The Worst Option But for All the Others? Investment Treaty Arbitration in Historical Context

In this article, Postdoctoral Fellow Daniel Behn assesses the evolution of investment treaty arbitration, its current functioning and criticism, and perspectives for future development. Read the full article (SSRN).

As with any international legal order, the modern investment treaty regime might serve multiple purposes; but it appears that one purpose stands out as the primary driver for the development and maintenance of the regime as it is currently practiced: providing effective legal remedies to foreign investors in the event a dispute arises in the state hosting their investments (all other purposes are ancillary). And from that perspective, investment treaty arbitration appears to be performing this function. This purpose (providing for investment treaty arbitration) is a response to a long-standing historical problem facing foreign investors investing abroad; and this form of adjudication – while arguably flawed – could be seen as providing an alternative, more effective and peaceful form of dispute settlement when compared to previous modes established to solve the problems relating to disputes that arise in the context of foreign investment.

This contribution aims to evaluate the performance in terms of its singular purpose. This approach will be pursued in two perspectives: one evolutionary, one revolutionary. From an evolutionary perspective, the performance of investment treaty arbitration will be evaluated as a worthy institution whose practice has identified particular performance deficits (eg overall transparency of the regime, perceived arbitrator bias, targeting of particular states, frivolous claims, high legal costs, insensitivity to states’ public interest objectives, etcetera), but whose continued practice is still needed in resolving the historical problems of foreign investment protection that it has sought to remedy. Further, it is a system of adjudication that is reflexive; and is capable of reform and positive evolutionary development. From a revolutionary perspective, the performance of investment treaty arbitration will be evaluated as a system of adjudication that is structurally flawed and is incapable of ever performing as an effective and fair form of adjudication; and that further, its purpose is no longer needed given progressive developments in the rule of law globally in the past 50 years. If this is true, then the problems that investment treaty arbitration originally sought to remedy (provide legal dispute settlement against states where rule of law standards are sub-optimal and local judiciaries are ineffective or weak) might no longer be justified. This is a significant line of reasoning put forward in regard to whether the possibility of investment treaty arbitration is even needed in the TTIP between the US and the EU.

This contribution then proceeds by looking at:

  • 1) the purpose of investment treaty arbitration in historical terms;
  • 2) problems with assessing the performance of investment treaty arbitration given its decentralized structure;
  • 3) the performance of investment treaty arbitration from its beginnings to its contemporary practice; and
  • 4) possible alternative futures, in evolutionary and revolutionary perspective, that could be envisioned for the resolution of foreign investment disputes given the performance (or lack thereof) of investment treaty arbitration to date?
Tags: Investment, Effects
Published Jan. 13, 2016 9:29 AM