The unsustainable political economy of investor–state dispute settlement mechanisms1

Abstract

Investor–state dispute settlement mechanisms were intended to protect companies from the Global North against expropriation by Global South countries. Since 2000, investor–state dispute settlement mechanisms have increasingly been used against Northern countries to obtain compensation for and constrain policy decisions around nationalisation and remunicipalisation, as well as around the environmental or social regulation of service provision that threatens commercial interests. Social movements and governments alike resisted investor–state dispute settlement mechanisms, and despite the power wielded by multinational companies, the global trend is now to exclude investor–state dispute settlement mechanisms from new investment treaties. The purpose of this article is to provide a political-economy analysis of the processes of supporting and contesting the role of investor–state dispute settlement mechanisms in international treaties, processes that include activity at national, sub-national and international levels. The ensuing conflicts are analysed in terms of post-colonial contradictions over sovereignty under globalisation, continued contestation over the role of the public sector and climate change policies. Points for practitioners The probability of investor success with investor–state dispute settlement mechanism claims should not be overestimated, and investor assessments of the basis and prospects for such cases should be subject to critical scrutiny. Governments should be aware of widespread popular antagonism towards investor–state dispute settlement mechanisms and global trends to remove such clauses from agreements. They should also review all bilateral investment treaties, free trade agreements and the Energy Charter Treaty that the country has ratified to assess the potential relative advantages of retention or leaving.