JICL

Connect
VOLUME
3:1
JUNE 2016
1-161
  • LIKENESS AND LESS FAVOURABLE TREATMENT IN INVESTMENT ARBITRATION

    Guiguo Wang
Abstract

National treatment is an old trading concept, which has found its way into bilateral investment treaties and the investment chapter of free trade agreements. These treaties and agreements provide that a foreign investor or investment must be accorded treatment “no less favourable” than the treatment accorded to domestic comparators who are in “like circumstances”, but fail to define or explain the terms “less favourable” or “like circumstances”. This has led to arbitration tribunals interpreting these terms in the exercise of considerable and mostly unguided discretion. Such exercise of discretion has resulted in a number of inconsistent and at times conflicting decisions, which adversely affect the effective operation of the international investment mechanisms. This article examines the approaches that different arbitral tribunals have adopted in the interpretation of “national treatment” and proceeds to examine how to improve the unsatisfactory situation. It argues that adherence to the precepts of the Rule of Law in the conduct of arbitration proceedings will lead to more consistent arbitration decisions.

Keywords
national treatment; less favourable treatment; like circumstances; likeness; Rule of Law; discriminatory treatment; differential treatment; discretion; good faith; jus cogens
Click here to read extracts of the article
Introduction

Economic globalisation, a result of technological innovation and scientific progression particularly in the fields of transportation, information and communication, has resulted in ever-increasing cross-border movement of goods, services, investment, capital, intellectual property rights and people. This movement leads to socio-economic, political, legal and cultural integration between diverse national systems. At the same time, national legal norms are routinely incorporated into treaties and agreements — The Anti-Dumping Agreement, Subsidies and Countervailing Measures Agreement and Trade-Related Aspects of International Property Rights of the World Trade Organization (WTO) are typical examples. As required by the WTO Agreement (1995), Members must implement these agreements and in doing so adopt these international norms into their domestic laws. This process is called globalisation of law.1 This is not a simple transplantation of national norms into international instruments or transplantation of international norms into national laws — in fact, this is a process which leads to universal adoption of the Rule of Law,2 an adoption which is recognised as a guarantee of sustainable development and globalisation.

International investment is an area where the effects of globalisation of law are clearly felt. Alongside the ever growing body of bilateral investment treaties (BITs) and free trade agreements (FTAs), investor–State arbitration plays a key role in shaping the mechanisms and rules relating to investment. Previous decisions are now, without exception, cited as precedent in arbitral proceedings, giving investment arbitration decisions a de facto precedential effect. In a way, investment tribunals function more like public quasi-judicial bodies than ordinary commercial arbitration tribunals which are only accountable to the disputing parties.4 Yet investment arbitration tribunals have not conscientiously observed the rules and norms applicable to the public dispute resolution bodies such as the International Court of Justice (ICJ) and the WTO Appellate Body. The interpretation of the national treatment clause of BITs and FTAs illustrate this point. The BITs and FTAs contain not very well-defined national treatment clauses.5 This has resulted in arbitration tribunals exercising wide discretion in applying the national treatment clause and related concepts such as “like circumstances” and “less favourable treatment”. Such inconsistent and sometimes contradictory application of fundamental terms adversely impacts not only on investment mechanisms but also on investment itself.

The aim of this article is to examine national treatment in international investment law. Section II of this article examines three tribunal decisions to show how investment arbitration tribunals have interpreted and applied “like circumstances” and the underlying reasoning for such interpretations. Likewise, Section III will examine a further selection of tribunal decisions to see how discretion has been exercised in the determination of what constitutes “less favourable treatment”. Section IV will examine what constitutes “less favourable treatment” in the light of discretionary interpretations that emerge from cases which were discussed in Sections II and III. Section V, the concluding section, will provide some thoughts on how decision-making by investment tribunals may be improved in order to better uphold the Rule of Law.