Enabling Private Ordering: Function, Scope and Effect of Umbrella Clauses in International Investment Treaties

Abstract

This article deals with the function, scope and effect of umbrella clauses in international investment treaties.It proposes to analyze umbrella clauses not from the perspective of the traditional dualist framework that contrasts breaches of contracts and breaches of treaties, but instead develops the function of umbrella clauses against the background of an economic analysis of the relations between foreign investors and host States.The dualist approach, it is argued, fails to grasp the economic objective of investor-State cooperation to achieve costefficient bargains by attenuating the State's capacity to make credible and enforceable commitments and thus increases the costs of contracting with a sovereign.This article understands umbrella clauses as breaking with the dualist framework and its limited protection of contracts under customary international law.It argues that the function of the clauses consists of * Rechtsanwalt (admitted to the bar in Germany); Attorney-at-Law (New York);

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