Relationships between Investor-State Arbitration and Local Remedy Procedures in Bilateral Investment Treaties/Economic Partnership Agreements

In this paper I closely scrutinize the legal relationships between investment arbitration and local remedy procedures in the global "network" of bilateral investment treaties (BITs) and free trade agreements (FTAs)/economic partnership agreements (EPAs), examining the desirable ways in which the two relationships should be regulated. When investors refer disputes to investment arbitration (procedures for international arbitration between investors and states) they are not required to exhaust local remedies, but on the other hand investment treaties contain certain restrictions on the simultaneous use of local remedy procedures and investment arbitration. The extent to which investors are permitted procedural choices is a factor that determines whether foreign investment protection is effective, and with regard to cases of investment arbitration in recent years, the issue of whether "parallel proceedings" at both the domestic and international level by investors (and their subsidiaries) are allowed has been an important point of contention at the jurisdiction phase.



An exhaustive study of the provisions of model BITs and of BITs/FTAs (EPAs) that have actually been concluded shows that, from the perspective of the relationship between investment arbitration and local remedy procedures, arbitration clauses can be placed in five categories: (1) those that have no stipulations on this matter ("no reference" type), (2) those that offer a choice between the two ("fork in the road" type), (3) those that require investors to waive local remedies, in order to submit their claims to international arbitration ("no U turn" type), (4) those that permit parallel proceedings ("parallel proceedings" type), and (5) those that give priority to local remedy procedures ("local remedy first" type). Under the "no reference" type and "parallel proceedings" type provisions, there are no restrictions as regards pursuing parallel proceedings. Also the procedural options for investors are quite broad under the "fork in the road" and "local remedy first" clauses, since, if the causes of action or the disputing parties are different at the domestic level and at the international level, the dispute at the former are distinguished from the disputes at the latter, and parallel proceedings are permitted. Under these provisions it is permissible for multiple parallel proceedings to be carried on simultaneously with regard to a series of situations relating to one particular foreign investment, raising the risk that investors may reap the "double benefit." On the other hand, since no parallel proceedings whatever are allowed under the "no U-turn" clauses, there is no risk of double relief, but that also means that when investors file for international arbitration they have to waive all methods of obtaining local remedies, thereby severely limiting the procedural choices open to investors.



However, if "no U-turn" clauses enable not only claims based on treaties, but also those based on investment agreements and/or investment authorizations, to be referred to international arbitration, they provide foreign investors with appropriate and fair protection, at the same time removing the legal uncertainty associated with parallel proceedings. Study should be pursued on the inclusion of arbitration provisions of this kind in EPAs and BITs concluded by Japan in the future.