The Great Recession and the New Frontiers of International Investment Law: The Economics of Early Warning Models and the Law of Necessity

Abstract

The Great Recession has prompted unparalleled economic research on the causes and handling of crises. It is then important for international investment law to catch up with the new conceptual developments. This article is an attempt in this direction. Its first part presents a description of one of the main tools to avoid economic collapses— early warning models (EWMs)—which have received increasing attention by the European Central Bank, the International Monetary Fund (IMF), and the Fed. This part also presents the debate among economists about the meaningfulness of EWMs. The second part shows how international investment law should respond to this debate and proceed with an assessment of the role that EWMs may have in the interpretation of emergency clauses in BITs and the customary rule of necessity. In particular, this part deals with the question of what happens in international legal terms when a State, which relies on EWMs to adopt measures aimed at preventing a crisis, adversely affects foreign investors. The section also discusses the level of deference that investor/State tribunals may accord to States relying on EWMs when taking economic preventive action and illustrates how international arbitration tribunals should deal with debates on the quality of the given EWMs. “Everything is fragmented and fluid and unstable and hopeful and dangerous. We have insights and connections and blank spaces and questions,” said the Egyptian writer Ahdaf Soueif. 1 While she refers to the Arab Spring, her words also apply to its contemporary opposite: the Western winter—the Great Recession, the current