Rethinking and Reforming the Investor-State Dispute Settlement Mechanism in the Context of Global Governance

• Author: Mingqian Li
• Position: Ph.D., Associate Professor at the School of Foreign Studies, East China University of Political Science and Law; Fellow in Post-doctoral Research Station of Political Science, Fudan University
• Pages: 21-39

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Rethinking and Reforming the Investor-State Dispute Settlement

Mechanism in the Context of Global Governance

Mingqian Li1

Abstract: As an important element of International Investment Agreements (IIAs) for bringing

claims before an independent forum to settle investment disputes against the host state, the Investor-Sate

Dispute Settlement (ISDS) could be deemed as a vehicle not only for investment liberalization but also

for enhancing global governance system. The emergence and reform of the ISDS mechanism, reflects

further development of global governance theory and practice. This article adopts global governance as

the analytical framework, addressing the legitimacy questions surrounding global governance. The

current concerns and backlash against the ISDS is thus viewed as an example of “legitimacy gap” in

global governance. This article then reflects on the current reform models proposed by the U.S. and the

EU in response to the challenges faced by the ISDS. In the context of global governance, references to

principles of good governance, such as democracy, participation and transparency, ensure that the

reformed ISDS is capable of coping with the legitimacy issue, perform its public governance role, and

fulfill its function as depoliticizing foreign investment disputes to some extent. Further, the struggles

over the ISDS reform have displayed that global investment governance reform is subject to the interest

pursuit of leading countries or dominant regions. The legitimacy enhancement is not independent on

power politics; instead, it is shaped by power shifts in the international relations.

Key Words: Investor-Sate Dispute Settlement; Global Governance; Arbitration; Legitimacy;

Investment Court

1. Global Governance: A Framework for ISDS Analysis

The term “global governance” is understood as “the exercise of authority across national borders as

well as consented norms and rules beyond the nation state, both of them justified with reference to

common goods or transnational problems”.2 It is not only a hot academic topic but also has policy

implication in political practice.3

It comes to the fore as an empirical fact to signal the need for establishing a framework

encompassing the gradually strengthened links, exchanges, and interaction among countries.4 In the

rapid process of globalization, issues and problems that were once only local and had limited social

effect have now correspondingly and rapidly evolved into global concerns. Ecological crisis,

environmental pollution, population explosion, resource shortage, international terrorism, transnational

crimes and pandemics are acutely influencing the global community.5 These crises have made people

realize that there is no way to solve these problems without a global cooperative approach. “Global

1 Mingqian Li, Ph.D., Associate Professor at the School of Foreign Studies, East China University of Political Science

and Law; Fellow in Post-doctoral Research Station of Political Science, Fudan University.

2 See Michael Zürn, A Theory of Global Governance: Authority, Legitimacy, and Contestation, Oxford University

Press, pp.3-4 (2018).

3 See Katherine Morton, Political Leadership and Global Governance: Structural Power Versus Custodial Leadership,

2 Chinese Political Science Review 477, 493 (2017).

4 See Thomas G. Weiss, Global Governance: Why? What? Whither?, Polity Press, pp. 5-9 (2013).

5 See Jinseop Jang & Jason McSparren, et al., Global governance: present and future, 2 Palgrave Communications 1, 5

(2016).

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governance” has thus emerged as a handy reference and a catch-all phrase to refer to the enlarged and

deepened cooperation to deal with global issues and protect common interests of “global villagers” not

just between states but also by a variety of state and non-state actors.

(a) Dimensions to Unfold Global Governance

There are several dimensions to unfold the functioning of global governance. First of all, it aims to

solve public issues that transcend national borders. With the rapid development of internet and

communication technology, the emergence of numerous public issues has led to the realization that the

global society has common interests higher than the domestic interests of various countries that is called

the global public interests.6 Although it is difficult to define global governance in a specific and precise

way, it is generally believed that many global problems can no longer be solved solely by the traditional

state actors. Efforts among countries to negotiate bilateral or multilateral treaties, or reach informal

arrangements are not enough.7 Solving global public problems requires more diverse participation.

Secondly, it has expanded its scope to involve other actors besides the traditional state actors.

“Governance” is not the same as “control” or “government”, but refers to a new, pluralistic, democratic,

and more inclusive management mechanism, under which various actors manage their common affairs,8

to address issues that beyond national borders or have threatened local and global communities, and to

reconcile the conflicting or divergent interests on the global level.9 As far as non-state actors are

concerned, International organizations, non-governmental organizations, non-profit organizations,

multinational and global companies, and private actors (such as the Bill Gates Foundation) have become

governance entities at par with the state in terms of global governance. In practice, these non-state-actors

develop guidelines and agreements that affect governments on the global scale. A new power structure of

the international community has emerged due to the prominent role played by the non-state actors. For

example, on one hand, the WTO, as an international organization, has regulatory and jurisdictional

powers that directly affect national policies while on the other hand, the influence of NGOs is not to be

underestimated.10 The wide scope of NGOs allows them to seek solutions to problems in specific fields,

with access to specialized information and richer resources in certain areas (e.g. environmental

monitoring, disease control) in comparison to the national governments.11

Thirdly, it involves authority sharing.12 Global governance is an ongoing process involving granting

of powers and authority to some recognized groups or individuals. Global governance has led to

decentralization of political authority at global level.13 Certainly, this is not to say that state actors have

lost their authority completely but have come to the share their traditional authority with various non-

state actors after accepting the recognition, obedience, and loyalties from the people.14 Thus, pluralistic

6 See Michael M. Bechtel & Federica Genovese, et al., Interests, Norms and Support for the Provision of Global Public

Goods: The Case of Climate Co-operation, 49 British Journal of Political Science 1333, 1355 (2017).

7 See David Kennedy, The Mystery of Global Governance, 3 Ohio Northern University Law Review 842, 845 (2008). 8

See James N. Rosenau, Governance without Government: Order and Change in World Politics, Cambridge University

Press, p.5 (1992).

9 See supra note 5, at p.45.

10 See Andrew T. Guzman, Global Governance and the WTO, 45 Harvard International Law Journal 303 (2004).

11 See Eric De Brabandere, Pragmatism in International Law: Non-State Actor Participation in International Dispute

Settlement, in J. d’Aspremont, ed., International Legal System, Multiple Perspectives on Non-State Actos In

International Law, Routledge, p.342 (2011).

12 See Julia Calvert, Civil Society and Investor-state Dispute Settlement: Assessing the Social Dimensions of Investment

Disputes in Latin America, 23 New Political Economy 46, 65 (2018).

13 See Kenneth W. Abbott & Duncan Snidal, International regulation without international government: Improving IO

performance through orchestration, 5 The Review of International Organizations 315, 344 (2010).

14 See supra note 8, at p.5.