Emergence & dynamism in international organizations: ICSID, investor-state arbitration & international investment law.

Author:Puig, Sergio
Position:Convention on the Settlement of Investment Disputes Between States and Nationals of Other States - I. Introduction through II. Evolution in Four Acts: Minimalism, Ambition, Idealism and Pragmatism C. Idealism: ICSID as 'Progressive Development of Law Governing Investment' 1. Transparency: A Form of Contestation of the Investor-state Mode of ...

TABLE OF CONTENTS I. INTRODUCTION II. EVOLUTION IN FOUR ACTS: MINIMALISM, AMBITION, IDEALISM AND PRAGMATISM A. Minimalism: ICSID as "Lex Fori" 1. Expanding Membership: UNCTAD Recommends "Both Adherence to and Use of the Convention" 2. A Slow Start: Success "Should Not be Measured by the Number of Disputes Submitted" B. Ambition: ICSID as "Instrument of International Public Policy" 1. Specialization: "Very Different Disputes" 2. De-politicization: "A Superior Solution to the Calvo Doctrine" a. We Need to "Diversify Representation of Nationalities of ICSID Tribunals" b. The Abstention of Courts is "Essential to the Proper Implementation of the Convention" c. Annulment: "A Viable and Useful Dispute Resolving Instrument is in Peril" 3. Stabilization: A "Role in Improving the Investment Climate" a. MIGA and ICSID Reduce "Political Risk as a Barrier to Investment" b. The Guidelines on the Treatment of FDI were "Praised by Business Organizations" C. Idealism: ICSID as "Progressive Development of Law Governing Investment" 1. Transparency: A Form of Contestation of the Investor-state Mode of Dispute Settlement a. "Transparency---Not Secrecy--Should be the Rule, and Not the Exception" b. We Shall "Adapt Regulations and Rules to Respond to Many Changing Demands" 2. International Judicialization: Constraining the Regulatory Activity of Governments a. The Malleable Boundaries of Investor-state Arbitration b. "An ICSID Appeals Facility?" 3. Retrenchment: From Public Policy to Dissemination of Knowledge a. The Defeat of the Multilateral Agreement on Investment b. Not the Only but "the Leading Center for the Resolution of Investment Disputes" D. Pragmatism: ICSID as a "Leader in Administration of International Investment Disputes" 1. Procedural Efficiency: "Investors and States Might Lose Interest in ICSID" a. "ICSID's Financial Self-Sufficiency" b. The Amendments of 2006: "New Criticisms of Process, Calls for Change" 2. The Second Step of Judicialization: Transnational Legal Process a. Predictability: "Annulment Remains an Exceptional Remedy" b. Compliance: "Award Should be Complied With as Final Judgment of the Final Court" c. Neutrality: "Commitment to Diversity [and] Conflict-of-Interest Avoidance" 3. Delinking ICSID and the Development Mission: Secretary-General A "Full-Time Job" III. CONCLUSION A. ICSID and the Development of International Investment Law B. ICSID and Long-Term Institutional Dynamics 1. Top-Down Process: Transnational Institution Building 2. Bottom-Up Process: Judicialization as Equilibrium 3. Some Resulting Recommendations C. ICSID and IOs in Complicated Political Environments I. INTRODUCTION

Almost a half-century after the advent of the International Centre for Settlement of Investment Disputes (ICSID or the Centre), the institution of the World Bank (WB) is almost synonymous with the field of international investment law. Yet, how and why this confluence developed is a gap in the rich literature dealing with this remarkably influential international organization (IO).

This Article addresses this gap and trains new attention on a critical and under-scrutinized factor associated with the development of modern international investment law: the legal, political, and bureaucratic dynamics that have shaped the main multilateral organization in this field. In particular the Article asks the following questions: (1) What has been the role of ICSID in the development of international investment law? (2) What types of dynamics have impacted ICSID's long-term development? and (3) What do these answers reveal about how IOs implement legal mandates--whether to provide facilities for investment disputes, to fight money laundering, or to promote labor rights--in complicated political environments?

In this Article, I trace ICSID's past and present relying on a rich variety of primary and secondary sources with three broad objectives in mind. First, I offer a corrective to the prevailing view among international lawyers and legal scholars that ICSID's role is limited to enhancing different methods of international investment dispute settlement; that ICSID should be evaluated as any other arbitral institution by metrics for operational efficiency and the number of registered cases; and that ICSID is separate from the rest of the WB and hence immune from the WB's bureaucratic dynamics and legal discourse. (1)

In addressing ICSID's evolutionary process, the main contribution of this Article is a straightforward periodization. Four major phases of ICSID's existence offer discrete domains for further legal, socio-legal or empirical investigations as well as insights for legal scholars and officials who seek to enhance the efficacy of the organization. In each period, ICSID's activities, goals, evaluative criteria, and relationship with other WB institutions differ. As I discuss more fully below, the first stage encompasses the period from the Centre's creation in 1967 to 1983. During this stage, ICSID aimed at increasing its membership and succeeded, in part, by framing the 1965 Washington Convention (ICSID Convention) as lex fori for disputes and as a minimalistic enterprise of the WB. (2) By adopting this framing, ICSID sidestepped clashes between developed and developing countries over the limits of national and international law as competing frameworks to decide conflicts involving foreign investors. While the organization's evaluation was linked to increasing membership and state participation in proceedings, the low number of cases also resulted in pressures within the WB. These pressures led to the implementation of the Additional Facility system, a mirror administrative arrangement for cases where only one of the states involved in the dispute is a party to the ICSID Convention, in an attempt--without immediate success--to increase the number of cases administrated by the Centre.

How then could ICSID establish itself as a leader in the field of international investment law? The answer is, to a large extent, leadership. In 1983 Ibrahim F. I. Shihata, the longest-serving Secretary-General (SG) of ICSID, was elected, and immediately set upon an ambitious long-term agenda, adding new functions and projects to the organization's activities, including several advisory functions. (3) During this stage, ICSID adopted the first thorough revisions of its rules and regulations, helping to cement ICSID's specialized dispute settlement system. Shihata also promoted ICSID to, and built confidence among, Latin American countries previously indifferent or opposed to ICSID, in part by reframing ICSID as a system for the de-politicization of investment disputes that served to limit abuses traditionally observed with the practice of diplomatic protection. (4) After ICSID participated in establishing the Multilateral Investment Guarantee Agency (MIGA) and drafting the WB Guidelines for the Treatment of Foreign Direct Investment--both endeavors reflecting the active promotion by ICSID of a specific idea of substantive law of foreign investment embedded in the WB's DNA--this stage ended dramatically with the Soviet collapse in 1991.

What changed after the Soviet collapse for ICSID? Everything and nothing at the same time. Spanning 1992 through 2002, the third stage began with hopes that ICSID would play an important and beneficial role as countries liberalized their foreign investment regulations in the post-Cold War world. ICSID and international investment treaties (IITs) were promoted as effective and complementary mechanisms for economic policy stabilization. Without any structural reforms, ICSID's evaluative criteria evolved, and its success became tied to the rise in foreign investment as a marker of development. But this period also saw ICSID's fall from grace, as the first cases brought against the United States and Canada under the investment chapter of the North American Free Trade Agreement (NAFTA) sparked critiques on the part of civil society organizations that viewed the organization and investor-state arbitration as undemocratic forms of corporate empowerment that lacked sufficient transparency. (5)

How, then, did ICSID cope with this fall from favor? Once more by adapting. In the fourth stage of ICSID's development, the controversy originating mainly from the NAFTA cases forced a quiet retrenchment on the part of this IO marked by, among other things, a halt in the active and direct advancement of any particular idea of substantive law of foreign direct investment (FDI). (6) In addition, ICSID faced new challenges, including competition from other dispute settlement institutions and a dramatic expansion of ICSID's caseload, mostly due to the popularization of investor-state arbitration cases brought by investors affected by Argentina's crisis and Hugo Chavez's nationalization impetus, as well as new expectations presented after the reforms designed to respond to prior criticisms. (7) In this last stage, distance has developed between ICSID and the WB and ICSID has adopted a more pragmatic approach by focusing on serving as an arbitral institution and relying on the number of proceedings and procedural efficiency as its main evaluative criteria.

What ICSID's history reveals is the capacity of IOs to adapt even when their mandates do not change. As explained more fully in the concluding Section of this Article, ICSID's institutional development has been shaped by four critical factors that drive how IOs implement their legal mandates: (1) early political choices by leaders seeking to increase the global relevance of the organization; (2) adaptation to the preferences of dominant stakeholders and networks; (3) resource constraints imposed by principals; and (4) the structure of the organization itself.

Second, the conventional wisdom among practitioners and scholars is that ICSID is experiencing an unprecedented crisis. For example, according to some commentators, the denunciation of the ICSID Convention by...

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