The Subversion of State-to-State Investment Treaty Arbitration
43 Pages Posted: 30 Apr 2014 Last revised: 1 Feb 2015
Date Written: April 28, 2014
State-to-state arbitration provisions in bilateral investment treaties (BITs) have been little used — and rightly so — since the introduction of investor-state arbitration provisions in the same BITs. In a handful of cases, however, some states are seeking controversially to resurrect state-to-state arbitration. Most controversially, in Ecuador v. U.S., Ecuador initiated arbitration against the United States under the U.S.-Ecuador BIT to (re)arbitrate an issue that had arguably been determined against Ecuador in a separate prior arbitration between Ecuador and certain U.S. investors. This subversion of state-to-state arbitration and its attack on the finality of arbitral awards threatens to destabilize the investor-state arbitration regime.
While many if not most BITs contain both state-to-state and investor-state arbitration provisions, the relationship between the two has been little studied. This paper’s systematic analysis of recent cases brings to light the surprisingly unruly, almost dysfunctional relationship between the two arbitral regimes. As it turns out, whether state-to-state arbitration is permissible, or at least not prohibited, where investor-state arbitration is available turns awkwardly on a number of ill-fitting factors, including whether the actor initiating state-to-state arbitration is the host state or home state, and whether the investor has consented to investor-state arbitration.
The paper argues for a reconception of the relationship between the two arbitral regimes by treating them as mutually exclusive, and to preclude state-to-state arbitration of any dispute that is properly resolved through investor-state arbitration. As reordered then, the relationship better reflects the purposive primacy of investor-state arbitration in investment dispute resolution, averts the risk of conflicting awards, and shields the dispute from entanglement with politics and diplomacy.
Keywords: state-to-state arbitration investment treaty
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