Recapturing public power: is investment arbitration's engagement of the public interest contributing to the democratic deficit?

Vanderbilt Journal of Transnational Law, May, 2008 by Barnali Choudhury

ABSTRACT

Globalization has changed the way sovereign states regulate their societies. The effect of globalization has been the creation of several international agreements that transfer decision-making from the national to the international level. An important subset of these agreements is international investment treaties; an estimated 2,500 of these treaties have been entered into worldwide by a number of states, especially in the last ten to twelve years. As these agreements almost always contain arbitration clauses, the number and scope of arbitrations handling disputes under these investment agreements have grown exponentially. Arbitrators governing these disputes are now regularly reviewing domestic public interest issues due to their expanded role. In fact, in some cases arbitrators are effectively striking down national regulations. The breadth of the regulatory powers of arbitrators in their review of national state decisions, regulations, and legislation has even caused some scholars to characterize investment arbitration as part of the evolving concept of global administrative law. Concerns also arise with investment arbitration's curtailment of democratic expression through its ability to counter a state's sovereign decision-making authority.

This Article seeks to address these issues, initially by positing that the efficacy of investment arbitration decisions on public interest issues is limited by the lack of public participation. The Article identifies in greater detail the features of investment arbitration, the elements of democracy and the democratic deficit, and the process and outcomes of investment arbitration that have implicated public interest issues. It then explores suggested solutions to increase public participation in and accountability for the investment arbitration process, and to infuse non-investment related concerns into the outcomes of the traditionally private domain of investment arbitration[degrees]

TABLE OF CONTENTS

  I. INTRODUCTION
     A. Investment Treaties: From Shield to Sword
     B. Investment Arbitration as an Instigator
        of the Democratic Deficit
         1. Democracy and the Democratic Deficit
         2. The Impact of Investment Arbitration
            on the Democratic Deficit
            a. The Investment Arbitration Process
            b. The Outcomes of Investment Arbitration
               i. Public Interest Issues
                  (1) Regulatory Expropriations through
                      the Lens of Environmental Issues
                  (2) Non-Expropriatory Regulatory
                      Interferences with Investments
                  (3) Public Services
                      (a) Water Services
                      (b) Health Care and Other
                          Subsidized Public Services
                  (4) Idiosyncratic Public Interest Issues
               ii. Investment Arbitration, the Public
                   Interest, and Democracy
 II. SOLUTIONS FOR BALANCING PUBLIC INTEREST
     WITH INVESTMENT ARBITRATION .
     A. Process Changes
        1. Transparency
           a. Public Access
           b. Amici Curiae
        2. Accountability of Arbitrators
     B. Outcome Changes
        1. The Margin of Appreciation and
           Article 1 of the ECHR
        2. Ascertaining Intent
III. CONCLUSION

I. INTRODUCTION

The sovereignty of a state signifies its independence. (1) Independence in regard to a portion of the globe, in turn, signifies the right to exercise therein the functions of a state, to the exclusion of any other state. (2) Thus, a state's sovereignty dictates that it may legislate and regulate at will issues of concern to its constituents, including issues of public interest. (3) States should therefore be free to set national regulations concerning environmental safety, human rights, affirmative action, or state emergencies in exercising their independence. (4)

Globalization, however, challenges the idea of the state as the sovereign guardian of the public interest. (5) The effect of globalization has been the creation of several international agreements that transfer decision making from the national to the international level. (6) The increased use of these agreements has raised concerns regarding the transfer of a state's public power to an international institution. (7) Constraints on the ability of a state to exercise its public power are particularly apparent in the area of investment arbitration. (8) Since 1959, states have entered into international treaties that permit foreign investors to initiate direct actions against a host state for disputes arising from the state's treatment of the foreign investment. (9) Until the early 1990s, international investment treaties were used primarily by European nations and to a lesser extent by the United States. (10) However, in the last ten to twelve years, the use of international investment treaties has exploded, and it is now estimated that almost 2,500 of these treaties have been entered into worldwide by a number of states. (11) As a result, arbitrations arising from disputes governed by these international investment treaties have expanded exponentially. (12)