Toward a minimalist system of international investment law?

• Author: Yackee, Jason Webb

1. INTRODUCTION

   At the keynote address of the conference for which I have prepared these brief remarks, it was forcefully argued that the current system of international investment law, which is dominated by more than 2,000 roughly similar bilateral investment treaties (BITs), is undoubtedly a good thing. (1)

   My own role here is to offer some qualifications and perhaps some mild criticisms of that position. At the outset let me admit that I am very much an outsider, far removed from the rarified world of international investment law practice. In offering my thoughts, I am reminded of a cartoon on the door of my law school's bookstore, in which the character laments that "everything is controlled by a small evil group," and the punchline, "to which unfortunately nobody I know belongs." I think it is healthy to always keep in mind the possibility that criticism of the status quo might at least subconsciously be driven by the fact, and it often is one, that the critic is effectively excluded from sharing the status quo's most tangible benefits, as neither he nor any of his friends are the ones controlling the world. But it is also healthy to be sensitive to the possibility that praise of the status quo by those who do control the world might itself be deeply colored by the fact that those insiders benefit immensely from current arrangements, not just, or not even, in purely financial terms, but more broadly in terms of the accumulation of social or symbolic capital and the psychological satisfaction that, I presume, comes from being placed in a position to authoritatively declare (or invent) binding, universal principles of international law, and to apply those principles against sovereign states large and small, powerful and weak. (2)

   My main point is that we should carefully consider whether investment treaties, while perhaps a good thing in some respects, are nonetheless largely unnecessary. My own view is that for the most part they are largely unnecessary, and perhaps a bit dangerous too. How do we mitigate that danger? Some on the political left have suggested that we radically expand and complicate international investment law by attempting to use international treaties to impose various social and environmental obligations on investors. (3) Those who generally support the current system, and who tend to view it teleologically as but an intermediate step in a longer journey toward a truly universal system of international legal rights for investors, (4) suggest their own complications and extensions, focused mostly on crafting appellate mechanisms designed to ensure that the decisions of tribunals are both consistent and "correct." (5)

   My own suggestion, which I modestly offer for consideration as more of a proto-idea than a fully developed critique or plan of action, is to consider whether we would be better served by simplifying or minimalizing the current system. What would a minimalist system of international investment law entail? Most importantly, it would largely abandon universalism at the international level in favor of particularlism and diversity at the domestic level. By this I mean that it would put the primary onus for defining and defending the reciprocal rights and obligations of host states and foreign investors on those parties themselves, turning to municipal law and investment contracts as the primary source of law, and to municipal courts as the primary (default) forum for resolving disputes.

   My thoughts can thus be placed within an unfortunately small (but hopefully growing) comparative institutional literature that seeks to question the need for, or the desirability of, investment treaties as they currently exist by comparing the current system with alternative (but often hypothetical) institutional arrangements. (6) I hope that these suggestions will be controversial, not in a juvenile sense of provoking for provocation's sake, but in a serious way that spurs deeper and more thoughtful analysis of whether we need the system of international investment law that we have, and if we don't, then what a workable and sufficient alternative system might look like.

   The article proceeds as follows. First I provide a very brief overview of the history of the current system. I then discuss what I view as the most troublesome aspect of the current system: that it gives private judges enormous discretionary power to make what are essentially political decisions about the proper balance to strike between investors' rights and those of host states, political decisions that states are effectively unable to overturn. The final section suggests a number of ways in which policymakers might create a minimalist system of international investment law that strikes a different, and perhaps more desirable, balance between the desires of investors to have access to international law and international tribunals to protect their investments, and the desires of states to maintain significant and primary control over important policy decisions.

2. A BRIEF OVERVIEW OF THE CURRENT SYSTEM

   In the interest of space, and because the story has been told many times in many places, I will offer only a brief sketch of the basic contours of the investment treaty phenomenon. (7) In the years immediately following World War II, the world's most economically advanced countries began concluding treaties, often with developing countries, that articulated various rights for each others' foreign investors. Sometimes these investment-related provisions were in more general treaties that dealt mostly with trade issues, such as any number of post-World War II "friendship, commerce, and navigation" treaties entered into by the United States. However, by the late 1950s some developed countries, such as Germany, France, Switzerland, and the Netherlands, had begun concluding investment-only treaties. The United States began pursuing its own, modern investment-only treaty program in the late 1970s. These investment-only treaties were, and still are, usually bilateral, involving just two states, and have become known in shorthand today as "BITs," bilateral investment treaties. Today there are more than 2,000 such treaties in force, including investment chapters in bilateral and multilateral free trade agreements (such as Chapter 11 of the North American Free Trade Agreement, or NAFTA). With one major exception, the Energy Charter Treaty, attempts at multilateral investment treaties have failed to gain significant traction. The Organization for Economic Cooperation and Development (OECD) sponsored negotiations for a Multilateral Agreement on Investment (MAI), but these negotiations famously collapsed and there seems to be little sign of revival any time soon. (8)

   Bilateral investment treaties thus remain the primary source of international legal protections for foreign investments. While there are certainly important differences between particular treaties, and while both the scope and the language of the treaties has changed over time, as a general matter the treaties follow a common model. The rights they offer to investors are generally wholly reciprocal; a treaty between the United States and Kazakhstan, for example, will provide United States investors in Kazakhstan with the same rights that the unlikely Kazak investor would enjoy, under the treaty, in the United States. And the rights offered typically include a panoply of broadly worded, potentially overlapping substantive guarantees--the right of the investor to be treated in accordance with customary international law (the so-called "international minimum standard," whatever that may be), the right to be treated "fairly and equitably," or to receive "full protection and security," or the right to be free from "arbitrary" government action, or to receive the same treatment as domestic investors (so-called "national treatment") or as investors from third states (so-called "most favored nation" treatment). The treaties contain guarantees against uncompensated "expropriation" or measures "tantamount to expropriation" by the host state (with "expropriation" usually undefined), and typically also guarantee the investor the right to freely transfer the investment and its returns out of the host state. Beginning in the 1980s, developed countries began routinely coupling these substantive promises with treaty-based arbitration provisions that gave investors the unilateral right to initiate binding arbitration against host states to enforce their treaty rights, generally without any corresponding obligation to first exhaust local remedies. This arbitration might take place before the International Chamber of Commerce (ICC), or be organized as an ad hoc arbitration, perhaps under the UNCITRAL Rules, or take place under the aegis of the International Centre for the Settlement of Investment Disputes (ICSID), a specialized dispute settlement body attached to the World Bank. In any case, international treaties governing the enforcement of arbitral awards (such as the New York Convention or the ICSID Convention) would ensure that arbitral awards would be very difficult to challenge in domestic courts, and could be readily enforced against host states worldwide.

   The vast majority of BITs were signed and entered into force in the 1990s, and not coincidentally, the 1990s and early 2000s saw an explosion in investor-state arbitrations, which in the past had been quite rare. For example, Professor Franck identifies just two publicly available investment treaty awards issued between 1990 and 1996; in 2005 alone, tribunals issued 16 such awards. (9) Another metric is the number of cases filed with ICSID. For example, as of the date of writing these remarks, ICSID has concluded 152 cases--all but 26 of which were initially registered since 1990--and has 126 additional cases pending. (10)

3. THE PROBLEM OF POLITICAL CONTROL

   The debates between supporters and critics of this rapidly expanding...