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Legitimacy Crisis and the ISDS Reform in a Political Economy Context

Shuping Li & Wei Shen

JEAIL Volume 15, Number 1 (2022), 31-60


The variation of countries’ industrial policies and political strategies in a multipolar world brings the investor-state dispute settlement (ISDS) regime to a crossroad. Backlash to the inconsistency, non-transparency, partiality and unfairness of the ISDS regime results from the states’ changing interests and policy priorities, including the rising awareness of democracy. In pursuing the benefits of multilateralism, a multilateral investment court can serve as an alternative to the current investment arbitration regime. States need to clarify the scope of consent based on their political economic considerations. Substantial investment protection standards can be different, whereas the principle of proportionality can serve as an approach to the balance between investment protection and states’ policy arrangements. Meanwhile, there should be efforts to align the interpretation and application of key provisions, possibly through interpretation notes and an appellate body that reviews arbitral decisions, to generalise implicit consensus and to broaden collective acceptance of the regime.

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