Clash of paradigms: actors and analogies shaping the investment treaty system.

Author:Roberts, Anthea

When the skin of an Australian platypus was first taken to England in the 1700s, scientists thought it was a fake. It looked like someone had sewn a duck's bill onto a beaver's body; one scientist even took a pair of scissors to the skin looking for stitches. (1) The animal had fur and was warm-blooded like a mammal, yet laid eggs and had webbed feet like a bird or a reptile. Scientists struggled to categorize this unusual creature. Was it a bird, a mammal, or a reptile? Or was it some strange hybrid of all three?

Comprehending the investment treaty system has proven just as problematic. Investment treaties are clearly creatures of public international law: they are entered into by two or more states and are substantively governed by public international law. However, they are distinct from most public international law treaties because the vast majority of them permit investors to bring arbitral claims directly against host states based on procedural rules and enforcement mechanisms developed largely in the context of international commercial arbitration and investor-state contracts. Accordingly, the system grafts private international law dispute resolution mechanisms onto public international law treaties. (2)

However, there are other ways to understand the beast based on the regulatory relationship that it establishes between host states (as governors) and foreign investors (as governed). Investors are increasingly challenging specific regulatory actions (such as the denial of building or operating permits) or general regulatory measures (such as legislation concerning the economy, environment, human rights, or health and safety) that adversely affect them. Instead of being contractual disputes between private parties, these disputes concern public actions and involve public interests. Accordingly, investment arbitrations permit challenges to governmental conduct in a manner reminiscent of judicial review under domestic public law. (3)

Comparisons are also drawn between the investment treaty system and other subfields of public international law that concern a state s right to act and regulate domestically, like trade and human rights, which I group together as examples of "international public law." Like international trade law, investment treaties are international economic law agreements that require a delicate balancing between economic and noneconomic interests. (4) And like certain international human rights regimes, investment treaties are interstate agreements that regulate a state's treatment of nonstate actors within its territory and permit those actors to challenge governmental conduct before an international body. (5)

Why are these comparisons important? Investment treaties have traditionally been short and vaguely worded, while the system as a whole is new and undertheorized. As a result, participants routinely draw on comparisons with other legal fields when seeking to fill gaps, resolve ambiguities, or understand the system's nature. This occurs at a microlevel, with analogies being drawn using cases and principles from related legal areas, and at a macrolevel, with other legal fields being used as paradigms or frameworks for understanding the nature of the investment treaty system as a whole. I am deploying the term analogyto capture the use of individual cases or principles from other legal fields and the term paradigm to capture more general, structural comparisons between legal fields. (6) Both types of comparisons are important because different analogies and paradigms can suggest radically different ways of analyzing concrete problems, often with outcome-determinative consequences.

On a microlevel, this "choice of analogies" can be seen in the use of case law and principles from other legal fields when analyzing unresolved issues in the investment field (considered below in Part I). For a substantive example, consider the interpretation of Article XI in the U.S. Argentina investment treaty permitting states to take measures that were "necessary" to protect their essential security interests or to maintain public order. (7) The Enron tribunal, along with various others, interpreted this provision by reference to the very strict test for "necessity" as a circumstance precluding wrongfulness under public international law--a test that Argentina failed. (8) The Continental Casualty tribunal, by contrast, interpreted it by reference to the less stringent test for "necessary" governmental measures developed in trade law--a test that Argentina passed. (9)

For a procedural example, consider whether a winning respondent state should be required to pay its own costs or whether these costs should be borne by the unsuccessful claimant investor. (10) In the Thunderbird case, one arbitrator concluded that the state should bear its own costs on the rationale that "[t]he judicial practice most comparable to treaty-based investor-state arbitration is the judicial recourse available to individuals against states under the European Convention on Human Rights" where "states have to defray their own legal representation expenditures, even if they prevail." (11) In other cases, tribunals have endorsed the principle that "the successful party should have its costs paid by the unsuccessful party, as adopted in commercial arbitration." (12)

On a macrolevel, this "clash of paradigms" appears in competing conceptualizations of the investment treaty system as a subfield within public international law, as a species of international arbitration, or as a form of internationalized judicial review (considered below in Part II). These distinct frameworks help to shape understandings of the investment treaty system's nature and its development byemphasizing certain features, and empowering particular actors, over others. Consider, for example, debates about whether investment arbitrations should be presumptively confidential and closed to participation by nondisputing parties and, if so, whose consent should be required to overcome these presumptions. The paradigm adopted for understanding the field not only influences the answers given to these questions but helps to shape understandings of the investment treaty system as a whole as more "private" or "public" law in nature, and more or less subject to the control of the disputing parties (investor-state) or treaty parties (state-state).

Under the commercial arbitration paradigm, one might reason that investment arbitrations should remain confidential and open only to participation by the disputing parties unless those parties agree otherwise, as two of the hallmarks of traditional private arbitration are confidentiality and party autonomy. (13) A public international law framework, by contrast, brings the interstate treaty basis of investment treaty arbitrations into sharp focus and therefore implies that these questions should be determined by the intentions or wishes of the treaty parties, without regard to the wishes of the disputing parties. (14) A public law approach, by contrast, would emphasize the public nature of investment disputes, suggesting that these proceedings need to be presumptively public and open to participation by interested parties, such as nongovernmental organizations (NGOs) as amici, irrespective of the wishes of the disputing or treaty parties. (15)

What should we make of these comparisons? It is normal for people to understand the new by reference to the old, working with existing conceptual frameworks when charting new territory. (16) What makes this process particularly noteworthy in the investment context is the diversity of tools or conceptual maps being used. States, investors, and NGOs often favor different paradigms in light of their divergent normative interests and agendas. The field's arbitrators, advocates, and academics come from diverse backgrounds, and they too frequently presume or endorse distinct templates that may lead to conceptual collisions on concrete issues. And no authoritative voice exists to resolve these differences because the system is based on thousands of bilateral investment treaties (BITs) and free trade agreements (FTAs), which, in turn, are interpreted by hundreds of ad hoc tribunals, with no centralized appellate body. (17) As a result, the investment treaty field is a conceptual mess.

A natural response to this problem is to offer a normative theory of what the investment treaty system is or should become. Such endeavors are important but, in my view, remain premature given the system's rapidly changing nature, the great number of outstanding empirical questions about the effectiveness of investment treaties, and the stark divisions existing among the field's diverse participants and stakeholders. Instead, this article provides the groundwork for such efforts by laying out an architectural framework for understanding competing conceptions of the investment treaty system based on comparisons with public international law, international commercial arbitration, domestic public law, and international public law (in particular, international trade law and international human rights law). Of these, only the public law approach has been explicitly identified as an interpretive paradigm. Public international law and commercial arbitration approaches often operate implicitly, while trade and human rights analogies have been drawn without either field being adequately conceptualized as an interpretive paradigm.

This article draws attention to the phenomenon of choice of analogies, which occurs routinely--though often unreflectively--within the field. It demonstrates that analogies from other legal fields frequently point to distinct (and sometimes clashing) solutions as a result of differences in the structures, assumptions, and normative commitments of their underlying paradigms. It dissects these paradigms to demonstrate that each one reveals--and, importantly, obscures--significant aspects of...

To continue reading