arbitration mechanism – arbitrators are paid for their task at least 3000 US dollar a day – creates perverse incentives: accepting frivolous cases, letting cases drag on, letting the only party that can initiate cases (foreign investors) win to stimulate more cases, pleasing the officials who can appoint arbitrators,
- discusses the ICSID appeal procedure, without mentioning that the president of the World Bank (in practice appointed by the US) appoints all three the arbitrators in appeal cases under ICSID rules, which gives the US an unfair advantage,
- does not mention a study that finds that claimants from the US were 91% more likely to benefit from an expansive resolution than claimants from all other states combined,
- mentions the Loewen case without mentioning that the US pressured an ISDS arbitrator,
- does not mention that a system that gives the US an unfair advantage is a serious threat to the EU’s privacy protection,
- does not mention that we can not expect EU investors to win major cases against the US,
- does not mention that it is near impossible to withdraw from trade agreements, as a consequence flaws in the ISDS procedure in a trade agreement will be as good as impossible to solve,
- concludes that the risks of ISDS are overstated – a conclusion which is based on flawed statistics.
Shortcomings in Dutch government study on investor – state arbitration, full version:
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