Against Imperial Arbitrators: The Brilliance of Canada's New Model Investment Treaty

Authors

Charles H. Brower II, Wayne State University Law SchoolFollow

Keywords

ICSID, Imperial Arbitrators, International Arbitration, Investment Treaty, Investment Treaty Arbitration, Investor-State Dispute Settlement (ISDS), United Nations Commission on International Trade Law (UNCITRAL), European Union, Bilateral Investment Treaty (BIT), North American Free Trade Agreement (NAFTA), Canada, Comprehensive Economic and Trade Agreement (CETA), Foreign Investment Protection Agreement (FIPA), U.S. Mexico Canada Agreement (USMCA)

Abstract

Investment treaty arbitration has become politically “toxic” even in states that pioneered the development of investment treaties. There is consensus on the need for reform. But there is a dearth of historical research on what went wrong with investment treaties, when it happened, or how to find the way forward in light of the past. As a result, reform efforts have a stumbling quality. One can see this in multilateral fora, such as the United Nations Commission on International Trade Law (UNCITRAL), where over four years of study and negotiations have produced little consensus. One can also see it in the investment treaty practice of individual states, such as Canada, which has recently lurched across the spectrum from investment treaty arbitration to a permanent international investment court, to the abandonment of investor-state dispute settlement (ISDS), and back to investment treaty arbitration. This article fills the gap in understanding by explaining what went wrong with investment treaty arbitration and when it happened. It demonstrates that the customary international law on state responsibility for injuries to aliens evolved during the 19th century to protect foreign investors against exceptional failures of the nightwatchman and rule-of-law states. As the consensus regarding customary international law standards of treatment unraveled during the 20th century due to the spread of communism, decolonization, and economic nationalism, capital-exporting states turned in bilateral investment treaties (BITs) to uphold traditional principles regarding the protection of foreign investment. Starting in the late 1990s, however, an unexpected surge of claims brought under NAFTA’s investment chapter fortuitously opened the door to the central problem of modern investment treaty practice: the rise of “imperial arbitrators” who do not merely police exceptional failures of the nightwatchman and rule-of-law states, but who choose to second-guess the normal operations of modern regulatory states without any meaningful checks or balances. Although the NAFTA Parties nipped that development in the bud, the rise of imperial arbitrators leapt to the broader universe of investment treaty arbitration, where it flourished until claims against developed states for measures such as the phaseout of nuclear power brought investment treaty arbitration to a crisis point. Seeking a way forward in light of the past, the article examines Canada’s recent experimentation with investment treaty reforms, including the development of a permanent international investment court in relations with the EU, the complete elimination of ISDS in relations with the United States, and a return to traditional investment treaty arbitration in a new model investment treaty coupled with substantive reforms that virtually eliminate opportunities to second-guess the normal operations of modern regulatory states. The article describes the last option as the most brilliant because it is the only one that substantively eliminates toeholds for imperial arbitrators while preserving arbitration as a safeguard against the exceptional failures of the nightwatchman and rule-of-law states. Seeking a way forward in light of the past, the article examines Canada’s recent experimentation with investment treaty reforms, including the development of a permanent international investment court in relations with the EU, the complete elimination of ISDS in relations with the United States, and a return to traditional investment treaty arbitration in a new model investment treaty coupled with substantive reforms that virtually eliminate opportunities to second-guess the normal operations of modern regulatory states. The article describes the last option as the most brilliant because it is the only one that substantively eliminates toeholds for imperial arbitrators while preserving arbitration as a safeguard against the exceptional failures of the nightwatchman and rule-of-law states.

Recommended Citation

Charles H. Brower II, Against Imperial Arbitrators: The Brilliance of Canada's New Model Investment Treaty, 17 FIU L. Rev. 1 (2023), https://doi.org/10.25148/lawrev.17.1.5.