In a recent op-ed for the New York Times, Manuel Perez-Rocha, an associate fellow at the Institute for Policy Studies, argues that prevailing mechanisms for the resolution of state-investor disputes are rigged against states. Arbitration mechanisms are particularly detrimental to poorer states, according to Perez-Rocha.
Focusing on the arbitration currently under way between El Salvador and the mining firm Pacific Rim LLC, Perez-Rocha argues that “corporations are increasingly using investment and trade agreements — specifically, the investor-state dispute settlement provisions in them — to bring opportunistic cases in arbitral courts, circumventing decisions states deem in their best interest.”
“Investor-state dispute settlement provisions feature in many significant pacts, including the North American Free Trade Agreement, and nine U.S.-E.U. bilateral investment treaties. Foreign investors can sue over alleged violations of myriad “investor protections,” including public-interest regulations that would reduce their profits. But it doesn’t cut both ways: Governments or communities affected by foreign investors cannot bring claims. Equally troublesome, tribunal operations are often opaque.”
Perez-Rocha casts this imbalance partly as a north-south problem, with “75 percent of recent investor-state cases” being initiated by claimants in the US and Europe, many of these against developing states. He sees the US as the primary driver of this trend, as “Washington seeks to include investor-state-dispute provisions in the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership.” He notes, however, that pushback against prevailing arbitration regimes is gaining momentum in Europe, where state and EU officials are starting to argue for a system that “preserves states’ rights to set and apply their own standards” in investment arrangements.
If new trade treaties include the same pro-business provisions, states like El Salvador and Venezuela are unlikely to sign them, according to Perez-Rocha. But poor and developing states, which Perez-Rocha casts as victims, also tend to be prone to corruption and regulatory opacity. Without adequate protections, such states will have a harder time attracting foreign capital.