The Creation of Investor–State Arbitration

Abstract

Is investor–state arbitration a radical departure from earlier mechanisms for resolving disputes between foreign investors and states? On one hand, the first investment treaty arbitration was decided in 1990 and was ‘dramatically different from anything previously known in the international sphere.’ On the other hand, scholars convincingly present investor–state arbitration as a direct descendant of legal practices in previous centuries. There is no shortage of antecedents for investor–state arbitration, so why is it perceived as ‘dramatically different’ from what had gone before? In the second half of the 20th century, consent to investor–state arbitration was provided prospectively (before disputes arose) and pursuant to generalized jurisdiction (for any treaty breach); these are the key differences from previous practices. Two institutional developments were crucial for creating prospective, generalized consent. First, the ICSID Convention emerged. Second, provisions providing consent to investor–state arbitration were added to investment treaties. This chapter focuses on these two developments. It reconstructs the choices that officials faced, their constraints, and the reasons why they made the choice for investor–state arbitration against other alternatives. To do so, it uses primary documents from five archives: the American, British, German, and Swiss national archives as well as the World Bank archives.