International Investment Law and Arbitration: A Conceptual Framework

International Investment Law and Arbitration: A Conceptual Framework

Description

Today, arguably, investor-state dispute settlement (ISDS) has become the most controversial form of international litigation (very recently rivalled perhaps by the International Criminal Court, which is facing a stark legitimacy challenge from a number of African states). Arbitration under the International Centre for the Settlement of Investment Disputes (ICSID) or UNCITRAL (The United Nations Commission on International Trade Law) allows an investor to sue a host state before an ad hoc arbitral tribunal for violations of bilateral investment treaties (BITs) or trade and investment agreements (e.g., the North American Free Trade Agreement (NAFTA)). If successful, the investor can enforce a monetary award against the host state in ordinary courts around the world. This regime has, more or less plausibly, been painted as a network of secret or “shadow” courts dominated by a clique of elite arbitrators motivated not by justice but by personal wealth acquisition, a system where multinational corporations unleash blue chip law firms on some of the poorest countries in the world, forcing multimillion dollar settlements or winning awards that are even larger, sometimes more than an impoverished nation’s entire annual budget for health, education and public security. The fear of such pay-outs has understandably had a chill effect on legitimate government regulation in many countries; inconsistently interpreted by arbitrators in different cases, the general norms in investment treaties have been read to go far beyond compensation for takings that aim to extract rents from investors and are likely inefficient, extending to regulatory changes that respond to many valid policy concerns but a negative economic impact on some particular foreign investor. Such criticisms have made headlines and influenced debates about globalization at the highest political levels in the United States, and Europe. In a letter to Members of Congress, over 200 academics in law and economics, including such distinguished scholars as Laurence Tribe and Joseph Stiglitz, made the following critique of ISDS: “Through ISDS, the federal government gives foreign investors and foreign investors alone the ability to bypass that robust, nuanced, and democratically responsive legal framework. Foreign investors are able to frame questions of domestic constitutional and administrative law as treaty claims, and take those claims to a panel of private international arbitrators, circumventing local, state or federal domestic administrative bodies and courts. Freed from fundamental rules of domestic procedural and substantive law that would have otherwise governed their lawsuits against the government, foreign corporations can succeed in lawsuits before ISDS tribunals even when domestic law would have clearly led to the rejection of those companies’ claims. Corporations are even able to relitigate cases they have already lost in domestic courts. It is ISDS arbitrators, not domestic courts, who are ultimately able to determine the bounds of proper administrative, legislative, and judicial conduct. This system undermines the important roles of our domestic and democratic institutions, threatens domestic sovereignty, and weakens the rule of law. In addition to these fundamental flaws that arise from a parallel and privileged set of legal rights and recourse for foreign economic actors, there are various flaws in the way ISDS proceedings are meant to be conducted in the TPP. In short, ISDS lacks many of the basic protections and procedures of the justice system normally available in a court of law. There are no mechanisms for domestic citizens or entities affected by ISDS cases to intervene in or meaningfully participate in the disputes; there is no appeals process and therefore no way of addressing errors of law or fact made in arbitral decisions; and there is no oversight or accountability of the private lawyers who serve as arbitrators, many of whom rotate between being arbitrators and bringing cases for corporations against governments. Codes of judicial conduct that bind the domestic judiciary do not apply to arbitrators in ISDS cases.” In September 2015, in the context of the negotiations between the European Union and the United States on the Trans Atlantic Trade and Investment Partnership (TTIP), the European Commission proposed to address public outrage at investor-state arbitration through inventing an alternative judicial system for the settlement of investment disputes. The judicial system would initially be incorporated (instead of arbitration) in bilateral agreements of the EU such as TTIP, but eventually would be replaced by a multilateral tribunal for the settlement of investment disputes.

Source Publication

International Law and Litigation: A Look into Procedure

Source Editors/Authors

Hélène Ruiz Fabri

Publication Date

2019

International Investment Law and Arbitration: A Conceptual Framework

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