Investor-State Dispute Settlement: too many secrets?

 •  Filed under PIIE, International economics

Investor-State Dispute Settlement (provisions allowing a foreign investor to seek money damages from a host government, through an arbitration proceeding) seem to be the most disputed part of international trade agreements.

Euijin Jung and Gary Hufbauer list five common objections:

  1. special treatment for foreign corporations via the ISDS framework
  2. the occupational background of arbitrators
  3. the possibility that damage awards will curb a country’s ability to enforce appropriate health, safety, and environmental regulations
  4. the secrecy surrounding ISDS proceedings
  5. the absence of an appeals mechanism to correct erroneous decisions by arbitration panels

Interestingly, in the case of Korea, the relevant contents vary by agreement. Jung and Hufbauer write:

three of the four Korean FTAs also address the secrecy criticism. ISDS provisions under KORUS state that hearings and documents must be open to the public. Further, non-disputing third parties can request admission to hearings. However, ISDS provisions also allow disputing parties to hold closed hearings and to preserve confidential information when circumstances require—the same as for court proceedings in many countries. The Korea-Canada FTA adopts identical transparency text. The Korea-Australia FTA goes further and requires that both parties consider application of the United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency in future cases. However, the Korea-Vietnam FTA does not ensure transparency of arbitral proceedings. Evidently advanced countries share the goal of promoting transparency in the ISDS system, even if Vietnam has doubts.

... both opponents and supporters of ISDS are concerned about the absence of appellate review in ISDS cases. Recognizing this concern, KORUS attached Annex 11-D, “Possibility of a Bilateral Appellate Mechanism,” which states that Korea and the United States will consider the establishment of a bilateral appellate body to review decisions made in arbitrations within three years after the agreement was enacted. The Korea-Australia and Korea-Canada FTAs share this same understanding, but not the Korea-Vietnam FTA.

Jung and Hufbauer also expect that we will see improved and fairer ISDS thanks to the Trans-Pacific Partnership: "quite possibly the TPP will establish, for the first time, an appellate body to review arbitration decisions in ISDS cases."