8 Nov 2013

Examining the Role of the State in Investor-State Arbitration

Stephen Gelb, Shaheeza Lalani and Rodrigo Polanco (left to right) organised WTI's first-ever doctoral conference.

The World Trade Institute’s first-ever Doctoral Programme Conference, held on 8 November, took as its theme the concept of the “State” in the controversial area of investor-State arbitration.

What is the role of the State in this context and what are its rights and responsibilities? These were questions grappled with by top-ranking international speakers, researchers and practitioners, at the one-day event sponsored by the Swiss State Secretariat for Economic Affairs (SECO).

Some 15 papers presented at the WTI-hosted conference will be edited for publication in book form.

The event was organised jointly by Doctoral Programme Director Shaheeza Lalani and Doctoral Fellow Rodrigo Polanco alongside Stephen Gelb, director of the International Investment Initiative (I3) – WTI’s programme on the economics, law and regulation of cross-border direct investment.

"When we first sent the Call for Papers for this conference, we were launching a pilot test of the Doctoral Programme Conference Series and were amazed by the overwhelmingly positive response to our Call,” commented Lalani.  “We are grateful for the immense support that the Doctoral Programme has received for this initiative from practitioners and academics, the Swiss State Secretariat for Economic Affairs (SECO), I3 and the NCCR Trade Regulation."

“I am truly grateful for the opportunity to organise a conference on the topic of my PhD research. This is a possibility that doctoral students do not have elsewhere,” added Polanco. “Plus, we are signing an agreement to publish the proceedings of the conference with a well-known publisher in a volume that I will be co-editing. I really hope that this activity becomes a regular event for our Doctoral School.”

As international investment has grown in importance, a new field of international law has developed that defines the obligations of host states towards foreign investors and creates procedures for dispute resolution.  In recent decades there has been spectacular growth in arbitration to resolve investor-State disputes. Foreign investors are able to use international arbitration to settle disputes with the host country rather than having to go through the host country’s domestic courts.

Benefits and challenges

"The existence of independent control over governmental action is potentially immensely beneficial even though, regrettably, only foreigners benefit from the system.  But the rights of investors must be balanced with the public responsibilities of the government," commented Michael E. Schneider of Lalive Lawyers in Geneva.

"The challenge is to reconcile these conflicting objectives and values.  Systems of domestic public or administrative law, as for instance the droit administrative in France, balancing governmental action and individual rights, may serve as inspiration. I congratulate the Institute for having assembled researchers which address these issues as part of today’s programme."

International arbitration as a dispute resolution mechanism has progressively come under greater scrutiny. Critics point out that it allows private arbitrators to decide the legality of sovereign acts or public policies and there are concerns about “forum shopping”, high costs, transparency and fairness to third parties, lack of predictability and consistency. On the other hand, states do not always consider the possible effects of their actions and policies under international law.

"Investor-state arbitration has been a core feature of the entire regime of international investment agreements for decades, but there is a growing sense that the way it functions is no longer appropriate in today’s world,” explained Gelb. “We hope that the papers in this workshop will contribute to the global discussion about how the current regime can be improved and its legitimacy enhanced."

Georgios Petrochilos of multinational law firm Freshfields, Bruckhaus, Deringer said he was encouraged to see younger scholars at the conference engage with novel issues of policy. “This shows that people are really thinking hard about the discipline of investor-state arbitration and investment protection. I was very impressed by the interdisciplinary methodology that was brought to bear and I was also impressed by the open-mindedness of the speakers. They were approaching their topics not so much with a view to validating a certain result but rather just exploring the issue for its own sake.”

The volume to be published by Brill/Martinus Nihjoff will seek to answer some of the most burning questions about the State in the context of investor-state dispute settlement, such as which entities constitute “the State” and the implications of the State’s consent to arbitration in investment treaties.

WTI’s Doctoral Programme was inaugurated in 2012. Graduates are now found working in universities, multinationals and NGOs.