Investment Misconceived: The Investment-Commerce Distinction in International Investment Law

Abstract

The question of what constitutes an “investment” under the ICSID Convention, and is thus subject to protection under that treaty, is hotly contested and far from clear. A near-universal consensus has nevertheless emerged as to what does not constitute an “investment”: “ordinary commercial transactions,” such as sales. This Article demonstrates that this consensus is both more influential and far more flawed than the present literature recognizes. First, this Article shows that the putative distinction between commercial and investment transactions has been operationalized as a heretofore unrecognized jurisdictional test, which I dub the “commercial transaction” test. As measured in terms of negative jurisdictional holdings, this test has been as, if not more, impactful than the far more scrutinized and debated Salini test. Second, this Article demonstrates that the putative investment-commerce distinction is fundamentally flawed—as a matter of interpretation, conceptually, and in practice. Economic principles, international commercial law, and investor-State case law show that there is no principled, predictable or textually-supportable distinction between commercial and investment transactions. Finally, this Article addresses the policy implications of scrapping the “commercial transaction” test. It argues that there are several factors that would limit the negative impact of abandoning the test, and that in any event, the test is a crude and ineffective instrument for achieving any of the policy goals that could arguably justify it.