1 Investor-state arbitration is one of many terms and abbreviations used to describe arbitration of disputes pursuant to investment protection treaties, particularly bilateral investment treaties. Other terms used to describe this mechanism are ‘investment treaty arbitration’ or simply ‘investment arbitration’. A commonly used abbreviation is ISDS, which stands for Investor State Dispute Settlement.
2 The topic of investor-state dispute resolution differs markedly from other related areas of law. It differs from public international law (and the subtopic of diplomatic protection) in that one of the parties involved is nearly always a private entity, not traditionally considered a subject of international law at all. Ian Brownlie, Principles of Public International Law 57–8 (Oxford University Press 6th ed. 2003) (referring to states and international organizations as ‘normal types of persons on the international plane’); see also 1 Restatement (Third) of the Foreign Relations Law of the United States, 70 (American Law Institute 1987). Although investor-state arbitration borrows procedures from international commercial arbitration, the standards for liability and compensation are derived not from the parties’ agreement but largely from the language of treaties and customary international law. See Chapter VIII on governing law. See also Chapter XXI on assessment of compensation and damages.
3 On the right of investors to directly initiate arbitration against a state, see Chapter IX on consent.
4 Bernardo M. Cremades, Promoting and Protecting International Investments, Int’l Arb. L. Rev. 53 (2000) (‘Capital tends to flow to places where it can be more productive (i.e. where the return is higher), and from economies where it is abundant, such as developed countries and financial centres, towards countries where capital is scarce and where the capabilities associated with private enterprises are lacking.’).
5 K. V. S. K. Nathan, The ICSID Convention: The Law of the International Centre for Settlement of Investment Disputes 111 (Juris Publishing 2000).
6 IMF Balance of Payments Manual 136 (4th ed. 1977).
7 Ibrahim Shihata, Legal Treatment of Foreign Investment: The World Bank Guidelines 2 (Martinus Nijhoff 1993) (Treatment of Investment). Annual FDI flows to the developing world increased from US$500 million in 1965 to US$38 billion in 1992. World Bank, Global Economic Prospects and Developing Countries 27 (1993).
8 World Bank, The Role of Foreign Direct Investment in Development, Presentations to the 41st Meeting of the Development Committee 39 (1991).
9 Nathan, Law of ICSID, supra note 5, at 111.
10 At the beginning of the twentieth century, the United States was nicknamed ‘the greatest debtor nation in history’. Mira Wilkins, The History of Foreign Investment in the United States to 1914 144 (Harvard University Press 1989). After the First World War, it gradually emerged as one of the main lenders in international markets and until the 1980s was a net exporter of capital. After that, the tide turned again. Curtis M. Jolly et al., U.S. Competitive Position and Capital Investment Flows in the Economic Citizen Market: Constraints and Opportunities of the U.S. Investor Program, 57(2) Am. J. Econ. & Soc. 155, 157 (1998). At the end of 2005, for example, the United States was by far a net importer of foreign capital. See Bureau of Econ. Analysis, U.S. Dep’t of Commerce, News Release: U.S. Net International Investment Position at Yearend 2005 (29 June 2006). As of October 2017, the United States remained the largest recipient of FDI in the world. See U.S. Department of Commerce, Foreign Direct Investment in the United States, 3 Oct. 2017, at 3 and 12 (suggesting that in 2016, the FDI position in the United States was ‘$3.7 trillion on a historical cost basis, $6.6 trillion on a market value basis or $4.4 trillion on a current-cost basis’.), available at https://www.commerce.gov/sites/commerce.gov/files/migrated/reports/FDIUS2017update.pdf.
11 For statistics regarding the positive effects of FDI on the US economy see Bureau of Econ. Analysis, News Release, supra note 10 (based on data provided by the Bureau of Economic Analysis showing that FDI creates good jobs, innovation from research and development, boosts wages, and strengthens US manufacturing). For recent trends on FDI inflows see also UNCTAD, World Investment Report 2018, Chapter 1 (Current FDI Trends), available at http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=2130, visited on 13 Sept. 2018 (2018 WIR).
12 See Anabel Gonzalez, Christine Zhenwei Qiang, and Peter Kusek, Overview, 2017/2018 Global Investment Competitiveness Report: Foreign Investor Perspectives and Policy Implications 1 (World Bank Group 2018).
13 For an assessment of the effect of FDI on the economic welfare of the host countries, see, e.g. UNCTAD, World Investment Report 2006: FDI from Developing and Transition Economies: Implications for Development 183 (2006). See also UNCTAD, 2018 WIR, supra note 11, at 12 et seq. (FDI as a component of financing for development).
14 The World Bank, 1 World Debt Tables 1992–93, 20–1 (1992).
15 Shihata, Treatment of Investment, supra note 7, at 9–11. For a more recent commentary on this topic, see M. Abdur Rahman Malik, Chaudhry Abdul Rehman, Muhammad Ashraf, and Rana Zamin Abbas, Exploring the Link between Foreign Direct Investment, Multinational Enterprises and Spillover Effects in Developing Economies, 7(1) Int’l J. Bus. & Management 230 (2012); José-Daniel Reyes, FDI Spillovers and High-Growth Firms in Developing Countries, Policy Research Working Paper 8243 (World Bank, Nov. 2017).
16 Adeoye Akinsanya, International Protection of Direct Foreign Investments in the Third World, 36 Int’l Comp. L. Q. 58 (1987).
17 For an overview of the modern international law on protection of foreign investment see Muthucumaraswamy Sornarajah, The International Law on Foreign Investment (4th ed. Cambridge University Press 2017); see also Peter Muchlinski, Multinational Enterprises and the Law (Oxford University Press 2007).
18 See, e.g. the U.S. Government’s Overseas Private Investment Corporation (OPIC).
19 See, e.g. Michael Frenkela and Benedikt Walteray, Do Bilateral Investment Treaties Attract Foreign Direct Investment? The Role of International Dispute Settlement Provisions, WHU - Otto Beisheim School of Management, Working Paper 17/08 (Dec. 2017); Niti Bhasin and Rinku Manocha, Do Bilateral Investment Treaties Promote FDI Inflows? Evidence from India, 41(4) VIKALPA 275 (Dec. 2016). See also Jeswald Salacuse and Nicholas Sullivan, Do BITs Really Work: An Evaluation of Bilateral Investment Treaties and Their Grand Bargain, 46 Harv. Int’l L. J. 67, 106–7 (2005); Peter Egger and Michael Pfaffermayr, The Impact of Bilateral Investment Treaties on Foreign Direct Investment, 32 J. Comp. Econ. 788 (2004); Eric Neumayer and Laura Spess, Do Bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries? (May 2005, Revised version). For a review of various views on both sides of this discussion see also The Effect of Treaties on Foreign Direct Investment Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows (K. Sauvant and L. Sachs eds, Oxford University Press 2009).
20 See, e.g., Liesbeth Colen, Damian Persyn, and Andrea Guariso, Bilateral Investment Treaties and FDI: Does the Sector Matter?, 83 World Development 193, 193 (2016).
21 Bruce A. Blonigen and Ronald B. Davies, Do Bilateral Tax Treaties Promote Foreign Direct Investment? (National Bureau of Economic Research, Working Paper No. W8834, Mar. 2002); Zachary Elkins, Andrew T. Guzman, and Beth Simmons, Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960–2000 (UC Berkeley Public Law Research Paper No. 578961, Aug. 2004). See also Jennifer Tobin and Susan Rose-Ackerman, Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties (Yale Law & Economics Research Paper No. 293, 2 May 2005); Kevin P. Gallagher and Melissa Birch, Do Investment Agreements Attract Investment? Evidence from Latin America, 7(6) J. World Inv. & Trade 961 (2006); J. P. Tumman and C. F. Emmert, The Political Economy of U.S. Foreign Direct Investment in Latin America: A Reappraisal, 39(3) Latin Am. Res. Rev. 9–29 (2004); Mary Hallward-Dreimeier, Do Bilateral Investment Treaties Attract FDI? Only a Bit . . . And It Might Bite (World Bank Policy Research Working Paper Series, No. 3121, Wash., DC 2003); UNCTAD, Bilateral Investment Treaties in the Mid-1990s (United Nations, New York 1998). Doubts also remain as to whether increases in FDI inflows benefit the developing world. Developing countries may well be concerned about increased economic domination by foreign interests, loss of public control over vital industrial sectors, undue influence of foreign investors over internal politics, and so on. Stephen J. Toope, Mixed International Arbitration: Studies in Arbitration between States and Private Persons 220, n.7 (Grotius 1990).
23 Giorgio Sacerdoti, Investment Protection and Sustainable Development: Key Issues, in Shifting Paradigms in International Investment Law 20 (S. Hindelang and M. Krajewski, eds, Oxford University Press 2016).
24 See particularly Loewen Group, Inc. and Raymond L. Loewen v. U.S., ICSID Case No. ARB(AF)/98/3 (Award of 26 June 2003); Methanex v. U.S. (NAFTA Arbitration under UNCITRAL rules, Award of 3 Aug. 2005); Pope & Talbot Inc. v. Canada (UNCITRAL/NAFTA Arbitration, Final Merits Award of 10 Apr. 2001); S.D. Myers, Inc. v. Canada (UNCITRAL Arbitration, First Partial Award of 13 Nov. 2000).
25 See George Kahale, Is Investor-State Arbitration Broken?, 9(7) TDM (2012), available at http://www.transnational-dispute-management.com/. Kahale uses the term ‘mega case’ to highlight the negative impact of billion-dollar treaty awards (which used to be rare in litigation) on government policymaking, budgets, and other interests.
26 See Chapter III, Section on NAFTA, Professor Don Wallace Jr. comments on civil society groups at ¶ 3.26.
27 See e.g. Philip Morris v. Uruguay, ICSID Case No. ARB/10/7 (Award of 8 July 2016).
28 See e.g. Marion Unglaube v. Costa Rica, ICSID Case No. ARB/08/1 (Award of 16 May 2012).
29 See e.g. Sergei Paushok v. Mongolia, UNCITRAL (Award on Jurisdiction and Liability of 28 Apr. 2011). See also Fouad Alghanim and Sons Company for General Trading and Contracting WLL and Alghanim v. Jordan, ICSID Case No. ARB/13/38 (Award of 14 Dec. 2017).
30 See e.g. Invesmart v. Czech Republic, UNCITRAL (Award of 26 June 2009).
31 See e.g. The Backlash against Investment Arbitration: Perceptions and Reality (M. Waibel ed., Kluwer 2010); Kahale, supra note 25.
33 Bolivia, Ecuador, and Venezuela have all withdrawn from the ICSID Convention. Joost Pauwelyn and Rebecca Hamilton, Exit from International Tribunals, 9(4) J. Int’l Disp. Sett. 679 (2018).
34 See e.g. US Model BIT, art. 3(b), art. 5; Stephen Schwebel, The United States 2004 Model Bilateral Investment Treaty: an Exercise in the Regressive Development of International Law, 3(2) TDM (2006), available at http://www.transnational-dispute-management.com/. See also 2015 Indian Model BIT, which does not include a most-favoured nation clause, and Grant Hanessian and Kabir Duggal, The Final 2015 Indian Model BIT: Is This the Change the World Wishes to See?, 32(1) ICSID Review—Foreign Investment Law Journal 216 (2017), available at https://doi-org.proxygt-law.wrlc.org/10.1093/icsidreview/siw020.
36 Slowakische Republik (Slovak Republic) v. Achmea BV, Court of Justice of the European Union, Case C-284/16 (Judgment of 6 Mar. 2018) ¶¶ 55–60. The European Commission noted in 2018 that ‘EU investors cannot invoke intra-EU BITs, which are incompatible with Union law and no longer necessary in the single market. They cannot have recourse to arbitration tribunals established by such intra-EU BITs, or for intra-EU litigation, to arbitration tribunals established under the Energy Charter Treaty.’ European Union: European Commission, Communication from the Commission to the European Parliament and the Council on the Protection of intra-EU investment, COM/2018/547 final (19 July 2018), available at https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52018DC0547&from=EN.
37 See Burkhard Hess, The Fate of Investment Dispute Resolution after the Achmea Decision of the European Court of Justice, 15(5) TDM (2018).
39 See Diane Desierto, ASEAN Investment Treaties, RCEP, AND CPTPP: Regional Strategies, Norms, Institutions, and Politics, 27(2) Wash. Int’l L. J. 349 (2018).
40 See Makane Moïse Mbengue and Stefanie Schacherer, The ‘Africanization’ of International Investment Law: The Pan-African Investment Code and the Reform of the International Investment Regime, 18 J. World Inv. & Trade 414 (2017).
43 Report of the United Nations Commission on International Trade Law, 50th session, 3–21 July 2017, available at http://undocs.org/A/72/17.
46 The UNCITRAL and ICSID Secretariats are currently working on such a code. See ICSID Secretariat, Proposals for Amendments of ICSID Rules—Synopsis, 1 (2018), available at https://icsid.worldbank.org/en/Documents/Synopsis_English.pdf; Note by the Secretariat, Settlement of Commercial Disputes: Possible Future Work on Ethics in International Arbitration, prepared for the UNCITRAL’s 50th session during 3–21 July 2017, available at http://undocs.org/A/CN.9/916.
47 See Note by the Secretariat, supra note 45. Commentators have been thinking about the reform and possible solutions for some time now. See Anna Joubin-Bret and Jean Kalicki, Introduction TDM Special Issue on ‘Reform of Investor-State Dispute Settlement: In Search of a Roadmap’, 11(1) TDM (2014), available at http://www.transnational-dispute-management.com/; more recently see Sergio Puig and Gregory Shaffer, Imperfect Alternatives: Institutional Choice and the Reform of Investment Law, 112 Am. J. Int’l L. 361 (2018); Anthea Roberts, Incremental, Systemic, and Paradigmatic Reform of Investor-State Arbitration, 112 Am. J. Int’l L. 410 (2018); Marc Bungenberg and August Reinisch, From Bilateral Arbitral Tribunals and Investment Courts to a Multilateral Investment Court: Options Regarding the Institutionalization of Investor-State Dispute Settlement (Springer 2018); Stephan W. Schill and Geraldo Vidigal, Cutting the Gordian Knot: Investment Dispute Settlement à la Carte, 21 Nov. 2018, available at https://www.ictsd.org/themes/global-economic-governance/research/cutting-the-gordian-knot-investment-dispute-settlement-%c3%a0. See also Gabrielle Kaufmann-Kohler and Michele Potestà, The Composition of a Multilateral Investment Court and of an Appeal Mechanism for Investment Awards, Geneva Center for International Dispute Settlement (2017), available at http://www.uncitral.org/pdf/english/workinggroups/wg_3/CIDS_Supplemental_Report.pdf; Gabrielle Kaufmann-Kohler and Michele Potestà, Can the Mauritius Convention Serve as a Model for the Reform of Investor-State Arbitration in Connection with the Introduction of a Permanent Investment Tribunal or an Appeal Mechanism? Analysis and Roadmap (2016), available at http://www.uncitral.org/pdf/english/CIDS_Research_Paper_Mauritius.pdf.
49 UNCTAD, Investor State Dispute Settlement: Review of Developments in 2017, 2 Int’l Investment Agreements Issues Notes (2018).