On Fork-in-the-road Clause In Bilateral Investment Treaties

In the event of an investment dispute between an investor of one contracting party and the other contracting party, the foreign investor may, at his choice, submit the dispute either to the competent court of the contracting party, or to an international arbitration tribunal. Once the investor has submitted the dispute to the local remedies or to the arbitration procedure, the choice is final. Such provisions are called “Fork-in-the-Road Clause”.Most bilateral investment treaties include such a fork-in-the-road clause. This clause is the result of international investment practice, compromising the insistence of developing countries on the Principle of Exhaustion of Local Remedies and that of developed countries on international arbitration. With the development of international investment liberalization, the identities of a country become overlapped, that is a country is a capital exporting country and a capital input country meanwhile. Since a bilateral investment treaty has mutual effect to both contracting parties, developing and developed countries realize the importance of the balance between the interests of the host countries and individual investors, and thus begin to update the value orientation of bilateral investment treaties, which affects and determines the development trend of the fork-in-the-road clause.In practice, the ICSID arbitral tribunals primarily judge “the same dispute” based on “the same parties + the same cause of action” of disputes in local judicial process and international arbitration process. The strict standard results in that the fork-in-the-road clause is almost not applicable in fact and used by investors to exclude local remedies, which puts host states at a disadvantage of giving up the Principle of Exhaustion of Local Remedies and also failing to safeguard its own economic and judicial sovereignty by means of domestic administrative and judicial procedures. Although some arbitral tribunals begin to focus on the substance of investment disputes, yet on the whole ICSID tends to apply strict formalistic standard to the fork-in-the-road clause in favor of investors, resulting in threatening the national sovereignty of host states and the lake of necessary consistency between ICSID arbitration awards.Today, the application of the fork-in-the-road clause is in a “dilemma” that neither of strict standard or loose interpretation is appropriate. In this regard, there are two opinions in the international community. One is to completely abandon such clauses in bilateral investment treaties and the other is to renovate and reform the clause, of which the typical way is so-called “Transaction Based Approach”. The change of Transaction Based Approach different from the fork-in-the-road clause can be summarized in three points. Some scholars call the characteristic as “tight externally and loose internally”.Since China gave its unconditional consent to ICSID jurisdiction without any exceptions in China-Barbados Bilateral Investment Treaty in 1998, such consent has been included in most bilateral investment treaties between China and other countries afterwards. It does not match our current state of international investment, and even will “connive” foreign investors to abuse the fork-in-the-road clause to rule out local remedies, which thus greatly increases the risk of international arbitration of China. Therefore, the improvement and reconstruction of such clauses shall be without delay.Specifically, we should adopt different consent ways with different countries to accept the jurisdiction of ICSID, refine the details of the fork-in-the-road clause by setting explicit criteria, and define the purpose expressly of protecting the interests of the host state and promoting investment in order to grasp the initiative in treaty interpretation.