I'm coming across quite a few people on twitter and elsewhere who seem eager to defend ISDS/investment treaties/investment chapters in FTAs. This blog post will give them another opportunity, in the context of one particular aspect of the current international investment system. Investment rules typically have several key obligations. I'm going to focus here on property rights, in particular the rules that require compensation after an expropriation. (I'm not covering national treatment/MFN or the FET/MST obligation.)
Let me mention one caveat at the outset. I doubt any of my arguments here are original; I'm sure someone else has said all the same things at some point. But this is just a blog post, not a law journal article, so I'm not going to try to identify all the people who came up with the various arguments first.
Before turning to international investment obligations, let's start with a look at how domestic law handles these property rights. As an example, the U.S. Constitution's 5th amendment includes the Takings Clause, which requires compensation when the government expropriates property. Importantly, this Clause protects the rights of all property holders, rather than just a particular group of property holders. Thus, it does not protect the rights of only the citizens of Pennsylvania, or only the rights of oil companies, but rather it protects the rights of all. (Also important is that it protects more than just property rights, but I'll leave that issue aside for now.)
Now, look at the contrast with how international investment law works. With the investment system, the analogous protections are only for the rights of a particular class of property owners: foreign investors. Domestic investors get no protections. In this way, you could say that the way international investment law works with regard to property rights is sort of like the U.S. Constitution protecting the rights of only Pennsylvanians, or only oil companies.
But wait, you might say, there is a reason for this distinction between foreign investors and domestic investors. It's because foreign investors are subject to the national prejudice and bias of domestic courts and regulators, whereas domestic investors are not. Domestic investors' property rights are already well-protected under domestic law. As a result, foreign investors are currently treated worse than domestic investors with regard to their property rights, and therefore need these special protections, which international law is well-suited to provide.
In response, I would say that I'm not sure there is good evidence that foreign investors are treated worse, and I tend to doubt this is the case. Oh, don't get me wrong, there are certainly foreign investors out there who have been treated badly on account of their foreign-ness. I've seen plenty of stories, in ISDS cases and elsewhere.
But I'm not arguing that foreign investors are always treated well. Rather, I'm saying that, looking at all investors as a whole, I doubt that foreign investors are treated worse than domestic investors in most places. The reason is simple: Foreign investors tend to be much wealthier and more influential than domestic investors. Of course, there are plenty of wealthy and powerful domestic investors, too. But there are also lots of small ones (think of the local dry cleaner). Overall, I suspect foreign investors are in a much better position to defend their property rights than are domestic investors under domestic law.
But if there is evidence to the contrary -- if in truth foreign investors are disproportionately oppressed by governments with regard to their property rights -- I'm happy to reconsider, and think about what international rules might be appropriate here (maybe a simple non-discrimination obligation?). So I would say to the supporters, if you think treatment of foreign investors with respect to property rights is worse than the treatment of domestic investors, somewhere in the world, you should try to show that. Otherwise, the system seems like a solution in search of a problem.
In addition to allegations of bias against foreigners, there are also situations where property rights in general are not well-protected under domestic law, such as in Canada (for reasons I can't figure out). International investment law is sometimes presented as a way to address that. The problem is, when you give foreign investors rights under international law that no one has under domestic law, you are creating a distinction in treatment under which foreign investors have rights that domestic investors do not have.
Now, when I say things like this, one typical response I get is that, yes, the current investment system is biased towards foreign investors, but these rules are a first step towards providing rights for all people under international law. It's foreign investors who are covered now, but eventually this will be extended to the local dry cleaner as well. Thus, limiting these rights to foreign investors is not really a problem, but rather a step towards rights for all in the future. And I agree that there is an argument for making constitutional rights of this sort global, and giving them to everyone.
But the political reality is that this will not happen anytime soon. First of all, no influential group is proposing it or even considering it, as far as I know. And second, if it were proposed, it would be rejected by every government. That's not to say people shouldn't try to make the case for it. There are many examples domestically where, suddenly, particular rights were granted when they never had been before. But for it to happen under international law, somebody has to start making the case for why property rights, or some other rights, should be protected for all people under international law.
So here's the current and future situation, as I see it, with international law as it relates to expropriation: Enforceable rules exist for a class of investors/property holders who, for the most part, have the resources to defend their rights under domestic law. For those without the resources, by contrast, there are no such rules (and there are plenty of examples of their property rights being violated). This disparity may help explain why so many people are so strongly opposed to the current system.
But I know there are people out there who are strongly in favor of the system, so have at it in the comments!
