Global Governance Centre
28 January 2020

Institutionalizing Subsidiarity in the Reform of Investment Adjudication

Current negotiations on the reform of investor-state dispute settlement aim at establishing credible constraints on adjudicators. If (re)designed based on the principle of subsidiarity, international investment adjudication could supplement rather than substitute or challenge domestic processes. Here is what that institutional design choice would mean for the standard of review, the role of domestic judicial procedures, the selection of adjudicators and complementary institutional safeguards.

One of the main challenges for the reform of investor-state dispute settlement – currently under debate at the United Nations Commission on International Trade Law (UNCITRAL) – stems from the perception that some investment tribunals construe international legal rules too widely and, as a result, intrude into the policy space of states when they assess whether states have violated investor rights under bilateral (or multilateral) treaties on investment protection. Responding to this challenge effectively will require the institutionalization of greater restraint in the design of future mechanisms for the settlement of such disputes. A step in this direction would be the explicit introduction of a principle of subsidiarity in any new, or revised, mechanism. Making investor-state dispute settlement a truly ‘subsidiary’ remedy would help to make it a limited corrective of, rather than a substitute for, domestic legal processes and national policy choices.

The principle of subsidiarity has found increasing interest in the context of international courts, international institutions and global governance institutions more generally. First introduced in the European Union (EU) as a general norm for the distribution of powers between national and European institutions (see Article 5(3) of the Treaty on European Union), subsidiarity has recently been adopted as an instrument to ensure greater restraint in the European Court of Human Rights. With slight variations, it is also present in the International Criminal Court (as ‘complementarity’) as well as a variety of regional integration institutions and courts. The principle establishes a presumption in favour of decision-making at lower levels and is widely seen as an adequate reflection of democratic standards for issues on which decisions taken in one state do not directly and significantly affect core interests of citizens of other states (see here, and here). This applies to issues of economic policy, including investment, insofar as states have not unambiguously accepted international rules constraining them.

Institutionalizing subsidiarity would have implications for different aspects of the design of investment adjudication, especially the standard of review, the role of domestic judicial procedures, the selection of adjudicators and complementary institutional safeguards.


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