The Impact of Investment Arbitration on Investment Treaty Design: Myth Versus Reality

Abstract

Investor-state arbitration (ISA) has shaped the practice, scholarship and teaching of international investment law, but to what extent has it shaped its substance? According to anecdotal evidence, states change their investment treaties in response to developments in investment arbitration. To separate myth from reality this article empirically investigates the effect of investment arbitration on treaty making through three impact channels: (1) investment clauses, (2) investment claims and (3) investment case law coding close to 1700 international investment agreements (IIA) across 55 clauses. Our analysis sheds new light on several normative debates within the field. First, we find that the omission or inclusion of investment clauses has no material effect on other treaty design elements. This suggests that ISA clauses are procedural add-ons, which bestow investors with enforcement rights, but do not alter the inter-state nature of the treaties’ substantive obligations. Second, contrary to prior anecdotal and empirical evidence, investment claims do not lead to systematic treaty design changes. Most innovation attributed to investment claims actually pre-dates them. Moreover, only in few countries did investment claims trigger treaty design changes. Hence, rather than worrying about overzealous responses by states to “rebalance” IIAs in the face of investment claims, we should be concerned about the field’s path-dependency and its entrenchment in a pre-arbitration architecture. Third, investment case law exerts the strongest impact on treaty making as controversial interpretive outcomes in investment arbitration trigger traceable changes in treaty design. Hence, states are more active in fine-tuning existing commitments than in designing new ones further entrenching IIAs’ path dependency and lack of innovation.