In response to the general condition described above, over the past several years, a number of investment-treaty tribunals53 and some academic commentators54 have turned to the principle
49. Earl Snyder, ‘Foreign investment protection: a reasoned approach’ (1963) 61 Michigan Law Review 1087, 1121 n. 13. See also Schwarzenberger (n 46) 153.
50. Rudolf Dolzer and Margarete Stevens, Bilateral Investment Treaties (Martinus Nijhoff 1995) 14.
51. On this point, for example, one might further consider the negotiation of the United Kingdom—China Investment Protection, Promotion Agreement (1986) in which general, intentionally vague terms were used in order to reach a political conclusion of the agreement. See Eileen Denza and Shelagh Brooks, ‘Investment protec- tion treaties: United Kingdom experience,’ (1987) 36 International and Comparative Law Quarterly 908, 919–922.
52. But see Part E, addressing the treaty-making practice of a number of states, especially those in North America, which have been seeking to develop more concrete articulations of the scope of investment protec- tion and residual host state regulatory freedom.
53. See e.g., Técnicas Medioambientales Tecmed SA v Mexico (Award, 2003) ICSID ARB(AF)/00/2 (indirect expropriation); Azurix Corp. v Argentina (Award, 23 June 2006) ICSID Case No ARB/01/12 (same); LG&E Energy Corp. v Argentina (Decision on Liability, 2006) ICSID Case No ARB 02/1 (same); Fireman’s Fund Ins.
Co. v Mexico (Award, 2006) ICSID Case No ARB(AF)/02/01 (same, obiter dicta); Occidental Petroleum Corp. v Ecuador, (Award, 2012) ICSID Case No ARB/06/11 (fair and equitable treatment); Lemire v Ukraine (Decision on Jurisdiction and Liability, 2010) ICSID CASE No ARB/06/18 (fair and equitable treatment, obiter dicta).
But see National Grid PLC v Argentina (Award, 2008) Ad hoc UNCITRAL Trib. (rejecting proportionality as part of indirect expropriation analysis).
54. See e.g., Alex Stone Sweet, ‘Investor-state arbitration: proportionality’s new frontier’ (2010) 4 Law & Ethics of Human Rights 47; Benedict Kingsbury and Stephan Schill (n 3).
of proportionality for a framework of analysis to be used in the articulation and application of the standards of treatment found in investment treaties, with a particular emphasis on the protection against uncompensated expropriations and to a lesser extent the guarantee of fair and equitable treatment.55 This is a noteworthy development in no small part because none of the treaties involved in these cases has included language calling for the application of a prin- ciple of proportionality and there is scant evidence—and certainly none offered in the arbitral awards—for the proposition that the principle of proportionality is either a rule of customary international law or a “general principle of law recognized by civilized nations.”56 Rather tribu- nals and academic commentators have simply posited proportionality as a functionally useful and normatively beneficent guide for addressing the tension which arises between the claims of investors under treaty-based standards of investment protection and the host state’s residual right to regulate affairs within its territory. In the academic commentary at least, proportional- ity is presented as something of a prêt-a-porter analytical framework for tribunals to employ when undertaking the balancing forced upon them by the need to give juridical meaning and application to vaguely worded standards of protection.
For Benedict Kingsbury and Stephan Schill, the resolution of disputes under international investment treaties is not simply a matter of resolving individual disputes but is also part of a structure of “global governance.”57 Kingsbury and Schill suggest that through repeated instances of individual arbitral tribunals being called upon to give concrete meaning to the broadly phrased standards found in individual investment treaties, investor-state arbitral tribunals
as an aggregate exercise power through influencing the development of a body of global admin- istrative law that guides state behaviour, through influencing both customary international law and approaches taken in other subfields such as trade law or human rights, and through their approaches to balancing different investor and public interests, in ways that affect public policy and the future conduct of States and investors alike.58
Kingsbury and Schill concede that the creation of systemic norms through arbitral case law faces significant problems of uncertainty and concerns about legitimacy, particularly given that “individual tribunals cannot easily have regard to system-level concerns given their man- date and primary responsibilities to solving an individual dispute submitted by the disputing parties in any single case.”59 But while they seem to recognize that the institutional archi- tecture of the regime of international investment treaties renders systemic norm production
55. Proportionality has also been invoked by tribunals in connection with the guarantee of national treat- ment under the North American Free Trade Agreement. See Part D.
56. Indeed, the evidence suggests the contrary. Chinese constitutional-administrative law, for example, appears not to recognize a principle of proportionality at all. Han Xiuli, ‘The principle of proportionality in Tecmed v. Mexico’ (2007) 6 Chinese Journal of International Law 635, 650. A lack of acceptance of the prin- ciple of proportionality in domestic legal orders outside of Europe and North America raises doubts about whether proportionality can be considered a ‘general principle of law recognized by civilized nations’ as a matter of public international law. There is a similar lack of evidence that proportionality is recognized as a rule of customary international law. See Rosalyn Higgins, Problems and Process: International Law and How We Use It (Oxford University Press 1994) 236.
57. Kingsbury and Schill (n 3) 5.
58. ibid 7.
59. ibid 8. One might also add that such attempts at systematization of investment treaty law are further lim- ited by the increasing heterogeneity of investment treaty arrangements and the increasing detail with which state are drafting particular agreements. See Part E.
problematic at best,60 they also appear dismissive of the role of states in changing the current conditions of international investment law through the drafting of more refined texts. Instead, Kingsbury and Schill call for international arbitral tribunals to impose systemic values in indi- vidual cases by adopting and applying principles of “global administrative law” and, specifi- cally, the principle of proportionality.61
“Global administrative law” is a sharply contested concept that doctrinally is far more political aspiration than de lege lata. This much seems acknowledged even among its pro- ponents who concede that such force as their arguments have derives from normative con- siderations about how the world might be rather than consistency with existing doctrine or accurate description of the observed manner in which the international system operates.
Kingsbury and Schill concede that the norms they advocate “embedding” into the “system” of international investment law do not derive from the recognized process of norm production in international law;62 nevertheless they suggest that the introduction of norms like the principle of proportionality “may be a permitted and even necessary element of international law treaty interpretation and application in certain cases.”63
Kingsbury and Schill endorse a procedural conception of proportionality, that is, a con- ception that sees proportionality as a methodology for the structuring of arguments. Thus they adopt the well-known tripartite structure of proportionality drawn from European law: (1) suitability; (2) necessity; and (3) proportionality stricto sensu.64 Kingsbury and Schill concede that while the basic structure of proportionality analysis is similar across systems in which it is used, one’s understanding of the principle in a given situation is ultimately depen- dent upon context-specific concerns such as “the cultural socializations and values connected to a specific institution, its hermeneutics, and the core legal texts, other legal materials, and the purposes of the specific legal regime.”65 As discussed below, this is an important observa- tion, but Kingsbury and Schill do not appear to give it the weight it merits in their analysis. For while they acknowledge that investor-state arbitral tribunals lack the institutional capacity to undertake this type of inquiry,66 they also suggest that notwithstanding this institutional inca- pacity, the widespread adoption of proportionality by investor-state tribunals has the capacity to make arbitral analysis clearer and more predictable.67 For reasons discussed below,68 this in my view seems an overly ambitious and ultimately unsupportable claim.
60. ibid 8–9 61. ibid 9–10 and 12.
62. ibid 9–10 (describing this as not a complete paradigm change and proposing greater reference to ‘general principles of law recognized by civilized nations’). For a critical view of the global administrative law project, see Alexander Somek, ‘The concept of ‘law’ in global administrative law: a reply to Benedict Kingsbury’ (2009) 20 European Journal of International Law 985.
63. ibid 12. At one point in their article, Kingsbury and Schill seem to suggest that the principle of proportion- ality may be a general principle of law. ibid 31. This claim, however, is not developed and, as suggested above n. 56, there is reason to doubt this conclusion, even if proportionality in some general form may be identifiable in Western systems of public law.
64. ibid 37.
65. ibid.
66. ibid 50. See also Jürgen Kurtz, ‘Delineating Primary and Secondary Rules on Necessity at International Law’ in Tomer Broude and Yuval Shany (eds), Multi-Sourced Equivalent Norms in International Law (Hart Publishing 2011) 231.
67. ibid 30–31.
68. Part B.1–4.
Alex Stone Sweet also puts a case for the importation of the principle of proportionality into international investment law. Relying on previous research regarding the reception of the principle of proportionality in a number of domestic and multinational systems, Stone Sweet presents the proportionality framework as “a global best-practice standard for dealing with normative conflicts of a particular structure.”69 For Stone Sweet, “proportionality provides judges with the most appropriate analytical procedure currently available for adjudicating dis- putes involving conflicts between two principles (or interests, or values) that possess the same rank in a normative hierarchy.”70 As discussed below, it is precisely this need to identify and rank normative values that is part of the core problem with the introduction of proportionality analysis into investment treaty interpretation and application.71
While Stone Sweet is a strong proponent of the use of the principle of proportionality as a normative matter, he is not directly concerned with doctrinal issues raised by the use of pro- portionality in the context of international law; there is little attention in his work to the source of proportionality as an international law norm. Rather, his work focuses on the normatively beneficial consequences he argues would follow from recognition of the principle of propor- tionality across a range of provisions commonly found in investment treaties.72
First, Stone Sweet argues, because of the considerable discussion that proportionality has received in the jurisprudence of a number of public law systems and in the writing of legal theorists, the adoption of proportionality in international investment law would “inject a mea- sure of analytic, or procedural, determinacy to the balancing exercise.”73 Proportionality on this view is an analytic process and the formal structure of legal reasoning thereunder is well known. Hence, the adoption of proportionality will lead to an increase in predictability and determinacy, at least in terms of argumentative process.
Second, Sweet Stone argues that the adoption of proportionality will have the salutary effect of providing participants in investor-state arbitration with a tool to “determine what the investor and the State can reasonably expect from the other, and what is arbitrary or unfair.”74 While this phrasing might suggest that proportionality will allow for a better ex ante under- standing of the law, it is hedged by the acknowledgment that under a proportionality analysis
“outcomes are substantively indeterminate at a deep structure level.”75 In the end, it seems that Stone Sweet’s endorsement of proportionality rests on the capacity of the analytical framework to accommodate a consideration of all that is relevant to the matter under review.76 Stone Sweet does not, however, provide an account of what may or may not be relevant in the investment treaty context or how a decision-maker ought to go about ascertaining the same. Nor does his endorsement of proportionality as an organizing meta principle offer insights into what weight ought to be assigned in the course of balancing except to offer the view that there may be certain value imperatives in the general international system encompassing, in no apparent
69. Stone Sweet (n 54) 49.
70. ibid.
71. See Part B.2–3.
72. ibid 61–64 (indirect expropriation and fair and equitable treatment); 67–75 (interpretation of ‘essential security’ provisions such as are found in Article XI of the Argentina-United States BIT).
73. ibid 63.
74. ibid 62.
75. ibid 50.
76. ibid 63.
order, “jus cogens norms, basic human rights, and procedural guarantees associated with due process and access to justice.”77
Finally, with respect to the decision-making balance between an arbitral tribunal and the state under review, Stone Sweet offers an interesting theoretical account of decision-making delegation in the context of contracts and the drafting of legislation. He does not, however, suggest how in the context of investor-state arbitration a standard of review might be set. As discussed below, however, especially with regard to the principle of proportionality, an under- standing of standards of review is critical. For even if one accepts that it is possible to identify the interests and values to be weighed in a proportionality analysis, the questions of to whom the weighing is entrusted and the role of adjudicative bodies in reviewing first instance deci- sions remain crucial concerns for principled application.
* * *
Against this sketch of some of the contemporary commentary on the role that proportion- ality might play in international investment law, it is useful to look a bit more closely at some of the threshold questions raised by proportionality as a jurisprudential concept. None of the proposals to adopt proportionality as an organizing principle for international investment law has pursued this inquiry in any depth. It is, however, essential in order to better understand proportionality as a juridical concept and analytical tool. In particular it is worth asking, as most commentators do not, what proportionality means. Is proportionality a normative con- cept or merely an analytical tool? If proportionality does have a normative meaning, what is it and how does this normative content affect the analysis engaged thereunder? Moreover, is it possible to adopt proportionality as a principle for the interpretation and application of standard-type norms, as would be the case in international investment law, without at the same time either directly or indirectly reaching a settlement on underlying matters, such as (1) the relative strength of the rights or interests which are to be balanced in the proportional- ity analysis, and (2) the relative competences of the adjudicator vis-à-vis the parties.
In answer to these questions, as discussed below, I posit that the normative content of “pro- portionality” is contingent and that it cannot be applied coherently without additionally com- ing to conclusions on fundamental underlying constitutional questions, such as those relating to interest-identification, weight, commensurability, and decision-making competences. I do not argue, however, that this nullifies the possibility of constructing a coherent constitutional jurisprudence with the principle of proportionality at its heart. Rather my argument is that in order to achieve coherence and a relative degree of determinacy, the normative meaning of proportionality must not only be clarified but, moreover, its application must be informed by legitimated constitutional values and entrusted to constitutional decision-making structures.78 This, in a sense, is what one finds when considering the role played by the principle of
77. ibid 58 (attributing this view to Ernst-Ulrich Petersmann and Erica de Wet).
78. The principle of proportionality and its role and legitimacy has been a subject of considerable debate within the context of the WTO system. See e.g., Peter Van den Bossche, ‘Looking for proportionality in WTO law’ (2008) 35 Legal Issues of Economic Integration 283. I do not undertake a comparative analysis of the role of proportionality in the WTO and in the investment treaty regime. The instruments and institutions involved are fundamentally different. Whereas the WTO system is a multilateral one, based on a core of agreed instru- ments, interpreted and applied through a unified dispute resolution system, the investment treaty regime is essentially decentralized and multi-layered with no unifying dispute resolution or rule-making institu- tions. I offer no opinion on the incorporation of the principle of proportionality in the WTO system except to doubt the utility or legitimacy of attempting to draw analogies from that system and its unique charac- teristics to the investment treaty regime. See Jürgen Kurtz, ‘The use and abuse of WTO law in investor-state
proportionality in the jurisprudence of the European Court of Human Rights or the European Court of Justice with respect to the interpretation and application of guarantees under their constitutional instruments.79 And such may be all well and good for the European institutions from the perspective of European constitutional law. European law is not, however, interna- tional law. And, indeed, far from commending the “rapid adoption” of a principle of propor- tionality in the interpretation of international investment treaties,80 the concrete experience of the European institutions with the use and adoption of the principle, together with the prob- lems with proportionality as a matter of legal theory, suggest that proposals for the injection of proportionality in investment law ought to be treated with considerable caution.
1. THe NORmaTIVe CONTeNT OF PROPORTIONalITY
At its most abstract level, proportionality requires that state action be proportionate to its objectives.81 Thus, in order to establish whether a provision of law is compatible with the prin- ciple of proportionality, it often said that a court or tribunal must assess whether the means it employs to achieve the aim it pursues correspond to the importance of the aim and whether the chosen means are necessary for its achievement.82 As noted above, in this classical, European, formulation, a tribunal applying the principle of proportionality ought to ask three questions, or at least address three issues: (1) Suitability: Are the means used by the state suitable (reasonably likely) to achieve the aim it pursues? (2) Necessity: Are the means adopted necessary (indis- pensable) to achieve the aim pursued? (3) Proportionality stricto sensu: Even if there are no less
arbitration: competition and its discontents’ (2009) 20 European Journal of International Law 749. See gener- ally Lawrence Helfer, ‘Constitutional analogies in the international legal system’ (2004) 37 Loyola Los Angeles Law Review 193.
79. See Part C.
80. Kingsbury and Schill (n 3) 51.
81. As is well known, the use of proportionality as a concretely articulated jurisprudential concept finds its roots in German public law, although by now the principle has come to take a place generally at the heart of European constitutional and administrative law. Michael Fordham and Thomas de la Mare, ‘Identifying the Principles of Proportionality’ in Jeffrey Jowell and Jonathan Cooper (eds), Understanding Human Rights Principles (Hart Publishing 2001) 27. See Jürgen Schwarze, European Administrative Law (Sweet & Maxwell 1992) 79 (describing ‘an important body of case law on the subject of the proportionality principle which has, in varying degrees of intensity, affected virtually every area of administrative action governed by Community laws and Community legislation’). See generally Georg Nolte, ‘General principles of German and European administrative law—a comparison in historical perspective’ (1994) 57 Modern Law Review 191. Aspects of proportionality have been identified in U.S. constitutional jurisprudence as well, see George A. Bermann, ‘The principle of proportionality’ (1977–1978) 26 American Journal of Comparative Law Supplement 415, although the term itself is not used with any consistency or frequency. See generally E. Thomas Sullivan and Richard S. Frase, Proportionality Principles in American Law (Oxford University Press 2009) (arguing for the explicit adoption of a proportionality-based analytical framework in U.S. constitutional law); Moshe Cohen-Eliya and Iddo Porat, Proportionality and Constitutional Culture (Cambridge University Press 2013) (providing a comparative analysis of proportionality and balancing). Rather, U.S. constitutional jurisprudence has devel- oped variable standards of review which courts apply to challenged state action. Typically, the choice of the standard of review is dependent upon the character of the individual right (e.g., whether the right is found directly in the U.S. constitution). Once that right has been identified, the standard of review follows and places a variable burden on the state to justify the infringing measure, e.g., ‘compelling state interest,’ ‘rational basis.’
82. See e.g., Fedesa (C-331/88) [1990] ECR I-4023.