Double Jeopardy? The Use of Investment Arbitration in Times of Crisis

25 Pages Posted: 21 Jun 2019

See all articles by Cedric G. Dupont

Cedric G. Dupont

Graduate Institute of International and Development Studies (IHEID)

Thomas Schultz

King's College London; University of Geneva; Graduate Institute of International and Development Studies (IHEID) - Geneva Center for International Dispute Settlement (CIDS); Graduate Institute of International and Development Studies

Merih Angin

Graduate Institute of International and Development Studies (IHEID)

Date Written: June 17, 2019

Abstract

Investment arbitration is increasingly making the headlines because of both its potential to overly restrict the policy space of states and its significant costs for parties. Against this background of negative side-effects, it is worth asking whether it is used predominantly in situations that at least appear legitimate. We focus on the hypothesis that investment arbitration is used as a response to the effects of two types of shocks on investors – shocks caused by severely dysfunctional governance at the national level and shocks caused by economic crisis. Whereas investment arbitration could gain legitimacy if used to redress or mitigate severe governance deficiencies, its use in the context of economic crisis could be viewed as putting the countries’ economy in double jeopardy. Investment arbitration would further hurt countries already in great difficulty and would thus be used in a situation that does not appear plainly legitimate. We test links between governance, economic crises and investment arbitration using an original dataset that includes investment claims filed under the rules of all arbitration institutions as well as ad hoc arbitrations. We find that bad governance, understood as corruption and lack of rule of law (using the WGI Corruption and WGI Rule of Law indexes), has a statistically significant relation with investment arbitration claims, but economic crises do not when considered separately. Yet, bad governance and economic crises considered together are a good predictor of when countries get hit by investment arbitration claims.

Keywords: investment arbitration, economic crises, legitimacy of arbitration

JEL Classification: K33, K41

Suggested Citation

Dupont, Cedric G. and Schultz, Thomas and Angin, Merih, Double Jeopardy? The Use of Investment Arbitration in Times of Crisis (June 17, 2019). Available at SSRN: https://ssrn.com/abstract=3405307 or http://dx.doi.org/10.2139/ssrn.3405307

Cedric G. Dupont

Graduate Institute of International and Development Studies (IHEID) ( email )

Thomas Schultz (Contact Author)

King's College London ( email )

Somerset House East Wing
Strand
London, WC2R 2LS
United Kingdom

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

Graduate Institute of International and Development Studies (IHEID) - Geneva Center for International Dispute Settlement (CIDS) ( email )

Villa Moynier
Rue de Lausanne 120b
Geneva, 12011
Switzerland

Graduate Institute of International and Development Studies ( email )

Geneva
Switzerland

Merih Angin

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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