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Reforming Investment Law and Arbitration and the “New Economic World Order”: Between Myth and Reality

Published online by Cambridge University Press:  01 March 2021

Eric De Brabandere
Eric De Brabandere*
Affiliation:
Professor of international dispute settlement, and Director, Grotius Centre for International Legal Studies, Leiden University; Attorney-at-law, DMDB Law, Brussels (Belgium).
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Extract

Investment law and arbitration are currently the subject of profound reform discussions. Whether the investment law and arbitration reforms and reform proposals can properly be categorized as “old tools” that are used in “new ways,” and more generally whether the reforms in the end will result in a “new economic world order” remains however to be seen. I argue that the “old tools” in international investment law and arbitration are not always simply “old tools” or an exercise in conservativism. Notably when one looks at substantive norms in investment treaties, the apparent “old tools” have been perfected and modernized. In other instances, such as the proposal for an “investment court,” which could hardly be considered an “old tool,” reform proposals do not seem to radically shift the investment regime toward a “new economic world order.”

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Type
Using Old Tools in New Ways: The New Economic World Order
Information
Proceedings of the ASIL Annual Meeting , Volume 114 , 2020, pp. 67 - 70
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of The American Society of International Law.

Investment law and arbitration are currently the subject of profound reform discussions. Whether the investment law and arbitration reforms and reform proposals can properly be categorized as “old tools” that are used in “new ways,” and more generally whether the reforms in the end will result in a “new economic world order” remains however to be seen. I argue that the “old tools” in international investment law and arbitration are not always simply “old tools” or an exercise in conservativism. Notably when one looks at substantive norms in investment treaties, the apparent “old tools” have been perfected and modernized. In other instances, such as the proposal for an “investment court,” which could hardly be considered an “old tool,” reform proposals do not seem to radically shift the investment regime toward a “new economic world order.”

I. Ongoing Reform (Proposals) in International Investment Law and Arbitration

The United Nations Commission on International Trade Law (UNCITRAL) has in 2017 entrusted its Working Group III to work on the “the possible reform of investor-State dispute settlement (ISDS).”Footnote 1 At that time, the precise topics for “reform” were rather vaguely and broadly formulated and concerned amongst others “inconsistency,” “lengthy duration and extensive cost,” “lack of transparency,” and “lack of an early dismissal mechanism.”Footnote 2 Over time, the list of “concerns” and areas of “possible reform” has gradually expanded and been further detailed. In October 2019, the list of current and potential topicsFootnote 3 included amongst others “diversity among arbitrators,” “third-party funding,” “exhaustion of local remedies,” “regulatory chill,” and “reflective loss.” Needless to say, the topics identified for possible “reform” encompass a wide range of procedural or quasi-procedural issues which occur in investor-state arbitration and have over time also shifted to substantive investment law questions.

In parallel and conjunction, the European Union (EU) is urging to replace investor-state arbitration with an “international investment court.” The idea was officially launched in 2015 by the European CommissionFootnote 4 and the European Parliament, which requested the Commission to pursue attempting to replace investment arbitration by a new system.Footnote 5 The Commission proposes a two-step approach to reforming the investor-state dispute settlement: an “Investment Court System” (ICS) will be included in future investment agreements negotiated by the EU, and in the longer term, a Multilateral Investment Court (MIC) will replace all the bilateral ICSs.Footnote 6 As part of this endeavor, the European Commission is seeking support for its proposed MIC in the discussions which take place in UNCITRAL Working Group III.Footnote 7

Evenly, and perhaps even more important is the fact that alongside theses attempts at systemic (procedural) reforms, the past years have also seen a gradual recalibration of investment treaties by the states themselves, targeting most notably the substantive standards contained in these treaties, but also procedural issues.Footnote 8 Provisions on human rights responsibilities of foreign investors have been included in recent treaties,Footnote 9 and provisions such as those on expropriation and fair and equitable treatment have been redesigned.Footnote 10

From a voluntarist perspective there is little to say on these reforms, since states have rather complete freedom to decide what is best at that point in time.Footnote 11 But how can these reforms and reform proposal properly be characterized from the perspective of change and evolution? Looking at the reforms and reform proposal in substantive law, we seem to be witnessing a rather normal development of international law. Also, but mostly in relation to the procedural reform proposals and the “investment court,” we are at this stage in my view not (yet) heading toward a radical paradigm shift in the investment regime.

II. Old Tools and New Ways: Substantive Investment Law

In relation to substantive law reforms, the “old tools” in international investment law are not simply “old tools” or conservativism. In some instances, new or reformulated standards may bear the hallmarks of more traditional standards and norms, but they have been modernized. Reformulations of provisions on expropriation and fair and equitable treatment, as found for example in the CETA,Footnote 12 are not the equivalent of the “old” minimum standard of treatment.Footnote 13 While some attempts have been limiting the scope of application of such provisions, most recent treaties do not seem to opt for a pre-investment treaty set of substantive norms. Recent redesigned investment protection standards are more perfections or modernizations to the existing norms than a “return” to the old tools of foreign investment regulation.

From a broader perspective, investment law has always developed and redeveloped in cycles: conservativism, reform, and (r)evolution constantly have been part of the identity of international investment law.Footnote 14 The driving force has mostly been state interestsFootnote 15 or conflicts between the various interests.Footnote 16 The varying nature of these interest over time implies varying and evolving norms and rules. This is not any different from the regular way in which international law is formed and develops. To the extent that provisions such as fair and equitable treatment (FET) and the prohibition of expropriation are still in treaties, but formulated differently by states, this is part of the natural “process of claim and counterclaim, assertion and reaction.”Footnote 17 Reform of investment protections standards and other substantive norms in international investment treaties do not more than straighten what states consider to be deviances from their original intentions, or are reactions against developments states disagree with.

III. Will Procedural Reform Proposals Lead to a New Investment World Order?

The situation is different as far as procedural reforms are concerned. The difference lies in the fact that more than in the case of substantive reform, procedural reform proposals aim at a systemic change. Also, a general critique on the legitimacy of the current investment law regime is an important driving force behind the reform. The “public consultation” held by the European Commission in 2015, shows comparatively more attention to investor-state dispute settlement,Footnote 18 which is probably why procedural reforms have been high on the EU's reform agenda.

Initially, and before the “investment court proposal,” procedural reforms to investor-state arbitration were aimed at addressing part of the legitimacy critique by focusing on the conditions under which arbitration could be perfected or adapted to the investor-state context. The inclusion of principles of transparency and public access, amongst others, can, from that perspective, be seen as contributing to a more legitimate procedure, without opting for a more thorough change in dispute settlement method.Footnote 19 The arbitral character of the proceedings has so far remained intact. We are however witnessing proposals moving from reform aimed at remedying some of the contested features of investor-state arbitration to systemic reform targeting investor-state arbitration as a method of dispute settlement. Procedural reforms then, are coupled to a more drastic change in dispute settlement method, but this proposal needs to be placed in the right context.

To the extent that an investment court takes over several or most of the features of the current arbitral system in the investor-state context, such as rules on transparency, public access, and ethical standards for adjudicators,Footnote 20 the “significant break with the past”Footnote 21 is more myth than reality. Many procedural adaptations have already been included in various arbitration rules.Footnote 22

Of course, a standing body offers some features that differ fundamentally from arbitration such as judges elected or selected for a fixed tenure.Footnote 23 However, while replacing arbitration by an investment court seems more fundamental in nature, the proposal is perhaps less radical than may seem.

First, and more generally, the fundamental premise on which the EU's proposed investment court is based, that is that an investment court by its very nature has more legitimacy than international arbitration deserves nuance.Footnote 24 A radical change in the “legitimacy” of investor-state dispute settlement is thus overstated.

Secondly, the proposed investment court seeks to combine critique on arbitration as such, but more importantly, does not depart from the fundamental premise that foreign investors can access an international dispute settlement forum. The idea to do away with arbitration as a dispute settlement tool and replace it by an investment court keeps the access to foreign investors to a remedy. This in itself is of course justifiable. As I have argued elsewhere, access of foreign investors to an international dispute settlement method in fact has merit and corresponds to certain legitimate concerns.Footnote 25 The current “investment court” proposal can thus be viewed as a procedural substitute for what we now have, which from the perspective of “a new economic world order” is a rather neutral exercise; at least it is not a radical shift of paradigm.

Finally it remains to be seen indeed whether the move to a transformation of investor-state dispute settlement will be successful, or whether in the end, states will not opt for a “reform-light” which leaves arbitration as a method but further perfects and adapts the procedure to the specific nature of investment treaty arbitration along the lines of the procedural reforms that have been initiated more than a decade ago. It is noticeable that while CETA has shifted to an investment court, other mega-regionals such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have on the contrary “consolidate[d] the existing structure of investment arbitration.”Footnote 26

Footnotes

1 UN GAOR, 72nd Sess., Supp. No. 17, paras. 263–64, UN Doc. A/72/17 (2017).

2 UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), Possible Reform of Investor-State Dispute Settlement (ISDS), Note by the Secretariat, 34th Sess. (Vienna, Nov. 27–Dec. 1, 2017) , para. 20, UN Doc. A/CN.9/WG.III/WP.142 (Sept. 18, 2017).

3 UNCITRAL Working Group III (Investor-State Dispute Settlement Reform), Possible Reform of Investor-State Dispute Settlement (ISDS), Note by the Secretariat, 38th Sess. (Vienna, Oct. 14–18, 2019) , paras. 5 et seq., UN Doc. A/CN.9/WG.III/WP.166 (July 30, 2019) [hereinafter UNCITRAL Working Group III 2019 Note by the Secretariat]. See also UNCITRAL Presentation of Reform Options, at https://uncitral.un.org/en/reformoptions.

4 European Commission, Concept Paper – Investment in TTIP and Beyond – the Path for Reform: Enhancing the Right to Regulate and Moving from Current Ad Hoc Arbitration Towards an Investment Court (May 2015).

5 See European Parliament Resolution of 8 July 2015 Containing the European Parliament's Recommendations to the European Commission on the Negotiations for the Transatlantic Trade and Investment Partnership (TTIP).

6 European Commission, supra note 4, at 11.

7 See UNCITRAL Working Group III 2019 Note by the Secretariat, supra note 3, para. 3.16.

8 See Eric De Brabandere, (Re)Calibration, Standard-Setting and the Shaping of Investment Law and Arbitration, 59 B.C.L. Rev. 2607 (2018).

9 E.g., India Model BIT, Art. 12 (2016).

10 E.g., Comprehensive Economic and Trade Agreement (CETA) Between Canada, of the One Part, and the European Union and its Member States, of the Other Part, Arts. 8.10, 8.12, 2017 OJ (L 11).

11 Martins Paparinskis, Masters and Guardians of International Investment Law: How to Play the Game of Reassertion, in Reassertion of Control over the Investment Treaty Regime 30–52 (Andreas Kulick ed., 2016).

12 See supra note 10.

13 See Eric De Brabandere, States’ Reassertion of Control Over International Investment Law: (Re)defining “Fair and Equitable Treatment” and “Indirect Expropriation,” in Reassertion of Control Over the Investment Treaty Regime, supra note 11, at 285–308.

14 For a discussion, see Joost Pauwelyn, At the Edge of Chaos? Foreign Investment Law as a Complex Adaptive System, How It Emerged and How It Can Be Reformed, 29 ICSID Rev. – FILJ 372–418 (2014).

15 Id.

16 M. Sornarajah, Evolution or Revolution in International Investment Arbitration? The Descent into Normlessness, in Evolution in Investment Law and Arbitration 631, 634 (Chester Brown & Kate Miles eds., 2011).

17 James Crawford, Chance, Order, Change: The Course of International Law 20 (2014).

18 See European Commission, Report: Online Public Consultation on Investment Protection and Investor-to-State Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP) 14 (Jan. 13, 2015) (stating that “the collective submissions reflect a wide-spread opposition to investor-State dispute settlement (ISDS) in TTIP or in general”).

19 On this, see Eric De Brabandere, Investment Treaty Arbitration as Public International Law: Procedural Aspects and Implications 122 et seq. (2014).

20 It is noteworthy in this respect that the EU-Canada Free Trade Agreement Investment Court System indeed incorporates several features which have already been applied to arbitral proceedings. See, e.g., CETA, supra note 10, Art. 8.36 which incorporates the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration.

21 European Commission, Investment Provisions in the CETA (Feb. 2016), available at http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151918.pdf.

22 See De Brabandere, supra note 19.

23 See, e.g., CETA, supra note 10, Art. 8.27.

24 See the comments made by Judge Sir Christopher Greenwood, as reported in Lixin Chen and Aaron Yoong, Does Investor-State Arbitration Have a Future? Keynote Speech by Sir Christopher Greenwood, Kluwer Arb. Blog (Nov. 30, 2018), at http://arbitrationblog.kluwerarbitration.com/2018/11/30/does-investor-state-arbitration-have-a-future-keynote-speech-by-sir-christopher-greenwood/?doing_wp_cron=1596812519.3121669292449951171875.

25 De Brabandere, supra note 19, at 17 et seq.

26 Stefanie Schacherer, TPP, CETA and TTIP Between Innovation and Consolidation—Resolving Investor–State Disputes under Mega-Regionals, 7 J. Int. Dispute Settlement 628, 631 (2016).