Document Type



Investment arbitration has come increasingly under fire because of its design flaws. There is an emerging consensus that investment treaty arbitration not only falls short of ensuring a sufficient degree of transparency of arbitral proceedings and impartiality of arbitrators, but also that its institutional architecture is unjustifiably asymmetric, entrusting foreign investors with significant rights while no protection is afforded to the host states’ constituencies. In response to these criticisms, several states have attempted in recent years to reform the rules governing investor-state arbitration. A perusal of recently concluded international investment agreements, however, reveals that the reform efforts so far have focused on the first two shortcomings. Very little, instead, has been done with regard to the asymmetric character of the system. This Essay seeks to specifically address this flaw, by placing the rights of investment-affected people on par with those of investors. To do this, we seek to display the viable alternatives to the currently predominant—and flawed—model of investment dispute settlement. We start by outlining the features of the investor-state dispute settlement system that lie at the root of the system’s legitimacy crisis. In particular, relying on a burgeoning body of scholarship, we expose the inadequacy of private order dispute settlement mechanisms in dealing with mainly public law disputes. Bearing this in mind, we contend that future reform efforts should reckon with the rights and interests of the individuals and groups of individuals who are likely to be affected by the investment operations. In other words, States can only remove the asymmetric character of the system by endowing this category of individuals with substantive and procedural rights. We also argue that international investment agreements should go beyond their traditional protective function by aiming to keep investors’ conduct in check. We opine that such agreements should also clearly establish investors’ obligations to safeguard the wide range of noninvestment interests implicated in investment operations. This Essay envisages three innovative models for the solution of investment disputes and presents a comparative analysis of alternative scenarios. The first suggests the abandonment of investment arbitration in favor of soft-law grievance mechanisms. The second envisages arbitration for both investors and investment-affected parties. The third proposal is a networked system where arbitration is coupled with grievance mechanisms for investment-affected individuals. In short, we submit that future treaties should either completely ditch the ISDS system or undertake a major overhaul of the system. Each proposal has its limits and promises. We conclude that, in spite of their limits, any of these proposals would offer a superior alternative to the dramatic deficiencies of the current system and future research should be directed to further articulate the contours of our proposals.