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Pro-business arbitration with ISDS

Bernard Caillaud () and Ariane Lambert-Mogiliansky ()
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Bernard Caillaud: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Ariane Lambert-Mogiliansky: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

PSE Working Papers from HAL

Abstract: In this paper, we investigate the Investor-State Dispute Resolution Settlement (ISDS) framework, which governs dispute resolution between foreign investors and host states in many bilateral and multilateral trade agreements. We show that ISDS delivers fair justice in a one-shot setting. In a repeated-interaction setting however, it is prone to collusion to the benefit of all parties except the host states. Three factors are determinant: First, the investors are the sole parties able to file cases; Second, arbitrators' earning prospects depend on the investors' filing cases; And finally, treaties leave substantial discretion to arbitration courts in their interpretation of treaties' provisions. We give conditions for pro-business collusion between investors and arbitrators to develop and we show how it makes it profitable for foreign investors to file high-stake claims against states in response to new environmental, social or health regulations. Further, we address regulatory chill and show how the fear of ISDS attacks can hold back welfare improving regulation in the host country. Finally, we extend the model to show how regulatory chill affect policy-making in other countries in which the investor operates with similar activities.

Date: 2024-01
New Economics Papers: this item is included in nep-env, nep-gth and nep-int
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03763380v2
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