Last week has been described as a watershed moment for ISDS reform. During a meeting in Vienna, states decided by consensus on the desirability of developing reforms in UNCITRAL with respect to investor-state arbitration. States now have an opportunity to make proposals for a work plan about what reforms to consider and how to go about considering them. To the extent that the tide has turned on traditional investor-state arbitration, it is now up to states to tell us where they want to sail.
As you might imagine, reaching a decision like this involved quite a process, along with a lot of politics. In this blog, I set out the process in terms of what was decided in Vienna, what was not decided, and what the next steps will be for moving forward in 2019. In the next blog, I will provide some context to this development, giving some insights into the politics of the process as well as some projections about how this process might develop.
This reform process will be long and its ultimate outcome remains unknowable. But the momentum for and direction of reforms are becoming increasingly clear. The calls for systemic reform are rising, though different states may mean different things by “systemic.”
How did we get here?
In response to deep controversy about the legitimacy of investor-state arbitration, the Member States of UNCITRAL granted Working Group III a mandate in July 2017 to: (i) identify and consider concerns regarding ISDS; (ii) consider whether reform was desirable in light of any identified concerns; and (iii) if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission.
The mandate calls for the process to be “fully transparent” and thus recordings of the session are available online. These posts are in keeping with that call for transparency. I am a member of the Australian delegation but I am included in that delegation in my independent academic capacity, so nothing in my writings or talks should be taken to reflect Australia’s views. I was unable to attend the meetings in Vienna, but these blogs are based on the official interventions during the plenary sessions as well as discussions with a diverse range of actors in the process.
In 2017-2018, the Working Group largely completed Phase 1 outlining numerous concerns with the system, including with respect to inconsistency and correctness, arbitral appointments, and costs and duration. However, the Chair has noted on numerous occasions that states can still raise additional concerns under Phase 1 if they wish, which is particularly important as additional states join the process. Following the last session in New York, the Secretariat completed working papers on these concerns that formed the basis for discussions in Vienna last week on Phase
What Was Decided
The Working Group moved through Phase 2 relatively swiftly and without significant controversy. The group agreed by consensus that it was desirable to consider reforms with regard to: (1) arbitral outcomes, including concerns relating to consistency, coherence, and correctness of arbitral interpretations; (2) arbitrators, including concerns relating to independence, impartiality, conflicts of interest, and diversity; and (3) costs and duration, including concerns relating to length, cost recovery and frivolous claims. The decision was pitched at such a high level of generality that it would have been hard for states not to reach consensus on this issue given the concerns raised in Phase 1.
A few issues from Phase 2 were held over to be discussed first in New York. For instance, the Secretariat had not yet completed its report on third party funding, so discussion on that issue was reserved until the start of the next session. States were invited to write in to UNCITRAL about other issues that should be considered. China mentioned that it might have views to share in New York on conciliation, for example. However, Phase 2 considerations of most issues were completed in Vienna and on these a decision was made to develop a work plan for Phase 3. Significantly, no effort was made to prevent a decision to move forward from being taken before Phase 2 was completed in its entirety.
As the discussion in Vienna was limited to Phase 2, states did not have to outline any proposed reforms or their views on different options, so any comments on specific reforms made should be treated as provisional, though they may point the finger toward the future.
What Was Not Decided
Two key issues about Phase 3 remain to be resolved in New York. The first is which reform or reforms the Working Group should consider in order to address some or all of the concerns previously identified in Phase 2. The second is what work plan UNCITRAL should adopt considering issues such as sequencing, priority, multi-tracking, coordination with other organizations and ways to continue working between Working Group sessions.
On the first issue, there seems to be significant momentum in the room for considering some form of systemic reform. The European Union, its Member States and states like Canada and Mauritius were of course supporting this course of action. But a diverse – and growing – number of other states (including Argentina, Morocco and Pakistan) also lent their weight to the idea that the concerns identified in Phase 1 were real and systemic reform was needed. Of course, different states can mean different things by “systemic” reform, so this only tells us so much. But the general sense of the week was that calls for some form of systemic reform were getting louder and, importantly, were being made by a more diverse group of states.
There were also voices in the room, including the United States, Chile, Japan and to some extent Australia, Israel and Mexico, cautioning that states should take a balanced approach to the concerns identified in Phase 1 (e.g., inconsistencies had been identified, but were they all really unjustified?) and/or that some of these issues might be adequately addressed through adopting some innovations from recent treaties or other reform efforts. In particular, provisions from the CPTPP and KORUS were highlighted by multiple states, including on issues such as a code of conduct for arbitrators, rules on multiple proceedings, early dismissal of frivolous claims, non-disputing party submissions and a procedure for joint interpretations. Reforms to the ICSID Rules also received numerous favourable mentions.
What was not decided was whether UNCITRAL would focus on one reform option or multiple reform options and what that option or those options would be. This unresolved first point has implications for the second undecided issue: what work plan should the Group adopt to develop and evaluate reform options? This second question is important even if a single reform is considered. For instance, if a draft Multilateral Investment Court were to be prepared for consideration in the Working Group, how would that be done? Would it be prepared by states, the Secretariat or an expert group?
But this second issue becomes crucial (and highly political) if multiple reforms are considered. If UNCITRAL decides to consider a range of more incremental and more systemic reforms, how will it go about doing that? For example, would it take a sequential approach and, if so, on which reform will it start? Would it take a concurrent approach and, if so, will different sub-groups or Working Groups take the lead on different reform proposals? How might UNCITRAL work with other institutions (like ICSID, the PCA, UNCTAD and the OECD) to leverage rather than duplicate work?
As the mandate originally made clear, this is a government-led process. That is a point that the Chair returned to at the end of the week when he invited states to make submissions ahead of New York about UNCITRAL’s work plan, addressing substantive issues such as which reforms should be addressed and procedural issues such as sequencing, multi-tracking, priority and coordination. These submissions are due in mid-January.
At this point in the process, the Chair and Secretariat seemed to consciously step back and invite the states to step forward. Behind the scenes, and in some cases during the plenary sessions, a number of states had been suggesting this state-led approach. There had also been some controversy about the Secretariat having listed potential reform options and their relationship to different concerns in the working papers ahead of this meeting.
The meeting in New York will be important as key procedural markers for the reform process will be set down and these are likely to have important substantive implications. But I would not expect there to be any substantive progress on the reforms themselves. In 2017, I said that “Change is coming; it is just a question of what change will occur and when and how it will transpire.” We still do not know what that change will be, but we will soon have a better sense of when and how it will transpire.