The Cost of Uncertainty - The notion of investment in Bilateral Investment Treaties and ICSID Arbitration

Abstract: Bilateral Investment Treaties (BIT) are entered into by two state signatories wishing to promote, protect and liberalize investments. A BIT protects a private party, that is an investor having made an investment, by allowing for such a private party to address judicial recourse against a state signatory under the Washington Convention (the Convention). The Convention provides jurisdiction for the International Centre for Settlement of Investment Disputes (ICSID/ the Centre) for disputes arising directly out of investments. However, the Convention contains no definition of the term ''investment''. The ICSID being relatively new and not bound by the principle of stare decisis, lacks a clear and firm body of case law defining investment for purposes of the Convention. Thus, it is difficult for treaty drafters to define the term ''investment'' so that the treaty definition corresponds to the definition under the Convention as established by ICSID. The basic outline is that drafters may narrow the definition of investment in order to decide what disputes shall be allowed to be submitted to the ICSID. Drafters may not extend the jurisdiction of the Centre by widening the definition by way of treaty. In practice, it is not always evident that ICSID allows the Convention to overrule BITs, as the parties' autonomy is regarded. The lack of consistent jurisprudence in this respect provides for an uncertainty among investors. This leaves investors not knowing if they are protected by the treaty or not. Although it is difficult to provide a solution for this problem, there are in my view two main ways of improving the interplay between ICSID, the Convention and BITs. The first being, to develop a body of jurisprudence by consistently applying certain criteria that an asset must have in order to be regarded as an investment. The second is that treaty drafters should use the same criteria in order to define ''investment''. If there is no change in the interplay between the Convention, the BITs and jurisprudence, investors may use other means of recourse. A lack of interplay opposes the purposes for the Convention and may, in the long run, cause investors to be more careful in choosing when and where to invest, hence limiting investment promotion, protection and in an extended period of time&semic liberalization.