UNCITRAL and ISDS Reform (Hybrid): Season 5 – Watching the Grass Grow

Watching UNCITRAL Working Group III over the years has been a bit like viewing a long-running television series. The beginning of the process was exciting as we met a compelling cast of characters and the plot line began to take shape. Sometimes there was high drama: Which actors would support which kinds of reforms? Which ones would oppose and why? Sometimes there was character development: Which individuals were in the room? What were their backgrounds and personalities, and how did these effect interactions within and beyond the room? Sometimes there were subplots: What was the story line in a given week? Which actors took the floor on it and why?

In July 2021, the initial four-year series of UNCITRAL Working Group III meetings on ISDS reform came to an end. As the story line has progressed over the years, we have watched some central characters remain throughout, while others have come and gone, with the participation of different states and non-state actors rising and falling over time and with respect to different issues. During its initial run, however, the UNCITRAL show had picked up so many loyal participants and viewers that there was a consensus decision to authorise another four-year series. The UNCITRAL Commission agreed a plan for work from 2021 to 2025 on individual reform options and a potential multilateral instrument.

As with many good TV shows, sometimes the middle of the series drags a bit. So too it felt at UNCITRAL this week. There could be many reasons for this. We are part way through a long process, with neither the excitement of the beginning nor the sense of (hopeful) achievement at the end. We are in the second year of the pandemic, meaning another round of online meetings (now slightly hybrid, as described below) that just do not have the same je ne sais quoi—interpersonal spark and effervescent group interactions—that come with meeting in 3D rather than in 2D. We, like many officials logging in from home, faced competing demands during the week, both professional and personal. And the time zone for one of us was just horrible, as it is for many officials and other participants in the process.

The sense of wonder we had as we first watched multilateral negotiations go online has been replaced by appreciation for—and occasional bewilderment at—the endurance of officials offering detailed drafting suggestions at unreasonable hours. In a typical exchange this week, one official logging in from their home at 5am suggested the draft needed a different verb while others, some sitting halfway around the world in their office at midnight, responded with suggestions for alternatives. Sometimes their voices sound tired, but in general their interventions were much more collaborative and less confrontational than in previous sessions. There was a sense in the hybrid room that they were making reasonable progress toward their shared goal of agreeing upon the wording of a draft Code of Conduct.

Collaborative drafting and gradual progress do not make for good television. But they just might generate useful ISDS reforms. A boring week for the Working Group suggests things are going more or less according to the (work)plan. The workplan sets a target of sending a completed Code of Conduct to the UNCITRAL Commission for approval in June 2022, making it the first reform to be sent. The Code was chosen to go first because there has been wide and long-standing agreement that such a code is needed, even if some of the details remain contentious.

The Code of Conduct was never likely to be a dramatic story arc. The UNCITRAL Secretariat and ICSID Secretariat had jointly prepared a draft text, the latest iteration after 18 months of discussions and webinars on earlier drafts (see resources here on the ICSID website). This week we were always going to see delegates pouring over the draft, debating if this word should be altered here or that comma or bracket should be moved there. If the negotiators could be understood as landscape architects as we describe in a forthcoming paper on Complex Design, the process this week felt a bit like watching the grass grow. It is necessary for reforms to germinate and grow, but slow and boring to watch.

Amidst this functionality, some frustrations were also evident. The (excellent) Chair seemed broadly satisfied with the week’s progress, observing in his closing comments that ‘we have gotten close enough to allow the goal of bringing this [code] to the Commission in 2022 to still be in sight.’ Yet at times, his face also suggested some frustration, perhaps with intermittent technical difficulties or with the general pace of the negotiations. Instead of being able to read an entire room, like we can when we meet in person, we—like many of the negotiators—now spend a lot more time watching the Chair’s face on the screen. Since it is one of the few visual inputs that we have, we scan it closely and continually, seeking any information about the ‘sense of the room’ that used to feel so palpable in person.

Privately, some negotiators corroborated our sense that progress was being made, but that it was slow going. A few expressed frustration that some private sector observers were continuing to speak frequently and at length, although noting that these observers spoke less this time around than during informal meetings earlier this year.

Sometimes we detect a concern from a few participants that if it takes this long to get agreement on ‘easier’ reforms like a Code, how long might it take to agree on more contentious issues? Will the reform process be able to stay on track to deliver meaningful results in 2025? Or will the process drag on and on, while cases continue to be brought and awards continue to stack up? For some participants, sending the Code for approval in 2022 (thus hitting the first work plan target) is a way to assuage concerns that the process will take too long and deliver too little. They know that progress—like justice—must not only be done, it must be seen to be done.

While those big questions, and the major story lines in ISDS reform, remain open for later seasons (or sessions) – this week had its own interesting sub-plots and characters taking centre stage. And so, with that, let us pull back the curtains to shine a spotlight on a few plot lines from this week.

The Plot Lines

The sub-plots of the week follow the draft Code of Conduct article by article. Although perhaps in a more settled area of law, an article on definitions would not lead to interesting discussions, given the nature of ISDS, it led directly to relatively important questions. Most fundamentally of all, what is an international investment dispute (IID)? Should the term IID be limited to treaty-based disputes, or should it also cover disputes arising from contracts and national investment laws?

The iteration of the Code presented to the Working Group limited international investment disputes to treaty-based disputes. On this point, many developing states including Argentina, Cameroon, Colombia, and Morocco intervened to say that contracts and national investment laws should be included in the definition of an IID. Ecuador noted that it is important to include treaties, contracts, and national laws to ‘allow for a coherent and uniform implementation of the Code of Conduct’ because they all ‘have the characteristic of compromising the international responsibility of the state.’ Cameroon emphasized that African states face many disputes arising from contracts, and these cases must be included in order to address the issues with the current system.

There was not a clear developed-developing state divide on this point: the European Union, for instance, intervened to support including contracts and national laws in the definition of an IID. The United Kingdom, speaking more frequently than in previous sessions, proposed that ISDS cases be defined as treaty-only, while IIDs could include disputes arising from treaties, contracts, or national laws. The only speaker who argued explicitly that the term IID, and the Code’s applicability, should be limited to treaty-based disputes was Corporate Counsel International Arbitration Group (CCIAG), a private sector observer.

A second flash point in defining the term international investment dispute was whether the term should be limited to investor-state disputes or left open enough to include state-to-state disputes. Here we saw a familiar coalition of Israel, Japan, and the United States, this time with the addition of the United Kingdom, suggest the Code be limited so that it applies to investor-state disputes only, while Brazil, the European Union, and others argued that it should be left open so that the Code could apply to adjudicators of state-to-state disputes as well.

This interlude reminded viewers of earlier (and possibly future) battles between coalitions in favour of structural versus non-structural reform, as did the question of whether there should be one code of conduct or two. Some states believe there should be one code to cover ad hoc arbitrators as well as judges appointed to a standing body, while other states believe there should be separate codes for arbitrators and judges. While many states took the floor on this point, most indicated that they believed one way or another would be more efficient but emphasized they were flexible. For now this difference of views was ‘square bracketed’—that is, left to be decided at a later date, since many of the underlying principles and provisions would in any case be the same. 

Another sub-plot centered on the issue of double hatting, or as the draft Code refers to it, a limit on multiple roles. Here the draft Code contained three options: full prohibition, modified prohibition, and full disclosure. Many delegations strongly supported the first option, with some noting that there was no more important issue and a strong prohibition on double-hatting was necessary to guarantee the independence and impartiality of arbitrators. Several delegations suggested that a full prohibition would limit party autonomy and create an unduly high bar to entry for potential arbitrations. They noted that even a disclosure requirement would be a major reform of the current system. Although no definitive agreement was found, the Chair pointed toward a potential middle ground in the form of a partial prohibition of the more concerning aspects of double-hatting coupled with a full disclosure requirement.

As this lack of agreement on the text suggests, the discussions on the double-hatting article were the most passionate of the week. In previous sessions, private sector observers CCIAG and United States Council for International Business (USCIB) have argued that a prohibition on double hatting would negatively impact diversity by creating obstacles that would prevent qualified candidates from becoming arbitrators (they make a similar argument about diversity and the court proposal in this submission). In the past, South Africa and others have spoken about the importance of diversity, but states had not directly challenged this CCIAG and USCIB argument. After endorsing a full prohibition, Zimbabwe, taking the floor for one of several eloquent interventions this week, addressed the link between double hatting and diversity: 

Our objective here is to broaden the pool of arbitrators from both developed and developing countries, to increase geographical and gender diversity of arbitrators. There have been studies which point to the severe shortage of arbitrators should double hatting be restricted. In our view, suitably qualified arbitrators exist within the developing world which could augment the elite group of arbitrators currently already taking up multiple roles of arbitration from developed countries. We therefore do not agree that restrictive prohibition would prejudice the entire profession of arbitrators worldwide.

Zimbabwe’s argument was echoed by Chile, South Africa and others. As with defining the term IID, here again it seemed the most direct clash was between arguments made by private sector observers and developing states, with CCIAG for instance noting that a full prohibition would leave ISDS ‘less functional’ after hearing state support for such a prohibition.

State interventions, regardless of their preferred option, often sought to identify grounds they would find acceptable for a compromise. In the end, the general approach seemed to be in favor of identifying which kinds of roles should be prohibited (importantly for many delegations, going beyond situations that are seen as a conflict of interest in current practice), while assuming these prohibitions will be accompanied by a more fulsome disclosure requirement.

The Hybrid Room

As we noted in an earlier blog, one of the most important developments at UNCITRAL may be the emergence of a hub for states to discuss shared concerns and around which officials can have side conversations and learn from each other. When the pandemic hit, the margins disappeared, and we were not sure what would happen to the side conversations and nascent coordination that we were beginning to see.

This week participants in Vienna expressed optimism that the margins were coming back, and on the floor we saw new coordination, especially among African states. There were two lunchtime coordination meetings among African states this week, both in a hybrid format to accommodate several states in the room (including Algeria, Cameroon, Ghana, Kenya, Nigeria, Sierra Leone, Maldives, Lesotho, and Zimbabwe) and many others online (including Burkina Faso, Cameroon, Côte d’Ivoire, Mali, Madagascar, Egypt, Madagascar, Morocco, South Africa, and Zimbabwe). In addition, the African Continental Free Trade Area Secretariat continues to provide input into the process, with attendees in person and online this time. Other states, including Pakistan and the Philippines, were also back in the room.

Multilateral reform negotiations, like good shows, have a large cast. This series has a number of strong female leads with long experience in litigation (among them Canada, Chile, Ecuador and the United States) who attend consistently and provide well-informed interventions. Some new characters were introduced while others departed or took a lower profile: Armenia and the United Kingdom spoke more frequently than in previous sessions, while Australia, Mauritius, Peru and Russia sent new delegates who engaged differently. And even more than in dramatic weeks, we heard the kinds of distinctive, constructive interventions that we have come to expect from Morocco, Thailand, Singapore and others who may be playing smaller parts but bring to them originality and commitment.

As we look forward to the next session in February, two questions in particular pique our curiosity. When will the remaining articles in the draft Code that the Working Group was not able to discuss this week be discussed, if the Code is to be sent to the UNCITRAL Commission in June 2022? The articles left undiscussed include disclosure obligations as well as compliance and enforcement. The February 2022 session is reserved for discussion of structural reform, as per the hard-fought compromise on time allocation between structural and non-structural reforms. Will this become a tension point?  

Second, will the shift back to the room continue and even grow at the next session? Roughly 45 states attended in person this time, with more (tentatively) planning to attend in February. This session thus marked a shift from a primarily online format to a hybrid one. We are not sure how long this intermediate approach will continue—it may be indefinite. Yet the balance between online and in person participation is likely to shift. We are certainly looking forward to getting most of the cast of characters back together again. Until then, the (hybrid) show must go on.