Academic Experts Call for Reform of Investment Treaties

Gus Van Harten, Guest Blogger

Investment arbitration is a new field of law and lawyering. It disciplines governments in extraordinary ways, and regulates legislative choice and policy discretion on questions of profound public importance.

Yet the system is sometimes portrayed by practitioner-advocates as technical, obscure, or simply par-for-the-course. Debates are often dominated by lawyers and arbitrators with an obvious stake in the system’s perpetuation.

Not everyone who has expertise in investment law, arbitration and regulation supports the current arrangements, however. I am one of (now) 48 academics who has expressed concerns about the investment regime. (I do not speak for other supporters of the statement here; the statement speaks for itself and any elaborations expressed in this comment are in my name only.)

The statement’s supporters include legal academics and lawyers, economists, political scientists, sociologists, and specialists in development and in transnational regulation. By no means should we have the final word. But the views that we expressed were drawn from an extensive and rich body of work published by, among others, the supporters of the statement.

Identified in the statement is the record of arbitrators in many cases adopting expansive interpretations of investment treaties. These interpretations have prioritized the protection of the property and economic interests of transnational firms over the right to regulate of states. Also identified in the statement is the exceptional role that damages have played as a remedy of first resort in investment arbitration. This use of state liability threatens democratic choice and the ability of governments to undertake innovative policies. Governments, as we have recommended, should replace or curtail the use of investor-state arbitration. As currently structured, the system lacks fairness, independence, and balance.

The statement has prompted positive and negative reactions. Among the negative ones was a view that it was somehow not credible or appropriate for persons who do not work in investment arbitration to criticize its performance. On the contrary, I suggest that the decisions of investment arbitrators warrant attention by “outsiders” precisely because outsiders do not have a direct career interest in the system’s perpetuation and entrenchment.

There is likewise a pressing need for more involvement by experts in the myriad areas of specialized research and regulation – public health protection, public contracting, utilities regulation, and development economics, for example – that are implicated by investment treaties and disputes. In these and other areas of public policy, investment law practitioners too often have a limited background and perspective.

As a matter of basic procedural fairness, let alone utility, the people, communities, and sub-national governments whose interests are affected by investment arbitration should have a direct right to seek standing, alongside investors, in the decision-making process.

There are important processes underway to develop an EU common investment policy, to negotiate a Trans-Pacific Partnership Agreement, and to review the UNCITRAL and ICC arbitration rules. Governments must not allow public decision-making in these and other forums to be driven by proselytizing investment lawyers.

Among the supportive emails that I received in response to the statement was the comment excerpted below. It was from a lawyer who has represented governments in cases under investment treaties (and who for reasons of ongoing litigation preferred not to be identified here). For the record, I had never communicated with this lawyer before the statement’s release.

“I read the letter from the academics, including yourself, shortly after it was made public…. I passed it along to [a Government] with a comment agreeing with the general statement of the sad situation we are in. I think it is a shame that things have gotten this way. Not only in the arbitrations themselves, but when I attend international arbitration conferences it seems like everyone is for the claimant and no one wants to see jurisdictional protections enforced, criticizing any tribunal that dares to end a case on jurisdiction….

[My own experience has] confirmed the pro-claimant bias…. It is amazing how developing countries with limited budgets are forced to spend their scarce resources to defend themselves against arbitrations that are only seeking to intimidate and coerce the countries into submission.

I think that the states that created the investor-state arbitration system and that signed treaties granting jurisdiction are not getting what they bargained for, so they need to step in to try to tame the monster that the investor-state arbitration system has become.”

This was one of several responses from investment practitioners who expressed support for the initiative.

In a related development, the separate opinion of one arbitrator, Jan Hendrik Dalhuisen, in the Vivendi v Argentina annulment decision last month contained this statement:

“What hovers over all of this is the potentially pernicious impact of the desire for (re)appointment in many [arbitrations], not least for financial gain, in which not only withholding from the parties relevant information… but also incurring the favour of the [ICSID] Secretariat, may be important issues in terms of independence….”

These comments indicate that there are direct participants in the arbitration process, alongside outside experts, who see a case for fundamental reform.

Speaking for myself, I hope mainly that the statement prompts people from outside the usual practitioner cliques to pay closer attention to investment arbitration and to consider its implications for public decision-making in their own fields of interest, expertise, and responsibility.

Gus Van Harten is an associate professor at Osgoode Hall Law School in Toronto, Canada. He is the author of Investment Treaty Arbitration and Public Law (Oxford University Press, 2007) and of various articles on the investment regime.