On The United States’Unilateral Approach To The Investor-State Dispute Settlement

The United States has long been a major promoter of international capitals and investments’ free flows,contributing significantly to the establishment and development of the investor-state dispute settlement(ISDS)mechanism,including several popular ISDS models.For instance,the NAFTA in 1994 and several editions of the US Model BIT have set up examples for the world in many aspects,such as providing a clear definition for investments,defining a list of non-applicable claims for ISDS arbitrations,setting up detailed rules for selecting arbitrators,and establishing several significant exception clauses allowing host states to exercise their legal and reasonable regulatory powers.They have become popular ISDS models.However,since 2008,legal and economic scholars and various interest groups in the United States began to increasingly oppose the government’s ISDS promotional attempts,which reached a crescendo by the end of Obama’s administration.The last three administrations’ practices also reflect the United States’ tendency to take a more unilateral ISDS approach,limiting or abandoning international arbitrations and turning back to the host-state oriented "Calvo Doctrine".Obama’s administration adopted ISDS clauses in the Trans-Pacific Partnership(TPP)despite the fierce domestic criticisms and made a mild reform to provide host states with greater regulatory powers.On the other hand,Trump’s administration accepted the anti-ISDS view and completely overturned Obama’s multilateralism efforts in promoting ISDS.His administration abandoned or significantly limited ISDS’ applicability in negotiations for the USMCA and other multilateral agreements,restoring the "exhaustion of local remedies" model as a prerequisite for initiating an ISDS arbitration to a great extent.The new Biden’s administration has not yet officially announced any investment policies.Still.President Biden had publicly expressed his opposition to the ISDS system during his election campaigns in 2020,emphasizing his concerns about the ISDS’ impacts on a host state’s sovereign.Since the United States is the world’s largest economy and China’s important trade and investment target,the American government and people’s animosity against the ISDS and their unilateralism practices would directly affect China’s future bilateral investment strategy with the United States.Therefore,it is necessary to analyze the general background and the domestic and international incentives driving the United States to take such a unilateral ISDS approach.Understanding the reasons and impacts behind this phenomenon could help China predict the new administration’s attitudes towards international investment,which could be of referential values to our government when planning future strategies in expanding the opening-up level,improving protections for international investments,and preparing for future China-US investment negotiations.Previous literature in China about the ISDS and the United States’ unilateralism after Trump’s administration mainly fall into two categories.The first type discusses the changes in an agreement’s ISDS clauses from a micro perspective by legal text analysis,exploring the ISDS mechanisms’ development in NAFTA,TPP and USMCA.The second type has a comprehensive and general analysis of Trump’s unilateralism in trade,foreign policy,and investment from a political science perspective.However,a state’s practices in international investment law are closely connected to economic,political and legal concerns in both domestic and international spheres.Studying the development of ISDS clauses or American politics alone could not reveal a full picture of how the United States’ ISDS practices have evolved in the past decade.Besides,past literature in China are mostly based on the aforementioned agreements’texts,conducting their analysis from a Chinese viewpoint,and the American scholars’view about their country’s ISDS practices were not discussed in depth.Therefore,this paper is mainly based on American scholars’ literature and perspectives.It first analyzed the ISDS mechanism’s systemic issues by conducting comparative case studies of ISDS arbitrations that are famous for their contradicting reasonings for similar situations,such as CME v.the Czech Republic.Then it examined several NAFTA arbitrations where the United States was the respondent and the historical changes in American foreign direct investment(FDI)inflows,which leads to a discussion of the economic,political and legal incentives that are driving the United States to switch to a hostile position against the ISDS.Finally,the paper studied the differences of the three recent administrations’ responses to domestic criticisms on ISDS and their international practices and discussed the impacts of the "Calvo Doctrine" and unilateralism’s revive in the United States’ ISDS practices.The analysis revealed that the fundamental reason why many American interest groups publicly expressed their hostility against the ISDS was that the risk for the United States to be affected by an ISDS arbitration was augmenting with the FDI inflows’ increase.Both the TPP and the to-be negotiated China-US Bilateral Investment Agreement that the Obama administration had been firmly promoting have ISDS clauses.If signed and ratified,they would significantly increase the amount and ratio of ISDS applicable investments among American FDI inflows.Thus,they had led to significant domestic oppositions.Trump administration’s open opposition and "America First" unilateralism attitudes towards the ISDS and Biden’s claim in his presidential campaigns were responses to the American people’s growing criticism about the ISDS.Before a substantial slowdown happens to the q FDI inflows’ tendency to quickly increase in the United States,such strong oppositions could last for long,motivating the Biden administration to keep its predecessor’s hostile policy on the ISDS.Hence,to achieve the strategic goals of expanding the opening-up level and attracting more foreign investments,China should prepare for challenging future rounds in the China-US BIT negotiations,and fully implement and keep improving the Foreign Investment Law of China to provide investors from the United States and other economics with a more open,transparent investment environment in line with international standards.