Legitimacy in WTO law and investment arbitration: the role of the contracting parties

Abstract

International trade and investment law is characterized by two distinct models: the constitutional law model as found in the World Trade Organization (WTO), 1 where the remedy is “the bringing into conformity of the measure”, and the tort law model, where international law standards establish the threshold for delictive behavior, to be remedied by damages. 2 Both models represent rules-based approaches to the peaceful settlement of disputes, replacing power diplomacy. They may be considered as the finest examples of the efficient application of rules of international law. Both subsystems of international law are creations of treaties, which serve to control unreasonable political actors and positively affect regulatory governance even on a domestic level. The development of the former GATT and present WTO law is driven and controlled by the contracting parties, through the adoption of panel reports based on rather precise behavioral rules, which leads to an “authentic” interpretation of such rules by its members. 3 In contrast, standards contained in international investment agreements (IIAs) are the result of a “dilatory formula compromise”, i.e., a formal compromise without agreement on its precise content, due to historical reasons. They have been developed through interpretation by arbitral tribunals and scholarly writings in order to achieve a sufficient level of precision to provide for legal certainty and predictability. However, this occurs without further involvement of the contracting parties, which raises legitimacy issues. 4