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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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European Hypocrisy: TTIP and ISDS

Published on January 21, 2015        Author: 

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For some, the Transatlantic Trade and Investment Partnership (TTIP) in and of itself has become in many European (and American) circles, the enemy: another manifestation of unchecked globalization, the march of Capital trumping social, environmental and other  rights, an unhealthy embrace of the Americans from whose clutches we have painfully managed to extricate ourselves, et cetera. Yes, there is some sarcasm or irony in the above, but visit the blogs and you will see where it comes from. My sarcasm should not be taken as a dismissal of all or any of these concerns. TTIP is far from Snow White. The concerns are not entirely fanciful. It is the final objective I oppose: a no-holds-barred attack on TTIP with the objective of tanking the whole agreement. If this is your view, do not waste your time here and skip to another item.

A wholesale defeat of TTIP, if achieved, will, I believe, be a big time Pyrrhic victory ̶ a hugely missed opportunity for the polities and the peoples of these polities.

I support the TTIP for two obvious and banal reasons. First, there is every reason to believe that on aggregate it will contribute significantly to an increase in welfare in both polities, enhance growth, contribute to stability and constitute another tool, in an embarrassingly empty toolkit, to combat future transatlantic-generated economic shocks. A large and often unspoken asset of TTIP rests not with the content of the various substantive disciplines but in establishing a culture of joint conversation, regulation and management. It will counter the litigious and confrontational culture of the WTO, where the EU and the USA find themselves typically as rivals and antagonists. Constructivist theory actually has something to say here as do the insights of Global Administrative Law scholarship. 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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Social Capital and the Limits of Network Analysis

Published on September 29, 2014        Author: 

I want to start by thanking each of the commentators for their kind, forgiving and thought-provoking comments on my article, and by recognizing that the work of DaphaMichael and Tom set the foundations and served as the inspiration for this work. I will organize my responses into three different clusters:  methodology, extensions and other, more general comments.

Methodology

I will first address Tom’s comments on the record of appointment as a proxy for displayed preferences. Can we ignore the fact that an appointment does not necessarily indicate that the arbitrator was the appointer’s first choice? I like to think of this question as a job offer to a candidate who decides not to accept an offer. The truth may be that certain candidates are in high demand and that many companies are offering jobs to the same well-qualified candidates.  Hence it is possible that parties who nominate arbitrators and may be trying to enlarge the diversity of the pool of arbitrators in ICSID may be somewhat restricted by the broader market of arbitration professionals.  This is true especially where, as Michael points out (and as confirmed by arbitrators during my interviews), the compensation provided by ICSID is lower than that of other arbitration opportunities and venues.   This is a limitation of the assumptions that can be made from the ICSID appointments. We are left with only the record of appointments as a second-best proxy.

A second point raised by Tom as to why the mid-2000s witnessed the first appointments of today’s power-brokers is also relevant. We must take into consideration that these years saw a boom of investor-state cases and, hence, more appointments. It is also true that this is when we started seeing more awards discussed publically.  Although I did not report these statistics in this paper, measures that reflect the connectivity of the network start stabilizing and changing in less intense ways during this period.  Thus I’m not surprised that the network acquired self-organizing qualities during this time.  One plausible hypothesis for future exploration is how the development of transparency rules may have helped cement public knowledge of decisions and with that, some of the insights that come with understanding the decision-making philosophy of arbitrators.

On the methodology of determining the average compensation per arbitration of US$200,000, I admit that the number is not incredibly precise. However, it is the best approximation I could divine. I followed a complex, yet not foolproof strategy to arrive at what I consider a very rough average. First, I computed the amount in 2010 dollars from roughly 70 awards that provided information on compensation in my sample of ICSID and ICSID Additional Facility awards. I divided this amount by the months of duration of each case and averaged the result. Using the dollars per month estimate, I calculated the possible amount paid to an arbitrator on settled or dismissed cases based on an average duration of the case. I confirmed that this rough estimate was in the right ballpark with one scholar who has done extensive empirical work with ICSID data as well as through my interviews with arbitrators. It is not an exact appraisal, but what is relevant for the purpose of the article is whether ICSID’s rate completely changes the incentives to accept an appointment and hence whether the distribution of ICSID appointments is completely different from that of other institutions. We cannot know the answer to this question for certain, but with a grain of salt, my educated guess (taking into account what I gleaned from working at ICSID) is that it does not. Most appointments are accepted and most rejections occur when a conflict exists. In my experience it was only in very few cases that, for other reasons (such as being too busy) an arbitrator decided not to accept an appointment. Read the rest of this entry…

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ICSID Arbitrators: The Ultimate Social Network?

Published on September 25, 2014        Author: 

waibelMichael Waibel is a University Lecturer at the University of Cambridge.

Sergio Puig’s article offers a refreshingly new, thought-provoking analysis of the links between investment arbitrators. Who the parties appoint as arbitrators matters for how the investment treaty regime operates. Criticism of the appointment process in investment arbitration is widespread, yet rigorous empirical work on this important aspect of the investment treaty regime remains rare. Relying on the theoretical frame of social network analysis, Sergio sheds light on the interactions among ICSID arbitrators. His analysis suggests that a core group of 25 arbitrators enjoys disproportionate influence on the development of the investment treaty regime. To understand what animates the regime, it may suffice to analyse the preferences and political philosophy of these 25 ‘power-brokers’.

The Core-Periphery Divide and Underrepresentation

The core of the arbitration network is composed of 25 arbitrators. Members of this elite group are on average connected to 11.75 other arbitrators. The core’s cultural and legal homogeneity is striking: 14 Europeans, 4 Latin Americans, 3 Canadians, 1 New Zealander and only 1 US arbitrator. Similarly, among the top ten countries of origin of ICSID arbitrators overall, five are Euro-Atlantic states (US, France, UK, Canada and Switzerland) and five Latin American. By contrast, African and Asian arbitrators have rarely been appointed to ICSID tribunals, despite significant inward- and outward flows of foreign investment to and from Asia in particular. In such data-intensive work, minor errors are bound to creep in. For instance, in Figure 4, Vaughan Lowe appears as a US, rather than a UK national, and the 26th arbitrator in the core between Jonny Veeder and Jan Paulsson remains nameless.

The formal bond of nationality may be only a crude measure of arbitrator behaviour. As Sergio rightly highlights (p. 405), many arbitrators with nationalities of developing countries have received at least part of their legal education in developed countries (chiefly the UK, the US and France). Indeed, if one focuses on arbitrators who have spent most or all of their adult lives in a developing country and have not worked or received part of their educated in developed countries, the voice of developing countries in even less represented among ICSID arbitrators than the formal link of nationality would suggest.

Other demographics are also underrepresented among ICSID arbitrators, most notably women. 93 percent of all ICSID appointments were male arbitrators (p. 404). Given that Brigitte Stern has accumulated the highest number of appointments of any ICSID arbitrator, the share of female arbitrators is even lower at 5 percent (p. 405). Two female super arbitrators apart, women are at the periphery of the arbitration network. This gender imbalance mirrors the general characteristics of the entire arbitration network (p. 411).

Yanhui Wu and I have recently assembled data on a control group composed of more than 700 potential ICSID arbitrators, i.e. individuals with similar characteristics and qualifications to those who have already been appointed to at least one ICSID tribunal. Our control group includes current and former ICJ and WTO Appellate Body (AB) Members who, unlike some of their judicial colleagues, have yet to be appointed to an ICSID tribunal, and partners at leading arbitration practices in the same position. Ten former AB members and 18 current and former ICJ judges since 1990 have never been appointed. The following table compares some characteristics of the treatment and control groups. Read the rest of this entry…

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Comments on Sergio Puig’s ‘Social Capital in the Arbitration Market’

Published on September 23, 2014        Author: 

Tom SchultzThomas Schultz is a Reader in Commercial Law in the Dickson Poon School of Law at King’s College London and a Swiss National Science Foundation Research Professor in the International Law Department at the Graduate Institute of International and Development Studies, Geneva. He is also the Editor-in-Chief of the Journal of International Dispute Settlement (Oxford University Press).

Professor Puig’s article ‘Social Capital in the Arbitration Market’ is a quite wonderful contribution to a number of things: our understanding of the dynamics of investment arbitration, the literature on arbitrator appointments, the methodological diversification of studies in international law, and certainly a few more. And it brings us rather convincing evidence, in a field where claims and representations (not to speak of copious discussions of what other people happen to have said) are more readily found than data and studies to substantiate claims. It is, in other words, intellectually edifying. The experimental design is well done, the plan well executed and the findings credible. In this, it is intellectually responsive to developments in the social sciences and the humanities. We don’t even need a mood-elevating metaphor to set great store by this sort of works, and this work in particular. (Incidentally, the study is also a formidable ‘who’s who in investment arbitration’, which undoubtedly will make for welcome entertainment in certain circles.)

A few small methodological points would probably deserve more discussion. (I said ‘would deserve’, not ‘would have deserved’: the article is long enough as it is and this is a law journal after all.) For instance, the author says that ‘The network analysis advanced in this article relies upon displayed preferences by the appointing entity (litigation parties, arbitrators, and the institution) to provide a larger picture of the network’s aggregate topology.’ But how do we know the preferences of the appointing entity? Right, by looking at appointments. But do effective appointments really tell us what the preferences are? What if individuals, who are the preferred choices of the appointing entity, refuse an appointment, and the appointing entity has to turn to their second or third choice? Never happens. Well… Actually, could such situations be statistically relevant?

Another methodological point: Figure 8 is puzzling. Not puzzling as in ‘probably wrong’. Puzzling as in ‘how come’? Here’s the author’s accompanying notes: “Figure 8 shows how, despite the fact that most ICSID cases were registered in the last 10 years, most ‘power-brokers’ or those arbitrators at the top of the profession entered the network in or prior to 2004.” In other words, the mid-2000s is the moment when you see the network effects. Why? Why did the network stabilise at that point in time? The network seems to have acquired self-organisational elements at that point in time, but, again, why then? Any hypothesis? Just happenstance? Just puzzling.

Beyond methodological considerations, we may also wonder–and perhaps the author wants to elaborate on this–why, in fact, it is a bad thing that a small number of arbitrators decide a great number of cases. Read the rest of this entry…

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A Follow-Up on International Arbitration under Pressure

Published on March 17, 2014        Author: 

Given the dramatic events in Ukraine, investment law was unlikely to be high up on the international legal agenda these past few days. However, during the weekend, the debate about investor-State dispute settlement (ISDS) I described in my last post may have taken a new turn. On 14 March, the Financial Times reported that Germany – long the most ardent supporter of ISDS and the country with the largest number of Bilateral Investment Treaties – now pushes for the exclusion of dispute settlement provisions from the EU-US Trade and Investment Partnership. This is the relevant bit:

Germany has introduced a stumbling block to landmark EU-US trade negotiations by insisting that any pact must exclude a contentious dispute settlement provision. …. [I]n the biggest blow yet to those seeking its inclusion in the deal, Berlin has decided that it will push for the exclusion of the ISDS provisions …. A spokesman for the economy ministry in Berlin said on Friday that the government had relayed its position to officials in Brussels, where negotiators have ended a week of talks over the proposed Transatlantic Trade and Investment Partnership (TTIP). Earlier in the week, Brigitte Zypries, a junior economy minister, told the German parliament that Berlin was determined to exclude arbitration rights from the TTIP deal. “From the perspective of the [German] federal government, US investors in the EU have sufficient legal protection in the national courts,” she told parliament. The German position pits Berlin against the commission, the US and business groups. All of them argue that the transatlantic deal is an opportunity to update arbitration rights that already feature in existing bilateral investment treaties and are often open to abuse.

 And, as the FT went on, the German position is really something quite new:

Nicole Bricq, France’s trade minister, has raised concerns before over the ISDS provision. Germany has until now backed its inclusion in the new pact. But Berlin has also been confronted with growing public scepticism in recent months over the transatlantic deal as a whole, and the ISDS provision in particular. At a press conference to mark the close of the fourth round of negotiations on Friday, Dan Mullaney, the leading US negotiator, declined to comment on the German decision. Ignacio Garcia Bercero, the EU’s chief negotiator, also refused to comment on it. But he pointed out that the EU’s original mandate to negotiate specifically included an ISDS provision and had been approved by member states, including Germany. “We are working on the basis of the mandate that has been given to us,” said Mr Garcia Bercero.

So, Alessandra Asteriti may be right (in the comments to my previous post) in saying the ‘ground is shifting’.

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International Arbitration: Heating Up or Under Pressure?

Published on March 11, 2014        Author: 

Dapo recently posted on this blog about the rise of inter-State cases before the PCA and predicted that “the current rise of inter-state arbitration will endure for some time“. Many readers will presumably be quite happy about the trend described: binding dispute resolution, if it happens, tends to make us international lawyers happy after all – so the more (cases) the merrier?

Interestingly, there is one branch of international law in which the debate currently seems take a different turn; in which the belief in binding dispute resolution is under attack – and in which many commentators, incl. many with an internationalist mindset and a keen desire for a rights-based global order, strongly feel that we have too much international arbitration. This is the field of investment law, in which the concept of investment arbitration has come under fire. Of course, this is an important debate for those interested in investment arbitration — academics, practitioners, companies, civil society, etc.  But, as importantly (if not more), it is also a debate that general international lawyers interested in dispute settlement should follow, and which I feel would benefit considerably if they did not leave it to the (pro- and anti-) investment communities. So this post is an attempt to introduce it to a wider audience and to encourage a wider debate. Within investment law, the debate has been going on for a while. However, over the past few months, it has suddenly heated up – and it has heated up in Europe, where the EU is formulating its investment policy. And this fresh start has opened up interesting spaces for debate. So what is it all about? Read the rest of this entry…

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Saar Papier v Poland: Comparative Public Law and the Second-Ever Investment Treaty Award

Published on February 3, 2014        Author: 

            Jarrod Hepburn is a Lecturer in Law at the University of Exeter, UK.

There has been much discussion in recent years – and in recent weeks on this blog – of the potential for investment treaty arbitration to benefit from a ‘comparative public law’ approach. In brief, the approach conceives of investment treaty arbitration as a form of public law, and calls for tribunals to draw on comparative domestic constitutional and administrative law, as well as other regimes of international public law such as WTO law and human rights law, to give content to the often vaguely-worded standards of typical investment treaties.

In the midst of contemporary enthusiasm for comparative public law, it is tempting to think that the approach is a new one that has been growing in prominence only over the last few years. However, this week brings news from Investment Arbitration Reporter that an UNCITRAL-rules investment treaty award dating from 1995, Saar Papier Vertriebs GmbH v Poland, has been unearthed. Amongst other aspects detailed by IAReporter, the case is particularly notable for its explicit use of domestic administrative law to interpret the provisions on indirect expropriation in the Germany-Poland BIT.

Indeed, this newly-uncovered investment treaty award – only the second ever (currently) known to be rendered, following AAPL v Sri Lanka in 1990 – contains intriguing indications that the comparative public law approach is a practically useful one for investment treaty arbitration. Furthermore, the age of this award raises the tempting view that, rather than being a new development in the field, comparative public law has been there all along.

However, as I discuss below, despite the treaty context of the claim, it is unclear whether the Saar Papier tribunal considered itself to be applying international law. Without this international law framework, it becomes more difficult to characterise the case as an instance of comparative public law at work. 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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