Salvaging The Investor-State Arbitration System’s Legitimacy

Law360 (May 16, 2024, 4:48 PM EDT) —

By Phillip Euell

Within the world of investor-state arbitration, it has become widely acknowledged that the very investor-state dispute settlement, or ISDS, system is vulnerable to a crisis of legitimacy. Recent developments in both Europe and Ecuador highlight the evolving landscape of international investment treaties and their implications for ISDS.

On March 1, the European Commission proposed a coordinated withdrawal from the Energy Charter Treaty, citing its incompatibility with the European Union’s climate ambitions under the European Green Deal and the Paris Agreement, and reflecting broader concerns about the treaty’s impact on the ability to regulate energy transitions and the high number of disputes it has engendered​.

Meanwhile, Ecuador has been actively revisiting its own approach to investor-state disputes, seeking to balance investor protections with the state’s right to regulate and pursue sustainable development​​, culminating in a referendum on April 21 ruling out a return to ISDS or “corporate courts” as the tribunals have come to be known.

If this crisis of legitimacy is not addressed soon, it may portend the end of an international dispute settlement framework that — in its inception — offered a valuable mechanism whereby the unifying goals of peace, security and abundance could be achieved on a global scale by aiding the various stakeholders in their pursuit of investment opportunity for profit on the one hand, and development of under-capitalized national economies on the other.