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Investor-State Dispute Settlement: Restoring Consistency and Predictability in Tribunal Decisions [L2]

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: