Endangered Element of Icsid Arbitral Practice: Investment Treaty Arbitration, Foreign Direct Investment, and the Promise of Economic Development in Host States

The omission to define the term “investment” in the ICSID Convention is one of the most critical decisions that has led to inconsistent jurisprudence and the resulting debate regarding the propriety of the ICSID Convention and investment treaty arbitration. The legislative history and the circumstances leading to the birth of the ICSID Convention strongly suggest that its main objective is the protection and promotion of economic development in the host State. Most of the propositions aimed at giving a meaning to the term “investment” in ICSID arbitral practice have focused more on whether the scope of the meaning of “investment” should extend to any plausible “economic activity or asset.” The focus of this approach is flawed. It has relegated the element of “contribution to economic development” of the host State to the back seat of investment treaty arbitration. This article challenges this relegation as historic to the ICSID Convention. The article argues that from the standpoint of the host State, the ICSID Convention is meaningless if the analysis of the relationship between FDI and investment treaty arbitration excludes considerations of economic development in view of the omission in the ICSID Convention. The article hinges this argument on the implication of international development as the main foundation of the ICSID Convention. The article acknowledges the difficulty that may be associated with the determination of an “investment” that contributes to economic development, but contends that relegating the element of “contribution to economic development” to the back seat of investment arbitration is contrary to the main objective of the ICSID Convention in host States.