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       *Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues by
the Vale Columbia Center on Sustainable International Investment
No. 113   January 20, 2014
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Shawn Lim ([log in to unmask])
       *Recalibrating interpretive
Anthea Roberts* <#143b68491d1e1d84__edn1>

There have been many calls for a rebalancing of investor protection and
state sovereignty in the investment treaty system. However, another equally
important shift is underway: the recalibration of interpretive authority
between treaty parties and arbitral tribunals. In newer-style investment
treaties, states are increasingly protecting and enhancing their role in
interpreting and applying their treaties.

Older-style investment treaties were typically highly protective of
investors' rights, providing little express recognition of the need to
safeguard host states' regulatory authority. These treaties shifted
considerable interpretive power from treaty parties to investor-state
tribunals because they empowered tribunals to interpret and apply broad and
vague treaty terms. Arbitral tribunals gave content to these treaty
provisions and referenced each other's awards as persuasive authority. As a
result, much of the content of investment treaties was forged by tribunals,
often in ways going beyond the intentions of the treaty parties.

Newer style investment treaties evidence two important shifts: (1) a
substantive rebalancing of investor protection and state sovereignty; and
(2) a procedural recalibration of interpretive power between investor-state
tribunals and treaty parties. As much has been written about the first
development, I focus here on the second, which is taking place in at least
four ways.[1] <#143b68491d1e1d84__edn2>

First, states are increasing the specificity of their treaty commitments by
defining vague protections (e.g., indirect expropriation), specifying the
relationship between treaty commitments and custom (e.g., fair and
equitable treatment and the minimum standard of treatment) and including
exceptions clauses.[2] <#143b68491d1e1d84__edn3> The more "rule-like" a
treaty prescription, the more treaty parties decide *ex ante* what
categories of behavior are acceptable and unacceptable; the more
''standard-like'' the prescription, the more often this determination is
left to be made *ex post* by investment tribunals. These newer-style
treaties evidence a shift on the standards-to-rule spectrum, though many of
the clarifications remain vague and open-ended compared to more rule-based
regimes like international trade law.

Second, many states are including interpretive mechanisms that permit
treaty parties to provide an interpretation of the treaty that is binding
on investor-state tribunals.[3] <#143b68491d1e1d84__edn4> The most famous
example is NAFTA's Free Trade Commission, which the NAFTA parties used to
clarify the content of NAFTA's fair and equitable treatment provision and
its relationship with custom. Even without such a mechanism, the subsequent
agreements and practices of treaty parties are relevant to interpretation,
though it is unclear whether these are binding or merely
persuasive.[4]<#143b68491d1e1d84__edn5>Treaty parties are building on
this general international law right by
expressly providing for it in their treaties and declaring that these
interpretations will be binding.[5] <#143b68491d1e1d84__edn6>

Third, states are increasingly including provisions permitting
non-disputing treaty parties to make submissions on interpretation in
investor-state disputes.[6] <#143b68491d1e1d84__edn7> Submitting pleadings
is an important way to influence the interpretation of treaty provisions in
a particular case. Pleadings by respondent states and non-disputing treaty
parties are also evidence of state practice, so they may be relevant in
influencing the interpretation of treaty provisions outside the confines of
the particular case.

Finally, many states are giving host states individually or treaty parties
collectively the power to determine certain sensitive issues. For instance,
some states are specifying that exceptions clauses to protect their
essential security interests are self-judging.[7]
<#143b68491d1e1d84__edn8>Other states are including provisions on
taxation or financial services
that provide for a joint determination by the competent financial
authorities of the treaty parties that can either prevent arbitration or
bind the arbitral tribunal.[8] <#143b68491d1e1d84__edn9> In other treaties,
the investor-state tribunal cannot decide certain defenses but must defer
instead to an agreement by the treaty parties or, failing that, a ruling by
a state-to-state tribunal.[9] <#143b68491d1e1d84__edn10>

In 2011, the United Nations Conference on Trade and Development issued a
paper arguing that "[a]s masters of their [treaties], States can be more
proactive in asserting their interpretive authority to guide tribunals
towards a proper and predictable reading of IIA provisions" by playing a
more active role in drafting investment treaties, participating in
investor-state disputes as non-disputing parties, and issuing interpretive
declarations.[10] <#143b68491d1e1d84__edn11> States are beginning to do
just that and, in the process, they are recalibrating interpretive
authority in the investment treaty field.

* <#143b68491d1e1d84__ednref1> Anthea Roberts ([log in to unmask] and
[log in to unmask]) holds a joint appointment as Senior
Lecturer at the London School of Economics and Professor of Law at Columbia
Law School. The author is grateful to Khalil Hamdani, Sergio Puig, Jeremy
Sharpe, and Jason Yackee for their helpful peer reviews. *The views
expressed by the author of this Perspective do not necessarily reflect the
opinions of Columbia University or its partners and supporters. Columbia
FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.*
[1] <#143b68491d1e1d84__ednref2> Anthea Roberts, "Clash of paradigms:
Actors and analogies shaping the investment treaty system," 107 AJIL 45,
78-83 (2013).
[2] <#143b68491d1e1d84__ednref3> *E.g.,* US Model BIT, art. 5 and Annex B;
Canada Model BIT, arts. 5, 10 and Annex B.13(1).
[3] <#143b68491d1e1d84__ednref4> *E.g., *US Model BIT, art. 30(3); Canada
Model BIT, arts. 40(2), 41, 51(2)(b); ASEAN Comprehensive Investment
Agreement (ACIA), art. 40(3); Canada-China FIPA, arts. 18(2), 30.
[4] <#143b68491d1e1d84__ednref5> 1969 Vienna Convention on the Law of
Treaties, arts. 31(3)(a) and (b).
[5] <#143b68491d1e1d84__ednref6> *See, generally,* Anthea Roberts, "Power
and persuasion in investment treaty interpretation: The dual role of
states," 104 AJIL 179 (2010).
[6] <#143b68491d1e1d84__ednref7> *E.g.**, *US Model BIT, arts. 28(2);
Canada Model BIT, arts. 35(1); Canada-China FIPA, art. 27(2). The UNCITRAL
Rules on Transparency in Treaty-based Investor-State Arbitration also
require tribunals to permit pleadings by non-disputing parties on
interpretation (art. 5(1)).
[7] <#143b68491d1e1d84__ednref8> *E.g.**, *US Model BIT, art. 18; Canada
Model BIT, art. 10(4); ACIA, art. 18.
[8] <#143b68491d1e1d84__ednref9>* E.g.**,*US Model BIT, arts. 20 and 21;
Canada-China FIPA, art. 17.
[9] <#143b68491d1e1d84__ednref10> *E.g.**,* Canada-China FIPA, arts. 20(2),
[10] <#143b68491d1e1d84__ednref11> UNCTAD, "Interpretation of IIAs: What
states can do", *IIA Issues Note*, No. 3 (2011).
       *The material in this Perspective may be reprinted if accompanied by
the following acknowledgment: "Anthea Roberts, 'Recalibrating interpretive
authority,' Columbia FDI Perspectives, No. 113, January 20, 2014. Reprinted
with permission from the Vale Columbia Center on Sustainable International
Investment ( <>)." A copy
should kindly be sent to the Vale Columbia Center at [log in to unmask]
<[log in to unmask]>.*
For further information, including information regarding submission to the
*Perspectives*, please contact: Vale Columbia Center on Sustainable
International Investment, Shawn Lim, [log in to unmask] or
[log in to unmask]

The Vale Columbia Center on Sustainable International Investment (VCC), a
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*Most recent Columbia FDI

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*All previous FDI Perspectives are available at *
        Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Vale Columbia Center on Sustainable International Investment
Columbia Law School - Earth Institute
Columbia University
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