International Arbitration: Heating Up or Under Pressure?

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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?

The background

Since the reform of the Lisbon Treaty, the EU is competent to conclude international investment agreements with third States. Traditionally, this has been a matter for EU member States, some of which have entered into large numbers of BITs.  For the past five years, the EU has been working towards an ‘EU investment policy’ and, more recently, has begun to negotiate investment treaties and investment chapters to be included in broader trade & investment agreements).

As in other fields, the competence shift has allowed for a fresh debate: with new actors entering the field (notably the Commission and the European Parliament), old questions were raised anew. And while there has been renewed discussions on settled orthodoxies in investment law more generally, including a trend of recalibration, the entry of the EU into the mix resulted in a particularly interesting debate about the pros and cons of investor-state dispute settlement (ISDS), viz. the possibility for foreign investors to vindicate their rights in international proceedings against States.

Shaping the EU’s Investment Policy

In working out its approach to ISDS, the EU has gone through (so far) three stages:

First, a new openness? Fairly soon after the Lisbon treaty was agreed, NGO coalitions formed and lobbied European legislators to adopt a cautious approach to investment protection and ISDS. NGOs organised in the ‘Seattle to Brussels’ network published a widely-noted report entitled ‘Reclaiming Public Interest in Europe’s International Investment Policy’, which described ISDS as “the main bone of contention”. And as Reinisch noted, at least for a while, “the EU’s institutions unsettled the investment community by their apparent reluctance towards investor-state dispute settlement.”

Second, a return to the ‘gold standard’: But all this seemed short-lived. When beginning to formulate their policies in earnest, the main stakeholders involved in the EU’s decision-making – EP, Commission, Council – gave up their “apparent reluctance” and fairly quickly settled on a positive view of ISDS – occasionally described as the ‘gold standard’ set by member State BITs. (For a helpful discussion of the nuances see eg here.) The Commission’s central document ‘Towards a Comprehensive European International Investment Policy’ (2010) described ISDS as “a key part of the inheritance that the Union receives from Member State BITs”. The EP agreed in principle (as did the Council), but it emphasised that “changes must be made to the present dispute settlement regime, in order to include greater transparency, the opportunity for parties to appeal, the obligation to exhaust local judicial remedies where they are reliable enough to guarantee due process, the possibility to use amicus curiae briefs”, etc. The Commission, in turn, agreed with most of these reform proposals and promised to take them up in treaty negotiations. Which, judging from the information available so far, it has done: according to leaked texts and publicly available information, both the Canada EU Trade Agreement (CETA) and the Transatlantic Trade and Investment Partnership (TTIP) were set to include chapters on ISDS, which would take up many of the reform proposals mentioned by the EP. (I have dealt with these issues in more detail here.)

Third, renewed debate: Interestingly, during the past months, the debate seems to have taken a new turn. Once treaty negotiations began in earnest, the EU’s reformist but positive approach to ISDS came under renewed pressure. Over the past few months, critics have refocused attention on ISDS as a “threat to democracy” and pointedly ask whether “the European Parliament [will] let private lawyers decide? A recent comment piece in the Guardian describes the TTIP as a ‘full-frontal assault on democracy’ and heavily criticises it for “the remarkable ability it would grant big business to sue the living daylights out of governments which try to defend their citizens. It would allow a secretive panel of corporate lawyers to overrule the will of parliament and destroy our legal protections. … The mechanism through which this is achieved is known as investor-state dispute settlement. It’s already being used in many parts of the world to kill regulations protecting people and the living planet.“ And this time, the pressure seems to produce effects – there is a new urgency to the debate. How else is one to read the Commission’s press release of 21 January 2014, promising “to consult European public on provisions in EU-US trade deal on investment and investor-state dispute settlement“? In the same document, in a remarkable move towards transparency in treaty-making, the Commission has announced the publication, in early March, of the “proposed EU text for the investment part of the [TTIP] talks which will include sections on investment protection and on investor-to-state dispute settlement“, and which would “be accompanied by clear explanations for the non-expert. People across the EU will then have three months to comment.“

Situating the Upcoming Public Consultation

This three-month period will be an opportunity for a proper debate about ISDS. Having followed the (at times fairly predictable) stand-off between critics and supporters, I hope that it will be a chance to move beyond the clichéd views, of which I feel we have had more than our fair share. So perhaps after 3 months of public consultations, critics may be able to move beyond the ‘corporate lawyers killing the planet’ line (to reduce the above-mentioned criticism ad absurdum). And perhaps – and this is as important – supporters will go beyond the mantra that ISDS benefits the rule of law, is a condition for foreign investment, and therefore must be preserved. To begin with a short wishlist, critics might eg recognise that the EU treaty drafts are likely to be a lot more reformed & recalibrated than many of the member State BITs negotiated prior to Lisbon – the EU is quite willing to move towards more transparency, amici curiae submissions etc, at least in treaty texts with other OECD countries. If it is really ‘secretive panels of corporate lawyers’ that dominate investment arbitration, then at least the EU’s initiatives should be recognised to reduce the level of secrecy. Conversely, for the supporters, the public consultation period may be a useful opportunity to recognise that there is a sustained push towards reform of ISDS, and that for the overall sustainability of the system, it might be useful to engage constructively with the reform agenda. And perhaps it is also an opportunity to accept that in democratic systems and open societies, investment law and ISDS need to be ‘sold’ to a wider public.

Lest I be misunderstood, much of this constructive debate is taking place already. But perhaps the three-month consultation period will be an opportunity to have it in a more inclusive manner. To come back to one of my starting points, for this to happen, it would seem to me to be extremely useful if more general international lawyers with experience in other systems of dispute resolution entered the arena. Having followed the debate on OGEMID and other fora, I remain puzzled that – while investment law is now a matter of mainstream international law – the debate about ISDS so far remains very much one for the specialists. But does it not raise important, and hugely interesting, issues? Is it not interesting that, while elsewhere we regularly hear arguments for more binding dispute resolution, for ‘compulsory paradigms’ and the like, investment law is now under fire precisely because it recognises compulsory arbitration as the default mode of dispute resolution? If critics of ISDS complain (rightly or wrongly) about the systemic bias of investment law that would be reflected in arbitral awards – would this not be a useful reason to assess the link between substantive law and dispute settlement? If ISDS is criticised as the wrong method of dispute resolution, while at the same time, general international lawyers get excited about ‘courts heating up’ – would it not be time to take seriously a point made by Martti Koskkeniemi a while ago, namely that it was “high time that ‘international adjudication’ were made the object of critical examination and not simply religious faith”?  Lots of questions – and perhaps some reasons to look forward to the wider debate on ISDS in EU agreements.

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Diane Desierto says

March 11, 2014

Many thanks Christian for this. If there is one thing that I frequently notice in the usual visceral debates in regard to the overall competence and qualifications of international arbitrators in investor-State arbitrations, it is that next to nothing is said or scrutinized as to how States Parties to the ICSID Convention go about making their designations to the ICSID Panel of Arbitrators (which generally creates the pool of arbitrators for ICSID panels) or making ad hoc appointments outside the ICSID Panel of Arbitrators. While there is such empirical interest lent to characterizing the predispositions or biases of international arbitrators (as if one could subjectively map such behavioral phenomena on a general scale for the entire class of arbitrators), which stands in contrast to the dearth of studies on the actual factors determinative of the appointments decisions being made by States in the first place. Is the question simply whether arbitrators (with their so-called predominantly commercial orientations and 'private' backgrounds) in investor-State disputes are capable of appreciating and properly ruling on public policy and regulatory issues, or also whether States are conducting their due diligence when designating their arbitrators in compliance with the strict criteria of Article 14(1) of the ICSID Convention?

Alessandra Asteriti says

March 11, 2014

When even the libertarian Cato Institute publishes an opinion piece critical of the ISDS system, you know the ground is shifting.