Appointing Arbitrators: Tenure, Public Confidence, and a Middle Road for ISDS Reform

Many governments now join academics and activists in questioning whether ad hoc tribunals, which comprise private individuals holding no tenured role on a court, ought to be entrusted with deciding cases, where the resultant awards sometimes impose significant financial burdens on the respondent State, constrain the State’s regulatory choices, and affect the interests of third parties. Investor-State dispute settlement (ISDS), during the great expansion of its practice over the past quarter century, has relied on party-appointed arbitrators to constitute the ad hoc tribunals that hear and decide cases that investors bring. Moved by a turn of public sentiment in recent years against ISDS, the European Union (EU) leads an effort to replace ad hoc tribunals with a permanent, standing judicial mechanism.

A recent behavioral economics study by Maria Laura Marceddu and Pietro Ortolani in the European Journal of International Law adduces empirical evidence that those investigators say supports the effort toward an ISDS court. According to Marceddu and Ortolani, people who look disfavorably on ISDS would place more confidence in dispute settlement outcomes if the decision-makers were tenured judges serving on a court rather than arbitrators constituting ad hoc tribunals. However, they reach that conclusion on the basis of experiments that compare survey respondents’ sentiment between courts and ad hoc tribunals without interrogating what, precisely, respondents think courts and ad hoc tribunals are and what they think about them. Behavioral economics method, as originally developed, entails a closer look at the “objective attributes” of phenomena, public response to which an experiment aims to measure. To speak confidently about comparisons between public response to courts and public response to ad hoc arbitral tribunals, the empirical agenda around ISDS reform therefore should go a step further than Marceddu and Ortolani’s pathbreaking, but as yet only introductory, effort. Further experiments, rather than just comparing two kinds of dispute settlement organs as objects, would aim to identify what about those organs leads people to have confidence in one or the other. In this article, we hypothesize, in particular, that the attributes of the people who constitute a court or a tribunal matter more than the label that the organ is given.

Whom to appoint as decision-maker is a central question in the wider discussion today over ISDS reform. The EU is not alone in exploring the possibilities. The United Nations Commission on International Trade Law (UNCITRAL) has turned its attention to ISDS reform over the past several years. The selection and appointment of ISDS decision-makers is one of the main topics under the UNCITRAL mandate in that connection. States, nongovernmental organizations, and academics have joined the discourse, which continues as the EU now advances a new generation of investment agreements stipulating the creation of bilateral ISDS courts and the pursuit of a future multilateral court to address ISDS at global level.

From our behavioral economics hypothesis about ISDS decision-making, we suggest that what influences public sentiment most meaningfully are signals of public confidence in the people who make decisions. Moving from hypothesis to policy, we suggest further that stakeholders who now are considering options for ISDS reform should seek to identify what those signals are. We tentatively advance that ethics, diversity, transparency, and demonstrated commitment through prior service in positions of public trust may be signals that influence public sentiment toward a decision-making apparatus. We close with some suggestions about how policy-makers might systematize such signals, so as to realign ISDS to address the concerns of the wider communities that institution affects.