How the investment protection system undermines judicial independence in Latin America
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One of the main arguments used to justify the creation of an investment arbitration system was that domestic courts are biased and inadequate for settling disputes between investors and states. The response to this alleged problem was to create a parallel “justice” system set up by means of a web of 300 free trade agreements and around 2,500 investment protection treaties.
These international agreements include the Investor-State Dispute Settlement mechanism (ISDS), which gives foreign investors the right to bring claims against governments before international arbitration tribunals, without needing to exhaust domestic legal remedies first.
This report presents two central arguments:
1. International arbitration tribunals are much less impartial and independent than the court system. Indeed, the very nature of the arbitration system makes it intrinsically biased in favour of foreign investors. The report presents evidence that:
- In contrast to judges, arbitrators do not have to comply with institutional guarantees of impartiality and independence.
- In investment arbitration there is no right to appeal, thus eliminating one of the essential checks and balances.
- The cost of arbitration in an investor-state dispute is much higher than a lawsuit in the national courts.
- The investment protection regime does not provide equal access to justice and discriminates between local and foreign investors.
2. Investment arbitration undermines the judiciary. Even in the best-case scenario, the investor-state dispute settlement system sidelines the domestic courts, while at its worst it undermines the decisions taken by a country’s own judges. We present five scenarios and examples to illustrate this situation in Latin America:
- Foreign investors filing complaints against states due to decisions taken by their domestic courts, as in the cases of Eco Oro versus Colombia, Infinito Gold versus Costa Rica and Kappes versus Guatemala.
- International arbitration tribunals ordering governments to overturn the rulings of domestic courts, violating the principle of the separation of powers.
- Foreign investors bypassing domestic courts.
- Foreign investors using arbitration tribunals to evade liability for human rights violations and infringement of environmental and labour laws.
- Foreign investors found guilty of crimes seeking to escape justice by making use of the investment protection regime.
To address this situation, the following recommendations are offered:
- Acknowledge that the domestic courts, despite their current shortcomings, are the most suitable forum for settling disputes between foreign investors and states.
- Governments should not sign new investment protection treaties that include the ISDS mechanism and should aban- don existing treaties that include ISDS.
- Move forward with comprehensive audits of investment protection treaties.