Academic journal article Harvard Law Review

Mediation of Investor-State Conflicts

Academic journal article Harvard Law Review

Mediation of Investor-State Conflicts

Article excerpt

INTRODUCTION

Foreign investment has grown into a large and important part of the global economy. To facilitate and promote investment, states have erected an intricate web of treaties guaranteeing legal rights to investors and permitting those investors to bring claims alleging violations of those rights in arbitration proceedings against the state. Investor-state arbitration has exploded along with the burgeoning number of international investment treaties (IITs), and it has come to resemble civil litigation in the time and expense involved in bringing the dispute to a final resolution. As these costs mount for investors and states, commentators have called for the development of a mediation system that could facilitate the settlement of investor-state disputes in less time, with less expense, and with less disruption to investments.

Part I of this Note describes the existing dispute resolution system for investment treaty disputes. Part II explains the mediation process, its growth in commercial contexts, (1) and its place in the investor-state dispute resolution system. Part III presents the benefits of mediation for investors and states, and responds to objections. Part IV assesses options for reform and concludes that interested parties should take the initiative in creating a private mediation infrastructure for investor-state disputes.

I. FOREIGN DIRECT INVESTMENT AND BILATERAL TRADE AGREEMENTS

"Foreign direct investment (FDI) occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage that asset." (2) FDI is more than a portfolio of foreign stocks; FDI occurs when a company acquires a foreign business, forms a foreign subsidiary, or otherwise expands its operations into another nation. FDI benefits the home country through domestic returns on foreign investments, and it benefits the host country by infusing it with foreign capital. (3) FDI dramatically increased in the decades surrounding the turn of the twenty-first century and now produces income of over one trillion dollars annually. (4)

States promote and protect FDI through IITs. (5) Specifically, IITs establish legal rights for investors that protect the value of foreign assets against the acts or omissions of the host state. (6) "Investment" can be defined broadly to include physical assets, debts, intellectual property and trade secrets, and contractual benefits that have economic value. (7) The specific rights provided to investors are set forth in each individual IIT, often a bilateral investment treaty (BIT) between the investor's home country and the host country. (8) There are thousands of IITs, (9) each an independent source of law governing a limited subset of transnational investments. Consequently, there are manifold combinations of rights and privileges depending on where the investor and investment are located. Although IITs are similar in the rights they protect, variations in how the treaties are phrased can have important consequences for investors seeking to enforce these protections. (10) Frequently protected rights include, inter alia, fair and equitable treatment for foreign investors; full protection and security by, for example, the host state's police forces; guarantees that investors will be able to transfer assets out of the host country; and protections against state expropriation of foreign assets. (11)

Because investors might be distrustful of courts in the host country, IITs provide investors with an alternative method of dispute resolution in the form of investor-state arbitration. (12) Typically, a treaty will permit arbitration only after some conditions are met: the investor must give notice to the host country that there is a dispute, then parties must abide by a cooling-off period (usually three to six months) during which the investor and the host country are encouraged to negotiate an amicable settlement, either through private channels or with the intervention of a third party. …

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