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Investor-State Arbitration and the Rule of Law: Debunking the Myths

Patrick Carvalho
13 April 2016 | Research Report 13
Investor-State Arbitration and the Rule of Law: Debunking the Myths

Investor-State Dispute Settlement (ISDS) is a legal provision in international agreements that enables foreign investors to take host states to an arbitral tribunal for alleged treaty breaches. The goal of investor-state arbitration is to provide a de-politicised, unbiased and law-based adjudication forum to guarantee the investor’s rights against unlawful overseas government actions.

Since the first ISDS-protected international treaty signed in 1959 between Germany and Pakistan, investor-state arbitration has become a legal reality to over a hundred nations worldwide — with currently more than 3,000 bilateral agreements formally backing the right of foreign investors to hold host states accountable for unlawful treatment. Among many benefits, the spread of investor-state arbitration has proved an effective non-belligerent alternative to state-to-state dispute escalation, providing a safer environment for international investment as well as further ammunition for local forces towards a law-based democratic system.

This report debunks the widespread and unfounded myths about investor-state arbitration, showcasing it as a beacon for the rule of law in international affairs. With ISDS provisions in 21 bilateral treaties and seven free trade agreements, investor-state arbitration has served Australia’s national interests well, promoting a better global rule of law environment along with protecting Australian investors from unlawful foreign government acts.

Hence, it is time to advance our commitment to this important international tool. Australia must reconsider its current ‘case-by-case basis’ approach towards full embracement of ISDS provisions, advocating for a transparent, well-delimited and legitimate use of investor-state arbitration. Moreover, Australia should maintain its international efforts to timely implement an ISDS appellate mechanism, and whenever possible, to work with its trading partners to ensure that previous ISDS commitments are updated and fit for purpose.

There is nothing to fear from investor-state arbitration and much to welcome it in our international commitments. And that’s the beauty of the rule of law: those who owe nothing have nothing to fear — and yet much to gain.


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