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A law for need or a law for greed?: Restoring the lost law in the international law of foreign investment

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Abstract

The 1990s brought about a change in the international law of foreign investment due to the primacy achieved by the tenets of neo-liberalism. They drove concerns about the environment and poverty away from the concerns of the law and gave priority to the interests of multinational corporations by enhancing their ability for movement of assets and the absolute protection of these assets through treaty rules. The regime created by this law was operated through secure systems of dispute settlement through arbitration which also enabled the stabilization of these rules. In the process, private power of a section within the hegemonic state was able to subvert international law through the use of low order sources of the law and secure a system of investment promotion and protection. The restoration of the more universal themes of environmental protection and poverty alleviation is necessary. This paper outlines the developments that accentuated the sectional interests of multinational capital and explores the means by which a change that reflects the global interests could be effected.

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Notes

  1. Others have associated the 1990s as the era of unbridled capitalism. See Stiglitz (2003).

  2. The sub-title of the book referred to in note 3 is “Why We’re Paying for the Greediest Decade in History”.

  3. From Doe v Unocal (1997) 963 F.Supp. 880, the number of the cases has multiplied. See Sornarajah (2003b); Joseph (2004).

  4. The effects of Methanex v US which makes a departure from this pattern of law have yet to be assessed. Methanex v US is an arbitration under the UNCITRAL rules, final award of tribunal, 9 August 2005. For more details of the arbitration, see online: <http://www.state.gov/s/l/c5818.htm>

  5. Again, extensive writing occurred to conserve the jurisprudence of the Claims Commission e.g. Brower (1998); Those who participated in the work of the Commission became arbitrators in other investment disputes and carried over ideas formulated in the context of a politically formed institution into an area that was supposedly neutral.

  6. The Drago doctrine prohibited the use of force to induce payment of debts.

  7. The best modern statement of the rule is contained in Amerasinghe (2004).

  8. The IISD Model Agreement seeks the restoration of this rule.

  9. The law was constructed largely in the context of arbitration involving oil disputes between Middle Eastern Sheikdoms and large oil multinationals.

  10. The classic example is the production sharing contract, pioneered by the Indonesian state oil company, Pertamina.

  11. The Doha Ministerial Round on Development signifies this militancy as well as the defeat that the so called Singapore measures suffered during the Hong Kong Ministerial Meeting of the WTO.

  12. Fukuyuma (1992). A readable journalistic piece on the triumph of neo-liberalism is Keenan (2005).

  13. The question of course was who made the rules. The rules seemed to have been made by the developed states exclusively to their advantage. The later negotiations at Seattle, Doha and Hong Kong resulted in failure when the Third World jointly resisted some of the projects.

  14. The role of the pharmaceutical industry in bringing about the WTO instrument on intellectual property has been widely studied. Sell (2003).

  15. For the view that the spike in treaties is attributable to the rise of neo-liberalism, see Yanckee (2005).

  16. There are internal differences in the treaties. Virtually all South-East Asian states confine their treaty protection to approved investments. The Australians confine protection to investments made in accordance with laws and regulations. China does not permit dispute resolution in respect of any type of dispute. With these differences, the argument that the investment treaties create customary law is difficult to accept.

  17. Neumayer and Spess (2005); For a paper seeking to explain the growth in numbers of BITs (rather than evaluating their effects), see Elkins et al. (1960–2000); For a negative assessment of effect of these treaties, see Tobin and Rose-Ackerman (2005); for an assessment confined to US treaties, see Salacuse and Sullivan (2005). Also see Gallagher and Birch (2006), Tumman and Emmert (2004); Mary Hallward-Dreimeier; United Nations Conference on Trade and Development (UNCTAD) (1998); Simmons and Elkins (2006).

  18. The writer who was counsel in the above case found that no ASEAN state, except Singapore, had even established machinery for approval. In effect, there was no approved investment in ASEAN so that the treaty system was really of little use.

  19. Negotiators of NAFTA have stated that the insertion of the investment chapter in NAFTA was aimed at Mexico.

  20. Thus, in the past, foreign investment agreements made in developing countries were redefined as “economic development agreements” and a different external regime of law was applied to them though the very same type of agreement made by a developed country would be subject to its national laws.

  21. supra Note 8.

  22. In Pope and Talbot v Canada, NAFTA/UNCITRAL Tribunal (2002), an effort was made to accept fair and equitable standard as a higher standard than international minimum standard of treatment. But, the NAFTA Commission in an interpretative note at the request of the three states indicated that the two standards are not different, making the fair and equitable standard a surplusage.

  23. It is interesting to note that a new Free Trade Agreement, that between the United States and Australia, does not contain a provision on investor-state dispute settlement provision. It is speculated that the experience of NAFTA and the type of cases brought under it made Australia shun such a provision in the FTA. See further Dodge (2006).

  24. The International Centre for the Settlement of Investment Disputes was established by a Convention sponsored by the World Bank, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965. The website of ICSID provides details of parties and cases, etc. decided by ICSID. http://www.worldbank.org/icsid/basicdoc/partA.htm

  25. A stipulation in favour of a third party could not be made in the common law, which was only recently changed, for want of consideration. In the Roman law, such a stipulation could not be made except in certain circumstances, such as a donatio mortis causa. This law has passed into many civilian systems though the exceptions have expanded over time. It is strange that international law, branded as a primitive system of law, should recognize such a broad stipulatio alteri.

  26. The saga relating to the interpretation of the umbrella clause in the two SGS cases, SGS v Pakistan and SGS v Philippines, has been extensively commented on.

  27. The Lauder Cases against the Czech Republic.

  28. The Lauder Cases were brought on the basis of different investment treaties before separate tribunals.

  29. This was so when Pakistan had to face SGS, Hubco and the Salineri Arbitrations in one year. The collective claims exceeded the national reserves of Pakistan. So much for the view that the treaties promote development. An UNCTAD study indicates that costs could run into several million dollars.

  30. A spate of arbitrations followed the measures taken to deal with the Argentinian and Asian economic crisis. The Argentinian cases were based on investment treaties. The requirement that investments must be approved for purposes of protection found in Asian treaties saved the Asian states from such arbitrations. See for Malaysia, Grueslin v Malaysia (2000) 5 ICSID Reports. But, Indonesia had a series of contract-based arbitrations resulting from measures taken during the crisis. Himpurna, Listric Negara and Karaha Bodas.

  31. Obviously in Argentina and the Czech Republic, which have been subjected to many arbitrations, there is considerable rethinking.

  32. The fair and equitable treatment provision is left out in the India-Singapore FTA. The new model treaties of the US and Canada have provisions excluding regulatory takings from expropriation. They also contain stronger provisions on the environment. The Australia–US FTA leaves out investor-state dispute settlement.

  33. In SPP v Egypt, the preservation of a cultural site was not considered relevant. In Metalclad, the existence of rare cacti in the area of the project was not considered relevant.

  34. In modern times, the view is associated with the work of Hernando de Soto. See de Soto (2000).

  35. Two Canadian scholars studied the arbitration industry. Their conclusions are not salutary. See supra note 41.

  36. Tokio Tokeles v Ukraine ICSID Case No. ARB/02/18 (Lithuania/Ukraine BIT).

  37. Aguas del Tunari v Bolivia. This could be done in the case of other investments as well. Fedax v Venzuela, (1998) 37 ILM 1378.

  38. ICSID Case No. ARB/97/7.

  39. An insight provided by the New Haven School is that international law should be geared to the policy objectives articulated by decision makers within the international community. If a criticism is to be made of the school, it is that subjectivity that is involved in the method of selection of these objectives cannot be entirely eliminated. But, the school freed international law from the positivist dogmas that enabled rule oriented analysis and form that has dominated the subject. It permitted international law to reflect realities such as, in this case, the fact that multinational corporations are significant bases of power within the international community. Dogmatic responses refused to treat them as international persons and conveniently avoided issues of their control and liability. The school, unfortunately, is identified with the promotion of American interests as international interests.

  40. I have canvassed the authorities supporting such a rule. Sornarajah (2003a).

  41. The Model Agreement is available online: <http://www.iisd.org/investment/model_agreement.asp>

  42. E.g. the investment provisions in the Singapore–India FTA.

Abbreviations

ASEAN:

Association of South-East Asian Nations

BIT:

Bilateral Investment Treaty

FTA:

Free Trade Agreement

GATS:

General Agreement on Trade in Services

ICSID:

International Centre for the Settlement of Investment Disputes

IISD:

International Institute for Sustainable Development

NAFTA:

North American Free Trade Agreement

NIEO:

New International Economic Order

OECD:

Organization for Economic Co-operation and Development

TRIMS:

Trade-Related Investment Measures

UNCITRAL:

United Nations Commission on International Trade Law

UNCTAD:

United Nations Conference on Trade and Development

WTO:

World Trade Organization

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Authors and Affiliations

  1. Faculty of Law, National University of Singapore, Law Link, Singapore, Singapore, 117590

    M. Sornarajah

  2. Centre for Petroleum and Natural Resources Law, University of Dundee, Dundee, Scotland, UK

    M. Sornarajah

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Sornarajah, M. A law for need or a law for greed?: Restoring the lost law in the international law of foreign investment. Int Environ Agreements 6, 329–357 (2006). https://doi.org/10.1007/s10784-006-9016-0

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