1. Introduction
International investment law is suffering a legitimacy crisis, as evidenced by public uproar over ongoing treaty negotiations, widespread discontent with investor–State dispute settlement, and countries withdrawing from investment-related treaties. A multilateral treaty on investment has been recognized as one means of modernizing international investment law. This approach is coloured by past failures to achieve multilateral investment rules. However, in recent years, several international organizations have been working towards greater harmonization and consensus in international investment law. This consensus-building work offers a valuable opportunity for pursuing multilateral approaches. Moreover, the new ‘mega-regional’ international investment agreements (IIAs) – notwithstanding the late demise of the Trans-Pacific Partnership (TPP)Footnote 1 concluded between 12 Pacific Rim countriesFootnote 2 – form part of a shift towards regionalism, also potentially increasing the feasibility of attaining broader consensus on investment rules.
At the same time, international developments in 2016 and 2017 – most importantly the results of the United States (US) election and subsequent actions of the new administration – raise a clear warning signal to traditional approaches towards globalization, not only derailing the TPP but also threatening the Transatlantic Trade and Investment Partnership Footnote 3 between the European Union (EU) and the US and the Trade in Services Agreement Footnote 4 being negotiated by 23 WTO Members (including the EU representing its 28 Member States), which has been led by Australia, the EU, and the US and has potential overlaps with investment law. The election of Donald Trump, the vote in favour of Brexit, the rise of populist parties in various European countries, and broader indications of dissatisfaction throughout the world make clear that international investment law, as a component of globalization, requires urgent reform. The gradual pursuit of multilateral investment rules offers a way towards such reform, not in order to assuage irrational fears or purely ideological concerns, but in acknowledgement of genuine flaws in the system.
In section 2, I explain some of the key concerns surrounding international investment law, and particularly investor–State dispute settlement (ISDS), as a basis for understanding the potential benefits of multilateral approaches. Section 3 begins by identifying those benefits, before turning to a review of significant past failed attempts to achieve a multilateral investment treaty. It then explains in more detail the current circumstances giving rise to enhanced possibilities for pursuing multilateral investment rules. In section 4, I consider approaches used in the World Trade Organization (WTO) and other areas of international trade law, in order to determine whether they can be adapted for use in the investment field or otherwise shed light on further multilateralizing that field.Footnote 5 Section 5 analyses various pathways towards multilateral investment rules, particularly taking account of existing agreements and current proposals.
Section 6 concludes that resistance to comprehensive multilateral investment rules is offset by many States’ continued interest in plurilateral deals, including mega-regionals, which offer the potential to enhance consensus over key procedural and substantive issues between different major actors in international trade and investment. The perpetuation of differences in ideology and interests in the investment field does not preclude greater consensus, just as in the international trade field such differences have been accommodated through various mechanisms. Notwithstanding the current climate of uncertainty and fear surrounding globalization, several factors point to the feasibility of working incrementally towards multilateralism in investment law. These factors include not only progress towards mega-regionals such as the TPP (notwithstanding its unfortunate end), but also national and institutional support for consensus-building in a range of settings.
Even post-Trump, the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada and the Regional Comprehensive Economic Partnership (RCEP) – being negotiated among the ten member States of the Association of Southeast Asian Nations (ASEAN) together with the existing preferential trade agreement (PTA) partners of ASEAN (Australia, China, India, Japan, Republic of Korea and New Zealand) – provide specific, credible vehicles for harmonizing and consolidating international investment law. The potential for further multilateralization through these agreements is enhanced by simultaneous informal discussions being led by the EU and Canada regarding a future world investment court.
2. The legitimacy crisis in international investment law
Concerns about international investment law have multiplied in recent years, leading to a recognized need for reform. These concerns have arisen from a number of intersecting factors. To begin with, although the number of IIAs signed per year peaked in the 1990s and early 2000s and has dropped off in the last decade,Footnote 6 the total volume of IIAs does continue to increase as time goes on. A 2015 report by the United Nations Conference on Trade and Development (UNCTAD) identified the total number of IIAs as 3,268, growing from fewer than 25 in 1980.Footnote 7 This continuing increase in the number of IIAs, in the absence of any overarching structure or harmonization, inevitably leads to greater complexity, inconsistency, and incoherence.
The increasing number of IIAs partially explains the increasing number of ISDS claims, which are responsible for much of the current disquiet about international investment law. UNCTAD has reported that a record number of 70 ISDS cases were filed in 2015, bringing the cumulative number of known ISDS cases to 696 by the end of 2015.Footnote 8 In addition to increasing numbers of cases, other trends have added to community concerns. Of the new cases, 40% commenced in the years 2013, 2014, and 2015 were against developed countries (the most frequent home States of claimants also being from developed countries, both recently and historically).Footnote 9 Of the concluded ISDS proceedings as at the end of 2015, 26% were decided in favour of the investor, 36% in favour of the host State, and 26% settled.Footnote 10 Excluding those cases dismissed at the jurisdictional stage, settled, otherwise discontinued, or where the tribunal found liability but did not award damages, 60% of cases were decided in favour of the investor and only 40% in favour of the host State.Footnote 11
These figures have great significance in explaining rising concerns about the legitimacy of ISDS when the large amounts sometimes awarded and the measures challenged are taken into account.Footnote 12 In addition, IIAs in general and ISDS in particular are seen as having an increasing impact on sovereign policy objectives such as health and the environment. For example, the tribunal in the widely publicized Bilcon v. Canada dispute found in 2015 that Canada had breached its obligations under the investment chapter of the North American Free Trade Agreement (NAFTA)Footnote 13 when a development project was rejected on environmental grounds.Footnote 14 The dissenting arbitrator, Donald McRae, characterized the majority's decision as ‘not only an intrusion into the way an environmental review process is to be conducted, but also an intrusion into the environmental public policy of the state’.Footnote 15 Again, in 2016, a tribunal found that Canada had breached the NAFTA fair and equitable treatment standard through conduct relating to Ontario's moratorium on offshore wind power developments,Footnote 16 which Canada argued ‘fell within the legitimate policy-making power of the Government of Ontario to regulate in the public interest’.Footnote 17
Intrusive aspects of ISDS into sovereign autonomy – in the form of large awards and the interpretation and application of substantive obligations – are compounded by several structural and procedural factors that feed into the perception of illegitimacy. One such factor is non-transparency: the fact that the very existence of an ISDS dispute will not necessarily be known to the public, and that if known the relevant documents may be at best hard to locate and at worst impossible to access. Another such factor is the ability of investors to take advantage of the proliferation of bilateral investment treaties (BITs) and other IIAs to engage in forum-shopping, either by invoking the most-favoured-nation (MFN) principle,Footnote 18 or by undertaking corporate restructuring in order to gain the protection of a particular IIA.Footnote 19 Another factor is the potential for perceived conflicts of interest to exist within or between arbitral tribunals.Footnote 20 The classic example is where an arbitrator determining one dispute represents one of the disputing parties in another simultaneous or subsequent dispute.
In response to growing unrest about the international investment regime, and perhaps more pointedly as a result of adverse arbitral awards against particular host States, several Latin American countries have withdrawn from the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention),Footnote 21 other countries have moved away from the Energy Charter Treaty,Footnote 22 several developed and developing countries are moving to terminate and revise existing IIAs,Footnote 23 and at least 45 countries are revising their ‘model’ IIAs,Footnote 24 which are used as a basis for negotiating new IIAs.Footnote 25 These actions demonstrate the severity and extent of ongoing concerns with the international investment regime, offering a compelling basis for seeking fundamental reform.
3. Seeking multilateralism in international investment law
The legitimacy crisis in international investment law is easily identified and accepted. The means of resolving that crisis are more difficult to determine. Here, I posit that multilateralism offers a realistic means of reforming international investment law. In section 3.1, I explain my view that, notwithstanding past failures to achieve a multilateral investment agreement, a multilateral approach remains a desirable goal due to its continued potential for enhancing legitimacy and predictability in international investment law. Understanding the reasons for these failures will assist in adapting the path towards multilateralism. In section 3.2, I highlight work being undertaken by a variety of countries and institutions that reflects an acknowledgment of the benefits of multilateralism while also increasing the practicability of achieving multilateral rules.
3.1 Rationales for a multilateral approach to investment in view of past failures
A multilateral treaty on investment, that is, a binding legal agreement between most countries instead of a patchwork of separate bilateral treaties, has been recognized as one means of reforming international investment law. However, past attempts to conclude such a treaty have failed. Chester Brown explains how various efforts ‘[t]hroughout the 20th century’ failed – including those led by the League of Nations in 1928, the International Law Association in 1948, and Harvard Law School and the Organisation for Economic Co-operation and Development (OECD) in the 1960s – instead leading to the ICSID Convention as a multilateral procedural agreement on investment disputes in the absence of agreement on substantive investment protections.Footnote 26 The non-establishment of the International Trade Organization pursuant to the Havana Charter in the 1940s can also be seen as a failure to achieve multilateral investment rules.Footnote 27 More recently, in 2004, the WTO abandoned its attempt to negotiate investment rules within the WTOFootnote 28 – beyond the existing limited provisions in the Agreement on Trade-Related Investment Measures (TRIMS Agreement)Footnote 29 – and in the 1990s the OECD was unable to conclude a Multilateral Agreement on Investment (MAI).Footnote 30 Particularly as a result of the OECD failure, even in recent years there has been ‘no appetite for negotiating a binding multilateral framework for investment’.Footnote 31
Although concluding a single overarching multilateral investment treaty may not be feasible at this time, a multilateral approach adopted incrementally could address several concerns about the legitimacy and predictability of international investment law. In particular, multilateral investment rules could assist in addressing community concerns about the investment regime at both substantive and procedural levels. In relation to the substance of international investment law, multilateral rules could address conflict and inconsistency between multiple IIAs, which create inefficiency and investment distortion. For example, a uniform rule on fair and equitable treatment that sets clear boundaries on the scope and significance of this obligation would reduce uncertainty and unexpected infringements into domestic policy space. Multilateral rules could also enable the construction of a balanced approach to promoting the interests of both States and investors, taking account of the experiences and interests of multiple States as both home States and host States of foreign direct investment (FDI). For example, rather than a developed State crafting rules in a BIT to suit its outward investors in a specific developing host State, a multilateral framework would encourage each State to recognize its involvement in the regime as both home and host State with respect to numerous other States and thereby to create rules that better balance the interests of both investors and regulating States.
On the procedural front, providing a single institutional framework could enhance legitimacy and predictability in the resolution of ISDS claims. For instance, a standing panel of arbitrators or a move to an investment court system as discussed further below could diminish the likelihood of decision-makers’ perceived or actual conflicts of interest, for example by preventing arbitrators/judges/panelists from acting as States or investors during or after their appointment. Tenured panelists appointed by States with the awareness that they will be deciding disputes involving them as either home or host State are also less likely to raise concerns about bias towards investorsFootnote 32 or States, and perhaps collectively may be more likely have a diverse disciplinary and personal background.Footnote 33 The combination of a streamlined dispute settlement process with harmonized substantive rules could also reduce forum shopping.
In contrast, the current approach of many countries of modernizing IIAs one by one cannot achieve these improvements. This bilateral approach does not address the increasing complexity and incoherence of international investment law. Moreover, countries generally leave older-style IIAs in place,Footnote 34 allowing investors to use the MFN obligation and engage in corporate restructuring to bring ISDS claims under older IIAs. Such IIAs typically provide greater protections to investors and less policy space for host States. Even when countries terminate IIAs, their operation may continue for, say, ten years from termination, due to their ‘survival clauses’.Footnote 35
Yet even if multilateral investment rules are in an abstract sense preferable to the current criss-crossing of bilateral agreements, the many failed attempts of the past highlight the considerable obstacles to multilateralism. Stephan Schill, in his seminal 2009 monograph, The Multilateralization of International Investment Law, identifies the primary reasons for the failure to achieve comprehensive investment rules through the Havana Charter as internal US politics, the emerging Cold War, and ideological divisions between developed (capital-exporting) and developing (capital-importing) countries regarding the scope and content of investment protections.Footnote 36 These same divisions he sees as largely responsible for the OECD failure of 1967Footnote 37 and the inclusion of only very minor and scattered investment-related provisions in the WTO agreements.Footnote 38 In contrast, Schill explains the most prominent recent example of the failure of the MAI negotiations in the OECD as ‘reflect[ing] the general complexity of the issues surrounding international investment protection, in particular the problem of how to resolve conflicts with the State's legitimate right to regulate’.Footnote 39
Multilateral investment rules are becoming more feasible as it becomes less accurate to designate developed countries as capital exporting and developing countries as capital-importing States. As noted earlier, developments that have fuelled the legitimacy crisis in international investment law have included the extent to which developed countries are facing ISDS claims and respondents in general are realizing the extent to which such claims may intrude on sovereign regulatory autonomy. In this regard, the gap is closing between developed and developing countries: both recognize the need for recalibration of a regime originally expected to operate in one direction. Furthermore, the content of the desired recalibration is being identified in a variety of forums (as discussed in the following section), with the precise aim of achieving a balance between investment protection and the right to regulate: the key sticking point in the MAI.
3.2 New possibilities for multilateral investment rules
UNCTAD has identified ‘a compelling need for a multilateral mechanism that deals with today's investment policy-making challenges’,Footnote 40 which it is addressing through consensus-building activities. UNCTAD's Investment Policy Framework for Sustainable Development effectively addresses concerns about globalization and the investment regime:
At the national level, [‘new generation’ investment policies] include integrating investment policy into development strategy, incorporating sustainable development objectives in investment policy and ensuring investment policy relevance and effectiveness. At the international level, there is a need to strengthen the development dimension of [IIAs], balance the rights and obligations of States and investors, and manage the systemic complexity of the IIA regime. ‘New generation’ investment policies further incorporate innovative investment promotion and facilitation mechanisms … to stimulate investment specifically geared towards … sustainable development goals-related sectors.Footnote 41
The UNCTAD Framework includes core principles and guidance for designing and using IIAs. For example, in order to balance the rights and obligations of States and investors, the Framework proposes investor obligations such as compliance with domestic law and with international standards on corporate social responsibility.Footnote 42 UNCTAD points out that crises in finance, food security, and the environment require international coordination,Footnote 43 including increased coherence in IIAsFootnote 44 and a recognition that ‘[t]he overarching objective of investment policymaking is to promote investment for inclusive growth and sustainable development’.Footnote 45
The OECD has conducted analogous work. A 2014 OECD working paper found, in an empirical study of 2,107 IIAs, that although the ‘dominant treaty practice in recent years’ has been to include language on sustainable development and responsible business conduct, older style treaties lacking such language still make up the majority of IIAs, and ‘no established pattern’ exists as to the precise language where included.Footnote 46 In its Policy Framework for Investment,Footnote 47 the OECD, like UNCTAD,Footnote 48 promotes integration of international investment policy with support for the Sustainable Development Goals (SDGs) adopted by the United Nations General Assembly in 2015.Footnote 49 The OECD Framework provides guidance to governments including by posing questions for governments to consider in addressing key policy issues in IIAs,Footnote 50 such as:
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23. Has the government ratified and implement and implemented the ICSID Convention?
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24. How does the government balance its sovereign right to regulate against the importance of providing legal certainty for investors?
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25. Does the government attempt to assess the impact of its approach to IIAs on inward investment and on overall economic development?Footnote 51
While designed for governments to consider individually, these questions have multilateral aspects. For instance, the ICSID Convention represents an important multilateral pillar in investment law, and evidence about the impact of IIAs on inward investment and economic developmentFootnote 52 for one or more countries may be relevant to other countries in evaluating the value of IIAs. Similarly, the compilation by UNCTADFootnote 53 and the OECDFootnote 54 of drafting options for IIAs to balance regulatory autonomy with investor certainty assists by bringing the experiences of particular countries to bear on the development of investment laws by other countries. Increasing convergence in evidence-building and drafting practices could provide one means of enhancing multilateralism.
The United Nations Commission on International Trade Law (UNCITRAL) adopted transparency rules for ISDS disputes in 2013Footnote 55 and the Mauritius Convention on Transparency (Mauritius Convention) to complement those rules in 2014.Footnote 56 The UNCITRAL transparency rules apply to future IIAs (from April 2014), while the Mauritius Convention provides a mechanism whereby States can agree to apply them to existing IIAs. These are major developments with the potential for significantly enhancing transparency in multiple IIAs simultaneously,Footnote 57 obviating the need for unwieldy renegotiation or termination of existing treaties. Relatedly, in its negotiations towards the Trans-Atlantic Trade and Investment Partnership (TTIP) with the US, the European Commission (EC) has proposed an international investment court as a ‘stepping ston[e] towards a permanent multilateral system for investment disputes’,Footnote 58 as discussed further below. Gabrielle Kaufmann-Kohler and Michele Potestà have investigated the possibility of multilateralizing a permanent investment tribunal, with or without an appellate mechanism, by means of an ‘opt-in’ convention similar to the Mauritius Convention,Footnote 59 whereby States could express their agreement to using the new tribunal with respect to existing IIAs.Footnote 60 They conclude that, although the challenges in reforming ISDS are ‘substantially more complex than the introduction of a transparency standard in investment treaties’,Footnote 61 ‘the Mauritius Convention could provide a useful model if States wish to pursue such broader reform initiatives at a multilateral level’.Footnote 62
In 2015, China proposed a voluntary multilateral investment framework as part of its 2016 G20 presidency.Footnote 63 Karl Sauvant explained this step as part of a shift in China's approach towards investment as a result of China ‘becoming a net outward investor’,Footnote 64 which reflects a distancing from past characteristics of multilateral investment negotiations.Footnote 65 Subsequently, in July 2016, the G20 adopted ‘Guiding Principles for Global Investment Policymaking’, with UNCTAD facilitating discussions.Footnote 66
The confluence of these developments, together with the continuing enthusiasm of many countries for IIAs,Footnote 67 provides an appropriate time to reflect on how multilateralism can be pursued while improving the procedural and substantive content of investment rules to address current concerns. The different institutional settings for the consensus-building work described in this section offer potential avenues for working towards multilateral rules (as discussed further in section 5.1 below), while the recommended principles and policies suggest content for such rules.
4. Variation and consensus-building in international trade law
The benefits of a multilateral approach to investmentFootnote 68 apply similarly to international trade law. In the past, these benefits led to the transformation of the bilateral system of international trade into a multilateral trading system, starting with the General Agreement on Tariffs and Trade in 1947,Footnote 69 and followed by the creation of the WTO in 1995. Today, the multilateral trading system may be seen as breaking down with the effective collapse of the Doha Round,Footnote 70 reflecting the difficulty of reaching agreement among its 164 Members. Nevertheless, WTO Members have begun to adopt more creative approaches to achieving progress in international trade law, building on existing ‘plurilateral’ agreements between only some WTO Members on particular topics, to again negotiate specific areas among like-minded groups of countries. These developments demonstrate the potential for multilaterally based mechanisms that are less than comprehensive universal rules as a means of retaining differentiation and flexibility (one of the benefits of bilateralism), thus breaking the impasse in achieving wholesale multilateralism.
In section 4.1 below, I explain the various types of flexibilities inherent in WTO rules that can be used to accommodate differences between WTO Members, for example in relation to levels of development, reliance on imports and exports, areas of comparative advantage, and geography. Similar flexibilities could be used in international investment law to promote consensus towards multilateral rules without ‘shoe-horning’ States into any one mould. Next, in section 4.2, I discuss two examples of plurilateral agreements among WTO Members, which provide a different possible form for negotiating consensus in the investment context as well.
4.1 Variable geometry in the WTO
[I]t would be beneficial to allow for more ‘variable geometry’ to be pursued under the umbrella of the WTO. This is preferable to a situation where countries are pushed into ever greater reliance on PTAs – which effectively escape multilateral disciplines – or are induced to engage in cooperation outside the WTO. Footnote 71
Rather than assuming that multilateral rules must be ‘one size fits all’ binding obligations, the variability or ‘variable geometry’ inherent in the WTO agreements demonstrates that accepting different standards for different types of countries or actors may sometimes be necessary and appropriate in constructing an international legal framework. Thus, the variation in IIAs and the bilateral bargains struck in traditional BITs do not necessarily preclude multilateral mechanisms in the investment context. If a multilateral investment framework could be crafted with flexibility to accommodate relevant differences, it would not necessarily require any party to renounce core principles or interests.
The concept of variable geometry in the WTO may be understood in different ways. To begin with, variable geometry may refer to variability in obligations within WTO agreements. For example, James Gathii has described the various WTO provisions for ‘special and differential treatment’ of developing countries as entailing variable geometry,Footnote 72 in the sense that developing countries are in some circumstances given greater flexibilities or additional time periods to implement obligations (notwithstanding criticisms of that concept in practice).Footnote 73 In addition to special and differential treatment, Craig VanGrasstek and Pierre Sauvé have referred to many other aspects of WTO agreements as variable geometry,Footnote 74 including:
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• blanket exceptions applicable to all WTO Members that allow departure from core obligations (e.g. GATT art XX);
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• Member-specific schedules detailing different requirements (e.g. GATT tariff schedules);
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• positive obligations, such as those contained in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement),Footnote 75 which require Members to establish domestic regulations that may differ to some extent between Members;
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• negative obligations, such as those contained in the TRIMS Agreement, which require Members to refrain from engaging in certain conduct, without otherwise constraining them; and
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• the inherent structural differences in the General Agreement on Trade in Services (GATS),Footnote 76 whereby, for example, the national treatment obligation applies only to service sectors in which a Member has made commitments,Footnote 77 and the MFN obligation does not apply to listed exemptions of particular Members.Footnote 78
Also under GATS, Members have continued to conduct negotiations on specific issues following the creation of the WTO. In the late 1990s, 70 WTO Members agreed to further commitments in telecommunications services by attaching supplements to their GATS schedules,Footnote 79 often including the ‘Reference Paper’Footnote 80 as additional commitments. In the same period, comparable results were achieved with respect to financial services.Footnote 81 A similar approach was undertaken under GATT 1994 with respect to information technology products, with 14 WTO Members (including the European Communities as one) and others in the process of WTO accession agreeing in 1996 to eliminate tariffs on specified products, through their GATT schedules.Footnote 82 Today, this Information Technology Agreement covers 82 WTO Members and others acceding to the WTO (representing around 96% of world trade in information technology products),Footnote 83 and a further agreement for the expansion of trade in such products (via GATT schedules) has been concluded, which is open to acceptance by all WTO Members.Footnote 84
In addition to variable geometry within WTO agreements, variable geometry can also be understood as involving variability between agreements. The WTO was created and continues to operate pursuant to the ‘single undertaking’Footnote 85 approach, which means that all WTO agreements apply in principle to all WTO Members. Nevertheless, the WTO treaty did contain at its inception four plurilateral agreements that Members were not required to join. Two of these have expired,Footnote 86 while two remain.Footnote 87 Of these, the Agreement on Government Procurement (GPA) was revised in 2012Footnote 88 and currently has 19 parties covering 47 WTO Members (counting the EU and its 28 member countries as one party), as well as 28 WTO members as observers in the GPA Committee, eight of whom are in the process of accession.Footnote 89 A separate Agreement on Trade Facilitation has also now entered into force for more than two-thirds of the WTO Membership, following its acceptance by those Members.Footnote 90
In conclusion, then, the WTO has a long history of variable geometry in various forms, even putting to one side the GATT 1947 negotiations and agreements. These examples demonstrate the ability of a traditional multilateral system such as the WTO to incorporate flexibilities with respect to different parties, within and between agreements.
4.2 New approaches to plurilateral trade negotiations
According to Kati Suominen, ‘offering a venue for plurilaterals may be the primary means for the WTO to remain relevant and impactful in the global trading system’.Footnote 91 This conclusion echoes suggestions by Robert Lawrence in 2006 (building on work from a decade before)Footnote 92 that a way to enhance the WTO's ‘mission, means, and legitimacy’Footnote 93 would be to rely more on ‘clubs’ of like-minded Members within the WTO to enable deeper integration on particular issues in place of the single undertaking as the only way forward. In fact, notwithstanding the expiry of two of the original plurilateral WTO agreements, WTO Members can be seen as embracing this wisdom even as the Doha negotiations have stalled. Indeed, the previous United States Trade Representative (USTR) Michael Froman called for ‘pragmatic multilateralism’ in the wake of the Doha Round, including plurilateral efforts as an avenue for liberalization and eventual multilateralization.Footnote 94
Below I address two examples of plurilateral negotiations that have been taking place between WTO Members: the Environmental Goods Agreement (EGA) and the Trade in Services Agreement (TiSA). Although these are not being negotiated in the formal sense as plurilateral agreements to be included in annex 4 of the Marrakesh Agreement,Footnote 95 both have the potential to become part of the WTO agreements or to be otherwise folded in to the WTO, offering new means of plurilateralizing as a step towards multilateralization.
In the investment context, no multilateral institution precisely equivalent to the WTO exists alongside which plurilateral negotiations of this kind could be pursued. Nevertheless, an understanding of these negotiations in international trade law highlights the potential for analogous efforts in international investment law. Bernard Hoekman and Petros Mavroidis contend:
The many PTAs in force today suggest that the problems in the WTO are not a reflection of an unwillingness of governments to embed binding, trade policy-related commitments in treaty instruments but, prima facie, an unwillingness to make similar commitments on a WTO-wide basis.Footnote 96
Accordingly, they argue for the facilitation of (annex 4) plurilateral agreements in the WTO to embody trade liberalization in a multilateral forum in preference to PTAs.Footnote 97 Similarly, I contend that the continuing interest of many States, for not only PTAs including investment chapters but also agreements such as the EGA, the TiSA and the mega-regionals,Footnote 98 shows the potential for plurilateralism and regionalism to be used as mechanisms to pursue multilateralism in international investment law.
4.2.1 The environmental goods agreement
WTO Members launched negotiations on environmental goods and services in 2001 as part of the Doha Round,Footnote 99 but these negotiations have been generally unfruitful.Footnote 100 The Asia-Pacific Economic Cooperation (APEC) has had more success in recent years, agreeing in 2011, inter alia, to develop a list of environmental goods on which applied tariffs would be reduced to no more than 5% from 2016.Footnote 101 APEC agreed that list in 2012Footnote 102 and in 2016 confirmed implementation of tariff cuts on ‘54 environmentally friendly goods, boosting trade and improving access to the tools needed to fight climate change’.Footnote 103
Building on the developments at APEC, 14 WTO Members (including China, the EU, and the US) announced in January 2014 their ‘commitment to achieve global free trade in environmental goods’ by ‘seek[ing] agreement to eliminate tariffs for goods that we all need to protect our environment and address climate change’.Footnote 104 The announcement indicated that tariff reductions would apply on an MFN basis through an agreement that would enter into force ‘once a critical mass of WTO Members participates’.Footnote 105 The USTR stated upon the launch of negotiations in July 2014 that the participating countries accounted for 86% of global trade in environmental goods.Footnote 106 Three other WTO MembersFootnote 107 have since joined these negotiations for an EGA, which ‘remains … open to all WTO Members’.Footnote 108
In the last months of 2016, negotiations towards the EGA faltered,Footnote 109 apparently as a result of Chinese recalcitrance.Footnote 110 Nevertheless, the EGA offers several lessons for rule-making in international investment law. First, many States remain committed to reaching agreements to enhance liberalization. Second, politics and the voice of domestic constituents will always play a role in trade and investment negotiations. Third, the subject matter of the agreement matters. An agreement such as the EGA relates to the crucial intersection between international economic law and the SDGs. Such an agreement, with evident worldwide benefits, and to be applied on an MFN basis, has the greatest chance of attaining the support of States and simultaneously addressing concerns about globalization and community interests.Footnote 111
4.2.2 The Trade in Services Agreement (TiSA)
TiSA is an even more ‘ambitious’ project than the EGA, among 23 parties (including the EU), said to cover 70% of global trade in services and 66% of world GDP.Footnote 112 TiSA negotiations led by Australia, the EU, and the US commenced in 2013.Footnote 113 According to Australia, ‘the TiSA is about more than services liberalization. It is about generating momentum in a way that could jump-start other multilateral trade negotiations’.Footnote 114
Like the EGA, TiSA suffered a setback as 2016 drew to a close. Negotiations were put on hold in view of uncertainties surrounding President-elect Trump's stance on TiSA.Footnote 115 These negotiations may nevertheless hold important clues for international investment law. Under the GATS, services are classified into four modes, including mode 3 (commercial presence), entailing supply of a service ‘by a service supplier of one Member, through commercial presence in the territory of any other Member’.Footnote 116 The supply of a service through commercial presence involves a foreign investment, for example with a subsidiary establishing itself in the host country. The commitments that TiSA contracting parties are prepared to make with respect to mode 3 (comprising the majority of trade under GATS),Footnote 117 albeit in a trade context, may be indicative and informative in determining the scope and content of investment obligations. The way that TiSA deals with mode 3 will also be important. The TPP, for example, excludes from its Chapter 10 (Cross-Border Trade in Services) mode 3 service supply to the extent that this amounts to a covered investment,Footnote 118 leaving the coverage of such activities to other provisions including the investment chapter. A June 2016 version of the TISA core text leaked by wikileaks in September 2016 suggests that TiSA instead encompasses all four GATS modes,Footnote 119 indicating an apparent willingness of multiple States to continue to work towards liberalization of this aspect of foreign investment.
5. Pathways towards multilateral investment rules
In the following sections, I consider a number of key pathways by which multilateral investment rules could be pursued: first, using the ‘old’ method of comprehensive negotiations in an international organization. This option may be unlikely to succeed, given the current state of negotiations in the WTO and past failures in both the WTO and the OECD. Second, I note the current approach of most countries, which is to pursue small improvements step by step as each new treaty is concluded. While these slow steps are taking place, treaty by treaty, the new mega-regional negotiations provide greater potential to achieve the necessary momentum for multilateralism.
5.1 Another independent push for multilateralism through the WTO?
Karl Sauvant proposes the WTO as host institution to provide ‘a unified system providing systematic legal and institutional support for the future growth of global value chains’,Footnote 120 building on UNCTAD's Investment Policy Framework for Sustainable Development.Footnote 121 Richard Baldwin, Simon Evenett, and Patrick Low have also advocated the eventual involvement of the WTO in multilateral investment rules: ‘getting the WTO into this policy area may be important to ensuring that future developments would remain multilateral-friendly. It would also tend to reduce the hegemonic influence of the large investing nations.’Footnote 122 Other commentators also support the choice of the WTO as a forum for multilateral investment negotiations.Footnote 123
The WTO itself does seem to be interested in further involvement in investment rule making. The EU suggested that investment could form part of new issues for negotiation in the WTO following the 2015 Ministerial Conference held in NairobiFootnote 124 and more recently floated the WTO in connection with its investment court proposal.Footnote 125 In 2016, in the murky uncertainty following the Nairobi conference, the WTO renamed the ‘Trade in Services Division’ the ‘Trade in Services and Investment Division’,Footnote 126 causing some consternationFootnote 127 given the termination of negotiations on investment issues more than ten years earlier.Footnote 128 Given the continued vigorous engagement of States with IIA negotiations and ISDS, WTO involvement in investment treaty disputes and international investment law more generally could well help enliven the WTO now that its negotiating arm is flailing.
However, a ‘new’ process towards multilateral investment rules within an international organization such as the WTO, or indeed the OECD, UNCTAD, UNCITRAL, or ICSID, is likely to be hindered by the long shadow of past failures to achieve consensus in this manner. Specific difficulties may also arise with respect to these various organizations. For example, the continuing stalemates in the WTO on the trade front (in addition to its past failures even to agree to negotiate comprehensive investment rules, and the potential threat it now faces from President Trump)Footnote 129 do not instil confidence regarding it taking on a major role in a related and overlapping but largely distinct area of law.Footnote 130 UNCITRAL may be seen as having an international commercial arbitration slant and a practitioner focus,Footnote 131 while the OECD's major MAI debacle will colour any future steps in this direction. In addition, each of these organizations has its own membership as well as an agenda and interests separate from those of its members. These kinds of difficulties may unduly complicate steps towards multilateralism. A preferable alternative may be to use the principles developed in these different organizations as discussed above in section 3.2 to inform discussions on the content of future bilateral, plurilateral, and multilateral investment rules, as regards both substantive investment obligations and dispute settlement options, as well as novel treaty mechanisms as have been developed in UNCITRAL regarding transparency.
Working towards multilateralism in a more piecemeal fashion via bilateral or plurilateral agreements may be more easily distanced from previous difficulties with the OECD and WTO negotiations, such as the lack of representation of diverse interests among negotiating parties (linked to the nature of the OECD as a closed ‘club’),Footnote 132 or (conversely) the inability to achieve consensus among ‘too many’ WTO Members. Just as the EGA and the TiSA had their origins outside the WTO but may eventually be consolidated into the WTO agreements, so too might informal ad hoc negotiations in the investment field have a greater chance of leading towards multilateralism than a formal institutional process in the WTO or another international organization.
5.2 BIT by BIT
Harmonization of IIAs with a view to gradual multilateralization could arise through negotiations between some of the most important players in international investment law. For example, if successfully concluded as planned before the US election, a BIT between China and the USFootnote 133 could provide a set of rules acceptable to a number of developed and developing countries: ‘the most important home and host countries among developed and developing countries would have negotiated an agreement that could serve as a template that could be taken forward’.Footnote 134 The potential significance of a China–US BIT is reflected, for example, in the fact that the 2015 China–Australia free trade agreement (ChAFTA) contains virtually an empty shell of an investment chapter,Footnote 135 despite the continued existence of a typical comprehensive Australia–China BIT including an ISDS mechanism.Footnote 136 The Australian government characterized the gaps in the newer agreement as being ready to be filled upon the conclusion of the China–US BIT.Footnote 137
In 2016, Brazil and India (countries that could both be characterized as IIA or ISDS sceptics, with Brazil having no IIA in force) were reported to have concluded negotiations on a BIT. The text is not yet available but is reported to exclude not only ISDS but also the fair and equitable treatment obligation and the MFN obligation.Footnote 138 This unusual treaty highlights certain difficulties of a ‘bit by bit’ approach, even building on treaties between significant powers. Innovations in a model investment treaty, such as the revised models of IndiaFootnote 139 and Norway,Footnote 140 may be informative but represent the ‘ideal’ provisions proposed by just one State. With only two parties, although they may have different interests and sensitivities, agreement may be easier to reach, particularly if they have similar perspectives on ISDS and investment protection more broadly.
With a larger number of parties, as in a plurilateral or mega-regional agreement, more back and forth and compromise is required. Recent research reveals the influence of behavioural dynamics in concluding investment treaties.Footnote 141 Qualitative and quantitative empirical analysis suggests, for example, that States tend to respond to investment claims by reducing the number of BITs signedFootnote 142 or to investment case law by refining their treaty provisions,Footnote 143 such that a State having recently faced an unfavourable award may be more likely to try to preserve policy space in a mega-regional negotiation. States whose investors have recently brought claims against other States may be more inclined to see the need for greater investment protections and rights. With a greater number of such perspectives involved, from a wider geographical and economic distribution, greater potential exists to get right the balance that proved such a problem in the OECD's MAI negotiations, as identified by Schill.
5.4 Through the mega-regionals
In this article, I promote mega-regionals as a means to work towards multilateralism in international investment law. However, mega-regionals per se cannot resolve the legitimacy crisis in investment law without further harmonization and consolidation: ‘the rise of regional investment agreements can reduce and also exacerbate complexities in the investment universe’, either ‘furthering or diminishing the prospect of coherence and convergence towards multilateralism’.Footnote 144 Alschner uses empirical analysis to show that regionalization has increased ‘unconsolidated layers of vertically overlapping investment treaties’,Footnote 145 in practice moving investment law further from multilateralism rather than towards it. The way in which States use plurilateral or mega-regional agreements, including to terminate existing treaties and to provide new models for future treaties, is crucial in adapting these agreements to a multilateral approach and escaping the traditional ‘bit by bit’ framework. Below I consider the potential of several mega-regional negotiations in this regard.
5.4.1 The TPP: a lost opportunity
The TPP is the quintessential mega-regional trade agreement, spanning 12 countries with a varied geographic distribution, diverse levels of development, and very different legal, cultural, and political systems. The agreement spans a large range of issues, Footnote 146 not only deepening WTO-type commitments but also introducing additional obligations not seen in the WTO or even (in some cases) other PTAs, such as chapters on regulatory coherence,Footnote 147 government procurement,Footnote 148 State-owned enterprises,Footnote 149 and electronic commerce,Footnote 150 and other dedicated chapters requiring compliance with international standards regarding the environmentFootnote 151 and labour.Footnote 152
Negotiations took place over more than five years, having commenced in Melbourne in March 2010Footnote 153 and concluded in Atlanta in October 2015.Footnote 154 Negotiating countries signed the treaty on 4 February 2016,Footnote 155 but with final provisions making clear that if either Japan or the US failed to ratify the treaty, the necessary GDP threshold for entry into force could not be met.Footnote 156 Under President Trump, the US has formally withdrawn from the TPPFootnote 157 (in line with the new administration's emphasis on bilateral rather than multilateral negotiations),Footnote 158 thus dooming the agreement in the form it was signed. The TPP text nevertheless deserves close examination for its potential lessons for international investment law.
The TPP ISDS provisions include explicit permission for tribunals to accept and consider submissions from amicus curiae (friends of the court),Footnote 159 as well as extensive transparency requirementsFootnote 160 (including making publicly available both parties’ pleadings and minutes or transcripts of tribunal hearings, if available,Footnote 161 and also having open hearings).Footnote 162 Even more unusually, a product-specific ‘carve-out’ applies, whereby a host State may determine – either in general or in relation to particular proceedings, even after they have commenced – that it will not accept an ISDS challenge to a tobacco control measure.Footnote 163 Australia and New Zealand had already indicated their intention to make a blanket refusal in this regard.Footnote 164 This provision created controversy and raises complex public health issues.Footnote 165
The substantive TPP investment provisions include the more modern clarifications and nuances we have come to expect,Footnote 166 especially from US PTAs, from which the TPP investment text borrows liberally.Footnote 167 Some additional, more unusual, clarifications are also present,Footnote 168 leading the Australian government to describe the investment chapter as containing ‘a set of high-quality, modern rules governing the treatment of investors and their investments, balanced with robust safeguards to preserve the right of the Government to continue regulating in the public interest’.Footnote 169 These safeguards include both general provisions and specific acknowledgment of non-conforming measures of particular countries.
In addition to these developments in investment protection, the TPP offers structural possibilities for the future of the field. As regards older-style treaties, Australia provides the example of terminating previous BITs with TPP parties in conjunction with the TPP's entry into force via side letters. Conversely, the TPP includes mechanisms for its future expansion through the admission of new parties. Specifically, the TPP ‘is open to accession by’ a State or separate customs territory that is a member of APEC or that the Parties agree to.Footnote 170 A number of Asian countries in particular had expressed interest in accession.Footnote 171 As foreshadowed above, the termination of existing IIAs in conjunction with the TPP and its expansion to cover additional countries would have been crucial in using this agreement as a stepping-stone towards multilateralism rather than simply another layer of legal complexity in the international investment regime, undermining goals of consolidation.
The TPP could have created opportunities to consolidate investment law. Both substantive and procedural aspects of the investment chapter (as described above) could have been replicated in other treaties, for example in updating existing IIAs between TPP signatories or in negotiating new IIAs between TPP signatories or between TPP and non-TPP countries. These effects can be seen already, for example in the amendments agreed by TPP signatories Singapore and Australia to update their PTA. The amendments include a carve-out from ISDS for tobacco control measures, modelled on the TPP provision.Footnote 172 However, the utility of drawing on the TPP text in other IIAs has been severely diminished by the US withdrawal and the impossibility of entry into force between the remaining 11 countries in the form signed. As noted above, that text is largely built on US positions and PTAs and therefore incorporates US preferences and concessions by other countries based on the assumed inclusion and benefits of the US market. Without the US, and with Trump threatening to step back from international collaboration, approaches proposed by other States may be preferable in pursuing multilateralism.
5.4.2 A world investment court? The EC and Canada
The EC's 2015 proposal for an investment court, which is expressly directed towards future multilateralization,Footnote 173 provides the most obvious means of working towards multilateral investment rules, at least with respect to ISDS. The EC's plans have already been implemented, to some degree, through its concluded PTA negotiations with Viet NamFootnote 174 and CETA,Footnote 175 as discussed further below. Canada has also now joined the EU in launching informal discussions with more than 40 countries on a world investment court.Footnote 176 This is a medium term plan with a view to ratification of an agreement between say 15 or 20 countries within around six years.Footnote 177
The original EC proposal was made in conjunction with its TTIP negotiations with the US. That agreement provided a central focal point for the proposal; if the US was on board, much greater chance of a future broader court existed. However, the future of TTIP under the Trump administrationFootnote 178 and in the wake of Brexit is unknown. Even before the US election, public statements suggested a lukewarm US response to the EC's investment court plans,Footnote 179 which may be unsurprising particularly given the general US distrust of international courts and international regimes. That US perspective is reflected, for example, in its frequent objections to rulings by the WTO Appellate BodyFootnote 180 and, most recently, its refusal to agree to the reappointment of the Korean Appellate Body Member Professor Seung Wha Chang, ostensibly on the basis of his role in particular Appellate Body decisions.Footnote 181 The US also in 2016 blocked proposals to change the term of Appellate Body Members to a single non-renewable period.Footnote 182 The current controversy surrounding the Appellate Body demonstrates that an appellate level court, on its own, would be insufficient to resolve the legitimacy crisis in international investment law. At the same time, the continued success of the Appellate Body after more than two decades also shows the ability of a large proportion of the world's countries to agree on and abide by an international dispute settlement system even in the face of adverse rulings requiring considerable domestic adjustments.
The EC's proposal regarding an investment court in conjunction with TTIP may provide a useful basis for the informal discussions now being led by the EU and Canada. A well-functioning investment court could provide an important platform to consolidate substantive investment rules, by first offering reassurance and experience with a multilateral approach to one of the most controversial aspects of the investment regime: ISDS. The WTO system also shows how an active dispute settlement mechanism may provide an incentive to negotiate agreements on substantive rules and a fallback to prevent protectionism when negotiations flounder. In the WTO context, the dispute settlement system maintains the functionality and relevance of the organization today, notwithstanding the failure of the Doha Round.
Useful analysis of the EC proposal has already begun, which may assist in refinements for a future court. For example, an American Bar Association working group has issued a comprehensive report on the proposal, raising concerns about its incoherence and incompleteness.Footnote 183 John Gaffney has proposed lessons for the EC's investment court system from the Arab Investment Court.Footnote 184 Lessons from the WTO are also evident but do not appear to have been fully considered or understood in the EC context, perhaps for reasons of political expedience. As noted above, renewable terms for Appellate Body Members have arguably diminished their impartiality and independence. Yet the EC proposal specifies renewable terms for both the appeal tribunal and the tribunal of first instance.Footnote 185 In addition, whereas WTO rules provide clear ‘cooling off’ periods for Appellate Body Members following the end of their term,Footnote 186 the EC proposal clearly prevents a judge in the Appeal tribunal from acting as counsel or party appointed expert or witness only during his or her appointment.Footnote 187 The code of conduct also does not clearly prevent all such activities after appointment, simply requiring ‘former members [to] avoid actions that may create the appearance that they were biased in carrying out their duties or derived advantage from the decisions or awards of the Tribunal or Appeal Tribunal’.Footnote 188 Finally, WTO Appellate Body Members cannot be affiliated with any government.Footnote 189 The EC proposal contains the same non-affiliation requirement,Footnote 190 yet inexplicably suggests that tribunal members may receive a government income and be government officials.Footnote 191
5.4.3 CETA and RCEP
CETA contains a number of substantive and procedural innovations in investment law. In respect of procedure, as foreshadowed above, CETA includes an investment court in place of the arbitration traditionally used for ISDS. However, the problems identified above in the EU's TTIP proposal with respect to the renewability of tribunal members’ terms,Footnote 192 restrictions on acting as counsel,Footnote 193 and remuneration from governmentFootnote 194 apply equally to CETA. With respect to substance, CETA's protections for host States include:
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(a) an explicit and arguably exhaustive list of conduct that violates the obligation of fair and equitable treatment, reducing the scope for debate about the meaning of this obligation and the threshold for breach;Footnote 195
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(b) a reference to legitimate expectations in relation to fair and equitable treatment, potentially narrowing the role of such expectations;Footnote 196
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(c) confirmation that a breach of another provision, another international agreement, or domestic law does not establish a breach of the fair and equitable treatment standard;Footnote 197 and
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(d) confirmation of parties’ ‘right to regulate’ and that the mere fact that regulation negatively affects an investment or an investor's expectations does not amount to a breach of investment protections.Footnote 198
Seven TPP signatories are included in the RCEP negotiations.Footnote 199 China's participation in RCEP may be seen as its response to the TPP, just as Obama previously posited the TPP as a counterweight to China's power in the global marketplace: ‘we can't let countries like China write the rules of the global economy’.Footnote 200 With the US withdrawal from the TPP, China is said to be ready to begin writing those rules, including through RCEP.Footnote 201
Despite the absence of the US in RCEP negotiations, the negotiating countries have already announced that the treaty will include an ISDS mechanism with appropriate safeguards.Footnote 202 The inclusion of ISDS in RCEP is perhaps surprising given India's wariness of ISDS as reflected in its new model BIT.Footnote 203 India's acceptance of ISDS may reflect the previous power of the TPP, despite its ratification uncertainties, to concentrate the negotiators’ minds. The continuing (albeit remote) possibility of a TPP-11 agreement, together with China's ambitions in international trade and investment law, may significantly facilitate the RCEP negotiations, despite the considerable variation between the existing PTAs of the negotiating parties.Footnote 204 The breakdown of negotiations at the WTO and the failure of the TPP may also highlight the importance of RCEP in enhancing trade and investment liberalization in the Asian region.
Potential exists for the RCEP negotiators to consider adopting the important innovations in CETA (including the investment court proposal) in crafting the RCEP investment chapter, while also building on the existing IIAs between parties, such as the ASEAN Comprehensive Investment Agreement Footnote 205 (between the ten member States of ASEAN) and the 12-party ASEAN–Australia–New Zealand Free Trade Agreement.Footnote 206 In dealing with these various overlapping treaties, RCEP countries should follow the example of Australia in the TPP of terminating unnecessary agreements between RCEP partners in conjunction with entry into force of RCEP, reducing the complexity of international investment law at least on a regional basis, thus working towards rather than departing further from a multilateral approach.Footnote 207
Even if TTIP is abandoned, the alignment of RCEP to substantive investment reforms in CETA and the EU/Canada investment court proposal could encourage further US engagement in investment law reform, potentially on the basis of plurilateral or mega-regional deals rather than only bilateral agreements. A strong RCEP will also help lay the foundations for further investment law consolidation, such as through the Free Trade Area of the Asia-Pacific envisaged by APEC.
6. Conclusion
The Economist newspaper in 2016 characterized the most important political divide as ‘open’ vs ‘closed’ rather than left vs right.Footnote 208 This critical and unusual time in the international climate can be used to build momentum for increased liberalization through coordinated investment rules in recognition of the value of openness, as a counterweight to the nationalism that led to Brexit and President Trump. The time is ripe to meet these concerns on the international investment law front with greater rather than less cohesion, given the common dissatisfaction of developed and developing countries with increased incursion of ISDS into regulatory autonomy, and growing recognition among all countries of their dual roles as home and host States needing a balanced approach to investment protections.
The energy that many States are continuing to put into plurilateral and mega-regional agreements is capable of being harnessed towards the longer term pursuit of multilateral rules as a tool for reform of the beleaguered investment regime. These treaties should be viewed as opportunities to increase consensus, particularly given their overlapping nature, and the participation of major players in the global investment market including the EU, China, and the US. However, a concerted effort will be required to promote harmonization and use the opportunity to extinguish outdated IIAs to avoid the possibility of mega-regionals increasing rather than decreasing inconsistency and incoherence in international investment law. The ongoing work of institutions such as UNCTAD and UNCITRAL will be important and helpful in this regard, as well as in informing the content of substantive and procedural aspects of a multilateral investment regime.
The failure of the Doha Round and earlier institutional failures in negotiating multilateral investment rules reveal the difficulties of a wholesale multilateral approach. Nevertheless, continuing progress in particular areas in international trade law shows that sectoral and plurilateral consensus remains possible. The use of flexibilities within trade agreements also shows the potential for maintaining different positions within a framework of broader consensus. In the investment context, the pre-existence of certain plurilateral agreements also points to the potential for future successful negotiations given the right conditions and participation.Footnote 209
With the US apparently retreating from globalization and plurilateral negotiations in the economic sphere, the TPP is less useful as a template for future IIAs, representing largely the interests of the US under Obama. Resisting the temptation to use the TPP as a guide for future negotiations or reforms, TPP signatories and other States should instead look to the CETA as an important successful negotiation that is likely to enter into force. Moreover, while the TPP did include important innovations in the investment field, the CETA investment provisions arguably represent best practice in a number of respects, particularly through rebalancing substantive obligations in recognition of host State regulatory autonomy, as well as the inclusion of an investment court with the potential to address longstanding, systemic problems with ISDS. Consideration of these approaches through informal discussions being led by the EU and Canada as well as through formal negotiations such as those leading to RCEP will provide an important basis for future multilateral investment rules.
