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Valentina Vadi

This chapter briefly illustrates the fundamental features of international investment law and arbitration. After providing some historical background, it explores the normative framework that governs foreign direct investment. Most contemporary investment treaties include investor–state arbitration for the settlement of disputes that may arise between the foreign investor and the host state. Under this mechanism, foreign investors may bring claims directly against the host state before international arbitral tribunals. The internationalization of investment disputes has been conceived as an important valve for guaranteeing a neutral forum and depoliticizing investment disputes. Despite its flourishing, investment treaty law and arbitration is facing a ‘legitimacy crisis’. The debate has focused on the extent to which international investment agreements delimit state sovereignty and its ability to regulate. The chapter highlights that this area of law remains undertheorized, and that more theoretical studies are needed in order for it to develop in conformity with, and contribute to, international law.

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Valentina Vadi

Can the use of constitutional analogies contribute to the current debate on the legitimacy of investor–state arbitration? Can constitutional benchmarks, such as proportionality or reasonableness, help arbitrators in interpreting and applying broad and open-ended investment treaty provisions? The migration of domestic concepts to the international plane and the parallel infusion of international law concepts in the domestic sphere are not new phenomena; rather, under specific circumstances, such migrations can become constituent features of public international law and domestic law respectively. Two sources of public international law may derive from national law, namely, customary law and general principles of law. Adjudicators may consider domestic notions in order to clarify treaty terms, albeit, of course, the national meaning does not necessarily correspond to the international meaning, and vice versa. An examination of the eventual migration of constitutional ideas to the public international law realm offers a possible lens through which to examine the field of international investment law and arbitration. It highlights the multiple points of interaction between the domestic and the international level. At the same time, the chapter cautions against the mechanical transposition of domestic law concepts in international law because this can undermine the adjudicatory function under public international law. Therefore, a critical approach to the use of such concepts should be adopted.

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Valentina Vadi

This chapter addresses the question of whether the concept of proportionality can and/or should migrate to international investment law and arbitration. Depending on context, proportionality can be defined as an objective of policy makers, and as a particular structured approach to judicial review. Proportionality requires that policy makers and adjudicators strike an appropriate balance between the public and private interests and give reasons for the restriction of individual autonomy. It seems to have a mathematical precision. However, critics contend that proportionality is a chimera. While formally appealing, the concept remains substantively indeterminate. Because of its indeterminacy, it contributes little to restraining the legislative, executive and adjudicative powers of states. Rather, critics contend, proportionality risks empowering the adjudicators to second guess national policy makers. Against this background, the chapter examines the promises and pitfalls of the concept. It then illustrates the migration of the notion of proportionality from its constitutional matrix to EU and international trade law. The chapter then critically assesses whether proportionality has migrated to international investment law, and, if not, why not. It also investigates whether proportionality can be considered to be a general principle of international investment law.

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Valentina Vadi

Reasonableness is a standard of good governance that guides states in adopting measures, calibrating public and private interests and giving reasons for their action. Several international law instruments require that state action be reasonable. International courts and tribunals have also used reasonableness to review state action. Despite its pervasiveness, the concept of reasonableness remains underexplored in international investment law. In order to address this gap in legal scholarship, this chapter examines the analytical merits and pitfalls of the concept of reasonableness and its use in investment treaty arbitration. It investigates whether, and if so to what extent, reasonableness has migrated to international investment law and arbitration and/or whether it belongs to the field. It then evaluates whether the use of reasonableness in investment arbitration can be desirable and under what circumstances. The chapter highlights that reasonableness may be an appropriate criterion of review, one that has been used extensively by arbitral tribunals and other international courts.

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Valentina Vadi

This chapter examines the standards of review developed by arbitral tribunals, and investigates whether there are convergences and/or divergences between such standards and those adopted by different international courts and tribunals. The chapter highlights that arbitral jurisprudence has not developed a systematic approach to the standards of review. At the same time, arbitral tribunals have shown a certain familiarity with the reasoning of other international courts and tribunals. The chapter also shows that while there is no uniform approach to the issue of the standards of review across international courts and tribunals, a completely deferential review of state conduct would go against the very purpose of international (investment) law; at the same time, an intrusive standard of review is also ill-advised as international arbitrators should not assume the functions of national legislators and decision-makers. Therefore, the chapter calls for an intermediate solution that combines scrutiny and respect for the regulatory autonomy of states.

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Valentina Vadi

This chapter connects the dots and maps the interaction between proportionality, reasonableness and standards of review. Whatever the test selected by the arbitrators – be it proportionality or reasonableness – the intensity of review is one of the main tools to calibrate it. Because of the strict scrutiny imposed by the proportionality test, a more deferential standard of review should be adopted when applying such test. International courts and tribunals adopting the proportionality analysis generally complement it with some deference. Conversely, because the structure of the reasonableness test is more lenient, it may require a more intense standard of review. For instance, the International Court of Justice complements the reasonableness criterion with a standard of objective review. In the end, the discussion about proportionality, reasonableness and standards of review concerns the question as to what role arbitral tribunals should play in the international legal system, and that concerning the ultimate aims of international investment law.

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Valentina Vadi

International investment law is one of the most dynamic fields of international law, and yet it has been criticised for failing to strike a fair balance between private and public interests. In this valuable contribution to the current debate, Valentina Vadi examines the merits and pitfalls of arbitral tribunals’ use of the concepts of proportionality and reasonableness to review the compatibility of a state’s regulatory actions with its obligations under international investment law.