Political Isolation in EU #ISDS Proposal

National level law and politics is further removed from investor-state dispute settlement under the EU’s new reform plan, other aspects of which I explored here and here.

Among the ways that the draft TTIP text diverge from the US Model Bilateral Investment Treaty:

  • It replaces a system of partial respondent state control over arbitrators with a more  insulated standing court (Sec 3, Art 9-10), as I mentioned in the earlier posts. States’ appointment power has been justified as enhancing their confidence that their views will be heard.
  • It forbids government officials from any country serving as adjudicators (Sec 3, Art 11). This deprives investment tribunals of a potential source of political wisdom. More on this below.
  • Domestic courts will lose what little power they now have to review the substance of awards (Sec 3, Art 30). This removes an opportunity for national courts to buy into and legitimize ISDS outputs, a feature that has bolstered the effectiveness of European human rights courts.

And some features of existing ISDS that separate it from national control and influence are retained:

 

  • Investors of a given country will be able to bypass domestic legal and political processes and use foreign subsidiaries to sue over their home state regulations (Sec 2 Article 9, Sec 1 definitions).
  • Legal standards on expropriation and other matters are still treaty defined, rather than based in national law (Sec 2, Articles 3-6). Indeed, it explicitly states that “domestic law” is not part of applicable treaty law (Sec 3, Art 13).
  • It obliges countries to engage in special consultations and ultimately arbitration with foreign investors that would not be the required (or common) practice under domestic politics and law (Sec 3).
  • It does not require respondent states to consent to ISDS on a case by case basis (Sec 3, Art 7). This removes an opportunity to make sure that the arbitration is seen as useful and legitimate by both parties.*

What’s the risk with further de-nationalizing ISDS?

As Karen Alter writes about the WTO (which the proposal is party modeled on),

International courts are more likely to generate conflict than their domestic counterparts because international legal texts contain political minefields that international judges especially are poorly placed to navigate successfully. While the majority of WTO disputes may involve misunderstandings or disagreements that are easily resolved, controversy is likely to emerge under two recurring conditions endemic to international politics:

• Trip-wire texts: international legal texts may actually reflect diplomatic fudges that negotiators are counting on. Pretty much any effort by an international legal body to clarify an intentional diplomatic fudge will be controversial.

• Hair-trigger settings: governments may be using international litigation for political reasons—to pander to a domestic constituency, to shift the blame for disappointing a domestic group on to an international body, to embarrass other countries, to create a bargaining chip, or to win in court something they could not get through negotiations. Cases inspired by these political motivations are likely to escalate tension. Domestic judges deal with explosive suits too. But there is reason to believe that domestic judges are better equipped to handle such cases. Being products of their national political environment, and working within the same cultural and political context in which they adjudicate, national judges are far more likely to be in harmony with political sentiment. International judges, on the other hand, often lack the experience and information they need to do their job well. Many international judges are former law professors or lower-level domestic judges, with little real experience in negotiating international politics or anticipating the passions different interpretations of a text will arouse…

Compounding the difficulty international judges face is that international courts inherently lack the popular legitimacy needed to transform disappointment into popular acceptance ‘of the law’. Courts gain legitimacy from the prestige of their members, and from their reputation, gained over time, for ruling fairly. Domestic courts can draw on their cache of legitimacy to make controversial rulings palatable. Thus when the US Supreme Court intervened in a presidential election, handing George W. Bush a victory, it emerged with its legitimacy largely intact even though the legal basis for the ruling was as radical as it was controversial.32 International legal bodies do not have the same legitimacy. The problem is not that international courts do not deserve to be seen as legitimate. International legal bodies are composed of competent and intelligent judges who go to great lengths to be procedurally fair, which is why the lawyers who work with international courts generally hold international judges and their rulings in high esteem. The problem is that the larger public has no no real knowledge or appreciation of the workings of international legal bodies.

Given the legitimacy problems brought on by the recent debt crisis, it seems like a strange moment to further insulate international courts from the useful feedback loops provided by domestic law and politics.

++

 

* One interesting innovation in the EU Proposal is the right of third parties to formally intervene in the case. It states that the tribunal “shall” allow “any natural or legal person” to intervene. But there are two hurdles. First, they are limited to supporting in whole or part the award sought by one of the parties. It’s possible that the intervention would have to be very narrow indeed: “yes” award damages or “no” don’t award damages. This would seem to rule out submissions that offer broader scientific or political context to the dispute, although presumably those could still be brought as amicus briefs (which the proposal streamlines relative to past practice).  Second, they must be able to “establish a direct and particular interest in the result of the dispute.” Such third party interventions are common in domestic legal systems, but it’s unclear to me how they would play out in ISDS.

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