VJIL Symposium: Commentary on Dr. Stephan Schill’s Virginia Journal of International Law Article

[Jürgen Kurtz is an Associate Professor at the University of Melbourne Law School in Australia.]

This post is part of the Virginia Journal of International Law Symposium, Volume 52, Issues 1 and 2. Other posts in this series can be found in the related posts below.

For a respectable number of commentators in the field of international investment law, its dispute settlement machinery – which often confers procedural rights on foreign investors as well as states – position the field closer to the private rather than public law end of a spectrum. In his thoughtful new article, Dr. Stephan Schill comprehensively dismantles this claim by advancing “an understanding of international investment law as an internationalized discipline of public law” (p. 59). There is, of course, an important structural justification for positioning international investment law as an integral part of the public international law universe. Various international regimes similarly accommodate non-state actors as either complainants or respondents in dispute settlement, including both human rights protections and international criminal law. It would be implausible to characterize these systems as carve-outs to public international law, and the investment treaty network is no different. For Schill however, the mechanisms to address the growing disenchantment of states parties towards this regime go beyond the confines of public international law itself. Instead, his “core idea is to tackle problems arising under international investment treaties by means of a comparative public law method, which takes inspiration from the more advanced systems of public law at both the domestic and international level” (emphasis added, p. 60).

Comparativism is a powerful methodology. It is one of the few laboratories open to lawyers to assess and understand the operation of different legal and institutional models designed to tackle similar objectives and problems. But at least when it comes to investment law, there may be another approach which is logically and strategically a necessary precursor (at least at this particular stage in the evolution of the system). One of the premises underpinning Schill’s argument is that states only “occasionally react to the decision-making of arbitral tribunals by recrafting investment treaties” (p. 81). Schill’s preference then is for “system-internal adaptation” (pp. 68-71) with the lessons drawn from a comparative law analysis seemingly intended for consumption by adjudicators ruling on an assumed stable set of legal norms. My reading of the treaty landscape is very different. I see the network as deeply heterogeneous with states employing complex (but sometimes highly problematic) strategies to recalibrate their treaty obligations. Most fundamentally, there is a distinct shift away from the classic protective BIT model as states parties refine treaty standards by matching them against identifiable political and economic risks faced by foreign investors. This then logically suggests that interdisciplinary analysis should play an earlier role in probing and testing the contemporary justifications for particular investment protections, before advancing select lessons from other legal systems. It would, after all, be imprudent to erect a roof on a house that is built on soft sand.

Schill’s comparative method also seems to prioritize domestic public law regimes over public international law. The wisdom of this choice is open to question. For one thing, we are already witnessing the wholesale crossover of separate components of international law (such as the flexibilities for public regulation in the law of the WTO) into newer investment treaties. The law of the WTO would then seem to be a more appropriate start-point than domestic law analogues given the clear direction of state practice. Domestic public law concepts are also usually embedded in a socio-political context and without a sensitive understanding of those factors, thin comparativism can very quickly fade into crude transplant. Schill is clearly aware of this nuanced dimension (see for example pp. 92-4) but it is much deeper than he seems willing to concede. Let us take a telling example, which is confined summarily to a footnote in his article (fn 91). Famously, the U.S. in a post-NAFTA amendment elected to re-orientate its protections against indirect expropriation by reference to U.S. constitutional law, specifically the U.S. Supreme Court’s decision in Penn Central Transportation Co. v City of New York. This strategy, though forced on the U.S. Executive by the 2002 mandate conferred on it by the U.S. Congress, is arguably a sensible one as it reflects that country’s likely risk tolerance on the meta-question of compensation for general regulation that interferes with the profitability of foreign investment. Yet strangely, we find that other states (including members of ASEAN) are often simply replicating this American treaty innovation without any real amendment or tailoring. This transplant is particularly troubling from a state like Australia whose constitutional position on compensation for government takings is far more conservative than what applies as matter of U.S. law.

One can only wonder as to what Schill’s abstract comparative method could bring to the table here (beyond a justifiable criticism of the rationality of Australian treaty practice). These are not simple differences in legal weighting that can somehow be massaged and reconciled as part of an ideal comparative exercise. They represent instead deeply held and opposing philosophies on acceptable levels of property protection.