Are The Reforms to International Investment Law and Arbitration (IILA) Viable?

Authored By:

Aishwarya Malewar (Research Intern)

Research Methodology

The purpose of this research paper is to determine whether the alternatives that have been suggested for IILA are feasible or not. Optional sources alluded to for this paper incorporate journals, sites and other important articles accessible on the web. With an all-encompassing methodology, this paper is finished with study, assessment and investigation dependent on different writings, legitimate legal sources and official websites. The structure of this paper is isolated into headings, and subheadings, for better understanding.


1. Introduction

2. The Reason

3. The Alternatives

4. Conclusion

5. References


IILA has come under intense criticism and has been agreed upon by experts from around the world that it is in need of reforms urgently. IILA has been working with national governments, regional and international organizations, academics and civil society to reshape investment law and policy frameworks collaboratively and innovatively. One of the main driving forces towards this change is that the international investment law and policy need to be reformed and redirected toward boosting environmentally sound investment that generates broad socioeconomic benefits for citizens of home and host states.

The Reason

Mechanisms for settling conflicts between creditors and states represented in the majority of the Investment treaties give foreign investors rights to seek redress damages arising from suspected violations of investment based commitments by host governments. Although investor-state disputes frequently present issues of public concern which are typically excluded from international commercial arbitration, the investment conflict resolution system has borrowed its core elements from the commercial arbitration system. Investor-state arbitration also advocates for a compromise between the rules of public international law and the private legal concepts of contract law.

The criticism against IILA has majorly been a result of there being a standstill that is being experienced in Multi-Lateral Treaties in the World Trade Organisation (WTO). Many experts have also opinioned that IILA should be formulated and implemented in such a manner that so that the world can work towards the goals of sustainable development like environmental conservation, protection of human rights, etc. Driven by such reasons governments from around the world have adopted to pursue regional strategies for the promotion of investment and trade in their countries. In recent years the foreign policies of major countries have become more and more protectionist, as various policies on domestic investment laws, domestic arbitration laws, and new regimes of Special Economic Zones (SEZs) are being rolled out. Thus countries are heavily using their domestic laws as a means to protect themselves from as their faith in IILA has been on the decline. Latin America has been the staging area for several foreign and domestic government change initiatives. A few live examples being Bolivia and Ecuador who have terminated many of their BITs. It has also been disputed that IILA promoted the interest of the private system of commercial arbitration. Thus, it has to be unable to provide uniform and coherent case law for the field of international investment law, and the costs of proceedings have also become excessive. Many have even found the work of the arbitrator to be non-neutral and partial.

The Alternatives

Both international, as well as domestic alternatives, have been stated by various academics and experts on the subject. International investment arbitration is based on international commercial arbitration, where party sovereignty is generally prevalent; party autonomy finds its definitive manifestation in the party's right to select the arbitrators of its choosing. In the absence of judicial assurances of administrative integrity in foreign investment arbitration, it was recommended that all judges of an arbitral tribunal would be selected by arbitral institutions. The elimination of party nominations and the administrative selection of arbitrators would allow greater accountability in the appointment process and better quality management. Some of the key drawbacks of the current system are the restricted examination of arbitral decisions from another review body. The cancellation process available under ICSID will only lead to a denial of the tribunal 's judgment or annulment of its ruling for restricted reasons. For this reason, another proposal that has gained substantial popularity is to incorporate an arbitration mechanism as an appellate mechanism. Besides, there has been a new trend and practice of resorting to the conventional means of international and domestic law to settle conflicts at international level between foreign investors and democratic states and other less legalized dispute resolution systems, and/or domestic courts.

Countries around the world have started moving the focus or developing a parallel focus from international investment law to domestic investment law, and accordingly developing robust domestic frameworks for the management of foreign investment flows. The investment law framework of a country may be composed of legislation that is specialized and dedicated to investment law or more general legislative instruments that may influence foreign investment flows. Special Economic Zones represent one more policy by enforcing domestic legislation rather than – or in conjunction with – international investment law as a method of promoting foreign investment and supplying foreign investors with guarantees. The carving out of a "special" authority for implementing a different economic policy within the world – thus the term Special Economic Zone (SEZ) would be quite effective.


International institutions should serve the role of promoting the domestic rule of law. This can be achieved by relying on domestic courts as the first instance for reviewing investment claims. Besides, selected institutional choices must be adapted to the different contextual environment of individual states, such as capital endowment, market size, politics and ideology, institution. Yet, often foreign investment rules have wider, and often narrower, purposes than international investment treaties. Hence domestic regulation is equally important. As domestic laws can create an even playing ground for developing countries against influential developed countries. At the end of the day, the two systems are complementary and should be formulated in such a way as to strengthen existing International Investment Law and Arbitration and bring reforms that benefit all involved.





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