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Control, Capacity, and Legitimacy in Investment Treaty Arbitration

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Arbitration has long been the default mechanism for resolving international investment disputes. The traditional consensus favoring arbitration, however, has now given way, and reform proposals abound. The articles by Sergio Puig and Gregory Shaffer, on institutional choice and investment law reform, and by Anthea Roberts, on incremental, systemic, and paradigmatic reform of investor-state arbitration, helpfully situate the current controversies, debates, and reform options for states. Both articles reveal just how far and fast the debate has shifted in recent years. They also confirm states’ desire to exercise greater control over the regime for resolving international investment disputes. Many states continue to struggle to fully comply with their investment treaty obligations, to efficiently defend against investor claims, and to properly keep abreast of and shape developments in international investment law. Puig and Shaffer provide a useful framework for comparatively assessing possible institutional alternatives in light of their relative trade-offs. But any reform recommendations should draw lessons from states’ experience with the existing regime, including states’ significant problems of capacity. The merits of any reform proposals, therefore, should be measured in part by their ability to improve states’ capacity to cope with the existing investment protection regime and rapidly changing developments.

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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.
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Some of the issues addressed in this essay are explored further in the author's forthcoming article in the ICSID Review entitled The Agent's Indispensable Role in International Investment Arbitration. Views expressed are personal.

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3 Charles N. Brower & Jeremy K. Sharpe, International Arbitration and the Islamic World: The Third Phase, 97 AJIL 643, 647 (2003).

4 See Puig & Shaffer, supra note 1; Roberts, supra note 1.

5 See Joost Pauwelyn, At the Edge of Chaos? Foreign Investment Law As a Complex Adaptive System, How It Emerged and How It Can Be Reformed, 29 ICSID Rev. 372 (2014) (tracing development); Puig & Shaffer, supra note 1.

6 But see Stephan W. Schill, The Multilateralization of International Investment Law (2009) (discussing the mechanisms fostering multilateralization of the international investment regime).

7 Karin Kizer & Jeremy K. Sharpe, Reform of Investor-State Dispute Settlement: The U.S. Experience, in Reshaping the Investor-State Dispute Settlement System 172, 174 (Jean E. Kalicki & Anna Joubin-Bret eds., 2015).

8 See, e.g., Stephen M. Schwebel, Remarks at Sidley Austin: The Proposals of the European Commission for Investment Protection and an Investment Court System (May 17, 2016).

9 Vaughan Lowe, International Law 24 (2007).

10 See, e.g., Interpretation of the Free Trade Commission of Certain Chapter 11 Provisions (July 31, 2001) (confirming that the concept of “fair and equitable treatment” standard in Article 1105(1) of the NAFTA does “not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens”—as arbitral tribunals constituted under NAFTA Chapter Eleven previously had determined following arguments advanced by claimant investors).

11 Daniel Bethlehem, The Secret Life of International Law, 1 Cambridge J. Int'l & Comp. L. 23, 31-32 (2012).

12 Railroad Dev. Corp. v. Guat., ICSID Case No. ARB/07/23, Award para. 217 (June 29, 2012).

13 See, e.g., Mesa Power LLC v. Can., PCA Case No. 2012-17, Award paras. 192, 194, 473-74 (Mar. 24, 2016) (in which Mexico and the United States accepted the tribunal's invitation to make non-disputing-party submissions exclusively to address the impact of the award in Bilcon v. Canada).

14 States have many fora in which to make such statements, including in the Sixth Committee (Legal) of the UN General Assembly, the International Law Commission, and the UN Commission on International Trade Law. They may also comment publicly on the outcome of particular disputes. See, e.g., Statement by the Chinese Ministry of Foreign Affairs (Oct. 21, 2016) (declaring “incorrect” the decision of the Singapore Court of Appeal's judgment upholding an arbitral tribunal's decision that the China-Laos BIT applies to Macau SAR).

15 See, e.g., Government of India, Ministry of Finance, Office Memorandum on “Issuing Joint Interpretative Statements for Indian Bilateral Investment Treaties” (Feb. 5, 2016) (proposing joint interpretive statements with twenty-five BIT partners, including on the scope of the “effective means” provision, following the interpretation of that provision made by the tribunal in White Industries v. India).

16 See, e.g., Letter from U.S. State Department Assistant Legal Adviser Lisa Grosh to ICSID Ad Hoc Committee Secretary re Siemens AG v. Argentina (ICSID Case No. ARB/02/8) Annulment Proceeding’ (May 1, 2008) (offering U.S. government views to the ad hoc Committee “regarding a Contracting State party's obligation to abide by and comply with adverse ICSID awards”).

17 The treaty parties’ common, consistent, and concordant views may constitute a “subsequent agreement” or “subsequent practice” for the interpretation of the treaty. See Vienna Convention on the Law of Treaties art. 31(3), May 23, 1969, 1155 UNTS 331 (providing that any subsequent agreement between the parties regarding the interpretation of the treaty, or any subsequent practice in the application of the treaty that establishes the parties’ agreement regarding its interpretation, “shall be taken into account, together with the context”).

18 Puig & Shaffer, supra note 1.

19 See, e.g., 2012 U.S. Model Bilateral Investment Treaty art. 26(2)(b)(ii) (encouraging the use of local dispute settlement provisions by permitting investors generally to pursue other legal remedies within the limitations period before commencing investor-state arbitration).

20 Although U.S. international investment agreements contain no “exhaustion” requirement, the United States argues that, as a matter of international law, the “international responsibility of States may not be invoked with respect to non-final judicial acts unless recourse to further domestic remedies is obviously futile or manifestly ineffective.” Eli Lilly & Company v. Can., Case No. UNCT/14/2, Submission of the United States of America 10-11 (NAFTA, Mar. 18, 2006) (emphasis added).

22 See, e.g., Anna Joubin-Bret, Establishing an International Advisory Centre on Investment Disputes? (E15 Task Force on Investment Policy Think Piece, Dec. 2015) (discussing “the example of the successful Advisory Centre on WTO Law (ACWL) established to provide advice and defence services to states in World Trade Organization (WTO) disputes”).

Some of the issues addressed in this essay are explored further in the author's forthcoming article in the ICSID Review entitled The Agent's Indispensable Role in International Investment Arbitration. Views expressed are personal.

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