Political risk and investment arbitration – again

In June, I had posted a note here reporting our findings on the relationship between the political risk an investor is exposed to in the country hosting its investment, and the likelihood that this investor will eventually file an investment arbitration claim to redress the effects of the materialisation of that risk. These findings were about oil and gas.

We’ve now expanded our study to all sectors of the economy.

Here’s the abstract:

Investment arbitrations should not happen too often, because they are costly processes for both parties. Yet they regularly happen. Why? We investigate the hypothesis that investment arbitrations are used as a means of last resort, after dissuasion has failed, and that dissuasion is most likely to fail in situations were significant political risk materializes. Investment arbitration should thus tend to target countries in which certain types of political risk has materialized. In order to test this hypothesis, we focus in this paper on two drivers of political risk: bad governance, and economic crises. We test various links between those two drivers of risk and arbitration claims. We use an original dataset that includes investment claims filed under the rules of all arbitration institutions as well as ad hoc arbitrations. We find that bad governance, understood as corruption and lack of rule of law (using the WGI Corruption and WGI Rule of Law indexes), has a statistically significant relation with investment arbitration claims, but economic crises do not.

In sum, the fact that a country is hit by an economic crisis does not seem to increase the chance that it will be sued in an investment arbitration.

Surprising? Perhaps not. When hit by an economic crisis, a country may become cautious and willing to negotiate more than on average.

The paper’s Cédric Dupont, Thomas Schultz and Merih Angin, ‘Political Risk and Investment Arbitration: An Empirical Study‘, Journal of International Dispute Settlement, 2016, forthcoming.

Advertisements

International Arbitration Scholarship: Forms, Determinants, Evolution

We have spilled much ink, we as a community, in our discussion of international arbitration. Much of it we have used on specific technical aspects of the laws and rules that apply to it, or that apply in it. A great deal too has gone to how good procedures are to be conducted. And increasingly, of late, we have written on how arbitration works beyond the rules – the rules which reflect some (but only some) of its true operations. We have taken interest in its broader social and economic significance. We are, now and then, zooming out from the bolts and screws and consider it at the level of an entire system. Engagements with problems that truly vex – truly vex beyond offering legal conundrums or presenting complicated logistical puzzles – no longer stand out today as so many sore thumbs. Or much less so.

Why? And where is it going? Why and how is international arbitration scholarship evolving? What are, to start with, its forms today? And why did we scholars make it what it is? Surely there is something – or rather many somethings – that determine what we write. What could they be?

These are the principal questions I seek to entertain in this chapter, which constitutes my report as research rapporteur for the conference celebrating the 30th Anniversary of the Queen Mary School of International Arbitration. It is also, to be fair, part of a bigger project that tries to understand how the thinking about law more generally is produced.

To be clear I do not offer here an elaborate study in the sociology of professions. Nor do I attempt to engage in advanced considerations of what forms the arbitral epistemic community or communities, and what forces animate that community. These are or would be meaningful endeavours, but they are not mine. The outline I offer is of necessity a sketch; I merely want to map a few conventional types of arbitration scholarship and mark some of the possible places where interests can be found that incentivise or constraint research in the field. The ambition is that these types and these interests can inform our perspective when we ponder how the thinking about arbitration law and practice is produced. Accordingly, the propositions I formulate are submitted, in this essay, to rational assent, not to empirical demonstration. Possibly a research programme could be developed to test these propositions. But this is not the point of this essay. Its point is heuristic.

I believe there is an important general point about arbitration that comes from thinking in particular about how scholarship on arbitration is produced. The general point is about what is likely to become of arbitration, about the support it will garner, the pains that will be visited on it, and the changes and adaptations that will be required of it – required of it and of its participants and stakeholders. Arbitration is indeed a fairly technical field, a fairly complex area of the law. And so it often appears that political powers have difficulties in understanding its intricacies, let alone in developing a reliable understanding of their own, distinct from what our discourses showcase – this is the very idea of regulatory capture by an epistemic community. It seems credible, however, that these same political powers will have no difficult in forming an opinion about the allure of the consequences of sundry arbitral regimes, and if their understanding of either the causes or the consequences is muddled by unhelpful discourses, unhappy things are not unlikely to follow.

The chapter moves in four parts. I begin with an overview of different forms of arbitration scholarship, what they seek to achieve and how, what from of thinking they correspond to and how they progress, all of this in quite general terms. This part ends with an impressionist account of the evolution of arbitration scholarship over the last 30 years.

With Part II, I turn to what incentivises and constrains scholarship in the field. I first enter a general approach, which draws heavily on the concept of reasons-for-action, which I combine with basic law & economics tenets. I further introduce a classic distinction between two types of such reasons-for-action.

In Part III, I apply this general approach to identify ways in which the pursuit of other people’s interests may determine what kind of arbitration scholarship we produce. In Part IV, the focus shifts, within the same approach, to the advancement of our own interests when we write on arbitration.

A final clarification bears noting: my stance is not evaluative. The intent of my chapter is not to dwell on the virtues and demerits of arbitration scholarship, or even, as I already said, to supply evidence of what it is we really do. I simply offer, without much further adornment, a lens for everyone to look at arbitration scholarship from the vantage of their own search.

Read more here.

Le Monde: Permanent Court or Arbitral Tribunals for the TTIP?

Two days ago, the European Commission released a document in which it suggests the creation of a permanent court – actually, two courts – to resolve investment disputes in the Transatlantic Trade and Investment Partnership. Florian Grisel (CNRS, King’s College London) and I comment on this, in the form of historical background from a century ago, in a piece for the French newspaper Le Monde.

A smart reply to some of my arguments in Transnational Legality

Sergey Tretyakov has written a very good paper taking on some of the arguments I make in Transnational Legality – more precisely the idea that something is or isn’t law, but cannot be law to higher or lower degrees. I think legality does not obtain by degrees (it is an on/off feature), he thinks differently. The article is smartly done and offers a good read. (I still think I’m in the right though.)

Time and the Creation of Norms of International Law

What we are willing to recognize as international law effectively creates international law. There are different forms of time, different temporalities that shape what we are willing to recognize as international law, and when we are willing to do so. This is the point I want to explore. Just a simple point. No big deal.

Time flows in different ways. Time is a social construct that we mould in different ways depending on what we want to use it for, what we want to make sense of. My speaking time right now is moulded by the hands – some poetry just this once – is moulded by the hands of the watch on my chairman’s wrist. It is a form of time, a temporality as Edmund Husserl put it,  that is measured in minutes and seconds. My speaking time is not shaped or measured by the time it takes me to make my point. This is a time of ticking clocks, not of flowing ideas. It is a physical temporality, not an ideational temporality, if you will.

Now we can also use different ways to measure time, different temporalities, find different landmarks in time to account for the problem that preoccupies us: the creation of norms of international law.

But before I get into this, I should explain this curious thing I said in my first sentence: what we are willing to recognize as international law effectively creates international law.

What I mean by this is the idea that international law, just as law generally, is a noetic unity. It is a concept not represented, not constrained as a concept by anything except our ideas about it. Law is whatever we make it be. Nothing is inherently law. Nothing is inherently not law. Our thoughts, our thinking, make law law, make international law international law. Our discourse about international law is what makes international law international law.

It is what creates international law.

And so the question I want to ask is this: what are the episodes, the rhythms, the temporalities, that mark our discourses about international law? What forms of the passing of time structure our recognition of international law as international law? What temporal landmarks pattern the practice of how we think about international law?

I think we can identify at least five. Let me address them in turn.

The first relates to simple Kuhnian paradigm shifts. As we know, according to Thomas Kuhn, scientific disciplines –international law for instance – are usually organised around a central paradigm, a central idea, a central set of beliefs and values, rules of truth, shared by the members of the discipline. Think of the idea that international law is necessarily the creation of states. How norms of international law can be created depend on what the paradigm says.

But then, more or less inevitably Kuhn says, trouble comes to town. Anomalies appear. Things, phenomena not explained by the paradigm are spotted ever more frequently. And they vex. The validity of the paradigm is questioned. New candidate theories line up to become the next paradigm. The paradigm in place resists for a time but eventually resigns, allowing a new paradigm to come to the throne and rule the field, determine what’s true and what’s false in the field, what is international law and what cannot be. The new paradigm creates new norms of international law, by recognising new norms as norms of international law.

The temporality, the temporal landmark allowing us to make sense of the creation of norms of international law is, here, the temporality of paradigm shifts. Notice that this form of time is neither homogeneous, nor regular, nor easy to control.

Now, and this brings me to my second temporality, many people since Kuhn have pointed out that there is a bit too much idealism in his theory: for Kuhn, paradigm shifts occur because the new paradigm offers a better explanation than the previous one. It is scientifically better. And so science inexorably progresses. But that may not necessarily be the case.

Paradigms, central ideas in a field, can also be imposed by brute force. My paradigm is better than yours because I’m stronger, and I impose it. I impose it by inundating the field with publications by my gang mates, by organising conferences around my central idea, by launching journals that take my approach, by telling my students that mine is the only correct way of thinking, the only acceptable way of thinking. And so my school eventually prevails over yours. The field is dominated  now by the New Haven school then by the NY school, now by the Chicago school then by the Cambridge school to be.

This now is the temporality of school struggles, of power struggles between schools of thought. This is the temporality of appointments in key positions around the world, of economic cycles also, or rather of cycles of economic policies regarding academia. Injecting money in certain institutions means – may well mean – injecting money in certain schools of thought, thus favouring certain rivals in the struggle between schools of thought. This empowers certain paradigms, certain understandings of what international law is. This may well amount to the creation, or the demise, of certain norms as norms of international law.

When will there be a significant dose of creation of norms of international law? One answer – one answer among many – one possible landmark for this, is when a new school of thought will prevail, prevail because it is stronger, not better.

Now what I’ve said so far, and with this I move on to my third temporality, what I’ve said so far assumes that there is only one community of international lawyers, within which different schools of thought battle for epistemological supremacy, battle for the imposition of their paradigm.

But that is a bit of a simplification. International law as a field of thought is much more fragmented than that.

International law is not the same thing for legal formalists, for the different offsprings of legal realism, for marxists and for critical legal scholars, for law & economics devotees, and so on and so forth. These are parallel, juxtaposed views, accounts of what international law is. These are parallel, juxtaposed communities of individuals who think about international law. These are parallel, juxtaposed drawings of the contours of international law. They are parallel, juxtaposed epistemic fields. They recognise, and by recognising create, different norms as norms of international law.

When a new community emerges of individuals who think about international law in a distinct way, according to a different paradigm, a different epistemology, the emergence of such a community may well mean the emergence of a new set of norms as norms of international law – in the relative view of that particular community.

So the temporality we have here is the temporality of the formation of distinct epistemic fields, which are as many distinct communities. There will be new norms of international when, among many other things, a new separate epistemic field develops that recognises such norms as norms of international law.

To my fourth temporality. Quite clearly, one’s epistemology, what one is ready to recognise as true, valid knowledge, is influenced by one’s interests. One’s epistemology is influenced by one’s interests. Think of a government lawyer, or a former government lawyer, who has interests (psychological or more tangible ones) in promoting or sustaining the power of governments. Such a person, because of his or her interests, is likely to have an epistemology that prevents him from recognising, possibly even in his or her most candid moments, that non-state actors can create norms of, say, customary international law. If one’s interest is that governments stay strong, one’s epistemology is likely to be such that only governments can create law, can create norms of international law.

So the temporality I’m talking about here is the temporality of the evolution of interests shaping epistemologies. When the interests of those who shape the thinking about international law change, their epistemology is likely to change, and the creation of norms of international law is likely to change too. Look out for such changes, and you’ll have one predictor for the creation of norms of international law.

Now what I’ve said so far is all quite rational – not rational in the sense that what I say is rational, but rational in the sense that it assumes rational behaviour on the part of those who think about international law.

But of course we aren’t always rational.

And so it may well be that our understanding of international law is, sometimes, influenced by other things than logical reasoning  and calculation and empirical observation. It may be influenced, for instance, by beliefs, beliefs almost in the religious sense.

For instance, we may well believe that law is something inherently good, and that states and their collective creations are something either inherently good, or at least better than other regulators. This may lead us to believe that international law must be created by states and by states only, regardless of the evidence, regardless of the epistemological sense it makes. States, one may well believe, must not only be the foundation of the international order, but must also exercise a hegemonic domination over it, because only states, one may believe, can dispense the sort of justice we want to associate with law. Kelsen in fact at some stage admitted to doing this.

When such a belief changes, what one is ready to recognise as international may well change too, and thereby international law effectively also changes. A simple change in belief may create new norms of international law.

And so the rhythm of change in the relevant beliefs is one of the rhythms, one of the temporal landmarks, one of the temporalities of the creation, and recreation, of international law and its norms.

And so I reach my conclusion.

To someone interested in the question of how the passing of time influences the creation of norms of international law, I want to respond that part of the answer lies in how the passing of time influence how we think about international law.

What temporalities, what rhythms, what times mark the life and death of international law, mark the creation of norms of international law? Certainly, the common ideas of enactment and abrogation, of the ebbing and flowing of customs, of breaches and decisions,  are pregnant answers. But they may not be the only ones: the temporalities of how we think of international law as international law offer an alternative set of ways to measure the passing of time in our efforts to understand the creation of norms of international law.

______________________________

This text was the basis of a lecture given at the conference “International Law and Time“, Graduate Institute of International and Development Studies, 12-13 June 2015. It is not intended, and does not read well, as a printed text.  But there you go.

Political risk materialises. Country gets sued by investor. Simple story?

It is often believed that investment arbitrations are filed because some form of political risk materialized, harming the investor’s interests. The story seems simple and convincing. But is it true? Or, a more properly academic question, when exactly is this a true story, under what conditions?

Colleagues and I have examined certain aspects of that question in a paper entitled “Types of Political Risk Leadings to Investment Arbitrations in the Oil & Gas Sector“, which is forthcoming in the Journal of World Energy Law & Business. To be specific, we examine which types of political risk, present in the host state, eventually lead oil & gas investors to file investment arbitration claims against that state.

What we find is that bad governance and economic nationalism seem indeed to be conducive to arbitration claims in the oil & gas sector. But, curiously, it appears that economic hardship does not have the same triggering effect.