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Investor-State Dispute Settlement: Restoring Consistency and
Predictability in Tribunal Decisions
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Investor-state dispute settlement (ISDS) mechanisms are common in free
trade agreements. They allow foreign investors to sue domestic
governments and ask for financial compensation in cases where
governments allegedly breach certain obligations under the free trade
agreement. However, they have been highly criticized in recent years for
being too favorable to private interests. To restore the public’s trust
in these mechanisms, NAFTA’s Chapter 11 should be reviewed to clarify
the applicable standards so that decisions from these tribunals are
consistent and predictable and to ensure that unreasonable claims by
foreign investors are dismissed.
Under NAFTA, investors and corporations have used the dispute settlement
provisions found in Chapter 11 to challenge government measures and
regulations considered incompatible with each country’s obligations.
Since 1994, Canada, Mexico, and the U.S. have all been brought to
investor-state tribunals. Only the U.S. has never lost a case.11UNCTAD,
Investment Dispute Settlement Navigator . Nonetheless, the
Trump Administration has indicated that ISDS will be one of the top
priorities for the upcoming NAFTA. Newly appointed U.S. Secretary of
Commerce Wilbur Ross described investment tribunals as “unaccountable”
and giving “too much power to Mexico and Canada.”22Fife,
”Canada Given Advance Notice of Trump’s NAFTA Demands.”
Although it is unlikely the U.S. will seek the elimination of ISDS, each
country has an interest in undertaking significant reforms to address
its main issues. These include inconsistent jurisprudence, as well as
foreign corporations’ abusive use of ISDS tribunals, which can undermine
governments’ ability to adopt legitimate public policies.33For
an overview of the global discussion on investment treaties,
government policy space, and the “regulatory chill,” see Gaukrodger,
The Balance Between Investor Protection and the Right to
Regulate . Other international organizations have also looked at these
issues from a development point of view. See, for instance, Chapter IV
in UNCTAD, Trade and Development Report, 2014 . To address
these issues and restore the public’s trust in ISDS mechanisms, Canada
should pursue the following in the upcoming renegotiation of NAFTA:
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Clarify the scope and meaning of key investment principles and
concepts.
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Review the constitution of ISDS tribunals, based on CETA.