UNCITRAL and ISDS Reform: Not Business as Usual

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In late November 2017, states from around the world convened in Working Group III at UNCITRAL in Vienna to begin debates about the possible reform of investor-state dispute settlement (ISDS). In accordance with the UNCITRAL mandate (see  Annotated Provisional Agenda) that was given in July 2017:

The Working Group would proceed to: (i) first, identify and consider concerns regarding ISDS; (ii) second, consider whether reform was desirable in light of any identified concerns; and (iii) third, if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission.

I attended the Working Group III meetings as an independent legal expert on the Australian delegation, though anything I write is attributable to me personally not Australia. Given the potential importance of these reform efforts, and the public interest in them, this post marks the first in a series that seeks to explain and contextualise the UNCITRAL ISDS reform process. These posts are consistent with the mandate’s call for the process to be “fully transparent” (see  Annotated Provisional Agenda). Recordings of the session are also available online.

The UNCITRAL debates on ISDS reforms are highly political. On an international level, states have split on whether to embrace ISDS and, if so, whether international claims by investors would be better heard by ad hoc arbitral bodies or a permanent investment court. On a domestic level, ISDS has proved highly controversial in a number of states, resulting in strong pushback. Dealing with such a highly charged issue is certainly not “business as usual” for UNCITRAL. This was evident in the November meetings in two key ways.

First, in terms of representation, this Working Group was not “business as usual” because it was much more government-led than is typical of UNCITRAL Working Groups.

The Working Group’s mandate took pains to specify that the process would be “government-led with high-level input from all governments.” This language was intended to send a message to states that they should send government officials to participate in the Working Group. This call was important because UNCITRAL Working Group II, which deals with arbitration, often covers relatively apolitical, technical issues, like developing model rules, so many states have been content to delegate their representation in whole or in part to arbitration practitioners.

One of the concerns about these debates going forward at UNCITRAL was that having states represented by arbitration practitioners was inappropriate when dealing with a mandate about ISDS reforms. The worry was that arbitration practitioners would attempt to stall, thwart or water down any reform attempts on the basis that they have a vested financial interest in maintaining the status quo. From this perspective, putting UNCITRAL in charge of ISDS reform was likened by some to putting the fox in charge of the henhouse.

But some careful manoeuvring and clear messaging seems to have avoided that concern, at least for now. In terms of manoeuvring, the mandate was given to Working Group III, which was just finishing work on online dispute resolution, rather than Working Group II, which typically deals with arbitration issues. This meant that, instead of having to oust arbitration practitioners from existing representations, states typically enjoyed a clean slate when deciding who should represent them in this particular Working Group.

Responding to the messaging, it was clear that many states not only sent government representatives, but a significant number sent government lawyers with particular expertise in investment law and policy issues rather than representatives from their embassies in Vienna. The composition of Working Group II working on transparency and the Mauritius Convention already differed to some extent from the normal Working Group II crowd, but this Working Group III session took this trend one step further toward a “government as usual” model.

Second, in terms of how the meeting proceeded, this Working Group was definitely not “business as usual” because it started out with a vote instead of conforming to UNCITRAL’s typical approach of working by consensus. In the whole history of UNCITRAL, only one issue had ever been put to the vote and that was the decision on whether to move the headquarters of UNCITRAL to Vienna. The premium placed on consensus meant that voting enjoyed somewhat of a mystical taboo. That was, at least, until this meeting when the spell was broken for a second time.

In this case, the Working Group did not start its substantive deliberations for a day and a half because states had not informally agreed upon a Chair prior to the meeting beginning. Normally, one would expect an UNCITRAL Working Group Chair to have been agreed upon ahead of the meeting, such that someone would have been elected by consensus on the first morning. However, the reform efforts are such a highly charged political issue that this question had to be left for resolution at the meeting after discussion during plenary sessions and multiple consultation breaks.

There are no formal criteria for the position of Chair, which left different delegations to formulate different criteria in order to suit their preferred candidate. For a good discussion of the issue, see IAReporter. In the end, there was no way to bridge the divide and a vote was called, resulting in the election of Shane Spelliscy from Canada. Spelliscy has excellent and well-rounded ISDS experience having worked for many years in both government and private practice, and he conducted the meeting very effectively. However, the fact that the issue had to be put to the vote is a sign of how contentious these reform processes are likely to be.

In this way, these debates are different to both most UNCITRAL Working Groups and other fora currently dealing with investment treaty issues. UNCTAD and the OECD also deal with investment treaty issues, but they are currently places in which states come to learn and exchange views/experiences. These UNCITRAL debates are different because there is the potential for them to lead to some sort of multilateral statement about problems with ISDS and recommendations for reform. This raises the stakes for states significantly, particularly when coupled with transparency, which helps to explain the level of politicking and posturing.

However, the fact that a vote happened is probably a good sign for the process going forward. Given the divisions involved in ISDS reforms, it would be surprising if an issue like this could proceed to any meaningful outcome on a fully consensus-based model. Voting is common practice in other UN bodies, like the General Assembly. Current developments at the WTO show the dangers of entrenching a consensus-based approach. Having broken the no-voting spell, the Working Group can now get on with forging a consensus where possible, safe in the knowledge that they can vote where that is not possible.

This Working Group may not have proceeded on a “business as usual” basis, but that is because it is considering whether the “business as usual” approach to ISDS should be reformed. This is an important issue and one that states and observers should make it their business to follow closely.

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