INTERNATIONAL TRADE LAW

SEMESTER VIII

ICA RESEARCH PAPER

THIRD-WORLD APPROACHES TO INTERNATIONAL

INVESTMENT LAW

ABSTRACT

Keywords:

TABLE OF CASES

TABLE OF LEGAL INSTRUMENTS

Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Jun. 7, 1959,
21 UST 2517, 330 U.N.T.S. 38.

Convention on the Settlement of Investment Disputes Between States and Nationals of Other
States, Oct. 14 1966, 575 U.N.T.S. 159.

General Agreement on Tariffs and Trade 1994, Apr. 15 1995, Marrakesh Agreement
Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187, 33 I.L.M. 1153
(1994).
Vienna Convention on the Law of Treaties, May 23 1969, 1155 U.N.T.S. 331.
 A. INTRODUCTION

The current formulation of Investors State Dispute Settlement (“ISDS”) was envisaged under
the Convention on the Settlement of Investment Disputes Between States and Nationals of
Other States (“ICSID Convention”) in the year 19661.

The present debate around ISDS reforms is concentrated on addressing the sociological and
normative legitimacy of investor-state arbitration. The discussion around reforms was
initially strictly limited to procedural reforms.

In accordance with its mandate, UNCITRAL Working Group III (“WG III”)proceeded to: (i)
first, identify and consider concerns regarding ISDS; (ii) second, consider whether reform
was desirable in light of any identified concerns; (iii) if the Working Group were to conclude
that reform was desirable, develop any relevant solutions to be recommended to
UNCITRAL2.

The Working Group is currently in its third phase. Work on the third phase of the mandate
commenced on with the 38th session of Working Group III in October 2019 and is ongoing3.

UNCITRAL Working Group III identified six concerns with the present ISDS mechanism:
(1) excessive legal costs; (2) duration of proceedings; (3) legal consistency; (4) decisional
correctness; (5) arbitral diversity; (6) arbitral independence and impartiality4 .

Previous attempts at a multilateral agreement governing investments were met by resistance

from developing nations. The aborted Havana Charter, 1948

1
Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Oct. 14
1966, 575 U.N.T.S. 159.
2
UNCITRAL, Annotated Provisional Agenda, (UNCITRAL Working Grp. III, A/CN.9/WG.III/WP.141,
2017) https://undocs.org/en/A/CN.9/WG.III/WP.141.
3
UNCITRAL, Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of its
Thirty-Eighth Session, (UNCITRAL Working Grp. III, A/CN.9/1004*, 2019)
http://undocs.org/en/A/CN.9/1004.
4
UNCITRAL,
 B. RESEARCH METHODOLOGY AND REVIEW OF LITERATURE

C. RESEARCH DESIGN

Present research uses a doctrinal mode and method of research. The paper uses a handful of
secondary sources in order to fulfil the research objectives. Books, journal articles, legislative
material such as, rules of arbitral institutes, etc. have been used in this study. Heavy reliance
is placed upon Working Papers presented at the UNCITRAL Working Group III to gauge the
developments which have the potential to forever change the face of ISDS. Given the
contemporary nature of the problem blogs that report on the work of WG III are also
considered to glean the response of stakeholders to the proceedings. This paper will deal with
two primary questions. First, given the rejection of a multi-lateral investment agreement
during the WTO negotiations, are third-world countries better off with the present state of
ISDS? Second, whether the focus on procedural propriety and reforms at WG III misguided
and whether the dichotomy between them is one that misleads.

D. RESEARCH QUESTIONS

Against the above background, the present contribution deals with the following questions.

1. In light of the ?
2. Whether the procedural and substantive dichotomy is false and to what extent
procedural reforms bring about substantive change?

E. RESEARCH OBJECTIVES

1. To highlight the concerns of the Third World in the contemporary international

investment law paradigm.
2. To what extent the present reform discussions at WG III address those concerns.

F. REVIEW OF LITERATURE

An overview of issues plaguing the current ISDS system are captured most comprehensively
in one of European Union’s submissions to UNCITRAL Working Group III during its 35 th
session5. Emphasizing on the public law aspect of investor-state dispute, the Submission
makes a case for a standing multilateral investment adjudication body like the European
Court of Human Rights or the Inter-American Court of Human Rights. The Submission

5
Submission from the European Union, Possible Reform Investor-state Dispute Settlement, (UNCITRAL
Working Grp. III, A/CN.9/WG.III/WP.145, 2017) https://undocs.org/en/A/CN.9/WG.III/WP.145.
further identifies and consider the concerns relating the current ISDS mechanism. The ad hoc
constitution of arbitral tribunals and lack of an appellate review were amongst the most
pressing concerns.

Concerns owing to the ad-hoc nature of ISDS were highlighted soon after it’s inception. Jan
Paulsson in his seminal essay in 1995 ‘Arbitration Without Privity’6, warned against the case
of an adventurist arbitrator overreaching his jurisdiction. In his opinion a single case was
sufficient to generate backlash against the entire structure of ISDS through arbitration. Yet
Paulsson was hopeful about the process yielding fruit as it filled a “…large empty space … in
the embryonic structure of the international legal process”7.

If not universally true, traditionally, capital-importing states are third-world or developing

nations which need foreign direct investment in order to fulfil their economic potential. The
hidden dialectic behind BITs, owing to the competing interests of developed and developing
nations, is brought to light in Peter Muchlinski’s essay titled ‘Policy Issues’ in the Oxford
Handbook of International Investment Law8. The interplay between competing interests of
nations and its effect particularly on treaty formulation is observed.

The broad dialectic of interaction between developed and developing countries in

international law is further highlighted in Antony Anghie’s work Imperialism, Sovereignty,
and the Making of International Law9. The text is an authority on Third-World Approaches to
International Law in that it analyses the relationship between European countries and their
previously colonized counterparts.

It is trite that IIAs do not cast obligations upon investors. These are agreements between
States. In a recent article10, Dr Kabir Duggal, a lecturer-in-law at Columbia and Fordham Law
Schools alongside two other eminent scholars, empirically delineates the changes that have
taken place in treaty formulations over time. To that end, treaties are classified into ‘first
generation,’ ‘second generation’, and ‘third generation’ treaties based on the time they were
brought into force. Temporal analysis shows that in the most recent IIAs States are using a
combination of clauses to retain policy autonomy and overcome the regulatory chill that
States apprehend at the behest of disgruntled investors. These provisions are seen as attempts
6
Jan Paulsson, Arbitration Without Privity, 10 ICSID REV 232 (1995).
7
Id. p. 234.
8
Peter Muchlinski, Policy Issues, in THE OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW 79 (Peter
Muchlinski, Federic Ortino & Christoph Schreuer eds. 2008).
9
ANTONY ANGHIE, IMPERIALISM, SOVEREIGNTY, AND THE MAKING OF INTERNATIONAL LAW (2004).
10
Crina Baltag FCIArb et. al, Recent Trends in Investment Arbitration on the Right to Regulate, Environment,
Health, and Corporate Social Responsibility: Too Much or Too Little?, ICSID REV., March 2023, at 1.
by States taken outside the UNCITRAL Working Group III forum towards a more
comprehensive reform of international investment law and ISDS.

Establishment of a multi-investment court is not a novel proposition 11. Amongst other times
in history it was also briefly touched upon during the WTO negotiation rounds. In an article
in 2009, Kate Spunik, a scholar of international comparative law, highlights the benefits of
providing an institutional backbone to the investment treaty regime and introduction of an
ICSID Convention provision modelled after the GATT General Exceptions clause to tilt the
scales favouring capital-exporting nations back into balance12.

G. RIGHT TO REGULATE AND THE THIRD WORLD: I

A. PERSISTENT RESISTANCE
B. PRESENT STATE
C. WG III: THIRD-WORLD PARTICIPATION AND RESPONSES

<whether law should be fleshed out in further agreements by means of incremental reforms>

While enough has been said about the inadequacy of the current ISDS system. It is imperative
to contextualize the process and recall the rationale with which it was formulated.

11
Riyaz Dattu, A Journey from Havana to Paris: The Fifty-Year Quest for the Elusive Multilateral Agreement
on Investment, 24 FORDHAM INT’L L. J. 275 (2000).
12
Kate M. Spunik, Making Amends: Amending the ICSID Convention to Reconcile Competing Interests in
International Investment Law, 59 DUKE L. J., 334,
H. PROCEDURAL AND SUBSTANTIVE REFORMS: A FALSE
DICHOTOMY
I. CONCLUSION
 J. REFERENCES

A. BOOKS

 ANGHIE ANTONY, IMPERIALISM, SOVEREIGNTY, AND THE MAKING OF

INTERNATIONAL LAW (2004).

 EVOLUTION IN INVESTMENT TREATY LAW AND ARBITRATION (Chester Brown &
Miles Kate eds., 2011).
 OPPENHEIM L., INTERNATIONAL LAW (Arnold D. McNair, 1928).
 THE OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW (Peter Muchlinski
et. al eds., 2008).


B. JOURNAL ARTICLES

 Baltag Crina FCIArb et al., Recent Trends in Investment Arbitration on the Right to
Regulate, Envrionment, Health, and Corporate Social Responsibility: Too Much or
Too Little?, ICSID REV., March 2023, at 1.
 Dattu Riyaz, A Journey From Havana to Paris: The Fifty-Year Quest for the Elusive
Multilateral Agreement on Investment, 24 FORDHAM INT’L L. J. 275 (2000).
 Paulsson Jan, Arbitration Without Privity, 10 ICSID REV. 232 (1995).
 Supnik, Kate M., Making Amends: Amending the ICSID Convention to Reconcile
Competing Interests in International Investment Law, 59 DUKE L. J. 343 (2009).

K. WORKING PAPERS

 UNCITRAL, Annotated Provisional Agenda, (UNCITRAL Working Grp. III,

A/CN.9/WG.III/WP.141, 2017) https://undocs.org/en/A/CN.9/WG.III/WP.141.
 UNCITRAL, Submission from the European Union: Possible Reform Investor-state
Dispute Settlement, (UNCITRAL Working Grp. III, A/CN.9/WG.III/WP.145, 2017)
https://undocs.org/en/A/CN.9/WG.III/WP.145.