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Abstract
Investment protection is a contentious issue in trade and investment negotiations due in large part to controversy surrounding investor-state dispute settlement (ISDS). Governments have taken a range of positions on ISDS—from opposing moderate reforms to the system to the outright rejection of it. Extant research suggests that countries which experience costly investor claims are more likely to be circumspect about it. Case studies of Australia and Peru demonstrate that other factors must be considered. Both countries experienced investor claims but governments continued to act as ‘pragmatic proponents’ of the system. We show how interest groups and experts shape government preferences by reinforcing the legitimacy of ISDS in the face of contestation. In both cases, domestic actors framed ISDS as low risk; promoting good governance through regulatory chill; and protecting public interests through the promotion of business, which outweighed the costs of participation. Despite the lack of empirical evidence supporting these claims, they were persuasive because interest groups played on embedded ideas about the merits of market-led development and the economic utility of the mechanism. However, we predict that the influence of pro-ISDS actors will vary over time depending on their access to bureaucratic and political decision-making centres.
Acknowledgements
We would like to thank Salvatore Barrilà, Iain Hardie, Manolis Kalaitzake, Alexis Montambault Trudelle, Patricia Ranald, Charlotte Rommerskirchen, and David Yarrow for helpful suggestions on early drafts. We are also indebted to our anonymous reviewers whose thoughtful and constructive comments strengthened our work.
Declaration statement
No potential conflict of interest was reported by the authors.
Notes
1 We recognise that foreign policy outcomes, like the inclusion of ISDS in a trade agreement, reflects competing domestic and international pressures (Putnam Citation1988). We are less interested in the outcome of any individual agreement than we are in explaining the domestic policy preference to include ISDS in new IIAs over time as information as the potential costs of ISDS becomes clearer.
2 1105 documents were reviewed and coded as pro-ISDS, anti-ISDS or neutral. Documents coded as pro-ISDS (8 percent of public submissions) were analysed in greater depth along with all hearing transcripts and committee reports.
3 Morgan and Ibsen (Citation2021, p. 5) describe ‘noisy politics’ as an ‘increased drive toward transparency and scrutiny and a scepticism toward behind-the-scenes agreements between powerful actors.’
4 Scholars debate whether capital-importing countries tie their hands voluntarily or do so due to coercion from capital-exporters (cf Allee & Peinhardt Citation2014).
5 A 1998 claim was settled.
6 Empresas Lucchetti and Lucchetti Peru v. Republic of Peru (2005). Award. (ICSID Case. No. ARB/03/4), 23.
7 Duke Energy International v. Republic of Peru (2008). Award (ICSID Case No. ARB/03/28).
8 García signed FTAs with Chile (2006), Singapore (2008), Canada (2008), China (2009), the European Free Trade Association (EFTA, 2010), South Korea (2010), Mexico (2011), Costa Rica (2011), Panama (2011) and Japan (2011). The only the EFTA agreement excluded ISDS.
9 Renco v. Republic of Peru (2016). Final Award (Case No. UNCT/13/1).
10 Bear Creek v. Peru, pg. 47
11 Two American investors tried launching ISDS disputes under AUSFTA but were unsuccessful because it does not have a standard ISDS provision (Williams, Citation2017). An Australian mining magnate also threatened to use a Singaporean subsidiary to bring a claim (Karp Citation2020).
12 Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award of 17 Dec 2015.
13 Interview with three anonymous officials (Lima, Peru).
14 Supporters of ISDS fail to distinguish between contract-based and treaty-based ISDS claims.
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Notes on contributors
Julia Calvert
Julia Calvert is a Senior Lecturer in International Political Economy at the University of Edinburgh. Her work examines the interactions between domestic democratic politics and international trade and investment rules. Her recent book, The Politics of Investment Treaties in Latin America (2022, Oxford University Press) examines the drivers of investment treaty infringement and reform in Latin America.
Kyla Tienhaara
Kyla Tienhaara is an interdisciplinary social scientist who studies the intersection between environmental governance and the global economy. She is Canada Research Chair in Economy and Environment and Assistant Professor in the School of Environmental Studies and Department of Global Development Studies at Queen’s University.