Towards a New Heuristic Model: Investment Arbitration as a Political System

Abstract

In this introduction to the Special Issue "Empirical Studies on Investment Disputes", we offer a new heuristic model to structure the thinking about investment arbitration. Investment arbitration is presented here as a political system in a sense inspired by David Easton's landmark theory: it transforms the input of key actors (namely states, investors, arbitrators, and arbitration institutions) into output (namely arbitral awards taken in the aggregate), with feedback loops from output to input, leading to or calling for adjustments or other reactions from these actors. We use this model to review some of the leading existing research and bring together key insights offered by the contributions to the issue. Investment arbitration is usually viewed as an international legal dispute resolution mechanism. This means not only that it is a mechanism in which law is applied, when arbitrators render decisions applying law to facts, and to which law is applied, when questions are entertained regarding the conditions under which arbitrators can render such decisions, the limits of such decision-making, and its effects. The idea that investment arbitration is viewed as a legal dispute resolution mechanism also means that, when we try to understand it, we concentrate on legal rules and principles. We examine the relevant law, in its different aspects and manifestations, in order to form our understanding of investment arbitration. At other times, which are also fairly habitual, investment arbitration is viewed as a business instrument. This may mean that it does or should serve the interests of business or, alternatively, that individual arbitrations should be conducted in some form of businesslike fashion, and ultimately, that there is a business of investment arbitration. At a different level, the idea that investment arbitration is viewed as a business instrument also means that, when we try to understand it, we concentrate on business reflexes, on the interests of its different stakeholders, on their utility functions and how these functions reveal preferences, perceived or conscious, rational or not, and how these preferences translate into, precisely, business strategies. 1 The resulting image we obtain from such an approach is already quite different from the picture produced by the legal approach sketched in the preceding paragraph. Less frequently, investment arbitration is viewed as a legal system of its own, just like other types of international arbitration or precisely in opposition to them. This may mean that the label of law was successfully affixed to this legal phenomenon, thus supplying an additional illustration of legal systems that are neither national law nor international law. Another meaning may be that it

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“…One of the central lines of argument in the emerging political science literature on investment treaty arbitration is that standards of investment protection have been interpreted increasingly broadly by arbitrators with a rational interest in doing so (it is, after all, in their interest to maximize their case load when their income is dependent on it). The consequence is that investment protection provisions have increasingly interfered with government decisions, and not just in developing countries (Dupont and Schultz 2016). Writing about the province of Ontario in Canada, Van Harten and Scott find clear evidence of regulatory chill: the presence of investment protection clauses 'has led to internal vetting of proposed decisions in government', where 'some officials [notably those from the Trade Ministry] have a greater role in the vetting process than others do' (Van Harten and Scott 2016: 116).…”

“…And while the Commission has recently proposed a reform of the system (the so-called ICS; see European Commission [2015]), this retains at its core the problematic essence of investment treaty arbitration: standards of protection that can be interpreted broadly; no watertight exemption for state regulatory action in the public interest and case-by-case payment and appointment of arbitrators chosen from a roster of experts in international economic law (Van Harten 2015), reproducing the narrow 'epistemic community' of existing investment treaty arbitrators (Salacuse 2010: 465-6). We can thus expect these individuals to reproduce the (rational and socialization) biases of the existing investment treaty arbitration system (see Dupont and Schultz 2016), even if this system were converted into a multilateral court as the Commission hopes to do.…”

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“…Una estrategia metodológica a partir de la concepción positivista de las políticas públicas (Fontaine, 2015). Esta herramienta ofrece un modelo heurístico para estructurar el análisis político en general (Dupont & Schultz, 2016;Torrico, 2015).…”