Integrating Investment Treaty Conflict and Dispute Systems Design

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Integrating Investment Treaty Conflict and Dispute Systems Design FRANCK_6FMT 12/13/2007 9:08 AM Article Integrating Investment Treaty Conflict and Dispute Systems Design Susan D. Franck† I. Foreign Investment and Investment Treaties ............. 168 A. The Role of Foreign Investment ............................. 168 B. Investment Treaties ................................................ 171 1. Substantive Rights ............................................ 172 2. Procedural Rights: Resolving Investment Treaty Disputes ................................................. 172 II. Conflict Theory and Dispute Systems Design .............. 173 A. Conflict Theory ........................................................ 173 B. Dispute Systems Design ......................................... 177 C. An Application to Investment Treaty Conflict? ..... 180 III. A Theoretical Approach to Investment Treaty Conflict and Dispute Systems Design ........................... 182 A. DSD: Some Possibilities for Investment Treaties . 184 B. The Nature of Investment Treaty Conflict ............ 185 1. Investment Treaty Conflict ............................... 185 2. Using DSD: Systematic Analysis of Investment Treaty Conflict ............................... 187 † Assistant Professor of Law, University of Nebraska Law College. This paper was accepted for the Yale Junior International Law Scholars Workshop. The author wishes to thank Professors Robert Bordone, Mark A. Drumbl, Jack J. Coe, Jr., Alan Frank, Jide Nzelibe, William W. Park, Antonio Perez, Richard Rueben, Jeswald W. Salacuse, Andrea K. Schneider, and Chantal Thomas, and Deans Howard Krent and Steve Willborn for their comments. She is also grateful to Bob Bordone, Kirsten Carlson, Allison Christians, James P. Groton, Antonio R. Parra, Gary Sampliner, and Karl Sauvant for their thoughts. The author thanks participants at the Columbia Law School Symposium on Transparency and Consistency in International Investment Law, the Univer- sity of Pennsylvania Law School Symposium on International Investment and Transnational Litigation, the International Law Students Association Annual Meeting, as well as the faculties of the University of Missouri-Columbia School of Law, the Catholic University of America Columbus School of Law, and the University of Nebraska Law College for their input. A McCollum Research Grant provided support for the research and writing of this article. Copyright © 2007 by Susan D. Franck. 161 FRANCK_6FMT 12/13/2007 9:08 AM 162 MINNESOTA LAW REVIEW [92:161 C. The Systems to Address Investment Conflict ........ 190 1. Historical Antecedents: The Previous Methods of Resolving Investment Treaty Conflict ................................................... 190 2. The Current Framework for Resolving Investment Treaty Conflict ............................... 191 a. First-Tier Dispute Resolution ...................... 192 b. Second-Tier Dispute Resolution .................. 193 3. Consideration of Specific Dispute Resolution Provisions ........................................ 194 D. Using DSD: Analyzing the Utility of the Current System ....................................................... 195 1. First-Tier Dispute Resolution: Nonbinding Methods ......................................... 195 a. Difficulties with “Amicable Resolution” ...... 195 b. Difficulties Communicating the Existence of Disputes ................................... 199 2. Second-Tier Dispute Resolution ....................... 201 a. Understanding the Choice for Arbitration .. 202 b. The Challenge and Costs ............................. 204 IV. The Costs and Benefits of DSD ..................................... 207 A. Benefits ................................................................... 208 1. Efficient Administration of Existing Disputes .............................................. 208 2. Early Management of Conflict .......................... 212 3. Procedural Justice and Institutional Legitimacy ................................... 214 B. Costs ........................................................................ 216 1. Appropriateness of a DSD Model ...................... 216 2. Generalizability of a DSD Model ...................... 217 3. The Challenge of Structuring DSD ................... 218 a. A Few Critical Questions ............................. 218 b. Possible Ways Forward ................................ 219 i. A Multilateral Approach ........................ 219 ii. A Bilateral Approach ............................. 220 iii. The Hybrid: A Third Way? .................... 222 4. Moving Beyond Inertia: A Constituency for Change ............................................................... 223 a. The Role of Foreign Investors ...................... 224 b. The Role of Non-Governmental Organizations ............................................... 225 c. The Role of Governments ............................. 226 Conclusion ................................................................................ 228 FRANCK_6FMT 12/13/2007 9:08 AM 2007] INVESTMENT TREATY CONFLICT 163 If the only tool you have is a hammer, you tend to see every problem as a nail. —Abraham Maslow1 Henry Ward Beecher once observed, “Laws and institutions are constantly tending to gravitate. Like clocks, they must be occasionally cleansed, and wound up, and set to true time.”2 As law, societies, and governments evolve, challenging transitional periods inevitably arise, requiring reexamination of the bedrock upon which a system was founded. Dispute resolution systems exhibit a similar phenomenon. As a system develops and undergoes fundamental growth, re- consideration of its efficacy can promote both the integrity and the legitimacy of the system to ensure it provides appropriate services to its stakeholders.3 The resolution of international in- vestment disputes is a salient example of this maxim. International investment law has experienced significant growth. Within the last two decades, the number of interna- 1. See ABRAHAM H. MASLOW, THE PSYCHOLOGY OF SCIENCE 15–16 (1996). 2. HENRY WARD BEECHER, LIFE THOUGHTS 129 (Sheldon & Co. 1866) (1858). 3. The birth and growth of the “Alternative Dispute Resolution” move- ment—with its focus on the multi-door courthouse and development of non- traditional dispute resolution mechanisms—is an example of this phenome- non. See LEONARD L. RISKIN ET AL., DISPUTE RESOLUTION AND LAWYERS 12– 62 (3d ed. 2005); see also Warren E. Burger, Isn’t There a Better Way?, 68 A.B.A. J. 274, 276–77 (1982) (discussing developments in arbitration and other alternatives to court); Frank E.A. Sander, Varieties of Dispute Processing, 70 F.R.D. 111, 111–12 (1976) (noting that increased pressure on the court system would likely prompt the use of alternative dispute resolution mechanisms); cf. Owen M. Fiss, Against Settlement, 93 YALE L.J. 1073, 1073–75 (1984) (tracing the development of alternative dispute resolution while questioning the value of settlement). The area continues to evolve. See Christopher Honeyman & Andrea Kupfer Schneider, Introduction to THE NEGOTIATOR’S FIELDBOOK: THE DESK REFERENCE FOR THE EXPERIENCED NEGOTIATOR 1, 2 (Andrea Kupfer Schneider & Christopher Honeyman eds., 2006) [hereinafter NEGOTIATOR’S FIELDBOOK] (considering dispute resolution from an interdisciplinary perspec- tive); INST. ON CONFLICT RESOL. & SOC’Y OF PROF’LS IN DISPUTE RESOL., DE- SIGNING INTEGRATED CONFLICT MANAGEMENT SYSTEMS: GUIDELINES FOR PRACTITIONERS AND DECISION MAKERS IN ORGANIZATIONS (2001), available at http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1001& context=icrpubs (suggesting that, as the process of evaluating dispute resolu- tion evolves, there is an increased emphasis on creating integrated conflict management systems); James R. Coben, Intentional Conversations About the Globalization of ADR, 27 HAMLINE J. PUB. L. & POL’Y 217, 222 (2006) (refer- ring to scholarship that suggests a need to reconsider conflict management in light of the evolution of dispute systems). FRANCK_6FMT 12/13/2007 9:08 AM 164 MINNESOTA LAW REVIEW [92:161 tional investment treaties, which provide foreign investors with substantive rights and procedural remedies, has surged to nearly 2500.4 Meanwhile, foreign investment spiked to levels over $1 trillion,5 and foreign investors have brought vital capi- tal and know-how to countries in need of basic infrastructure like clean water, paved roads, electricity, and telecommunica- tions.6 While these investments can benefit both investors and 4. See U.N. CONFERENCE ON TRADE & DEV. [UNCTAD], BILATERAL IN- VESTMENT TREATIES IN THE MID-1990S at 10, U.N. Doc. UNCTAD/ITE/IIT/7, U.N. Sales No. E.98.II.D.8 (1998) [hereinafter UNCTAD, BITs] (observing the surge in the number of investment treaties during the 1990s); UNCTAD, De- velopments in International Investment Agreements in 2005, 2, IIA MONITOR, No. 2 2006, at 1, 2, U.N. Doc. UNCTAD/WEB/ITE/IIA/2006/7, http://www .unctad.org/en/docs/webiteiia20067_en.pdf [hereinafter UNCTAD, Interna- tional Investment Agreements] (finding that, by the end of 2005, there were 2495 bilateral investment treaties); see also Susan D. Franck, Foreign Direct Investment, Investment Treaty Arbitration, and the Rule of Law, 19 PAC. MCGEORGE GLOBAL BUS. & DEV. L.J. 337, 338 (2007) (explaining that the number of investment treaties has tripled in the past two decades). But see ORG. FOR ECON. CO-OPERATION & DEV. [OECD], INTERNATIONAL INVESTMENT PERSPECTIVES: 2006, at 144 (2006) (suggesting that the number of interna- tional investment agreements actually in force and effect is around seventeen hundred); UNCTAD,
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