logo logo

Beyond ‘Once BITten, Twice Shy’: defending the legitimacy of investor-state dispute settlement in Peru and Australia

Taylor & Francis Online | 19 October 2022

Beyond ‘Once BITten, Twice Shy’: defending the legitimacy of investor-state dispute settlement in Peru and Australia

by Julia Calvert & Kyla Tienhaara


Investment protection is a contentious issue in trade and investment negotiations due in large part to controversy surrounding investor-state dispute settlement (ISDS). Governments have taken a range of positions on ISDS—from opposing moderate reforms to the system to the outright rejection of it. Extant research suggests that countries which experience costly investor claims are more likely to be circumspect about it. Case studies of Australia and Peru demonstrate that other factors must be considered. Both countries experienced investor claims but governments continued to act as ‘pragmatic proponents’ of the system. We show how interest groups and experts shape government preferences by reinforcing the legitimacy of ISDS in the face of contestation. In both cases, domestic actors framed ISDS as low risk; promoting good governance through regulatory chill; and protecting public interests through the promotion of business, which outweighed the costs of participation. Despite the lack of empirical evidence supporting these claims, they were persuasive because interest groups played on embedded ideas about the merits of market-led development and the economic utility of the mechanism. However, we predict that the influence of pro-ISDS actors will vary over time depending on their access to bureaucratic and political decision-making centres.

Investor-state dispute settlement (ISDS) has been a common element of investment treaties and contracts signed since the 1990s, but it has since fallen into disrepute. After nearly three decades of its use, there is little evidence to suggest that ISDS helps governments attract foreign investment and its potential costs have become clearer. ISDS provisions have enabled foreign investors to bring over 1,000 legal claims against governments and multi-million-dollar awards have been rendered in investors’ favour after arbitrators found fault with public policy. Civil society groups are concerned that investors use ISDS to interfere in policymaking, and call for reforms that protect host governments’ right to regulate. Almost all recently-signed investment treaties narrow the grounds upon which an investor can bring an ISDS claim. Governments are also debating the future of ISDS in international organisations, including the United Nations Commission on International Trade Law and the Organisation for Economic Cooperation and Development. These developments suggest that a consensus has emerged around the need for change in the ISDS system, but governments disagree about the nature and scope reforms should take. Some governments prefer to exclude ISDS entirely, while others prefer to institutionalise it via the establishment of a multilateral investment court.

Government positions on ISDS do not correspond neatly to a capital-importing versus capital-exporting dichotomy as extant theories would predict. Low- and middle-income countries have been joined by high-income countries in narrowing or reducing their ISDS commitments. Ardent supporters of ISDS also include countries with different economic and political profiles. These trends raise important questions about the drivers and barriers of ISDS reform: why do some governments support ISDS after high-profile claims? Why have reform preferences converged amongst countries with different economic and political landscapes?

We compare Australia and Peru, countries that bared striking similarities in their ISDS preferences despite social, economic and political differences.1 We chose these countries for two reasons: First, both countries experienced political learning about the potential costs of ISDS. Their reform preferences therefore cannot be attributed to limited information about the consequences of agreeing to it, as some scholars posit. Some countries, like Ireland, Hong Kong, and Luxembourg, have yet to face an ISDS case. Others, like Japan and Norway, were sued for the first time only very recently (2020) and the cases have yet to be resolved. Peru has faced at least 40 ISDS cases and claims continue to grow. Political learning occurred in Australia as the result of a comprehensive review of ISDS by an economic advisory body. Following the body’s report, a Labor Government banned ISDS from future agreements. When the conservative Liberal-National Coalition (hereafter ‘Coalition’) gained power in 2013, it recommitted to ISDS despite the mounting costs and controversy surrounding an active ISDS case. Both countries demonstrate that clearer information about potential costs does not automatically translate into caution towards ISDS. Comparing the drivers of ISDS preferences over time enables us to examine factors that shape political learning.

Second, Peru and Australia differ in relation to key independent variables that are commonly seen as drivers of ISDS commitments, including development status, institutional quality, political leadership, and the political salience of ISDS cases. Following the logic of most-different-systems-design, we compare these cases to identify the shared driver(s) of ISDS support. We employ slightly different methods of data collection across cases, which reflect different realities in data availability. In Australia, we employ a content analysis of public submissions, hearing transcripts, and committee reports associated with the parliamentary review process for trade agreements ratified throughout 2014–2019.2 ISDS has not been the subject of a legislative inquiry in Peru and the Peruvian government publishes much less material online, making content analysis near impossible. We supplement our analysis of policy documents with data from nine semi-structured interviews conducted with policymakers (5), representatives of major private sector interest groups (2), and civil society representatives (2). The goals of data collection were the same: to examine the strategies and political opportunities that interest groups employ to defend ISDS.

Our findings contribute to debates on ISDS reform, investment treaty formulation, and trade preferences. Contrary to theories which emphasise policymakers as the sole or primary influence on ISDS preferences (Haftel & Thompson, 2018; Poulsen, 2015), we show that the risk and costs of investor claims were evaluated, but were substantially downplayed in decision-making processes due to interest group pressure. That corporate actors shape state policy in their interests is not a new finding (cf Picciotto, 1996/1997) and scholars have observed their influence in ISDS debates (cf Yackee, 2012). Our article offers original empirical evidence of their influence across the North/South divide and new theoretical insights on how they influence ISDS policy. We show that interest groups exploited institutionalised beliefs about the wealth generating effects of ISDS to amplify the risks of reform while downplaying the (real and potential) costs of arbitration.

We also amend credible commitment theory. Scholars posit that governments agree to ISDS to signal a credible commitment to maintaining investor-friendly regulation in the hopes of attracting FDI. We show that interest groups and experts manufacture the credible commitment imperative through discursive frames to sell the merits of ISDS. Lastly, we contribute to debates on trade preference formation by examining the role of representative institutions across contexts. We find that political parties may not play a strong role in preference formation, particularly where they are weak and elected officials inexperienced. The complex and highly technical nature of the ISDS system renders reform debates susceptible to elite capture. As such, ISDS reform may be sheltered from the return of ‘noisy politics’ and not particularly democratic.3

Altogether, our findings suggest that countries will continue to support ISDS, albeit with incremental reforms, where interest groups—namely, representatives of foreign investors and elite lawyers—are strong and where beliefs about the merits of strong private property rights and liberal investment markets are institutionalised. Preferences for more substantive reform will come from countries where these ideas are more openly debated and where government officials possess more autonomy from transnational capitalists. However, since ISDS is not often the most salient political issue in national debates, we expect to see swings in ISDS policy where elections are competitive and political parties vary in their economic beliefs and societal linkages.

In the next section we discuss our theoretical approach. In sections three and four we discuss countries’ ISDS preferences and the arguments pro-ISDS actors developed as costs became clearer. In section five we discuss the political opportunities that made them persuasive in decision-making processes. The final section concludes.


According to credible commitment theory, governments agree to ISDS for two inter-related reasons: in capital-exporting countries, governments accept ISDS to appease domestic interest groups who aim to secure for themselves more stable and predictable conditions for their investments by ‘tying the hands’ of host-states to investor-friendly regulation (Allee & Peinhardt, 2014, p. 49). For capital-importing countries, governments agree to ISDS because it helps them reassure investors that their profit-making will be preserved over the lifetime of their investment (Elkins et al., 2006; Guzman, 1998, p. 658; Tobin & Rose-Ackerman, 2011).4 The weaker a country’s reputation for rule-governed behaviour, the more they benefit from credible commitment making. And when one country agrees to it, competitor countries feel greater pressure to do the same (Neumayer et al., 2016).

Yet, evidence of a causal linkage between ISDS and FDI flows remains inconclusive. Kerner (2009) and Kerner and Lawrence (2014) find that international investment agreements (IIAs) with ISDS provisions have a positive effect on FDI, the latter reporting that such agreements only increase fixed capital FDI. Others find that positive effects depend on specific conditions, such as strong domestic institutions (Hallward-Driemeier, 2003; Neumayer and Spess, 2005; Tobin & Rose-Ackerman, 2011). Other studies cast doubt on the utility of IIAs and ISDS altogether (Aisbett, 2009). In a meta-analysis of 74 studies, Brada et al. (2021) find that trade and investment agreements have ‘an effect on FDI that is so small as to be considered as negligible or zero.’ Studies on the relationship between ISDS and domestic institutional quality are more conclusive, with most scholars finding that ISDS has no impact (Sattorova, 2018; Schultz & Dupont, 2014) and maybe even a negative one (Calvert, 2022; Sattorova, 2014).

At the same time, the potential costs of ISDS have become clearer as cases pile up. Estimates place the average costs of an ISDS proceeding at US$5 million, although some cases surpass this by extraordinary sums. Australia spent more than A$24 million in its fight against Philip Morris (Ranald, 2019). ISDS awards reach $75 million on average, but they also run in the billions, including Ecuador’s $1.8 billion loss to Occidental (Johnson & Sachs, 2016, p. 12). As Wellhausen and Moehlecke (2022) note, ISDS cases generate indirect costs that stretch beyond arbitral awards and legal fees. An ISDS claim sends a bad signal to the international community, with significant repercussions on FDI flows and diplomatic relations. Scholars claim that experiencing these costs prompts governments to re-evaluate their ISDS commitments (Haftel & Thompson, 2018; Poulsen, 2015; Poulsen & Aisbett, 2013). That most governments are pursuing incremental reform suggests a global norm continues to hold in favour of a more circumscribed ISDS system (Langford et al., 2018). Why does it hold given limited evidence of its benefits and clearer information about its costs?

Studies on the political economy of trade offer alternative explanations. Scholars link trade preferences to public opinion, pressure groups, political leadership and domestic institutions (Baldwin, 1989; Guisinger, 2017; Milner, 1999). This work builds on economic theories of trade distribution: individuals and social groups prefer trade openness to the extent that they expect to benefit from it (Irwin, 1994; Rogowski, 1989). Economic interests inform voting behaviour which, in turn, affects political party platforms and trade policy (Irwin, 1994). Milner and Judkins (2004), for instance, find that party positions on trade reflect their ties to the winners and losers of trade liberalisation. Once a country engages in trade liberalisation, they are more likely to support it since liberalisation erodes the power of protectionist groups.

Some scholars posit that trade preferences stem less from societal preferences than elite strategising (Baldwin, 1989, p. 126; Yoshimatsu, 2012). Camyar (2012) finds that political parties have an independent effect on trade preferences when they direct trade debates to gain advantage over competitors during national elections. Other studies attribute trade preferences to interest groups. Interest groups influence policies by providing specialist information (Austen-Smith, 1993; Baldwin, 1989, p. 122), mobilising resources in favour of officials (i.e. votes and campaign contributions), and perpetuating ideas about the wealth generating effects of trade (Goldstein, 1988).

Investment market liberalisation also creates winners and losers. Domestic capitalists gain more lucrative investment opportunities while property owners benefit from asset price increases. Domestic business benefits from technological and managerial spill overs and global value chains linkages. However, domestic investors also risk being crowded out and workers in sectors subject to foreign competition, take-overs, or outsourcing may fear job cuts. ISDS preferences may reflect these distributional gains. Yet, the enforcement mechanisms of trade and investment agreements do not generate the same level of public debate as trade and investment liberalisation more broadly. This may reflect the diffuse way in which society experiences their costs and benefits. Only foreign investors have access to ISDS and, while arbitral losses grip national headlines, they are not borne by citizens directly. The costs of ISDS are arguably less visible than the adjustment costs of trade and investment liberalisation. Its technical and exclusive nature may also help insulate ISDS from public scrutiny. ISDS therefore belongs to the domain of ‘quiet politics’ (Culpepper, 2011); while it generates sporadic interest, ISDS often ranks lower in importance than other political issues (like economic growth) to the average voter.

To be sure, civil society groups in countries like Australia, the European Union, and Argentina have drawn attention to the public interest implications of ISDS, but their campaigns tend to generate momentum only around highly politicised cases and otherwise contentious trade agreements (cf. Eliasson, 2016). Criticism of ISDS also spurs a counter-mobilisation by interest groups. Comprising these groups are foreign investors, domestic affiliates and industry groups who represent them. Foreign investors in industries with high up-front costs and/or fixed assets as in oil and mining have been strong proponents, since they are at greater risk of expropriation and face greater potential losses than investors in highly mobile industries (Bauerle Danzman, 2016). ISDS cases have also generated a cottage industry of lawyers, arbitrators, and third-party funders that profit from the proceedings (Dafe & Williams, 2021; Olivet & Eberhardt, 2012). According to Yackee (2012, p. 402), these actors constitute an epistemic community and share a normative commitment to FDI attraction and specific causal beliefs about the benefits of ISDS on FDI flows. They are not immune to criticisms of investment treaty law, but tend support rather than subvert the ISDS system. Given their expertise, they are highly valued by governments in policy circles.

Interest groups may explain lasting faith in ISDS, but so can political leadership. Haftel and Thompson (2018, p. 42) find that countries are more likely to renegotiate investment treaty commitments—including ISDS provisions—when they experience a shift to the left in government ideology. In Australia, ISDS policy changed in step with political leadership. In Peru, support for ISDS did not change, even after the election of left-leaning figures. It is unclear, therefore, what role political leadership plays and how interest groups interact with political institutions in shaping ISDS preferences. Studies on the political economy of trade policy offer limited insight here since many are based on advanced democracies and/or quantitative datasets that do not fully address varying degrees of institutionalisation (cf Irwin, 1994; Milner & Kuboto, 2005; Rogowski, 1989). The relative lack of North/South comparisons limits our understanding of how political opportunities change across contexts.

In the next section, we detail Peru and Australia’s position on ISDS across changes in government. We show that government officials did not react automatically to clearer information about the potential costs of ISDS. Their responses were shaped in large part by the strategic framing practices of interest groups and experts that downplayed the risks and costs of ISDS in favour of information that reinforced the perceived merits of the mechanism.

ISDS preferences


Peru has faced 40 known investor claims (see Table 1). Still, government officials laud ISDS as a means to assert state interests in investment disputes. Recent investment treaties vary in their dispute settlement provisions. The CPTPP and the 2019 China-Peru FTA provide for ISDS, but the Colombia-Ecuador-Peru-EU Trade Agreement does not. This variation reflects the fact that Peru tends to be a rule-taker, not a rule-maker in treaty negotiations. However, bargaining power alone does not explain Peru’s lingering preference for ISDS.

Table 1. ISDS cases brought against Peru under investment treaties and contracts.

Peru included ISDS provisions in IIAs throughout the 1990s under the government of right-wing populist leader, Alberto Fujimori. Yet, it was not until the early 2000s that Peru experienced its first ISDS case.5 Two claims were brought in 2003: one involving Chilean pasta company Empresas Lucchetti after the cancellation of its operating license6 and another involving Duke Energy over a tax audit. While Lucchetti’s case was dismissed, Duke Energy was awarded USD$18 million.7 A second arbitral loss came in 2007 against Tza Yap Shum, whose company exported fishmeal. Tza Yap Shum was awarded US$786,306.

The claims did not impact Peru’s IIA programme. Alejandro Toledo, a Stanford-trained economist of indigenous descent, replaced Fujimori in 2001. Toledo was elected with the support of progressive social movements and a promise to soften Fujimori’s market-led development strategy (Burron, 2012). Yet, he continued an integrationist agenda. The Ministry of Foreign Trade and Tourism (MINCETUR) and the Ministry of Economy and Finance (MEF) pursued BITs with Singapore (2003), Belgium-Luxembourg (2005) and Canada (2006) and an FTA with the United States (2006). The BITs generated little opposition, but as Peru’s first comprehensive FTA, negotiations towards the Peru—United States Trade Agreement (PUSTA) drew opposition from agricultural groups, trade unions, human rights groups, and environmental and indigenous organisations (Gamboa, 2013). However, protests largely neglected ISDS. José de Echave (2005), leader of environmental NGO CooperAcción, lamented this fact in a newspaper op-ed while cautioning that consenting to ISDS would enable foreign investors to interfere in government decision-making and reduce the state’s capacity to manage social conflicts with mining companies.

MINCETUR officials asserted that PUSTA would ‘reinforce the stability of economic policy and institutions’ and ‘reduce perceptions of country risk amongst international economic agents’ (MINCETUR, 2005, p. 10). Particularly vital was inclusion of ‘clear rules that allow for the fair and quick resolution of whatever conflicts arise between foreign companies and the State’ (ibid., p. 20). MINCETUR warned that if Peru failed to sign the agreement, ‘and competitors [did], foreign investors will go to those countries…taking away from Peru a good opportunity to…generate high quality jobs’ (Ibid., p. 9). Peru’s eagerness to secure the deal eroded its bargaining power (Peinhardt et al., 2019, p. 58). Economic partners supplied much of the treaty text.

In 2006, Peru established the Coordination and Response System for International Investment Disputes (SICRECI for its Spanish acronym), an intergovernmental committee led by the MEF. SICRECI’s mandate was to coordinate the state’s response to investment disputes and increase awareness of Peru’s legal obligations to investors at all levels of government. In 2008, the government issued guidelines mandating that arbitration be included in all state contracts and licencing arrangements. The guidelines were approved by Alan García who replaced Toledo in 2006. García firmly supported economic liberalisation and saw PUSTA as an opportunity to deepen neoliberal reforms. Citing the need for PUSTA’s enforcement, García issued numerous decrees designed by MINCETUR and the MEF that liberalised Peru’s investment market. State security forces repressed anti-PUSTA protests while MINCETUR launched a public advocacy campaign to generate support for the agreement. García also pursued BITs with Colombia (2007) and Japan (2008) and concluded ten FTAs.8

A wave of claims hit Peru in 2010. The most controversial case involved US mining company Renco, which owned a metallurgical complex in La Oroya. Investigations conducted by NGOs found high levels of lead in residents’ blood (Scurrah et al., 2009, p. 166). Activists demanded that the government deny Renco’s requests for an extension on its environmental remediation commitments. Renco responded with an ISDS claim, alleging that delays on its extension requests jeopardised the project’s financing and forced its closure.9

The cases played out under the centre-left government of Ollanta Humala. Humala promised to intervene in the mining sector, which earned him the support of progressive parties and indigenous movements (Burron, 2012, p. 136). However, inexperience rendered Humala dependent on existing bureaucratic structures (Dargent & Muñoz, 2016). MINCETUR continued the free trade strategy largely unhindered. Comprehensive FTAs were concluded with Colombia, Ecuador and the EU (2012), Honduras (2015) and Brazil (2016). The Peru-Honduras FTA contained ISDS, but ISDS was excluded from the Colombia-Ecuador-EU FTA and the Brazil-Peru Economic and Trade Expansion Agreement, reflecting the rejection of ISDS by Brazil and Ecuador.

Controversy over ISDS threatened to erupt in 2014 after a claim by Canadian mining company Bear Creek. The claim followed a 2011 decree revoking the company’s operating licence.10 The decree was a response to a violent clash between local activists and national police that resulted in six deaths and widespread criticism. Although the dispute was highly salient, public debate did not reach the ISDS system. Over time, Humala embraced the integrationist agenda. He lauded the Pacific Alliance and Trans-Pacific Partnership (TPP) negotiations, during which Peru supported the inclusion of ISDS. The TPP drew opposition from anti-PUSTA groups, including groups that saw Humala to power. The 2015 leak of the TPP investment chapter by Wikileaks then brought ISDS to light. NGOs denounced the inclusion of ISDS, asserting that the Renco case illustrated how companies use ISDS to evade environmental obligations (cf. Maldonado, 2016).

Opposition was short-lived. The 2016 election of former Minister of Economy and Finance Pedro Pablo Kuczynski closed opportunities for debate. Kuczynski advocated market-led development and ran under the banner of a right-wing political party he founded in 2014. However, revelations about his involvement in the Odebrecht corruption scandal led to Kuczunski’s replacement by first Vice President Martín Vizcarra. Vizcarra continued Kuczynski’s economic agenda. After the Trump Administration pulled out of the TPP in 2017, Vizcarra sought an FTA with Australia, believing it would be a foothold in the Asia Pacific. The text of the Peru-Australia Free Trade Agreement (PAFTA) investment chapter is almost identical to that of the TPP, suggesting it was a placeholder.

Peru’s position on ISDS remained stable across changes in leadership and economic performance. GDP grew steadily after 2000, reaching a height of 9.1 per cent in 2008. Growth then declined after the end of the global commodities boom in 2013 (World Bank, 2021). FDI stock as a percentage of GDP grew over this time, suggesting that Peru’s structural dependence on foreign capital deepened. Officials also faced institutional incentives: corruption scandals and inefficiency in the judiciary enhanced the attractiveness of third-party dispute settlement mechanisms as a credible commitment device. Yet these factors alone do not explain why policymakers did not react more strongly to growing risk signals. In a 2017 ruling, Bear Creek was awarded US$18.20 million and Renco resubmitted its claim after its original case was dismissed. The government also faces a new wave of ISDS claims linked to corruption scandals and failed construction projects. The cases contributed to calls from small political parties, like the Frente Amplio, for a rejection of ISDS, but these calls remain at the margins of debate.


Australia has only formally faced one ISDS case,11 but it is one of the most infamous disputes in investment arbitration. In 2011, the tobacco giant Philip Morris launched a case under Australia’s BIT with Hong Kong. The company claimed that legislation requiring plain packaging of cigarettes was an expropriation of its intellectual property rights. The tribunal eventually determined that the American firm committed an ‘abuse of process’ when it restructured its investments in Australia through a Hong Kong subsidiary to access the BIT and declined jurisdiction.12 Although this was considered a win for the country, the costs of defending the case were high (Ranald, 2019).

The Philip Morris case garnered significant public attention and increased criticism of ISDS by public health scholars and advocates. However, even prior to the case there were public debates about ISDS, notably when the Howard (Coalition) government negotiated an FTA with the US in the early 2000s (Ranald, 2006). As in Peru, an agreement with the US invoked greater public concern than those with other countries. In the end, the Australia-US Free Trade Agreement (AUSFTA) excluded ISDS. The official explanation was that ISDS was unnecessary because each country has a ‘robust’ legal system for resolving disputes (The Department of Foreign Affairs & Trade [DFAT], n.d.). Others point out that Labor, the Greens and the Democrats held a majority of Senate seats at the time and could have blocked the implementing legislation (Ranald, 2006).

After Labor came to power under Kevin Rudd in 2007, agreements with Chile (2008) and the Association of Southeast Asian Nations (ASEAN-Australia-New Zealand/AANZFTA) (2009) were signed that included ISDS. A shift occurred in 2011, when the Julia Gillard-led Labor government adopted a Trade Policy Statement that went beyond apprehension towards ISDS with major capital-exporting states and ruled out the inclusion of ISDS in any FTA. A combination of factors led to the ban on ISDS. There was the tangible threat of an ISDS case against a signature health policy; Philip Morris was not shy about its intentions in advance of launching its case. The Productivity Commission—an influential technocratic body– also played a role (Kurtz & Nottage, 2015). The body issued a report in late 2010 arguing that there was no evidence that ISDS increased FDI or that it was extensively used by Australian investors (Productivity Commission, 2010). It also highlighted the risks of participating in the system, including the potential for regulatory chill. The report may have influenced thinking within the Labor Party or confirmed an existing policy preference.

The Gillard government negotiated trade agreements that omitted ISDS in 2011 (New Zealand) and 2012 (Malaysia). The exclusion of ISDS between Australia and New Zealand had a precedent (a side-letter in AANZFTA ruled out ISDS between the countries) and ISDS already existed between Australia and Malaysia under the AANZFTA. More significant is that the Gillard government insisted on the inclusion of a footnote exempting Australia from ISDS provisions in the TPP negotiations, despite pressure from the US to remove it (Cheong, 2013). The no-ISDS policy was also maintained in negotiations with South Korea, apparently bringing negotiations to a standstill (Australian Chamber of Commerce & Industry [ACCI], 2014).

In 2013, a Coalition Government came to power under Tony Abbott and signalled that it was keen to conclude trade negotiations that had dragged on for years (Capling & Ravenhill, 2015). The Abbott Government quickly abandoned the Labor policy of rejecting ISDS. A Trade Policy Statement released in September 2013 stated that:

“The Coalition will take a pragmatic approach to trade negotiations and will consult widely with industry bodies and associations to ensure that stakeholder priorities are taken into account. This includes remaining open to utilising investor-state dispute settlement (ISDS) clauses as part of Australia’s negotiating position.” (Coalition, 2013, p. 4)

The reference to ‘pragmatism’ seems to have been inspired by the stalled negotiations with South Korea. The document states that Labor’s refusal to consider an ISDS in the FTA with South Korea ‘placed Australian exporters at a direct disadvantage compared to their competitors in other countries’ (ibid., p. 8).

The Department of Foreign Affairs and Trade (DFAT, n.d.) adopted a ‘case by case’ approach, where negotiators consider for each individual agreement whether ISDS is in the ‘national interest’. The Abbott Government (and subsequent Coalition governments led by Malcolm Turnbull and Scott Morrison) also took what can be regarded as a reformist approach. Negotiators sought to include ‘safeguards’ and occasional carve-outs from ISDS provisions (e.g. for tobacco products) that theoretically protect the government’s ability to regulate in the public interest. The first agreements signed under the ‘case-by-case’ policy were the South Korea-Australia Free Trade Agreement (KAFTA, 2014) which included ISDS, Japan-Australia Economic Partnership Agreement (JAEPA, 2015) which excluded it (but provided parties an option to revisit the issue), and the China-Australia Free Trade Agreement (ChAFTA, 2015) which contained a limited ISDS arrangement.

‘Pragmatism’ appears to have been the dominant driver on whether the government agreed to ISDS. Documents associated with the parliamentary review of KAFTA indicate that the primary motivation to include ISDS was to get the deal done:

“Senator GALLACHER: Given the high quality of the Korean legal system and Australia’s legal system, why was ISDS a significant barrier to concluding that trade agreement?

Mr. De Cure [DFAT]: The Koreans insisted on having it in the agreement (Senate Hansard 6 August 2014, p. 46).”

With JAEPA, the text was effectively completed under Labor with ISDS excluded and it appears that neither the Coalition nor Japan wanted to re-open negotiations (JSCOT Hansard, 25 August 2014, p. 11). Notably, there were no pro-ISDS submissions made to the parliamentary review of JAPEA. Finally, with ChAFTA it appears that, as with KAFTA, the terms were dictated primarily by Australia’s treaty partner. The investment provisions were left substantially ‘unfinished’ because China was negotiating an agreement with the US and wanted consistency across agreements (JSCOT Hansard, 17 August 2015, pp. 22–23).

The CPTPP negotiations concluded in October 2015. When the text was revealed in November, there was no footnote exempting Australia from ISDS. This was not surprising as the Trade Minister had signalled a willingness to accept ISDS in exchange for increased market access for agricultural exports (‘Minister: Australia Open to ISDS In TPP If Other Countries Give on Tariffs’, 2013), which it achieved (Hughes, 2015). The Coalition Government signed a side-letter with New Zealand excluding the application of ISDS between the two countries but did not seek such a letter with other countries.

Opposition to ISDS within the Labor Party has arguably grown since 2011 even in the absence of new cases. Labor criticised the inclusion of ISDS in agreements with Peru and Indonesia, even though neither agreement poses a strong threat of ISDS cases against Australia (as FDI flows from these countries are limited). In October 2018, Labor tabled the ‘A Fair Go for Australians in Trade Bill 2018’ in the House and Senate, which prohibited the inclusion of ISDS in trade agreements and BITs. In the run-up to the May 2019 election the party indicated that it might vote against the implementing legislation for PAFTA because it contained ISDS. After losing the election, Labor agreed to vote for the implementing legislation for PAFTA and agreements containing ISDS with Indonesia and Hong Kong. The Party did, however, seek a commitment from the government that it would terminate out-dated BITs and update ISDS provisions in trade agreements where possible (King, 2019).

Labor returned to government in May 2022, with a policy platform that includes a commitment to ‘review ISDS provisions in existing trade and investment agreements and seek to work with Australia’s trading partners to remove these provisions’ (Australian Labor Party, 2021, p. 94).

The inclusion/exclusion of ISDS in agreements with Korea, Japan and China can be understood as part of a ‘pragmatic’ approach by a Coalition government that wanted to get deals done to prove its economic credentials, and ISDS was evidently used as a bargaining chip in the CPTPP. However, bargaining power and the demands of trade partners do not hold for the agreements with Indonesia and Peru. Here the inclusion of ISDS suggests a policy preference on the part of the Coalition.

Domestic actors

As the previous section demonstrates, governments in Peru and Australia were repeatedly confronted with information about the potential costs of ISDS provisions, either in the form of ISDS claims or analytical studies conducted by experts. Nevertheless, they continued to support the inclusion of ISDS in new agreements. One factor that may explain this preference is the presence in both countries of a small but influential coalition of pro-ISDS actors. Representatives of corporations that might avail themselves of ISDS are joined by business associations, legal practitioners, and other economic elites who support strong property rights.

Mining corporations are influential in both countries. In Australia, all seven ISDS cases launched under BITs concerned mining investments (see Table 2). The most consistent pro-ISDS voice in parliamentary inquiries on trade agreements is the Mineral Council of Australia (MCA), which made a pro-ISDS submission to every inquiry in the period studied, except for the JAEPA. Notably, Japan has a low level of foreign investment as a proportion of the size of its economy and a small mining industry.

Table 2. Treaty-based ISDS cases brought by Australian investors.

The MCA has (according to the CEO) a ‘good, healthy, robust relationship with Foreign Affairs and Trade’ and consults with them ‘on a regular basis’ (Senate Hansard, 30 July 2018, p. 58). That ISDS comes up during these consultations is not disputed. For example, during a parliamentary inquiry into the PAFTA, DFAT stated that ‘stakeholders that supported the inclusion of [ISDS], included the Minerals Council of Australia, Rio Tinto, and BHP’ (the latter two are large mining corporations). When questioned about who pushed for ISDS in the TPP, a DFAT representative noted that:

“There have certainly been requests from certain segments of Australian industry—for instance, in the mining sector we find these mechanisms add confidence to our capacity to contribute billions of dollars, in some cases, to particular markets…That’s certainly been part of the fabric that has informed our negotiating stance. (JSCOT Hansard, 7 May 2018, p. 11)”

That the mining industry is the primary lobby group on this issue has not been lost on members of Labor and the Greens. For example, the (Labor) Chair of an inquiry into the CPTPP stated:

“Even a cursory examination of the submissions to this committee would indicate support for ISDS is limited to several large multinational mining companies. Agriculture, basically, was silent, as were a number of other significant winners in this agreement. It appears to me…that this is a government direction from the minister. You’ve got instructions to put ISDS in and, no matter how many people submit against it, you’re taking instruction from the minister. (Senate Hansard, 20 August 2018, p. 6)”

In June 2020, the MCA’s influence was enhanced when its CEO was added to the newly formed Ministerial Advisory Committee on FTA negotiations (Birmingham, 2020).

Next to the MCA, the ACCI is the most vocal proponent for ISDS. Mining interests are a major driver of the ACCI position. The ACCI director of trade and international affairs told a reporter that the group supported ISDS because ‘it wants a mechanism that can protect Australian companies in sectors such as mining when they invest in other countries’ (‘Australia may be more open to ISDS in TPP with government change’, 2013).

Other business lobbies voiced lukewarm support for ISDS, which appeared to stem primarily from a concern that opposition to ISDS would derail trade negotiations or the passage of implementing legislation (see, e.g. Export Council of Australia testimony in JSCOT Transcript, 26 August 2019). The agricultural sector, which is export-oriented and heavily concentrated in electorates held by Coalition members (Capling & Ravenhill, 2015), rarely weighs in on the question of ISDS. When specifically questioned on the issue, the National Farmers Federation (NFF) made it clear that it views ISDS as important only as a bargaining chip in negotiations (JSCOT Hansard, 26 August 2019, p. 11). In contrast, the MCA frames opponents of ISDS as ‘anti-trade’ and argues that ISDS is ‘crucial in ensuring greater certainty and stability for Australian investors abroad’ (MCA, 2019a, p. 17).

In Peru, the mining industry leads advocacy efforts as a member of industry associations. For example, MINCETUR officials organised consultations with domestic businesses, and academic and civil society groups in preparation for the PUSTA negotiations (Sanchez, 2018). Private sector associations mobilised under the Business Council for International Negotiations (CENI), an ad hoc organisation designed to support the negotiations. Its members included Peru’s Association of Exporters, the Association of Agro Exporters and Producers Guilds, the Lima Chamber of Commerce, the Society for International Trade, the National Convention of Peruvian Agriculture, the National Society for Industry, the National Society of Mining, Petroleum and Energy (SNMPE) as well as the National Society of Fishers among others. Roque Benavides Bueneventura, a former mining company executive became its political spokesperson. CENI was given a privileged advisory role throughout the negotiating rounds, consulting directly with negotiators on their strategy and priorities. One of CENI’s primary goals was to ensure the agreement included a clear set of investment rules (Gamboa, 2013, p. 7). CENI and the SNMPE again pushed for investment protections in PAFTA in the hopes of drawing more Australian capital into Peru’s mining sector. It is important to note that CENI and the SNMPE serve as a powerful voice for the domestic arm of foreign companies.

Technocrats and legal practitioners also form an influential epistemic community in Peru. Members of this community often drift between private law practice and bureaucratic posts and profit financially from the continuation of ISDS. For example, the domestic law firm that designed SICRECI also specialises in international arbitration and represents claimants in ISDS cases. Carlos José Valderrama, a former World Bank official was appointed to chair the intergovernmental committee and SICRECI Secretariat. Valderrama previously worked with the law firm and was himself a strong proponent of ISDS. On leaving the post he was hired by Sidley Austin, an international law firm based in New York that specialises in international arbitration. In addition to his management of the cases, Valderrama represented Peru at multilateral forums where he largely resisted proposals to reform the ISDS system.

In Australia, technocratic advisors tend to be more independent of the private legal sphere and are more critical of ISDS, as demonstrated by the Productivity Commission report. However, domestic lawyers that represented investor claimants made submissions to parliamentary inquiries and gave evidence to Senate committees supporting ISDS. One of the most prominent proponents of ISDS is Sam Luttrell, who was counsel for Philip Morris in its ISDS case against Australia and has represented mining investors in at least three of the cases listed in Table 2.

How these actors frame their support is remarkably similar across countries. Three framings were employed in both cases: ISDS claims are rare given the numerous instruments with ISDS provisions (low-risk); regulatory chill contributes to good governance; and protecting business interests advances public interests, regardless of sovereignty costs (net benefits).

Low risk

In Peru, corporate elites frame investor claims as low risk. For instance, Jessica Luna (2015, p. 2), General Manager of Peru’s Society for International Trade, a group of large exporters, importers and service providers, dismissed concerns about the impact of the TPP on investor claims and the reduction of state sovereignty as falsehoods spread through multi-million dollar campaigns organised by international NGOs that were anti-trade and anti-development. This messaging was echoed by technocrats. José Luis Castillo, Director General for International Trade Negotiations at MINCETUR accused civil society of perpetuating the same myths about investor claims that circulated during the PUSTA negotiations and ‘more than seven years later under the [PUSTA], evidence demonstrates that not only have none of these concerns been realised, but that…the Peruvian state has incurred few international arbitrations and won the majority of them [author’s translation]’ (2016, p. 14). He also warned that failing to sign the TPP would encourage investors to redirect their investment to countries that are more committed to investment protection.

MINCETUR media statements and reports also noted that the CPTPP in no way modified the mechanisms already established under Peru’s constitution for the resolution of investment disputes. Reports similarly downplayed the frequency of investor claims, arguing that ‘in all this time, and with all the large investors that have multiplied exponentially in our territory, Peru has only been brought to international arbitration on 11 occasions [author’s translation]’ (MINCETUR, n.d.). Until 2016, only two awards were rendered against the state and Peru brought successful counterclaims under investment contracts. According to Valderrama (2018, p. 2), from 2011 to 2015, Peru ‘was ordered to pay only 0.002 percent of the total compensation investors requested, while it was awarded approximately 140 times the funds paid out to investors.’ Peru’s success rate is often toted by state officials and legal experts in media outlets as evidence of the effectiveness of ISDS (cf El Peruano, 2013; MINCETUR, n.d.).

In Australia, pro-ISDS actors and members of the Coalition adopted this framing. For example, the MCA (2018, p. 9; 2019a, p. 16; 2019b, p. 19) noted that ‘ISDS provisions do not create a wide-ranging ability for foreign investors to challenge any government policies… arguments mounted by anti-trade groups over ISDS often give examples from investment disputes under older ISDS provisions in agreements to which Australia is not a party.’ Arbitration lawyers Sam Luttrell and Romesh Weeramantry (2016, p. 10) argue ‘Australia’s record does not support fears as to waves of claims.’ Coalition members of the Senate Committee considering the bill proposed by the Greens that would ban ISDS stated ‘many of the alleged risks to Australian sovereignty and law making arising from the ISDS system are overstated and are not supported by the history of Australia’s involvement in negotiating trade agreements’ (Foreign Affairs, Defence & Trade Legislation Committee, 2014, p. 17).

ISDS proponents often articulate the ‘low risk’ framing by referencing three numbers: the cases Australia has faced (1); the investment treaties Australia has signed (usually cited as 28); and, the years Australia has agreed to ISDS (30+) (see, e.g. JSCOT Hansard, 26 September 2016, p. 17). The argument is that this is a good track record.

It is implicitly acknowledged by the government and pro-ISDS actors that ISDS under old treaties was problematic in some respects. These treaties are contrasted with new ones containing ‘robust’, ‘modern’, and ‘state-of-the-art’ ISDS provisions with ‘safeguards’ that minimise risk to Australia.

Regulatory chill as good governance

Technocrats and corporate elites blame rogue state actors for instability in Peru’s investment market to justify stringent investment rules. During the PUSTA negotiations, CENI argued that a clear set of rules was needed to protect investments from the ‘arbitrary actions of [Peruvian] authorities or other economic actors’ (Gamboa, 2013, p. 7). In interviews, Peruvian officials attributed investor claims to the indiscriminate and self-interested behaviour of subnational governments and arms-length regulators.13 ISDS, they argued, offered an opportunity to encourage responsible governance across government. According to Valderrama (2018, pp. 1–2), ISDS is essential for attracting FDI and for signalling to the international community states’ intentions to fulfil their legal promises.

This framing also appears in Australia, despite the country’s strong reputation for upholding the rule of law. Sam Luttrell suggested that ‘[t]here is, I think, in the regulatory chill thesis an unwritten assumption that regulation is good. I would say, and it is very much my experience, that regulations often deserve to be chilled’ (JSCOT Hansard, 5 October 2016, p. 17). When asked for her thoughts on this in a later hearing, the chief negotiator for the TPP responded that ‘to some extent I would agree with Dr Luttrell: if it gives regulators en masse, including the public sector, pause for thought about the sort of legislation we are putting in place, that is no bad thing’ (JSCOT Hansard, 7 November 2016, p. 10).

Net benefits

A justification by the Coalition for the case-by-case approach is that ISDS benefits Australian investors and that this, ipso facto, benefits Australia as a whole. The number of cases involving Australian investors is contested. ISDS-critics point out that several ‘Australian’ companies that brought cases are subsidiaries of foreign firms (Australian Fair Trade & Investment Network, 2020), but generally the track record is framed as ‘ten to one’—i.e. ‘Australia’ has used ISDS 10 times and only had it used against it once.14 This exchange between members of the Coalition in the TPP hearings exemplifies this reasoning:

“CHAIR: …Ten to one would seem to indicate that ISDS provisions are to Australia’s advantage, yet my understanding is that the ACTU is against the ISDS provisions. Could you just explain that in a bit more detail, especially in relation to the evidence of 10 Australian companies using provisions to seek justice and redress.

Mr CREWTHER: Which implies a net benefit to Australia.

CHAIR: Yes, ipso facto that’s right. (JSCOT Hansard, 1 June 2018, p. 24)”

The equivalency drawn between the interests of the country and the interests of specific companies is never questioned.

A net benefits frame also appears in Peru. Citing testimony from domestic legal experts, bureaucratic discourse frames ISDS as the most efficient means of ensuring needed jobs and capital are not locked up in protracted legal battles. The International Centre for the Settlement of Investment Disputes (ICSID), the world’s most prominent ISDS body, is praised for its autonomous legal structure, its limited jurisdiction and for being a consensual system independent of the judicial organs of contracting states. Government officials also claim its ‘undoubted effectiveness’ in resolving investment disputes (cf El Peruano, 2016). These frames were repeated in interviews with state policymakers and private sector representatives. Policymakers even framed Peru’s arbitral losses as wins. They claimed to have won the Bear Creek case on the basis that the award rendered paled in comparison to the US$522.20 million demanded by the company. According to former MEF minister Alonso Segura,

“In reality, [the losses] are healthy because it is part of the rules of the game of being a country with strong investment. These cases in which we have effectively lost were those where there were arguments to lose, but we won the majority. That’s the way it works (Lozano, 2019).”

Despite mounting arbitral claims, the government continues to frame ISDS as an opportunity for the state ‘to assert its rights’ in the disputes (cf. El Peruano, 2018). In the next section, we explain why these ideas held sway.

Political opportunities

State-society linkages

In Australia, ISDS preferences tend to change in step with the party in power and party positions reflect their ties to these interest groups: Both the Labor party and the Coalition government have strong relationships with the mining industry (see Holmes, 2016). Arguably ties between mining and the Coalition party are stronger. Most publicly disclosed donations from the sector flow to the Coalition (Aulby, 2017). The influence of mining companies was buttressed by the agnostic stance towards ISDS taken by other traditional Coalition party allies, namely agriculture. Agricultural exporters cared about ISDS only to the extent that it served as a potential barrier to the conclusion of FTAs. Any influence that the mining industry has on Labor must be weighed against the influence of labor unions, which strongly oppose ISDS (all submissions from unions to parliamentary inquires in the 2014–2019 period were anti-ISDS). The Gillard Trade Policy Statement referenced the principles of ‘no greater rights’ for foreign investors as compared with domestic companies, a framing that unions advocated.

In Peru, government support for ISDS did not change in line with the ruling party, even after the election of left-leaning presidents, Alejandro Toledo and Ollanta Humala. The weak impact of Peru’s political parties reflects their low level of institutionalisation. The political party system experienced strain in the 1980s and eventually collapsed under Fujimori (Levitsky & Cameron, 2003). Today, the electoral landscape is populated by inexperienced candidates, small and weakly institutionalised parties, regional movements, and more experienced political independents (Carter, 2020). The exception is the American Popular Revolutionary Alliance (APRA), which backed Alan García in 2006. APRA is Peru’s oldest and arguably most established political party, but it also suffers from ideological switches. Progressive parties are particularly under-resourced and therefore do not serve as an effective vehicle for societal preferences in trade policy circles, nor do they have the institutional strength required to formulate trade policy independent of technocratic experts.

Economic ministries, such as MINCETUR and the MEF possess a high degree of institutionalisation, having benefitted from reforms aimed at professionalising the bureaucracy in the 1990s and early 2000s. Bureaucrats within these institutions exert significant influence over trade debates, and the line between these institutions and the corporate class is muddied (cf. Durand, 2010). Pro-ISDS actors benefit from strong informal and formal linkages with key decision-makers. For instance, legal experts who serve as counsel in ISDS proceedings were hired by the MFA to draft the blueprints for SICRECI. Arguably, the technical and complex nature of international investment law enhances their influence over the ISDS debate since it increases the barrier to entry for inexperienced political officials.

Notably, civil society opposition to ISDS was higher in Australia than in Peru even though Australia has never lost a case and Peru lost three of them. In line with Eliasson (2016), we find that social opposition towards ISDS in Peru gained momentum only during the negotiations of otherwise contentious free trade agreements, such as the CPTPP, when civil society groups were strongly mobilised. The higher and more sustained level of social opposition in Australia may reflect several factors. First, civil society organisations are better funded and more institutionalised in Australia. In Peru, civil society groups have strengthened their legal capacity, having brought cases against several mining companies to the Inter American Human Rights tribunal. Yet, interviews with civil society representatives suggest that most civil society organisations continue to possess a limited knowledge of the ISDS system, which inhibits their ability to participate fully in reform debates. Second, (Labor and Green) politicians and technocratic advisers—notably the Productivity Commission—in Australia helped increase public awareness about the ISDS system by disseminating information about its potential costs in electoral campaigns and policy documents. This contrasts with Peru, where state discourse reaffirms the merits of ISDS. Lastly, the multi-stakeholder approach adopted by the Australian government in assessing trade and investment agreements may also encourage greater citizen engagement and debate on ISDS in contrast to Peru, where trade policy is mainly the domain of technocrats.

It should be noted however that social opposition had an uneven impact on party platforms in Australia. The ‘case by case’ approach was adopted by the Coalition government despite the highly politicised dispute with Philip Morris and civil society opposition to ISDS. Political parties may therefore be a vehicle for, or barriers against, ISDS reform in advanced democracies, where they structure political opportunities available to interest groups and respond differently to information about the risk and costs of investor claims. Elsewhere, the capacity of political parties to formulate ISDS preferences may be circumscribed by bureaucratic actors who establish alternative channels of influence for interest groups in policy debates.

Embedded ideas

Pro-ISDS actors also benefitted from embedded ideas about what constitutes responsible economic management. In both countries, there is a tacit acceptance of the idea that economic growth is sacrosanct and that international trade and foreign investment help achieve it. In Peru, these ideas were embedded into state institutions by the Fujimori government. Fujimori elevated the status of the MEF as a decision-making hub in the Peruvian government and replaced its staff with outward looking corporate elites and technocrats previously employed by international financial institutions (Vergara & Encinas, 2016). These elites defended the market-led development model across changes in government. In Australia, there is a strong consensus between the major political parties on the merits of open trade and investment policies, but the Coalition government was less receptive to information about the risk and costs of investor claims. In both countries, pro-ISDS groups exploited these beliefs.

The low risk and net benefits frames play on the ideas that foreign investment generates economic growth and that ISDS is a necessary means to attract FDI: the risk of ISDS claims is only worth taking when one believes that they will be outweighed by the economic benefits. Key decision-makers in the Peruvian bureaucracy and Australia’s Coalition government largely accept these ideas, even without evidence of a positive relationship between ISDS and FDI flows. In Australia, the Productivity Commission explicitly rejected the idea that ISDS increased FDI or was extensively used by Australian investors. As far as the authors are aware, the Peruvian government has not undertaken a similarly comprehensive economic evaluation of its ISDS commitments. In interviews, Peruvian officials often referenced the country’s strong growth rates in comparison to other Latin American countries, which has been driven by FDI, as proof of the effectiveness of, and need for, strong investment protections. The good governance frame also benefits from general acceptance of the idea that liberal investment markets constitute good governance.

Broad public acceptance of economic integration also helped pro-ISDS actors to delegitimise opposition to ISDS. A common strategy of corporate actors in both countries is to dismiss criticism of ISDS as ‘anti-trade’ (and anti-development in Peru), a message which resonates with politicians given the potential political repercussions of the label. Fears of being labelled ‘anti-trade’ likely influenced the Labor party’s vote in favour of the implementing legislation for several trade agreements even while it continued to voice concerns over ISDS.


As we have shown, support for ISDS persisted in Australia and Peru despite clearer information about the potential costs of investor claims. Information about the costs was downplayed in policy circles due to interest groups that sought to sustain strong investment protections and/or expand opportunities for profit-making through participating in ISDS cases. Interest groups sold ISDS to policymakers as constituting a low-risk, good governance arrangement that generated national economic benefits. These arguments aligned with policymakers’ prior beliefs in merits of market forces and the wealth-generating impacts of foreign investment. Our findings complement Poulsen’s (2015) theory that ISDS preferences are not formed in light of full and clear information about their costs and benefits. However, we demonstrate that policymakers’ political learning processes are not as detached from the rest of society as is often portrayed in rational and bounded rational theories. Political learning processes are enmeshed in, and shaped by, countries’ socio-political and institutional landscapes.

Interest groups that effectively frame ISDS as low risk, governance-improving, and economically beneficial in decision-making circles can help explain ISDS preferences elsewhere. In Japan and Canada, dominant political parties tend to share similar views on foreign investment and possess strong ties to internationally oriented interest groups. This perhaps explains why support for (albeit more circumscribed) ISDS provisions has remained stable, even as countries face ISDS claims, growing public scrutiny, and changes in government. Although, it should be noted that Japan faced its first claim relatively recently (2020) and, consequently, information about the costs of ISDS may not yet be salient in political debates.

Deterioration in the persuasiveness of these interest groups and their frames can help explain preferences against ISDS in other countries. For instance, Ecuador and Bolivia’s withdrawal from the ICSID Convention was precipitated by economic crises that eroded the strength of private sector interest groups and contributed to the election of left-leaning governments with roots in progressive social movements. Policymakers were critical of global capitalism and the role foreign investors played in their natural resources sectors. They were less receptive to the claims made by pro-ISDS groups.

As ISDS is not the most salient issue in national elections, we expect that ISDS preferences will swing where competitive elections are held between parties that have varying ties to the benefactors of ISDS and/or different views on foreign investment. Our findings also suggest that where the political class is weakly institutionalised and inexperienced, debates on ISDS reform may be captured by economic elites and technocrats. Such a scenario may help explain ISDS preferences in democratising countries like Myanmar and Thailand where there is a strong bureaucratic tradition, but representative institutions are weak. Further research into these and other cases would help us better understand the characteristics of the global ISDS coalition, including where it is concentrated, how their frames shift over time, and what conditions make their framing practices effective forces in policymaking.

This study carries implications for multilateral discussions on ISDS reform. Our findings suggest that debates on ISDS may not be particularly democratic at the national level. International organisations can offer more inclusive debate venues, but the time and resources required to participate across national and international forums will advantage pro-ISDS groups that tend to have more resources than civil society organisations. Proponents of substantive change in ISDS, and those that seek to end ISDS altogether, will also need to combat deep-seated beliefs in the credible commitment imperative. And risk aversion amongst governments may favour incremental reforms that preserve ISDS. The danger is that governments will continue to experiment with incremental reforms only to learn the costs of preserving the system in the future. International organisations can help democratise ISDS reform by creating new mechanisms for citizen engagement, promoting awareness of ISDS reform amongst citizens, and challenging assumptions about the economic necessity of ISDS.


We would like to thank Salvatore Barrilà, Iain Hardie, Manolis Kalaitzake, Alexis Montambault Trudelle, Patricia Ranald, Charlotte Rommerskirchen, and David Yarrow for helpful suggestions on early drafts. We are also indebted to our anonymous reviewers whose thoughtful and constructive comments strengthened our work.


Declaration statement

No potential conflict of interest was reported by the authors.

Additional information

This research was undertaken, in part, thanks to funding from the Canada Research Chairs Program.

Notes on contributors

Julia Calvert

Julia Calvert is a Senior Lecturer in International Political Economy at the University of Edinburgh. Her work examines the interactions between domestic democratic politics and international trade and investment rules. Her recent book, The Politics of Investment Treaties in Latin America (2022, Oxford University Press) examines the drivers of investment treaty infringement and reform in Latin America.
Kyla Tienhaara

Kyla Tienhaara is an interdisciplinary social scientist who studies the intersection between environmental governance and the global economy. She is Canada Research Chair in Economy and Environment and Assistant Professor in the School of Environmental Studies and Department of Global Development Studies at Queen’s University.


1 We recognise that foreign policy outcomes, like the inclusion of ISDS in a trade agreement, reflects competing domestic and international pressures (Putnam 1988). We are less interested in the outcome of any individual agreement than we are in explaining the domestic policy preference to include ISDS in new IIAs over time as information as the potential costs of ISDS becomes clearer.

2 1105 documents were reviewed and coded as pro-ISDS, anti-ISDS or neutral. Documents coded as pro-ISDS (8 percent of public submissions) were analysed in greater depth along with all hearing transcripts and committee reports.

3 Morgan and Ibsen (2021, p. 5) describe ‘noisy politics’ as an ‘increased drive toward transparency and scrutiny and a scepticism toward behind-the-scenes agreements between powerful actors.’

4 Scholars debate whether capital-importing countries tie their hands voluntarily or do so due to coercion from capital-exporters (cf Allee & Peinhardt 2014).

5 A 1998 claim was settled.

6 Empresas Lucchetti and Lucchetti Peru v. Republic of Peru (2005). Award. (ICSID Case. No. ARB/03/4), 23.

7 Duke Energy International v. Republic of Peru (2008). Award (ICSID Case No. ARB/03/28).

8 García signed FTAs with Chile (2006), Singapore (2008), Canada (2008), China (2009), the European Free Trade Association (EFTA, 2010), South Korea (2010), Mexico (2011), Costa Rica (2011), Panama (2011) and Japan (2011). The only the EFTA agreement excluded ISDS.

9 Renco v. Republic of Peru (2016). Final Award (Case No. UNCT/13/1).

10 Bear Creek v. Peru, pg. 47

11 Two American investors tried launching ISDS disputes under AUSFTA but were unsuccessful because it does not have a standard ISDS provision (Williams, 2017). An Australian mining magnate also threatened to use a Singaporean subsidiary to bring a claim (Karp 2020).

12 Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, Award of 17 Dec 2015.

13 Interview with three anonymous officials (Lima, Peru).

14 Supporters of ISDS fail to distinguish between contract-based and treaty-based ISDS claims.


  1. Aisbett, E. (2009). Bilateral investment treaties and foreign direct investment: Correlation versus causation. In K. Sauvant & L. Sachs (Eds.), The effect of treaties on foreign direct investment: bilateral investment treaties, double taxation treaties, and investment flows (pp. 395–437). Oxford University Press. [Crossref], [Google Scholar]
  2. Allee, T., & Peinhardt, C. (2014). Evaluating three explanations for the design of bilateral investment treaties. World Politics, 66(1), 47–87. [Crossref], [Web of Science ®], [Google Scholar]
  3. Austen-Smith, D. (1993). Information and influence: Lobbying for agendas and votes. American Journal of Political Science, 37(3), 799–833. [Crossref], [Web of Science ®], [Google Scholar]
  4. Aulby, H. (2017). The tip of the iceberg: Political donations from the mining industry. The Australia Institute. [Google Scholar]
  5. Australian Chamber of Commerce and Industry. (2014). Submission to the Senate inquiry into the Trade and Foreign Investment (Protecting the Public Interest) Bill 2014. [Google Scholar]
  6. Australian Fair Trade and Investment Network. (2020, September 3). Mining companies dominate ISDS treaty shopping claims from Australian companies. [Google Scholar]
  7. Australian Labor Party. (2021). ALP National Platform. Canberra. [Google Scholar]
  8. Australia may be more open to ISDS in TPP with government change. (2013, Mar 15), Inside US Trade. [Google Scholar]
  9. Baldwin, R. E. (1989). The political economy of trade policy. Journal of Economic Perspectives, 3(4), 119–135. [Crossref], [Web of Science ®], [Google Scholar]
  10. Bauerle Danzman, S. (2016). Contracting with Whom? The differential effects of BITs on mitigating sources of investment risk. International Interactions, 42(3), 452–478. [Taylor & Francis Online], [Web of Science ®], [Google Scholar]
  11. Birmingham, S. (2020, June 17). Enhanced transparency for free trade agreement negotiations. [Google Scholar]
  12. Brada, J. C., Drabek, Z., & Iwasaki, I. (2021). Does investor protection increase foreign direct investment? A meta-analysis. Journal of Economic Surveys, 35(1), 34–70. [Crossref], [Web of Science ®], [Google Scholar]
  13. Burron, N. (2012). Ollanta Humala and the Peruvian conjuncture: Democratic expansion or “inclusive” neoliberal redux? Latin American Perspectives, 39(1), 133–139. [Crossref], [Web of Science ®], [Google Scholar]
  14. Camyar, I. (2012). Party politics and international trade: Mainstream parties, niche parties, and trade openness. International Studies Quarterly, 56(2), 397–404. [Web of Science ®], [Google Scholar]
  15. Capling, A., & Ravenhill, J. (2015). Australia’s flawed approach to trade negotiations: And where do we sign? Australian Journal of International Affairs, 69(5), 496–512. [Taylor & Francis Online], [Web of Science ®], [Google Scholar]
  16. Carter, C. L. (2020). Party system erosion: Evidence from Peru. Party Politics, 26(5), 581–593. [Web of Science ®], [Google Scholar]
  17. Castillo, J. (2016). El Perú en el Tratado de Asociación Transpacfīfico (TPP): beneficios y mitos [Peru in the Transpacific Trade Agreement: Benefits and myths]. Agenda Internacional, XXIII(34), 99–124. [Google Scholar]
  18. Cheong, I. (2013). Negotiations for the Trans-Pacific Partnership Agreement: Evaluation and implications for East Asian Regionalism. Asian Development Bank Institute Working Paper Series No. 428. [Google Scholar]
  19. Coalition. (2013). The coalition’s policy for trade.;fileType=application%2Fpdf#search=%22library/partypol/2717554%22 [Google Scholar]
  20. Culpepper, P. D. (2011). Quiet politics and business power: Corporate control in Europe and Japan. Cambridge University Press. [Google Scholar]
  21. Dafe, F., & Williams, Z. (2021). Banking on courts: Financialization and the rise of third-party funding in investment arbitration. Review of International Political Economy, 28(5), 1362–1384. [Taylor & Francis Online], [Web of Science ®], [Google Scholar]
  22. Dargent, E., & Muñoz, P. (2016). Peru: A close win for democracy. Journal of Democracy, 27(4), 145–158. [Web of Science ®], [Google Scholar]
  23. De Echave, J. (2005, December 16). El TLC y las inversions [The FTA and investment]. La Republica. [Google Scholar]
  24. Department of Foreign Affairs and Trade. (n.d.) AUSFTA Factsheets: Investment. [Google Scholar]
  25. Durand, F. (2010). Corporate rents and the capture of the Peruvian state. In J. C. Marques & P. Utting (Eds.), Business, politics and public policy: Implications for inclusive development (pp. 184–208). Palgrave Macmillan. [Google Scholar]
  26. Eliasson, J. L. (2016). The transatlantic trade and investment partnership: Interest groups, public opinion and policy. In P. Garcia-Duran & M. Millet (Eds.), Different glances at EU trade policy (pp. 33–44). Barcelona Centre for International Affairs. [Google Scholar]
  27. Elkins, Z., Guzman, A., & Simmons, B. (2006). Competing for capital: The diffusion of bilateral investment treaties, 1960–2000. International Organisation, 60(4), 811–846. [Crossref], [Web of Science ®], [Google Scholar]
  28. El Peruano. (2013, May 6). Experience in investment arbitration is positive. [Google Scholar]
  29. El Peruano. (2016, July 21). Investment arbitrations. [Google Scholar]
  30. El Peruano. (2018, February 12). Arbitration will not affect work at the Chinchero Airport. [Google Scholar]
  31. Foreign Affairs, Defence and Trade Legislation Committee. (2014). Report on Trade and Foreign Investment (Protecting the Public Interest) Bill 2014. Commonwealth of Australia. [Google Scholar]
  32. Gamboa, R. (2013). Interest groups in foreign trade negotiations: Chile, Colombia and Peru in a comparative perspective. SECO Working Paper 9/2013, World Trade Institute. [Google Scholar]
  33. Goldstein, J. (1988). Ideas, institutions and American trade policy. International Organization, 42(1), 179–217. [Crossref], [Web of Science ®], [Google Scholar]
  34. Guisinger, A. (2017). American opinion on trade: Preferences without politics. Oxford University Press. [Crossref], [Google Scholar]
  35. Guzman, A. (1998). Why LDCs sign treaties that hurt them: Explaining the popularity of bilateral investment treaties. Virginia Journal of International Law, 38(4), 639–688. [Google Scholar]
  36. Haftel, Y., & Thompson, A. (2018). When do states renegotiate investment agreements? The impact of arbitration. The Review of International Organizations, 13(1), 25–48. [Crossref], [Web of Science ®], [Google Scholar]
  37. Hallward-Driemeier, M. (2003, June). Do bilateral investment treaties attract foreign direct investment? Only a bit and they could bite (Policy Research Working Paper No. 3121). World Bank. [Google Scholar]
  38. Holmes, D. (2016, June 21). The fossil-fuelled political economy of Australian elections. The Conversation. [Google Scholar]
  39. Hughes, K. (2015, October 5). Exclusive: In Pacific trade deal, Australia gets bigger U.S. sugar allocation. Reuters. [Google Scholar]
  40. Irwin, D. (1994). The political economy of free trade: Voting in the British general election of 1906. The Journal of Law and Economics, 37(1), 75–108. [Crossref], [Web of Science ®], [Google Scholar]
  41. Johnson, L., & Sachs, L. E. (2016). The outsized costs of investor-state dispute settlement. Columbia Center on Sustainable Investment Staff Publications. [Google Scholar]
  42. Karp, P. (2020, December 17). Clive Palmer could seek ‘unquantifiable’ commonwealth compensation under Singapore free trade deal. The Guardian. [Google Scholar]
  43. Kerner, A., & Lawrence, J. (2014). What’s the risk? Bilateral investment treaties, political risk and fixed capital accumulation. British Journal of Political Science, 44(1), 107–121. [Crossref], [Web of Science ®], [Google Scholar]
  44. King, M. (2019, October 17). Letter to the Hon Simon Birmingham, Minister of Trade, Tourism and Investment, Re: Trade Agreements with Indonesia, Hong Kong and Peru. [Google Scholar]
  45. Kurtz, J., & Nottage, L. (2015). Investment treaty arbitration ‘down under’: Policy and politics in Australia. ICSID Review, 30(2), 465–480. [Google Scholar]
  46. Langford, M., Behn, D., & Fauchald, O. (2018). Backlash and state strategies in international investment law. In T. Aalberts & T. Gammeltoft-Handsen (Eds.), The Changing Practices of International Law (pp. 70–102). Cambridge University Press. [Google Scholar]
  47. Levitsky, S., & Cameron, M. (2003). Democracy without parties? Political parties and regime change in Peru. Latin American Politics and Society, 45(3), 1–33. [Web of Science ®], [Google Scholar]
  48. Lozano, I. (2019, August 26). Perú tuvo resultado adverso en solo 3 de 16 casos ante el CIADI [Peru has lost in only three of sixteen cases before ICSID]. La República. [Google Scholar]
  49. Luna, J. (2015, October 11). Acuerdo de Asociación Transpacífico (TPP). Semanario Comexperu, No. 818. [Google Scholar]
  50. Luttrell, S., & Weeramantry, R. (2016). Submission to the Joint Standing Committee on Treaties in Respect of the Trans Pacific Partnership. [Google Scholar]
  51. Maldonado, Enrique Fernndez. 2016. Impacto de los Acuerdos Comerciales Internacionales Adoptados por el Estado Peruano en el Cumplimiento y Promocion de los Derencos Humanos en el Perú [The Impact of Peru’s International Trade Agreements on the Promotion of Human Rights in Peru]. redGE. [Google Scholar]
  52. Minerals Council of Australia. (2018, November 2). Aspects of the Peru-Australia Free Trade Agreement Revisited. [Google Scholar]
  53. Minerals Council of Australia. (2019a, August 23). Australia-Hong Kong Free Trade Agreement. [Google Scholar]
  54. Minerals Council of Australia. (2019b, August 23). Indonesia-Australia Comprehensive Economic Partnership Agreement. [Google Scholar]
  55. Milner, H. (1999). The political economy of international trade. Annual Review of Political Science, 2(1), 91–114. [Crossref], [Web of Science ®], [Google Scholar]
  56. Milner, H., & Judkins, J. (2004). Partisanship, trade policy, and globalisation: Is there a left-right divide on trade policy? International Studies Quarterly, 48(1), 95–120. [Crossref], [Web of Science ®], [Google Scholar]
  57. Milner, H., & Kuboto, K. (2005). Why the move to free trade? Democracy and trade policy in the developing countries. International Organisation, 59, 107–143. [Crossref], [Web of Science ®], [Google Scholar]
  58. MINCETUR. (2005, February). Preguntas y Respuestas sobre el TLC Perú-Estados Unidos [Questions and answers about the Peru-United States FTA].$FILE/2respuesta.pdf [Google Scholar]
  59. MINCETUR. (n.d.). Informa a la opinion publica sobre mecanismos de solucion de controversias inversionista-estado sobre salud publica [Informing public opinion about the impact of investor-state dispute settlement on public health]. [Google Scholar]
  60. MINCETUR. (n.d.). Frequent questions. [Google Scholar]
  61. Minister: Australia open to ISDS in TPP if other countries give on tariffs. (2013, December 13). Inside US Trade. [Google Scholar]
  62. Morgan, G., & Ibsen, C. L. (2021). Quiet politics and the power of business: New perspectives in an era of noisy politics. Politics & Society, 49(1), 3–16. [Crossref], [Web of Science ®], [Google Scholar]
  63. Neumayer, E., Nunnenkamp, P. & Roy, M. (2016). Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements. Review of World Economics, 152, 177–213. [Crossref], [Web of Science ®], [Google Scholar]
  64. Neumayer, E. & Spess, L. (2005). Do bilateral investment treaties increase foreign direct investment to developing countries? World Development, 33(10), 1567–1585. [Crossref], [Web of Science ®], [Google Scholar]
  65. Olivet, C., & Eberhardt, P. (2012). Profiting from injustice: How law firms, arbitrators and financiers are fuelling an investment arbitration boom. Corporate Europe Observator and the Transnational Institute. [Google Scholar]
  66. Peinhardt, C., Kim, A., & Pavon-Harr, V. (2019). Deforestation and the United States-Peru Trade Promotion Agreement. Global Environmental Politics, 19(1), 53–76. [Crossref], [Web of Science ®], [Google Scholar]
  67. Picciotto, S. (1997). Networks in international economic integration: Fragmented states and the dilemmas of neo-liberalism. Northwestern Journal of International Law & Business, 17(2), 1014–1056. (Original work published 1996) [Google Scholar]
  68. Poulsen, L. (2015). Bounded rationality and economic diplomacy: investment treaties in developing countries. Cambridge University Press. [Google Scholar]
  69. Poulsen, L., & Aisbett, E. (2013). When the claim hits: Bilateral investment treaties and bounded rational learning. World Politics, 65(2), 273–313. [Crossref], [Web of Science ®], [Google Scholar]
  70. Productivity Commission. (2010). Bilateral and regional trade agreements. Commonwealth of Australia. [Google Scholar]
  71. Putnam, R. D. (1988). Diplomacy and domestic politics: The logics of two-level games. International Organization, 42(3), 427–460. [Crossref], [Web of Science ®], [Google Scholar]
  72. Ranald, P. (2006). The Australia US Free Trade Agreement: A contest of interests. Journal of Australian Political Economy, 57, 30–56. [Google Scholar]
  73. Ranald, P. (2019, March 26). When even winning is losing: The surprising cost of defeating Philip Morris over plain packaging. The Conversation. [Google Scholar]
  74. Rogowski, R. (1989). Commerce and coalitions. Princeton University Press. [Google Scholar]
  75. Sanchez, J. C. (2018). Preparación y organización doméstica para la negociaciones del TLC Perú-EE.UU. [Domestic preparation and organisation for the Peru-US free trade negotiations]. Agenda Internactional, 25(26), 191–216. [Google Scholar]
  76. Sattorova, M. (2014). The impact of investment treaty law on host-state behaviour: Some doctrinal, empirical and interdisciplinary insights. In S. Lalani & R. P. Lazo (Eds.), The role of the state in investor-state arbitration (pp. 162–186). Nijhoff/Brill. [Google Scholar]
  77. Sattorova, M. (2018). The impact of investment treaty law on host states: Enabling good governance? Hart Publishing. [Google Scholar]
  78. Schultz, T., & Dupont, C. (2014). Investment arbitration: Promoting the rule of law or over-empowering investors? A quantitative empirical study. European Journal of International Law, 25(4), 1147–1168. [Web of Science ®], [Google Scholar]
  79. Scurrah, M., Lingán, J., & Pizarro, R. (2009). Case study: Jobs and health in Peru. In J. Atkinson & M. Scurrah (Eds.), Globalising social justice (pp. 166–206). Palgrave. [Google Scholar]
  80. Tobin, J., & Rose-Ackerman, S. (2011). When BITS have some bite: The political-economic environment for bilateral investment treaties. The Review of International Organizations, 6(1), 1–32. [Crossref], [Web of Science ®], [Google Scholar]
  81. Valderrama, C. (2018). Peru-best practices for confronting international lawsuits brought by private investors. ICSID Review, 33(1), 103–124. [Google Scholar]
  82. Vergara, A., & Encinas, D. (2016). Continuity by surprise: Explaining institutional stability in contemporary Peru. Latin American Research Review, 51(1), 159–180. [Crossref], [Web of Science ®], [Google Scholar]
  83. Wellhausen, R. and Moehleck, C. (2022). Political risk and international investment law. Annual Review of Political Science 25(1), 485–507. [Google Scholar]
  84. Williams, E. (2017, July 14). Coal and wind interests power ISDS threats against Australia. Mondaq. [Google Scholar]
  85. World Bank (2021). GDP (current US$) – Peru. World Bank National Accounts Data. [Google Scholar]
  86. Yackee, J. W. (2012). Controlling the international investment law agency. Harvard Internaitonal Law Journal, 53(2), 391–448. [Google Scholar]
  87. Yoshimatsu, H. (2012). Political leaders’ preferences and trade policy: Comparing FTA politics in Japan and South Korea. Asian Politics & Policy, 4(2), 193–212. [Crossref], [Google Scholar]

 source: Taylor & Francis Online