Policy Responses to International Investment Arbitration

Rage against the regime: Policy responses to international investment arbitration adissertation submitted to the faculty of the graduate school of the university of minnesota by Florencia Montal in partial fulfillment of the requirements for the degree of doctor of philosophy John R. Freeman and Ronald R. Krebs, Advisers August 2019 c Florencia Montal 2019 Acknowledgements First, I want to thank my advisers – John Freeman and Ron Krebs. John became a co-advisor at a later stage and has since then been an invaluable source of support. My project became much more rigorous and ambitious thanks to John. Ron had been my adviser from much earlier and, as such, had to read through many dissertation ideas that did not make it past a few pages. At every point of this process, Ron’s encouragement helped me stay focused and made me work harder. His guidance has made me a better scholar since he led me to always think about larger theoretical questions and the broader implications of my work. Above all, without Ron’s commitment and dedication I would have never made it to this point. Likewise, I want to thank my dissertation committee – Cosette Creamer, Bud Duvall, and Paul Vaaler. Cosette arrived to the University of Minnesota at a crucial point for me. Since then, she has helped me navigate not only the complexities of this project but life inside, outside and beyond graduate school. With an immea- surable combination of brilliance and warmth, Bud has been a permanent source of encouragement and support. Coming from the law & business fields, Paul brought with him a di↵erent and incredible valuable perspective as well as his characteristic enthusiasm. I also thank Geo↵Dancy, Lisa Hilbink, Kathryn Sikkink, Jose Soss and Jane Sumner for their advice and guidance over the years. This research would have been impossible without the many individuals from the public, private and civil society sectors who took time from their busy lives to talk to me about their work and experiences with international investment treaties i ii and arbitration. Among all my invaluable informants, a special gracias goes to mis hermanos latinoamericanos.Itismyhopetohavecontributed,evenintheslightest,to a better understanding of the complexities involved in navigating the global economy from our part of the world. I also thank my family and friends for their support throughout this journey. I thank my parents Susana and Carlos for their unconditional love and my siblings Silvina, Federico and Carlos for their support. I also thank my friends – my school friends, my Twin Cities friends, and my girlfriends back home in Argentina. Luckily, there are too many of you to individually name. It would have been impossible to make it through six years of grad school if you had not been there to support me at the low points and share the joy at the high points. Lastly, I am thankful to my partner Aaron for three main reasons. First, he read through hundreds of drafts and corrected my grammar. Second, he made it possible to adopt our dog Sonny who has been my companion during this last year of writing. And third, he believed in me more than I believed in myself. Abstract Common in political discourse and academic literature is the notion that the international investment regime is experiencing backlash. At the center of this backlash is the belief that international investment treaties unduly restrain states ability to regulate in the public interest, most notably by allowing foreign investors to file international arbitration claims directly against governments for a variety of regulatory acts. The rise of investment arbitration–also know as investor-state dispute settle- ment (ISDS)–has provoked a regime-wide reassertion of states’ autonomy to regulate foreign investment under investment treaties. However, states have embarked on this process in di↵erent ways and to di↵erent extents. While some have become more cau- tious of how much legal autonomy they sacrifice in the future, others have partially or completely recovered autonomy lost to previous treaties. My dissertation explains why states pursue di↵erent policies in the aftermath of ISDS. I argue that negative ISDS experiences are filtered through ideational lenses that incline policy-makers to reclaim more or less legal autonomy. Yet policy-makers face constraints and opportunities when acting on these emerging preferences. Thus, I also argue that policy outcomes depend on the combination of a domestic and external variables. Most scholarly attention has been placed on the political behavior of economic actors, either domestic firms or foreign investors. However, ISDS disputes also a↵ect a broad and diverse ensemble of local and transnational civil society groups. These actors have competing interests regarding continuity and change in investment treaty policies. Thus, I examine the conditions under which their mobilization can iii iv enhance or hinder policy-makers’ ability to implement their desired policies. I test the expectations derived from this argument using a mixed methods research design that combines quantitative statistical analysis and qualitative case studies. Through regression analysis of an original measure of international legal autonomy, I show that after ISDS claims hit, states are less willing to sacrifice their legal autonomy and in some cases start to recover it. Further analysis of three original datasets of treaty signature, treaty content and treaty termination shows these actions are not equally likely across states. Through within- and cross-case comparisons of investment treaty policy-making in the United States, Ecuador and India, I show how alternative combinations of the explanatory variables make a given policy reaction to ISDS more likely. Whether states continue to endorse strong treaty protections is a pressing ques- tion, given the recent rise in the number of governments elected on nationalist plat- forms. There are also normative stakes in the answers to these research questions. Policy variation does not simply revolve around technical legal disagreements; it re- flects fundamental disagreements about the limits of state authority in a globalized economy. Contents List of Tables xii List of Figures xiii 1 Introduction 1 1.1 A brief history of international investment law . 6 1.1.1 International investment protections before treaties . 6 1.1.2 The rise of investment treaties . 9 1.2 The ‘backlash’ against investment arbitration . 12 1.3 Whatdoes‘backlash’entail?. 16 1.3.1 How much international legal autonomy to compromise? . 20 1.3.2 How much international legal autonomy to recover? . 23 1.3.3 The outcome of interest: changes in international legal autonomy 27 1.3.4 The importance of understanding the backlash . 35 1.4 Theargumentinbrief .......................... 37 1.5 Layout of the dissertation . 41 2 Literature review and theoretical framework 45 2.1 Existing explanations . 47 v Contents vi 2.1.1 International tribunals . 48 2.1.2 The interests of firms . 52 2.1.3 State autonomy . 54 2.1.4 Power and hegemonic ideas . 56 2.1.5 Rational and bounded rational learning . 58 2.2 The politics of ISDS experience . 65 2.2.1 The importance of ideas . 68 2.2.2 Domestic variables . 71 2.2.3 External factors . 78 2.2.4 Ideas, societal interests and access points . 85 2.3 Research design . 89 2.3.1 Case selection . 90 2.3.2 Case-specific expectations . 93 3 Quantitative evidence 98 3.1 ISDS experience and international legal autonomy . 100 3.1.1 Expectations and data . 111 3.1.2 Results and discussion . 115 3.2 ISDS experience and treaty signature . 122 3.2.1 Expectations and data . 124 3.2.2 Results and discussion . 127 3.3 ISDS experience and treaty content . 130 3.3.1 Expectations and data . 130 3.3.2 Dependent variable . 135 3.3.3 Independentandcontrolvariables . 137 Contents vii 3.3.4 Results and discussion . 141 3.4 ISDS experience and treaty termination . 148 3.4.1 Expectations and data . 149 3.4.2 Results and discussion . 153 3.5 Conclusion . 157 4 United States 160 4.1 The argument . 161 4.2 ‘Who are these guys?’ Civil society and the failure of the Multilateral AgreementonInvestment . 167 4.2.1 TheoriginsofMAI ........................ 170 4.2.2 Negotiationsandcontentiousissues . 172 4.2.3 TheendofMAIanditsimplications . 184 4.3 Earlyreformistsigns: reinterpretingNAFTA . 187 4.3.1 Fair and Equitable Treatment . 188 4.3.2 Transparency . 191 4.4 Consolidating changes: the 2002 Trade Act and the 2004 model BIT . 194 4.4.1 The2002TradeAct ....................... 194 4.4.2 The 2004 model BIT . 200 4.5 The 2004 model in action: the US-Uruguay BIT and the Australia-US FTA .................................... 204 4.5.1 NegotiatingwithUruguay . 207 4.5.2 NegotiatingwithAustralia . 211 4.6 Conclusion . 215 Contents viii 5 Ecuador 218 5.1 The argument . 218 5.1 Background ................................ 226 5.2 The turning point: Ecuador v. Occidental . 228 5.3 Fuera Oxy!:socialunrestandtheendofOxy’scontract ....... 235 5.4 Between radicals and moderates: The Correa government and the in- vestmentregime.............................. 240 5.5 Investment arbitration in the 2008 constitution . 244 5.1 Leaving ICSID . 251 5.1.1 Partialexit ............................ 253 5.1.2 Full exit . 255 5.2 The termination of the BITs . 257 5.2.1 The ‘easy’ BITs . 259 5.2.2 The ‘hard’ BITs . 261 5.2.3 Constitutional court . 265 5.2.4 Congress I: the Foreign A↵airsCommission. 266 5.2.5 Congress II: the plenary of the National Assembly . 268 5.2.6 Executive . 269 5.1 CAITISA: auditor´ıaciudadana ..................... 275 5.2 The Chevron campaign: La mano sucia de Chevron .......... 285 5.3 Diplomatic coordination . 288 5.3.1 Global coordination . 288 5.3.2 Regional coordination . 290 5.4 The enabling factors . 297 Contents ix 5.5 Conclusion .

Load more