Provisions concerning the settlement of investment disputes are a
central feature of international investment agreements (IIAs). The present
paper deals with such provisions as they pertain to State-to-State disputes.
Such disputes are relatively rare, in that the bulk of investment disputes
arising under IIAs involve investor-State disputes. These are the subject of
another paper in this Series.
The following principal issues raised by State-to-State dispute
settlement provisions provide the focus for discussion throughout the
paper and are specifically discussed in section I. First, the types of disputes
that could trigger a State-to-State procedure need to be identified. State-toState
disputes can arise out of either the exercise of diplomatic protection
on the part of the home State of the investor (though this is increasingly
rare given the existence of investor-State dispute settlement provisions that
give direct rights of action to the investor) or as a result of a dispute over
the interpretation or application of the IIA. Secondly, the procedures
governing dispute settlement mechanisms need to be considered. These
involve: negotiations and consultations which are nearly always required
as a preliminary step in the dispute settlement process; ad hoc inter-State
arbitration, which is most prominently featured in IIAs; permanent arbitral
or judicial arrangements for dispute settlement; and political or
administrative institutions whose decisions are binding. Third, the
applicable standards for the settlement of disputes need to be agreed. This
issue raises the further question of which law is to govern the resolution of
the dispute at hand. Fourth, the nature and scope of outcomes of dispute
settlement mechanisms need to be addressed and, fifth, compliance with
dispute settlement awards. The substantive provisions of IIAs that cover
each area are examined in section II of this paper.
Section III of the paper considers the various interactions that exist
between the present topic and others that arise in the context of IIAs. The
most significant one is between State-to-State and investor-State dispute
settlement. As regards other areas of interaction, two main categories of
such interactions can be identified. First, there are provisions in IIAs, the interpretation or application of which could normally be expected to be
directly at issue. These include the scope of coverage and definitions of
investors and investments, admission and establishment commitments and
obligations concerning standards of treatment (fair and equitable
treatment, most-favoured-nation treatment, and national treatment), host
country transfer of funds, and the taking of property. Second, there are
those interactions that would result, either directly if certain topics are
expressly addressed in IIAs, or indirectly in so far as measures relating to
such topics would give rise to issues with respect to the topics in the first
category identified above. These include competition law and investmentrelated
trade measures; employment, environmental and tax laws and
regulations; State contracts; incentives; illicit payments; transfer of
technology; and measures taken by an investor’s home country with
respect to the social responsibility of investors or in response to transfer
pricing.
Finally, the last section of this paper considers the various options
open to negotiators when drafting State-to-State dispute settlement clauses.
The most basic choice is whether to include or to exclude provisions on
this subject. Where the latter choice is made further alternatives exist as to
how to deal with each of the issue areas identified in sections I and II.
These are laid out in detail in the last section