Judging the State in International Trade and Investment Law

The politicization of the WTO Appellate Body selection process is undermining the Appellate Body’s legitimacy. Quasi-permanent seats, growing obstacles in the appointment and reappointment process, and the growing tendency of Members to appoint political as opposed to legal experts, are damaging the Appellate Body as an institution. Instead of choosing Appellate Body Members with strong legal backgrounds, Members are demonstrating a preference for judges with government experience, in particular ex-ambassadors. This development may erode respect for Appellate Body decisions. As Montesquieu noted, “there is no liberty, if the power of judging be not separated from the legislative and executive powers.” Members would be wise to remember this as they ponder Appellate Body appointments and reappointments.

This chapter examines the background and the key WTO disputes which triggered a policy shift in India towards the State playing a more proactive role in encouraging the building of trade-related legal capacity. The chapter examines the features of the unique trade-related capacity model chosen by India and how it differs from the alternate models established by other major developing countries that have an active profile in WTO dispute settlement. The chapter explores how the Indian model is more geared towards hybrid policy making in contrast to alternative trade-related legal capacity models employed by other WTO Members.

Investments from emerging economies have increased since the beginning of the century and notably a large proportion of the flows of foreign direct investment (FDI) coming from emerging economies is executed by State-Owned Enterprises (SOEs) and Sovereign Wealth Funds (SWFs) both typical contemporary forms of State Controlled Entities (SCEs). Such trend that has been further reinforced since 2008/2009 and SCE’s investment activism has reflected into a systemic shift that has transformed State capitalism into a key feature of contemporary global economy. At the time, investment arbitration, which was designed to allow foreign private investors to sue sovereign States, has transformed since host States can now be judged at the initiative of another State owning enterprises making investments. The thesis of this chapter is that the international regime for foreign investment, which includes both substantive rules and arbitration principles, is gradually adjusting to the emergence of SCEs in the investment sphere. This adjustment implicitly means that the rules and practice of international investment are reshaped by actors, which were not initially at the center of the regime. Actually, and it is a great paradox, the regime for foreign investment, as designed in the last three decades, was intended to serve the interest of private investors, seen as the main driver of the global economy. Instead of excluding SCEs from its realm and favoring the emergence of different rules, the international investment regime is gradually absorbing State capitalism and allows foreign SCEs to sue host States before arbitration. This chapter provides a detailed analysis of the forces driving this transformation, of the flexibility of the international norms that apply to SCEs, of the rights that SCEs are acquiring, and, finally of the increased exposure of sovereign States to be judged by international tribunals at the initiative of other States. The chapter initially deals with the relevant norms of international economic law to understand which would best fit the need of SCEs in their transnational activities. Then the following section addresses the critical issue of the legal standing of SCEs under investment treaties since it determines the ability of SCEs to effectively benefit from the investment treaties protections through investor-State arbitration. In addition the chapter reviews a number of cases in which the legal standing of SCEs has been discussed. Finally, the chapter analyses the substantive rights which can benefit SCEs and which will drive the investment strategies of many SCEs in the coming years.

The chapter aims at examining the role of the doctrine of police powers in judging a claim of indirect expropriation against a host State. It seeks to answer if the ITA tribunals, while judging if a host State’s regulatory measures amount to indirect expropriation or not, have been able to develop and apply the police power doctrine in a uniform manner? The significance of the inquiry lies in understanding suitability of this doctrine as a benchmark to judge a host State’s regulatory measures. The methodology adopted includes the study of ITA cases where this doctrine has been invoked, followed by studying cases where the doctrine of police power was referred by the parties or used for disputes, related to indirect expropriation, by ITA tribunals and to see whether the approach of different arbitral tribunals was similar or different. The study concludes by observing that the actual scope and application of the police power doctrine remains unclear in ITA and thus its use as a benchmark to judge host State’s regulatory action is questionable.

Globalization is no longer a buzzword. It is a reality that has impacted almost every sphere of human life. Globalization, which envisages a borsubsidies for various sectors, derless world, has not only diluted the traditional concept of State sovereignty but has also added new dimensions to the relations amongst the States inter se, between the State and the citizens, and also between aliens and the State when they choose to deal with the host State. The sovereign States are no longer free to formulate their own policies concerning the economy, trade and business investment, agriculture, and subsidies, de hors the global scenario. Even the social and cultural values are not immune from the impact of globalization. The all-pervasive influence of globalization is now well accepted and acknowledged even by the national judiciary while construing the laws and the Constitution. India became party to several multilateral trade agreements in 1995. Being a Member of the WTO and being obliged to comply with various “covered” agreements, including the Agreement on Trade Related Investment Measures (TRIMs), India has updated all the concerned legislations in consonance with various provisions of the covered agreements under WTO. On the question of how far India has stood by its various international commitments, from a conspectus of actions taken by the executive and the legislature, it is evident that India has substantially complied with its obligations, and in certain circumstances, without even raising its legitimate concerns towards its domestic obligations. In India, the judiciary is independent of the executive and the legislature and it is so mandated under the Constitution. The judiciary has not only shown deference to India’s international commitments, it has gone a step further in giving effect to several international treaties and covenants through its pronouncements, even though in respect of many international treaties India has not been a signatory and, in some cases, the treaties had not been backed by legislations. The decision of the Supreme Court in the Vodafone case is an example of the court’s approach towards fostering various international treaties and practices even while interpreting national fiscal laws, which tend to impact international commercial transactions.

Are human rights taken into consideration in international investment law and dispute settlement? The controversy surrounding this now tedious debate has largely been fuelled by political and economic interests rather than convincing legal arguments. Interestingly indeed, the apparent contradiction between norms could be easily resolved if a political and economic will to read the law from a holistic perspective making use of its many flexibilities could eventually manifest itself. Twenty years after the creation of the World Trade Organization (WTO) and the massive adoption of investment treaties promoting and protecting FDI, the complexities of today’s international economic law scene as well as the recent defiance of developing, but also developed countries, towards trade and investment instruments and dispute settlement in particular calls for a paradigm shift, that of the reconsideration of the State’s sovereign attributes and duty to regulate in the favour of the public interest and the protection of human rights. In relation to these changes, the rapid development of global mega investment cases (Bhopal, Chevron-Texaco v. Ecuador, Philipp Morris), which are litigated, often in parallel proceedings, at various jurisdictional levels and on the basis of a complex network of domestic and foreign norms dramatically modifies the way investment disputes are settled. In going far beyond the usually studied international investment arbitration cases, these disputes pose a global litigation challenge while responding, at the same time, to the question of international law reunification. In this context, this chapter proposes to revisit the now traditional international economic law approach of human rights in international investment arbitration in underlying the instrumental and artificial character of the presupposed normative contradiction (I) to then go beyond international investment dispute settlement (ISDS) and show why an alternative (human) rights-based perspective is needed to not only provide victims with essential remedies, but also participate in international law reunification (II).

What is modernity in international trade and investment law when confronted with a never-ending inflation of norms and proliferation of dispute settlement mechanisms whose decisions are, if only known, sometimes incoherent and often inconsistent? Isn’t modern international economic law also driven by successive developments hence always on the move towards the integration (or not) of new protagonists and potential subjects, either public or private, which domains of action rest at the margin of its traditionally defined sphere of competence that is the regulation of trade and investment relations amongst nations. In this rather unstable environment, the rediscovery of sovereignty in the light of the emergence of a new State capitalism and the better voiced and framed expectations of an interrelated global civil society contributes to a form of stabilization, if not yet re-unification, of an international law now ritually denounced as fragmented. While it was not the purpose of this book to thoroughly assess the latest developments of sovereignty as a polymorphous, uncertain and so controversial concept in international trade and investment law, the question arose throughout all its contributions as in the statist perspective chosen to approach a variety of contemporary trade and investment disputes’ methods, actors and decisions. New challenges remain such as corporate nationality shopping aiming, as in the recent Phillip Morris case, to expand the scope of possible arbitration jurisdiction through better treaty protection. But here again, it is around the State that the question revolves. Hence, it is time for the State to reshape its approach of international trade and investment law-making so that it is eventually judged according to the standards he set on the basis of the very significance of sovereignty that is independence.