Interview with Nicolás M. Perrone: Investment Treaties and the Legal Imagination – Part II: More than winning and losing

 In part I of this series, Dr Nicolás Perrone and ILA Reporter Assistant Editor Stephanie Triefus discussed the meaning of the legal imagination. This part elaborates on the content of Dr Perrone’s book and how and why the debate around how we talk about international investment law should evolve. 

ST: In your book you discuss the Philip Morris v Uruguay arbitration, which is similar to the claim brought against Australia by Philip Morris via the Australia-Hong Kong BIT. The current Australian government is not concerned about ISDS because Australia ‘won’ this arbitration, and so continues to favour ISDS in its review of its investment agreements. What does the reasoning in these awards tell us (or conceal) about how investment arbitrators conceive of the state’s right to regulate? 

NP: There is a document from the Cologne Society from around 1956 or 1957 that was submitted to the World Bank, that was saying that state regulation is very dangerous, and we should be careful about it. But then when more lawyers got involved, they were more nuanced, saying that of course the state needs to regulate, regulation is totally fine – the American Bar Association was saying that certain regulations are fine, but other regulations go too far. Something that they were very interested in back then was to make it impossible for Global South governments to expropriate when a provision prohibiting nationalisation was included in concession contracts. So they wanted to interpret a contract in a way that could trump states’ right to expropriate, even if that right was part of customary international law and enshrined in the General Assembly Resolution on Permanent Sovereignty over Natural Resources. So it’s not always obvious which regulation is the one that they want to prevent or make more difficult to implement. It depends on corporate needs, existing public policy and, of course, lawyers’ creativity.

For me a good example is the environmental cases. These disputes represent a struggle over the definition and purpose of the environment; nobody really questions that we should take care of the environment. Take Thomas Wälde, the well-known investment scholar and arbitrator, he would characterise environmentalists as using the environment as a Trojan horse to attack globalisation. Investment law is creating a sense of what the environment is, which is a source of natural resources. In Glamis Gold v USA, the US defended itself by saying they were striking a balance between the rights of the Indigenous peoples, the environment and the foreign investor, and the Tribunal said that’s really good, this is how things should be done. The rights of the foreign investors and the environment are on the same level. That means, in the context of a climate emergency, we are putting everything at the same level – but we need to change our priorities. The environment is not negotiating with the state, having meetings with public officials, it is not getting representations. Indigenous communities are not getting representations either. The only ones who do that are foreign investors. Whenever you are doing a proportionality analysis, balancing things, this is what you’re balancing against: in the background, there is a way in which foreign investment operates, which is this transactional model, and it’s also the meaning that investment law gives to things like the environment. 

Businesses will accept some regulation, I agree with that, but the problem is when governments want to do something more exciting, be more experimental, really want to care about the climate emergency. That’s a little bit too complicated for investment law. As long as it’s a balanced, proportionate way of regulating, it’s fine. Some would say that as long as we define proportionality in the right manner then maybe it’s not that big of a deal. The problem is that we have these tribunals operating against this transactional model, and they define what the environment is through global expertise and scientific evidence. This second aspect is very important as well. Something quite similar happens elsewhere in international economic law – governments need to show that they are operating by rational, reasonable standards that are based not on their political views about how the world should be organised, but about their technical views about the negative or positive effects of certain things. 

So governments and the population cannot say ‘we don’t want this’, they have to say ‘these cause negative implications for the environment and if you balance the negative implications against the rights of the investors then we can do X or Y’. This leads to cases like Phillip Morris, because if you look at the way the case is decided, you see that Uruguay is relying on what the World Health Organization (WHO) and the Pan-American Health Organization were saying; the tribunal was very deferent to the idea that there is a global consensus that tobacco is a problem. But the global consensus that tobacco is a problem did not translate into the idea that whatever Uruguay is doing fine, it translated into the idea that whatever Uruguay is doing that the WHO told Uruguay to do is fine. 

There is some space for divergence, and I think the plain packaging case shows how far you can go. But it doesn’t operate the other way around. When states are giving incentives and benefits for new investment projects – they don’t need technical evidence, or the World Trade Organization saying it’s the right thing to do. Excessive incentives may create more problems than solutions for host countries; yet, their legality, legitimacy or appropriateness are not discussed by international investment law literature. So you see the sort of mechanism in which this transactional way operates for foreign investors and states. Incentives are loosely or not regulated, but measures to promote public interests are disciplined by investment treaties and ISDS.

I am frustrated with the way that we govern foreign investment. This goes beyond investment treaties and ISDS, but to some extent we are kind of stuck with investment treaties and ISDS, governing foreign investment through the lens of ISDS and investment treaties. So you get human rights people going into international investment law as opposed to the investment people going into the human rights system – we are trapped in this canon of imagination and it’s difficult to break it. Whether you win or lose the case is just an anecdote in that systemic sense. 

ST: While the purpose of the book is not to propose an ideal model to govern foreign investment relations, you do offer some comments on how the debate should move beyond the current binary discussion either rejecting or approving of investment treaties and ISDS. What is problematic about the current debate and how do you propose to move forward?

NP: So if you look at the way the norm entrepreneurs operated, they thought up a different investment law – there was some investment law there, but the parts they didn’t like they imagined something different. They created an investment treaty model, they wanted to have it multilaterally and took it to the OECD. When that didn’t work, governments started signing bilateral investment treaties, and they took what they could get. So they wanted the law to evolve, but they also wanted to change it. And they were looking at the rights of investors as a key element to produce a transformation. It’s interesting because the New International Economic Order was not doing something so different – it was saying we need to look at the rights of states differently, to evolve and change the law. So there was a bit of a competition there, of different projects. 

My critique to some critics is that there is a bit of a vacuum – there are no alternatives. I think alternatives are very important here, in the sense that you need to have options. What the norm entrepreneurs did in the 1960’s was give us a lesson, which is that even if it was against the canon of the moment, they kept talking about it. And I think we should talk more about how things could look different. It’s a question of triggering an important conceptual shift. So in the conclusion of the book, I say we should move from investments to social relations; at the moment everything is focused on the idea of investments. We could think about investment law in a completely different way if we focused on the social relations that particular investment projects create. Then investment law should have a mechanism, or an imagination, that is capable of dealing with everything that is happening there, at the local, national and global level. 

For me it’s not just about having the best possible critique, we should also try to turn that critique into alternatives. I agree that states are not necessarily going to accept it today, but that’s fine – it took 30 years before the Abs-Shawcross model became the global standard. And for me, thinking about alternatives will be fun – it will be fun to stop thinking about fair and equitable treatment and expropriation and bilateral treaties, to sit down and think about things differently. For instance, we could have an international organisation dealing with foreign investment, where states are the only members and investors don’t have a voice, they speak through states. We could think about re-implementing the need for exhaustion of domestic remedies and saying that the only cause of action is denial of justice, and arbitrators will have to interpret not just domestic law and international law but also the decision of the national judges, which would bring into account whatever is happening socially in the country. I may not like the opinion of particular national judges, but at least they were appointed through the institutional mechanisms of the community and represent the way some people in that community think about the law and values. And that would be a very different system to what we have today – and not the system that the norm entrepreneurs wanted because they wanted a system that would give foreign investment a very special status in the economy. 

I would love that kind of conversation but it is difficult to get it at a policy level because governments don’t seem to be very interested, but maybe there is space for that, and that’s the call of the book at the end – to see whether we can think more creatively about international investment law and forget for a while the investment treaty law. We can think about international investment law in many different ways, but investment treaty law really narrows down our canon of imagination.  

The ILA Reporter thanks Dr Perrone for his time.

Stephanie Triefus is a PhD Candidate at Erasmus University Rotterdam in the field of human rights and international investment law and an Assistant Editor of the ILA Reporter.

Suggested citation: Stephanie Triefus, ‘Interview with Nicolás M. Perrone: Investment Treaties and the Legal Imagination – Part II: More than winning and losing’ on ILA Reporter, 16 April 2021 <>

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