4.3 The Imbalance of TCL in Favour of Economic Objectives
4.3.1 System, Shifting Paradigms and Unbalancing Effects
4.3.1.1 Expansion of Investment Protection
From a public interest perspective, the rationale behind the investment protection regime lies in the expected development benefits that foreign investment entails. It has historically been intended to be reserved for exceptional scenarios, in which granting particular protections may be necessary in order to attract the inflow of foreign assets, which in turn foster development.419It is in such scenarios that states
412Viñuales (2016), p. 30.
413Schreuer (2013), para. 37; Viñuales (2016), p. 30. However, also the mere purchase of shares in a company by a foreign investor or the granting of loans has been qualified as an (portfolio) investment, Viñuales (2016), p. 30.
414Cf. Viñuales (2016), p. 27.
415Cf. Viñuales (2016), p. 44. Some arbitral clauses may however require the investor tofirst exhaust local remedies, cf. Viñuales (2016), p. 44.
416Cf. Bottini (2008), p. 565.
417ICSID (1990)Asian Agricultural Products LTD (AAPL) v. Republic of Sri Lanka, Final Award, 27 June 1990; Viñuales (2016), p. 29. As such,filing for arbitration is said to sufficiently reflect the implicit acceptance of the arbitration clause by the investor, Viñuales (2016), p. 29; Asiedu-Akrofi(1992).
418UNCTAD (2019) Investment dispute settlement navigator,http://investmentpolicyhub.unctad.
org/ISDS/FilterByYear(last accessed 14 May 2021).
419Viñuales (2016), p. 30; UN GA (1962) Resolution 1803 (XVII) of 14 December 1962,https://
www.un.org/ga/search/view_doc.asp?symbol¼A/RES/1803%28XVII%29(last accessed 14 May 2021), paras. 1–3, 6, and 8; whether or not IIAs foster development depends on two factors: for one, whether IIAs have a positive effect on FDI inflows, and, for the other, whether FDI actually fosters development. As Pohl (2018), pp. 28–30 summarises, there is little empirical evidence with regard to both questions. While the most sound studies seem to suggest slightly positive effects of IIAs on FDI inflows, Pohl (2018), p. 31 with reference to Egger and Merlo (2012), p. 1240 as well as Kerner and Lawrence (2012), p. 107, positive development effects of FDI according to ‘a growing consensus [. . .] are contingent on multiple parameters in the host country–e.g. varying levels of indigenous human resources, private-sector sophistication, competition, and host-country policies
were willing to accept the qualifications of their permanent sovereignty over natural resources (PSNR) that follow from their obligations under the investment regime.
However, as the numbers of arbitral proceedings above indicate, over time investment protection evolved to be more than just an exceptional safeguard.420 Viñuales claims that this has been due largely to two processes: for one, states continuously expanded the definitions of ‘investment’ and ‘foreign investor’that they included in IIAs; for the other, investment tribunals gradually extended their interpretations of the term, increasingly also including portfolio investments, such as commercial loans or other financial instruments.421 The same phenomenon of expansive interpretation can be observed with regard to many of the core obligations that states typically confer upon investors under international investment law.422 These primarily include protection against expropriation; fair and equitable treat-ment; full protection and security; and most-favoured nation as well as national treatment.423
Originally, international investment law was intended to particularly protect investors against hardships resulting from expropriation or nationalisation.424 While direct, i.e. formal, expropriations occurred primarily in the direct aftermath of decolonisation,425particularly the interpretation of what constitutes an indirect, i.e. non-targeted, expropriation was subject to much discussion especially during the first decade of the new millennium.426Yet, ever since expansive tendencies in the interpretation of the term‘indirect’have been contained, other standards, especially the fair and equitable treatment (FET) standard, have inherited the central role in the protection of foreign investments.427
The FET standard is generally not shaped by domestic laws, but constitutes a standard of international law.428It represents a veryflexible principle, which needs to be concretised by the respective tribunal for the case at hand.429While there is no
including trade- and investment policies’, Pohl (2018), p. 15. Bringing new conceptual clarity to the issue, see Bonnitcha et al. (2017).
420Viñuales (2016), p. 30.
421Viñuales (2016), pp. 30–31.
422Cf. Viñuales (2016), pp. 31–32.
423Schreuer (2013), paras. 49–75; 85–90; Viñuales (2016), p. 29; extensively Bungenberg et al.
(2015), pp. 7001030.
424Viñuales (2016), p. 31.
425Cf. e.g. how investment law is mentioned explicitly in the context of nationalisations in UN GA (1962) Resolution 1803, 14 December 1962, paras. 1, 4 and 8; Viñuales (2016), p. 31.
426Schreuer (2013), paras. 85–88; with a profound discussion of i.a. the relevant case law Kriebaum (2015), pp. 971981.
427Schreuer (2013), para. 90.
428Angelet (2011), para. 3; extensively on FET, and particularly the distinction between‘ autono-mous’FET clauses and‘MST-FET’clauses, which define FET by reference to customary interna-tional law, Gaukrodger (2017).
429Angelet (2011), para. 4; in the case of autonomous FET clauses, the room for interpretation for arbitral tribunals is naturally greater, Gaukrodger (2017), p. 13.
4.3 The Imbalance of TCL in Favour of Economic Objectives 139
general definition of what constitutes FET or a breach thereof, the principle is typically described as a reflection of the good faith principle.430It thus is concerned particularly with upholding the rule of law with regard to every aspect of the investment process and therefore has brought about several related principles, such as transparency, consistency, stability or due process.431Moreover, arbitral tribunals have tended to describe FET by referring to the legitimate expectations of the investor.432
Further trends in investment arbitration that led to a significant expansion of the regime and therefore the surge in the number of proceedings included the
expansive interpretation of the MFN clause for jurisdictional purposes or the dismissal of the rule–widely acknowledged in inter-State dispute settlement–that consent to jurisdiction cannot be presumed and is to be interpreted restrictively.433
These expansive tendencies in state as well as arbitral practice have led to investment protection constituting a particularly dominant paradigm in global gov-ernance. Apart from the broad scope of investment safeguards, especially the possibility for investors to depart from conventional judicial avenues and institute arbitral proceedings against the host state creates what has been perceived as an
‘imbalance’between investment protection and states’duty to protect the environ-ment as well as Human Rights (HR).434For instance, the right to freely dispose over natural resources (RFD)‘has been largely forgotten in the development of areas of international law that have had a direct impact on the issue of control over natural resources.’435 This observation is being alluded to also in the ‘warnings’ e.g. included in principle #9 of the UN Guiding Principles on Business and Human Rights (UN GP), which calls upon states to reserve sufficient domestic
430Angelet (2011), para. 5.
431Angelet (2011), para. 5; Schreuer (2013), para. 52; on the interpretation of e.g. the NAFTA governments of these principles originating from FET, Gaukrodger (2017), pp. 40–51.
432Angelet (2011), para. 6. However, several tribunals have pointed out that FET cannot be understood as solely protecting investors’interests. Rather, also this standard needs to be interpreted against the backdrop of the object and purpose of the individual IIA, which lies not exclusively in the protection of investments, but rather in the promotion of foreign direct investment and (sustainable) development. Consequently, also the FET standard needs to be subjected to a
‘balanced approach’in its interpretation, which takes the public interest dimension into account, PCA (2006) Saluka Investments BV v. Czech Republic, Partial Award, 17 March 2006, paras.
300, 305; Angelet (2011), para. 6.
433Viñuales (2016), p. 32; moreover, alsoumbrella clauseshave contributed their bit to this trend.
These clauses have the effect of ‘elevating’ contractual obligations to the international level, i.e. breaches of contract automatically constitute a breach also of the international obligation of the host state. In Schreuer’s words,‘[c]ontracts and other obligations are put under the treaty’s protective umbrella’, Schreuer (2013), para. 80. Viñuales (2016), p. 31.
434UN HRC (2008) Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises, John Ruggie, 7 April 2008, UN Doc. A/HRC/8/55, available at http://www.reports-and-materials.org/Ruggie-report-7-Apr-2008.pdf(last accessed 14 May 2021), paras 34–35; Lindsay et al. (2013), p. 49.
435Gilbert (2013), p. 333.
policy space for the implementation of HR in spite of IIAs or investment contracts.
Ruggie has described this trend as being‘particularly problematic’for developing countries—given their limited resources and development needs.436Especially these states run the risk of allocating too much attention and resources to according safeguards to foreign investors at the expense of other policyfields.