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S-30 ¦ MARCH 22, 2021 ALTERNATIVE DISPUTE RESOLUTION

¦ From INVESTOR on PAGE S-29 the global economy. They help
for example, typically require a host farmers generate income by sell-
state to provide compensation if it ing their products overseas to
expropriates a foreign investment. countries that need food. They
Arbitral tribunals have interpreted allow automobile factory work-
expropriation to include measures ers to earn wages for building cars
that have the effect of destroying a Arbitration often becomes destined for foreign markets. They
foreign investment. Applying that a collateral victim when facilitate the flow of foreign capi-
reasoning, if a host state enacts elected officials take aim tal to local businesses wishing to
regulations that favor renewable at treaties that do not undertake infrastructure projects
energy and those regulations de- keep pace with these like building roads to connect
stroy the foreign investment of an norms. cities and dams to power house-

oil company, that company could holds. But for the substantive
potentially be entitled to compen- provisions in bilateral investment
sation for the entire enterprise treaties and free trade agreements
value of its operation in that coun- to work, there must be an effective
try. international solution to enforce
Today, the trend has shifted those provisions. It is imperative
towards incorporating environmental, social and to maintain and restore order in international trade
corporate governance standards in international and investment when conflicts arise.
business and investing. If government officials and Populist movements today may not remember
legislators amend their bilateral investment trea- the horrors of gunboat diplomacy from prior cen-
ties and free trade agreements to give them more turies, which governments deployed against foreign
latitude to enact ESG policies, it seems likely that countries to protect their own investors. They may
political opposition to these international treaties, also have forgotten about the failure of the Calvo
and the tribunals they create to enforce them, will Doctrine in Latin America, which attempted to
diminish. For example, even though Senator War- force foreign investors to obtain relief from the na-
ren objected to the investor-state arbitration aspect tional governmental bodies that may have violated
of the USMCA, as mentioned earlier, she eventually the foreign investors’ rights in the first place. These
voted in favor of the USMCA when it was revised to alternatives, which are what the world community
provide for greater labor protections for U.S. work- will be left with without investor-state arbitration in
ers. Conversely, the U.S. Senators who voted against some form, are even more sub-optimal.
the USMCA expressed concern that the treaty did Like democracy, investor state arbitration may be
not in their view contain environmental standards the least bad system. For this reason, all stakeholders
to combat climate change. Had their objections should focus not only on addressing the mechani-
found enough support in the U.S. Senate, the sys- cal defects of investor-state arbitration. They need
tem of investor-state arbitration contained within to also consider the socio-economic reforms to bi-
USMCA would have been destroyed along with the lateral investment treaties necessary to provide the
treaty. political will necessary to keep alive, and thriving,
The COVID-19 pandemic has reminded us all investor state arbitration as a global system of dis-
that nations cannot solve global problems alone. pute resolution.
This lesson applies equally to the movement of ¦

capital, goods and services across nations, even at Tai-Heng Cheng is global co-head of arbitration
a time when ESG standards are increasingly viewed and trade at Sidley Austin, and co-author of the
as important. The thousands of bilateral investment forthcoming book, “Investor State Arbitration in a
treaties and free trade agreements are key struts of Changing World Order” (Brill, 2021).

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