This paper examines the significance and implications of the arbitration outcomes of the International Centre for Settlement of Investment Disputes (ICSID). It is critical to assure legitimacy and credibility of its apparatus and governance to secure a long-term sustainability of ICSID through transparency and fairness of the arbitration process.
ICSID was established in 1965 as part of the institutions of the World Bank and went into force in 1966. The main purpose of its establishment is to provide a neutral, independent forum in which panels of independent and impartial lawyers would arbitrate investment disputes between MNCs and host country governments. Although this supranational institution focuses on resolving conflicts, its primary goal is to attract foreign investments by supporting credibility of commitment on part of a host country. At the same time, ICSID aims to promote economic development through the encouragement of capital transfer from MNCs to developing countries. Thus, ICSID seeks mutual benefits for both the MNCs and host states.
Although MNCs have increasingly used ICSID arbitration in response to alleged violation of contractual terms and/or property rights (e.g., expropriation), we still know very little about the profile of MNCs that are using ICSID arbitration and its outcomes. To fill this gap, this paper examines the following three research questions: (1) Where is ICSID arbitration more likely to be filed between developed and developing host countries? (2) Who are more likely to win the ICSID arbitration cases between MNCs from developed and those from developing countries? (3) Who are more likely to receive a larger compensation between MNCs from developed and those from developing countries? Using bargaining power theory combined with resource-based view and institutional theory as a conceptual framework, hypotheses are developed from these research questions. To test the hypotheses, we use a sample of investment dispute cases posted on the ICSID website for the period 1972-2021. In addition, we draw on data from the United Nations Conference on Trade and Development (UNCTAD) investment policy hub to ascertain the arbitration winner and the awarded amount. Initially, we collected data on 647 investment dispute cases and completed preliminary analyses of the data using logistic and OLS regression models. Our tentative results show that the outcomes of the ICSID arbitration tend to heavily favor MNCs from developed countries with higher financial compensation. Such empirical evidence indicates that the odds of winning the arbitration settlement are very low for MMCs from developing countries relative to their counterparts from developed countries. This may be the very reason for MNCs from developed countries to increasingly utilize the ICSID as a vehicle to resolve their conflicts with host countries rather than other alternatives. If this trend continues, it will undermine the reputation of ICSID and ultimately threaten its raison d'être and sustainability. The paper discusses both theoretical and practical implications of the findings and ends with some recommendations to improve the role of ICSID.