Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 9
Zauberlehrling, arbitral tribunals seem to be afraid of the
independent lives umbrella clauses could assume once released
into uncontrollable freedom: “Spirits that I’ve cited/My
commands ignore.” 15
Certainly, the main reason for this concern is the lack of
textual and interpretative guidance provided by investment
treaties for alleviating the multiple insecurities surrounding
umbrella clauses. In particular, only having regard to the
wording of most umbrella clauses, without a conceptual
framework of their function, scope, and effect in mind, will
hardly solve the difficult interpretative conundrums connected
with their implementation and application. Similarly, academic
writing only offers glimpses into a more conceptual framework
for the function of umbrella clauses. Such writing is particularly
scarce in drawing connections between the different
interpretations of umbrella clauses and the economic effects
these interpretations have on investor-State relations, although
investment treaties intend to establish a framework “to protect
and to promote foreign investment flows between the
contracting State parties.” 16 This objective suggests that
investment treaties aim at establishing institutions that govern
the relations between the State, the economy, and individual
economic actors, 17 and that are conducive to increasing transborder
investment flows and eventually economic growth and
development. 18
Surveillance S.A. v. Islamic Republic of Pakistan, ICSID (W. Bank) Case No.
ARB/01/13, Decision on Objections to Jurisdiction, para. 167 (Aug. 6, 2003) (arguing
that a broad interpretation would be too burdensome on contracting parties); see
also Gill et al., supra note 1, at 405 (commenting that the Tribunal in SGS v.
Pakistan feared that a broad interpretation of the clause would “potentially open the
floodgates” to an unlimited number of reciprocal or unilateral commitments by the
host State independent of their legal status in domestic law); Wälde, “Umbrella
Clause” in Investment Arbitration, supra note 4, at 215 (discussing arguments for
why the Tribunal in SGS v. Pakistan feared “opening the floodgates”).
15. JOHANN WOLFGANG VON GOETHE, Der Zauberlehrling, in GOETHE, THE
LYRICIST 102, 109 (Edwin H. Zeydel trans., The University of North Carolina Press
1955) (1779).
16. See DOLZER & STEVENS, supra note 3, at 11–13, 20–25, on the object and
purpose of investment treaties and the statements contained in their preambles.
17. See DOUGLASS C. NORTH, INSTITUTIONS, INSTITUTIONAL CHANGE, AND
ECONOMIC PERFORMANCE 3 (1990) (stating that institutions are “rules of the game
in a society or, more formally, are the humanly devised constraints that shape
human interaction”). Contracts and dispute settlement mechanisms for their
enforcement are institutions in this sense.
18. For a discussion of the connection between institutions and growth, see THE
LAW AND ECONOMICS OF DEVELOPMENT (Edgardo Buscaglia et al. eds., Jai Press
1997); Jean-Philippe Platteau, Institutions, Social Norms, and Economic