Investor-State Arbitration between Developed Democratic Countries

Abstract

Investor-state arbitration (ISA) is a treaty-based form of arbitration by which a state agrees, in advance, to be the object of a claim in arbitration by a private investor who claims to have suffered financial loss as a result of violation of one or more standards of treatment set out in the treaty. These treaties usually take the form of bilateral investment treaties (BITs), but, in recent decades, many provisions for foreign investment protection are to be found in the investment chapters of regional trade agreements (RTAs) and latterly in so-called mega-regional trade agreements between major countries or blocs of countries, such as the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). BITs and RTAs with investment chapters have come to represent a global phenomenon. The United Nations Conference on Trade and Development (UNCTAD) calculates that there are more than 3,200 international investment agreements (IIAs). It is more difficult to obtain an accurate number of those treaties that contain ISA, but they comprise the great majority of those signed since the negotiation of the first modern BIT between Germany and Pakistan in 1959. The economic impact of ISA, which came into widespread use only in the 1970s, is much debated, but its proponents consider that it should be seen as an essential guarantee of respect of the standards set out in BITs. They argue that it is key to protecting the interests of foreign investors and foreign investments against the possible failure of the host country to respect treaty standards, and that this protection encourages the flow of foreign investment. This paper seeks to establish how many agreements exist or are planned between economically developed liberal democracies. It reviews legal and policy reactions to investor-state arbitrations taking place within these countries and summarizes the substantive grounds upon which claims are being made and their impact on public policy making by governments.