States have been actively engaged in negotiating “new generation” international investment agreements (IIAs) for the past twenty years to address legitimacy concerns regarding investor state dispute settlement (ISDS). These new IIAs are complex, longer than the initial treaties, and attempt to balance investor protections and the right of states to regulate. In his excellent new book Investment Arbitration and State-Driven Reform: New Treaties, Old Outcomes, Wolfgang Alschner examines awards rendered under these new generation treaties to find that, surprisingly, they continue to yield old outcomes. Based on a systemic, evidence-based, and interdisciplinary perspective, Alschner frames his book as “a holistic account of how states have changed the investment regime through their evolving treaty practice, how ISDS tribunals have rolled back changes by interpreting new treaties like old ones, and how states and tribunals can successfully modernize the investment regime by reading and reforming old treaties in light of new ones.”Footnote 1 Through a unique and interdisciplinary methodology, Alschner sets out to understand “how we got here, what is wrong with where we are, and what we can do about it.”Footnote 2
On this basis, Wolfgang Alschner founds the thesis for his book, arguing that innovations, novel features, and the rebalancing of investment protection and state sovereignty in the new generation treaties unfortunately “do little to address the regime’s legitimacy crisis.”Footnote 3 The tales of Eco Oro v Colombia and Bear Creek v Peru should serve as warnings, heads Alschner. They are but the most recent illustrations that new treaties fail to follow their promise. Hope seems lost and interpretations relying on old treaties demonstrably are still used. High stakes landmark cases under new generation agreements — Gold Reserve v Venezuela, Eco Oro, Bear Creek, and Copper Mesa v Ecuador,Footnote 4 wherein “the tribunals confused the flexibility states enjoy under customary international law with the complementary flexibility that states acquire under a general exception, which dulled the effect of the exception”Footnote 5 — all bear the common trait of disenchantment and unmet expectations. As with Gold Reserve, “which borrowed from precedents rendered under older investment treaties that lacked exceptions to make sense of Venezuela’s environmental defense,”Footnote 6 these cases brought under new generation treaties have failed to yield the expected promises of change.
These awards reveal the true culprits of an apparent failure of effectiveness of the states’ reform of IIAs: the arbitrators. Thus, the backlash on which the book is focused is not so much that of civil society or investors, as is usually the case. Alschner writes, instead, that “[s]tates efforts to reform the international investment regime have triggered a backlash by arbitrators.”Footnote 7 The book attempts to debunk several myths — the most important being that “arbitrators are the main engine of normative change, with states playing a primarily reactive role.”Footnote 8 Interestingly, the author sets out an important paradox of the book. Whereas the “backlash against arbitration”Footnote 9 is often founded in states finding out that their bilateral investment treaties (BITs) can be used against them when they first have to face claims and, thereafter, react by “narrowing interpretations and by infusing more policy space language into their agreements, in part, to escape liability,” Alschner presents evidence to the contrary.Footnote 10 The empirical content analysis of thirty-three hundred plus IIAs rather reveals that states have changed their treaty design in a continuous manner and not in reaction to claims. General exceptions, seen as one of the most crucial design innovations, in fact predate the rise of investment claims. As for other core investment protections, the author recalls that Western states merely draft more assertively their views in the treaties rather than change them. States are therefore revealed as “proactive lawmakers.”
It is thus against the backdrop of the new generation treaties concluded by states that Alschner attempts to understand why these updated treaties fail to provide the expected outcomes. Instead, in a surprising result, Alschner’s empirical investigation reveals that, despite these new texts, arbitrators continue to find as though they were deciding on the former old protections provided by first generation treaties. In Alschner’s words, these new treaties provide old outcomes. The promise of the book seems at times too broad to hold, and yet Alschner delivers on his undertaking. Reading at times like a mystery novel, while always of the highest scientific quality, Alschner pulls off an exciting feat. He demystifies empirical research and, through his analysis, takes us on a journey to understand where the ISDS regime went wrong and what might one, and, in this case, the states, do to resolve its legitimacy crisis.
This book, writes Alschner, can be read separately or as a whole. While the product of a holistic investigation, Alschner suggests that “busy readers may choose to focus their attention” as he teases out essential elements for the appropriate public. Chapter 1 of the first part of the book is a crucial insight into computational analysis; Chapter 2 provides insight into the (in)completeness of treaties. The second part of the book focuses on Alschner’s troubling findings that new treaties are read like old ones, and the third part could be the sole focus of negotiators and policy-makers as it provides several avenues towards a reform path more likely to yield expected results of new interpretations of new treaties.
Alschner manages to take us through a thrilling ride setting out the historical context, current issues, and proposed solutions. As he writes, “the in-depth empirical study provides a thorough review of the main substantive issues which are at the heart of the regime contestation of ISDS.” Alschner sets out to investigate the reasons why, despite new treaties having been implemented, arbitrators interpret them through the lens of old agreements. In an attempt to make sense of the continuing insufficiencies of ISDS, Alschner takes us on an in-depth analysis structured in three parts. The first part of the book focuses on the method – and explains the value of an empirical study to present the findings. As with the entire book, the author seeks to understand the results yielded by the new treaties. In the second part, Alschner focuses on three main areas under which the outcome of the new treaties can be analyzed: (1) most-favoured nation (MFN); (2) custom; and (3) precedent. In this central part, he sets out the former substantive notions, the interpretation of these areas in arbitral awards, and the results derived from their interpretation under new, modern treaties. Where states have attempted to fix the insufficiencies of investment protections under old treaties, and provided modern regulations, Alschner comes to his puzzling conclusion that these new treaties continue to yield old outcomes — that is, the same interpretations as under the old treaties. In the third part, finally, Alschner moves to a prospective approach and proposes solutions that may further assist arbitrators in providing new outcomes when interpreting the new treaties. The main argument, for the author, lies in a system modelled on international tax treaties, presumably taking away arbitrators’ power of interpretation and returning it (rightly) to states.
1. State-driven reform: A systemic interdisciplinary method to measure the issue
The first part of the book presents state-driven reform of IIAs. Chapter 1 focuses on treaties as data, Chapter 2 analyzes change as gap-filling, and Chapter 3 recounts evolutions as Americanization. Building upon the conclusion of his empirical review of treaties that new treaties are read like old ones by arbitral tribunals, Alschner sets out his methodology in the first part of his book, following a fascinating in-depth historical setting and review of main provisions, then delves into the conclusions of his review based on the three main issues at the heart of the book, mainly MFN, fair and equitable treatmentcustom, and precedent.
Chapter 1 sets the tone. Alschner sets out his methodology for the book and introduces data science. He explains the usefulness of computational analysis to make sense of the body of 2,943 BITs and 417 treaties with investment provisions recorded by United Nations Conference on Trade and Development in 2020. This vast universe of treaties is best understood, for Alschner and his crowd, through an inductive science approach that “reveal[s] patterns that researchers did not expect nor actively look for.”Footnote 11 Dry at times, with the explanation of empirical research, one could quickly lose interest. This part might be more suited to academics than practitioners, although the puzzle it sets out to solve is enthralling. Having “let the treaties speak for themselves,” the author finds that new treaties are yielding old outcomes. What, Alschner reflects, is going on?
One may wonder if the book was not too early, at least for the puzzle it sought to solve. As Alschner readily admits, “only 64 cases or 13 percent have been litigated under … new-generation IIAs,” the majority of which fall under the North American Free Trade Agreement (NAFTA) (thirty-eight awards).Footnote 12 He explains in Chapter 3 that NAFTA, as “the first IIA of new- generation design, reformed IIA practice, and had a lasting imprint on the IIA universe. It was also the petri dish in which ISDS litigation first emerged, and it produced a relatively self-referential caseload.”Footnote 13 We might think that, had the same study been run a few years later, a more important body of awards might have yielded a different result. But we can also choose to see this important study as a clarion call to action — to states, arbitrators, counsel, and academics alike. If the new generation treaties are not producing the new results expected, a solution must be found and quickly.
2. New treaties, old outcomes: Empirical revelations: old treaties, old reasons, new treaties, old outcomes
Analyzing the first wave of investment arbitration awards rendered under the new generation treaties shows that tribunals tend to interpret the new treaties like old ones: “[E]xceptions are ignored or watered down, clarifications are disregarded, and controversial investment protections that had been phased out in treaty practice are brought back in through the back door. In short, rather than address the concern that investment treaties unduly restrict policy space, new treaties have produced old interpretive outcomes.”Footnote 14 The second part focuses on the puzzle identified and focuses on how new treaties provide old outcomes. Alschner identifies three main themes under which this is done. Chapter 4 highlights how the innovation of new generation treaties is reversed through MFN, Chapter 5 focuses on overriding differences through custom, and Chapter 6 emphasizes that mistakes are perpetuated through precedent.
The second part examines how, although new generation IIAs have “phased out controversial investment protection standards, inserted additional clarifications, and often included novel general exceptions” in the hope of redressing the balance between the protection of investors and the rights of state to regulate, the approach fails to deliver the expected results.Footnote 15 The “first wave of investment arbitration awards” under these new treaties instead find in a similar approach to old ones. Through an in-depth evaluation of MFN (Chapter 4), custom (Chapter 5), and precedent (Chapter 6), Alschner finds, following each chapter’s investigation, that adjudicators continue to read new treaties like old ones. First, through MFN, the analysis of awards reveals that, despite new provisions, arbitrators manage to bring back old and erroneous interpretations of MFN provisions. Second, with an evaluation of custom in Chapter 5, examining whether it serves to override differences, Alschner concludes that it also acts as a vehicle to draw back interpretations under old treaties to apply them to new treaties. Third, with his analysis of precedent, which Alschner introduces as not recognized officially in the arbitration regime but admits that it is repeatedly used in practice, he concludes that mistakes are perpetuated through precedent. This, he opines, is the highest threat to interpreting new treaties like old ones.
Ultimately, Alschner posits that, because the investment regime’s “interpretive center of gravity” continues to lie in old, unreformed investment treaties,Footnote 16 new treaties continue to reproduce old outcomes. In fact, there are still few cases that have been litigated under new agreements, while the bulk of them remain contested under old agreements. It is therefore this body of old agreements that Alschner submits should be reworked. These old treaties impact the interpretation of new treaties: “Precedents rendered under old treaties routinely root the interpretation of new treaties in outdated practice, debates on customary international law shaped by old treaties demote exceptions from novel policy space safeguards to a codification of existing general international law flexibilities, and MFN clauses bring back protection clauses explicitly phased out in newer treaty practice.”Footnote 17
Much of this second part revolves around hopes disappointed and squandered opportunities. However, after taking stock of the many failures of new interpretations of these new reform treaties, the author turns squarely to the future with concrete proposals to redress this inopportune situation.
3. New treaties as anchor points: attempting to change the future
In the third part of his book, Alschner turns to a proactive approach and examines new treaties as anchor points. Essentially, his proposals explore how states can exploit new treaties to obtain new results. The third part offers a prospective methodology to redress Alschner’s surprising finding upon which the book is centred. To arrive at an interpretation where new treaties provide new outcomes, Alschner examines in Chapter 7 this forward-looking interpretation. Chapter 7 explores how states and tribunals can leverage clarifications in new, more complete treaties to fill interpretive gaps in older, incomplete treaties.
In Chapter 8, he proposes data-driven renegotiation of old IIAs. Chapter 8 explains how states can go further and modify old IIAs in light of new treaties through data-driven renegotiations. Alschner makes the case for a data-driven renegotiation strategy, arguing that, to be most efficient in their negotiations, states might wish to resort to existing databases, such as EDIT, to be able to map the points of connections and divergences between negotiating states. Alschner concludes his grand finale by the central proposal in Chapter 9 of tax-style multilateralization. This part, as Alschner writes, will be “especially valuable to practitioners, policymakers, and negotiators who want to reform the investment law regime.”Footnote 18 This chapter discusses how many interpretations and modifications can be multilateralized by modeling investment law reform on the international tax regime. It is the pinnacle of Alschner’s forward looking analysis.
After finding that adjudicators are poor gap-fillers in the second part, this forward-looking interpretation should be favoured (Chapter 7). And proposing that states prepare their renegotiations of old treaties by relying on data (Chapter 8), he then suggests that the most efficient avenue for resolving the conundrum is moulding ISDS reform on the approach taken in the international tax regime. “Tax-style multilateralization,” as Alschner dubs this methodology, is an illuminating approach. Already presented in the ISDS reform discussions at the United Nations Commission on International Trade Law’s Working Group III, it offers the potential of providing a baseline for reform. Following the 2017 reform to the international tax treaties, Alschner demonstrates that the simplest way of achieving an efficient reform, which would in turn assist in providing new outcomes to new treaties, is through this tax-style multilateralization. In Alschner’s opinion, the tax regime holds the single greatest potential for reforming investment law.
Like the investment regime, the tax universe is composed of thousands of bilateral treaties on double taxation, where old and new treaties coincide. This regime, however, is continuously updated through a revised model convention. The 2017 reform also achieved a comprehensive modernization of thousands of tax treaties for both substance and procedure. A multilateral convention providing a base line with additional options would allow continuous updating, as with the tax regime. An ambitious proposal for an effective reform, the approach would provide a canvas to modernize aspects of older investment treaties and, above all, ensure that old treaties are read in light of new ones.
4. Conclusion: a must read
This book is not only important — it is avant garde in many ways. From the computational analysis approach to the analysis of treaties — their innovation and the outcomes of the awards interpreting them, the interdisciplinary approach harnessed, and the three distinct avenues for efficient reform to produce the expected new outcomes to the modernized treaties — it may be said that the puzzle itself might have been too ambitious. As Alschner recognizes, the majority of awards rendered today continue to be under old treaties. Considering that the body of awards only became substantial several years after they were introduced, it might be wise to consider that arbitrators need a few more years before adapting. After all, change needs time to become effective.
The second remark on Alschner’s book is on the role of arbitrators. While it centres on the state-driven reform of investment arbitration, there seems to be a disconnect in the interpretation of these new generation treaties by arbitrators. Based on the objective data mapped by computational analysis that shows that arbitrators continue to resist innovation, one might think that arbitrators themselves may perceive reality in a different manner. Characterized by Alschner as “poor gap-fillers,” one could assume that arbitrators would also wish to interpret correctly new provisions in modern treaties. The argument of time should not be overlooked. It may simply be that arbitrators need more time to adjust to new claims under the new treaties in order to put forward new interpretations.
While it might not only be the arbitrators’ fault, and Alschner proposes at least two of his three reform options that put the emphasis on states, the role of arbitrators remains key in interpretating the protections ensconced in investment treaties. Perhaps the focus of the author’s next study should revolve around a finer understanding of the legal arguments put before arbitrators by counsel themselves. Let us not forget their role in presenting the arguments to the tribunal, and the responsibility they hold in proposing new interpretations. At a time when the only available cases on a number of issues remain under old treaties, it could arguably be an impossible endeavour to require that counsel build their case upon prospective work only. While this has been attempted, in at least one instance in Windstream v Canada,Footnote 19 the Canadian government argued that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership reflected a modern interpretation of IIAs, only the passage of time and the construction of new case law will allow for precedent to change.Footnote 20
If there is one book that investment arbitration practitioners, policy-makers, negotiators, arbitrators, and academic should read this year, this is it. Arbitrators will have a lot to consider, and academics could provide a helping hand. It is, however, unjust to consider that arbitrators bear the entire weight of the system. As Alschner successfully demonstrates, states have so far taken upon themselves to correct the identified insufficiencies of ISDS, thereby responding to concerns about the legitimacy of ISDS. A continued effort in reframing any attempted reform should proceed through a modified frame built upon the international tax treaties.
