Academic journal article Asia Pacific Law Review

The Scope of Investor-State Dispute Settlement in International Investment Agreements

Academic journal article Asia Pacific Law Review

The Scope of Investor-State Dispute Settlement in International Investment Agreements

Article excerpt

I. Introduction

With the advent of treaty arbitration, dispute settlement clauses in international investment agreements (IIAs) have become a crucial aspect of the protection afforded by such treaties. While initially the substantive standards of treatment (fair and equitable treatment, full protection and security, the nondiscrimination standards of national treatment and most favoured nation treatment, as well as guarantees against uncompensated expropriation)1 formed the main focus of investment protection in bilateral investment treaties (BITs), the surge of investment arbitration during the last two decades has demonstrated the crucial importance of effective tools of enforcing the above-mentioned standards.2

Currently, however, the successful system of direct or mixed arbitration between foreign investors and host states - investor/state dispute settlement (ISDS) - has come under increased pressure, being criticised as too investorfriendly and having a chilling effect on domestic regulation.3 Thus, some states have started to exit the system by denouncing the ICSID Convention (Convention on the Settlement of Investment Disputes between States and Nationals of Other States) and/or by abrogating BITs.4 However, such extreme responses were not followed by many states. Rather, contradictory reactions may be discerned. Thus, in a remarkable reversal of traditional attitudes, a number of OECD countries, like the United States (US) or Australia, are limiting or even outright banning access to direct investor-state arbitration,5 the European Union (EU) demonstrated some uncertainty about how it should approach investment arbitration,6 while many Asian countries, among them in particular China, have broken with their habitual, reserved position vis-à-vis mixed arbitration and included broad arbitration clauses in their BITs and other IIAs.7

These different attitudes towards investor-state arbitration are reflected in different types of dispute settlement clauses contained in IIAs. Since IIAs, BITs, as well as multilateral agreements are regularly the outcome of negotiations governed by past experiences, substantive compromises or unilateral bargaining power, it is often difficult to assess the underlying intentions of the parties. Further, the formulations governing dispute settlement finally agreed upon in IIAs often range from being merely imprecise, ambiguous and infelicitous to, at worst, nonsensical.

This contribution provides an overview of the different jurisdiction limiting and expanding elements of investment dispute settlement clauses in IIAs8 and assesses the policy reasons behind giving preference to one over the other element. It will briefly sketch how the uncertainty contained in many of these provisions has given rise to conflicting interpretations. It is clear that the uncertainty about the scope of investor-state arbitration has become a systemic problem that creates unnecessary cost. By seeking to identify the underlying purpose of ISDS, this article will attempt to make some recommendations regarding the formulation of ISDS clauses in order to achieve preferred outcomes.

II. Types of Dispute Settlement Clauses in IIAs

The settlement of investment dispute can take many forms. As a result of its hybrid character, displaying both public international law and commercial arbitrations traits,9 investment dispute settlement is not limited to the businessoriented straightforward tradition of providing for arbitration clauses. Rather, it appears to be strongly influenced by international forms of dispute settlement as expressed in art 33 UN Charter, calling for a range of options available for peaceful dispute settlement from negotiation to binding adjudication without requiring any party to submit to any specific form of dispute settlement.10 However, contrary to the optional nature of the choices in art 33 UN Charter,11 IIA dispute settlement clauses typically contain a graduated procedure according to which the parties proceed from voluntary consultations/negotiations to binding arbitration. …

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