Does Institutional Design Matter for the Legitimacy of ISDS? Evidence from Survey Experiments in Germany, France, and the United States

Do design choices affect citizens’ legitimacy perceptions towards international courts? The paper addresses this question for one of the most controversial areas in international law, investor-state dispute settlement (ISDS). The traditional and widely used arbitration model for investor-state dispute settlement has become a hotly debated issue in the negotiations on mega-regional free trade agreements such as TTIP, CETA, or TPP. Especially in Europe, the debate spurred deep concerns about ISDS in the media, the civil society, and the broad public. Against this backdrop, the EU’s introduction of a new Investment Court System (ICS) is a notable development. The study uses population-based survey experiments to analyse individual legitimacy beliefs towards ISDS. The paper presents results from two survey experiments on population samples in Germany, France, and the United States. The experiments isolate the effect of different institutional designs – namely, arbitration, international court, domestic court – when asking about the popular legitimacy of the broad public for ISDS. Does confidence in the dispute settlement mechanism change if the institutional set-up of the dispute settlement mechanism differs? While experiment one focuses on the stage of negotiation about a free-trade agreement containing an investment chapter, the second experiment presents a hypothetical investment dispute and varies the respondent state and the nationality of the claiming company before asking about popular legitimacy of the dispute settlement mechanism in charge. The main finding is that citizens are not against ISDS per se. Individuals rather differentiate between different institutional designs when evaluating the legitimacy of ISDS. In particular, international courts and national courts generate stronger legitimacy beliefs than investor-state arbitration. However, legitimacy beliefs show to be quite fragile when one’s own country gets sued by a foreign company. Further, the responses reveal varying effects at the country level. Germany and France are much more sceptical towards ISDS than the USA. One important implication of the study is that institutional reforms can indeed strengthen the legitimacy of global governance institutions including international courts.