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The Constitutional Frontiers of International Economic Law

Published on March 9, 2017        Author: 

The End of Mega-Regionalism?

The future of ‘mega-regionals’, like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), has become doubtful since President Trump took office. Through decisions, such as the withdrawal from TPP, he is putting his rhetoric to ‘Make America Great Again’ in action. Yet, the idea to put national values first is not, I argue in a recent issue of the Journal of World Investment and Trade, so different from opposition to mega-regionals elsewhere. Both the ‘new America’ and opponents to mega-regionals in Europe speak in favor of disengaging from mega-regionals and replacing them with action by the nation state. At the same time, rejecting mega-regionals will result in sticking with the existing international institutional infrastructure that is widely regarded as insufficient to effectively regulate globalization for the better.

Despite similarities in their effects, there are important differences across the Atlantic. In the European Union, opposition most vocally comes from the left, not from the right. It also does not come from an elected executive, but from large numbers of citizens and opposition parties, as well as a smaller number of Member States, or even sub-divisions of Member States – think of Wallonia. And it is couched in entirely different vocabulary: Rather than speaking the language of nationalism and protectionism, opposition in the EU invokes constitutional values and rights – namely democracy, the rule of law, and fundamental rights – which are leveraged against mega-regionals and the institutions they come with, notably investor-state dispute settlement (ISDS) and regulatory cooperation.

Increasing Involvement of Constitutional Courts

Couching opposition to mega-regionals in constitutional language has important consequences: It brings in a different set of actors, namely constitutional courts. Following earlier examples in Latin America, the 13 October 2016 ruling of the German Constitutional Court on an application for an injunction against the Canada-EU Comprehensive Economic and Trade Agreement (CETA) brought by some 120,000 individuals is likely just the first of many court rulings in which international economic law encounters its constitutional frontiers head-on. Read the rest of this entry…

 

The Mauritius Convention on Transparency: A Model for Investment Law Reform?

Published on April 8, 2015        Author: 

In the midst of heated debates on investor-State dispute settlement in Europe, on 10 December 2014 the United Nations General Assembly adopted the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration. Prepared by UNCITRAL in the context of its recent revision of the UNCITRAL Arbitration Rules, the Convention, also known as the ‘Mauritius Convention on Transparency’, was opened for signature on 17 March 2015 in Port Louis, Mauritius. Canada, Finland, France, Germany, Mauritius, Sweden, the United Kingdom and the United States signed the Convention at this occasion (see UN Press Release). In my Editorial in the latest issue of the Journal of World Investment and Trade (which this blog reproduces), I interpret this Convention as a piece of constitutional reform of the international investment regime and ask to which extent it can serve as a model for international investment law reform more generally.

A Piece of Constitutional Reform of the International Investment Regime

The Mauritius Convention will extend the application of the UNCITRAL Rules on Transparency, which so far have a very limited scope of application (only to UNCITRAL investor-State arbitrations that are based on treaties concluded on or after 1 April 2014), potentially to the entire treaty-based international investment regime as it stood on 1 April 2014. Notably, it would make the UNCITRAL Transparency Rules applicable to all treaty-based investor-State arbitrations under ‘old’ treaties, independently of the applicable arbitration rules. Whether the arbitration in question is governed by the UNCITRAL Arbitration Rules, the ICSID Convention, the Arbitration Rules of the International Chamber of Commerce, the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce – you name it – the Mauritius Convention would provide for transparency of submissions to arbitral tribunals, arbitration hearings, and decisions by arbitral tribunals, and give more room for third-party participation under a uniform set of rules. It could thus apply to some 3000+ investment treaty relations if both the respondent State and the investor’s home State are contracting parties or, alternatively, if the investor-claimant accepts the unilateral offer to apply the UNCITRAL Transparency Rules made by the respondent in signing the Convention (see Article 2 of the Mauritius Convention).

Provided it is signed and ratified by a sufficiently large number of States and regional economic integration organizations, such as the EU or ASEAN, the Mauritius Convention will bring about a paradigm shift in investor-State dispute settlement. Although possibilities for reservations, including subsequent ones, are broad (Articles 3 and 4 of the Mauritius Convention), and although ongoing arbitrations are excluded from its scope of application (Article 5 of the Mauritius Convention), the Convention will establish transparency as a general principle of international investment law.

This constitutes another step in the incremental adaptation of international investment law to the demands of a more democratic and accountable international public law system of private-public adjudication. The wide-spread application of transparency under the Convention would not only enhance the accountability of the underlying investor-State relations, but also enable better public control of the arbitral process. This turns the Mauritius Convention into an instrument with constitutional implications for the international investment regime. Read the rest of this entry…

 
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Towards a Constitutional Law Framework for Investment Law Reform

Published on January 5, 2015        Author: 

Reforming international investment law and investor-state arbitration is a widespread concern. This is nowhere more manifest than in the heated debates (in Germany and elsewhere) about the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the Transatlantic Trade and Investment Partnership (TTIP). Should there be investor-state arbitration between economies with well-functioning legal systems? Do we need an appellate mechanism to control arbitral tribunals? Who should serve as arbitrator and what ethical standards govern? And how should the substantive standards of investment protection be formulated in order to safeguard policy space for host states? These are some of the questions debated. At the same time, reforming international investment law is not only on the agendas of contracting parties, it also plays an important role for international organizations, such as the United Nations Conference on Trade and Development (UNCTAD), the Organisation for Economic Co-operation and Development (OECD), or the Southern African Development Community (SADC).

The Need for a Normative Framework for Investment Law Reform

The reform proposals that result from these various initiatives reflect the political pressure international investment law is facing; they also put pressure on states to remedy the discontents with the current system (see my earlier post on EJIL: Talk!). At the same time, the large number of reform proposals currently floated risk fragmenting investment law even further. This can be counterproductive if the aim is to arrive at an investment law regime that is both balanced and predictable. Furthermore, reform proposals themselves reflect underlying political and ideological preferences that may not be globally shared. What is needed therefore is a debate about these preferences and their impact on investment law reform. In other words: we need a broader debate about the normative framework for investment law reform.

As I argue in my Editorial of the latest Special Issue of the Journal of World Investment and Trade (entitled ‘Towards Better BITs? – Making International Investment Law Responsive to Sustainable Development Objectives’), this framework should not be seen only as a matter of (potentially short-lived and changing) economic policies that differ from one country to another. Instead, we should develop a framework for investment law reform on the basis of more fundamental principles, in particular if we are looking for ‘systemic reform’ that makes international investment law acceptable to all states. This requires – as Karl Sauvant and Federico Ortino rightly point out in a recent study – consensus-building processes about underlying assumptions and objectives for investment law reform. Read the rest of this entry…

 
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Arbitrator Independence and Academic Freedom

Published on May 30, 2014        Author: 

In international law, members of the discipline often fill a variety of professional roles. Many are scholars and practitioners at the same time; some even act in capacities that are mutually incompatible at the domestic level, such as being counsel and decision-maker at the same time – albeit in different proceedings. Investment arbitration is an area where this “double-hat problem” is vividly discussed. The main concern is the independence of arbitrators in light of interests that that individual may have in fulfilling other professional roles. What is less debated is how practice involvement can affect the role of the international lawyer as academic and how practice affects, and risks compromising, the independence of international law as an academic discipline. This is the theme underlying the following discussion of a recent challenge in CC/Devas and others v. India, which was decided by ICJ President Peter Tomka in an UNCITRAL arbitration under the Mauritius-India bilateral investment treaty (BIT). It is an abbreviated version of my thoughts from the first Editorial of the new Journal of World Investment and Trade that just came out.

Challenge in CC/Devas and others v. India

In CC/Devas and others v. India, two arbitrators, Francisco Orrego Vicuña and Marc Lalonde were challenged because they had, in the Respondent’s view, prejudged the meaning of the essential security-clause in the applicable BIT: Mr. Lalonde because he sat in both CMS v. Argentina and Sempra v. Argentina where a similar essential security-clause from the US-Argentina BIT had been an issue; and Prof. Orrego Vicuña because he sat, together with Mr. Lalonde, in the same two arbitrations, as well as in Enron v. Argentina, which also involved the US-Argentina BIT. On top, Prof. Orrego Vicuña had written a chapter on ‘Softening Necessity’ in the Liber Amicorum for Michael Reisman, in which he analyzed the tribunals’ approach to the necessity defense under customary international law and to the essential security-clause.

While ICJ President Tomka rejected the challenge against Marc Lalonde, stating that merely expressing prior views on an issue in an arbitration did not result in a lack of impartiality or independence, he upheld the challenge against Francisco Orrego Vicuña, because the latter had stuck to his approach to interpreting essential security-clauses through three arbitrations and in the academic article in question, although all three awards had been partially or totally annulled precisely on that point. Comparing the two challenges, the article written by Prof. Orrego Vicuña made all the difference. The case may therefore be read as boiling down to upholding a challenge of an arbitrator based on a view he or she has taken in academic writing. This decision is alarming, in my view, not only for investment arbitration, but for scholarship in the field. Read the rest of this entry…

 
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The Public Law Approach in the Practice of Investment Treaty Arbitration

Published on January 22, 2014        Author: 

In my last post, I discussed how comparative public law methodology could inform the resolution of investor-State disputes and thus help to reform the system from within. This may sound like a view from the ivory tower. In this post I will first discuss why arbitrators have an incentive to make use of such a methodology and, second, point to existing cases in which tribunals have already adopted a comparative public law framework.

System-Internal Reform and Identity Change

The success of using comparative public law as a system-internal reform strategy depends on the extent to which those active in practice endorse it. Enculturating public law thinking will need an identity change among arbitrators, arbitral institutions, annulment committees, and disputing parties. But why should a change in thinking take place, if there is nobody who coerces arbitrators to incorporate public law thinking or parties to develop their submissions on the basis of comparative public law? Do arbitrators not even have an incentive to keep the system running in a way that it maximizes the benefits of investors as claimants, and in turn, the arbitrators’ own interest in being reappointed? This is what critics like Gus Van Harten argue. In his view,

the novel situation in which claims can be brought by only one class of parties, and only the other class can be found to have violated the treaty, provides investment treaty arbitrators (including those who are state-appointed) with an incentive to favour claimants in order to advance the interests of the industry and their position within it.

Appointment of Arbitrators as a Source of Change

My view is different. I think that the one-off nature of arbitration and the appointment mechanism for arbitrators have a great potential for bringing change to the system. Read the rest of this entry…

 
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Comparative Public Law Methodology in International Investment Law

Published on January 3, 2014        Author: 

In my last post I argued that investment law should be reconceived as a system of public law adjudication in order to react to current criticism. The debate over the role of public law in investment arbitration has resounded in other discussions in this forum. It requires understanding arbitration not only as a dispute settlement mechanism, but also as a form of global governance; understanding arbitrators not only as agents of the parties, but also as trustees of the international community; interpreting investment treaties in light of their global implications; and increasing transparency and third-party participation. In other words: Public law rationales should guide the practice of investor-State arbitration.

This framework has important methodological consequences. Under a public law approach to international investment law, parallel problématiques in domestic public law and in other international legal regimes should be studied in order to resolve investor-State disputes in ways that are acceptable to all stakeholders. Comparative public (administrative, constitutional, and international) law, in particular, should become part of the standard methodology of thinking about and interpreting international investment treaties.

Problems with Classical Methods of Treaty Interpretation

Comparative public law is particularly useful because traditional methods of treaty interpretation and reliance on customary international law, while not irrelevant, face significant limits in international investment law. Although numerous inter-State claims commissions existed in the 19th and early 20th centuries, the jurisprudence of these bodies often concerns issues that are different from problems faced by modern regulatory States. Likewise, traditional methods of treaty interpretation often are too vague to guide the application of international investment treaties. In interpreting, for example, fair and equitable treatment provisions, an interpretation of the ordinary meaning may replace the terms “fair and equitable” with similarly vague and empty phrases such as “just,” “even-handed,” “unbiased,” or “legitimate,” but does not succeed in clarifying the standard’s normative content, nor does it indicate what is required of States in specific circumstances. Read the rest of this entry…

 
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The Public Law Paradigm in International Investment Law

Published on December 3, 2013        Author: 

In my last post, I discussed the virtues of investor-State arbitration and suggested that this dispute settlement system could react to current criticism by reconceptualizing the system from within. To succeed, a reconceptualized system would have to provide an accountability mechanism to implement the rule of law that produces results similar to those of other accountability mechanisms for the control of government authority, whether at the national or the international level. Thinking of investor-State arbitration as a mechanism that is similar to judicial review, and adopting the methods and results of such mechanisms, in my view, is the key to reforming international investment law. This means appreciating international investment law as a public law discipline and an instrument of global governance.

Prevailing Mindsets in Investment Treaty Arbitration

Yet, in practice the view prevails that investor-State arbitration is primarily a mechanism to settle individual legal disputes. In fact, lawyers with either a commercial arbitration or a public international law background –the two approaches that most actively shape international investment law and arbitration at present – stress such a limited function of arbitration, while having divergent views on what the rule of law may mean in this context. Those coming from commercial arbitration tend to stress the private nature of dispute settlement; for them the rule of law means faithfulness to party consent, party autonomy, and sanctity of contracts. Public international lawyers, by contrast, tend to emphasize the embeddedness of investment treaty arbitration in a public world order that imposes constraints on State conduct under international law. Their idea of the rule of law is connected more strongly to the idea of limiting the exercise of public authority by procedural and substantive conditions, but their thinking often remains grounded in an inter-State context.

Responding to the Public Law Challenge

Yet, neither a pure international law understanding nor a pure commercial law understanding of investor-State arbitration appears sufficient in itself to comprehend the specific characteristics of international investment law and the challenges the system faces. These challenges, I submit, stem from a disconnect between a broadly held view of the role of investor-State arbitration, on the one hand, and the details of its actual functioning, on the other. It is widely expected that investor-State arbitration should fulfill a role similar to that of judicial review under domestic administrative and constitutional law, subjecting host State public authority to an understanding of the rule of law that focuses chiefly on restrictions in the relations between public and private actors. However, arbitral review of public authority as actually implemented does not conform to public law standards. Specifically, the requirement that the reviewing powers themselves meet public law standards of the rule of law and democracy is absent. Neither commercial arbitration nor public international law approaches can grasp these challenges adequately because they do not sufficiently capture the public law nature of international investment law. Read the rest of this entry…

 

The Virtues of Investor-State Arbitration

Published on November 19, 2013        Author: 

In my last post I discussed the different options for reforming investor-state dispute settlement put forward in a recent UNCTAD policy paper and argued that enacting institutional reforms without addressing substantive law is unlikely to fully address investment law’s legitimacy problems. Instead, I suggested that the current regime could be reformed from within, that is, by arbitrators bringing their conduct in line with public law values, in particular the idea of the rule of law. Today, I want to discuss the virtues of investor-State arbitration in order to show why reforming this institution from within, rather than restricting access to it, or completely overhauling it, makes sense.

The Importance of Individual Recourse to Investor-State Dispute Settlement

Investor-State arbitration is important because, above all, it offers foreign investors a mechanism to hold States accountable for breaches of the promises they make in investment treaties. This transforms investment treaties from political declarations into readily enforceable rules to stabilize investor-State relations. Conversely, from the host State’s perspective, the investor’s access to arbitration enables States to make the commitments vis-à-vis foreign investors under investment treaties credible. This, in turn, reduces the political risk of foreign investment, lowers the risk premium connected to it, and makes foreign investment projects more cost-efficient. This benefits investors and host States, as the products and services offered become cheaper.

Certainly, the credibility of commitments of the host State is not only a matter of the availability of dispute settlement. Reputation, community pressure, the moral obligation to keep promises, or host States’ self-interest may also contribute to its living up to promises made in investment treaties. A host State will also be restrained in its treatment of foreign investors as mistreatment of one investor may keep others from investing. Yet, such mechanisms only work imperfectly because host States can benefit by unilaterally breaching their original obligation after an investor has made its investment, for example the construction of a power plant or factory, by imposing additional obligations or even expropriating the investment. For host States to make credible commitments and to offer ways to be held accountable, independent third-party dispute settlement mechanisms are necessary.

Domestic and International Fora and Their Limits

Such mechanisms can be set up at the domestic and/or the international level. However, host State courts are often not well-positioned to enforce governments’ promises vis-à-vis foreign investors. Read the rest of this entry…

 
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Reforming International Investment Law: Institutional Change v. System-Internal Adaptation

Published on October 30, 2013        Author: 

Stephan Schill4Stephan Schill, LL.M. (Augsburg) 2002; LL.M. (NYU) 2006; Dr. iur. (Frankfurt) 2008, is Senior Research Fellow at the Max Planck Institute for Comparative Public Law and International Law and Principal Investigator in the ERC project on “Transnational Private-Public Arbitration as Global Regulatory Governance: Charting and Codifying the Lex Mercatoria Publica”.

This is the first in a series of posts on the reform debates in international investment law and investor-state arbitration. These posts are meant both to introduce general international lawyers to a field often still foreign to them and to contribute to the ongoing reform processes as states, supranational organizations like the EU, and international organizations like UNCTAD and OECD are reviewing national and international investment policies. Reforms seem necessary in light of the wide-spread criticism of international investment law and investor-state arbitration. The field is even said to face a “legitimacy crisis” because one-off, party-appointed arbitrators review government conduct in areas sensitive to the public interest in ways that differ significantly from domestic courts. Scrutinizing tobacco labeling legislation in Uruguay and Australia or the German nuclear power phase-out are just two recent examples.

Following Broches: “Procedure before Substance”

Reform proposals abound. Most of them focus on changes to investor-state dispute settlement, not on substantive investment law. Perhaps not surprisingly, reforming often means restricting investor-state arbitration. The recent IIA Issue Note by UNCTAD, “Reform of Investor-State Dispute Settlement: In Search of a Roadmap”, summarizes five paths for reforming investment law:

1) promoting alternative dispute resolution;

2) tailoring the existing system through individual investment agreements;

3) limiting investor access to dispute settlement;

4) introducing an appeals facility; and

5) creating a standing international investment court.

Ironically, stressing institutional reform before addressing questions of substantive investment law follows the same pattern that Aron Broches, then General Counsel of the World Bank, proposed when creating the International Centre for Settlement of Investment Disputes (ICSID), the first standing investor-State arbitration forum, in the 1960s. Seeking to overcome the impasse in finding a global consensus on investment protection in times of decolonization and the Cold War, he championed the formula “procedure before substance”. He meant to create a framework for resolving investor-state disputes that could work out substantive rules on the go. Broches’ formula, which later matured into the ICSID Convention, in a sense, released the spirit of investor-state arbitration that over the years started a life of its own and lead to today’s “legitimacy crisis”. As a cure to this crisis, the five reform paths outlined by UNCTAD keep treading Broches’ track of “procedure before substance.” Read the rest of this entry…

 
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