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 - II. Evolution in Four Acts: Minimalism, Ambition, Idealism and Pragmatism C. Idealism: ICSID as 'Progressive Development of Law Governing Investment' 2. International Judicialization: Constraining the Regulatory Activity of Governments through III...
  1. International Judicialization: Constraining the Regulatory Activity of Governments

    The surge in the late-nineties of new cases relying on IITs and in new sectors such as communication, water and sanitation and transportation created a related wave of criticisms against the Centre. For some, the decisions of ICSID tribunals undoubtedly showed that IITs provided unprecedented and sweeping substantive protections to transnational corporations, especially in recently liberalized sectors. The ICSID Convention was finally revealed as much more than just lex fori for business disputes. Indeed, at the sunset of this third stage, these economic policy tools began to be perceived by some as a mechanism to increase corporate power through vague rules enforced by unsuitable international tribunals that eliminated the possibility of submitting disputes to domestic courts. Without proper definition of the boundaries of delegated authority, some argued, these disciplines as enforced by the arbitrators stifled the legitimate regulatory activity of national governments. (178)

    1. The Malleable Boundaries of Investor-state Arbitration

      NAFTA was again at the center of the hurricane in the general discussions about the standards of protections provided in IITs and the permissible boundaries of the system. The early development of the Minimum Standard of Treatment (MST) provision of that treaty created tensions prompted by three decisions. The cases Metalclad, S.D. Myers, and Pope & Talbot wrongly suggested that the MST obliged governments to assure a transparent and predictable framework for business planning and investment, and that a violation of other provisions of NAFTA would also offend the MST, which required treatment additional to the requirements of customary international law (179) Pushed by civil society organizations, these decisions triggered also the intervention of the trade ministers of the three parties to NAFTA who adopted a controversial interpretive statement binding future tribunals to follow a more restrictive approach to the MST. (180)

      A similar dissatisfaction with the interpretation of provisions under IITs arose in non-NAFTA ICSID decisions. First, the view of ICSID as a consent-based and a superior solution to the Calvo Doctrine used to promote the Convention during the first two stages seemed to fade in the Maffezini case. (181) This case confirmed that investors, by reference to an MFN clause, might rely on more favorable dispute settlement provisions contained in other IIT when compatible with the ejusdem generis principle. In this particular case, Spain had objected to the tribunal's jurisdiction because the investor had failed to submit the case to the domestic courts in Spain for a period of eighteen months before bringing an investment claim as set forth in the Argentine-Spain BIT. The tribunal agreed that the claimant did not have to first submit their claims to domestic courts based on the MFN clause in a different treaty, the Spain-Chile BIT. (182)

      Maffezini and the decisions that followed this line of reasoning triggered concerns about the potential use of MFN clauses. For some commentators, the system seemed to "bypass" domestic courts in favor of arbitration even when the host state expressly conditioned resort to ICSID on the use of certain local remedies. (183) This was especially problematic given that Article 27 of the Convention represented a fundamental compromise in the architecture of international law that was supposed to be adequate to respond to concerns over circumventing the use of local remedies, (184) Access to arbitration was eased by changing the presumption in favor of access to international dispute settlement but states maintained the ability to require the exhaustion of local administrative or judicial remedies as a condition of this consent (in the state's accession to the Convention or the IIT itself). However, this decision was the first of ICSID's cases to clearly evidence how injudicious drafting could give rise to strategies to take advantage of a more favorable treatment accorded in the context of a different treaty negotiation.

      A second question testing the jurisdictional limits of the ICSID system arose first in Fedax, but more prominently in Salini Costruttori. (185) In these cases the jurisdiction ratione materiae, i.e., what economic activities qualify as an "investment" for the purpose of the jurisdiction of the Centre, became a source of anxiety. In Salini, perhaps worried about the increasing use of the system to bring claims for economic relationships referred to as "investments" not in the classical sense, the tribunal adopted what it described as an objective interpretation of Article 25. In doing so, the tribunal employed a checklist of criteria, describing the factors as a mandatory "test" and suggested that no enterprise lasting less than two years could be an investment. (186) Without raising them to the level of mandatory test, these same criteria had been described as "basic features of an investment" by the Fedax tribunal. (187)

      The debate exacerbated by Salini revealed deep division among the arbitrators' understanding of the permissible boundaries of a system specialized in "investment" disputes. (188) For states, the Salini threshold signaled that tribunals were not ready to defer to states' definitions of the term investment included in IITs and therefore implied judging a fluid and complex area of economic policy. (189) For investors seeking compensation, in addition to the procedural rigidities already built into the ICSID Convention and Arbitration Rules (compared to other arbitration settings), meeting certain elements of that definition became an additional benchmark to satisfy in the process. (190) Some subsequent decisions, including Phoenix Action, Ltd. adopted a similarly questionable view of reading the ICSID Convention as imposing more strenuous requirements than the instrument of consent in order for investors to proceed to arbitration have gone even further. (191)

      Third, the lack of clarity in the distinction between breaches of contract and breaches of treaty eroded the freedom that Article 41 gives to stipulate that domestic law governed a relationship between a state and a foreign investor. (192) In the case of Vivendi, a tribunal found jurisdiction on a concession agreement to hear a claim for the violation of the French-Argentina IIT in spite of clause giving exclusive jurisdiction to the Argentine courts. (193) In two cases brought by SGS, the so-called umbrella clause was used to convert contractual breaches into treaty breaches subject to an investment treaty tribunal's jurisdiction. (194) Not only does the question of how exactly the relationship between disputes originated in IIC and IIT should work continue to be a source of disagreement among tribunals, but it created dissatisfaction among commentators about how ICSID arbitration was used to broaden the protection of foreign investors. (195)

      Finally, the increased level of scrutiny combined with the expansion of investor-state arbitration to other arbitral institutions intensified the discussion on fragmentation and the role of this decentralized form of dispute settlement to amplify the inconsistency of decisions. This issue gained notoriety in the field as a result of Lauder/CME arbitrations administrated by the LCIA and SCC respectively. (196) These cases sparked concerns about the potential for duplicative relief and the effects of contradictory decisions in deciding cases with identical facts. (197)

      While ICSID was not at the center of this "fiasco" (198) in which two identical cases came to conclusions diametrically opposite, it became clear that investor-state arbitration was no longer exclusive to the organization. Therefore, the problems in finding coherence, substantive and procedural, exacerbated by the absence of a homogenous, hierarchical meta-system available to address problems derived from an increasingly fragmented field, became more obvious. (199) The mantra of one case not being binding on any other, and each one being an individual, one-off, ad-hoc processes, was the antithesis of predictability and consistency, an element of interest also in business planning. Some argued that such a situation had no place in a system such as international investment law. (200)

    2. "An ICSID Appeals Facility?"

      Overwhelmed with criticism over what exactly international investment standards meant, ICSID also looked to the North American context to find ways to address predictability and consistency and demands for tribunals' oversight. The TPA legislation provided that all future agreements negotiated by the United States should attempt to include an appellate body or similar mechanism to provide coherence to the interpretations of investment provisions. (201) ICSID proposed to build a similar arrangement in the 2006 reforms, modeling an appellate jurisdiction on ICSID ad hoc annulment committees. (202) In fact, Parra saw this appeals process as a key part of supporting predictable decisions, especially after a similar system was shown to be useful at the WTO and praised by many legal experts. (203) Suffice it to say here that, at the time, ICSID found it to be premature, particularly in view of the difficult technical and policy issues to implement a workable appeal mechanism in the context of a decentralized dispute settlement system. (204) Beyond a cryptic explanation, no further justification was given by ICSID; however, the fact that states have never agreed to properly establish an appellate body (including the United States with a strong Congressional mandate in such direction) should be telling of the lack of support on the desirability of this mechanism, especially among capital-exporter countries and some of their key stakeholders that may see more value in finality than in systemic coherence of decisions.

  2. Retrenchment: From Public...

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