Study On The Expansion Of ICSID Tribunal Jurisdiction

With the acceleration of economic globalization, cross-border capital flows and cooperation is growing more closely. However, due to the presence of instability in the political and economic environment, foreign investors often encounter disputes when investing in the host countries. Today, the International Centre for Settlement of Investment Disputes(ICSID) provides an important way for the settlement of international investment disputes and is becoming an important part in the international investment dispute settlement mechanism. ICSID jurisdiction mainly manifests on its conditions and exclusiveness, embodied in Section 25-27 in Washington Convention. In practice, most of the cases are arbitration cases, and has generated controversy on the issue of ICSID jurisdiction. ICSID jurisdiction are exercised over three elements: first, the proper dispute parties; secondly, the eligibility of the nature of dispute, which shall be legal dispute arising directly from the investment; thirdly, the consent in writing. At the same time, though, the Washington Convention provides many limitations on the ICSID jurisdiction, the tribunal tends to take a liberal interpretation when ruling the issue of jurisdiction. As an independent body of international law, the premise of ICSID jurisdiction for sovereign state should be with “written consent”, and now we should pay attention to the trend of jurisdiction expansion. In this paper, literature research, comparative studies, empirical research, and research methods of induction and deduction are used to analyze the means in the expansion of jurisdiction used by arbitral tribunal and to find out the reason and countermeasures.Through case analysis and comparison combined with a detailed analysis of specific cases, the author analyzes the discussions of arbitral tribunal and presents different viewpoints on partial approach. ICSID’s excessive tribunal jurisdiction manifested on: 1. A broad interpretation of "investment" is defined in cases such as CSOB v. Slovakia where the tribunal considered the entire business process sufficient to constitute "investment", so in which a particular transaction should also belong to "investment disputes"; 2. Agreed to the use of arbitration clauses to expand jurisdiction:(1) expansion of the range of "consent", including: the use of "analogy" as a way to find the correlation between the investment agreement, the correlation between the agreement which involves no ICSID dispute settlement provisions and the one that involves such terms in order to meet the "consent" requirements in ICSID, such as in SOABI v. Senegal case. The interpretation of the terms is used in its broader meaning, thereby expanding the jurisdiction, such as in Xieyeshen v. Peru, the tribunal determined that "a dispute involving imposition" can be contained in the "dispute involving imposition and compensation", it therefore belongs to the category of "consent" and then expand the jurisdiction.(2) The extension of the subject of "consent", including the use of "indirect foreign control" standard, in which the determination of the nationality of a legal person depends on the examination of the nationality of an indirect controller in order to give the legal status of nationals of a Contracting State to that legal person, as in SOABI case.(3) ignore the legal status of the particular subject, such as in Xieyeshen v. Peru, Hong Kong residents Xieyeshen inevitably is Chinese nationals as Hong Kong belongs to China, therefore the conclusion was so rigidly drawn that Hong Kong residents should also be under the protection of China-Peru BIT, ignoring the special legal status of autonomy that Hong Kong has. 3. Expand the application and interpretation of relevant provisions in the BIT, including(1) the use of MFN provisions to expand jurisdiction. That is, as a third-party is giving the disputing party a more privileged treatment in the treaty when there is a basic term which contains an MFN clause, MFN clause can allow the parties to enjoy the preferential treatment of the third-party treaty, as in Maffezini v. Spain.(2) Expand the jurisdiction of the use of umbrella clause. Umbrella clause are those in which host government should abide by its commitments to the terms in the international investment treaties, such as when a BIT agreement establishes “Parties shall fulfill any obligations to investors in the territory of a particular investment," the arbitral tribunal expansively understood such terms as any dispute can enjoy the protection of the BIT, thus are available to meet one of the conditions of ICSID jurisdiction "legal disputes caused by investing", such as SGS v. Philippines case.(3) the use of the fork-in-the-road clause to expand jurisdiction. When the investor and the host country investment disputes occur, investors can only choose only one option between submiting the dispute to international arbitration or recoursing to the domestic courts of the host country, and this selection is final. After investors resort to domestic remedies and then file a submission to arbitration, ICSID will try its best to identify the dispute through domestic remedies not "the same dispute" in order to try to make the investors not trigger the fork-in-the-road clause to obtain ICSID jurisdiction, such as CMS Gas Transmission Company v. Argentina case, MEC v. Egypt case.The author believes that the tendency to expand the jurisdiction of ICSID will exert certain impact:1. An expanded jurisdiction will easily lead to wrong "precedent", even the precedent ICSID arbitration case does not legally bind the proceeding cases, but the error of precedent ICSID arbitration will not be conducive to maintain predictability; 2. Detrimental to the ICSID ’s impartiality and credibility. Traditional methods of settleing investment disputes includes diplomatic protection, economic sanctions or even military threats, taking proceedings before the International Court, and seeking relief from the judicial and administrative authorities of the host country. However, the traditional approach often violates the sovereignty and independence of the host country, which does not meet the development of times. Investors are also easy to have concerns about the host countries’ impartiality of relief. To solve the above-mentioned drawbacks of ICSID is to establish justice ansd equity. The trend to expand the jurisdiction of ICSID is eroding ICSID’s impartiality and it so far has brought an arbitration crisis for Argentine. 3. Reducing the authority of treaty interpretation. The interpretation of international treaty should be established in accordance with customary international law as well as the Vienna Convention on the Law of Treaties within the ranges of international law, overly liberal interpretation of the treaty would break the hard-won authority of treaty interpretation; 4. Violating the interests of developing countries and placing it under the ICSID risk of abusive complaints. A variety of means to expand jurisdiction makes selective mechanisms to accept ICSID jurisdiction established by developing countries in BITs a mere formality and the magnified jurisdiction fully exposed the host country to the full jurisdiction of ICSID to face the risk of abusive complaints, which is detrimental to the interests and independence of developing countries.Then the author tries to analyze the ICSID tribunal’s motivation of expansion of jurisdiction: 1. ICSID arbitration case does not have to follow the precedent case and therefore is independent of each other. Even earlier cases existed on the same problem, the arbitral tribunal may also make the opposite decision, rather than be bound by precedent. The independence of arbitration gives full play to the fundamental rights of the arbitrator ’s discretion, but mitigates the predictability of ICSID arbitration, which also leaves a channel for the expansion of jurisdiction. 2. The lack of an appeal mechanism. A final ruling for international commercial arbitration between equal entities is of importance in improving efficiency, but investment disputes between investors and host country is in relation to the public interests of sovereign states, and therefore the application of the principles of a final ruling is debatable. Although a revocation mechanism is set in ICSID arbitration, but a special committee hearing revocation request is still a temporary agency and does not require stare decisis, therefore it has little effect on the coherence of maintaining ICSID verdict. 3. The tendency the arbitrators agree on investment liberalization. Deeply influenced by western education, the arbitrators are easy to value the role market played in international capital flows, and are more willing to adopt the protection for investors’ value orientation. They tend to think the host country holds the relief program in their country and the rights to conclude BITs. Meanwhile investors just bear it all and are aligned at the weak side. 4. ICSID is still under the control of developed countries and leads a very close relationship with the developed countries.In this regard, the author thinks: 1. China should adhere to the basic direction of the well-established international investment dispute settlement system, by adjusting the BIT and appealing to the reform of ICSID to establish good international investment dispute settlement system; 2. a clear legal status of domestic special bodies. By addressing BIT’s Contracting Parties of China and foreign countries through diplomatic means, modifing China and foreign countries’ BIT and making notifications to ICSID in accordance with Article 25, paragraph 4 in Washington Convention, we should clearify the fact that foreign BIT does not automatically apply to Hong Kong and Macao Special Administrative Region; 3. Improving China and foreign countries’ BIT. Creating subdivision of the range of "consent" in dispute settlement provisions, and agreeing to accept the terms of the different ICSID jurisdiction depending on different Contracting Parties. Take "limited consent" in the BIT signed with developed countries and take "full consent" with "major security exception" in the BIT signed with developing countries. Setting applicable exception of MFN clauses, setting up flexible fork-in-the-road clause and cautionary "umbrella" clause; 4. Calling for the establishment of the Appellate Body in ICSID and strengthen tendency research of its arbitrators.