International Investment Law as a Global Public Good

Abstract

The key characteristic of a public good is that it serves the well-being of the public. Today, however, individual well-being is often conditioned not only on the receipt of state public goods, but also on the receipt of global public goods. In part, this is because the rise of globalization has resulted in complex interconnections between states. For this reason, global public goods can bestow benefits on much of the world’s population.

The system of international investment law (IIL) is slowly arising as one type of a global public good. Principally, the system of IIL meets the two characteristics of public goods: non-rivalrous and non-excludable. First, it is non-rival in that use of IIL by one state or one foreign investor does not detract from the system’s utility for other users. Second, with the adoption of over 3,000 international investment agreements (IIA), the system of IIL is becoming less of a club good and more of a system of law whose benefits are non-excludable. The standardization of many of the agreements’ provisions has resulted in commonalties despite the lack of a multilateral agreement and some have even argued that aspects of IIL have reached the status of customary international law. As a result, many of the benefits of IIAs transcend the individual agreements to be available to more than just signatories and their nationals.

In this sense, the system of IIL – the actual standards of protection, the meaning of those standards and the behavioral expectations they entail – has resulted in a type of global public good that benefits the world at large. These benefits include first, the provision of an overarching legal framework that guides foreign direct investment (FDI) activity and enhances its predictability and, second, the creation of a system that ensures that FDI benefits both states and investors alike.

The system of ILL, however, is failing to bestow both of its benefits. First, the system is exhibiting failures in indicators of legitimacy – for example by producing incoherent jurisprudence and using indeterminate rules – thereby limiting the system’s ability to establish an overarching framework for FDI activity. Second, a failure by arbitral tribunals to recognize the role of FDI in promoting a state’s development is hindering its ability to ensure that FDI benefits both investors and states. Viewing the system of ILL through a global public good lens thus highlights the system’s shortcomings, allowing for correction of these issues, and allows the system of ILL to attain the status of global public good that it deserves.

Keywords: Public goods, international investment law, economic development, legitimacy, system

JEL Classification: F1