Engaging the Author, Part I: The Merging of International Trade and Investment Law

Comment by: Andrea K. Bjorklund, Professor of Law and L. Yves Fortier Chair in International Arbitration and International Commercial Law at McGill University Faculty of Law, and Scholar in Residence at the International Centre for Settlement of Investment Disputes.

This comment and response series features three short pieces by international law professors commenting on the recent BJIL article, The Merging of International Trade and Investment Law by Sergio Puig, and a response by the author. The article discusses the merging of international trade and investment law as resulting from the dynamics of the treaty-making process and the strategies employed by litigation parties at the time of the enforcement of treaty rules.

 

Nowhere is the blurring of the lines between public and private more evident than in the fields of investment and trade law. Investment law is often viewed as the fusion of public law norms onto a private commercial arbitration substructure. Trade law, at the multilateral level, is governed by the World Trade Organization (WTO) Agreements—a complex set of treaties—and monitored by states, and at the municipal level is administrative law policed largely by private entities driven by economic interests. Professor Puig’s latest article sketches an account of the increasing linkages between trade and investment law due both to decisions made by states in the negotiation of treaties (what he terms “upstream” law production) and decisions made by private actors in the utilization of those international arrangements and by arbitral tribunals convened under them (“downstream” law production). While the WTO mechanism remains a state-centered domain and the home of multilateralism, investment treaties and free trade agreements with investment chapters nestled in them are bilateral or what Professor Puig calls “minilateral”—acceded to by several states—and provide greater roles for non-state actors.

Minilateral and multilateral governance regimes offer the potential for intersecting and overlapping obligations and fora in which entities can seek relief. Regional trade tribunals might have jurisdiction concurrent with the WTO over a particular trade dispute. Regional trade obligations might or might not affect an assessment of whether there has been a breach of WTO obligations. Investment tribunals might make decisions that implicate trade obligations as well as investment treaty norms. In other cases, claimants might seek to render themselves eligible to invoke the provisions of a favorable investment treaty. This practice is termed “nationality planning” or “treaty shopping”, depending on one’s viewpoint.

Professor Puig’s sophisticated depiction of intersection and overlap uses four case studies to illustrate why users of the system might choose “intra-regime shifts” (e.g. from multilateral to regional trade tribunals) and “inter-regime shifts” (e.g. from trade to investment tribunals). His typologies illustrate the multifaceted considerations that claimants will consider in making those decisions. Inter-regime shifts might well be dictated by different remedial goals: trade remedies are prospective and involve removal of the offending measure, while investment remedies are usually retrospective and involve the payment of damages. The goal of the trade regime is strongly influenced by its multilateral character—the trade distorting effects of the non-compliant measure harm the international trading system even if only one state has incurred sufficient harm to have an incentive to seek redress. In the investment realm, claimants seek to remedy the harm done to them individually, and any deterrent effects are incidental rather than central to the relief requested—at least, this has been the assumption, though there is more interest in non-pecuniary remedies recently than there had been in the past. Non-state actors can direct their own claims in investor-state dispute settlement provisions, yet most trade disputes, whether multilateral or minilateral, are initiated by states, often at the behest of their nationals (an exception to this is NAFTA Chapter 19, which provides an alternative appeal mechanism for decisions of administrative agencies in municipal trade remedy cases. The tribunal applies municipal law in its decision).

Another factor that makes investment law attractive is the protection that most investment agreements offer to investors (and/or their investments) from failures to provide fair and equitable treatment and from unlawful expropriation. Professor Puig notes that both trade and investment regimes have the relative obligations of National Treatment and Most Favored Nation treatment. Yet, the due process protection of fair and equitable treatment is one of the most important and frequently used features of international investment law, and it has no analogue in trade law. This substantive protection is one of the most attractive features of investor state dispute settlement for claimants, and decisions trying to flesh out its meaning are among the most prolific sources of downstream law production.

This multiplicity of recourse means that there are more venues in which parties can seek to influence the development of the law.   Professor Puig takes on the fascinating question of the “missing legislator” problem—the lack of an international legislature with democratic accountability to an electorate. He describes the process of “downstream” law production and insightfully observes that party-generated strategies for winning individual cases preclude coherence. One might indeed note that these problems are endemic to common law based systems, and that investment law in particular has developed some common law like features such as accretive references to pre-existing cases. Without a hierarchical control mechanism, there is no stare decisis in investment law (in the WTO regime there is no formal stare decisis, but the appellate body has fairly emphatically asserted its pre-eminence in decisionmaking).

Downstream law production might involve a tribunal’s “borrowing” from other regimes, including the European Court of Human Rights and WTO tribunals. Yet, this borrowing raises significant questions of applicable law—international tribunals are typically not courts of general jurisdiction but have only the authority conferred on them to hear an individual dispute. This means that the power of a WTO tribunal to apply non-WTO law, and an investment tribunal’s power to apply law outside that specified in the treaty and the applicable arbitral rules, is limited. Another question is the applicability of the doctrine of countermeasures in an investor-state dispute: if a respondent state would have been justified in asserting countermeasures against the investor’s home state, is that defense availing as against the investor?

In the international trade and investment domain, we are seeing a re-creation of problems that are familiar to scholars and practitioners of private international law. The fact that entities engage in cross-border activity means that more than one forum can compete to hear claims arising from that activity and that more than one state can plausibly claim prescriptive jurisdiction to regulate the activity. Furthermore, enforcement of any judgment emanating from one of those fora might take place in one or more jurisdictions. Doctrines of adjudicatory and prescriptive jurisdiction, including choice-of-law principles, help to manage the challenges raised when there are clashes of authority. With the exception of the regime in Europe, governed now by the recast Brussels Regulation, enforcement of judgments is largely a matter of the municipal law in individual states, with most jurisdictions having set out, either in court decisions or by statute, the criteria against which awards will be measured before recognition or enforcement are granted.

Professor Puig’s article describes the similar (though inevitably slightly different) problems in the international arena. International commercial activity involves both trade and investment, and thus requires participants in the international arena to cross the boundaries that have kept those regimes distinct. Indeed, some of the tools he proposes have their origin in private international law. In addition to these procedural rules, he suggests changes to treaties that states can make to minimize concerns about the opportunistic use of treaties in ways that the states who drafted them did not intend. Yet, he also notes the apparent unwillingness of states to clarify certain key points. For example, so long as it is unclear whether investors have direct rights or derivative rights, the effect of public international law defenses such as countermeasures on an investment dispute will remain uncertain.

Professor Puig rightly notes the essential link between upstream and downstream law production if the goal is to create a coherent and legitimate mechanism or set of mechanisms for resolving international economic disputes. Procedural proposals to manage overlapping disputes are of limited effect when the tribunals themselves lack the authority to apply different laws and when those laws are formally and practically distinct. Claimants will continue to seek relief in multiple fora, and the trade and investment regimes are likely to remain distinct given these barriers to their coalescence.

 

 

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