Smart Flexibility Clauses in International Investment Treaties and Sustainable Development: A Functional View
Forthcoming in: Journal for World Investment and Trade, 2014.
36 Pages Posted: 23 Mar 2013 Last revised: 15 Jul 2014
Date Written: March 21, 2013
The discussions about International Investment Law (IIL) are slowly catching up with the discussions about international trade law in two respects: the first is the social science, especially economic, enrichment of the legal discourse, the second is the discussion on fragmentation of international investment law, that is ‘investment and…’ issues. The topic of this book is a fragmentation issue, namely “investment and sustainable development (SD)”. This article addresses this topic in two specific ways: firstly, it draws on diverse economic insights to analyze the problem trying to give meaningful insights to treaty negotiators and interpreters and, secondly, it concentrates on the contribution of flexibility clauses in solving ‘investment and…’ issues by proposing ‘smart’ flexibility clauses.
The big problem to solve for treaty-designers and adjudicators is to separate opportunistic behavior of states from legitimate policies for SD of host states being pursued by them. This article contributes a procedural and substantive check-list to separate opportunistic behavior of states from good faith regulation which, in my view, should be allowed. In other words, the article is about smart flexibility mechanisms.
In order to develop a frame for solving this problem, this article draws on the economic theories of contract theory (as a basic frame) and political economy theory (for fine-tuning) in order to understand when a host state’s behavior has to be sanctioned and when not. It will then take stock of what kind of flexibility clauses exist in IIAs de lege lata in order to ask whether those clauses allow for a systematic distinction between opportunistic behavior and good faith behavior of states. This part highlights methodological and substantive tools which may be used in order to make this distinction easier. The last part concludes with a view on SD and investment treaties.
Keywords: Flexibility Clauses, International Investment Law, Sustainable Development
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