Top Myths about ISDS

Myth #1: ISDS is secretive and lacks transparency.
The all-too common image that ISDS critics conjure of arbitration panels is of “secret courts” adjudicating on behalf of big corporations around the world. In fact, the system has come a long way in recent times in achieving transparency and openness. Most legal documents and arbitral awards are posted online for the public to see. The United Nations Commission on International Trade Law adopted new rules to ensure transparency and openness in proceedings back in 2013. Tribunals are also increasingly open to interested civil society groups through the submission of amicus curiae briefs so that labour, NGO, and environmental organizations can contribute to important arbitral decisions. The NAFTA parties even mandated that tribunals accept submissions from third-parties with an interest in the case.

Myth #2: ISDS undermines important social and environmental protections.
Another positive development in ISDS is the increasing prevalence of provisions in trade agreements that encourage corporate social responsibility and stipulate that treaties should not be interpreted to diminish social and environmental protections. The Canada-Peru FTA, for instance, makes clear that it is “inappropriate to encourage investment by relaxing domestic health, safety or environmental measures.”

This myth also indicates a poor knowledge of international investment law jurisprudence. Tribunals are highly deferential to the right of states to regulate and arbitrators have cited states’ duties under international agreements to protect the environment and indigenous peoples rights in their decisions.

Most importantly, however, the sovereign right of a state to pass laws and regulations is in no way impeded by ISDS. Arbitral tribunals cannot overrule or overturn any law a state makes. They are only empowered to award monetary damages to foreigners who do business in another country who are subject to injustice.

Myth #3: Arbitrators are biased in favour of investors.
This misconception would be surprising news to the many investors who lose their cases in front of arbitral tribunals. According to the most recent data from the United Nations Conference on Trade and Development, of all ISDS cases finalized so far 37% have been won by the respondent state, 28% were settled, and only 25% were won by the claimant investor. Hardly the mark of a skewed system under the control of shadowy corporate stooges.

Myth #4: ISDS allows for big corporations to sue governments.

This myth rests on a half-truth in that dispute resolution clauses in international trade agreements do allow for investors to seek compensation in front of an arbitral panel. But the reality is that in any liberal democratic society, people have the right to sue the government when they think the government has done something illegal. Judicial review is (or at least should be!) an uncontroversial mechanism in any democracy. It should not be (and I don’t think it is) a controversial proposal that states should not be able to do whatever they want — rather, they are constrained to act within the law.

ISDS simply transplants a familiar feature of democratic governance (judicial review) to an international arena.