Principle of Proportionality in Investor-State Arbitration: An emerging standard of justifiable regulatory measures

Author Name ITO Kazuyori  (University of Shizuoka)
Creation Date/NO. September 2013 13-J-063
Research Project Pressing Problems of International Investment Law
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There are some 2,800 international investment agreements (IIAs) that provide rules for protecting foreign investment from other contracting parties. When disputes occur between a foreign investor and a host state government, most IIAs allow investors to bring a case before an arbitral tribunal outside of the host state. Although this mechanism has largely reduced the business risks of foreign investment, commentators show some concern about the erosion of regulatory power on the host state, creating a menace to the pursuit of public interest. This concern, however, is not based on a trend in the latest arbitral decisions. A number of arbitral tribunals have opined that, unless the challenged regulatory measure harms investors disproportionately to the significance of policy objective, that measure cannot be a breach of investment protection rules. This way of thinking is commonly called the principle of proportionality, which has originally evolved through constitutional lawsuits where a court is required to coordinate the values between protecting the rights of individuals and promoting regulations for public interest. In this paper, the author attempts to analyze how and to what extent the arbitral tribunals under IIAs adopt this principle in making their decisions. It will help us reach the appropriate view on how far the government regulatory powers would be constrained when they conclude IIAs.