Embedded in any policy proposal is a set of assumptions about the problem that the policy is intended to solve.1 As policy processes play out, some of these assumptions are contested by the actors involved, while others remain latent. Policy discussion about institutionalizing investment dispute prevention reflects a set of assumptions concerning the problem of investment disputes. In this contribution, I examine assumptions embedded in the development of, and the response to, the United Nations Commission on International Trade Law (UNCITRAL) Secretariat's 2023 Draft Legislative Guide on Investment Dispute Prevention and Mitigation. The Draft Legislative Guide represents the high-water mark of efforts to develop a model of investment dispute prevention that could be rolled out at the domestic level. I make three main arguments. First, both the Draft Legislative Guide itself and wider policy discussion assume that investment disputes develop independently of the cognitive and institutional environment in which they occur. As a result, policy discussion overlooks the extent to which dispute prevention initiatives can, counter-intuitively, produce investment disputes. Second, policy discussion of investment dispute prevention assumes that investment disputes have their roots in coordination failures across government, rather than democratic processes, distributive conflicts, or tensions between the interests of investors and wider public interests. This premise, and its implications, deserve much closer critical scrutiny. Third, institutionalized models of investment dispute prevention of the sort envisaged by Draft Legislative Guide are almost exclusively found in developing states. The dispute prevention agenda needs to grapple openly with the fact that advice is being given to developing states to establish dispute prevention institutions that have no equivalents in the domestic systems of developed states.

This contribution examines the role of dispute prevention mechanisms (DPMs) in domesticating and broadening foreign investor privileges. Although conceived as a means of responding to the backlash against investor-state dispute settlement (ISDS), dispute prevention mechanisms are likely to produce legal enclaves whereby a privileged group of actors are afforded special treatment, and their interests are elevated into policy priorities. As currently conceived, DPMs are expected to operate as a regime embedded in domestic law, but replicating and amplifying investment law's emphasis on the exclusivity of foreign investor rights. Thus, the effect of DPMs is to anchor and extend foreign investor rights to a pre-dispute stage. By analyzing the premises and core features of the emerging DPMs, this contribution argues that, rather than addressing the systemic issues underpinning international investment law, the dispute prevention agenda will further expand and entrench foreign investor privileges.

This contribution highlights the importance of institutional dispute prevention not just to prevent the proliferation of formal legal disputes between states and foreign investors, but also to preserve the relationship between investors and states and enable investment retention and expansion. Drawing from empirical studies and survey findings, as well as the World Bank's country experience of working on investment policy and promotion frameworks, this contribution provides an overview of the World Bank's experience in implementing such mechanisms globally.1

For Peru, the introduction of dispute prevention mechanisms was a consequence of the country's increased openness to foreign investment. Following a severe economic crisis, the government launched several pro-investment reforms in the 1990s. These included signing bilateral investment treaties and free trade agreements with investment protection provisions, as well as investment contracts with foreign investors. The resulting flow of foreign direct investment (FDI) into the country, in turn, increased the likelihood of the state facing investor-state dispute settlement (ISDS) cases. As Peru began to face investment claims in the early 2000s, the Coordination and Response System for International Investment Disputes, also known as “SICRECI” for its acronym in Spanish, was established to manage the practical challenges of coordinating the state's defense. In practice, however, SICRECI's mandate has expanded progressively beyond coordinating ISDS defense, as the institution has undertaken several actions to prevent disputes and otherwise adapted to the specifics of Peru's pro-investment policy. SICRECI became one of the first models of dispute prevention mechanisms, with international organizations showcasing it as an example of how states, in particular developing countries, could address and mitigate a growing number of concerns over the impact of investment arbitration.1

China's 2019 Foreign Investment Law establishes a formal mechanism to handle complaints by foreign-invested enterprises (FIEs)—i.e., Chinese enterprises that are wholly or partly foreign-owned. Its “complaint agencies” are empowered to prevent disputes by facilitating settlements; they do not have adjudicatory authority. Beyond the immediate objective of dispute prevention, this essay argues that the FIE complaint mechanism was intended to strengthen central oversight and control over subnational governments. However, the mechanism may be hindering its intended objectives in practice. In particular, the flexibility and informality of its processes encourage ad hoc settlements between FIEs and errant subnational governments in ways that may undermine the exercise of central administrative powers.

The steady rise of international investment arbitration in recent years suggests that many states still struggle to prevent investor grievances from becoming international investment disputes and ultimately arbitration claims. The United States is not exempt from such difficulties, but it has some institutional advantages contributing to its successful approach to mitigating and managing international investment disputes. Key advantages include its practice of: (1) “internationalizing” domestic law in U.S. international investment agreements (IIAs); (2) encouraging foreign investors to pursue domestic remedies in U.S. courts; and (3) domesticating the international investment regime within the U.S. government. The U.S. experience offers some valuable lessons for the ongoing reform of the international investment regime.