Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - SRR (Sovereignty and the Right to Regulate)

Teaser

The overall aim of the project is to fill an important gap in the scholarship on international economic law by subjecting to analytical and empirical scrutiny a central notion in this field: the idea that, in order to preserve the possibility of meaningful democratic choice...

Summary

The overall aim of the project is to fill an important gap in the scholarship on international economic law by subjecting to analytical and empirical scrutiny a central notion in this field: the idea that, in order to preserve the possibility of meaningful democratic choice, we need to find an appropriate balance between the conflicting values of investment protection or free trade, on the one hand, and the states’ ability to regulate in the public interest, on the other. The rhetoric of balance is particularly prevalent in the scholarship on investment law. However, it is far from obvious that the notion of balancing enables us to capture the multiplicity of claims and arguments that have been advanced about the constraining effects of investment treaties. My aim is not simply to pave the way to a more nuanced description of the underlying issues. I also explore the framing effects of the balancing language. This issue, albeit technical in appearance, has great importance for the society at large. The present system of investment protection has been subjected to fierce criticism in recent years. It is claimed that it puts excessive emphasis on the rights of investors at the expense of democracy, the environment, worker rights, etc. In the specialist literature, all these concerns have been filtered through the balancing language and cast as \'non-economic considerations\' to be weighed against \'economic considerations\' (such as the value of increased investment). Yet if, as I claim, the notion of balancing distorts in many ways the criticism that different societal groups have addressed to the investment regime, it is unlikely that this criticism will even receive a fair hearing. In other words, the shortcomings of the balancing language can stand in the way of achieving highly important objectives (such as safeguarding the possibility of pursuing public policies which may harm investment). The overall objective of the project is to bring to light the distorting effects accompanying the balancing rhetoric and to render the scholarship on international economic law more receptive to the concerns of the public.

Work performed

\"In the first six months of the project, I gained a comprehensive overview of the most recent worldwide developments in trade and investment law, with particular emphasis on how the debate on the merits of the present investment regime is approached by practitioners in the field, especially arbitrators. I attended numerous conferences in the United States, Europe and Asia. My desk research was centered mainly on the role of proportionality in international investment law. I finished a draft paper on this topic and presented it in June 2017 it at a conference organized by the Asian International Economic Law Network. Another facet of the project, on which I concentrated mainly in the second half of 2017, is the political impact of economic interdependence - and the claim that the development of international economic law leads to a lessening of the importance of national sovereignty. As a result of two seminars I attended at Harvard in 2017 and 2018, I realized that achieving the objectives of the project required more historical research than I had suspected at the outset. The need to explore the historical dimension of the balancing rhetoric prompted me to delve into the complex origins of international investment protection. It also led me to explore the multi-layered nature of international law: abstract rules, on the one hand, and assumptions regarding the proper application of these rules, on the other. Exploring the ramifications of this phenomenon enabled me to reformulate my thesis on the role of proportionality in international investment law and rework the draft I had presented in China in June 2017. I also published some results of my research in the Estonian law journal \"\"Juridica\"\" in November 2017. The first months of 2018 were dedicated to attending workshops and seminars at Harvard and research on the historical origins of international investment law. In April 2018, I taught a short course on international investment law at the University of Tartu. This was the first course ever taught on investment law in Estonia.\"

Final results

The project has advanced the state of the art in at least three directions. First, it has contested the widely believed notion that the struggle over the present investment regime is exclusively about defining the boundaries of the right to regulate. It has shown that the methodology of balancing does not offer a neutral way of capturing all possible views on the value of the goods that are involved in making decisions regarding investment protection. The rhetoric of balancing contains a bias towards the idea of compromise. An additional effect resides in the definition of the categories to be balanced, such as ‘economic’ and non-economic considerations’. Such categories take on a very particular meaning when lumped together and seen through the perspective of the right to regulate. They are collectively linked to sovereignty or domestic power, as something exceptional and residual, if not downright arbitrary, against the background of the international commitment to protect investment. The appreciation of such distorting effects will hopefully change the debate on the merits and demerits of international investment law.

Secondly, the project has contested the notion that international investment law is biased towards investment protection because of its historical origins. This is not simply a negative result, nor does it merely relate to history. For it has paved the way to a better understanding of the defects of the present regime. The present rules of investment protection are compatible with a set of interpretive choices that accord much more importance to the environment or policies other than that of protecting foreign investors. If there is an investor-friendly bias in the regime, it lies in the way arbitrators interpret rules and historical prejudices concerning the ability of less developed states to protect the rights of foreigners. In addition, the project has shown that the debate on investment protection has tended to obscure a crucial distinction - that between legal and factual domination. The rules of investment protection have tended to favor Western investors not because these rules were largely created by Western states, but because, until very recently, Western states were dominant in the role of capital exporters.

Thirdly, the project has led to important results regarding the political effects of economic interdependence. It is often assumed - particularly in the context of European integration - that rules which enhance economic interdependence (by promoting cross-border trade and investment), favor the creation of larger political units. When judged from this perspective, resistance to political integration and attachment to state sovereignty appear as irrational. The project has led to a better understanding of how rules protecting economic openness may cause an entirely rational backlash against economic openness by some groups of the population. It is hoped that the appreciation of this fact will lead to more research into the political effects of economic integration, especially in the context of the European Union.