Recapturing Public Power: Is Investment Arbitration's Engagement of the Public Interest Contributing to the Democratic Deficit?

Abstract

Public interest regulations, whether promulgated in the best interest of the state or in the common interest of mankind, embody deeply embedded democratic values held by a state's populace. The regulations, enacted by democratically elected officials, represent exercises in both sovereignty and public-policy making.

Investment arbitrations have begun to increasingly engage public interest regulations. Foreign investors, aggrieved that public interest regulations are interfering with their investments, are challenging public interest regulations in investment arbitrations. Suddenly, regulations addressing concerns ranging from the environment to the correction of wrongs committed during the apartheid regime are under scrutiny. As a result, unelected arbitrators are evaluating the appropriateness of public interest regulations. Moreover, they are doing so with little or no public involvement.

The transportation of issues that directly affect citizens to a system that is both inaccessible to everyday citizens and is structurally isolated from public input creates a democratic deficit. The question thus arises, in adjudging public interest issues, is investment arbitration contributing to the democratic deficit? This article suggests that both the process and the outcomes from investment arbitration need to be modified to reflect the inclusion of core democratic values in a dispute settlement mechanism bereft of democratic ideals.

Keywords: public interest, democracy, accountability, foreign investment, arbitration, sovereignty, transparency, legitimacy, expropriation, regulations

JEL Classification: K33, K49, K29