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Article Excerpt
I. INTRODUCTION
II. HISTORICAL BACKGROUND AND PURPOSE OF THE ITA SYSTEM A. Foreign Investment Disputes Before the ITA System B. The Need for a Reliable System to Resolve Foreign Investment Disputes C. The Creation of the ITA System D. The Benefits of the ITA System III. VAN HARTEN'S CRITIQUE OF THE ITA SYSTEM A. The ITA System as a System of Public Law Adjudication B. Minimum Standards of Public Law Adjudication and the Purported Inadequacies of the ITA System 1. Accountability 2. Openness 3. Coherence 4. Independence C. Van Harten's Proposals To Reform the ITA System to Provide Accountability, Openness, Coherence, and Independence IV. EVALUATING VAN HARTEN'S CRITIQUE OF THE ITA SYSTEM A. The ITA System Incorporates Acceptable Levels of Accountability, Openness, Coherence, and Independence 1. Accountability 2. Openness 3. Coherence 4. Independence V. CONCLUSION
I. INTRODUCTION
The past two decades have witnessed an explosion of bilateral and multilateral investment treaties and arbitration claims brought by individuals and private entities against states pursuant to such treaties. (1) Indeed, it is fair to characterize the investment treaty arbitration system (ITA system) as one of the most rapidly developing phenomena in international law. And, as occurs in response to every significant development in international law (or law more generally), the growth of the ITA system has been met with a chorus of scholarly criticism and calls for reform. (2) While such critiques can be integral to the healthy development of any new legal advancement, the sheer volume of the indictments of the structure and function of the ITA system can lead a casual observer to overlook the value of that system and the concerns in response to which the system emerged. There is thus not only the danger that valuable recommendations for improvement will be lost in the sea of overzealous indictments, but also that an ultimately beneficial system will be destroyed in a death by 1,000 paper cuts. Accordingly, it is necessary to closely scrutinize each critique of the ITA system in order to, on the one hand, belie unwarranted denunciations, and, on the other, identify those calls for improvements that are justified (even when the justified improvements are relatively modest, and yet, are mischaracterized by their proponents as vital to the defensibility or survival of the system).
This Article examines the critique of the ITA system presented by Dr. Gus Van Harten in Investment Treaty Arbitration and Public Law. (3) Van Harten's indictment of the ITA system proceeds on three basic premises. First, insofar as governmental regulations are often the target of claims brought in investment treaty arbitrations, the ITA system is fundamentally a system of "public law adjudication." (4) Second, any system of public law adjudication must satisfy four basic requirements: accountability, openness, coherence, and independence. (5) Third, the structure and function of the ITA system fails to satisfy each of these four requirements. (6) In particular, Van Harten argues that the ITA system fails to meet the standard of independence because arbitrators within the system are ultimately "merchants of adjudicative services [who] have a financial stake in furthering the system's appeal to claimants and, as a result, the system is tainted by an apprehension of bias in favour of allowing claims and awarding damages against governments." (7) Therefore, Van Harten reasons, the ITA system is an untenable system of public law adjudication. (8)
To his credit, Van Harten does not explicitly call for the abandonment of the ITA system. Rather, he characterizes his argument as only "incorporat[ing] an edge of criticism of the system." (9) Thus, he advocates maintaining the current system but with two fundamental alterations: (1) increased domestic scrutiny of arbitral awards issued from within the system and (2) the creation of a permanent international investment court to adjudicate ITA claims. (10) Despite the fact that Van Harten characterizes his criticism of the ITA system as tempered, the conviction with which he impugns both the structure and function of the system--and the passion with which he champions his proposed changes--demonstrates that Investment Treaty Arbitration and Public Law is much more than an "edge of criticism." (11) Rather, readers are left with the distinct impression that, ultimately, Van Harten believes that the current structure of the ITA system is indefensible, and thus, in the absence of his proposed reforms, the system should be abandoned altogether. (12)
This Article argues that while certain aspects of Van Harten's critique of the ITA system are warranted, his conclusions, both explicit and implicit, are overdramatic. The ITA system is by no means perfect. A modest infusion of accountability, openness, coherence, and independence would be welcomed, and Van Harten's proposed changes could provide such an infusion. But the need for such improvements is not so great that without them the system should be dismantled. Moreover, the improvements can be accomplished gradually and from within the current structure of the system. Therefore, Van Harten's critique falls into that category of objections that warrant relatively modest improvements and, yet, are mischaracterized by their proponents as vital to the defensibility and/or survival of the system.
Part II of this Article examines the history of the ITA system and the concerns that led to its emergence and development. Part III presents Van Harten's indictment of the ITA system, the three premises upon which his indictment relies, and the changes that he advocates to remedy the system's supposed shortcomings. Part IV more closely scrutinizes Van Harten's argument, identifies areas where Van Harten overstates his case, and contends that, even without Van Harten's proposed changes, the ITA system is not so lacking in accountability, openness, coherence, or independence as to warrant fundamentally changing the system or deserting it altogether. Finally, Part V concludes that while Van Harten's criticisms should be taken seriously by anyone seeking to push the ITA system to realize its full potential, those criticisms may be accounted for from within the current structure of the system.
II. HISTORICAL BACKGROUND AND PURPOSE OF THE ITA SYSTEM
Before one evaluates the structure and function of the ITA system, it is important to understand the background from which the system arose. Indeed, if one is not familiar with the concerns that initially motivated states to embrace the system-and thus, with the very purpose of the system--one cannot effectively assess the system or confidently offer suggestions on how to improve the system.
A. Foreign Investment Disputes Before the ITA System
Foreign investment has existed since "the days of the pharaohs in Egypt with investment being made by the state itself or by merchants from Egypt, Phoenicia and Greece in other countries." (13) And for as long as there has been foreign investment, there have been foreign investment disputes--i.e. allegations by a foreign investor that its investment has been harmed by the host state. (14) Traditionally, such a complaining investor lacked standing under international law to bring a direct claim against the host state. (15) Thus, such an investor had two available avenues for recourse. First, the investor could assert a claim before the domestic courts of the host state. (16) Such courts, however, "were often unsympathetic to the foreign investors." (17)
Second, the investor could appeal to its own government to assert a claim, on the investor's behalf, against the host state as a matter of "diplomatic protection." (18) The assertion of diplomatic protection could take many forms. Most frequently, the investor's state would protest the challenged conduct through the exchange of diplomatic letters. (19) Alternatively, and particularly in the nineteenth century, the investor's state would confront the host state through "gunboat diplomacy," wherein the injured investor's state would threaten military force against the host state. (20) Claims of diplomatic protection also could be presented through formal state-to-state dispute resolution proceedings, such as ad hoc arbitrations or proceedings before the International Court of Justice. (21)
Diplomatic protection, however, was not a confidence-inspiring dispute resolution mechanism for investors. (22) Whether an investor's state even acceded to a request for diplomatic protection depended on a number of factors outside the investor's control. (23) Most importantly, such requests required that the government of the investor be willing to expend the political capital necessary to challenge the actions of the host state. (24) Moreover, claims for diplomatic protection could remain unresolved for many years. For example, in the early twentieth century, the Mexican government, as part of a larger agrarian reform initiative, carried out a series of measures expropriating land owned, inter alia, by investors from the United States. (25) The U.S. government asserted claims of diplomatic protection, which initially resulted in an agreement with Mexico in 1927 to establish a binational claims commission. (26) By 1938, however, no claims had been resolved. (27) Thus, the U.S. Secretary of State "began a series of diplomatic exchanges with the government of Mexico." (28) Three years after these exchanges began, and more than fourteen years after the United States first invoked diplomatic protection, a settlement agreement was arrived at between the United States and Mexico. (29)
Thus, historically, prospective foreign investors knew prior to investing abroad that if their investments were subsequently injured by host states, there would be no reliable or efficient mechanism to obtain compensation.
B. The Need for a Reliable System to Resolve Foreign Investment Disputes
In the absence of a reliable and efficient mechanism for the resolution of foreign investment disputes, the international community feared that prospective investors would be discouraged from investing abroad. (30) Indeed, "[p]rudent investors will not risk substantial capital in a foreign enterprise unless the ... legal structure is sufficient to protect the investment." (31) And if prospective investors are discouraged from investing abroad, then foreign direct investment would not fully satisfy its perceived role as a mechanism to increase economic development in less developed nations. (32) As explained by Bishop, Crawford, and Reisman:
Foreign investment ... can provide a way to jump start some economies, a short cut to higher wages, an improved infrastructure, and better schools and hospitals. Psychologically, it can provide economic role models, generate financial incentives and create hope. In short, it can be a motivational force. At a minimum, it can build, maintain and operate important parts of a country's infrastructure or introduce complex technology to a country lacking it. (33)
Thus, the absence of a reliable legal structure to protect foreign investments was viewed not only as an impediment to foreign investment itself, but also to economic development and the multitude of benefits associated therewith. (34) To overcome this impediment, the...
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