The Changing Landscape of International Law: Investor-State Arbitration and the Case of Pac Rim Cayman LLC v. El Salvador

Traditionally, the only actors in the realm of public international law were sovereign states. In the late 1940s, the group of actors was widened to include international organizations, which were also deemed to possess legal personality by the International Court of Justice’s (ICJ) ruling in the Reparations Case. [1] With the dawn of investor-state arbitration, the number of claimants able to assert rights based on language contained in international treaties has expanded exponentially.

Investor-state disputes present essentially a hybrid between public international law and traditional fields of private law, such as contract and property. Relationships between investors and sovereign states come into existence when two or more states agree to a bilateral (or multilateral) investment treaty (BIT), or the provisions which are normally included in a BIT form part of a free trade agreement (FTA). Chapter eleven of the North American Free Trade Agreement (NAFTA), for instance, contains the relevant provisions concerning investor-state disputes in the context of North American investors operating in another NAFTA state. [2] The provisions in NAFTA essentially allow an investor to sue a sovereign state through the International Centre for Settlement of Investment Disputes (ICSID), a branch of the World Bank based in Washington D.C., in the event that its property was expropriated. BITs are ostensibly beneficial to both investors and the signatory states. Investors gain from the legal certainty which the BIT provides in…

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Criticizing the field of international investment law: A simple story made complex

The system of international investment law is often criticised by civil society organizations and legal academics. The Guardian recently described this system as a “legal weapon that gives corporations the edge on government”; it emphasized that there is a “growing concern among legal experts” that the investment regime “favours corporations over the public interest, puts sovereignty at stake, is chronically lacking in transparency and accountability and has been mis-sold to many developing countries that only realize exactly what they have signed up for when they get sued.”[1]

A Public Statement on the International Investment Regime, signed by a group of forty eight academics from around the world, has added, “We have a shared concern for the harm done to the public welfare by the international investment regime, as currently structured, especially its hampering of the ability of governments to act for their people in response to the concerns of human development and environmental sustainability”. [2] It argues, inter alia, that investment treaty arbitrations are unfair and unbalanced,[3] and that states should withdraw from investment treaties.[4] International investment law has even been described by a distinguished academic as “a law of greed”.[5]

Although perhaps somewhat exaggerated, these critiques are certainly not baseless. Several recent developments, most notably the disputes between tobacco giant Philip-Morris and the governments of Australia and Uruguay, indeed demonstrate how foreign investors can…

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Environmental exceptions in the future EU investment policy. Perhaps more than meets the eye?

Following the ratification of the European Union (“EU”) Treaty of Lisbon, the field of International Investment Law is now included in the EU’s common economic policy. As a major exporter and recipient of Foreign Direct Investment (“FDI”) in the global arena, it is no wonder that the EU’s ongoing deliberations over future investment policy are at the heart of contemporary academic debates.

At present, it seems that the EU Parliament aspires to push forward an innovative approach, in line with (and perhaps even further than) policies already applied by countries like Canada, under which exceptions for sustainable development goals are included.[1] This is mostly the result of concerns about “regulatory chill”, which are often mentioned by scholars (and recently also by policy makers)[2] who wish to maintain states’ flexibility to regulate future policies with respect to the protection of the environment, health, human-rights, etc. Indeed, it has been reported that Uruguay intended to relax its proposal for new anti-smoking laws following Philip Morris’ threats of investor-state litigation.[3] Similar concerns seem to have led policy makers and civil society organizations in Australia and New-Zealand to object to the inclusion of the investor-state mechanism in their investment agreements (most notably in the Trans-Pacific Partnership Agreement).[4]

But things are not so simple. The aim of these general exceptions is often to promote sustainable development goals by making states ‘untouchable’…

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China in Africa: Can Africa’s legal institutions cope?

The classic story is that there was once a large, poor, but resource-rich country emerging from a period of conflict, whose government decided to focus on development and modernization. They began a dialogue with a rich Asian country which had already become a major importer of their oil. This rich Asian country proposed a bargain with the poor nation: in exchange for its natural resources it would receive a line of credit and the ability to import technology, and have companies from the rich nation build infrastructure. Readers may or may not be aware that the poor country with oil is actually China and the rich country is Japan.  It is also very much the mutually beneficial dynamic that has come to characterize China’s engagement with many African countries.  However, serious questions have been raised regarding China’s role in Africa, and in particular whether African countries have strong enough legal and regulatory institutions to deal with the increased Sino-investment.

Economists project that China will soon become Africa’s largest trading partner with trade figures set to hit a record high of more than $100 billion in 2010. The International Monetary Fund recently predicted that growth for Sub-Saharan Africa, which typically includes 47 countries (excluding North Africa), should reach 5% this year, up from an earlier prediction of 4.5%.[1] In 2011, it said, growth could rise to 5.5%.[2] Increased trade…

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Special Contribution : Moving Forward with Corporate Environmental, Social and Governance Disclosure

Whether the issue is climate change, biodiversity, labour and supply chains, or international human rights, corporate sustainability disclosure is of increasing relevance to shareholders.  In a recent report submitted to Ontario, Canada’s minister of finance, the Ontario Securities Commission (OSC) made various recommendations regarding corporate reporting that may be controversial to some, but are a step in the right direction.

The report follows the Ontario Legislature’s unanimous approval of a private member’s resolution calling on the province to review existing reporting requirements and issuers’ compliance.

The resolution asked the OSC to undertake a broad consultation in order to “establish best practice corporate social responsibility…and environmental, social and governance…reporting standards”. In response, the OSC – supported by the Hennick Centre for Business and Law at York University – convened a multi-stakeholder roundtable and held various consultations with interested parties.

The reporting of material environmental, social and governance (ESG) information should be viewed as an integral part of a businesses’ overall risk management strategy. With this information, shareholders are in a better position to assess financial risks and to allocate capital to firms best suited to mitigate these risks. Disclosure also encourages stakeholder dialogue. This dialogue, over time, informs internal decision-making and provides a critical framework for identifying both risks and opportunities. This, in turn, can drive performance, enhance an organization’s reputation and strengthen the core elements of its…

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Problems with the patchwork quilt? Examining inconsistency in investor-state arbitration

International investment arbitration has evolved dramatically throughout the last two decades.[1] In this time, we have witnessed the birth of investor-state arbitration and the “import[ation] of the commercial arbitration model into the realm of treaty-based investment disputes”.[2] In other words, investors can now bring claims directly against host states through treaty mechanisms such as Chapter 11 of the North American Free Trade Agreement (NAFTA).

Unlike the World Trade Organization’s (WTO) dispute settlement system, however, the substantive and procedural law applicable to investment disputes is not formalized in a manner analogous to the WTO Dispute Settlement Understanding (DSU).  Instead, international investment arbitration is a mixed system; one that is fragmented and that “sits uneasily between public international law jurisdictions and domestic judicial systems”.[3]

Perhaps this uncomfortable mélange is a necessary characteristic that ensures the dispute resolution process is “neutral and effective”.[4] The existence of such a “broad network of interrelated rights”, however, creates a “patchwork”.[5] As Susan D. Franck notes:

“[…] decisions about issues with economic and political consequences are resolved in private before different sets of individuals who can and do come to conflicting decisions on the same points of law”.[6]

This patchwork creates uncertainty about the meaning of investment treaty rights in public international law,[7] which is evidenced by inconsistencies in investor-state arbitral jurisprudence[8] – and…

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Transparency, internet and the international investment law

A ‘small history’ was recently made in the field of international investment law when, for the first time ever, the proceedings of a certain investor-state dispute (Pac Rim Cayman LLC v. Republic of El Salvador (ICSID Case No. ARB/09/12) – Public Hearing (“Pac Rim Cayman dispute”)) were webcasted live to the general public.[1] These webcasts are now available on the International Centre for Settlement of Investment Disputes’ (ICSID) website, where visitors can entertain themselves with over 12 hours of recorded legal proceedings (including recess).[2] It is asserted in this entry that by using the online webcast technology, the parties to the Pac Rim Cayman dispute introduced a new standard of transparency into the field of international investment law. Whether this standard will be taken up by future disputants remains to be seen.

The investor-state dispute resolution process has been a long standing target for critics. Many of these critics concentrate on the lack of transparency demonstrated in the system; Indeed investor-state dispute resolution proceedings are often held in a confidential manner, where not only the public cannot follow or participate in the proceedings, but also, at least on some occasions, viewing the awards granted in these disputes is not permitted. The importance of such a webcast therefore lies first and foremost in the enhanced transparency it provides. It is, after all, only fair that the public be allowed…

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Anarchists Engage with G20 Issues

A great deal of attention has been paid recently to the preparation for the G20 summit next weekend in Toronto. But while the event has been a boon for the troubled artificial lake industry, not everyone will be so pleased with the assembled world leaders. From labour unions to environmentalists to indigenous rights groups, protestors are expected in the thousands. The greatest security concern however, remains the kind of anti-capitalism and anarchist groups which made the Seattle WTO summit of 1999 so memorable. The same kind will be in attendance during the Toronto summit; the Southern Ontario Anarchist Resistance (SOAR) and FFFC Ottawa, which was responsible for the firebombing of an Ottawa bank after hours on May 18^th, have both announced they’ll be at the event.

Yet Mike Bakunin, who recently left SOAR to establish a sister branch in Rivière Ouest (Manitoba) with a more awesome acronym, claims that these groups don’t just advocate violence. “For those who think that anarchists are just about chaos and firebombing, that’s not the case. Groups like FFFC Ottawa give the rest of us a bad name – we can actually engage with the issues as well as anyone. Now obviously the summit will be focusing on economic and financial matters, so we think that we can best get our message across if we zero in on those issues as well. It’s hard to…

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Taxing Banks for Risky Investments

As governments around the world broke open their piggy banks to bail out most of major financial institutions, it comes as no surprise that these governments are feeling a bit strapped for cash. In looking for a way to recoup capital spent on these institutions because of their risky investment practices, a popular proposal is the taxing of banks for such risky investments.

Numbers that the Americans are debating include a levy at 0.15% for 10 years on all financial institutions with more than $50 billion in consolidated assets.

With Germany and England ready to take action and implement similar levies, and with Obama seeking to push the US to do the same, it’s unclear what kind of overall effect these levies would have on banking if they are carried out on a piecemeal, domestic basis. These financial institutions are international in character. Their activities transcend national borders, and thus any attempt at regulation will need to account for the cross-border transactions and international nature of the institutions. Will domestic regulation really solve the inherent problem of big banks making big investments without thinking about the potentially big (and devastating) consequences?  Probably not.  So then what’s the point?

Edwin M. Truman, Senior Fellow at the Peterson Institution for International Economics in Washington, proposes a different analysis. He says, “There are two dimensions — paying for the past and paying…

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The true nature of BITs (at least as I see it…)

On February 19-20 a conference which dealt with recent developments in the field of international investment law took place at Sydney University.[1] About sixty speakers from all around the world gathered for two intensive days of exchanging ideas, debating pressing issues and discussing what seems to be an emerging sub-field of international law. One important trend that was highly emphasised during this conference was the recognition that international investment law is far more public in nature than it was considered to be in the past. The effects of foreign investment on public interests such as the environment, human rights and labour standards are now obvious and the tension between the protection of investments on the one hand, and the governments’ interests in regulating these sensitive fields on the other, is often emphasised in academic writings and arbitration awards.

The conceptual change that international investment law seems to have gone  through has not however reached one very fundamental point. To my great surprise, speakers continually repeated the same old mantra concerning the main objective of investment treaties: the objective of investment treaties, so it was argued, is the protection of investors. This, I would argue, carries the same amount of logic as claiming that the objective of preparing a salad is cutting tomatoes. While it is true that Bilateral Investment Treaties (BITs) are designed to provide…

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