RE-POLITICIZING INVESTMENT ARBITRATION: RETHINKING STATE RESPONSIBILITY AND INVESTOR RIGHTS

Abstract

Globally, investment arbitration has become the predominant form of alternative dispute resolution (ADR) between states and foreign investors. Under the investor state dispute settlement (ISDS) framework, foreign investors may initiate proceedings against states for alleged breaches of international treaty obligations and failures to fulfill state responsibilities. A substantial proportion of these disputes are administered by the International Centre for Settlement of Investment Disputes (ICSID). One of the foundational principles of ISDS is depoliticization, defined as the removal of diplomatic and political considerations from the adjudicatory process in favour of a neutral, rules-based system. However, in practice, tribunals have often failed to incorporate the broader socio-economic context of disputes, particularly in matters concerning environmental protection, public health, or economic emergencies. The findings of this research indicate that this omission can undermine a state’s legitimate regulatory discretion and contribute to disproportionate awards in favour of investors, sometimes amounting to billions of dollars. Such awards, as evidenced in Copper Mesa Mining Corporation v. Ecuador and Tethyan Copper Company v. Pakistan, have imposed severe financial burdens on developing economies, intensified perceptions of a colonialist bias in arbitration, and neglected the rights of affected local communities. The research further finds that the structural design of ISDS limits participation to the disputing state and the investor, thereby excluding claims by local populations who may be directly impacted by the investment. Consequently, investment arbitration has evolved beyond a private contractual dispute into a process with significant geopolitical and public policy implications. These dynamics have led several states to repudiate or renegotiate bilateral investment treaties (BITs) and multilateral agreements. Methodologically, this research adopts a qualitative approach, analyzing legislative frameworks and selected case law to examine the relationship between investor rights, state sovereignty, and third-partes participation. The study concludes that re-politicization in the sense of recognizing and integrating political, social, and economic realities into arbitral decision-making is essential to ensure fairness, justice, and financial sustainability in investor–state disputes. It further recommends expanding opportunities for directly affected local stakeholdersas third-party to participate as amicus curiae, thereby enhancing transparency and ensuring that the interests of impacted communities are meaningfully represented in the arbitration process.