Kraisorn Rueangkul: Student ID 000180205 International Investment Law Formative Essay

Glamis Gold is the nail in the coffin for the role of custom in investment law.

This essay will attempt to argue that the ruling in Glamis Gold confirms one essential principle of customary international law (CIL), i.e., in proving existence of any particular customary international law, one must look for primarily in the actual practice and oponio juris of states . The Neer standard is still applicable when proving whether certain action of state constitutes international responsibility, unless being able to establish a new replacing CIL. International tribunals should not take an expansionist interpretative method on identification of existence of CIL by not proving the both two elements because such action of the international tribunals would destroy the very basic law related to CIL identification. Where international tribunals, without authorized power or international political responsibility to create a law, is able to expand scope of CIL by not relying on the traditional rule of CIL identification, the adverse effect of expansionist view may be tremendous because it directly affects one of the fundamental principles of international law where it is based on state equality and state consent with the purpose of creating a peaceful coexistence and preventing tension or hostility among states . The essay will firstly address the background of awards and reasons used by the tribunal in Glamis Gold. Then, it will further explore on principles and practices of CIL identification, particularly on fair and equitable treatment in international law. Lastly, it will point out arguments why the restrictive method of interpretation of treaty should be used. Firstly, Glamis Gold case is the case where Glamis Gold Limited filed a claim to arbitration against United States. It claimed that United States violated the fair and equitable treatment (FET) as required in NAFTA article 1105(1) , resulting indirect expropriation of its business . The key ruling in this case is that FET is inclusive of the international standard of treatment of aliens; and the standard still remains the same as stated in Neer Case where state responsibility will arise only in the case of shocking or egregious conduct by states . However, it is worth to note that the tribunal in the case indicated that conducts that are
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Glamis Gold Ltd. v. United States, Award (NAFTA Arb. Trb. 2009), <http://www.state.gov/s/l/c10986.htm> accessed 17 November 2011. Continental Shelf (Libyan Arab Jamahiriya/Malta) [1985] ICJ Rep 13, 29. 3 Neer v. United States (1926), 4 UNRIAA 60. 4 United Nations, Charter of the United Nations (adopted 26 June 1945, entered into force 24 October 1945), 1 UNTS XVI <http://www.un.org/en/documents/charter/preamble.shtml> accessed 22 November 2011, Preamble. 5 North American Free Trade Agreement (entered into force 1 January 1994) (1993) 32 ILM 605 < http://www.nafta-secalena.org/en/view.aspx?conID=590&mtpiID=142#A1105> accessed 19 November 2011 (NAFTA) 6 Supra note 1. 7 Supra note 3, par 4.

deemed shocking and egregious today may be different than the standard in the Neer case. The ruling in the Glamis Gold case is in contrary to the expansionist view of the earlier tribunal in the Pope case or other cases such as Metalclad case . In the Pope case, the tribunal suggested initially that FET on fairness elements is additive to minimum standard of treatment of aliens, without limitation that the conduct must be shocking or egregious . However, because of the authoritative interpretation of article 1105 of NAFTA issued by NAFTA Free Trade Commission, the tribunal subsequently stated that the fairness element in FET as held earlier by the tribunal is inclusive in CIL as it had evolved; and the tribunal did not prove the finding of such CIL. As seen above, the restrictive method will hold that there must be a proof on the existence of a new CIL on state responsibility. If not being able to do so, international tribunal should limit its role to consider whether there is state responsibility based on Neer standard. The expansionist view thinks otherwise and gives the wider role to international tribunal to consider the issue. It is now widely seen that the foreign investment is important. The sharply growing number of investment treaties is witnessed . In many investment treaties, they have similar provisions dealing with foreign investment protection. However, the treaties fail to identify the content of minimum standard of treatment . With such absence, the international tribunals clearly are aware of the need to develop CIL on foreign direct investment . However, as Sornarajah rightly argues, it is not clear that the duty to develop content of CIL belongs to arbitral tribunals . It can be argued that the role to develop the content of CIL should remain to states either directly by its consent or impliedly by its custom. Some commentators have provided rational arguments that the treaty regime may be cost intensive and would be too slow to provide protection to investors. Therefore international tribunals should have more important roles in shaping or even expanding the content of CIL on foreign investment law protection . However, the commentators failed to take into account problems when allowing international tribunals to have power in expanding the scope of CIL. The tribunals do not have clear authority to have function close to legislative body of international law. It should be unacceptable by states, since it has been long held that
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Pope and Talbot v. Canada, NAFTA/UNCITRAL Tribunal (2002) 41 ILM 1347. Metalclad v. Mexico (2000) 5 ICSID Reports 209; (2001) ILM 55. 10 Supra note 8 at Final Award on the Merits par 118. 11 UNCTAD, World Investment Report (2001) 6. 12 M. Sornarajah, The International Law on Foreign Investment, (Cambridge University Press, 2010) 347. This finding is based on personal study of Sornarajahs personal study of African and Asian treaties. 13 Mondev v. United States (2003) 42 ILM 85 par 120; ADF v. United States, ICSID Case No. ARB(AF)/00/1 (NAFTA) (Award, 9 January 2003), par 180. 14 Supra note 12, 345. 15 Eyal Benvenisti, Customary international law as a judicial tool for promoting efficiency, in Benvenisti and Hirsch, eds., The Impact of International Law on International Cooperation: Theoretical Perspectives (Cambridge University Press, 2004) 85.

CIL, as a source of international law , should be established by considering practices and opinion juris of states . The expansionist commentators may have failed to simply look at the very basic value of modern international law where, in order to be truly and effectively bound by states, laws must be created to preserve peaceful co-existence to prevent unnecessary tensions among states as recognized in the UN Charterthe international organisation which was established to preserve international peace after the cruel period of World War II . To let a few arbitrators with the role to create CIL may be the seemingly way to create adverse feelings by states which may disagree. In conclusion, the role of international tribunals in interpreting treaties should be limited to the traditional method of CIL identification in order to preserve the essential principle and purpose of international law as stated. The CIL still can be evolutionary with the restrictive view of treaty interpretation; it can play important role in shaping the international foreign investment law. However, the development of international foreign investment law must be done meticulously by upholding the traditionally accepted method which has the least risk affecting the peaceful atmosphere of international community.
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United Nations, Statute of International Court of Justice (entered into force 18 April 1946) <http://www.icjcij.org/documents/index.php?p1=4&p2=2&p3=0 > accessed 20 November 2011, Art 38 1 (b). 17 Supra note 2. 18 Supra note 4.