Using the public law concept of proportionality to balance investment protection with regulation in international investment law: A critical appraisal

Abstract

Due to the adjudication of a large range of regulatory measures under investment treaty arbitration (ITA), the belief that bilateral investment treaties (BITs) fail to balance investment protection with a host country's right to regulate has gained currency as of late. In order to balance investment protection with regulation, many scholars have advocated for the use of public law principle of proportionality to interpret BITs. This paper critically examines the application of the principle of proportionality in BITs under four heads. First, given the fact that many questions related to independence and impartiality of ITA remain unanswered, the use of proportionality in ITA might further dent the credibility of the system by granting significant discretion to arbitrators. Second, proportionality principle has been applied in a flawed manner by many arbitral tribunals, which raises doubts about its application. Third, one should be very careful in relying on jurisprudence of European Court of Human Rights and the WTO to support the application of proportionality in ITA because of the many contextual differences between the two. Fourth, when interpreting BITs, application of principle of proportionality in many instances will completely ignore the clear textual language and thus violate the rules of treaty interpretation.