Is State‐State Investment Arbitration an Old Option for Latin America?

• DOI: http://doi.org/10.1002/crq.21175
• Author: Murilo Lubambo
• Date: 01 December 2016
• Published date: 01 December 2016

C R Q, vol. 34, no. 2, Winter 2016 225

© 2016 Association for Conf‌l ict Resolution and Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) • DOI: 10.1002/crq.21175

Is State-State Investment Arbitration an Old Option

for Latin America?

Murilo Lubambo

International arbitration is a recognized way to resolve economic con-

f‌l icts.  is article asks if state-state investment arbitration ( SSIA ) is

an option for Latin America. It examines the language of investment

treaty provisions, cases and arbitral awards involving states, and treaty-

making practice in the region.  e analysis shows some complemen-

tarity between the mechanisms of investor-state arbitration ( ISA ) and

SSIA ; sometimes, the latter is the only option.  is article concludes

that SSIA is neither a backlash nor a more ef‌f ective mechanism com-

pared to ISA . SSIA constitutes an opportunity for both home and host

Latin American states to balance their investment treaty commitments.

I nternational arbitration is a recognized mechanism to resolve and settle

economic conf‌l icts involving foreign investments all over the world. It

includes the possibility that an investor brings a claim against its host state,

the so-called investor-state arbitration (ISA), based on bilateral investment

treaties (BITs) and, more generally, on international investment agree-

ments (IIAs).  is will ultimately result in arbitral decisions that af‌f ect the

way that economic and social gains are distributed in global society.

Most developing countries have, in a deviation from a fully rational

behavior, overestimated the benef‌i ts of IIAs, often ignoring their risks

(Poulsen 2015). As an illustration, the wide scope and reach of some

substantive standards in IIAs, such as the fair and equitable treatment,

were not previously envisioned.  is has led to international liability and

I thank Ira Ryk-Lakhman, Katia Fach Gómez, Luis Felipe Viveros, Manuel Gómez, Peter

Tzeng, and three anonymous reviewers for their valuable comments and suggestions. Any

remaining errors are, of course, my own.

226 LUBAMBO

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damages for acts that states primarily considered to be under their inherent

sovereign powers.  e recurrent critiques against ISA (UNCTAD 2015 )

have focused on particular features of the system—for example, the waiver

of the exhaustion of local remedies and the possibility of treaty shopping

based on the nationality of investors.

It is true that each state evaluates the decision to participate in or exit

fully or partially from the current system of IIAs and from arbitral institu-

tions providing for ISA such as the International Centre for the Settlement

of Investment Disputes (ICSID). States arguably carry out a net analysis

of the benef‌i ts, in terms of investments and credibility, and the costs, in

terms of constraints in regulatory sovereignty (Aaken 2015).  is context

prompted a revision on the approaches of some Latin American states.

 is article discusses the possibility of state-state (state-to-state or

interstate) investment arbitration (SSIA) in relation to foreign invest-

ments. With the theoretical and practical development of treaty-based

investor-state arbitration, the debate around SSIA had been progressively

put aside. Any attempt to refer or return to it was considered outdated

and a backlash. But the new context justif‌i es a fresh analysis of the mecha-

nism, so that a revival of the conceptual foundations of this “old” kind

of dispute settlement should not be dismissed.  e article asks if SSIA is

an option for some Latin American states under the current practice of

international law.

Recent state-state cases involving Latin America ( Peru v. Chile , Italy v.

Cuba , and Ecuador v. United States ) may indicate a resurgence of the prac-

tice in the area.  ey sparked interest and were followed by a new range

of academic contributors in this f‌i eld (Bernasconi-Osterwalder 2014 ;

Juratowitch 2008 ; Lo 2013 ; Macías, forthcoming; Muchlinski 2009 ;

Paparinskis 2009 , 201 4; Pérez 2012; Posner and Walter 2015 ; Potestà

2012 , 2013 , 2014 ; Recanati 2014 ; Roberts 2014 ; Sacerdoti and Recanati

2015 ; Trevino 2014 ; Wong 2014 ).  is literature has opened up avenues

for further research in the area. One should note the existence of state-state

jurisdictional clauses in around sixty BITs between Latin American and

Caribbean states and more than thirty other agreements with investment

provisions as of May 2016. In light of that, this contribution presents a

framework to place the debate into the Latin American context.

 e article f‌i rst deals with concepts related to state-state arbitration in

relation to investment treaty provisions. It then analyzes both old and new

Latin American approaches in the f‌i eld and ends with a conclusion that

highlights further developments.