Against Balancing: Revisiting the Use/Regulation Distinction to Reform Liability and Compensation Under Investment Treaties

Posted: 29 Aug 2020 Last revised: 10 Jun 2021

See all articles by Jonathan Bonnitcha

Jonathan Bonnitcha

University of New South Wales

Emma Aisbett

ANU - School of Regulation and Global Governance

Date Written: June 20, 2020

Abstract

Investment treaties generate mutual benefits for host states and foreign investors to the extent that they discipline opportunistic conduct by host states. Investment treaties do not necessarily generate mutual benefits insofar as they constrain states’ ability to respond to new information or to change their policy priorities. In a companion paper, we use the tools of law and economics to formalize and clarify the relationship between problems of opportunism on the one hand, and new information and shifts in policy priorities on the other. On this basis, we develop a proposal to reform the legal principles that govern liability and compensation under investment treaties that is narrowly targeted to solving the problem of host state opportunism.

In this paper, we situate our proposal in relation to existing academic debates, explore its implications in practice and consider additional policy arguments for our proposal beyond the criterion of Pareto improvement deployed in our companion paper. In particular, we show that our proposal develops a line of scholarship which posits that a court or tribunal should distinguish government use of private property from government regulation of private property, with only the former requiring compensation. We argue that our proposal resolves many practical challenges with previous attempts to develop a workable jurisprudence based on the use/regulation distinction and show how our proposal could be operationalized in practice. We further argue that there are strong political economy and democratic arguments for preferring our proposal to the status quo.

Keywords: investment treaties; IIAs; ISDS; compensation; damages; use; regulation; balancing; investment; property; law and economics

JEL Classification: D60; F21; F63; K11; K33

Suggested Citation

Bonnitcha, Jonathan and Aisbett, Emma, Against Balancing: Revisiting the Use/Regulation Distinction to Reform Liability and Compensation Under Investment Treaties (June 20, 2020). Michigan Journal of International Law, Vol. 42, No. 2, 2021, Available at SSRN: https://ssrn.com/abstract=3637634 or http://dx.doi.org/10.2139/ssrn.3637634

Jonathan Bonnitcha (Contact Author)

University of New South Wales ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Emma Aisbett

ANU - School of Regulation and Global Governance ( email )

Canberra, Australian Capital Territory 2601
Australia

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