What you don't know can hurt you: Investor-state disputes and the environment

Recent years have seen a substantial increase in investor-state disputes. In many cases matters of public interest, including environmental regulations, are being tried. While it is crucial to assess the outcomes of investor-state disputes that involve matters of public policy, the procedures followed in investment arbitration make this difficult and, in some cases, impossible. This is relevant not only for researchers, but also crucially for regulators. This article focuses on how the lack of transparency in arbitration, and the lack of consistency of tribunal decisions, creates uncertainty for regulators. This uncertainty, when combined with the financial risk involved in proceeding to arbitration, may create situations in which the threat of an investment dispute is sufficient to convince a government to reverse, amend or fail to enforce an environmental regulation - a phenomenon referred to as regulatory chill. These issues are explored in an Indonesian case involving a dispute over mining contracts in protected forests. © 2006 by the Massachusetts Institute of Technology.