Investment Arbitration

THE CHALLENGE OF SOVEREIGNTY*

When legal claims directly implicate public interests, the role of arbitration may be open to question. If challenges to environmental regulations or tax assessments create risks for general community welfare, an argument exists that resolution of such controversies should remain the prerogative of courts, rather than being surrendered to arbitrators.

To some extent, societal well-being can be jeopardized by any large arbitration, even if exclusively between private companies. A license dispute between two major pharmaceuticals might result in an award that affects prices paid by consumers. However, it is easier to become alarmed about infringement of national sovereignty when states become parties to arbitration, as happens increasingly under investment treaties.

As much an emotion as a legal construct,¹ sovereignty has probably been invoked ever since one ruler resisted attack from another, and the aggressor felt bound to give reasons (good or bad) to justify the invasion.² Derived from the Latin super, meaning “above,” sovereignty in the context of international relations normally implicates a state’s right to exercise supreme power within its territory.