The unsustainable political economy of investor–state dispute settlement mechanisms1
| Author | David Hall,Vera Weghmann |
| DOI | 10.1177/00208523211007898 |
| Published date | 01 September 2021 |
| Date | 01 September 2021 |
Article
International
Review of
Administrative
Sciences
The unsustainable
political economy of
investor–state dispute
settlement mechanisms
1
Vera Weghmann
University of Greenwich, UK
David Hall
University of Greenwich, UK
Abstract
Investor–state dispute settlement mechanisms were intended to protect companies from
the Global North against expropriation by Global South countries. Since 2000, investor–
state dispute settlement mechanisms have increasingly been used against Northern coun-
tries to obtain compensation for and constrain policy decisions around nationalisation and
remunicipalisation, as well as around the environmental or social regulation of service
provision that threatens commercial interests. Social movements and governments alike
resisted investor–state dispute settlement mechanisms, and despite the power wielded by
multinational companies, the global trend is now to exclude investor–state dispute settle-
ment mechanisms from new investment treaties. The purpose of this article is to provide a
political-economy analysis of the processes of supporting and contesting the role of inves-
tor–state dispute settlement mechanisms in international treaties, processes that include
activity at national, sub-national and international levels. The ensuing conflicts are analysed
in terms of post-colonial contradictions over sovereignty under globalisation, continued
contestation over the role of the public sector and climate change policies.
Points for practitioners
The probability of investor success with investor–state dispute settlement mechanism
claims should not be overestimated, and investor assessments of the basis and
Corresponding author:
Vera Weghmann, University of Greenwich – PSIRU, Old Royal Naval College, Park Row, Greenwich,London
SE10 9LS, UK.
Email: v.weghmann@gre.ac.uk
International Review of Administrative
Sciences
!The Author(s) 2021
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/00208523211007898
journals.sagepub.com/home/ras
2021, Vol. 87(3)480–496
prospects for such cases should be subject to critical scrutiny. Governments should be
aware of widespread popular antagonism towards investor–state dispute settlement
mechanisms and global trends to remove such clauses from agreements. They should
also review all bilateral investment treaties, free trade agreements and the Energy
Charter Treaty that the country has ratified to assess the potential relative advantages
of retention or leaving.
Keywords
bilateral investment treaties, compensation, Energy Charter Treaty, environmental reg-
ulations, globalisation, investor–state dispute settlement mechanism, municipalisation,
nationalisation, populism
Introduction
The investor-state dispute settlement (ISDS) clauses of international investment
and trade treaties allow international investors to sue states and local governments
before an international arbitration tribunal. Originally expected to protect foreign
investors against expropriation by countries of the Global South, since the millen-
nium, they have also been increasingly used in countries of the Global North to
prevent nationalisation or remunicipalisation (the reversal of privatisation on the
municipal level), as well as to obstruct changes to the environmental or social
regulation of service provision that threaten commercial interests.
Since the 1980s, privatisation has been a dominant global policy, favouring
investors. While privatisation is still increasing worldwide (Weghmann, 2020),
since the millennium, there has been a counter-tendency towards public ownership:
more than 1400 cases of remunicipalisation or nationalisation involving more than
2400 cities in 58 countries have been identified since the year 2000 (Kishimoto
et al., 2020). Yet, these figures are likely to be an understatement, as most remu-
nicipalisations are not publicly recorded and are therefore unknown. Even in the
UK, a country famous for its excessive privatisations, at least 222 local govern-
ment contracts were remunicipalised between 2016 and 2018 (APSE, 2019); fur-
thermore, nationalisation proposals proved to be very popular with voters in the
2019 UK election (Hall, 2020). In this context, investors have been using ISDS
claims not only to seek compensation for the ending of concession agreements or
for nationalisations, but also as a financial deterrent to prevent such policies. Local
governments are particularly vulnerable, as they cannot necessarily rely on the
backing of their national government, especially when there are political differ-
ences between the local and the national levels. For example, in 2017 in Sheffield,
UK, the council voted for an early end to the city’s 35-year waste management
contract with Veolia, which had started in 2001, because it was no longer perceived
to meet the city’s waste management needs. However, after Veolia threated an
481
Weghmann and Hall
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