Investor-State Dispute Prevention: A Conceptual Framework

The significant escalation in the use of investor-State arbitration over the last decade has revealed a series of shortcomings of the existing investor-State dispute settlement system that risk to corrode the legitimacy of the international investment regime as a whole. Investor-State arbitration has turned out to be a costly, rights-based process that can leave both investors and host States dissatisfied with both the process and outcome. Further, increased litigation curtails the possibility to develop long-term harmonious relationships between foreign investors and host States an outcome which in fact would be contrary to one of the key objectives that IIAs are supposed to promote, i.e. the creation a political and economic environment in host States conducive towards increasing investment inflows. Within this context, this paper argues that it is necessary to complement the existing dispute resolution procedures with an effective investor-State conflict management system that can enable host States and investors to effectively prevent their conflicts from escalating into full-blown investor-State disputes. This paper proposes a conceptual framework to design and implement an investor-State conflict management system, comprising both dispute prevention policies (DPPs) and mechanisms (DPMs) which can be implemented both, through State-to-State cooperation or at a domestic level by host States. Further, this paper sketches the fundamental approaches and elements that such DPPs and DPMs could have in order to make the investor-State conflict management system to fulfill its role.