Contracted-Away Capacity: Investor-State Dispute Settlement, Regulatory Chill, and the Internationally Wrongful Omission of Human Rights-Protective Regulation

This paper argues that investor–state dispute settlement (ISDS)–induced regulatory chill can constitute an internationally wrongful omission under international human rights law. While scholarship has extensively documented the deterrent effect of investment arbitration on public-interest regulation, it has not legally constructed this phenomenon as a breach of human rights obligations. The article introduces the “contracted-away capacity” doctrine, arguing that when states refrain from adopting rights-protective regulation due to exposure to ISDS liability under bilateral investment treaties, they violate positive obligations under ICCPR Article 6 and ICESCR Articles 11 and 12, attributable under Article 2 of the ILC Articles on State Responsibility. The paper develops a novel Regulatory Omission Wrongfulness Test (ROWT) and applies a Regulatory Omission Attribution Matrix (ROAM) across documented cases of regulatory chill. It further proposes a justiciable remedy pathway through the Optional Protocol to the ICESCR and argues that ISDS awards undermining jus cogens climate obligations may be legally void under VCLT Article 53.