The legitimacy crisis of investor-state arbitration and the new EU investment court system

Thomas Dietz, Marius Dotzauer and Edward S. Cohen

Review of International Political Economy, 2019, vol. 26, issue 4, 749-772

Abstract: In response to the ongoing legitimacy crisis of investor-state arbitration, the European Union (EU) developed a new model of investor-state dispute settlement (ISDS) that replaces international arbitration with a system of bilateral investment courts. In this article, we draw on literature on the role of legitimacy in driving institutional change in international institutions to explain the rise of the new EU model. We further examine the extent to which the new EU model is able to overcome this crisis, thereby potentially giving the ISDS a new legitimation. We argue that the new EU model in large part does provide a substantial response to several frequently contested legitimacy gaps of ISDS. At the same time, however, we suggest that the EU model does not effectively address the most fundamental criticism of ISDS, which questions the very existence of a specific judicial forum providing exclusive rights for international investors, particularly between states with highly developed economies and legal orders.

Date: 2019
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DOI: 10.1080/09692290.2019.1620308

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