Treaty Conflicts in Investment Arbitration by Ahmad Ali Ghouri Review

Abstract

International investment law and investment arbitration are becoming increasingly important in a global market economy. What is critical in cases of foreign investment is that foreign investors place their investment, a factory being built abroad, or a big infrastructure project, under the control of a foreign law and the sovereignty of a foreign state, whose administration, courts, and legislator may not always be docile vis-à-vis foreigners and may not always offer comparable domestic institutions and safeguards to the ones the investor is used to from home. In the worst case, a foreign government may even expropriate foreign investors without compensating them. To mitigate this political risk and to offer independent dispute settlement in the relations between foreign investors and host states is the object and purpose of international investment law and investment arbitration. In fact, international investment law has grown tremendously over the past two decades with now more than 3,000 international investment treaties in place and more than 450 disputes that have ensued under these treaties. The European Commission, for example, considers international investment law as the “new frontier for the common commercial policy” (COM(2010)343 final (7 July 2010) at 2). What is more, international investment law is not only of relevance to protect our investors abroad; it also protects foreign investors at home and restricts our governments in their executive, legislative, and judicial activities and binds them to the substantive standards contained in international investment agreements. These standards, on top, are critically vague and amiguous in requiring “fair and equitable treatment”, “full protection and security”, protection against “mesaures tantamount to expropriation”, “national treatment”, “most-favored-nation treatment”, etc. These standards have sometimes been interpreted very broadly by investment treaty tribunals and investors are creative in bringing claims against a large number of host state measures that go to the heart of how a political community intends to order its public affairs. Germany, to take an example, is now facing a claim under the Energy Charter Treaty in connection with its nuclear power phase out; in Australia and Uruguay, Philipp Morris is challenging legislation on tobacco labeling by arguing that plain-packaging, or extreme health-warnings, constitute unfair and inequitable treatment and an expropriation, thus demanding millions in damages. It therefore comes as no surprise that there is now wide-spread criticim of this branch of international law because it puts fundamental values of constitutional law in question, when foreigners are allowed to settle disputes in by-passing domestic courts, in demanding protection against the application of domestic law, and when arbitrators interpret the vague standards in international investment treaties in a creative fashion without having a democratic mandate as law-makers. In addition, arbitral tribunals are not interpreting investment treaties in a uniform manner but create an increasing number of inconsistent decisions, not only when it comes to irreconcilable interpretations of one and the same treaty standard, but even with contradicting decisions on identical questions of fact. States, non-governmental organizations, and international organizations start to react, by withdrawing from international investment treaties or by changing their content so as to ensure more transparency and that states have sufficient space to pursue policies to serve and protect public interests. In addition, writings on international investment law constitute one of the growth areas in th literature on international law and dispute settlement, making it increasingly difficult to navigate the field.