Santiago Corredor Persuasive Writing Paper

Global Business Law - LAW 440 – BOS 2

A2 Legal Research Paper

Persuasive Writing Paper: Against ISDS

Course: Global Business Law

Professor: Robert Ginsburg
Assignment Name: A2 Legal Research Paper
Submission Type: Persuasive Writing Paper
Date: 16/12/2022
Word Count: 1526
Name: Santiago Corredor
Contents
Introduction:...............................................................................................................................................4
Contention 1: (Against ISDS)........................................................................................................................5
Subpoint A: ISDS undermines the sovereignty of Nations.......................................................................5
Subpoint B: ISDS can lead to exorbitant damages creating burdens in Taxpayers..................................6
Contention 2: (For ISDS)..............................................................................................................................8
Subpoint A: ISDS provides legal protection for investments and helps to attract foreign investors
which ultimately benefits countries........................................................................................................8
Rebuttal: Corporate interests should not override the rights of citizens and governments....................8
Refute and Conclusion:..............................................................................................................................10
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

Introduction:
The weight of the negative effects of the ISDS on sovereignty outweighs the positive

effects of protecting foreign Investors. Investor-State Dispute Settlement (ISDS) is a system of

international arbitration that allows investors to sue governments for alleged breaches of

international investment agreements. It has been used by multinational corporations to challenge

a range of government policies, from environmental regulations to health and safety standards.

This creates a hard-to-reach consensus over whether this is something we should keep on

promoting or not as it overseas a provision that “obliges States to afford investors “fair and

equitable treatment” as part of the guarantee of a “minimum standard of treatment.” (Public

Citizen, n.d.) Which might only seem reasonable and fair for corporations as they venture into

new markets. But also destroys the most basic right of governments to maintain their sovereignty

as they can found their actions limited as this may incur in a breach of this mechanism leading to

long and expensive law agreements that can generate hundreds of millions of dollars lost in costs

as for the only reason of applying their right of creating/modifying laws that might be only

looking for the appropriate control and protection of their citizens rights. Therefore, creating the

need to explore deeper the effects of the implementation of these mechanisms and their impact

over countries control and power, and their capacity to seek out the wellbeing of their citizens. In

this persuasive paper the idea of why we shouldn’t keep promoting this mechanism is going to be

presented, having a heavy focus on whether we should keep giving extra protection to FDIs over

the well being of the citizens and their role in the settlements.

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

Contention 1: (Against ISDS)

Subpoint A: ISDS undermines the sovereignty of Nations

Regardless of what might be the intentions of allowing the usage of ISDS or not, the reality is
that giving this power to private corporations for their benefit is wrong. There have been many
cases already in which corporations had decided to take actions against governments due to
legitimate policies, that seek out the protection of health and other public interests. Such is
example of the that happened between the Swedish polluter Vattenfall against the German
government for over 3.7 billion USD after following a completely democratic decision to phase
out nuclear energy. (Corporate Europe Observatory, 2014). Or the case between Philip Morris
against Uruguay because of their decision to put over health warnings on the cigarette packages
(BBC News, 2016).

While ISDS can indeed protect foreign investment, it is creating an imbalance of power that
allows private conglomerates to protect their interest while creating restriction for governments.
This is due to the fact that by having the ISDS agreements, the governments are lead water down
their policies (or prevent the creation of certain new ones), meant to protect the public, for the
only reason of avoiding potential threats of ISDS. These threats could end up leading to the
spending of hundreds of millions of dollars in tribunals and legal costs defending themselves,
even in the case of winning the case at the end. Being this a scenario that many governments
would prefer to avoid, preventing them from launching policies that could be used for the
welfare of the public.

Is not only that this imbalance of power is a possibility. Private entities have realized that there is
indeed an imbalance in power, incentivizing them to generate more disputes as they understand
the way they are normally performed. As it is possible to observe in figure one. The number has
increased by more than 60% in the past decade, making it obvious companies are more often
seeing an opportunity to “take a swing” and protect their own interests and their revenue without
considering the public’s interest.

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

Fig. 1 “Trends in known treaty-based ISDS Cases 1987 - 2020”

This threat is creating a boundary for many legitimate governments on the protection of
their citizens, creating the questions, is worth it to protect the interest of a small but powerful
conglomerate over the rights that the different administrations around the world owe their
citizens for profit? It should

Subpoint B: ISDS can lead to exorbitant damages creating burdens in Taxpayers

We also need to take into consideration that ISDS promoters argue that it is necessary to protect
investors from arbitrary actions taken by governments, such as expropriations without
compensation, unfair taxation, and discriminatory regulation. However, the potential for
exorbitant damages can create a burden on taxpayers who must bear the costs of the awards.
Additionally, ISDS tribunals are not bound by precedent, meaning that awards can be
unpredictable and inconsistent. These awards are normally given by the basis of how much profit
a firm could have made if there was no intervention from policy makers and governments.
(Public Citizen, n.d.)

It is important to remember that the tribunals in charge of these cases are acting on
“protection” of these industries and their interests, but we are forgetting that the concept of an
ISDS was to seek out for the promotion of fairness of treatment for these investments, not
looking out for the protection and compensation of private businesses. The reason why other
companies might consider carrying an FDI is almost always to create increase their revenue, and
just like any other investment, it should be more than expected that there should be risks that
accompany the potential of increasing your inflows. If we consider that, why should we not only

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

give these businesses protection over their investments (almost securing an investment for them),
but even reward them with money that should be used for investing in public interests such as
health, infrastructure, education, etc. The diversion of these resources just creates an unfair hole
in the governments portfolio that forces them to incur in higher tax rates and other measures that
will ensure they have the necessary resources to carry with their agendas, therefore passing the
weight of this economical burdens into citizens that might not have any interest over the
performance of a private company. It is worth mentioning that only in the U.S. the government
has had to pay more than 3.6 billion USD (taken of course of U.S. citizens taxes) to pay foreign
corporations under U.S FTAs1 (Public Citizen, n.d.)

1
Free Trade Agreements, being this one of the tools used by two or more governments in order to promote the
exchange of goods, services etc.

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

Contention 2: (For ISDS)

Subpoint A: ISDS provides legal protection for investments and helps to attract foreign
investors which ultimately benefits countries

The ISDS is an important tool for the promotion of Foreign Direct Investment (FDI) This option
can be offered as it promotes the idea of a fair treatment and regulation over FDI considering the
high risk it mitigates when propose for corporations that may be hesitant on whether they should
incur in the investment or not. According to the United Nations Conference on Trade and
Development (UNCTAD) FDI it “can play a key role in the economic growth and development
process.” Increasing the interest of governments of offering this option to foreign corporations.
(Lesly, J., others, 2016)

Fig. 2 “Foreign direct investment and employment in transition economies” (Estrin, S., n.d.)

When taking as the main factor the development of country and the ultimate goal of the
well being of citizens that might depend on specific economies, the use of this tool might seem
necessary and even recommendable, as it can generate millions of dollars in profit for both the
companies and governments in charge of the public wellbeing. Being also a huge positive driver
in matter such as unemployment (as it can be observed in the data given by Estrin, S. in Fig. 3).
Creating a win-win situation where all stakeholders can benefit from the simple offering of a fair
treatment when incurring in an FDI protection.

Rebuttal: Corporate interests should not override the rights of citizens and governments

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

While the promotion of ISDS mechanism can indeed lead to the further economical development
and growth, it is been discussed that these agreements tend to create situations where there is not
only no creation of value for citizens and governments, but in the other hand there is a creation
of a burden that can actually deepen the economical and social problematics a specific country
might be facing.
As it is possible to observe in figure 3. The investor-state dispute settlement agreements
can incur major monetary loses for governments that might already be in crisis when speaking of
social and economical topics. Such could be the case in Venezuela, where the fight of corruption,
poverty, hunger and social injustice is already generating hundreds of millions of people (6
million people according to World Vision) (World Vision, 2021) who need to abandon their
country in order to find better opportunities somewhere else. While the causes of this crisis might
not be pointed back to the ISDS mechanisms on its own, it is possible to say that the potential 21
billion USD the government owes to several foreign corporations, could create a barrier that (in
normal conditions with a fair government) could prevent the improvement of the situation.
Preventing the government from offering fair living conditions for its citizens again. This is just
1 case of the many that could be presented if it is allowed to continue the empowerment of
private jurisdictions over public matters such as the creation of policies and the use of public
resources.

Fig. 3 “Potential financial losses from fossil fuel investor-state dispute settlements (ISDS) in select countries
worldwide in 2022, in billion US dollars. (Statista, 2022)

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Against ISDS
Santiago Corredor Persuasive Writing Paper
Global Business Law - LAW 440 – BOS 2

Refute and Conclusion:

While in the creation of this paper, it was necessary to understand and accept the benefits that
ISDS mechanisms can create for both corporations and governments, we can not ignore the fact
that giving this right is going against the power of a government of protecting its people as well
as the democracy that took the decision to empower such government. While the corporations
could create benefits for the countries where they decided to create their FDI, ultimately their
goal is always going to be generating more profit for their organizations. This can sometimes be
found on the opposite end of a government (and ultimately of the citizenships) interest and
giving the power to private organizations to overwrite public matter decision through private
mechanisms that do not need to base themselves on any historical records is, simply put, wrong.
The ultimate goal of this kind of mechanisms should be the creation of markets where
there is fairness and equality across the businesses to create better competitive conditions
regardless of the origin of the competition. Therefore, promoting a mechanism that in reality, has
been exploited by private corporations demanding the protection of their individual interests
without taking into consideration the public interest and fairness is needles, demanding a change
that takes into consideration the public needs.

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Against ISDS