Enhancing ICSID Investor-State Arbitration Regime through Public Law Approach: Review of Argentina Cases
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Due to the recent surge of foreign direct investment and bilateral investment treaties, the International Center for the Settlement of Investment Disputes (ICSID) of the World Bank has seen a notable increase in the number of investor-state arbitration brought before it to resolve disputes between private investors and a sovereign state. The ICSID system, while preserving some traits of traditional arbitration involving state parties, the private arbitration character of effectiveness and promptness is in the core. The conflicting, often controversial interests between states and private investors have created many problems in the investor-state dispute regime. State parties subject to an investor-state dispute under bilateral investment treaties cannot prevent private investors from raising issues involving public interest. Challenges to the ICSID system arises from its privatized, decentralized decision making as well as potentially devastating impact on state sovereignty. During the Argentina’s serious economic depression and following the government’s restraint on foreign assets, more than forty investor-state claims have been brought by the foreign investors before the ICSID Tribunal. The private investors who were engaged in Argentina’s public sector businesses were ultimately awarded approximately $80 billion in damages. Argentina’s legal defenses of the non-precluded measure and the customary international law doctrine of necessity in case of extraordinary circumstances, public order, national security and international peace were not successful. It is evident that ICSID Tribunal urgently needs to apply an enhanced standard of review, and this article suggests especially a public law approach. This article introduces two standards of review based on a public law approach: the proportionality analysis and the margin of appreciation. The proportionality analysis is a constitutional approach, and sets out a four step test involving legitimacy, suitability, necessity and balancing test. Professor Alec Stone Sweet proposes that the proportionality analysis improves transparency and a clear standard for the ICSID Tribunal. However, critics also say that it is too stringent and that it can be controversial in circumstances where the legitimacy or value of the policy object is contested. Margin of appreciation analysis is originated from the European Convention on Human Rights (ECHR), and the European Court of Human Rights is willing to grant and give deference to the decisions of national, executive, judicial and legislative decision makers, while at the same time preventing unnecessary restrictions on investment. The Argentina cases suggests that legitimacy gap in the ICSID Tribunal should be thoroughly examined from the public law prospect. Application a public law approach to the standard of review is urgently needed.
Abstract
Due to the recent surge of foreign direct investment and bilateral investment treaties, the International Center for the Settlement of Investment Disputes (ICSID) of the World Bank has seen a notable increase in the number of investor-state arbitration brought before it to resolve disputes between private investors and a sovereign state. The ICSID system, while preserving some traits of traditional arbitration involving state parties, the private arbitration character of effectiveness and promptness is in the core. The conflicting, often controversial interests between states and private investors have created many problems in the investor-state dispute regime. State parties subject to an investor-state dispute under bilateral investment treaties cannot prevent private investors from raising issues involving public interest. Challenges to the ICSID system arises from its privatized, decentralized decision making as well as potentially devastating impact on state sovereignty. During the Argentina’s serious economic depression and following the government’s restraint on foreign assets, more than forty investor-state claims have been brought by the foreign investors before the ICSID Tribunal. The private investors who were engaged in Argentina’s public sector businesses were ultimately awarded approximately $80 billion in damages. Argentina’s legal defenses of the non-precluded measure and the customary international law doctrine of necessity in case of extraordinary circumstances, public order, national security and international peace were not successful. It is evident that ICSID Tribunal urgently needs to apply an enhanced standard of review, and this article suggests especially a public law approach. This article introduces two standards of review based on a public law approach: the proportionality analysis and the margin of appreciation. The proportionality analysis is a constitutional approach, and sets out a four step test involving legitimacy, suitability, necessity and balancing test. Professor Alec Stone Sweet proposes that the proportionality analysis improves transparency and a clear standard for the ICSID Tribunal. However, critics also say that it is too stringent and that it can be controversial in circumstances where the legitimacy or value of the policy object is contested. Margin of appreciation analysis is originated from the European Convention on Human Rights (ECHR), and the European Court of Human Rights is willing to grant and give deference to the decisions of national, executive, judicial and legislative decision makers, while at the same time preventing unnecessary restrictions on investment. The Argentina cases suggests that legitimacy gap in the ICSID Tribunal should be thoroughly examined from the public law prospect. Application a public law approach to the standard of review is urgently needed.
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