Meeting expectations: Assessing the long-term legitimacy and stability of international investment law

University of Pennsylvania Journal of International Economic Law

Volumn 29, Issue 3, 2008, Pages 725-761

  Ryan, Christopher M ^a  

^a Shearman and Sterling LLP ^*

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EID: 44249087653     PISSN: 10867872     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (169)

1. See Jeswald W. Salacuse, The Treatification of International Investment Law, 13 L. & BUS. REV. AM. 155, 156-57 (2007) (noting that "[b]y 2006, the nations of the world had concluded nearly 2,500 BITs affecting 170 countries and several other important investment treaties," and that "[f]or all practical purposes, treaties have become the fundamental source of international law in the area of foreign investment").
2. R. DOAK BISHOP, JAMES CRAWFORD & W. MICHAEL REISMAN, FOREIGN INVESTMENT DISPUTES: CASES, MATERIALSAND COMMENTARY 2 (2005).
3. Barcelona Traction, Light & Power Co. (Belg. v. Spain), 1970 I.C.J. 3, 46-47 (Feb. 5).
4. Stephen M. Schwebel, The Influence of Bilateral Investment Treaties on Customary International Law, 98 AM. SOC'Y INT'L L. PROC. 27 (2004).
5. Id.
6. Id.
7. Id.
8. Id.
9. Id.
10. See, e.g., Wenhua Shan, Is Calvo Dead?, 55 AM. J. COMP. L. 123, 127 (2007) ("Calvo Clauses typically can be found in constitutions, domestic legislation, international treaties and contracts signed between foreign investors and Latin American governments.") (footnote omitted);
11. see also DONALD SHEA, THE CALVO CLAUSE: A PROBLEM OF INTER-AMERICAN AND INTERNATIONAL LAW AND DIPLOMACY 21-32 (1956).
12. See Shan, supra note 10, at 124 (noting that the equality of foreign investors and nationals is the essence of the Calvo Doctrine);
13. see also Denise ManningCabrol, The Imminent Death of the Calvo Clause and the Rebirth of the Calvo Principle: Equality of Foreign and National Investors, 26 LAW & POL'Y INT'L BUS. 1169, 1195 (1995) ("[T]he second principle of the Calvo Doctrine, equality of the national and foreign investor, is the one remaining element of the Calvo Clause that lives unhindered and, indeed, has found new life.").
14. See, e.g., Christoph Schreuer, Calvo's Grandchildren: The Return of Local Remedies in Investment Arbitration, 4 LAW & PRAC. INT'L CTS. & TRIBUNALS 1,3 n11, 4-5 (2005) (noting that "[u]nder this doctrine foreigners doing business in a country were to be treated in exactly the same way as local nationals. This meant that these foreigners were to be restricted to local means of dispute settlement, i.e., domestic courts," and discussing the minimal extent to which domestic courts are actually relied upon to settle investment disputes).
15. See, e.g., CONSTITUCIÓN DE LA REP-BLICA DE VENEZUELA DE 1961, art. 127 (incorporating into every contract of public interest a clause that grants Venezuela courts sole jurisdiction over contractual disputes);
16. Constitución Politica de la Rep-blica de Honduras de 1982 art. 33 ("Foreigners may not file claims nor demand indemnity of any kind from the State, except in the form and in the cases in which Hondurans may do so.");
17. Constitución de la República de Bolivia art. 24 ("Foreign subjects and enterprises are subject to Bolivian law, and in no case may they invoke exceptional circumstances or recourse to diplomatic claims."). For texts of these constitutions, see CONSTITUTIONS OF THE COUNTRIES OF THE WORLD (Albert P. Blaustein & Gilbert H. Flan eds., 1971).
18. See CME Czech Republic B.V. v. Czech Republic, Final Award on Damages, 9 ICSID Rep. 264, para. 497 (Mar. 14, 2003) [hereinafter CME Final Award] ("The controversy came to a head with the adoption by the General Assembly of the United Nations of the 'Charter of Economic Rights and Duties of States'.").
19. G.A. Res. 3281 (XXIX), art. 2, U.N. Doc. A/9631 (Dec. 12, 1974).
20. Id.
21. G.A. Res. 3171 (XXVIII), para. 3, U.N. Doc. A/9030 (Dec. 17, 1973), reprinted in 13 I.L.M. 238, 239 (1974).
22. See, e.g., Charles N. Brower & John B. Tepe, Jr., The Charter of Economic Rights and Duties of States: A Reflection or Rejection of International Law?, 9 INT'L LAW. 295, 296-303 (1975) (discussing the Charter's "relationship to international law," noting that it is non-binding, and discussing certain "substantive provisions of the Charter [that] undermine existing rules of international law"). For an opposing view-i.e., that the norms supported by developing countries supplanted the traditional norms of international law regarding the protection of foreign investments -
23. see, for example, Robin C. A. White, A New International Economic Order, 24 Int'l & Comp. L.Q. 542, 547 (1975) (arguing that the Charter, because passed by "at least" 104 voting nations, would have force in the international legal context, and noting that provisions of the Charter are favored by developing nations).
24. G.A. Res. 3281 (XXIX), U.N. Doc. A/9631 (Dec. 12, 1974).
25. See RESTATEMENT (THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES §712 Reporters' Notes 1 (1987) ("The Charter was adopted 120 in favor, 6 against, and 10 abstentions, the vote reflecting the views of the majority as developing states, with the United States among the dissenters and other Western developed states either dissenting or abstaining.").
26. See Schwebel, supra note 4, at 28.
27. Salacuse, supra note 1, at 155.
28. See Id. (noting that "the principles... were often vague and subject to varying interpretations").
29. See Id. (stating that "existing international law offered foreign investors no effective enforcement mechanism to pursue their claims against host countries").
30. See BISHOP, CRAWFORD & REISMAN, supra note 2, at 1.
31. See CME Final Award, supra note 14, para 497.
32. Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law, 14 Nw. J. INT'L L. & Bus. 327, 327 (1994).
33. Mondev Int'l Ltd. v. United States, ICSID Case No. ARB(AF) 99/2, Award, 6 ICSID Rep 181, para. 117 (October 11, 2002).
34. See Schwebel, supra note 4, at 28.
35. See, e.g., BISHOP, CRAWFORD & REISMAN, supra note 2, at 8 ("While differences in some standards may be found among [BITs], there is an astonishing similarity in the most important rules.");
36. U.N. Conf. on Trade & Dev. [UNCTAD], Geneva, Switz., June 12-14, 2002, Experiences With Bilateral and Regional Approaches to Multilateral Cooperation in the Area of Long-Term Cross-Border Investment, Particularly Foreign Direct Investment, para. 5, TD/B/COM.2/EM.11/2 (May 8, 2002) [hereinafter UNCTAD-Experiences] ("A distinctive feature of BITs is that their overall format, substantive scope and content have remained largely unchanged over the past 40 years.");
37. Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions, 73 FORDHAM L. REV. 1521, 1529 (2005) ("The provisions of investment treaties are remarkably similar.");
38. Maurits Lugard, Toward an Effective International Investment Regime, 91 AM. SOC'Y INT'L L. PROC. 485, 485 (1997) (remarks by Kenneth J. Vandevelde) (noting the "emerging consensus" concerning international capital flows and prerequisite legal structures).
39. Although the model treaties developed by the United States and various European countries contained many similarities, they also contained significant differences. For example, European treaties generally did not protect the rights of investors to freely convert local currency, prohibit the imposition of performance requirements, or protect against uncompensated expropriation as well as the American treaties. Jeswald W. Salacuse & Nicholas P. Sullivan, Do BITs Really Work?: An Evaluation of Bilateral Investment Treaties and Their Grand Bargain, 46 HARV. INT'L L.J. 67, 73 (2005).
40. The main differences among BITs currently in force include: the extent to which certain sectors are exempted from the protections provided by a BIT; the inclusion (or lack thereof) of a National Treatment provision; the treatment of performance requirements; and, in some cases, the inclusion of an exhaustion of local remedies requirement. UNCTAD - Experiences, supra note 29, para. 7.
41. See Lucy Reed, Great Expectations: Where Does the Proliferation of International Dispute Resolution Tribunals Leave International Law, 96 AM. SOC'Y INT'L L. PROC. 219, 226 (2002) ("[H]ost state obligations under BITs typically include guarantees of fair and equitable treatment as determined by international law, national treatment and most-favored-nation treatment, guarantees of free repatriation of profits and liquidated proceeds; and most significantly, the duty to pay full economic value in the event of expropriation."). Historically, the major differences among BITs centered around three areas: (a) the types of activities that constituted an investment; (b) when a venture qualified as an "investment" and therefore fell within the protections of the treaties; and (c) whether the treaties applied to investments that were made prior to the entry into force of the treaty. Jennifer Tobin & Susan Rose-Ackerman, Foreign Direct Investment and the Business Environment in Developing Countries: The Impact of Bilateral Investment Treaties 7 (Yale Law Sch. Ctr. L., Econ. & Pub. Pol'y., Res. Paper No. 293, 2005) available at http://ssrn.com/abstract=557121.
42. see also, Salacuse & Sullivan, supra note 30, at 80.
43. See UNCTAD - Experiences, supra note 29, para. 6 ("The great majority of BITs has a provision on the transfer of payments. Current BITs guarantee the free transfer of payments related to, or in connection with an investment.").
44. The bilateral investment treaty between the United States and Argentina was hailed as the first BIT in which a Latin American country retreated from its insistence that foreign investors submit disputes for resolution to domestic courts prior to pursuing international arbitration. Letter of Submittal to the President of the United States from the Secretary of State (Jan. 13, 1993), available at http://www.state.gov/e/eeb/ifd/43232.htm.
45. See, e.g., Thomas E. Carbonneau, Recent Developments in State Responsibility: The Codification of the Law of State Responsibility, 83 AM. SOC'Y INT'L L. PROC. 224, 234-46 (1989) (noting the expansion of "personal rights" under international law).
46. Id.
47. See The Foreign Sovereign Immunities Act: Hearing Before the Subcomm. on Courts and Admin. Practice of the S. Comm. on the Judiciary, 103d Cong. 83-84 (1994) (statement of Abraham D. Sofaer, former Dep't of State Legal Advisor) ("[T]he Department [of state]'s decision with respect to espousal is likely to be influenced, not only by the merits of the case, but by the Department's concern for offending a foreign state and creating a potential irritant in its dealings with that state.");
48. see also David J. Bederman, International Law Advocacy and its Discontents, 2 CHI. J. INT'L L. 475, 483-84 (2001) ("Individual grievances have tended to be subordinated to the greater good of the nation in its pursuit of common foreign policy objectives.");
49. KENNETH J. VANDEVELDE, UNITED STATES INVESTMENT TREATIES: POLICY AND PRACTICE 160-62 (1992) ("[T]he government may be reluctant to espouse because of a fear that the investment dispute could damages [sic] its relations with the expropriating country and interfere with other foreign policy objectives.").
50. See, e.g., Mary Hallward-Driemeier, Do Bilateral Investment Treaties Attract FDI? Only A Bit ...and They Could Bite 2 (The World Bank Dev. Research Group, Paper No. 3121, 2003) ("It is hypothesized that countries with weak domestic property rights can increase their attractiveness as a potential host by explicitly committing themselves to honoring property rights of foreign investors.").
51. See, e.g., Raúl Emilio Vinuesa, Bilateral Investment Treaties and the Settlement of Investment Disputes under ICSID: The Latin American Experience, 8 LAW & BUS. REV. AM. 501, 504 (2002) ("Credibility went hand in hand with the acceptance by states of their international liability in the promotion and protection of foreign investments.").
52. The number of BITs entered into on an annual basis increased between 1990 and 2004. In 1990, for example, approximately 50 BITs were signed worldwide. Between 1994 and 1996, that number peaked at roughly 200 BITs per year. Since then, the number of BITs signed each year has decreased, but still remains higher than 1990 levels. In 2004, 73 new BITs were concluded. U.N. Conf. on Trade & Dev. [UNCTAD], New York & Geneva, 2005, World Investment Report 2005: Transnational Corporations and the Internalization of R&D, 24 U.N. Doc. UNCTAD/WIR/2005.
53. See, e.g., Lugard, supra note 29, at 486 ("[T]here has been a dramatic transformation in attitudes toward an international investment regime. The division between developed and developing countries has been replaced by a consensus, and that consensus has produced the emerging regime.");
54. Jeswald W. Salacuse, BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact on Foreign Investment in Developing Countries, 24 INT'L LAW. 655, 659-60 (1990) (considering the dramatic growth of BITs in light of the capital needs of developing countries).
55. UNCTAD, Major FDI Indicators, http://stats.unctad.org/FDI/Table Viewer/tableview.aspx?reported=899.
56. World Trade Organization, International Trade Statistics 2004 (Leading Exporters and Importers of the World), available at http://www.wto.org/ english/res_e/statis_e/its2004_e/its2004_e.pdf.
57. See Foreign Direct Investment in Developing Countries: What Economists (Don't) Know and What Policymakers Should (Not) Do!, Monographs on Investment and Competition Policy, CUTS Center for International Trade, Economics and Environment at i (2002).
58. UNCTAD, supra note 42.
59. Deborah L. Swenson, Why Do Developing Countries Sign BITS?, 12 U.C. DAVIS J. INT'L L. & POL'Y 131, 138 (2005).
60. See BISHOP, CRAWFORD & REISMAN, supra note 2, at 4 ("Efforts to organize both international protection for foreign investment and methods of resolving disputes began in earnest after World War IL").
61. See Salacuse & Sullivan, supra note 30, at 77 ("[Developing countries sign BITs to promote foreign investment, thereby increasing the amount of capital and associated technology that flows to their territories.") (emphasis in original);
62. Swenson, supra note 46, at 131-32 ("Developing countries often compete for foreign investment with the hope that [it] will bring a wide range of economic benefits.").
63. See, e.g., BISHOP, CRAWFORD & REISMAN, supra note 2, at 7 (arguing that "[f]oreign investment is not a panacea for all that ails such societies, but in the absence of sufficient public funds, it can provide a way to jump start some economies, a short cut to higher wages, an improved infrastructure, and better schools and hospitals.");
64. Benjamin H. Sheppard, Jr. et al., International Commercial Dispute Resolution, 39 INT'L LAW. 235, 243-44 (2005) ("A BIT is intended to protect and encourage investment by investors of one country in the territory of the other country. BITs endeavor to mitigate the risks associated with investing abroad by providing investors with significant investment protections and access to international arbitration. On a macroeconomic level, BITs are intended to stimulate investment flows and result in the increase of exports, greater economic development, and economic integration between the two countries.").
65. Such a public commitment is important because, as Professors Tobin and Rose-Ackerman note, developing countries frequently "cannot make credible commitments not to violate their own country's rules." Tobin & Rose-Ackerman, supra note 32, at 5.
66. See Tobin & Rose-Ackerman, supra note 32, at 5 (noting that "most developing country governments do not have the legal systems and institutional structures in place to adequately enforce laws."). Interestingly, however, at least one empirical study has shown that "developing countries that have signed a BIT tend to be richer, larger, and more democratic" than developing countries that have not signed any BITs. Tom Ginsburg, International Substitutes for Domestic Institutions: Bilateral Investment Treaties and Governance, 25 INT'L REV. L. & ECON. 107, 114 (2005).
67. See, e.g., Beth A. Simmons & Lisa L. Martin, International Organizations and Institutions, in HANDBOOK OF I NTERNATIONAL RELATIONS 192 (Walter Carlsnaes et al. eds., 2001) (discussing the role of organizations in the legitimization of international affairs);
68. Zachary Elkins et al., Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960-2000 11 (Am. Law & Econ. Assoc. Annual Meetings, Working Paper No. 31, 2005) ("BITs give host governments a competitive edge in attracting capital if there are otherwise doubts about their willingness fairly to [sic] enforce contracts.").
69. See, e.g., Elkins et al., supra note 52, at 11 ("Governments with little inherent credibility are more likely to sign BITs than are governments known for their fair treatment of foreign capital.").
70. See, e.g., Ginsburg, supra note 51, at 122 (warning that "BITs and the expanding regime of international substitutes may have other negative effects on the development of domestic institutions. Besides offering a favorable dispute resolution regime to foreigners, BITs facilitate substantive advantages to investors. Most BITs restrict performance requirements imposed by the host government, but allow positive performance incentives such as tax breaks and simplified regulatory procedures. This means that in fact, domestic investors face both competitive and institutional disadvantages in the investment climate.").
71. Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 5 ICSID Rep. 209, para. 99 (Aug. 30, 2000).
72. Id.
73. Tecnicas Medioambientales Teemed S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, para. 154 (May 29, 2003), available at http://icsId.worldbank.org/ICSrD/FrontServlet?requestType= CasesRH&action Val=showDoc&docId=DC602_En&caseId=C186.
74. Id.
75. See, e.g., Occidental Exploration & Prod. Co. v. Republic of Ecuador, LCIA Case No. UN 3467, Final Award in the Matter of an UNCITRAL Arbitration, para. 183 (July 1, 2004), available at http://ita.law.uvic. ca/documents/Oxy-Ecuador FinalAward_001.pdf;
76. Metalclad, supra note 55, para. 99 (Aug. 30, 2000) ("Mexico failed to ensure a transparent and predictable framework for Metalclad's business planning and investment. The totality of these circumstances demonstrates a lack of orderly process and timely disposition in relation to an investor of a Party acting in the expectation that it would be treated fairly and justly in accordance with the NAFTA.").
77. See, e.g., Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, para. 372 (July 14, 2006) available at http://icsId.worldbank.org/ICSID/ FrontServlet?requestType= CasesRH&actionVal=showDoc&docId=DC507_En &caseId=C5 (finding a "common thread" in recent arbitral awards that the fair and equitable treatment standard does not require "bad faith or malicious intentf]");
78. CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Award, para. 280 (May 12, 2005) available at http://ics Id.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal= show Doc&docId=DC504_En&caseId=C4 (stating that the fair and equitable standard is an objective standard "unrelated to whether the Respondent has had any deliberate intention or bad faith in adopting the measures in question. Of course, such intention and bad faith can aggravate the situation but are not an essential element of the standard.").
79. See, e.g., EnCana Corp. v. Republic of Ecuador, LCIA Case UN 3481, Partial Dissenting Opinion (Feb. 3, 2006), para. 72, reprinted in 45 I.L.M. 901, 960 (making the distinction that "[w]hat may not be wrongful under local Ecuadorian law or an interpretation thereof may be wrongful under the Treaty or international law no matter what the Ecuadorian courts say or fail to say. State conduct found to be licit under national law - for example, because the State in breach complies with the decisions of its own courts-may however constitute a public international law infringement, particularly when the State's international obligations at stake are set out in a treaty (to which such State is a party) vesting an international arbitral tribunal with the power to adjudicate on such infringement.").
80. For example, in Occidental Exploration and Prod. Corp. v. Ecuador, a tribunal held that the "stability of the legal and business framework is thus an essential element of fair and equitable treatment" and held Ecuador liable for changing its tax laws "without providing any clarity about [the change's] meaning." LCIA Case UN 3467, Award, paras. 183-84.
81. see also LG&E Energy Corp. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability, para. 124 (Oct. 3, 2006) available at http://icsId.worldbank.org/ICSID/FrontServlet?request Type=CasesRH&actionVal=showDoc&docId=DC627_En&caseId=C208 ("[T]his Tribunal must conclude that stability of the legal and business framework is an essential element of fair and equitable treatment in this case ....").
82. Notably, not all tribunals have held governments to the same broad standards set forth in Metalclad and Teemed. For example, in Waste Mgmt, Inc. v. United Mexican States, the tribunal held: [T]he minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety - as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. ICSID Case No. ARB(AF)/00/3, Award, para. 98 (Apr. 30, 2004), reprinted in 43 I.L.M. 967, 986 (2004).
83. Ginsburg, supra note 51, at 117.
84. U.N. CONFERENCE ON TRADE AND DEV., BILATERAL INVESTMENT TREATIES IN THE MID-1990S, Annex I at 159-217, U.N. Doc. UNCTAD/ITE/IIT/7, U.N. Sales No. E.98.II.D.8 (1998).
85. Salacuse & Sullivan, supra note 30, at 105.
86. But See Id. (finding that adding a new OECD BIT or a BIT with a developing country only has a weak statistical effect).
87. See Id. at 106 (finding as expected).
88. See Tobin & Rose-Ackerman, supra note 32, at 22 (describing results of the study generally and stating that "BITs by themselves do not determine the [FDI] flows.").
89. Salacuse & Sullivan, supra note 30, at 77.
90. Kenneth Vandevelde has stated that the principal goal of the BIT system was to (a) "build a network of treaties adopting the principle that the expropriation of foreign investment was unlawful unless accompanied by prompt, adequate and effective compensation," (b) by establishing certain minimum standards of protection to which American investment was entitled, (c) ensure transparency in the host state's laws, and (d) create binding dispute-resolution procedure available to enforce the minimum standards of protection guaranteed by the treaties. Kenneth J. Vandevelde, The BIT Program: A Fifteen-Year Appraisal, 86 AM. SOC'Y INT'L L. PROC. 532,534-35 (1992).
91. W. Michael Reisman & Robert D. Sloane, Indirect Expropriation and its Valuation in the BIT Generation, 74 BRIT. Y.B. INT'L L. 115,118 (2003).
92. See Id. (describing how BIT regimes transfer responsibility from industrialized to developing countries in ensuring an optimal legal, administrative, and political framework for investment).
93. See, e.g., Franck, supra note 29, at 1525-26 ("In order to avoid the historical difficulties associated with 'gunboat diplomacy/ countries have promulgated treaties to promote foreign investment and instill confidence in the stability of the investment environment.").
94. For example, BITs do not allow foreign investors to bring ordinary commercial, tort, or contract disputes to international arbitration. Rather, BITs create distinct causes of action (e.g., fair-and-equitable treatment, expropriation, discriminatory, or arbitrary treatment) that are intended to protect against governments acting in their capacity as governments.
95. See Reisman & Sloane, supra note 72, at 117 ("The 'favourable conditions' established by BITs consist, not merely of natural phenomena such as climate, resources, and access to the sea, nor even an educated population in the host state receptive to and eager to participate in the benefits of foreign investment; they also contemplate, more significantly and innovatively, an effective normative framework: impartial courts, an efficient and legally restrained bureaucracy, and the measure of transparency in decision that has increasingly been recognized as a control mechanism over governments and as a vital component of the international standard of governance.").
96. Id.
97. Id.
98. See Ginsburg, supra note 51, at 120-21 (showing that under some circumstances, international devices may be substitutes for local institutions and lead to reductions in governance quality).
99. Id.
100. BISHOP, CRAWFORD & REISMAN, supra note 2, at 8.
101. See, e.g., Vincent O. Orlu Nmehielle, Enforcing Arbitration Awards Under the International Convention for the Settlement of Investment Disputes (ICSID Convention), 7 ANN. SURV. INT'L & COMP. L. 21, 23 (2001) ("The key purpose in establishing ICSID was to assure foreign investors of protection under international law from unilateral actions of host countries which could jeopardize their investments.").
102. U.N. Conference on Trade and Dev., New York & Geneva, 2005, Latest Developments in Investor-State Dispute Settlement, at 1-2, UNCTAD/WEB/ ITE/IIT/2005/2.
103. See Id. at 3 (showing that forty-seven of sixty-one respondents in these arbitrations were developing countries; the most cases were brought against Argentina (forty-two cases, or approximately 20 percent of the total cases)).
104. Argentina is not alone in Latin America in expressing frustration with the current system of international investment law. Between 1994 and 1999, the Brazilian legislature refused to ratify fourteen BITs signed by their government.
105. See U.N. Conference on Trade and Dev., Total Number of Bilateral Investment Agreements Concluded, (June 1, 2005), available at http://www.unctad.org/ sections/dite_pcbb/docs/brazil.pdf (showing that Brazil has signed fourteen BITs). To date, the Brazilian legislature has refused to ratify any of these treaties. Similarly, in Venezuela, President Hugo Chavez has publicly condemned international arbitration of investment disputes as being unconstitutional.
106. See, e.g., Instructivo Para la Revisión de los Proyectos de Contratos de Interés Público Nacional que Serán Celebrados por la República [Instructive Order No. 4], Official Gazette No. 4989 (Mar. 8, 2001) (Venez.).
107. For a discussion on Instructive Order No. 4, see Bernardo Weininger & David M. Lindsey, Venezuela, in INTERNATIONAL ARBITRATION IN LATIN AMERICA 223 (Nigel Blackaby et al. eds., 2002). Pursuant to this order, public contracts must be submitted to the Venezuelan Attorney General to determine the constitutionality of any arbitration clause.
108. see also, Constitución de la República Bolivariana de Venezuela 1999 art. 151 (stating that disputes arising from public contracts do not give rise to foreign claims).
109. For example, as of 2002, 49.6% of Argentina's manufacturing firms were owned by multinational corporations. When joint ventures are taken into consideration, this figure rises to 77%. Rajneesh Narula & Anabel Marin, FDI Spillovers, Absorptive Capacities and Human Capital Development: Evidence From Argentina 3 (MERIT-Infonomics Research Memorandum Series, Paper No. 016, 2003), available at http://ir.lib.cbs.dk/download/ISBN/x645152071. pdf.
110. See Proyecto de Ley, Sept. 17, 2004, [6057-D] B.O. 138 (describing the proposed bill as expressly invalidating any contractual or treaty clause that purported to vest jurisdiction in another forum).
111. See Id.
112. Proyecto de Ley 2759-D-05, November 2, 2005.
113. Id.
114. Proyecto de Ley S-2577/05, Mar. 23, 2007.
115. Id.
116. Corte Suprema de Justicia [CSJN], 1/6/2004, "José Cartellone Construcciones Civiles S.A. v. Hidroeléctrica Norpatagónica S.A./proseco de conocimiento," Fallos (2004-XXXVII-87) (Arg.).
117. Id.
118. See Damon Vis-Dunbar et al., Bolivia Notifies World Bank of Withdrawal from ICSID, Pursues BIT Revisions, INVESTMENT TREATY NEWS, May 9, 2007, http://www.iisd.org/pdf/2007/ im_may9_2007.pdf (giving notice of Bolivia's formal notice to ICSID declaring its withdrawal from the ICSID convention).
119. Convention on the Settlement of Investment Disputes Between States and Nationals of Other States art. 72, Mar. 18, 1965,17 U.S.T. 1270,575 U.N.T.S. 159.
120. Arbitral tribunals have consistently held that such treaty provisions constitute consent to ICSID jurisdiction.
121. See, e.g., Lanco Int'l Inc. v. Argentine Republic, ICSID Case No. ARB/97/6, Preliminary Decision on Jurisdiction, 5 ICSID Rep. 367 (Dec. 8, 1998) (holding that claims alleging a cause of action under the bilateral investment treaties are not subject to the jurisdiction of administrative courts).
122. See Vis-Dunbar et al., supra note 95, at 3 (quoting Fernando Mantilla-Serrano, advisor to foreign investors, as saying, " [a]t least from the plain meaning of the text of the Convention, you don't need any other party to have acted on that consent").
123. See Id. (quoting Professor Christoph H. Schreuer, Professor of International Law at the University of Vienna, as saying, "[i]f you look closer ... the six month notice period offers very little comfort to investors and potential litigants").
124. Id.
125. See, e.g., S. Pac. Props. (Middle East), Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/84/3, Decision on Jurisdiction, 3 ICSID Rep. 102 (Nov. 27, 1985) (dealing with a request for arbitration received by ICSID from a Hong Kong corporation, requesting arbitration proceedings be instituted under the Washington Convention against the Arab Republic of Egypt);
126. Tradex Hellas S.A. v. Republic of Albania, ICSID Case No. ARB/94/2, Decision on Jurisdiction, 5 ICSID Rep. 43 (Dec. 24, 1996) (addressing a government's consent as given in a national investment statute);
127. Raúl Emilio Vinuesa, Bilateral Investment Treaties and the Settlement of Investment Disputes Under ICSID: The Latin American Experience, 8 LAW & BUS. REV. AM. 501, 503 (2002) ("Consent of the investor is assumed when the option is expressed on the request for ICSID arbitration.").
128. CHRISTOPH H. SCHREUER, THE ICSID CONVENTION: A COMMENTARY 259 (2001);
129. see also MOSHE HIRSCH, THE ARBITRATION MECHANISM OF THE INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES 53-54 (1993) (explaining that consent may withdrawn so long as it was not irrevocable).
130. Antonio R. Parra, Provisions on the Settlement on Investment Disputes in Modern Investment Laws, Bilateral Investment Treaties and Multilateral Instruments on Investment, in 12 ICSID REV. 287, 320 (1997).
131. As a practical matter, this issue may be of little importance to may investors. The majority of Bolivia's BITs provide investors with the option of submitting investment disputes either to ICSID, another arbitral institution, or to ad hoc arbitration under the UNCITRAL rules.
132. For the collection of BITs signed by Bolivia, see http://www.unctadxi. org/tempIates/DocSearch.aspx?id=779. As a result, investors will be able to submit investment disputes to international arbitration regardless of whether Bolivia is a party to the ICSID Convention.
133. See U.N. Conference on Trade & Dev. [UNCTAD], UNCTAD Annual Report 2002, UNCTAD/EDM/2003/3 (2003), available at http://www.unctad.org/en/docs/edm20033_en.pdf (describing practices of foreign direct aid to Brazil).
134. See, e.g., ADC Affiliate Ltd. v. Republic of Hungary, ICSID Case No. ARB/03/16, Award of the Tribunal, paras. 400-04 (Oct. 2, 2006), available at http://icsId.worldbank.org/ICSID/FrontServlet?requestType= CasesRH&actionVal=showDoc&docId=DC648_En&caseId=C231 (including arguments of the Hungarian government to the effect that their ability to govern has been limited).
135. See supra Section 2.1 (discussing how best to balance the hope for increased investment against the cost of signing a BIT).
136. See LG&E Energy Corp. v. Republic of Argentina, ICSID Case No. ARB/02/1, Decision on Liability, para. 245 (Oct. 3, 2006), available at http://icsId.worldbank.org/ICSID/FrontServlet?requestType= CasesRH&action Val=showDoc&docId=DC627_En&caseId=C208 (discussing how "the Tribunal has determined that the conditions in Argentina from 1 December 2001 until 26April 2003 were such that Argentina is excused from liability for the alleged violation of its Treaty obligations due to the responsive measures it enacted").
137. See ADC Affiliate Ltd. v. Republic of Hungary, ICSID Case No. ARB/03/16, Award of the Tribunal, para. 384 (Oct. 2, 2006), available at http://icsId.worldbank.org/ICSID/FrontServlet?requestType= CasesRH&action Val=showDoc&docId=DC648_En&caseId=C231.
138. Id. para. 423.
139. Although this is a problem that principally affects developing countries, developed countries are also concerned that tribunals have expanded the scope of international law in a way that has constrained their ability to govern. As is discussed below, this belief led the United States to change its model BIT in 2004 to more clearly define the scope of protections it was providing to foreign investors.
140. See Agreement Between Japan and the Republic of the Philippines for an Economic Partnership, Japan-Phil, Sept. 9, 2006, http://www.mofa.go.jp/ region/asia-paci/philippine/epa0609/index.html [hereinafter JPEPA] (recognizing the agreement between Japan and the Philippines encouraging innovation and competition). Although the Agreement has been ratified by Japan, it is facing significant resistance among Philippine opponents.
141. See, e.g., Veronica Uy, Senators Slam 'Fuzzy' Gov't Presentation of JPEPA, INQUIRER.NET, Sept. 14, 2007, http://archive.inquirer.net/view.php?db=l&story-id=88592 (quoting Senator Manuel Roxas II as saying, "I am under-whelmed by the presentation of the government which in my estimate alone, based on their presentation, if the voting were held today, JPEPA will lose").
142. JPEPA, supra note 112, at 10-11.
143. Id. arts. 89-92, 95.
144. See Id. art. 3 (calling for, among other things, prompt publishing of member laws, names of authorities responsible for laws, and responses to further questions from members regarding paragraph 1 matters).
145. See Id. art. 107 (stating that "[i]n the absence of a mechanism for the settlement of an investment dispute between a party and an investor of the other party, the resort to international conciliation or arbitral tribunal is subject to mutual consent of the parties to the dispute. This means that the disputing party, at its option or discretion, grant or deny its consent in respect of each particular investment dispute and that, in the absence of the express written consent of the disputing party, an international conciliation or arbitration tribunal shall have no jurisdiction over the investment dispute involved.").
146. See SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction, available at http://icsId.worldbank.org/ICSID/FrontServlet?request Type=CasesRH&actionVal=showDoc&docId=DC657_En&caseId=C6 (bringing the Philippines to arbitration in June 2002 by the French company SGS Société Générale de Surveillance S.A. regarding the provision of certain customs and export-related services). As of the date of this article, the case against the Philippines is still pending.
147. "[T]he rationale for the 1965 Washington ICSID Convention was to assure potential prospective investors that disputes arising out of investments, primarily in developing countries, could be adjudicated before an international tribunal, rather than before the courts of the country concerned. The existence of such a facility and the assurance of impartiality and predictability also works to the benefit of the country concerned, which has an interest in attracting foreign investment for its economic development." Reed, supra note 32, at 234 (referring to comments by Andrew Jacovides).
148. See, e.g., Catherine Brown & Christine Manolakas, Trade in Technology Within the Free Trade Zone: The Impact of the WTO Agreement, NAFTA, and Tax Treaties on the NAFTA Signatories, 21 Nw. J. INT'L L. & Bus. 71, 97 n.176 (2000) (noting that "capital investment flows primarily from the developed country to the developing country").
149. To date, the United States has been a respondent in thirteen investment disputes, all of which were brought under the auspices of NAFTA Chapter 11.
150. See U.S. Department of State, Cases Filed Against the United States, http://www.state.gov/s/l/c3741.htm (last visited Mar. 7, 2008) (listing NAFTA Investor-State Arbitrations).
151. The 2004 Model BIT provides greater detail on procedural issues such as access to investor-state dispute settlement (Articles 23-34) and transparency of national laws 837 and proceedings (Article 11). U.S. DEP'T OF STATE & USTR, U.S. MODEL BILATERAL INVESTMENT TREATY 1 (2004), available at http://www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/ asset_upload_file847_6897.pdf [hereinafter 2004 Model BIT].
152. For a fuller discussion of these new standards, see also Sean D. Murphy, Contemporary Practice of the United States Relating to International Law, 97 AM. J. INT'L L. 681, 696-97 (2003) (detailing the expropriation articles in a bilateral fee trade agreement between the United States and Chile).
153. 2004 Model BIT, supra note 121, at Annex B, para. 4(b).
154. Id., at Annex B, para. 1.
155. See Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law, 14 Nw. J. INT'L L. & Bus. 327, 332 (1994) (arguing that "it is th[e] uncertainty relating to the law on state responsibility that has given an impetus to the negotiation of bilateral investment treaties").
156. See Stephen Schwebel, The United States 2004 Model Bilateral Investment Treaty: An Exercise in the Regressive Development of International Law, 3 TRANSNAT'L DISP. MGMT. 1,4 (2006) (describing the deficiencies of the 2004 Model BIT).
157. U.S. DEP'T OF STATE & USTR, U.S. MODEL BILATERAL INVESTMENT TREATY 1 (1994) [hereinafter 1994 Model BIT].
158. Id. art. 2, para. 3(b).
159. Id. art. 5, para. 1.
160. Id. art. 5, para. 2.
161. Azurix Corp. v. Argentine Republic, ICSID Case No. ARB/01/12, Award, para. 361 (July 14, 2006), available at http://icsId.worldbank. org/ICSID/ FrontServlet?requestType=CasesRH&actionVal=showDoc&docId= DC507_En &caseld=C5.
162. Id.
163. The Advisory Committee on International Economic Policy is a committee of nongovernmental experts representing a wide range of interests.
164. ADVISORY COMM. ON INT'L ECON. POLICY, REP. OF THE SUBCOMM. ON INVESTMENT POL'Y REGARDING THE DRAFT MODEL BILATERAL INVESTMENT TREATY 2 (Jan. 30, 2004), available at http://www.ciel.org/Publications/BIT_Subcmte_Jan3004.pdf.
165. Gilbert Gagné & Jean-Frédérick Morin, The Evolving American Policy on Investment Protection: Evidence from Recent FTAs and the 2004 Model BIT, J. INT'L ECON. L. 357, 382 (2006).
166. Id.
167. See Schwebel, supra note 126, at 4 (describing the weakening of investor protections in the 2004 Model BIT as compared to the 1994 Model BIT).
168. Jose E. Alvarez, The Development and Expansion of Bilateral Investment Treaties: Remarks, 86 AM. SOC'Y INT'L L. PROC. 550, 553 (1992).
169. Id.