Politico | 9 July 2017
Top trading countries seek new international arbitration system
By Giulia Paravicini and Simon Marks
Some of the world’s largest economies on Monday will push for a radical overhaul of the framework through which massive international corporations can sue governments.
At a meeting in Vienna, senior officials from 60 leading trading nations will debate whether to start work on an alternative to the now notorious investor-state dispute settlement system, which has become one of the most toxic elements in international trade policy in recent years.
Sources involved in the talks at the United Nations Commission on International Trade Law (UNCITRAL) say the scene is set for a tense showdown in the Austrian capital. While EU countries, Canada and China are keen to explore a new arbitration mechanism, they fear the U.S. could try to water down some of the proposed changes to the international legal framework.
Green groups and other campaigners accuse the opaque ISDS framework of providing unscrupulous multinationals with a platform to undermine national courts and weaken environmental standards and workers’ rights. Opposition to ISDS was so intense in recent years, particularly in Germany, that it effectively killed off a landmark trade deal between the U.S. and the EU and almost torpedoed an accord between Brussels and Ottawa.
The EU seized on this widespread opposition to ISDS to propose a new court aimed at overhauling investor protection rules at a global level. The EU’s new model will shift from the nontransparent, ad-hoc ISDS clauses in hundreds of bilateral deals to a far more open and permanent system, with independent oversight of arbitrators and court proceedings.
In line with the EU’s thinking, the draft conclusions for the meeting in Vienna show most participants are considering the merits of setting up “a new international convention establishing a multilateral investment tribunal,” according to a copy of the one-page document obtained by POLITICO.
“It was agreed that the topic of reforming the current procedures for the resolution of treaty-based investment disputes was worthy of future consideration and should be dealt with as a matter of priority,” the document says.
The document is subject to revisions after the meeting and it’s unclear if Washington, in particular, will try to block a new framework outright. Officials at the Commerce Department did not respond to questions on their position ahead of the meeting.
Decisions at UNCITRAL typically are made by consensus based on a “large majority,” but if consensus is not reached, the U.N. body can hold a vote, in which the U.S. could theoretically be outnumbered.
End of the road for ISDS
Monday’s declaration could only empower UNICITRAL to launch discussions on setting up a new global investment court, according to U.N. and EU officials.
But privately, officials taking part in the talks say the days of the current ISDS system are numbered.
While the U.S. and Japan have reservations about a wholesale shake-up of the ad-hoc court system, Europe and Canada have campaigned aggressively for rolling out a new court that would prevent private companies from choosing their own arbitrators.
“There are some countries that are not convinced that the current system is entirely flawed,” a senior official who will attend the meeting said. He added, however, that “a large number of states are likely to express themselves since they perceive the issue of having a global body is worthy of further discussion.”
European Commissioner for Trade Cecilia Malmström, who has turned ISDS reform into one of her key political objectives, said last month she wants a “full mandate” for a global investment court system before the end of the year.
In a note published by UNCITRAL’s secretariat in April, the U.N. body recognized that the current ISDS regime recently “attracted strong and growing criticisms in various parts of the world.”
It said the main concerns related to the method of appointing arbitrators, arbitrators’ independence and impartiality, the lack of transparency and coherence surrounding an ad-hoc court system and the lack of corrective mechanisms for governments hoping to appeal a court decision.
At today’s meeting, China will tell its trading partners that Beijing fully supports carrying out work at an international level designed to find out what the major shortcomings are of the current ISDS system. Beijing also said countries should “carefully examine the pros and cons of any proposal” on a multilateral court in order to avoid “any new systemic challenges.”
The U.S. is expected to be an antagonistic force in the room because of its fundamental opposition to a court that could potentially reduce investor protections, a European official and a lawyer following the potential reforms said.
The EU, on the other hand, will drive home its message that without a move to clean up the current ISDS system its ability to include investment protection in future trade deals will evaporate.