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Another important point of international investment law was developed through dispute settlement procedures of arbitral tribunals which hear claims between foreign investors and host states brought under international investment treaties. Oddly enough that these cases were not brought by diplomatic channels, intergovernmental negotiations. This explains that international investment law develops more in view of arbitral precedent and case law than on the basis of traditional textual approaches to treaty interpretation. Nevertheless, applying investment treaties in practice as well as studying and understanding the field not only requires knowledge about the jurisprudential developments but also demands awareness of the historic, economic, and customary international law context of foreign investment activities.
Mostly used dispute settlement system is Investor-state Dispute Settlement or shortly ISDS. It is a system through which investors can sue countries for alleged discriminatory practices. Provisions on ISDS can be a part of a bilateral agreement (between the home state and the host state) or be a part of international (multilateral) investment agreement. If an investor from one country (home state) invests in another country (host state), both of which have agreed to ISDS, and the host state violates the rights granted to the investor under the treaty (i.e. the bilateral or the multilateral agreement), then that investor may bring the matter before an arbitral tribunal. Talking about arbitral tribunals we should mention International Centre for Settlement of Investment Disputes, which takes place under the auspices of international arbitral tribunals governed by different rules or institutions. For example, London court of International Arbitration, the International Chamber of Commerce or the UNCITRAL Arbitration Rules.
There are certain challenges in international arbitral tribunal regarding international investment cases. First of all, while the current ISDS mechanism may work well from the perspective of international investors, it entails considerable risks for host country governments. Under these risks fall the fact that aggrieved investors have a choice between seeking remedy either under the domestic law of a host country or the applicable international treaty (or both), while host countries do not have that choice, as only investors can initiate the ISDS mechanism when disputes between investors and host countries arise. Second of all, it is also questionable that only big investors have access to the dispute settlement mechanism, while small and medium-size enterprises cannot initiate the ISDS process.
In addition to all of that, there are other problems such as private arbitral panels adjudicate over public policies; conflicts of interests exist for arbitrators, including conflicts of interests that may compromise their independence; that there is no real possibility for the review of arbitral decisions taken; that poor countries are not in a position to defend themselves as respondents; investors engage in abusive treaty shopping to benefit from ISDS; and the costs of the rising number of claims are high, both in terms of the costs of the arbitration process and the potential awards involved.
With all these difficulties there arise questions regarding the prevention of international investment disputes going to arbitral tribunals. At the national level, the prevention, management, and resolution of disputes between foreign investors and host countries are imperative. In particular, it is imperative for countries to avoid such disputes reaching the international (arbitration) level. This means, other alternative dispute resolution approaches such as mediation.
As to international dispute settlement, a number of options should be considered to improve the ISDS mechanism. Some of these should be relatively straightforward. For instance, abusive treaty shopping to obtain the protection of an International Investment Agreement and its ISDS mechanism could be limited sharply by requiring that a substantial presence test be met.
For the further understanding of influence of international arbitral tribunals in investment disputes, examining the case law would be a better approach.
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