Study On Protection Of Public Interest Of Host Countr Ies In International Investment Arbitration

International investment arbitration mechanism originated in the traditional system of international commercial arbitration, commercial arbitration inherited the secrecy system, efficient and professional characteristics, which is developing rapidly, and is widely accepted by the international community as the preferred solution to the settlement of investment disputes. However, the international investment treaty itself is from the host country who needs to attract foreign investment, as an investment treaty procedural provisions, investment arbitration mechanism is designed to protect investors and thus it is inevitably with tendency to protect private interests. On the contrary, international investment disputes usually result from the host country which enacted a policy, regulations or took certain administrative measures to protect their public interests, and such means, measures touched the interests of foreign investors, sparked dissatisfaction, thus resulting dispute. It is significantly important to design and implement the proper rules of international investment arbitration in terms of protection and development of the international economic community.NAFTA investment dispute arbitration mechanism is a typical model in this field. It has been widely recognized by the international community from its inception. The most intense focus of controversy is whether NAFTA investment dispute arbitration mechanism has become a barrier to host country to exercise their proper management of public powers to protect their national interests; whether this system has become a powerful weapon for foreign investors to be used against the host country; and how to improve the rules on making this system to better balance between the interests of investors and host countries to protect the public interest. This series of questions has been around since the birth of NAFTA birth. Twenty years of arbitration practice shows that in many cases, due to host the relevant policies and regulations are to protect public health, the environment and labor rights, investors will be directed at such provisions. Once the host country lost, it will face huge compensation claims, and therefore the host country facing the risk of paying huge compensation will choose to give up the relevant regulations and the goal to protect public interest can never be achieved. Investment arbitration practice in recent years reflected this trend. Therefore, under the NAFTA investment dispute settlement mechanism, foreign investors have more convenience to use this mechanism to challenge the public interest and host country’s public management power, which forced the state party authorities and other members of the international community to work out solutions to improve the relevant rules and to achieve the interests of balance between investors and host countries.This paper concentrates on the issue of how to protect the public interest of the host country in international investment arbitration, and particularly from the perspective of NAFTA investment arbitration mechanisms and its recent practice. In the empirical research terms, this paper selects the NAFTA investment arbitration cases in the areas of environmental protection, public health and public safety to explain this mechanism. The frivolous lawsuits initiated by investors adversely affected management and regulation of the host country’s authority, huge public interest also got threatened. The paper introduces the background information, analyzes the reasons of the problem and proposes the possible solutions. It also mentioned drawbacks and reflection and institutional problems arising from the system of the United States as the representative of some developed countries to carry out the above-mentioned improvements. The most typical manifestation is the "Trans-Pacific Partnership Agreement" which reached in October 2015. the United States, Canada, Mexico, the three countries are also parties to the TPP, it is therefore considered to be the further development of NAFTA. On this basis, this paper presents practice of China’s international investment dispute settlement mechanism, in particular, on how to balance the national public interest and then makes some suggestions in this regard. This paper is divided into three parts of introduction, body and conclusion, the body is divided into four chapters.The first chapter describes the background knowledge from the overall perspective of international investment arbitration. International investment disputes solution is as international economic development and constantly changing. Early resolved international investment disputes were often required by investors’ home countries and host countries through both political means and diplomatic means – the so-called State to State dispute settlement mode. Some developing countries advocated "Calvo doctrine"- that is, investment disputes must be resolved through the host countries’ local remedies, it has also been strongly resisted by many developed countries. With the role of foreign investment in the development of the national economy widely accepted, more and more countries provided international investment arbitration mechanism as the dispute settlement methods in bilateral or multilateral investment treaties, then the Investor to State model has been rapidly promoted and recognized. In this mode, foreign investors and host countries have equal qualifications litigation, and in the face of international investment arbitration tribunal, investors can direct brought against the host country under the investment treaties to protect their own interests. However, with the rapid increase in international investment arbitration cases, shortcomings of this model exposed, which raised a lot of criticism and doubt. "Legitimacy crisis" is the most representative argument. The main reasons for international community to question the legitimacy of investment arbitration include the following aspects: firstly, investors could attribute losses to almost all regulatory activities of host countries once their interests affected by those policies and regulations, and then resort to international arbitration tribunal. Most commonly claimant is that those regulatory measures breached the "fair and equitable treatment" provisions of investment treaties or that consisted of "indirect expropriation." As a result, any legislative, judicial, administrative acts of host countries are likely to be subject to interference of International investment tribunal, even if original intention of those regulatory measures have noting to do with the foreign investors. Such excessive protection of investors is the biggest causation to "legitimacy crisis" of this mechanism. Secondly, different international arbitration tribunals, even for the same types of cases, may make different or even conflict decisions. Such inconsistency of arbitration awards contributes to the lack of reasonable expectations of investment dispute system.As a landmark in international investment law, NAFTA investment arbitration provisions and its high standards of investment protection rules have made the above mentioned problems more typical under NAFTA mechanism. This paper selects the practice of representative case to analyze the recent NAFTA investment arbitration practice, which shows that this system is far beyond the original intention when the rule makers- the United States and Canada who planned to defend the Mexican’s possible expropriation. While in practice, US and Canada are being frequently sued by investors from each other, their sovereign rights and proper public interests also got challenged. Some Western scholars even said that “NAFTA investment arbitration mechanism is a sword in the hands of foreign investors against the host country."Chapters II and III respectively explained the reasons for the above-mentioned problems and countermeasures. This paper discusses several reasons for the prevalence of international investment arbitration system to lead to the risk of the host public interest: the institutional tendency of protection of private property; lack of transparency in the arbitration proceedings; the tribunal’s expansive interpretation of the arbitration result decisions lack consistency. After that, this paper analyzes the causes of NAFTA investment arbitration mechanism. The fundamental reason lies in its high level protection of investors and investments, in particular, the following specific provisions of NAFTA, which is also the most important one: as long as the condition precedent are met, investors may file a request for arbitration directly to NAFTA investment arbitration tribunal, without obtaining the consent of the host country. Party States’ prior consent to the jurisdiction of investment arbitration tribunal exempts the following consent requirement, which means, approval of NAFTA itself would constitute the consent to submit the investment disputes to the arbitral tribunal. So long as investors bring the case to the tribunal, the host country is obliged to accept the jurisdiction of the respondent. More vividly that under the NAFTA mechanism, investors are riding on a train directly to arbitration.Chapter III addressed some possible solutions specific to the problems and causations discussed in Chapter II. Besides, the chapter introduces the relevant provisions of the recently concluded TPP with all three NAFTA State Parties as the contracting parties, which could be considered as the newly made efforts to interest balance and limit the excessive protection of investors. The improvement measures include two main parts – adding provisions concerning public interest protection and increasing the transparency of the arbitration proceedings. The provisions concerning investment and dispute settlement mechanisms of TPP inherited NAFTA’s high standard of investor protection, as well as took lessons from NAFTA practice. In order to prevent abuse of investor complaints, TPP deleted the pre-consent of state parties to submit the dispute to arbitration tribunal, and further required the disputing parties have to conduct friendly consultation and negotiation before initiating the arbitration proceeding. On the other hand, TPP further improved transparency requirement in arbitration proceedings and allowed more public participation.Based on the above three chapters, the fourth chapter describes the huge significance of paying more attention to the public interest protection issues of host countries, and follows some reasonable proposals. At present, China is both capital-importing country and the capital-exporting country, which have signed large numbers of bilateral investment treaties and regional trade agreements with investment rules. These treaties generally defined the investor- state arbitration mode as the most frequently used method to resolve international investment disputes. While in the field of international arbitration practice, China has not come across a lot of investment arbitration cases, but this does not mean that our country will not face those problems mentioned above. NAFTA’s lesson will contribute to our overall consideration of the pros and cons of this system, especially in safeguarding the sovereignty of the host country and the public interest. By learning useful experience, our government can do to take preventive measures in line with the actual needs of the system to find arrangements. Therefore, this paper put forward recommendations to improve from two aspects of international investment treaties and international investment arbitration system: we should set up fundamental security exceptions, impose terms and umbrella clauses and other "safety valve"; strengthen exhaustion of local remedies principle; improve transparency and public participation in arbitration proceedings; moderately open the "amicus curiae" system; try to establish the authority of the interpretation of the treaty bodies and the Appellate body, and then to improve the predictability of the outcome of arbitration.