At the core of the controversy over ISDS are the expansive interpretations taken by tribunals, which have occasionally gone beyond property rights protections in advanced legal systems. This not only distorts competition between foreign and domestic firms, but also has knock-on effects on other international regimes. ‘Mega-awards’ of billions of dollars can have considerable fiscal implications, pressuring public finances and foreign-exchange reserves. The rise of claims against climate change measures has caused considerable outrage. In the area of public health, the risk of claims against COVID-19 measures has led to calls for an ISDS moratorium during the pandemic, including by a former chair of the World Trade Organization (WTO) Appellate Body and by a former World Bank chief economist. International monetary lawyers have also raised concerns, as most investment treaties clash with the IMF’s Articles of Agreement by preventing states from using capital controls to address balance-of-payments difficulties. The historical record suggests states did not necessarily intend to grant investors such extensive legal rights when signing on to investment treaties, and did not foresee the wide-ranging implications for other public policy areas.
While there are still important disagreements among key actors on how to reform ISDS, there is broad consensus among governments on the directional thrust of most states’ agendas: to more narrowly circumscribe and define the rights which investment treaties grant to foreign investors; and to give greater interpretative power to states to ensure that tribunals are responsive to the intentions of the treaty parties. But while considerable time and resources are spent on ‘upgrading’ future investment agreements, hardly any governments have revisited their existing deals. This is not because of corporate resistance. Industry groups have rarely mobilized in investment treaty politics or stood in the way of modernizing investment treaties. Rather than corporate lobbying, the main roadblock to reform is the presumption that revisiting past treaties would be too time-consuming and costly. Indeed, the two most obvious channels for addressing existing treaties – termination or large-scale renegotiation – are unappealing to most states.
Termination. A handful of states have terminated some of their existing treaties, and EU states have terminated almost 300 intra-EU bilateral investment treaties (BITs) due to intra-EU concerns. Still, there is limited political support for treaty terminations in most countries. Moreover, in the case of unilateral treaty denunciation, ‘survival’ clauses keep protections in place for years and sometimes decades after termination, which means this option has limited near-term effect in shielding states from controversial claims.
Renegotiation. Renegotiating treaties would not leave states exposed to new claims via survival clauses. Yet renegotiations can present a daunting task when a dense web of primarily bilateral treaties is involved, requiring significant diplomatic time and resources. Some states are nonetheless trying: the Netherlands, for instance, obtained authorization from the European Commission in 2019 to renegotiate part of its BIT network as part of its new sustainable trade and investment policy. Yet, even if successful, the process could take many years, and while the EU is focused on reforming the ECT – an important task – other treaties are further down the priority list. While European states, as mentioned, have terminated intra-EU BITs, they are still party to more than 1,400 BITs with non-EU countries. Equally, while the US curtailed ISDS in renegotiating NAFTA into the USMCA, it still has 39 BITs in place.
With both terminations and renegotiations, an added complication is that foreign investors often have ample opportunity to pick and choose which treaty, or treaties, they want to base their claims on. The most important challenge is arguably tribunals’ attitude to shareholder claims – more permissive than in advanced systems of national corporate law – which leaves considerable leeway for so-called ‘treaty-shopping’. The problem is aggravated where states only require incorporation as a test of corporate nationality, as many foreign investors rely on offshore holding companies. The implication is that, while most investment treaties are bilateral, reforms of the investment treaty regime must go beyond ad hoc bilateralism to be effective. Unpicking a global web of thousands of treaties requires an approach that covers a considerable number of treaties and does so swiftly.
