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

The growth in investment arbitration has also extended the powers of the international bodies governing these disputes. (13) In particular, the arbitrators governing these disputes are now regularly reviewing domestic public interest issues due to their expanded role. (14) In fact, in some cases arbitrators are effectively striking down national regulations. (15) 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. (16)

Concerns also arise with investment arbitration's curtailment of democratic expression through its ability to counter a state's sovereign decision-making authority. (17) State parties to investment agreements can no longer legislate at will in the public interest without concern that an arbitral panel will determine that the legislation constitutes interference with an investment. (18) Thus, investment arbitration may result in an overall loss of state independence and sovereignty, which has implications for democratic governance. (19)

Nevertheless, it could be argued that, as a system of private international governance, investment arbitrators are not "guardians of the public interest" and therefore should not decide investment disputes that implicate broader political and economic issues. (20) At the same time, the question arises whether state exercises of public authority should be adjudicated by foreigners, largely on the basis of commercial principles, when the adjudicators are unconcerned with the wider effects of their decisions. (21)

The democratic implications of public interest issues further complicate this dichotomy of investment arbitration. If democratically elected governments enact public interest regulations in response to public concerns or to address democratic ideals, how can investment arbitrators make decisions affecting such regulations without public input? Moreover, by allowing investment arbitrators to rule on public interest regulations without input from the affected populace, does investment arbitration contribute to the ever-growing democratic deficit that has plagued many international bodies?

This Article seeks to address these issues, initially through the thesis that the efficacy of investment arbitration decisions on public interest issues is limited by the lack of public participation. The Article begins in Part I by identifying 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. In Part II, the Article 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.