Five Justifications for Investment Treaties: A Critical Discussion

This article examines five common justifications for the investment treaty system in order to highlight aspects of the system that give cause for concern. First, it examines whether investment treaties are a means to encourage foreign direct investment and concludes that this expectation is contradicted by common provisions in investment treaties and is unsupported by the preponderance of empirical evidence. If this justification was a factor in the decisions of states to conclude investment treaties - or of international organizations to promote them - then these decisions appear to have been based on incomplete knowledge and analysis of the anticipated benefits. Second, the article examines the claim that investment treaties respond to the bias and unreliability of domestic courts and criticizes investment treaties in this respect for being both under-inclusive (by extending access to international adjudication to a narrow class of private actors only) and over-inclusive (by failing to account for situations where domestic courts offer justice to a foreign investor). Third, the paper examines the claim that investment treaty arbitration advances the rule of law in the resolution of investor-state disputes and questions this claim after considering how investment treaty arbitration fails to incorporate keg institutional safeguards of judicial independence that are present in other adjudicative systems that resolve public law claims. Fourth, the paper examines the argument that investment treaties affirm the sovereignty and bargaining strategies of states and outlines tentative evidence that governments did not test carefully the anticipated benefits of the treaties, did not appreciate fully the risks of investor-state arbitration, and did not carry out sophisticated cost-benefit analyses prior to committing themselves to the investment treaty system. Finally, the paper examines the justification that investment treaties were endorsed by the democratic processes of states and draws attention both to the role of arbitrators in giving meaning to the treaties and to certain aspects of investment treaties that appear to undermine democratic choice. Based on this analysis, it is recommended that governments exercise greater care when considering entry into the system or, more likely, the maintenance or renewal of existing treaties, and that governments consider options for reform