A better debate on ISDS

Let us start with a better debate on ISDS. Describing ISDS as a method by which investors are “circumventing decisions states deem in their best interest” is simply not correct. Yet, this argument recently came up in an Op-Ed at the New York Times.

But a better debate should start with a comprehensive understanding of the basis and functioning of ISDS.

From the outset, the Op-Ed reflects a lack of understanding of the rule of law. Governments are not immune. We cannot go back to the days where “the King can do no wrong”. When a government violates a certain right, an individual who suffers damage from the violation should be able to bring a claim to enforce his/her right.

The right to bring a claim against the state in ISDS does not come from thin air. It comes from an investment treaty, concluded by the very same state. The treaty typically provides, for the substantive part, certain rights to foreign investor and, for the procedural part, the right to bring a claim against government to enforce this right.

In comparison, the human right regime similarly provides for the right of individuals to bring a claim against a government for an alleged violation of a human rights protection. In fact, the European Court of Human Rights received more than 65,000 claims in the year 2013 alone. As we have written before, a large number of ISDS claimants are also individuals.

Governments have also been using ISDS to bring claims against investors, provided the underlying agreement provides for this possibility. See for example an ICSID case, Republic of Peru v Caraveli.

A better debate on ISDS should carefully put numbers into perspective. The Op-Ed is critical towards the huge claims in the Vattenfall and Pacific Rim cases to illustrate the system’s flaws. These cases are not yet decided thus it is at best unwise to assess ISDS as a legal mechanism based on undecided claims.

The Op-Ed further points out the unusually high award in Occidental Petroleum v Ecuador. This fact however does not define ISDS as a legal mechanism. If the investor’s claim is granted, the amount of damages does not depend upon ISDS as a procedural form, but upon the size of the investment in the first place. A calculation of damages needs to be done also when domestic courts are charged with the task of deciding claims based on an alleged violation of rights.

The ICSID statistic is clear that in 43% of cases, government was successful in defending its case.

The Op-Ed is therefore nothing more than a selective mentioning of different ISDS claims. It does not analyze the functioning of the system or even the merits of the claims. The important debate on the future of ISDS and the importance of the rule of law deserves a more fact-based approach.