The Challenges of Applying the Principle of Proportionality in Striking a Balance in the Investor-State Relationship - From the International and Chinese Perspectives

Abstract

One significant concern in the current international investment is the imbalance between foreign investors' interests and the host state's right to regulate in the public interest. Broad investment protections are enjoyed by foreign investors, such as the protection of legitimate expectations included in fair and equitable treatment, whereas the host state's regulatory power for the public interest is somewhat restricted. How to strike a balance in such an imbalanced investor-state relationship is being considered by states, including China, to deliver their sustainable foreign investment.

Proportionality, which first originated in Germany, has been noted by scholars as an appropriate tool to strike a balance between private rights and the state's regulatory power by three consecutive assessments of suitability, necessity, and proportionality stricto sensu, respectively. However, how to bring this method into the settlement of investor-state disputes and how to apply it to balance conflicting values between foreign investors and the host state raise debates. Due to its failure to fulfil the requirements of Article 38 (1) of the Statute of the International Court of Justice, the application of proportionality depends on the interpretation of each case. Proportionality can be applied if it is expressed in the case-related treaty or included in the host state's domestic law, which is the applicable legal instrument of the case. A systemic interpretative method is then needed to apply proportionality in investor-state arbitration.

This research tests the possibility and practicability of applying proportionality in striking a balance between the investor-state relationship from the international and Chinese perspectives to ascertain an appropriate method to balance the investor-state relationship in international investment, particularly in Chinese international investment. Due to its dual role in international investment, a balanced investor-state relationship is in China's interest. The approach it adopts may also benefit the capital importer and exporter.