Proportional Pragmatism: A Defense of International Arbitration Agreements in the Face of Asymmetrical Paternalism

O'Kane, Rusty | January 1, 2010

With foreign direct investment’s increasingly important role in the global market, a more comprehensive regulatory system has emerged to guide key participants. Bilateral investment treaties have developed as an essential piece of the emerging regulatory system. Bilateral investment treaties are “[international investment] agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country.” These treaties have drastically affected the way foreign investors interact with host countries, especially in the area of dispute resolution. A distinctive feature of many BITs is that they provide for alternative dispute resolution procedures such as international arbitration. Numerous concerns have been raised, however, that developing countries are sacrificing too much sovereignty in order to attract FDI and that arbiters are beginning to act more like legislators than neutral decision-makers. International investment arbitration agreements have been attacked and defended since their proliferation began almost two decades ago. However, the system’s defenders have thus far only focused on the inadequacy of specific alternatives or attacked specific proposals. There has yet to be an argument that the autonomy provided by the current system allows developing countries to respond to any perceived disadvantages and adequately protect their own interests. This comment counters the notion that investment arbitration agreements provide too few protections for developing countries in arbitration proceedings.