Back to Reality: A response to the BuzzFeed ISDS “exposé.”

International trade and investment law is a fairly obscure thing to be interested in, much less blog about. Investor-state dispute settlement is a niche within a niche. So when a popular clickbait website a well-read news and entertainment website publishes a multi-part series on ISDS it can feel a bit exciting for people who otherwise spend a lot of time thinking about something that isn’t too often in the public spotlight.

Unfortunately, as with anything that is very complex and written about in a way that is designed to be read by a lay audience, initial excitement can quickly turn into disappointment. And so it is with Chris Hamby’s “exposé” of ISDS. The article ultimately relies on the old recycled mythology that is perpetuated by those critical of the international economic legal order and I want to highlight certain segments of Hamby’s article to demonstrate the deeper flaws of anti-ISDS commentary.

First, I think it’s helpful to take a step back and overview ISDS from a more general perspective. At its core, ISDS is the answer we have in 2016 to two age-old questions for which the genesis was when the first trader left his village to go to the next settlement to barter goods: how do we resolve disputes that arise when foreigners come to our lands to trade? What rules do we apply when traders go to foreign countries to engage in commerce?

Trade has played a fundamental role in the development of all human civilizations and thus finding good answers to these two questions has always been important. Through history, we’ve come up with attempted solutions which were all unsatisfying: recourse only to local judicial apparatuses (bias and uncertainty); state-to-state negotiation (political and difficult to access); gunboat diplomacy (obviously undesirable); and extra-territorial jurisdiction (a colonial imposition).

In the years that followed World War II and set against a context of rapid technological development and global decolonization, countries began to sign bilateral trade agreements that included legal protections for foreigners who engaged in business in the host country. Arbitration – which has been used for millennia to resolve international disputes – was the remedial mechanism adopted by these treaties.

ISDS came of age in a world which increasingly has sought to delegitimize both the use of violence to resolve disputes but also the employment of arbitrary coercive power by the state. One need not subscribe to a militant libertarian worldview to notionally agree with the statement, “Governments should not be able to do whatever they want, whenever they want.” Widespread recognition on the normative value of at least very limited constraints on an otherwise unchained Leviathan swiftly arose from the rubble of the mid-twentieth century.

The pragmatic need to have a system of rules by which people who go to foreign countries to do business can have recourse to conjoined with the principle that the coercive power of the state should be checked by something that seems like the rule of law. This confluence gave birth to ISDS.

This survey of ISDS hopefully casts the system in a less nefarious light than the common portrait of a shadowy cabal of “corporate lawyers” (a characterization Hamby enjoys and which I’ll address later) terrorizing well-meaning bureaucrats. Let’s dive a little deeper into some of the BuzzFeed article’s passages to see just how misguided this portrait is.

ISDS and public law

Some lawyers, he said, monitor governments around the world in search of proposed laws and regulations that might spark objections from foreign companies
And no statistic could ever include the many ISDS claims that are merely threatened, intimidating governments and shaping their policies while leaving hardly a trace.

The treaties that ISDS claims are made pursuant to create legal rights for a certain class of people. These people are foreigners who make investments in another country. The rights they enjoy are, generally, the right not to be discriminated against just because they are a foreigners and the right to basic fair and equitable treatment (more on this later).

Hamby’s characterization of a bunch of scheming “corporate lawyers” scanning international newspapers for crumbs to turn into extortionate lawsuits sounds pretty bad. But a similar characterization could be made of personal injury lawyers in many jurisdictions. And while there may be fair critiques of the tort system and some viable alternatives out there, I don’t think even the loudest advocates of tort reform would characterize personal injury lawyers as some sort of existential threat to democracy itself, as anti-ISDS activists do.

Lawyers look for cases to take on. They seek out social and commercial situations where the law can provide people who have been wronged a remedy. To my eyes, there is actually very little difference between what Hamby suggests international investment lawyers spend their time doing and what lawyers from an organization like the ACLU do: they monitor governmental action and offer to intervene whenever governments break the law. Sometimes civil rights lawyers only need to threaten a lawsuit in order to influence or convince governments to chart a different course.

Remember – when a tribunal finds that a state has breached its treaty obligations, it is doing so not out of some arbitrary pro-business ideology, but because the state has done something illegal. It has violated international law. In liberal democratic societies with strong rule of law, citizens will often threaten the state with a lawsuit when they perceive that their rights have been violated and the government has broken the law. This is a good thing. It strengthens the rights of individuals. It keeps governments in check. It reinforces the rule of law itself. If a government “backs off” a political objective because that objective may be illegal, I’m not sure what exactly we are lamenting. If the net outcome of the proliferation of ISDS is that around the world, governments are more inclined to behave lawfully, then the system is working.

That tired old song: transparency

That it operates unconstrained by precedent or any significant public oversight, often keeping its proceedings and sometimes even its decisions secret.
the system is so secretive

This is one of the most common criticisms volleyed at ISDS and it is also the most detached from reality. Proceedings are now public affairs. Both sets of international rules that most frequently govern investment arbitral  proceedings mandate high levels of transparency. There are entire databases that publish and disseminate ISDS documents – databases which, incredibly, Hamby even links to in his article.

Integrity and impartiality

That the people who decide its cases are largely elite Western corporate attorneys who have a vested interest in expanding the court’s authority because they profit from it directly
That some of them half-jokingly refer to themselves as “The Club” or “The Mafia.”

Throughout the article, Hamby regularly characterizes any legal professional practicing international investment law as a “corporate” lawyer. Aside from conjuring images of ethically shallow suits counting gold in guarded skyscrapers, it isn’t really clear what this means. Does he mean that these lawyers are engaged in private practice? Does he mean that the lawyers’ employers are private companies as opposed to the public sector? Does he mean that they are specialist in corporate (or company) law (which they usually aren’t)? What’s really going on, I suspect, is that Hamby is trying to characterize those involved in the system as The Wolf Of Wall Street types.

In reality, arbitrators are distinguished international jurists who are former judges, professors, and generally experts in international public and private law, international arbitration, and international trade law. They are usually older and very successful. The notion that they have a “vested interest” in ensuring the perpetuation of the ISDS system seems to rest on the assumption that they depend on their arbitrator fees for their daily bread and butter. This is highly unlikely: we are not talking about desperate debt-ridden fresh law school graduates.


By filing an ISDS claim, Sajwani took his case out of the Egyptian court system and placed it in the hands of three private lawyers convening in Paris.
The man who had been convicted of collaborating on a deal that would bilk the Egyptian people out of millions of dollars was now free and clear.

The first sentence in the block quote is representative of the article’s general confusion about the mechanics of ISDS. It is never made clear that any domestic litigation was initiated in Egypt before an ISDS claim was made. The suggestion that any civil case was “taken out” of the Egyptian court system is thus of dubious accuracy. The subsequent claim that the matter was punted to “three private lawyers” in Paris is a creative use of diction to paint something in more iniquitous colour than is deserved.

Hamby throughout the article places a tremendous amount of faith in the judicial institutions of countries with questionable levels of adherence to liberal democratic norms. Egyptian courts in recent years especially have churned out judgements which should give pause to anyone who would suggest that their commitment to due process is reliable – even in comparison to “three private lawyers convening in Paris.” Yet this is the judicial system which Hamby upholds as worthy of uncritical examination and under siege from “corporate lawyers” conspiring to bring the military regime of Egypt to heel.

Liberals and other international human rights advocates routinely and justifiably defend the jurisdiction of international human rights courts to vacate or critique criminal convictions handed down by domestic courts. I’m hard-pressed to understand what the difference in the story Hamby tells is, aside from the fact that Hamby’s antagonist is a businessperson. Human rights for all – unless you’re a capitalist.


Again, Hamby extols a judicial system with serious flaws and decries utilization of ISDS to subject Indonesian institutions to a measure of international accountability. I understand that international capital is an easy target for journalists in the complicated world of 2016 – but surely those critical of the international economic order can find more sympathetic protagonists than the Indonesian judiciary.

Fair and equitable treatment

Guaranteeing foreign businesses “fair and equitable treatment” sounds like common sense. But many treaties don’t say what exactly that means.

The First Amendment of the United States Constitution guarantees the right to free speech. But the Constitution doesn’t say exactly what that means. It has thus been left to judges to interpret – in accordance with wide-array of philosophies of judicial interpretation – what the right to free speech means. Cases such as Schenck v United States, Texas v Johnson, and Citizens United have provided opportunities for judges to articulate the substance and scope of the right to free speech. It surely does not flow from the premise that the US Constitution doesn’t explicitly define the right to free speech that the right itself or the Constitution itself is suspect.

In a similar vein, probing the substance and scope of “fair and equitable treatment” has attracted very sophisticated scholarly attention. It has also been painstakingly interpreted by arbitrators throughout the jurisprudence of international investment law. Hamby seems to suggest that the doctrine is intellectually hallow and little more than an empty vessel used to carry the ambitions of “corporate lawyers.” This is not the case.

In reality, most arbitrators now accept the articulation of the fair and equitable treatment standard in Waste Management v Mexico as being persuasive, if not quasi-binding:

the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety – as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process.

I think it is also important to underscore the democratic legitimacy that the fair and equitable treatment standard enjoys. The source of its legitimacy is two-pronged. First, it is aligned with a general conception of the rule of law itself that we would expect any state to adhere to. Nothing in the Waste Management definition should shock the conscious of anybody with even critical loyalty to liberal democratic norms. Second – and this is in direct contrast to Hamby’s characterization of the standard being imposed on helpless states by tricky lawyers – the standard itself has been accepted by states vis–à–vis their signing of treaties that contain fair and equitable treatment provisions. This is a point specifically highlighted by the majority in Bilcon v Canada:

the international minimum standard exists and has evolved in the direction of increased investor protection precisely because sovereign states—the same ones constrained by the standard—have chosen to accept it. States have concluded that the standard protects their own nationals in other countries and encourages the inflow of visitors and investment.

Why does the mythology surrounding ISDS persist?

This is a good question and the BuzzFeed article should prompt some serious soul searching in the international arbitration community. One thing that this community has done a very poor job at is public relations and engaging the wider public in the value of resolving international disputes by arbitrating (instead of, for instance, going to war) and the place of ISDS in the wider international liberal order. This failure is particularly surprising given how loud critics of the system are. The silence from the international arbitration community allows anti-trade activists to propagate fallacies about ISDS without much consequence.

The primary reason so many arbitrators and other professionals who practice in the field are silent is, I think, due in part to their profound commitment to impartiality. Arbitrators – for good reason – are reluctant to engage in public policy debates and in the process appear political. By injecting their opinions into political debates over an issue like the TPP international jurists run the real risk of losing their Archimedean vantage point and descending into the less prestigious pool of politics. While this may be admirable, it may be time for the international arbitration community to reassess its lack of a PR offensive.


One thought on “Back to Reality: A response to the BuzzFeed ISDS “exposé.”

  1. Pingback: More Smoke and Mirrors, but Nothing New from the Anti-Trade Lobby | Shopfloor

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