Investment treaties grant powerful legal rights to foreign investors. They also allow foreign investors to bring claims that host states have breached these rights to international arbitration. Relying on this combination of substantive and procedural rights, foreign investors have challenged a wide range of state conduct, from new environmental regulations to changes in tax legislation and delays in domestic court proceedings. Such disputes potentially implicate other areas of international law, either because the state’s impugned conduct is (arguably) necessary to comply with some other international obligation or, more generally, because the impugned conduct relates to policy objectives that underpin other areas of international law and regulation. A series of investment treaty disputes arising from the aftermath of the 2008 financial crisis have raised important legal and policy questions about the relationship between the investment treaty regime and financial regulation at both the national and international levels. In this context, comes a new edited volume on the interactions between the investment treaty regime and the global financial architecture from three well-known and highly respected scholars in the field. The term ‘global financial architecture’ is used to refer to the loose set of rules, institutions, and practices that govern transnational finance. As two early chapters of the book explain, this conceptualization includes international financial institutions such as the International Monetary Fund and the World Bank, coordination and standard setting bodies such as the Basel Committee on Banking Supervision, and regional institutions such as the European Central Bank and the European Stability Mechanism.1 As several contributions argue, the global financial architecture lacks both the relative coherence and the powerful dispute settlement mechanism of the investment treaty regime. This 13-chapter collection is written very much from the perspective of international investment law. For the most part, the authors take the existence of the investment treaty regime and its mechanism for resolving investor–state disputes through arbitration as given. The focus is on the way that arbitral tribunals can, and should, resolve investment treaty disputes that implicate the global financial architecture in some way. Insofar as the authors offer proposals for reform, these proposals take the form of arguments concerning the proper interpretation of investment treaties. As such, the book will be of particular interest to scholars of international investment law and practitioners in investment treaty arbitration. The book begins with an intentionally schizophrenic contribution from Brower and Goetz-Charlier (Chapter 2). In one section, they set out the case that the investment treaty regime ‘serves both justice and the overarching objective of financial stability’ by providing a supranational mechanism for private investors to enforce states’ financial obligations, including states’ obligations to repay their debts. In the following section, they summarize the argument that investment treaties chill legitimate government attempts to enact financial regulation and allow hold-out creditors to undermine carefully negotiated sovereign debt restructurings following financial crises. The authors do not commit to either of these competing views, but the juxtaposition of perspectives provides helpful framing for issues that recur in subsequent chapters. In conclusion, the authors suggest that reconciliation of the tensions between these views is most likely to come through states’ efforts to demarcate the relationship between the investment and financial regimes explicitly. I return to this theme at the end of the review. Chapters 4–11 are organized around three different fact patterns that may give rise to investment treaty disputes. The first fact pattern is sovereign debt restructuring, which is the subject of Chapters 4–7. Some investment treaty tribunals have held that sovereign bonds qualify as ‘investments’ protected by investment treaties. The upshot of this view is that hold-out creditors who possess the requisite nationality can bring claims to investment treaty tribunals seeking full payment of a bond following a restructuring to which the majority of creditors have agreed. The focus of each of the four chapters on this subject is how investment treaty tribunals should decide the merits of such disputes. Drawing on careful survey of national legal systems, Kupelyants (Chapter 4) argues that states lack a general power to modify their own financial obligations. On this basis, he suggests that investment treaty tribunals’ should enforce payment of sovereign bonds in the absence of genuinely exceptional circumstances. Like much of the recent literature on international financial governance, Ohler (Chapter 5) points to collective action clauses (CACs) as a way to manage sovereign debt restructurings. If a CAC is written into the terms of the bond when issued, it is difficult to see how a bondholder could succeed in an investment treaty claim relating to a restructure carried out in accordance with the CAC. But problems arise if a bond does not contain a CAC. In such cases, Ohler argues that a debtor state’s retrospective imposition of a CAC procedure is one possible response. He argues that arbitral tribunals should support the objectives of the international financial architecture by seeing such action as consistent with investment treaties. Li (Chapter 6) makes the related argument that investment treaty tribunals have a role to play in policing states’ use of CACs to restructure multiple bond issues in a way that is unfair as between different classes of creditors. Of the four chapters on sovereign debt restructuring, only Sudreau (Chapter 7) touches on the question of whether investment treaty tribunals are an appropriate forum for the litigation of sovereign debt disputes. However, the focus of her argument is again on the merits of investment treaty disputes arising from sovereign debt restructurings. She argues that investment treaty tribunals should be guided by UNCTAD’s Principles on Responsible Sovereign Lending and Borrowing in determining whether a sovereign debt restructuring has been conducted according to investment treaty standards, such as the obligation to provide ‘fair and equitable treatment’ to foreign investors. The second fact pattern is ‘bail ins’ aimed at recapitalizing failing banks. Depositors have used investment treaties to challenge state measures that forcibly convert a fraction of their deposits in a failing bank to equity. Mendelson and Paparinskis (Chapter 8) set the scene with a sequential review of the legal issues that arise in such claims. De Luca’s (Chapter 9) contribution is more focused and has more interesting systemic implications. She argues that, even if a depositor were successful in an investment treaty claim relating to a ‘bail in’, it could only recover the loss caused by the state’s action. In investment treaty arbitration, causation is normally analysed by considering the ‘but for’ scenario, here a counter-factual in which the state had not enforced a ‘bail in’ and had instead allowed the bank to fail. This analysis points to the possibility of alignment between the investment treaty regime and the no-creditor-worse-off-than-in-insolvency principle in financial law, a point also noted by Athanassiou (Chapter 10). Ranjan (Chapter 11) examines a third fact pattern in which states impose restrictions on the international movement of capital. Most investment treaties guarantee investors the right to free movement of funds, including transfers of capital. In many older investment treaties, this right is not subject to any exceptions or qualifications. In contrast to de Luca’s chapter, Ranjan’s analysis points to a clear tension between the global financial architecture and the investment treaty regime. The IMF Articles preserve states’ ability to impose capital controls and the IMF has acknowledged the wisdom of restrictions on the movement of capital in some circumstances. But Ranjan argues that investment tribunals would be obliged to give effect to investment treaties’ plain language prohibiting such measures. Ranjan’s chapter is grouped with two other chapters that address cross-cutting legal issues in investment treaty arbitration. Gourgourinis (Chapter 12) argues that, in financial crises, states may be able to invoke the defence of force majeure in addition to the more commonly argued defence of necessity. While the European Free Trade Association Court did not squarely address the issue in Icesave, he argues that the judgment gives reason to think that the defence could be successful in investment treaty arbitration. Müller (Chapter 13) discusses ways that international financial institutions could participate in investment treaty arbitrations. Some of these, such as the appearance of an international financial institution as amicus curiae, might well encourage greater alignment of the investment treaty regime with the objectives of the global financial architecture. Others, such as the possibility of investors bringing claims against international financial institutions to investment treaty arbitration, would likely encourage international financial institutions to give greater weight to the investment treaty regime’s objective of investment protection. Although these different modes of interaction reflect quite different logics, Müller sees them as complementary ways to reconcile international investment law with the global financial architecture. Goldmann’s chapter (Chapter 3) is the most interesting and theoretically ambitious in the collection. He begins by tracing the development of different regimes of international economic governance, which, in his view, reflect the theory of functional separation: different regimes were established to deal with different problems and subsequently developed their own institutional structures. However, Goldmann argues that the operation of any one regime within its sphere of application still has implications for other regimes. Moreover, underlying ‘problems’ may cross several regimes. For example, the sub-prime crisis in the USA caused problems for European banks’ balance sheets, leading to a crisis in inter-bank lending, a monetary policy response, bank bail-outs, and then subsequent recession and sovereign debt crises. In these circumstances, Goldmann argues that investment treaty tribunals should adopt what he calls a ‘deliberative approach’ in disputes relating to financial regulation. This approach requires tribunals to recognize that other regimes of economic governance have their own functions, and to accommodate the perspectives and objectives of other regimes to the extent possible within the structure established by investment treaties. He contrasts this to an approach in which investment treaty tribunals take on the role of ‘super-regulator’ and provides examples of how a deliberative approach would play out in particular cases. Goldmann’s argument provides a general theoretical underpinning for the integrationist solutions proposed by Ohler, Li, Sudreau, and de Luca in relation to particular issues. Goldmann’s argument also points to some limitations of the collection as a whole. Insofar as states have responded to concerns about the interaction between the investment treaty regime and the global financial architecture in their recent treaty practice, they have done so largely by establishing carve-outs or exceptions for certain financial measures. For example, in response to the Asian financial crisis, the 1998 and 2009 ASEAN Investment Agreements both include explicit exceptions for measures imposed during balance of payments crises.2 New mega-regional agreements involving Western powers, such as the CPTPP and CETA, explicitly carve-out any measures covered by the financial services chapters of those agreements from the coverage of their respective investment chapters.3 Major developing states such as Brazil and India exclude government debt from the coverage of their new bilateral investment treaties.4 Taken together, these responses suggest a degree of scepticism on the part of states to Goldmann’s argument that tensions between the investment and financial regimes are best handled through the use of balancing doctrines applied at the merits stage of investment treaty arbitrations. Unfortunately, aside from Brower and Goetz-Charlier’s brief overview (noted above), none of the chapters in this collection engages with the significance of recent investment treaty practice. This leads to a lack of engagement with the policy rationales that inform recent state practice, including the argument that a dispute settlement mechanism designed to vindicate the interests of individual investors is not an appropriate mechanism for the review of financial measures that involve complex trade-offs being made between multiple actors within tight timeframes. Notwithstanding these limitations, this collection provides an important contribution to legal scholarship on investment treaty disputes arising from financial measures, as well as a point of entry to wider debates about the interaction between the international investment and financial regimes.5 Footnotes 1 Charles N Brower and Alexandra Goetz-Charlier, ‘International Investment Arbitration and the Global Financial System’, at 23–25; Matthias Goldmann, ‘International Investment Law and Financial Regulation’, at 62–63. 2 ASEAN Investment Agreement (7 October 1998) Article 15; ASEAN Comprehensive Investment Agreement (26 February 2009) Article 16; discussed in Sungjoon Cho and Jürgen Kurtz, ‘The Limits of Isomorphism’ 17 Chicago Journal of International Law (2016), at 341. 3 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (8 March 2018) Article 9.3(3), http://dfat.gov.au/trade/agreements/not-yet-in-force/tpp-11/official-documents/Pages/official-documents.aspx#text (visited 12 May 2018); Canada - European Union Free Trade Agreement (signed 27 October 2016) Article 8.3(1), http://data.consilium.europa.eu/doc/document/ST-10973-2016-INIT/en/pdf (visited 11 December 2017). 4 Investment Cooperation and Facilitation Agreement between the Federative Republic of Brazil and the Republic of Malawi (signed 25 June 2015) Article 2.1(i), http://investmentpolicyhub.unctad.org/Download/TreatyFile/4715 (visited 11 December 2017); India Model Bilateral Investment Treaty (2016) Article 1.4(i) (on file with author). 5 Disclosure: The author of this review has written a chapter in another edited collection published by the same three editors of the collection reviewed here. © The Author(s) 2018. Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)
Journal of International Economic Law – Oxford University Press
Published: May 24, 2018
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