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Conflating Politics and Development? Examining Investment Treaty Arbitration Outcomes

59 Pages Posted: 14 Mar 2015 Last revised: 18 Mar 2015

Susan D. Franck

American University - Washington College of Law

Date Written: March 10, 2015

Abstract

International dispute settlement is an area of ongoing evaluation and tension within the international political economy. As states continue their negotiations for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), the efficacy of international arbitration as a method of dispute settlement remains controversial. Whereas some sing its praises as a method of protecting private property interests against improper government interference, others decry investment treaty arbitration (ITA) as biased against states. The literature has thus far not disentangled how politics and development contribute to investment dispute outcomes. In an effort to control for the effect of internal state politics, this Article offers the first analysis of ITA outcomes, focusing on respondent states’ development status while simultaneously controlling for states’ democracy levels. Using a dataset of 159 final ITA awards from prior to January 2012, the Article conducts quantitative analyses of outcomes as a function of raw wins and losses, amounts awarded, and relative investor success. Initially, when evaluating outcomes based on a respondent state’s membership in the Organisation for Economic Cooperation and Development (OECD) or a state’s score on the UN Development Programme (UNDP) Human Development Index, it was not possible to identify a reliable link to outcomes. Only defining a respondent’s development status using a World Bank classification generated reliable differences for Upper-Middle income states, and only for two measures of outcome — namely raw wins and amounts awarded. Using the World Bank measure, there was no statistically significant relationship with relative investor success. None of these analyses, however, controlled for the level of internal state democracy to identify how democracy levels, which can reflect good governance infrastructure, might contribute to outcomes. After controlling for the effect of a state’s internal democracy levels, twelve analyses were unable to identify a reliable link with ITA outcomes and development status irrespective of how development status was defined. While the Article cannot conclusively exclude the possibility of systemic bias in ITA against the developing world, it provides additional evidence suggesting the potential absence of such bias or the importance of alternative explanatory variables. The results also suggest that focusing on development status alone may be unwarranted, and future research should explore internal levels of democracy or other indicators of good governance, which could be associated with the decreased risk of a state loss. The Article concludes that normative choices focused solely on respondent state development status miss an opportunity to craft normative solutions tailored to redress tangible problems. By focusing on variables that demonstrably contribute to variance in ITA outcomes, stakeholders could construct more appropriate international dispute settlement processes in a time of international economic transition.

Keywords: Empirical Legal Studies, International Economic Law, Law and Society, Development, Politics, Good Governance, Investment Treaties, Bilateral Investment Treaties, BIT, IIA, Investment Treaty Arbitration, Dispute Resolution, TPP, TTIP, ISDS, ICSID, Polity IV, OECD, Legitimacy,

JEL Classification: C00, C10, F01, F02, F21, F23, F30, K1, K4, K33, K20, K41, H77, H87, E22, O10, O16

Suggested Citation

Franck, Susan D., Conflating Politics and Development? Examining Investment Treaty Arbitration Outcomes (March 10, 2015). Virginia Journal of International Law, Vol. 55, 2014. Available at SSRN: https://ssrn.com/abstract=2574299

Susan D. Franck (Contact Author)

American University - Washington College of Law ( email )

4300 Nebraska Avenue, NW
Washington, DC 20016
United States

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