Institutionalisation beyond the Nation State by Elaine Fahey

Author:Elaine Fahey
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

2.2 The Political Context

Albeit a great many factors, which contributed to the failure of the MAI, the breakdown of the negotiations is in large part attributed the hostile negotiating environment. Despite initial optimism, the MAI addressed issues that were inherently unattractive for OECD countries at the time. Whereas BITs used to be conceived of by Western governments as a means to protect their national investors from arbitrariness in less-developed countries, this Western-centric paradigm shifted abruptly in the wake of the Ethyl 27 NAFTA arbitration. Suddenly, these governments feared their regulatory policy choices to be challenged by foreign investors from traditionally capital-importing countries,28 rendering the timing for the introduction of ISDS provisions in the OECD MAI proposal particularly unfortunate. Indeed, the political appetite for extrapolating the existing regime of investment protection onto a multilateral level vanished. Moreover, with the initiation of the first NAFTA disputes in 1997, non-governmental organisations woke up to the potential of ISDS as a procedural avenue for aggrieved foreign investors against domestic policy choices and realised the impact that this might have on sustainable development, labour conditions and environmental protection, adding strong opposition from civil society to an already politically unfavourable negotiating environment.29 The failure of the ICSID appeals facility, which would have further reinforced ISDS as a transnational institution, is perhaps also best understood in light of the growing political sensitivity of investment protection and ISDS during that period of time.

Another relevant aspect causing the MAI negotiations to run aground was the fact that developing countries were never adequately represented during the negotiation process. Although the MAI was clearly designed as a multilateral instrument of universal application, the process steamrolled the interests of developing countries.30 Indeed, the importance of developing countries, whose opposition proved equally fatal to the WTO initiative,31 appears to have generally been underestimated. Future actions to advance a procedural ISDS reform should, therefore, build upon the participation of developing countries already from an early stage.

Unable to forge multilateral consensus, states turned to address rising criticism of traditional ISDS bilaterally. An important step in this respect constitutes the US Trade Promotion Authority Act of 2002, which provided political impetus for the inclusion of programmatic treaty language to the effect of promising the establishment of bilateral appeals mechanisms in all subsequent US BITs and FTAs with ISDS provisions.32 However, in light of the fading enthusiasm to push for an appeals facility within ICSID and the political commotion in the aftermaths of the early wave of NAFTA disputes against Western governments, the desire for further institutionalisation of investment relations proved to be short-lived.33

The political sentiment surrounding investment protection and, more particularly, ISDS certainly provides much insight into the failures of the above initiatives. But it also allows a glimpse at the prospects of the bilateral ICS proposal of the EU. It is in this respect noteworthy that TTIP, as opposed to CETA or the EU–Vietnam FTA with significantly more concrete ISDS provisions, served as a catalyst for civil society involvement. Other agreements received only little or no media coverage, thus passing for a long time under the radar of public attention.

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