Jonathan C. Hamilton, “The Future of Arbitration,” Latin American Advisor (2015)

Will the Trans-Pacific Partnership consolidate the cornerstone of the previously-imagined Free Trade Agreement of the Americas?  If so, will it maintain NAFTA-style investor-state dispute settlement? In this context: what is the future of arbitration in Latin America?  That is the question that The Inter-American Dialogue posed to me and others in its Latin America Advisor publication, observing that the inclusion of investor-state dispute mechanisms in international agreements such as the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership has received criticism from groups that say international arbitration favors multinational corporations at the expense of countries’ sovereignty.  What does the future hold? 

International dispute mechanisms matter to investment, development and the rule of law.

History is a guide: the lack of reliable investment protections and neutral dispute resolution had been a disincentive for investment and allocated investment disputes to local courts and the realm of diplomacy, sometimes even disrupting foreign relations and prompting domestic regime change. That is why most Latin American states ratified investment protection treaties and adopted investor-state dispute settlement as components of macroeconomic reforms two decades ago. It was a rational policy judgment, not a surrender of sovereignty.

Despite the critics, the overall results of investment arbitrations reveal relatively balanced outcomes. Countries that demonstrate greater stability generally achieve better results. Meanwhile, continued enhancements in transparency, clarification of standards and strengthening of institutions portend improvement of the system, if slowly. It is notable that, notwithstanding a vocal minority of states, others such as Chile, Colombia, Mexico and Peru continue to ratify more treaties providing for investor-state dispute mechanisms, including the Alliance of the Pacific and the Trans-Pacific Partnership.

In this context, the noisy debate over investor-state dispute settlement reflects a broader policy divide that is etched in the region today and will echo into the future

International dispute mechanisms matter to investment, development and the rule of law.

Jonathan C. Hamilton