State-to-State Investment Treaty Arbitration: A Hybrid Theory of Interdependent Rights and Shared Interpretive Authority

Most investment treaties contain two dispute resolution clauses: one permitting investor-state arbitration for investment disputes and the other permitting state-to-state arbitration for disputes concerning the treaty’s interpretation and/or application. Despite this duality, the potential role of state-to-state arbitration, and its proper relationship with investor-state arbitration, have largely been ignored. However, recent cases, including Peru v. Chile, Italy v. Cuba, and Ecuador v. United States, demonstrate the need to examine the potential and limits of this form of dispute resolution and to consider its implications for the hybridity of the investment treaty system as a whole. One reaction to the re-emergence of state-to-state arbitration has been to view it as a dangerous development that threatens to infringe upon investors’ rights and to re-politicize investor-state disputes. This has led some to suggest radically curtailing the scope and availability of state-to-state arbitration in favor of investor-state arbitration. This Article argues that these attempts are inconsistent with the text, object and purpose, and history of investment treaties. The co-existence of these two forms of arbitration without a clear priority mechanism reflects the system’s essential hybridity and cannot be wished away. This duality helps to demonstrate that the goals of investor protection and the depoliticization of investor-state disputes are important, but not absolute. Instead, the re-emergence of state-to-state arbitration represents an important step toward a new third era of the investment treaty system in which the rights and claims of both investors and treaty parties are recognized and valued, rather than one being reflexively privileged over the other. The investment treaty system has evolved from its first era, which focused exclusively on states’ rights and state-to-state arbitration, to its second era, which focused primarily on investors’ rights and investor-state arbitration. Instead of being an illegitimate or regressive development, the re-emergence of state-to-state arbitration represents a permissible and potentially progressive mechanism by which treaty parties can re-engage with the system in order to correct existing imbalances and help shape its development from within. More generally, the co-existence of investor-state and state-to-state arbitration requires a hybrid theory about the nature of investment treaty rights and the allocation of interpretive authority. This Article argues that: investment treaty rights should be understood as being granted to investors and home states on an interdependent basis, such that either—but usually not both—may bring arbitral claims; and interpretative authority should be understood as being shared between the treaty parties, investor-state tribunals, and state-to-state tribunals. This hybrid theory has the potential to help resolve other controversial issues within the field.