Foreign Investment Law: how customary is custom?

• Author: Orrego Vicu

The phalanxes of distinguished lawyers representing states and foreign investors in present-day international arbitration have the duty to bring tribunals' attention to the most minute details relevant to a determination on procedure and the merits of their respective cases. Yet, in so doing, it is not difficult to lose sight of the broader framework and trends in which international dispute settlement is inserted. The first major contribution, the lecture of Professor José Alvarez has made this morning, is to draw this broader outlook. It gives me particular pleasure to comment on some of his most thought provoking remarks.

THE SEARCH FOR COMMON PRINCIPLES.

Little doubt can there be about the fact that Foreign Investment Law has become global. A global society where goods and capitals flow every passing day with fewer restrictions could not do otherwise. The process of internationalization begins with the old treaties on Friendship, Commerce and Navigation, it follows with modern investment contracts governed by specific stabilization clauses and ends up, for the time being, with the ever expanding network of bilateral investment treaties and multilateral conventions, including recent Free Trade Agreements.

The legal framework underlying this process has become so interconnected and mutually-reinforced that it would not be an exaggeration to believe that the governing rules respond to common fundamental principles, in spite of the many variations in their application to specific cases. Domestic foreign investment legislation has for the most also become permeated by the main principles of this internationalized system. International arbitration and judicial decisions have also significantly contributed to this process of gradual integration and legal harmonization.

Professor Alvarez has of course identified this ongoing process with precision. Yet, realistically, he also raises some doubts about its future viability, mainly in connection with domestic tensions and eventual political backlash. It would be wrong to ignore these difficulties, but one must be also aware that they are typical of a transitional period in which rules and institutions are adjusted to new realities. What counts is the long-term outcome.

State functions in transition.

Sovereign prerogatives are today confronted with a new globalized regime concerning foreign investments, just as they are subject to continued pressures from the international trade system, human rights claims and other matters. This does not mean, however, that the sovereign state is fading away, as it is still the major actor of the international legal and political system and ultimately, in many cases, the guarantor of democratic rights and values of its citizens, on occasions threatened by ideological and miscarried interpretations of international law. State functions are not being abandoned, they are simply transiting from the absolute to the relative, from occasional arbitrariness to accountability, from serving over-powerful states to ensuring citizens' rights.

The distinction between the jure imperii and the jure gestionis is thus becoming sharper, as there is no reason for treating commercial activities...