This is from Marcin J. Menkes of the Warsaw School of Economics:
Although none of the GAFA companies – Google, Amazon, Facebook, Apple – or other major tech giant has taken the first step, publicly, to establish a world investment tribunal, the question to already ask, is whether such an arbitration tribunal will endure. Its creation seems merely a matter of time.
To those following the debate on investment arbitration—the mechanisms for settling disputes between states and foreign investors—this question may seem uneducated. In recent years, we have witnessed a regulatory pushback against investment tribunals. In response to allegations that such tribunals allow private interests to trump public policy, a number of stakeholders have engaged considerable resources in the reform of the system. The European Commission waged a war against investment arbitration between EU members. The United Nations Conference on Trade and Development (UNCTAD) took the lead in the global debate, leading to the possible establishment of a fully-fledged International Investment Court as an alternative to the ephemeral nature of the current ad hoc tribunals. The latest investment and trade treaties either scrapped investment arbitration provisions or subject the process to much more stringent control. Doesn’t all this reveal a trajectory whereby states are taking a firmer grip on resolving business disputes? Not necessarily.
The tension between business and the public authorities concerning the settlement of business disputes is not new. Entrepreneurs are interested in a quick, cheap resolution, especially if it doesn’t attract public attention. Bespoke arbitration can accommodate all these expectations, including hand-picking the qualifications of arbitrators called to resolve highly technical matters, ranging from complex accounting and legal issues to bleeding-edge engineering and IT solutions. Public authorities, though, are obviously not keen to renounce state jurisdiction on some of the most significant and largest disputes. What they have to offer is a public monopoly on coercion as enforcement of a final award. Depending on the political, social, and economic strengths of the business and political stakeholders, the pendulum has historically swung between state-courts and private arbitration. As both sides exert pressure, the public justice system may be prodded to show greater flexibility with regard to business needs while business arbitration tribunals may be more willing to interact with the public judiciary. So, does a firmer public grip on settling investment disputes simply reflect yet another swing in the justice pendulum? Hardly.
Let’s recall the never-ending saga of tax evasion, resulting in a scandal followed by a presumptuous political declaration and yet another scandal. From “Offshore Leaks”, to “Lux Leaks”, to “Swiss Leaks” to the “Panama Papers”, these scandals all reflect the weakness of contemporary states in a globalised economy. Let’s not forget about states’ failure to protect consumer privacy and harness Big Data, powerfully reflected by the Cambridge Analytica scandal and seen in the recent Mueller report. Three tech companies are already in the trillion-dollar club in aggregated market capitalization. Compare this to the mere 16 states above this threshold in GDP (and half are within the Big 3’s mid-term growth potential). We’re all waiting to see how one of the Big 3’s most ambitious initiatives to date—Facebook’s Libra, a cryptocurrency challenging the official monetary system—will play out. Accordingly, whether looking at traditional public power or sheer size translating into political leverage, the current power set-up favouring big business does not support the current political momentum in investment arbitration reform. What should we expect then? Frankly, the opposite of what we are currently observing.
In case lobbying to restrain legislation fails, business will push back by launching yet another generation of investment arbitration, most likely where the public authority is weakest, specifically cyberspace, by going against economically weaker states. One can easily imagine how major tech companies could strongarm medium or small states into re-taking the arbitration path, as happened in the past. So, are we witnessing the regulation-deregulation dynamics coming full circle? Unlikely.
The regulatory pushback against investment arbitration stems from multiple factors. However, the scapegoating of elusive “transnational companies and the ad hoc arbitration” feeds into major epochal change. The democracy crisis and market economy gradually shift social preferences from untamed liberty to greater security, from the pre-eminence of (economic) self-reliance to ever-stronger expectations of economic equality. The success of the probable business counter-initiative to arbitration reform will hinge upon embracing this contradiction.
The wealthiest individuals and the largest companies have an inherent inclination towards an individualistic sense of (economic) justice. They may agree to provide minimal sufficiency for the worst off to buy social stability. When the public courts–arbitration pendulum swung towards the arbitration the last time, liberal sense of justice was largely shared throughout society. Now, however, a communitarian wave is on the rise. Accordingly, the justice expectation is not limited to sufficiency but includes economic equality demands.
Business initiative to renew investment arbitration in a way that embraces economic egalitarianism seems paradoxical at first. However, in the long run such a more public-sensitive tribunal would be a better strategy for business, as they both again occupy the field (rather than ceding to the public judiciary) and thus gain leverage over the new International Investment Court, or any other direction the ongoing public reform takes us.
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Please consider the above as a sketch for a research project on the sociology of international investment arbitration and contact the author, would you be interested in contributing with your sociological expertise to this endeavour.
