Investment Treaty Arbitration and Market Governance: A Principled Approach to Assessing Regulatory Action

Abstract

The world is characterised by intertwined global value chains and regional clusters of economic activity. ‘Globalisation’ as a concept must be unpacked to show how economic activity is in fact carried out, so as to understand how market governance structures must be designed. Economic regulation of markets in a global context should proceed in a principled fashion according to general principles of law. Both economic theory (institutional economics and welfare economics) and legal doctrine (global administrative law and constitutionalism) support the need for rules that govern markets and guide appropriate regulatory responses. The object of that regulation should be the promotion of economic welfare, not simply the protection of property, as if it were an absolute right. The ‘right to regulate’ markets is recognised by the principled approach but views it from the broader perspective of the governance of social institutions, which requires a realistic assessment of both market and government failure. The public law values of transparency and accountability, through the use of public reason, are built into the three foundational principles of subsidiarity, proportionality and rationality. These principles help us design well-suited regulatory systems through their articulation in the Principles of Best Practice Regulation. This paper bring a fresh perspective to the question of when state regulatory action amounts to the (indirect) expropriation of property of an investor.