Foreign investors are offshoring their lawsuits with governments at an unprecedented pace – by the most plausible estimate there are as many as 200 such claims under way at the moment.
As the number of claims multiplies, the global system for resolving these disputes is growing more complex, with thousands of crossborder investment agreements in place and various international bodies vying to be the ultimate arbitrator. Rather than relying on local courts, many investors are opting for international investor-state arbitration when disputes arise.
As with the global trade system, an absence of a comprehensive multilateral agreement has led to a proliferation of bilateral investment treaties, which in turn has created a system for resolving disputes that is by the most charitable definition a patchwork – or judged in a more negative light, a tangled mess. Unlike the global trade system, there is not even the benefit of a single overarching regulatory, albeit voluntary, body such as the World Trade Organisation to oversee international investment disputes and enforce decisions.
In our cover story, fDi’s In Dispute columnist Luke Peterson – who has worked for a think tank on drafting an alternative investment agreement that would balance out investor protection and the government’s ability to regulate for public policy reasons – reports on a brewing backlash against the current system.
Growing use of investment treaties, and the growing financial and political stakes of investor-state disputes, is leading to a number of questions about the reach of the agreements, and the seemingly wide scope for arbitrators to review governmental actions.
After a 1990s investment-treaty signing frenzy, governments are now realising – and many are regretting – the commitments these treaties entail and looking for ways to stem the tide of potential lawsuits that they invite. They will not find it easy to do so, however; and many will struggle to find the right balance between reassuring prospective investors that adequate legal protections are in place in order to entice them, and protecting their perceived national economic and public interests.
Despite some half-hearted calls for a world investment court, it is difficult to see an international consensus or any sense of clarity emerging on this issue any time soon. Reaching agreement on the Doha trade round might actually be easier. So, watch as the disputes continue to intensify, the stakes continue to rise, the framework gets more complicated, the lawyers stay busy – and fDi continues tracking and trying to make sense of it all.