https://orcid.org/0000-0002-3241-5660
![Sample our Politics & International Relations journals, sign in here to start your FREE access for 14 days]({"type":"image" , "src" : "/sda/5947/TOC-Subject-Sample-2021-Politics-International-Relations.jpg"})
Abstract
Globally, 74 countries have domestic investment laws that mention investor-state arbitration and 42 of these laws provide consent to it. That is, they give foreign investors the right to bypass national courts and bring claims directly to arbitration. What explains this variation, and why do any governments include investor-state arbitration in domestic legislation? We argue that governments incorporate arbitration into their domestic laws because doing so was labelled ‘international best practice’ by specialist units at the World Bank. We introduce the concept of asymmetric diffusion, which occurs when a policy is framed as international best practice but only recommended to a subset of states. No developed state consents to arbitration in their domestic law, nor does the World Bank recommend that they do so. Yet we show that governments who receive technical assistance from the World Bank’s Foreign Investment Advisory Service are more likely to include arbitration in their laws. We first use event history analysis and find that receiving World Bank technical assistance is an exceptionally strong predictor of domestic investment laws with arbitration. Then we illustrate our argument with a case study of the Kyrgyz Republic’s 2003 law.
Acknowledgements
For constructive comments on earlier versions, we would like to thank Jonathan Bonnitcha, Julia Calvert, Ole Kristian Fauchald, Geoffrey Gertz, Yoram Haftel, Carl Henrik Knutsen, Mikael Rask Madsen, Daniel Naurin, Øyvind Stiansen, Henning Tamm, Kyla Tienhaara, Zoe Williams, as well as the anonymous reviewers. We thank Stein Arne Brekke, Hyewon Han, Karin Maria Svånå, and Maxim Usynin for excellent research assistance. Previous versions of the paper were presented at the LEGINVEST conference (2019), the International Studies Association Annual Conference (2019), at PluriCourts and at the Department of Political Science at the University of Oslo.
Disclosure statement
No potential conflict of interests are reported by the author(s).
Notes
1 Mobil and others v. Venezuela, ICSID Case No. ARB/07/27, Decision on Jurisdiction (2010, pp. 19–33).
2 ConocoPhillips and ExxonMobil routed their investment in Venezuela through Dutch subsidiaries and also brought claims under the Netherlands-Venezuela bilateral investment treaty. The arbitral tribunal found they had jurisdiction for all aspects of the disputes after the investments were incorporated through the Dutch subsidiary (in the case of ExxonMobil, after 21 February 2006) but not before that date. If the tribunal had found that the domestic law provided jurisdiction, the firms would likely have been awarded compensation for events before that date as well.
3 See:http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html and http://www.uncitral.org/uncitral/en/uncitral_texts/insolvency/1997Model.html, respectively.
4 The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, which set up the International Centre for Settlement of Investment Disputes (ICSID).
5 Interview, FIAS A, 2019.
6 Interview, FIAS A, 2019.
7 Interview, FIAS B, 2019.
8 Interview, FIAS B, 2019.
9 Interview, FIAS B, 2019.
10 Interview, FIAS A, 2019.
11 Interview, FIAS B, 2019.
12 Interview, FIAS B, 2019.
13 Interview, Kyrgyz B, 2019.
14 Interview, FIAS B, 2019.
15 Interview, FIAS B, 2019.
16 Interview, FIAS A, 2019; Interview, FIAS B, 2019.
17 Kosovo official, personal communication, December 19, 2018.
18 Letter from Carlos Westendorp, High Representative for Bosnia and Herzegovina, to Slobodan Bijelic and Avdo Campara, ‘Decision imposing the Draft Law on the Policy of Foreign Direct Investment in BiH’, 3 May 1998.
19 To measure property rights institutions, we use the Property rights index from the Varieties of Democracy data project (Coppedge et al., Citation2018, p. 237). For the GDP data, see Section 3. We use the average values for each variable over the period 1986–2015.
20 Appendix A reproduces the dispute resolution clause of each law we coded, with an explanation of our coding and the sources used.
21 A few countries have domestic investment laws with arbitration clauses that came into force before 1986: Egypt (1974), Sri Lanka (1978) and the Republic of the Congo (1982). As discussed in Appendix A, we exclude these countries from our sample, even though we have anecdotal evidence connecting these provisions to the presence of external advisers, including World Bank officials. To the best of our knowledge, Egypt’s law is the first investment law that provides consent to investor–state arbitration, but Fatouros, (Citation1962, p. 186–187) mentions that a handful of national petroleum laws included provisions on arbitration and notes a 1953 Greek law that outlines a procedure for investor–state arbitration.
22 We used FIAS’s annual reports to identify technical assistance missions going back to 1999, and an internal evaluation of FIAS’s first 13 years of operation to identify technical assistance missions from 1986 to 1998 (World Bank, Citation1995; World Bank, Citation2004, pp. 33–36). The annual reports are available through the World Bank’s document portal, for instance (World Bank, Citation2001). Interviews with FIAS officials confirmed that all projects are listed in their annual reports (Interview, FIAS A, 2019; Interview, FIAS B, 2019).
23 Table 1 shows a subset of the states we observe in our analysis, which includes all World Bank member states except the four that provided consent prior to 1986, as discussed in Appendix A.
24 We used Schoenfeld residuals (stphtest in STATA) to test the proportionality for each covariate.
25 For laws where we have not found records of the exact date of passage, we use the year midpoint, July 1.
26 These data are taken from the International Political Economy Data Resource (Graham & Tucker, Citation2019), who use Penn World Tables data to supplement missing values in the World Bank’s economic data. See: https://dataverse.harvard.edu/dataset.xhtml?persistentId=doi:10.7910/DVN/X093TV.
27 We used The World Factbook from the Central Intelligence Agency to identify year of independence. See: https://www.cia.gov/library/publications/resources/the-world-factbook/.
28 To measure regime durability, we use data on the number of years since the most recent regime change from the Polity IV Project (Marshall, Gurr, & Jaggers, Citation2018, p. 17).
29 We compute the cumulative count of arbitration cases and investment agreements by using the list of publicly known claims and agreements available on UNCTAD’s investment policy hub, see: https://investmentpolicyhub.unctad.org. UNCTAD’s IIA content mapping allows us to exclude agreements without arbitration clauses from our count.
30 These data are taken from the World Bank’s World Development Indicators. See: https://datacatalog.worldbank.org/dataset/world-development-indicators.
31 Kyrgyz official, Interview A, 2019.
32 Kyrgyz official, Interview B, 2019.
33 Kyrgyz official, Interview B, 2019.
34 Kyrgyz official, Interview B, 2019.
35 Kyrgyz official, Interview B, 2019.
36 Sistem v. Kyrgyzstan (2006); Nadel. v. Kyrgyzstan (2012); Levitis v. Kyrgyzstan (2012); Stans Energy v. Kyrgyzstan (II) (2015); and, Consolidated Exploration v. Kyrgyzstan (2013).
37 We are grateful to Jonathan Bonnitcha for discussing this with us.
Additional information
Funding
Notes on contributors
Tarald Laudal Berge
Tarald Laudal Berge is a PhD candidate in Political Science at the University of Oslo. His research examines power dynamics and state capacity in the investment treaty regime.
Taylor St John
Taylor St John is a Lecturer in International Relations at the University of St Andrews. Her monograph, The Rise of Investor–State Arbitration: Politics, Law, and Unintended Consequences, was published in 2018.