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The Analysis of the Mechanism of Treaty-based Investor-State Arbitration

Author: ShiHui
Tutor: DingWei
School: East China University of Politics and Law
Course: International Law
Keywords: treaty-based investor-state arbitration analysis current mechanism puzzles in practice changes of structure reconstruction of the new mechanism
CLC: D997.4
Type: PhD thesis
Year: 2007
Downloads: 781
Quote: 12
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Nowadays, in most bilateral investment treaties (BITs), the diagonal clause has been inserted according to which the covered investor would be able to bring arbitration against the host country. When the disputes between the investor and the state happen, there arises the treaty-based investor-state arbitration. The total cumulative number of known such cases is 255 at the end of November, 2006. At least 70 governments—44 of them in the developing world, 14 in developed countries and 12 in Southeast Europe and the Commonwealth of Independent States–have faced investment treaty arbitration. The matter at dispute mainly involves all kinds of governmental measures, such as to protect environment, public health or financial safety, to control imports and exports, to implement the treaties. The claims always involve large sums, millions dollars or hundreds of millions of dollars. Even assuming that a claim is unsuccessful, the cost of defense can be significant (on average $1 to $2 million, including attorneys’fees and the costs of the tribunal). Claimants typically incur similar costs.A large number of cases have demonstrated that the puzzles of private rights challenging public interests, multiple proceedings and conflict awards are very common in the investment treaty arbitration world, the most typical among which are the Lauder/CME cases. In these two cases, different claimants who had identical interests lodged two different arbitrations under the UNCITRAL Rule against the same defendant under two BITs which were almost the same on substantive obligations, and the two awards were almost opposite—in the Lauder case, the tribunal denied liability of the defendant, while in the CME case, the tribunal ordered the defendant to pay to claimant $269,814,000 and interest. What is the problem?To find the answer, this dissertation has analyzed the mechanisms of treaty-based investor-state arbitration, and advanced the following proposition, that these mechanisms are modeled on or have borrowed their main elements from the international commercial arbitration, despite that the disputes to be settled under the two kinds of mechanisms have quite different natures. The fact that the means is in contradiction with the objective is the source of the conflicting situations.In addition to Introduction and Conclusion, the dissertation is divided into three parts. With a standard analysis, the first part deals with the concept and the nature of the treaty-based investor-state arbitration, including Chapter 1 and Chapter 2. The second part expounds the mechanisms of treaty-based investor-state arbitration in practice and inspects them with a case analysis, including Chapter 3 and Chapter 4. And the third part is concerning the reconstruction of the new mechanism, including Chapter 5 and Chapter 6.In Introduction part, the author first explains the origin of the research theme. Then, academic history is reviewed. The basic structure of this dissertation and major issues to be explored are defined. The methods of this research are also introduced. Chapter 1 deals with the concept of the treaty-based investor-state arbitration. At the beginning, several expressions about the concept are introduced and the key words or phrases are defined. Furthermore, the concept is discriminated with other relevant concepts such as“international investment arbitration”,“mixed international arbitration”,“NAFTA investment arbitration”and“ICSID arbitration mechanism”. As this is not enough for a deep knowledge of such arbitration, it is still to be analyzed from the nature.In Chapter 2, the nature of the treaty-based investor-state arbitration is analyzed. The author maintains that in this arbitration, the investor and the state are subject of international law, the claim that is treaty claim is based on international legal order, and the matter at dispute involves state conducts, which contains the contradictory relationship between the investor and the state, between the private interests and the public interests. All those illustrate this arbitration is of public international law nature and so distinguished from international commercial arbitration of private international law nature. Based on a general knowledge of this arbitration, next, the mechanisms in practice should be examined.In Chapter 3, the practical mechanisms of treaty-based investor-state arbitration have been expounded. They are typical or similar international commercial arbitration mechanisms, or have borrowed their main elements from the international commercial arbitration mechanism. In short, these mechanisms are modeled on or designed for international commercial arbitration, and they are simply grafted in from the secretive world of international commercial arbitration. As the treaty-based investor-state disputes are different from commercial ones, the effect of these mechanisms raises much doubt before a further inspection.In Chapter 4, the effect of these practical mechanisms of treaty-based investor-state arbitration has been inspected with the beginning of Lauder/CME cases. By illustration, the following puzzles have been revealed. One is the multiple proceedings commenced by the same claimant, the relevant claimants and different claimants. Another is conflict awards rendered by different tribunals about the same facts, related parties and similar investment rights, about a similar situation and similar investment rights and about the different facts but the same investment rights. And the third is the fact that private interests are seriously corroding state sovereignty and public interests. Even to say, the current situations are in conflict. Of course, these puzzles are also common in the whole judicial practice. However, these mechanisms of treaty-based investor-state arbitration are apt to cause the puzzles and make them especially serious in the practice of such arbitration. This is not the original desire and the expected aim of these mechanisms, and so how to reconstruct a more reasonable mechanism is the next question to be pondered over.In Chapter 5, to avoid the result that the mechanism to be reconstructed would be attending to the superficial or minor aspects only, rather than tackling the roots of a problem, the historical background where the treaty-based investor-state arbitration has evolved has been analyzed. From the background, the economic, social and legal foundations which the reconstructing mechanism is dependent on will be drawn. As the foundations have changed, that transnational corporations (TNCs) as representatives of private investors are becoming much powerful, and so the former balance between the private investors and the state has been destroyed, the function of international non-governmental organizations (INGOs) as representatives of global civil society should be emphasized when reconstructing the new mechanism of treaty-based investor-state arbitration.Chapter 6 deals with how to reconstruct the new mechanism of treaty-based investor-state arbitration. The purpose of the new mechanism should be to balance the private interests, state interests and public interests instead of protecting the private interests only as is the case of the present mechanisms. In the light of reality, the plan in the near future for the reconstruction of the new mechanism should be to launch the unified reform in procedure in ICSID. The detailed measures to be carried out for ICSID reform involve jurisdiction, appellate mechanism and transparency. Considering that China is facing a new situation by signing the new model of BITs, the author suggests that at this stage, China should improve the clauses related to the use of investor-state arbitration in the new model of BITs as defensive tactics instead of conservative or overall open policy.In Conclusion part, in addition to a summary of the basic propositions in this dissertation, another two questions whether individuals can be the subject of international law and whether the international economic law day may have finally come are simply discussed, according to the theoretic and practical knowledge of the treaty-based investor-state arbitration.Some innovative points are as follows:1. A comparatively deep analysis of the mechanism of treaty-based investor-state arbitration which is the relatively new research theme in current academic circles especially Chinese academic circles has been made.2. An independent judgment is made on the nature of the treaty-based investor-state arbitration.3. Combined with the history of ICSID Convention and the clues in the Articles of ICSID Convention, an independent opinion of the character of ICSID mechanism and the division of ICSID developing course is advanced.4. With the economic and sociological knowledge, an independent view on the present changes of economic structure and social structure and the significance underneath these changes is formed.5. An independent analysis is made on how to determine the plan for the reconstruction of the new mechanism of treaty-based investor-state arbitration.6. Some independent suggestions on the tactics taken by China to deal with the new situations are brought forward.

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CLC: > Political, legal > Legal > International law > Private international law > International Commercial Arbitration and the International Maritime Law
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