When Investor-State Arbitration Tribunal Becomes Policy Maker: Reflection on Jurisdiction Decision of Philip Morris v. Uruguay

Abstract

Investor-State arbitration (ISA) consists of numerous individual ad hoc Tribunals as a mechanism to settle disputes between an investor and a State arising out of an investment, however, the aggregate effect of individual tribunals presents certain systematic structure of governance of which the awards have policy implications beyond the very individual disputes to both stakeholder in host states and other ISA tribunals per se. Philip Morris v. Uruguay offers us a chance to conceptualize ISA as a governance mechanism. Philip Morris v. Uruguay involves public health measures of tobacco control which is of broad implications to multilevel stakeholder, including foreign investor, industrial competitors, public authority in host state, and public interests in host state as a whole. Uruguay has made prerequisite domestic litigation procedure for investment treaty claims which constitutes an interface of interaction of two governance mechanisms. Detailed analysis of Jurisdiction decision of Philip Morris v. Uruguay reveals the flexible self-enforcement approach to jurisdiction, including confirmation of broad treaty terms, e.g. investment, disputes, and satisfactions of prerequisite jurisdiction conditions, which could be characterized as reflections of ISA as governance mechanism. ISA awards have the policy externality of which the implications go beyond disputants in individual disputes to stakeholders in host state because foreign disputes always involve public interest per se as well as through individual case reasoning and awarding, tribunals review states’ measures, either regulatory or commercial, and by interpretation of treaty obligations and general international law, set standards for states in their internal administrative process. Policy externality of individual awards is only the initial step of institutionalization of ISA as governance which is ultimately fulfilled through the conscious or unconscious self-enforcement of ISA as a system by individual arbitrators. With direct rights of foreign investors to sue state in international arbitration and abstract but similar IIA terms, considerable discretions are vested to ISA arbitrators. The large number but homogenous arbitrators interact with each other, gradually establishing certain shared understanding concerning the interpretation method, the content of core concepts in IIAs. With the long term and large scale evolvement, ISA finally becomes an institution which de facto and should exercise public authority over public policy issues in domestic level, rather than an simple ad hoc dispute settlement tribunal, which could escape from individual states’ treaty design and acquire certain institutional ability of self-maintenance. ISA achieve public policy function through two approaches - substitution effect and review effect - in dealing three kinds of disputes, namely contract disputes, regulatory disputes and administrative disputes (if not overall overlapped with regulator disputes). During the institionalization process, critics follow. Justifications and safeguard measures to ISA as governance mechanism are of great urgency and significance which call for further research.