Borderlex | 19 December 2017
Comment: Selling the proposal for a multilateral investment court to the world
by Nikos Lavranos
The European Commission’s Directorate for Trade is making true on its pledge to work towards establishing an international investment court to overcome investment arbitration to settle international investor-state disputes. After a meeting in Geneva aimed at discussing EU plans held mid December, DG Trade stated “there is an appetite for reforming the current system of investor-state dispute settlement and significant interest in the idea of establishing a permanent multilateral investment dispute settlement mechanism”. In reality, the EU’s plans are not realistic in the current international context, nor will they appease ISDS critics, writes Nikos Lavranos.
After the European Commission succeeded in convincing Canada and Vietnam to accept in their respective free trade agreements FTAs with the EU the creation of separate bilateral investment courts, the European Commission has embarked on a campaign to sell the idea of the creation of a multilateral permanent investment court, which would replace all bilateral investment courts and arbitral tribunals.
The kick-off of the promotional tour began with a two-day meeting last week (16-17 December) in Geneva, which was co-hosted by the Commission and Canada.
The invitation for the meeting states:
“the purpose of this meeting is to provide the opportunity to leading experts from all government with an interest in the matter to engage in technical discussion of concrete elements relative to the formulation of a multilateral system for the resolution of investment disputes, as well as to allow countries to assess their interest in engaging in more formal discussions regarding the establishment of this mechanism. The two-day meeting will be structured around a set of key issues as per a discussion paper and draft agenda that will be circulated to participants in advance.”
The agenda of the meeting indicates that next to the EC and Canada, the main international bodies involved in the debate around investment arbitration have been invited to make presentations: the UN Convention on Trade and Development (UNCTAD), the UN Commission on International Trade Law (UNCITRAL), the International Centre for the Settlement of Investment Disputes (ICSID), the Organisation for Economic Cooperation and Development (OECD), and the Permanent Court of Arbitration (PCA).
Trade commissioner Malmström is intensifying her promotional efforts by announcing that she intends to discuss the proposal at the margins of the next G20 meeting on 20 January.
In addition, the Commission announced it would organize an online public consultation and stakeholders meeting in Brussels. Clearly, the EC is determined to turn its proposal into reality, but it remains to be seen whether all these promotional efforts will fire-up the enthusiasm for a multilateral investment court.
The blueprint for the EU’s new approach appears to be the study published last summer by Professor Gabrielle Kaufmann-Kohler, a well-known Geneva-based arbitrator and lawyer, and Michele Potestà. The report was commissioned by UNCITRAL and focused on the feasibility of creating a multilateral investment court.
The method suggested by the authors is to follow the approach of the Mauritius Convention used for the implementation of UNICTRAL Transparency Rules which were adopted in 2014. Through the Mauritius Convention, the Contracting Parties can agree to make the application of the UNCITRAL Transparency Rules applicable to all future investor-State disputes initiated on the basis of new bilateral investment treaties or BITs.
More importantly, contracting Parties can also agree to make the UNICTRAL Transparency Rules also applicable to disputes initiated on the basis of their existing BITs. This means that rather than having to modify more than 3,000 existing BITs, the ratification of one treaty – the Mauritius Convention- enables the general application of the Transparency Rules for all BITs and investment disputes initiated on their basis.
While Canada – coincidentally – only recently announced (12 December) its ratification of the Mauritius Convention, so far only Mauritius is the other country to have ratified the Convention. In fact, only a handful of countries have signed the Mauritius Convention so far. In the EU, only eight member states have signed the text, none have ratified it.
This could already be seen as a sign that the Mauritius Convention approach for the creation of a multilateral investment court may be greeted with little enthusiasm by other countries.
Indeed, looking at the growing trend of restricting or excluding investor-State dispute settlement (ISDS) altogether, there actually may not be a huge appetite for creating a new international court, which even includes an appeal option.
For example, in recent times South Africa, Indonesia, India and Brazil have terminated their existing BITs and are replacing them with new models which include only very limited option for investor-State dispute settlement or have even excluded that option completely. Instead, investors are referred to domestic courts or they have to approach their home state to initiate State-State dispute settlement procedures on their behalf.
Moreover, the attitude of the most important trading partners of the EU, notably, the US, China and Japan remains elusive.
Leaving aside the mounting resistance against TTIP within Europe, President-elect Trump seems not to be very interested in concluding the TTIP negotiations very soon. It seems even more unlikely that he would be in support of including the EU’s investment court system – ICS- proposal in TTIP or to support a multilateral investment court. The question arises whether a multilateral court without the US makes much sense.
Similarly, Japan has indicated that the ICS proposal as it stands now contains several shortcomings, such as the danger of a pro-state biased court and the proliferation of bilateral investment courts in the various FTAs that would increase inconsistency rather than improve uniformity of the investment law jurisprudence. These shortcomings would first have to be remedied before it could support the proposal of creating a multilateral investment court system.
Interestingly, so far, China which has signed more than 140 BITs, has been silent in this debate and seems to wait for addressing the ICS proposal once the Commission formally tables it in the context of the on-going negotiations for a comprehensive BIT.
In short, at this moment the enthusiasm for the proposal of a multilateral court appears to be very limited.
Then there is also the continued criticism of many parliaments, NGOs, academics and large parts of the media, who are ferociously against granting multinationals ‘special rights’ by allowing them to circumvent domestic courts. Thus, the question arises whether there is sufficient support by their constituencies that would entice governments to promote this idea.
In such a context, it may be advisable for the Commission to look at other alternatives, which may command more universal support. Recently, the well-known arbitrator and professor Johnny Veeder, QC made some interesting and relevant remarks in his EFILA Annual Lecture in early November 2016.
Veeder referred to the attitudes of states in the past, which makes it very questionable whether states actually want an appellate mechanism, a key plank of the EU’s proposal. He questioned whether an appellate mechanism can provide more consistency and uniformity of the arbitration jurisprudence if it is not accompanied by a binding precedent effect on all other arbitral tribunals, which seems currently not feasible. And if indeed one would consider the creation of a multilateral investment court, Veeder insisted that in order to obtain global support, it must be a truly international court with authority.
The first institution that comes to mind in this regard is the International Court of Justice ICJ. Since the ICJ commands authority worldwide, it would be well-placed to also act as the international investment court. He also suggested that such a court should have Advocate Generals similar to the European Court of Justice and allow for dissenting opinions. If the ICJ is not a viable option, the Permanent Court of Arbitration (PCA) is certainly another possible well-tested institution.
Nikos Lavranos is Secretary General of the European Federation for Investment Law and Arbitration.