Assessing Systemic Bias in International Investment Arbitration

I want to quickly point to a post from late last month at EJIL: Talk! that I just recently came across. Tolga Yalkin considered the argument that international investment arbitration as a system is fundamentally biased. Considering arguments set out by Professor M. Sornarajah of the University of Singapore, Yalkin wrote:

Sornarajah advanced the proposition-enjoying increasing purchase in the international legal community-that bilateral and multilateral investment agreements and the system of international investment arbitration was conceived, and indeed continues to operate, on a number of false assumptions. Foremost among these is the ‘hunch’ that a system of international investment arbitration would significantly increase the inflow of capital to developing countries, bringing with it wealth and development to some of the world’s poorest citizens. According to Sonarajah,this justification has been promoted by neo-liberal business interests-rather than arising from genuine social concern, Furthermore, he claims that the system has ‘entrenched’ itself by providing arbitrators and international law firms-for whom the system ‘produces golden eggs’-with vested interests. The result, as he sees it, is that the system is intrinsically geared towards the interests of business and capital-exporting States. In support of this contention he provides examples that illustrate the expansion of jurisdiction enjoyed by tribunals.

Yalkin argued that:

Despite painting a compelling picture of what he sees as the true nature of international investment arbitration, Sornarajah’s submission must be seen, at best, as a starting point for further inquiry. The main flaw of his approach is that reaching firm policy conclusions requires more than polemic arguments and anecdotal examples; it requires a solid and rigorous analytical approach to considering both:

(1) the outcome of investment decisions; and

(2) the legal reasoning engaged in by investment tribunals.

Turning to the task of assessing systemic bias, Yalkin first critiqued some of the difficulties in attempting to chart jurisprudential trends as an empirical matter. Next, he argued that the outcomes of cases are only part of the story; it is only by analyzing the reasoning can one assess issues of systemic bias. Yalkin found that Sornarajah’s argument “that neo-liberalistic ideology took root in the context of international investment arbitration, perpetuating business interests to the detriment of the developing countries, has merit.” (I considered in this article the question of whether and how international investment arbitration assists in the transfer of international norms into a domestic society.) However, it is in need of emprical verification. Yalkin, for his part, does a good job in setting out the pitfalls and hurdles in trying to assess systemic bias in investment arbitration and makes some useful suggestions in how to move forward.