Transnational Dispute Management

www.transnational-dispute-management.com
:
ISSN
:
Issue
Published :

1875-4120
(Provisional)
March 2009

This article will be published in a

future issue of TDM (2009). Check
website for final publication date for
correct reference.
This article may not be the final
version and should be considered as
a draft article.

A BIT about ICSID

by S.M. Schwebel

About TDM
TDM (Transnational Dispute Management): Focusing on recent
developments in the area of Investment arbitration and Dispute
Management, regulation, treaties, judicial and arbitral cases,
voluntary guidelines, tax and contracting.
Visit www.transnational-dispute-management.com
for full Terms & Conditions and subscription rates.
Open to all to read and to contribute

Terms & Conditions

Registered TDM users are authorised to download and
print one copy of the articles in the TDM Website for
personal, non-commercial use provided all printouts
clearly include the name of the author and of TDM. The
work so downloaded must not be modified. Copies
downloaded must not be further circulated. Each
individual wishing to download a copy must first register
with the website.
All other use including copying, distribution,
retransmission or modification of the information or
materials contained herein without the express written
consent of TDM is strictly prohibited. Should the user
contravene these conditions TDM reserve the right to
send a bill for the unauthorised use to the person or
persons engaging in such unauthorised use. The bill will
charge to the unauthorised user a sum which takes into
account the copyright fee and administrative costs of
identifying and pursuing the unauthorised user.
For more information about the Terms & Conditions visit
www.transnational-dispute-management.com

Copyright TDM 2009

TDM Cover v1.5

TDM has become the hub of a global professional and academic

network. Therefore we invite all those with an interest in
Investment arbitration and Dispute Management to contribute.
We are looking mainly for short comments on recent
developments of broad interest. We would like where possible for
such comments to be backed-up by provision of in-depth notes
and articles (which we will be published in our 'knowledge bank')
and primary legal and regulatory materials.
If you would like to participate in this global network please
contact us at info@transnational-dispute-management.com: we
are ready to publish relevant and quality contributions with
name, photo, and brief biographical description - but we will also
accept anonymous ones where there is a good reason. We do
not expect contributors to produce long academic articles
(though we publish a select number of academic studies either
as an advance version or an TDM-focused republication), but
rather concise comments from the author's professional
workshop.
TDM is linked to OGEMID, the principal internet information &
discussion forum in the area of oil, gas, energy, mining,
infrastructure and investment disputes founded by
Professor Thomas Wlde.

This article is adapted from a speech made at the 25th Annual

AAA/ICC/ICSID Joint Colloquium on International Arbitration,
held in New York on November 14, 2008. Copyright ICSID
Review--Foreign Investment Law Journal (and appears there at
Volume 23, No. 1, Spring 2008). The article has been reproduced
on TDM with the kind permission of that journal.

A BIT about ICSID*

Stephen M. Schwebel**

CONSIDER WHERE THE LAW OF FOREIGN investment has been not

only for the last twenty-five years but the last fifty, from the time when Western
imperialism expired and the ranks of capital-importing independent States
expanded essentially from Latin America to include Asia and Africa.
If we recall the constellation of countries circa 1960, there was a legal as well
as economic gulf between capital-exporting States and capital-importing States.
There was a great gulf on the substance of the governing international lawif
any. There was a great gulf on international legal processif any.
The depth of that gulf was certified by the Supreme Court of the United
States in the Sabbatino case when it observed in 1964 that: There are few if any
issues in international law today on which opinion seems to be so divided as the
limitations on a states power to expropriate the property of aliens.1

*
This article is adapted from a speech made at the 25th Annual AAA/ICC/ICSID Joint Colloquium
on International Arbitration, held in New York on November 14, 2008.
**
Stephen M. Schwebel served as a Judge of the International Court of Justice (19812000), and
as its President (19972000). He has been appointed chairman or party-appointed arbitrator in 54
arbitrations, and has acted as counsel or expert in others. He is the author of International Arbitration:
Three Salient Problems (1987), Justice in International Law (1994), and 170 articles on international law
and international arbitration. Judge Schwebel has served as President of the International Monetary Fund
Administrative Tribunal (IMFAT) since 1994. He is a member of the World Bank Administrative Tribunal
(WBAT) and of the Permanent Court of Arbitration (PCA). In 2000, he was appointed a member of
ICSIDs Panels of Arbitrators and Conciliators by the President of the World Bank. He is a member of the
Board of Directors of the American Arbitration Association (AAA).
1
376 U.S. 398, at p. 428 (1964).

ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL

On one side of that divide, capital exporters expounded a minimum standard

in customary international law for the treatment of aliens and their property.
They could not be denied justice; they were entitled not merely to national
treatment but to a minimum standard of treatment that included observance of
contracts and, in the event of a taking of their investments, prompt, adequate
and effective compensation.
On the other side of the divide, capital importers adhered to the Calvo doctrine
of national treatment. The alien and his property were subject to national law
and national courts and were entitled to no more than was afforded to nationals
of the host State, however little that might be. Customary international law
governing the treatment of aliens and their property did not exist.
All this was well rehearsed by the Russian Revolution, where foreign property
was expropriated with the same compensation afforded to Russian nationals,
that is, none; the Mexican nationalization of oil; and, after the Second World
War, by the takings in a number of notable instances.
The divide early manifested itself in the United Nations under the banner
of permanent sovereignty over natural resources. In 1962, after a decade of
preparation, a resolution of that title came up for negotiation and adoption. The
result was a constructive accommodation of positions. Resolution 1803 (XVII)
repeatedly affirmed the permanent sovereignty of a State over its natural resources.
But these recitals were balanced by the recognition that capital imported []
shall be governed by the terms thereof, by the national legislation in force, and
by international law. Expropriation required appropriate compensation in
accordance with national and international law. Moreover, Resolution 1803
(XVII) provided that [f ]oreign investments entered into by, or between,
sovereign States shall be observed in good faiththus requiring the observance
of agreements with foreign investors. In all, this was a proportionate resolution
which recognized that foreign investment was governed by international as well
as national law.2
But soon after, confrontation displaced accommodation. Subsequent
General Assembly resolutions on permanent sovereignty over natural
resources excluded the governance, even the relevance, of international law.
With the oil crisis of 1973, and the pain engendered by the surge in the price
of oil, especially in developing countries, the Group of 77 was persuaded by
OPEC to maintain that international economic problems were all the fault of
the West. What was needed was a New International Economic Order. North/
Stephen M. Schwebel, The Story of the United Nations Declaration on Permanent Sovereignty over
Natural Resources, American Bar Association Journal (May 1963), p. 463, republished in the authors
book, Justice in International Law (1994), p. 401.
2

A BIT about ICSID

South dispute came to a head in 1974 with the General Assemblys adoption
of the Charter of Economic Rights and Duties of States.3 That Charter excluded
international law in the treatment and taking of foreign property and asserted
the sole governance of the domestic law of the host State as interpreted and
applied by its courts. Key industrialized democracies voted against the Charter.
At that juncture, the outlook for universal agreement in this sphere either on
legal process or principle seemed remote.
Two initiatives changed that outlook to a presence far more beneficent.
The firstthe International Centre for Settlement of Investment Disputes
(ICSID)was one of process. The secondbilateral investment treaties
(BITs)was built on the first and successfully surmounted the divide not only
over process but principle as well.
The legal counsel of the World Bank, Aron Broches, saw in the 1960s at
the time of the initial UN debates on permanent sovereignty the difficulties of
reaching meaningful and sustainable universal agreement on the principles at
stake. His ingenious contribution was to sidestep what seemed to be a sterile
substantive confrontation with procedural creativity. The Bank would not
take sides between the developed and the developing worlds. Rather it would
create a forum for the impartial arbitral settlement of inevitable international
investment disputes. Broches and his colleagues prepared the ground carefully
in a series of regional conferences in which States and their legal advisers were
fully consulted. He brought the persuasiveness of his vivacious personality to
bear both with the legal advisers of governments and the Executive Directors of
the Bank to put his insight across. The result was the conclusion in 1965 of the
Washington Convention on the Settlement of Investment Disputes between
States and Nationals of Other States.
That Convention has beenand remainsa remarkable achievement. In
their recent, valuable book, Principles of International Investment Law, Professors
Dolzer and Schreuer offer this appraisal:
At first sight, the Broches concept (procedure before substance)
seemed to be a limited and modest one. However, he built the design of
what was to become [] (the ICSID Convention) []. In retrospect,
it has become clear that the creation of ICSID amounted to the boldest
innovative step in the modern history of international cooperation
concerning the role and protection of foreign investment. This is so
because of the combination of five pertinent features of ICSID: (a)
3
G.A. Res. 3281 (XXIX),, U.N. GAOR, 29th Sess., Supp. No. 31, at 50, U.N. Doc. A/3281
(1954).

ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL

foreign companies and individuals can directly bring suit against their
host State; (b) state immunity is severely restricted; (c) international
law can be applied to the relationship between the host state and the
investor; (d) the local remedies rule is excluded in principle and (e)
ICSID awards are directly enforceable within the territories of all states
parties to ICSID.4
The ICSID Convention entered into force in 1966. Today there are 143
States Parties to it. As of October 2008, ICSID had registered 275 cases.
In 1959, Germany concluded first bilateral investment treaty, with Pakistan.
From that also modest beginning, some 2600 bilateral investment treaties have
sprung, some 1700 of which are in force, as have important multilateral treaties:
the Energy Charter Treaty, the North American Free Trade Agreement, and the
Central American Free Trade Agreement. These three multilateral treaties in
their provisions for arbitral recourse are equal to 1,059 bilateral treaties in force,
bringing the total of BIT-like instruments in force to about 2700.
These treaties bridge the substantive divide between the positions of
capital-exporting and capital-importing States in concordant terms designed to
promote and protect foreign investment. Those terms are much more precise
and far-reaching than the content of comparable customary international law
earlier invoked by capital-exporting Statesa customary international law on
which the United States in its 2004 Model BIT nevertheless curiously relies. By
the terms of BITs, foreign investment is assured of fair and equitable treatment,
full security and protection, and no less than national and most-favored-nation
treatment. The foreign investor is assured of management authority and control.
The terms of commitments entered into in respect of the foreign investment
are to be observed. If there is a taking by the State of the foreign investment, by
means direct or indirect, the State is treaty-bound to pay prompt, adequate and
effective compensation. Moreover, the great majority of these treaties enable the
foreign investor to require the host State to arbitrate treaty disputes, through
ICSID or otherwise.
That arbitration entitlement is one of the most progressive developments
in the procedure of international law of the last fifty years. It is consistent with
the development of international human rights (including the right to own
property) and with dethroning the State from its status as the sole subject of
international law.
BITs now run not only between North and South but between East and West.
There are more than 600 South/South BITs, that is, bilateral investment treaties
4

Rudolph Dolzer and Christoph Schreuer, Principles of International Investment Law (2008), at p. 20.

A BIT about ICSID

between two developing States. Russia and other successor States of the Soviet
Union, and China, are parties to scores of BITs, as is Cuba. While early Chinese
BITs were much more limited than standard BITs, Chinese BITs of recent years
approach the norm, perhaps anticipating that China is likely to be not only a
major capital importer but exporter. There are few areas of international law and
life that have been the subject of some 2700 concordant treaties; most-favorednation provisions come to mind but it is not easy to call up another. In view
of that immense number of treaties, the virtual universality of their adherence,
and the predominant consistency of their terms, there is room for the view that
they have reshaped the body of customary international law in respect of the
treatment and taking of foreign investment. That is to say, it may be maintained
that certain standard, core provisions of the very great majority of BITs, such as
those providing for fair and equitable treatment and for prompt, adequate and
effective compensation, by the fact of being prescribed in some 2600 bilateral
investment treaties and three important multilateral treaties, have seeped into
the corpus of customary international law, with the result that they are binding
on all States including those not parties to BITs. That arguable thesis has a
measure of support in more than one arbitral award.5
Yet, the ascendance of ICSID and of the BITs that have done so much to fuel
its jurisdictional reach has come under attack in recent years. Critics contend
that the international arbitral process that they promote is asymmetrical:
investors can require States to arbitrate claims against the State but the State
cannot require investors to arbitrate claims against them. They maintain that
international arbitral tribunals treat the government and the investor on the
same plane and hence fail to take account of the consideration that the State
acts for the public good and must enjoy and exercise a right to regulate for the
public good. They claim that the international arbitral process is biased because
those who served as arbitrators have acted or do act as counsel in investment
cases, and because they are influenced by the prospect of further arbitral
appointments. Arbitral awards may conflict and there is no tenured court of
appeal to sort out conflicts.
These charges are as colorful as they are misconceived.
Placed in context, the BIT arbitral process is not asymmetrical. In point of
fact, some BITs provide that either of the disputing parties may bring a claim
to arbitration. In any event, the host State is able to bring a counterclaim against

5
Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, para. 117
(2002), and CME Czech Republic B.V. v. Czech Republic, Final Award of March 14, 2003, paras. 49798.
Cf., Stephen M. Schwebel, The Influence of Bilateral Investment Treaties on Customary International
Law, Proceedings of the 98th Annual Meeting of the American Society of International Law (2004).

ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL

the investor and, in at least eight cases, has done so. But much more than that,
the government of a State has many means, legal and not, for bringing pressure
to bear upon the foreign investor. The government has not only the police
power; it has the police. It can bring the weight of its bureaucracy to bear. It can
prescribe, delay, enjoin, renegotiate, renege, decree, tax, incite, strangle. For the
foreign investor to be able to require international arbitration of disputes goes
only some way to right a balance that oftennot always but ofteninclines in
favor of the host government. One does not hear that the United States Court
of Claims is asymmetrical because it is the judicial forum for claims against the
Government of the United States. What the United States does not do is win
all the cases in the Court of Claims, not least because of the realization that if it
did, there would be no Court of Claims.
Naturally international arbitral tribunals place the litigants on the same
plane. Equality of arms is the essence of the judicial and arbitral process. And
to assume that every government of every State acts in ways that promote the
public good, and that the foreign investor does not, is to assume a state of affairs
that does not necessarily comport with reality.
To assume that a tenured court, national or international, is objective, while
international arbitral tribunals are not, likewise does not comport with the
facts. There are tenured courts in too much of the world that are incompetent,
subject to political influence, corrupt or just nationalistic in their perception
of the facts and the law. While Federal Courts in the United States are of high
quality, one can think of courts of certain states of the United States that are of
lesser quality; and I choose this reference as illustrative rather than exhaustive of
conditions in many countries. The preference of foreign investors not to subject
their disputes to local courts is a preference shared by thousands of international
commercial contractors the world over, a preference that is rationally and
decently motivated.
Investor-State arbitration is no less defensible. An international investment
arbitrator of ability and integrity will decide the case before him or her on
the basis of the facts and governing law. The record of ICSID arbitral awards
so demonstrates as do those of the ICC, the AAA, the Stockholm Chamber
of Commerce, the London Court of International Arbitration and other
institutions as well as ad hoc international arbitral tribunals acting under the
UNCITRAL and other rules.
That the vast majority of international arbitral awards, including international
investment awards, are unanimous, suggests the integrity of the process. Of the
103 ICSID awards rendered to date, sixteen percent were not unanimous, a
fact that is not easily reconciled with claims that arbitrators may be predisposed
to favor the party that appoints them. In nineteen of those 103 cases, the

A BIT about ICSID

tribunal found a lack of jurisdiction and dismissed the case without passing
upon the merits, another fact not easily reconciled with claims that arbitrators
are motivated by the prospect of arbitral fees and further appointments. In
these 103 rendered awards, the claimant company prevailed in 43 cases, and
only in four of those were the companys claims fully upheldagain, facts not
easily reconciled with claims that arbitratorsor BITsare biased in favor of
the investor. It appears that investors, where they prevailed to some extent,
recovered about 12% of their claims, still again a fact not easily reconciled with
claims of arbitrator predisposition in favor of the investor.
I may say on the basis of my own experience of fifty-five years in the
international investment arena, including experience as a judge and arbitrator,
that achieving the requisite measure of objectivity depends above all on the
character of the individual, and not on whether he or she is tenured, not on
whether he or she has acted as counsel, and not on whether there may be
possibility of further arbitral appointments.
Conflicts of interest may arise in the arbitral sphere as in other spheres. But
attacks on international investment arbitrators on grounds of inherent conflict
may in some cases be little more than proxies for attack on a process that is
uncongenial to the revivalist proponents of a New International Economic
Order.
If the governments of the world preferred an international investment court
to arbitration, or a court of international arbitral appeals, they could constitute
them; they have not. When some fifty States concluded the Energy Charter
Treaty after an extended, highly professional negotiation, they could have
opted for a court but they opted for arbitration between investors and host
States. They drew up a treaty that provides for the promotion and protection
of foreign investment in the vital realm of energy in terms that duplicate BIT
provisions. Does that suggest that those States were unaware of their interests,
that they overlooked their regulatory powers, that they were set on depreciating
the currency of their courts?
Can it really be supposed that the States of North and South, East and West,
developed and developing, of virtually all political complexions and economic
models, have been misguided in concluding some 2700 bilateral investment
treaties, and that it has taken a think tank here and a professor there to reveal to
the world the error of their ways?
By the end of 2006, there were 679 South/South bilateral investment
treaties running between two developing States. Many appear to have been
concluded with the benefit of careful preparation of model BITs by the Asian
African Legal Consultative Committee. That Committee (now Organization)
strongly supports dispute settlement by ICSID and otherwise. Are we to believe

ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL

that these pairs of developing States, contracting with each other, in the light of
the advice of their own Asian-African Legal Consultative Committee, acted not
in their own interests but in the interests of the multinationals?
The most recent effusion of a think tank in this sphere of which I am aware
is a petition of October 3, 2008 submitted to the President of the World Bank
by the Institute of Policy Studies in Washington on its own behalf as well as
that of a large number of other organizations. It condemns what it claims is
extreme disregard for Bolivian sovereignty by ICSIDs former SecretaryGeneral in registering a case brought by Euro Telecom against Bolivia, because
Bolivia had withdrawn from the ICSID Convention nearly six months earlier.
Determining jurisdiction in this case is not an appropriate question for an
investment tribunal []. The World Bank, it maintains, should not have the
power to decide on its own jurisdiction. ICSID, it claims, is a system which
undermines national sovereignty in favor of the interests of private corporations
and international investors. The petition calls for appointment of a review
commission on ICSID, citing legitimate criticisms of certain States, and
it expresses concern that ICSID and the investment treaties that it enforces
may undermine other international treaties that promote social, economic and
human rights [].6
The claim that an international arbitral tribunal constituted under World
Bank auspices should not have the power to decide on its own jurisdiction is, to
put it gently, uninformed. As the International Court of Justice held:
Since the Alabama case, it has been generally recognized, following earlier
precedents, that [] an international tribunal has the right to decide as
to its own jurisdiction. This principle was expressly recognized in []
the Hague Conventions []. The Rapporteur of the Convention of
1899 had emphasized the necessity of this principle, presented by him
as being of the very essence of the arbitral function and one of the
inherent requirements for the exercise of this function [...].7
The claim of disregard of Bolivias sovereignty is no better informed. Bolivia
in exercise of its sovereignty adhered to the ICSID Convention. Article 71
of that Convention provides that any Contracting State may denounce the
Convention, a denunciation which shall take effect six months after receipt
of such notice. As the Institutes petition recognizes, Bolivia had withdrawn
6
Letter of October 3, 2008 to Robert B. Zoellick, President, World Bank, from Sarah Anderson,
Institute for Policy Studies.
7
Nottebohm (Liechtenstein v. Guatemala) (Preliminary Objection), Judgment of November 18,
1953, I.C.J. Reports 1953, pp. 111, 119.

A BIT about ICSID

from the ICSID Convention nearly six months earlier; thus its denunciation
had not taken effect when the request for arbitration was filed. The request for
arbitration accordingly concerned a dispute that was not manifestly outside
the jurisdiction of the Centre and ICSIDs Secretary-General was bound to
register the request, pursuant to the mandatory terms of Article 36 of the ICSID
Convention to which Bolivia had equally adhered.
No evidence is given by the Institute in support of its claim that ICSID
is a system that undermines national sovereignty and social progress. But if
States choose to exercise their sovereignty through adherence to and application
of the ICSID Convention in order to promote the flow and maintenance of
international investment in a world that cries out for investment, one may
wonder about the soundness of that claim.
The extravagance of the charge of impropriety in ICSIDs registering an
arbitral claim against Bolivia is the more striking in view of the fact that an
arbitral tribunal has been constituted with the cooperation of Bolivia, which
has appointed an arbitrator.
My conclusion is that we should treat criticism of the inequities and
iniquities of the international arbitral process, and of the pernicious standards
and procedures of bilateral investment treaties, for the hyperbole that it is.
The processes and principles of investment arbitration, like those of
other human institutions, leave room for improvement. But on the whole
they are beneficent, progressive processes that merit not condemnation but
approbation.