DISINCENTIVIZING THE GROWING TREND OF DENUNCIATING THE INVESTMENT TREATY FRAMEWORK: TRACKING THE CRITICISMS AND ANALYZING THE FUTURE OF TRANSNATIONAL REGULATION OF INVESTMENT LAW.

• Author: Kluding, Kristin

1. INTRODUCTION II. PART I A. A Historical Overview: The Development of Transnational Investment Law B. The ISDS Boom C. A Mounting Anti-ISDS Movement III. PART II A. Why Are States Apostatizing ISDS? B. "Experts" Weigh In on the Flailing ISDS Framework IV. PART III A. A Progress Report: What Is (Not) Happening Following Termination and Withdrawal 1. Argentina 2. Ecuador 3. Brazil 4. Notable "North" States 5. Questions Left Unanswered B. Feasible Prescriptions for a Functioning, Legitimate Transnational Investment Treaty Framework 1. Accountability 2. Education 3. Patience 4. The Ultimate Question V. CONCLUSION I. INTRODUCTION

   Whether recognized as a legal order, regime, (1) or defunct neoliberalist ideal, (2) transnational investment law is undoubtedly receiving unprecedented attention and under significant scrutiny and reconsideration in today's modern globalized society. (3) In particular, it appears everyone--from traditional, well-versed academics to controversial, inflamed politicians--is now, seemingly overnight, compelled to voice their concerns and recommendations regarding the current state and future of transnational investment law. In particular, the topic has narrowed in on international investment treaties.

   This trisected analysis addresses the past, present, and future of the mechanisms of transnational investment law, namely bilateral investment treaties (BITs) and, to a lesser extent, multilateral investment treaties (MITs). While relevant to MITs, this paper primarily considers transnational investment trends in terms of the BIT debate. Part I provides a historical overview of international investment agreements (IIAs). Part II subsequently turns to the current state of affairs in the transnational investment community, juxtaposing the wide-ranging criticisms and solutions to remedy an area of law struggling to retain legitimacy. (4) Finally, Part III features a progress report of states that have rebelled, to varying extents, against the traditional investor-state dispute resolution (ISDS) framework. Additionally, it questions the soundness of the primary objections to IIAs, along with their trademark ISDS clauses, and proposes a realistic approach to developing a functional framework for current and future transnational investments.

2. PART I

   1. A Historical Overview: The Development of Transnational Investment Law

      Today's transnational investment framework is comprised of more than 3,000 IIAs, (5) the majority of which are BITs. (6) To understand the modern phenomenon of state abrogation of investment treaty commitments, it is necessary to start at the beginning. The history of transnational investment law is a relatively short one. That is not to say, however, it has been uncomplicated or uneventful. Numerous publications have analyzed international investment law by characterizing trends in the transnational investment community as "phases" (7) or "waves." (8) This paper does not focus on the past, per se, but instead looks to the oft-criticized current state of the transnational investment framework and to a more optimistic future for the transnational investment community. In doing so, it necessarily begins with an overview of international investment law, starting with two of the most important events in the history of the transnational investment legal order.

      The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention) (9) and the Vienna Convention on the Law of Treaties of 1969 (Vienna Convention) (10) are arguably the most significant markers of the emergence of a system of international investment law. (11) Negotiated and adopted during the ICSID Convention, the International Centre for Settlement of Investment Disputes (ICSID) is today's premiere governing body and ISDS mechanism for disputes arising under IIAs. (12) Moreover, the Vienna Convention codified customary international law, providing structure to bilateral and multilateral treaty practice. (13) Although ISDS under IIAs was likely not considered a pertinent issue in the minds of the drafters of either Conventions, (14) the assemblies were nonetheless monumental in establishing many of the mainstays that now serve as guidelines for the formation and interpretation of mechanisms governing cross-border investments. (15)

      The emergence of BITs in the mid-20th century was propelled by several factors including the private investor's need for additional security, outside of customary international law, with respect to foreign direct investment (FDI) in other countries. (16) Under a traditional BIT, an aggrieved investor, as a national of one of the state parties to the treaty, may bring a claim against the host state for a violation of the investor's rights protected under a subject agreement. (17) While the terms of transnational investment treaties may vary, most BITs feature, at minimum, the following three characteristics: (1) admission and establishment provisions; (2) guidelines for the treatment of FDI once established in a host country; and (3) at least one or more methods of dispute resolution, the most common of which is arbitration under ICSID. (18)

      Beginning with the first BIT signed by Germany and Pakistan in 1959, (19) the majority of early BITs were between capital-exporting and capital-importing countries. (20) This dynamic is often represented in terms of a North-South agreement--the "North" constituting developed, politically and economically stable states with private investors seeking to establish FDI in developing, depressed capital flow states located in the "South." (21) However, during the last two decades of the 20th century, more and more developing countries with similar economic and political conditions began to enter into BITs with each other. (22) Consequently, there was an upturn in South-South agreements. (23) Thus, however true or useful the North-South characterization of IIAs may have once been, it was of much less utility by the turn of the 21st century (24) when the international investment community experienced a significant change in reality as the global power balance began to shift. (25)

   2. The ISDS Boom

      During the 1990s, the number of BIT claims, and to a lesser extent MIT claims, skyrocketed. (26) Up until this period, ICSID had been utilized a mere twenty-five times to resolve disputes arising under IIAs. (27) By the turn of the century, ICSID's case activity constituted around fifty claims. (28) As of July 2017, 817 known ISDS claims had been filed by aggrieved investors against host states. (29) This amazing jump in ISDS filings begs the simple, yet puzzling question: Why?

      In evaluating the current state of ISDS, valuable insight may be gained from an appraisal of recent ISDS trends. When examining trends in dispute resolution under IIAs, a primary takeaway is ISDS users are tremendously diverse. (30) Investors from at least seventy-three countries have filed ISDS claims. (31) As of 2014, the top fifteen investor countries accounted for eighty-seven percent of all ISDS arbitration, with more claimant investors from the United States than any other country. (32) Subject investments have involved a broad variety of industries, both immobile and remote. (33) At least 114 states have been sued by investors for alleged violations of BITs and, to a lesser extent, MITs. (34) While the list of countries against which ISDS claims have been brought is admittedly concentrated at the top, with Argentina and Venezuela occupying the highest seeds, most states--including the United States--have nevertheless been exposed to ISDS at some point. (35) Interestingly, it appears the development of countries alone is not an adequate predictor of host countries implicated in ISDS disputes. (36)

      Out of the near 530 known ISDS cases concluded as of July 2017, about one third were decided in favor of defendant host states and one quarter in favor of investors; the remaining claims were either settled or dropped. (37) With investor claims ranging from tens of thousands to billions of dollars, the considerable variance in the size of ISDS claims--as well as the fact that amounts awarded via ISDS judgments have been, on average, about forty percent of investors' demands--is of marked importance. (38) On average, successful claimant investors were awarded approximately US$522 million, (39) a number significantly skewed by at least five ISDS judgments in the past several years awarding US$1 billion or more to prevailing investors. (40)

      The ISDS framework forecloses a party from appealing the substantive validity of an award. (41) However, states or investors unsatisfied with an ISDS judgment may still challenge the legitimacy of a tribunal's decision-making by seeking partial mitigation or full negation of an ISDS award via an annulment proceeding in accordance with the ICSID Convention. (42) For non-ICSID rulings, a party may alternatively seek a set-aside judgment from a national court. (43) Between 1987 and July 2017, disputing parties initiated annulment proceedings forty-five percent of the time, corresponding to eighty-two judgments issued under ICSID. (44) In reported non-ICSID cases, set-aside proceedings have been initiated in national courts for seventy-one cases, approximately one third of all known non-ICSID rulings. (45) There has been notable success in challenging judgments via annulment and set-aside proceedings; however, original awards have been upheld the majority of the time. (46)

   3. A Mounting Anti-ISDS Movement

      Resistance to the ISDS framework has been mounting since the turn of the century, at least. (47) Early signs of protest included Brazil's absolute refusal to sign or ratify any investment treaties with ISDS clauses (48) and Argentina's outright objection to paying numerous adverse arbitral awards. (49) Over the past decade, a slew of countries has denounced the ICSID Convention and/or terminated transnational...