So what, exactly, is “manifest arbitrariness”? That’s hard to say. In a brief Twitter exchange on this issue, Mark Feldman, a law professor and former Chief of NAFTA/CAFTA-DR Arbitration in the Office of the Legal Adviser at the U.S. Department of State, made the point that, even if there is “no legitimate reason for [a] measure,” it might not violate this provision. The facts of the case must rise to a “manifest” level of arbitrariness. In other words, even some arbitrary measures do not violate this obligation. That’s a fair point, but it just raises the question of when facts would rise to the level of “manifest” arbitrariness. What about measures that are not based on science? At the WTO, Canada has joined in two very sensitive complaints against the EU, one related to a ban on hormone‐treated beef, and the other regarding approval of GMO products. In both cases, WTO dispute rulings found a violation of WTO obligations. So, if there were Canadian investors in the EU, could they succeed on an investment complaint under CETA that such measures were “manifestly arbitrary”? It would be nice if everyone had a better sense of this before the rules were agreed to.
Thus, one aspect of the problem with ISDS can be summed up this way: investment agreements go beyond non‐discrimination in ways that no one seems to be able to define clearly, opening up the floodgates for litigation as creative lawyers look for new ways to characterize government actions as inconsistent with international law.
Another core issue was pointed out by Canada in defending against an investment complaint brought by pharmaceutical company Eli Lilly under the NAFTA (in response to the invalidation of certain patents by the Canadian courts). In one of its submissions in the case, Canada stated that Eli Lilly “seeks to have this Tribunal misapply NAFTA Chapter Eleven and transform itself into a supranational court of appeal from reasoned, principled, and procedurally just domestic court decisions.” In fact, Eli Lilly is not “transforming” the tribunal into a “supranational court of appeal” of this kind. Rather, it is Canada (along with its NAFTA partners the United States and Mexico) that created such an appeals court. Because that’s what investment tribunals are: Supranational courts of appeal, available only to foreign investors. All domestic laws, regulations and court decisions — including those of the highest courts — can be appealed. That does not mean all the appeals will succeed, of course; it just means foreign investors have a right to challenge domestic government actions in an international tribunal.
Does that sound controversial? No matter what your political leanings, it should be obvious that it is. Even if you consider yourself an internationalist, as I do (I worked for an international court myself), you should be aware of the implications of giving power to international courts. There are times when it may make sense to do so, but we need to think carefully about it. What is the scope of this power? What obligations have been created? Who has access to this appeals court? How enforceable are the obligations? What is the design of the system?
Defenders of the international investment system might say, what’s the difference between a WTO complaint and an investment complaint on issues such as a hormone‐treated beef ban or GMO approvals? As noted, WTO complaints were brought successfully, and the world did not end.
The distinction is that the enforcement process at the WTO is structured very differently, as it has an important political component. Governments have the ability to recognize when the system cannot handle a particular complaint. Investment complaints do not have a similar feature. Investors might push for compensation even if it means undermining the system; governments know when to pull back.
There are signs that rational voices are poking their way into the debate. Hopefully, politicians and government officials will be able to cut through the inflammatory rhetoric and give these issues some real thought. There is a way forward here, but it requires some fresh thinking in an area where many people have dug in their heels and do not seem to want to engage with the issues.