Rollins College Rollins Scholarship Online Honors Program Theses Spring 2016 The Corporatization of Justice: Clashes Between International Arbitration and National Environmental Regulations Scott Novak Rollins College, rnovak@rollins.edu Follow this and additional works at: http://scholarship.edu/honors Part of the International Relations Commons Recommended Citation Novak, Scott, "The Corporatization of Justice: Clashes Between International Arbitration and National Environmental Regulations" (2016). Honors Program Theses. This Open Access is brought to you for free and open access by Rollins Scholarship Online. It has been accepted for inclusion in Honors Program Theses by an authorized administrator of Rollins Scholarship Online.
For more information, please contact rwalton@rollins. The Corporatization of Justice: Clashes Between International Arbitration and National Environmental Regulations By Scott Novak Honors Program International Relations Thesis Thesis Advisor: Dr. Dan Chong Date: April 12, 2016 Rollins College Winter Park, FL The Corporatization of Justice Novak 2 Table of Contents Abbreviation List………………………………………………………………………………………. Introduction: The Dispute about Dispute Mechanisms………………………………….
International Arbitration: A Brief Overview…………………………………………………5 III. Analytical Theories of International Arbitration…………………. The Economic-‐Rationalist Model…………………………………………. The Cultural-‐Sociological Model……………………………………………….
The Power-‐Based Model……………………………………………………. The Constitutionalization Model……………………………………. The People of Ecuador vs. Methanex Corporation vs.
United States of America……………………. Japan and the European Union vs. Ethyl Corporation vs. A Comprehensive Power-‐Based Model………….
Conclusion: Pathways to Reform………………………….77 The Corporatization of Justice Novak 3 Abbreviation List BIT Bilateral Investment Treaty EU European Union EPA Environmental Protection Agency ICA International Court of Arbitration ICC International Chamber of Commerce ICSID International Center for the Settlement of Investment Disputes IIA International Investment Agreement ISDS Investor-‐State Dispute Settlement MMT Methylcyclopentadienyl Manganese Tri-‐carbonyl MTBE Methyl Tert-‐Butyl Ether NAFTA North American Free Trade Agreement NYC New York Convention on the Enforcement of Private Arbitral Awards SCM Agreement on Subsidies and Countervailing Measures WTO World Trade Organization The Corporatization of Justice Novak 4 I. Introduction: The Dispute about Dispute Mechanisms Since the 1990s, the number of international trade treaties has skyrocketed. Many of these treaties include within them mechanisms mandating the setup of an international trade arbitration panel should a dispute between the parties to a treaty arise. In recent years, the number of trade arbitration claims filed has been steadily increasing, which is due in part to the increase of trade treaties containing trade arbitration mechanisms.
While international arbitration systems undoubtedly provide some benefits to the establishment of international law and order, some states contend they are being used by corporations and governments to challenge a number of important national environmental rulings and regulations. In fact, states such as Ecuador have recently withdrawn their signatures from treaties containing international arbitration mechanisms because of how these mechanisms can allegedly interfere with national sovereignty. Multiple constituencies in the United States are expressing similar concerns, objecting that the arbitration clause in the pending Trans-‐Pacific Partnership may negatively affect environmental regulations. Thus, as international trade arbitration claims have grown in popularity, so has the debate regarding what role this kind of arbitration should play in society and the effects it should have upon citizens across the globe.
This discussion centered on how arbitration rulings impact the earth is occurring in an age where the world is facing existential environmental challenges, such as the threat of global climate change, which makes exploring the different sides to the debate on arbitration all the more timely — and dire. Therefore, in light The Corporatization of Justice Novak 5 of the controversies surrounding arbitration and the growing importance of environmental initiatives in societies around the world, this paper aims to answer the following questions: Do international trade arbitration mechanisms undermine national environmental regulations and initiatives, and if so, in what ways does this happen, and how might these mechanisms be reformed? In order to answer this question, two specific forms of arbitration through which environmental policies are often challenged will be analyzed: investor-‐state dispute (ISDS) mechanisms and arbitration between states via the World Trade Organization (WTO). After giving a brief background of arbitration systems as a whole and outlining four different international arbitration theoretical frameworks, I will apply these theories to four arbitration case studies in an attempt to identify possible environmental inequities perpetuated by these arbitration systems. I will then use these findings to form a more comprehensive power-‐based theory of arbitration, setting up the foundation for potential arbitration reforms.
International Arbitration: A Brief Overview Walter Mattli and Thomas Dietz define arbitration as “a binding, non-‐judicial, and private means of settling disputes based on an explicit agreement by the parties involved in a transaction.”1 This agreement is usually rooted in the terms of a contract or treaty between the two parties, and in many cases the parties can choose the procedural rules and laws that they think most suits their interests. Although 1 Walter Mattli and Thomas Dietz, “Mapping and Assessing the Rise of International Commercial Arbitration in the Globalization Era: An Introduction,” International Arbitration and Global Governance: Contending Theories and Evidence, (Oxford: Oxford University Press, 2014), 1. The Corporatization of Justice Novak 6 some forms of arbitration occur solely on a domestic level, there also exists international commercial arbitration, which occurs when the two disputing parties in question reside in different countries and the matter of the dispute concerns business activities.2 As arbitration lawyer Jan Paulsson has noted, “…it may be said that the international arbitral process deserves to be known in the plural, as processes, depending on the particular organizational frameworks and environments within which it proceeds. Drahozal categorizes international commercial arbitration into two types: universal arbitration and specialized arbitration.4 Universal arbitration is conducted by arbitration centers that take on arbitration cases from a wide range of industries, while specialized arbitration occurs in forums created by the international trade associations of specific industries.
Examples of universal arbitration include the International Court of Arbitration of the International Chamber of Commerce, the London Court of International Arbitration, and the Arbitration Institute of the Stockholm Chamber of Commerce, whereas examples of specialized arbitration include the Society of Maritime Arbitration, the Grain and Feed Trade Association, and multiple other stock and commodity exchanges.5 Some of the theoretical frameworks presented in the next section will use these kinds of arbitration as supporting examples, but none 2 Ibid, 1-‐2. 3 Jan Paulsson, “Preface,” in International Arbitration & Global Governance: Contending Theories and Evidence edited by Walter Mattli and Thomas Dietz, (Oxford: Oxford University Press, 2014), ix. Drahozal, “Private Ordering and International Commercial Arbitration,” Penn State Law Review 113, no. 5 Mattli and Dietz, “Mapping and Assessing the Rise of International Commercial Arbitration in the Globalization Era: An Introduction,” 2.
The Corporatization of Justice Novak 7 of them will appear in the case study section due to the fact that state environmental regulations are not challenged in these particular forums. Mattli and Dietz identify a third type of international arbitration, but one that is outside the realm of international commercial arbitration. This form of arbitration is called investor-‐state arbitration, or investor-‐state dispute settlement (ISDS). It has also only become popular within the last decade or so and will be the type of arbitration analyzed within this paper’s case studies.6 According to the Cato Institute, the purpose of ISDS is: to protect foreign investors from economic harm caused by host-‐government actions or policies that fail to meet certain minimum standards of treatment – up to and including asset expropriation.
It confers special legal privileges on foreign-‐invested companies, including the right to sue host governments in third-‐party arbitration tribunals for failing to meet those standards.7 ISDS first appeared in 1959 in a bilateral trade agreement between Germany and Pakistan.8 The stated intention of creating this mechanism was to promote foreign investment by protecting investors from discrimination or expropriation. In theory, ISDS helped soothe investors’ worries of investing in developing countries, where legal systems were not as strong; this is a strong economic-‐rationalist view of arbitration, one which sees arbitration as an efficient system with positive-‐sum outcomes. 7 Cato Institute, The Investor-‐State Dispute Settlement Mechanism: An Examination of Benefits and Costs, (Cato Institute: 2014), http://www.org/events/investor-‐ state-‐dispute-‐settlement-‐mechanism-‐examination-‐benefits-‐costs. 8 The Economist, The arbitration game, (The Economist: October 11, 2014), http://www.com/news/finance-‐and-‐economics/21623756-‐ governments-‐are-‐souring-‐treaties-‐protect-‐foreign-‐investors-‐arbitration.
The Corporatization of Justice Novak 8 However, as a power-‐based model would be quick to counter, the intentions behind ISDS may contain inequitable, neocolonial overtones. In their quantitative empirical analysis of over 500 investment arbitration claims from 1972 to 2010, Thomas Schultz and Cédric Dupont found that until the mid-‐to-‐late 1990s, ISDS was used “as a sword in the hands of the economic interests of investors from rich countries against governments of poorer countries, but has since then also been used significantly by investors from rich countries against other rich governments.”9 They also found that poor countries rarely file arbitration claims at all. Additionally, with regard to more recent trade agreements, ISDS’s purpose as a substitute for weak legal systems is not always applicable, as many of the states that agree to an ISDS mechanism with each other are not considered emerging economies with weak legal systems. The United States and Japan, for example, have well-‐respected legal systems that multinational corporations utilize every day.