Unpacking the Complexities of Backlash and Identifying its Unintended Consequences

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References to “backlash” are becoming increasingly ubiquitous in international law scholarship (see for example this recent EJIL article and accompanying EJIL:Talk! Discussion). Few have, however, sought to define or unpack the complexities of backlash. In this post, we draw upon our chapter in a forthcoming book titled The Judicialization of International Law – A Mixed Blessing? (Oxford University Press, 2017). We seek to develop a notion of “backlash”, identify what underlies it, and illuminate its potential unintended consequences. While we focus upon investment treaty arbitration as a case study, we endeavor to illuminate the complexities of evaluating opposition to international regimes. These issues hold particular relevance to investor-State arbitration given current State negotiations of major bi‑ and multi‑ lateral treaties with investor-State protections. They are also likely to gain in relevance with many investment treaties shortly coming up for renewal or termination.

Defining Backlash

The notion of backlash has seldom been defined, instead being used as an umbrella term to capture a range of forms of critique and contestation. These include State decisions to review, not renew, terminate, or withdraw from existing treaties; refusals to negotiate or sign investment treaties; and changes in the approaches of States to the negotiation of new treaties. There are also forms of “backlash” arising from civil society, non-governmental organizations, and academia in the form of protests, comments in public consultation processes, increased reporting, and academic discussion. Such acts, along with others, are increasingly cited as evidence of “a rising backlash” against the regime of investor-State arbitration generally.

The term “backlash” indicates the presence of something more than scrutiny, critique or even crisis. Whereas critique of a system might lead to suggestions for reform, “backlash” implies actions taken in opposition to a regime itself, even if the alternative is not fully articulated. Extrapolating from a definition proffered by Sunstein, “backlash” can be defined as: Intense and sustained public disapproval of a system accompanied by aggressive steps to resist the system and to remove its legal force. “Backlash”, therefore, manifests as “intense”, “sustained” and “aggressive” calls for the abandonment of a system or for the adoption of an alternative structure.

Backlash against investment arbitration may emanate from a variety of sources. The source of backlash matters because it may influence the form in which such backlash is expressed as well as the motivations and focal points of that backlash. Identifying the sources of backlash is important because it influences the appropriate responses to backlash, dictating to whom (or to what) such responses are being offered. Identifying the sources and forms of backlash might also indicate shifts in its focal points over time. Of course, any one source or form of “backlash” interacts with and informs the other sources and forms through which “backlash” is expressed. Take, for example, the European Commission’s 2014 public consultation on investment protection in the Transatlantic Trade and Investment Partnership (“TTIP”). The consultation process garnered almost 150,000 responses. While not all responses were critical of TTIP, the sources of those responses are nevertheless instructive in considering from where responses criticizing the regime may originate. While 148,830 of the responses came from “citizens”, “approximately 145,000 of these were submitted through NGOs which had provided respondents with ‘pre-defined’ answers”. In this case, then, there is a mixed source of “backlash” and many strands to the critique where expert opinion and public opinion reinforce and shape one another in a more generalized way.

Backlash against what?

The diverse range of sources and forms of “backlash” necessarily means that backlash may reflect a range of differing motivations and concerns. Apart from the question of what it means to say there is a backlash, then, there is an important and complex question of stating what the backlash is against. Is it against a particular tribunal, against investment arbitration generally, or is it against something else entirely? We suggest that in many cases, “backlash” may be directed at tribunals or arbitration as a convenient focal point, while the force motivating the backlash is prompted by something more diffuse. Tribunals may bear the brunt of backlash because they form a focal point for broader concerns.

A primary concern underlying much of the “backlash” said to be about investor‑State arbitration is globalization. Globalization “challenges the idea of the state as the sovereign guardian of the public interest”, and gives increased power to non-national actors, including multinational corporations. Concerns about the perceived negative effects of globalization are very frequently articulated through critique of investor‑State arbitration. This may be because investor-State arbitration is seen as a symbol of all that is feared about globalization or may be because investor-State arbitration forms a convenient focal point for the articulation of those fears. Globalization, as a diffuse force, does not itself form a concrete enough target. The linkage of investor-State arbitration with broader concerns about globalization has resulted in a “strong ideological and functional opposition” to investment arbitration. Many see it as the embodiment of broader forces with which they are concerned, including the “upward transfer of wealth, constraint of government, and liberalization of markets”. Concern about foreign investment is in part directly a concern about the fairness and legitimacy of investor‑State arbitration. It is also, however, a manifestation of broader concerns about globalization, about economic dislocation and other social interests, about jobs and livelihoods.

A similar phenomenon was associated with the anti-globalization protests that accompanied the 1999 World Trade Organization (“WTO”) Ministerial Conference in Seattle. In the context of such an immense civil society protest, one observer argued that it should not be surprising that the WTO was the object of such protests. Rather, it was observed that — given that the forces of globalization were diffuse and that there is no clear agent of globalization — in such a situation protests often center on particular symbols of the more general phenomenon of concern. The focus placed on investment treaty arbitration within the TTIP is arguably similar. Many parts of the TTIP will have far greater social impact than the arbitration scheme or the worst possible single arbitration one can imagine. The particular focus upon the investor‑State arbitration provisions in TTIP, however, is something that provides a relatively clear focus for these more general concerns. This is particularly evident in the EU TTIP Consultation Process. In its Report, the Commission notes that “[w]hile the scope of the consultation was limited to the proposed EU approach to investment protection/ISDS in TTIP”, “quite a majority of replies oppose[ed] TTIP in general”. Arguably, responses criticize the investor-State provisions because that is the focus of the consultation process: although other chapters of the TTIP may arguably have a greater effect in terms of displacement, they are neither public nor a focal point for criticism and input in the same way as the investment chapter.

The Merits of Dissecting Backlash

Let us be clear. We are not suggesting that investment arbitration is not deserving of reform, or that it should not be held to the highest standard. What we are suggesting is that there are complexities to backlash, and the investment arbitration mechanism may not in fact be the principal reason for the intensity of the backlash directed against it. The concerns are in part concerns about investment treaty arbitration, but they also reflect and manifest concerns that are deeper and broader. This is critically important because reform of the investment arbitration regime may not be capable of responding to all of the concerns underlying the criticisms directed against it. This risks leaving unaddressed broader underlying concerns and misdirecting reform efforts. There is also a danger in characterizing acts manifesting these concerns as a “backlash” directed solely against the investment arbitration regime insofar as that may over-inflate the level of dissatisfaction with that regime. Whether or not one agrees with this particular conclusion, the underlying observation remains: it is necessary to dissect the motivations of backlash before it is possible to identify the responses appropriate to it.

The last fifteen years have seen the investment arbitration regime evolve significantly. In fact, one would be hard pressed to identify an international dispute settlement mechanism that has reformed more over the same period, or indeed any equivalent length of time. Such reform is a testament to the adaptability and resilience of the regime, illustrating its ability to absorb a significant amount of change whilst maintaining a high degree of stability and functionality. Such reforms also indicate that many features of arbitration subject to “backlash” have not gone unaddressed. This throws into question the widespread assumption that the regime is facing some kind of pressing “crisis”. In this context, it must be asked whether continued criticism of the regime fails to take historic reforms into account; exhibits some kind of inadvertent or even strategic blindness to those reforms; or merely illustrates that the reforms have failed, have not had widespread impact, or are yet to influence arbitral approaches in any appreciable way. The history and success of reform also reinforces our earlier point that backlash is not only about arbitration. If backlash were only about the arbitration mechanism, it would be reasonable to expect that that backlash would decrease as the regime adapted in a manner apt to respond to the backlash. Instead, backlash has increased alongside reform. This is not to suggest that the agenda of reform is complete. Investment treaty arbitration, like any other regime, can always do better. Rather, it is to highlight the necessity of asking how responsive any reform agenda can be to the concerns underlying the current backlash.

Distinguishing Reform from Backlash

There is an equally crucial issue of to what exactly reform has responded. As with the forms and sources of backlash, the motivations underlying reform are also diverse. We suggest that State attempts to limit the protections afforded to foreign investors or modify arbitration procedures are not responses to (or indications of) “backlash” per se but are instead primarily an action taken in response to shifting circumstances. States are engaged in an iterative process of modification in response to arbitral jurisprudence as well as their own changing risk profiles. Further, as different paradigms are used to conceptualize investor-State arbitration, and as new practitioners enter the field, it is only natural to see a different set of expectations and operating assumptions gain prominence. These new expectations result in modifications to treaty drafting and arbitral procedures. It is possible that, in responding to these changing circumstances State actions are mistakenly being taken as themselves evidence of “backlash”. In taking care to identify the motivations underlying reform, the danger of detecting an exponential increase in “backlash” as a result of system adaptation and refinement might be better avoided.

Backlash’s Unintended Consequences

A final complexity associated with backlash is the identification of its potential consequences. The most extreme consequence of backlash is for the mechanism of treaty arbitration to be replaced with something else entirely. Given that there is evidently a flow of investment disputes, the question is where they would go without treaty arbitration. What are the alternatives?

For many, the assumption is that investment disputes, absent an arbitration mechanism, will go to the national courts of host States. This has been proposed in the statements of various non-governmental organizations as well as some States. It is undeniable that all States “should strengthen their domestic justice systems for the benefit of all citizens and communities, including investors”. While such a result may be desirable, there are nevertheless a number of hurdles to be overcome before it is possible. In particular, there is the issue of how to test whether national courts are an appropriate or feasible alternative to treaty arbitration. One option is the development of a ratings or indexing system to assess the adequacy of the treaty arbitration system as compared to national courts. The issues associated with assessing the appropriateness or feasibility of national courts aside, however, a further hurdle arises: investors retain the ability to negotiate agreements directly with host States providing for dispute settlement through other means. These concessions very frequently channel disputes to commercial arbitration proceedings. Such a situation could lead to significant unintended consequences. It would benefit the most powerful investors and would privilege forms of investment capable of protection through contractual arrangements. It would also push disputes underground, subjecting them to less transparent procedures compared to those which apply in the case of investment treaty arbitration.

Less extreme consequences are, however, also conceivable. Indeed, there is significant scope for States to continue to build upon, rather than discard, the present regime. Doing so allows them to derive the benefits of a rich history of experimentation and reform. Whilst critiques manifesting as “backlash” can thus direct attention to possibilities for improvement of the regime, care must be taken to avoid the trap of assuming that alternatives offer greener pastures. A different system may simply lead to new problems, or may lead current issues to manifest in different ways. Ultimately, critique of the investor-State regime is not necessarily “a swelling tide of history but i[s] more like a series of waves that lap on an international beach, retreating repeatedly into domestic seas but leaving incremental changes on the shore”. Whereas reform founded on critique can be sweeping, it is at the same time measured and reasoned. By contrast, reform prompted by backlash is rooted in anger and is as likely to do harm as it is to do good. Where Francis Bacon observed that “Revenge is a kind of wild justice”, we suggest that “Backlash is a kind of wild reform”.

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Tina Minkowitz says

August 25, 2016

An issue that goes unmentioned in this piece is concern about erosion of democracy substantively, not treating state sovereignty as a proxy for democratic process but looking at inequality of non-state actors in international law regimes. Whether or not the article's claim is correct that TTIP dispute resolution favors largest investors less than commercial arbitration, investors capable of bringing claims in an international forum are far and away more powerful and economically advantaged than citizens, including large numbers of impoverished people, whose interests may be harmed as a result of such processes. The only processes where ordinary people have direct access to international law adjudication are in the human rights field, where most results are not enforceable. Failure to look beyond the neutral term "investors" erases the significant difference between natural and legal persons and between the natural persons who are advantaged economically and those who are disadvantaged or impoverished. It is these concerns rather than inequalities among investors or state sovereignty that concern me other opponents of this mechanism from the point of view of economic and political democracy.