UNCITRAL and ISDS Reform: Moving to the Delivery Phase

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The investor-state dispute settlement (ISDS) reform process underway in UNCITRAL Working Group III has entered the delivery phase. The first four reform products were delivered in July 2023, when they were adopted by the UNCITRAL Commission. The Working Group plans to deliver more reform products – an advisory centre and possibly also guidelines on dispute prevention – to the Commission for adoption next July.

Readers of this series may be surprised that July has become a milestone month. When the process began in 2017, it followed the traditional UNCITRAL working group rhythm, two week-long bursts of in-person activity a year, one in spring and one in fall, with little communication outside these two weeks.

But the rhythm of the process is changing. When members of the Working Group met most recently, from 9-13 October, it was the fifth in-person meeting of 2023 for many participants. The Working Group had a session in January 2023, another session in March 2023, a week of UNCITRAL Commission time devoted to ISDS reform in July 2023, and an intersessional, hosted by Singapore. The process now has a steady beat throughout the year, and despite more demand on their time, attendance from states and observers remains high.

Momentum seems to be getting stronger, not weaker, as the process enters its sixth year. In October 2023, when the Chair opened a discussion about potential intersessionals in 2024, four states – Belgium, China, Republic of Korea, and Thailand – raised their hand to host one. That is more volunteering than the Working Group can accommodate in 2024, as one delegate observed an ‘embarrassment of riches’, of which many multilateral bodies can only dream. (It is important to note that despite the enthusiasm from states, Working Group III is still affected by funding shortfalls of the UN system in general, including a hiring freeze.)

While earlier phases in the process were more open-ended—identifying concerns, developing proposals, and imagining how they might fit together—the delivery phase has a tighter structure. The Working Group has a sense of its deliverables and deadlines, and 2026 does not seem as far away as it once did. The sequence in which reforms are delivered has been carefully planned, and delivery deadlines for individual reforms have been set.

In this blog, we provide a bird’s-eye view of the plan, describing when particular reforms are scheduled to emerge and how they may or may not fit together. Instead of taking a snapshot and analysing one reform or session, we offer a moving picture of how the delivery phase is unfolding and may continue to unfold over time. Our focus is less on what is actually delivered than on the momentum and tempo of the negotiations and what these elements tell us about how states seek to govern in complex systems over time. 

2023: Codes of Conduct, Mediation Tools

During the 56th UNCITRAL Commission session, which took place from 3-27 July 2023, three decisions and six documents relating to ISDS were adopted in principle by the Commission, and are now making their way to the UN General Assembly. These documents are:

These documents’ emergence gave us a preview of how other reforms may emerge. Readers may remember earlier debates on Article 4 of the Code of Conduct for Arbitrators, which we chronicled in November 2021 and in October 2022. In March of this year, it was time to reach consensus, but, as the official report (UN Doc A/CN.9/1131, para 67-77) notes, ‘Diverging views were reiterated and it was acknowledged that the extent of the concerns was not necessarily shared by all, which posed challenges in finding consensus.’ In other words, there was a stand-off concerning the length of cooling-off periods.

The question was: how much time needs to pass before a former arbitrator can act as a legal representative or expert witness in another proceeding involving (a) the same measure(s), (b) the same or related parties, or (c) the same provision(s) of the same instrument of consent? The phases of persuasion and reason-giving were over – the task facing participants in March was not to change minds but to strike a deal, so we heard a new rhythm. Country x would raise its placard, be recognized, and intervene, ‘3-2-1,’ which meant three years cooling-off period for the same measure, two years for the same parties, and one year for the same provision. Country y would raise its placard and intervene, ‘3-2-2.’ And so on, a series of three-syllable interventions, until a compromise was eventually reached on 3-3-1.

Since reaching this compromise took a long time, discussions on the other provisions of the Code of Conduct for Arbitrators were not finished in March. In line with the experimentation we have seen in earlier phases, a solution was found – the working time of the UNCITRAL Commission could be used to continue unfinished discussions from the Working Group. Ordinarily most countries send different individuals to the Commission in July than they send to Working Group III. But this July, during most of the Commission’s first week, a Committee of the Whole was convened instead of the Commission. The Chair of Working Group III chaired this Committee of the Whole and many states sent their Working Group III delegates to participate, giving this week the look and feel of a Working Group III session, and, crucially, giving delegates time to complete discussions on a Code of Conduct for Arbitrators and recommend it to the Commission for adoption.

Then, the Committee of the Whole adjourned and transformed back into the Commission; everyone except the Chair stayed in the same seats as this occurred, and then the Commission adopted what had been produced by the Committee without further discussion. This procedural manoeuvre created more working time and enabled the documents listed above to be completed. We expect this approach to be replicated in the future, and for the Commission session to become a key moment in the reform process each year.

These documents’ emergence also mattered for the momentum of the process. These documents can be seen as a trial balloon in two senses: they were an opportunity to refine the process, and they tested if the Working Group can reach agreement and get documents over the line. Their emergence showed to several audiences – participants, their governments and other stakeholders, a wider public including reform sceptics – that agreement can be reached through multilateral, transparent negotiations. This achievement should not be underestimated in an issue area with a checkered history of multilateral cooperation and at a time when geopolitical tensions and other factors often make such cooperation more difficult. Additionally, a comparison with past negotiations put the 3-3-1 compromise into context: several powerful states with a history of getting what they want in (bilateral) investment negotiations wanted no cooling off periods at all. Most developing states wanted cooling off periods, and the eventual text demonstrates that developing states – some more than others – are actively shaping the process and what emerges from it. 

2024: Advisory Centre                                                    

The Working Group is scheduled to deliver agreement on the foundational principles of an advisory centre to the 58th Commission in June 2024. To this end, the Working Group discussed an advisory centre in its October 2023 session and will discuss it again in January 2024 as well as a dispute prevention document, which we discuss in the companion blog. Cross-cutting and procedural issues, which include counterclaims, damages, exhaustion of local remedies, procedures to address frivolous claims, reflective loss, security for costs, and third-party funding, were also discussed in October and are planned for January.

Having discussions of cross-cutting issues and an advisory centre side-by-side illustrate two different visions of what this process is doing. One vision prioritizes problem solving: the purpose of this process is to address problems with ISDS that have come up in the past. Another vision prioritizes future proofing: the focus is on building a new institution and how to design voting rules, funding provisions, and other features so that the institution will be resilient. 

Global governance scholars often assume that states are either trying to resolve past problems (backward-looking, historical institutionalism) or trying to anticipate future problems (forward-looking, rational institutionalism). But in the Working Group, states are doing both. The Working Group toggles back and forth as the topics change: half the week, they shared past experiences with damages or other issues and half the week they anticipated how an advisory centre might operate. But even though delegates can do both, many delegations also have one that they see as more important.

In particular, some delegations feel immense pressure to deliver solutions to specific, current problems. In the October discussion on damages, one state with experience of a mega-award delivered eloquent, impassioned interventions on the importance of prioritizing damages and other cross-cutting issues such as third-party funding and counterclaims. “If we do not talk about these issues, then the job of this Working Group is not even half done,” he stated, before imploring other delegates to deliver on these issues:

‘Let’s not miss this opportunity. This is a unique opportunity that we’ve all come together to talk about ISDS reform. We will continue to engage with the Working Group with the intent that we’ll be able to discuss issues that matter to all member states and are fundamental to ISDS reform.’

Many other states also spoke in favour of the Working Group producing something on damages. In response, delegations that had earlier tried to keep damages out of the discussion changed their position. As one said, after hearing ‘how important it is to many states, we’re open to discussing damages.’ The discussion on damages was different this time from earlier discussions, and it looks like a mixture of treaty text and guidelines may be produced, with an understanding that the Working Group is not aiming to alter customary international law but to offer more precise guidance regarding how to apply customary international law and the circumstances in which certain approaches are appropriate or inappropriate.

Many of the same delegates supporting work on damages also support more work on an advisory centre and, of course, the two reforms can be complementary. The Working Group has taken a ‘both/and’ rather than an ‘either/or’ approach to ISDS reform, in keeping with the pluralism that has characterized the process throughout. But developing many reforms requires time. As deadlines loom, might some reforms be cut for time? So far, the Working Group has resisted this, likely in part because negotiators are alert to precedents along the lines of: ‘if I cut your preferred reform, then you might cut mine later, so let’s avoid cutting anything.’ There may be some peripheral reforms where the Working Group can reach consensus not to move forward; for instance, the document on dispute prevention, which will be discussed in January, may not move forward after that. In general, however, it seems unlikely that the Working Group will respond to time pressure by cutting reforms.

Instead, the question coming to the fore is: how much of any particular reform needs to be developed by the Working Group before 2026, and what can be developed later? This question is especially relevant for reforms that involve creating institutions. A few delegates used the word ‘foundational’ to characterize principles or provisions that need to be developed by the Working Group. These foundational principles need to be in place so that states know what they are signing up for, said one. Others agreed that foundational principles need to be established, but states may have different understandings of what is foundational and what is not.

Some states may be more comfortable delegating issues to a future conference of the parties or other body with state members. Listening to the Working Group, interventions from states that prioritize institution-building are more likely to mention voting rules, selection procedures, and other design questions. These states are more likely to see institutions in an organic way, as bodies that often start small and grow or change over time. After framing institutions this way, one delegate emphasized, therefore we may want to think about provisions that are transitional in nature, starting with a certain membership and growing over time, so what flexibility do we give to the Conference of the Parties to deal with this over time? Other states are less concerned with these questions and more focused on the present, especially on making sure the reforms address the concrete problems experienced in the past and present.

Having these two tendencies present in the same Working Group may be tricky to balance at times but it may lead to better discussion on reform products at other times. Most delegations are consciously in between, thinking both backwards and forwards in time, and thinking across different reforms to interrogate their connections. For instance, the papers on cross-cutting issues were prepared with the current system in mind, but as was noted in discussion, there is also a question of how (or if) these provisions would also apply to a standing mechanism.

2025: Appellate Mechanism, Standing First-Instance Tribunal

2026: Framework Agreement 

Among other reforms, an appellate mechanism and a standing first instance tribunal are scheduled to be brought to the Commission in July 2025, and a framework agreement in 2026. While many questions remain open about these reforms, including if they will emerge, we are struck that the questions being asked about these reforms are changing. On topics where we used to hear ‘Y is not possible’, at the Singapore Intersessional in September 2023, instead we heard about different scenarios to make Y happen. As one participant observed privately, we are creative international lawyers – your state may or may not want to create X or Y reform, but they are possible.

The question is definitely no longer ‘are reforms X and Y possible?’, and it may not even be ‘what reforms does our state want?’ – it might be ‘which reforms will we work to support or prevent?’ Since there is a widespread understanding that states will be able to choose which reforms to adopt and in respect of which treaties (sometimes referred to as flexibility and referenced as an underlying principle of the process), the question that participants need to answer in the delivery phase is not ‘will we sign up to this?’ but rather ‘will we permit this to be an option?’ While the second question may seem like a lower bar, getting all of the proposed reforms over it may still prove difficult. 

One reason for this is that the members of the Working Group are thinking about ISDS as a decentralized and complex system. This means that they see, and are particularly concerned about, interactions and connections. States ask themselves: how would proposed reform X interact with Y existing treaty or Z existing practice; and how might they interact in the future, and with what consequences? These effects can be difficult to predict – interactions are the main source of unpredictability in complex systems. Therefore one of the main intellectual challenges facing the Working Group is to see existing interactions or to predict future interactions and then draft to address them.

The more interactions that participants anticipate, the less likely they may be to let others move forward with reforms that they do not themselves support, since they expect those reforms to have consequences not just for the states that choose to join them, but for all states. These concerns about systemic effects have come out most clearly with regard to an appellate mechanism. One state raised concerns about an appellate mechanism being given some sort of ‘super persuasive’ weight that would end up creating ‘spillover effects’ on non-member states when the body interprets treaties that have the same or similar language to treaties that are not subject to the appellate mechanism’s jurisdiction. Other states and IO representatives responded to this concern by pointing out that this has been how the current ISDS case law has developed, noting for example that tribunals cite the Iran-US Claims Tribunal often, including to interpret investment treaties without a connection to it.

Traditionally UNCITRAL working groups operate with soft consensus, but what does that mean if push comes to shove? How much support does a particular reform product require to continue developing it? How much opposition is required to stop something from emerging? Will the fate of each reform product be decided individually, or will we see grand bargains to get various reform products over the line? While these questions have started to percolate into the minds of some in the Working Group, they are still abstract and distant and there are plenty of more concrete questions to consider in the meantime, in part because the carefully sequenced workplan sends a series of reforms expected to be less divisive across the line first.

The Living Process

The UNCITRAL process is dynamic. The process now has a steadier, year-round beat. In addition to more meetings, participants receive emails concerning the process often, with deadlines for commenting on draft papers or reports falling throughout the year. The shift online during the pandemic facilitated experimentation with new means of communication, especially email, and new practices. For instance, instead of spending a day editing and adopting an official report for each session, the Working Group now edits the report over email in the weeks after the session, freeing up an extra day per week for discussion.

Our research experiment of writing blogs alongside the process also needs to evolve alongside the process. It would be inappropriate for blogs to come out before the report is adopted, which means that our blogs need to be delayed, which in turn alters their purpose and resonance. The changing rhythm also changes the milestones; it makes less sense now to write after each session, and may make more sense to write in advance of the Commission or after the Commission, depending on how and when work on particular reforms is advanced.

The role of scholars and observers like us in the process is also changing. Early on, the process involved bigger picture questions about what was to be done and which coalitions were emerging. In the delivery phase, however, the broad contours of debates are already set and discussions instead focus on smaller points of detail. Bringing reforms across the finish line becomes more a feat of endurance than a feat of imagination.

In light of these changes in the process, we have shifted our approach to these blogs. We will continue to analyse and frame developments in the process, but with a more flexible timeframe. In addition, just like many delegations, we are welcoming generational renewal, adding two new scholars to our team, Tarald Gulseth Berge and Isabella Cuervo-Lorens (read more about them at ISDSreforms.com). While we plan to write less often, we will continue to focus on understanding different perspectives on their own terms and on understanding the process as one participant put it, a ‘pulsating amoeba’—something that is very much alive, with its own dynamism and rhythm.

We also plan to keep reflecting on how perspectives on ISDS reform that we hear inside Working Group III vary from perspectives we hear outside of it. We did this first in a 2020 blog on Plausible Folk Theories, which compared the types of evidence used by officials and academics. In our next blog, Lifelong Learning, we look at how researchers can use the points that states raise at Working Group III as inspiration to reflect on what aspects of ISDS they are able to see, and what aspects they are not able to see.

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