CHAPTER 3 INVESTOR-STATE ARBITRATION AND PUBLIC POLICY

• Jurisdiction: United States

International Energy and Minerals Arbitration
(Sep 2013)
CHAPTER 3
INVESTOR-STATE ARBITRATION AND PUBLIC POLICY
Rudolf Dolzer
Professor
Heidelberg, Germany

RUDOLF DOLZER received his legal education in Germany (Heidelberg University) and in the United States (Harvard Law School). From 1992-1996 he was Director General in the Office of the Federal Chancellor in Bonn. He has written extensively for 30 years on foreign investment law. In 1995 he published, together with Margrete Stevens, the book Bilateral Investment Treaties. In 2008 he authored the book Principles of International Investment Law, together with Christoph Schreuer; the second edition appeared in November 2012. For 25 years, he has acted in numerous arbitrations as an expert and as an arbitrator. Rudolf Dolzer has taught at the Chinese Academy of Social Sciences, Michigan Law School, Cornell Law School, Massachusetts Institute of Technology, Yale Law School, University Paris 1 (Sorbonne), Instituto de Empresa Business School, and the Southern Methodist University Dedman School of Law. Between 1996 and 2009, he was Director of the Institute for International Law at the University of Bonn. In August 2010 Prof. Dolzer gave lectures at the Hague Academy of International Law on "The Evolution of Oil and Gas Law from an International Perspective."

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A. The dominance of investor-state arbitration

Investor-state arbitration has been the key innovation in international investment law in the last century.¹ The oil and gas business and the mining sector have become a significant part in the development of arbitration as the dominant mode of dispute settlement in international economic relations. About every one out of four international investment law cases deals with oil and gas or mining.

The rise of arbitration has not been straightforward. We may distinguish seven phases.

— First, a few ad hoc arbitrations based on dispute settlement clauses in agreements between host States and investors in the 1920's and 1950's ushered in the new era.²

— Second, the major step in the 1960's was the negotiations within World Bank, of an institution dedicated solely to the resolution of investment disputes which lead to ICSID with its strict emphasis on investor-state arbitration.³

— Third, between 1968 and 1990, a handful of cases were brought by investors to an ICSID tribunal.⁴ This was a slow start, and in the 1980's ICSID's fate was uncertain.

— The fourth phase started around 1990 when ICSID finally became better known and attracted more cases, and when worldwide investment grew exponentially. The engine of the new developments was bilateral investment treaties which provided investors with access to ICSID in their disputes with host States. This was contrary to the expectations during the time of the negotiations. The original assumption on the 1960's was that ICSID jurisdictions would be based on investment agreements concluded by investors with the host States, and not on international treaties between States.

The setting had changed after the number of BITs with investor-state clauses had increased in the 70's and 82's.

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- The fifth phase began during the 90's when more and more investor-state disputes were filed and ICSID first became a lively institution.

— The sixth phase followed around the year 2000 when the number of investment cases started to go up rapidly, in an unprecedented manner, prompted by increasing flows of investment and also by increasing number of BITs.⁵ This sixth phase is ongoing, with more than 450 cases so far filed at ICSID, about 3000 treaties containing rules on investor-state arbitration in force and volumes of foreign investment which have quadrupled after 1990.⁶ The trend is to merge trade agreements with investment treaties.

— The current sixth phase overlaps with a seventh phase which has its roots mainly in the deliberations in Washington D.C. in the formulation of a U.S. Model BIT around 2003.⁷ From now on, the debates on bilateral treaties went beyond the circle of governmental experts, beyond the horizon of international enterprises and beyond a few interested academics. The result was that more proposals were made to include broader social concerns inter BITs, mainly concerning labor issues and environmental matters. Moreover, investor-state arbitration as such for first the time became the object of debates. The situation in the U.S. spilled over into Europe, in particular when in 2009 the jurisdiction for BITs shifted from the EU member States to EU. The new involvement of the EU Parliament since 2010 led to a new sound of discussions, in Europe as well, of the usefulness of BITs, of the usefulness of investor-state arbitration, and of the usefulness of agreements solely addressing investment issues.

Meanwhile, it appears that this seventh phase, with its critical reappraisal of investor-state arbitration, has run its course. As things stand today, the criticism has not subsided, but the governments have meanwhile decided, in principle, not to abandon their previous course and to stay with investor-state arbitration.

Investor-state arbitration is provided, for instance, in the current draft of the Trans-Pacific Partnership Agreement which is likely to involve the U.S., Japan and the other countries. For the EU, the main...