An International Investment Advisory Center: Beyond the WTO Model

Establishing an international investment advisory center is now a priority for many states.  UNCITRAL Working Group III has put the issue at the top of its agenda for ISDS reform.  The European Commission is considering an advisory center for its proposed Multilateral Investment Court.  The Netherlands government has commissioned a feasibility study.

Thinking about an international investment advisory center naturally starts with the Advisory Centre on WTO Law (ACWL).  Established in 2001, the ACWL is the “first true center for legal aid within the international legal system.”  It seeks to level the playing field by giving developing states the same in-house capacity that developed states enjoy.  The ACWL provides developing states with training, confidential advice on WTO law, and assistance or financial support during WTO dispute-settlement proceedings.  The center receives funding from developed and developing states, including voluntary contributions and (below-market) fees from dispute-settlement proceedings.  Two decades on, the ACWL has established itself as an integral part of the WTO dispute settlement system, playing “a crucial role in maintaining a viable and credible rules-based multilateral trading system.” 

But is the ACWL the right model for an international investment advisory center?  Unlike the WTO regime, the international investment regime is decentralized.  There is no global treaty on investment protection, no global forum for addressing all investment-related issues, and no global institution to help states avoid, manage, and resolve investment disputes efficiently and effectively.  Instead, each State—developing and developed—must devise its own approach to foreign investment and devote the human and financial resources necessary to comprehend, navigate, and develop that regime.

The decentralized nature of the international investment regime has important consequences.  States often struggle to comprehend and comply with their international investment commitments across all levels of government, making it difficult to avoid or settle investment disputes.  Many states lack significant expertise with investment arbitration, making it difficult to defend themselves effectively, or proactively shape the development of international investment law.  States’ frequent reliance on external counsel may hinder the development of in-house government legal capacity essential to establishing coherent and consistent national treaty practice. A cycle of uncertainty, inexperience, and incapacity has bred discontent with the current regime, threatening its legitimacy.  Viewed from that perspective, an international investment advisory center focused primarily on helping developing-state respondents in investment arbitration may fail to address underlying needs and broader concerns.

Broad Participation, Maximum Impact, Minimum Cost

A successful advisory center could help fill six gaps in the international investment regime:

1. International investment forum

States currently have many opportunities to meet to discuss issues related to international investment law, policy, and practice.  Important venues include ICSID investment workshops, UNCTAD investment forums, OECD investment roundtables, the Prague investment conference, and regional or treaty-based forums.  But there is no standing forum for government officials to engage regularly on the full range of investment issues.  This is a glaring omission.  States frequently face common problems dealing with a rapidly developing foreign investment regime, and they require regular contact to share information and devise solutions.  An advisory center could provide state officials with additional in-person networks; contacts for bilateral, regional, and multilateral discussions; and virtual networks for formal and informal exchanges of timely information, experiences, and lessons learned.

2. Resource clearinghouse

There are many valuable resources available to help states with investment-related issues, including:

• practice notes, such as ICSID’s practice notes for respondents;
• policy papers, such as UNCTAD’s investment policy reviews, reports, action plans, and monitors;
• model texts, such as the Energy Charter Secretariat’s model instrument for managing investment disputes;
• handbooks, such as APEC’s investment treaty negotiators handbook;
• specialized media, such as IAReporter.
• national legal instruments, such as Peru’s law on responding to international investment disputes;
• research tools, such as Jus Mundi, Investment Policy Hub, and PluriCourts’ Investment Treaty Arbitration Database (PITAD); and
• law school clinics, such as the TradeLab Clinic.

These important resources, however, often are dispersed across multiple institutions around the world, with too little coordination or harmonization.  States may be unaware of their existence, or lack resources or institutional capacity to channel information to appropriate agency personnel.  An advisory center could play an enormously important role simply by compiling, organizing, and disseminating existing resources to relevant state officials.

3. Capacity building

There are many investment-related capacity-building programs currently available to states.  States can obtain training from international organizations (such as ICSID, IDLO, OECD, PCA and UNCTAD), regional organizations (such as APEC and ASEAN), national government authorities (such as CLDP), and NGOs (such as AILA, CCSI, and IISD).  These training programs are excellent individually but inadequate collectively.  They do not cover the full range of issues relevant to state officials, do not occur with the depth and frequency states require, cannot reach every country requiring assistance, and do not always attract relevant government personnel.

A new center might offer additional training, whether by staff members, experienced state officials, or outside specialists in the field, including arbitrators, academics, and practicing lawyers.  Training could take place in-house, in-country, in the region, or on the margins of other international meetings.  Training might target officials directly responsible for the state’s international investment policy and practice, as well as trainers within the receiving state, multiplying the center’s reach.  A center could disseminate, translate, and (as needed) prepare handbooks, protocols, templates, draft instruments, and best-practice guides.  To maximize impact and cost-effectiveness, any new center should support, facilitate, and complement existing training and capacity-building programs, rather than compete with them.

4. Advice

Although government lawyers routinely advise policy clients on complex and consequential legal issues, the international investment regime presents unique challenges in this regard.  It is not always clear, prior to an arbitration, which treaties or provisions might apply to any given investor or investment.  Further, key investment provisions (such as fair and equitable treatment) have no fixed meaning and may not have a clear analogue in the domestic laws that government lawyers typically apply.  Rapid developments in the field challenge states’ ability to understand and comply with their international obligations, or properly assess whether to settle, mediate, or arbitrate investment disputes brought against them. 

Many states could benefit from expert advice on international investment law and policy, covering (i) risk assessment (helping states evaluate their investment treaties and contracts in light of domestic legal frameworks and key investment sectors); (ii) risk mitigation (helping states avoid disputes by promoting awareness of and compliance with investment obligations); and (iii) risk management (helping states implement the five pillars of investment-dispute management: standard operating procedures for handling notices, proper authorities for representing the state effectively, appropriate coordination within and outside the government, the ability to properly evaluate and instruct outside counsel, and resources to pay the costs of mediation or arbitration).

5. Representation

International investment disputes often are lengthy, complex, and costly.  Like sophisticated claimants, respondent states require specialized knowledge, technical expertise, forensic capabilities, and skilled advocacy.  Most states retain leading international counsel to defend them, often at significant expense.  Many states could benefit from receiving quality legal assistance at reduced cost.

An advisory center might usefully complement state representation during all phases of the dispute-resolution process, including settlement, mediation, and arbitration.  A center might also facilitate low-cost or pro bono representation by law firms or individuals.  In addition to lowering costs, an advisory center could give government counsel hands-on arbitration experience, improving their capacity for future cases.

6. Funding

Many states have expressed concerns over the high costs of defending investment claims.  An advisory center might offer grants to offset these costs.  There is some precedent for this.  The PCA’s Financial Assistance Fund, for instance, has funded eight cases since 1994, including two investment treaty cases.  Grants have ranged from €100,000 to €750,000.   An advisory center also could help states tap other funding sources, such as the funds that two non-profit organizations provided for Uruguay’s defense in the Philip Morris arbitration.

Conclusion

A successful international investment advisory center could promote within states a holistic understanding of international investment promotion and protection, facilitating a whole-of-government approach to risk assessment, mitigation, and management.  Such assistance could help create within states a virtuous circle of greater understanding, experience, and capacity.  Many states may be unwilling to subsidize the defense of claims brought by their own investors for unlawful treatment.  But all states should welcome an advisory center that—through low-cost, high-impact solutions—helps them better understand, manage, and control the international investment regime.

States may wish to give SMEs or other investors access to advisory center resources.  Regardless, all investors should welcome such a center.  Investors who commit their capital abroad want investment protections, not investment disputes.  When problems arise, investors expect government officials to understand the parties’ rights and obligations and engage constructively to resolve any differences.  When disputes arise, investors hope to find government officials with sufficient knowledge, authority, and capacity to settle, mediate, or arbitrate in good faith.  An international investment advisory center could help make every state a better partner for successful foreign investment.