Progress towards a Multilateral Investment Court? EU-momentum building and divisions in

[Janet M Eaton]

Excerpt

On 20 March, 2018 the EU Council published Negotiating Directives authorising the

Commission to negotiate a Convention establishing a multilateral court for the settlement of

investment disputes between investors and states. The Negotiating Directives have their

foundation in the Commission´s Recommendation for a Council Decision authorising the

opening of negotiations for a Convention establishing a multilateral investment court,

published in September 2017. However, the timing of the publication and the significance of

the Negotiating Directives in terms of the EU´s position in the UNCITRAL discussions cannot

be overlooked. The EU itself is not a member of UNCITRAL - but its member states are. It is

recorded in the Negotiating Directives that "[i]n accordance with the principles of sincere

cooperation and of unity of external representation as laid down in the Treaties, the Union

and the Member States of the Union participating in the negotiations shall fully coordinate

positions and act accordingly throughout the negotiations" and further confirmed that "[i]n the

event of a vote, the Member States which are Members of the United Nations Commission

on International Trade Law [UNCITRAL] shall exercise their voting rights in accordance with

these directives and previously agreed EU positions" (emphasis added). The Commission

therefore appears to be in a strong position: in theory at least, it can anticipate that the

currently 28-strong bloc will support and progress its MIC proposal within the discussions in

the UNCITRAL WG III.[5] Such support may be considered to be consistent with the approval

of the Negotiating Directives by the Council in the first place, given the Council is comprised

of the heads of state or head of government of the EU member states.

fyi-janet

==================================

https://www.lexology.com/library/detail.aspx?g=55c2c4dc-771b-473c-a38d-a8ba5546f11e

 Progress towards a Multilateral Investment Court? EU-momentum building and divisions in

UNCITRAL Working Group III

Blog Arbitration notes

Herbert Smith Freehills LLP

Herbert Smith Freehills LLP logo

Global May 15 2018

In the past few years, discontent about Investor-State Dispute Settlement (ISDS, a

recognised shorthand for ad hoc arbitration of investor-state disputes) has been fomenting in

various parts of the world but nowhere more so than within the EU. The European

Commission´s focus on ISDS has been so intense that far-reaching reform has been

portrayed by many as inevitable. The Commission´s proposal is for the development of a

multilateral investment court system (MIC). The proposal is ambitious, but may not be

realistic or achievable. Last year, the ISDS debate moved into the auspices of UNCITRAL

Working Group III (WGIII). It is recognised in the report of the 35th session of WGIII[1] that

this "constitute[s] a unique opportunity to make meaningful reforms in the field". Certainly the

involvement of high level government representatives from across the world and the

transparent nature of WGIII´s process suggest this forum provides the conditions for

systemic reform. However, the features of the WG III process expose the Commission´s

plans to global scrutiny at a relatively early stage in their development, potentially before the

Commission has managed to gain significant support for wholesale change. One of the EU

delegation, in its capacity as an observer, noted in the 34th session[2] that the EU was

"confident that UNCITRAL is a forum where a solution can be found" even where the

delegates start from different positions. The question will be whether the conclusion of the

deliberations will lead to the reform that the Commission wants.

The EU´s "positioning"

In the past few years, the EU institutions have devoted significant capacity to the reform of

ISDS. Discussions about ISDS have taken place within the European Parliament (EP) - with

numerous questions having been tabled on the topic. In its resolution of July 2015, the EP

"stressed the need to... replace the ISDS system with a new system for resolving disputes

between investors and states which is subject to democratic principles and scrutiny, where

potential cases are treated in a transparent manner by publicly appointed, independent

professional judges in public hearings" and include an appellate mechanism.[3] This

represented a rejection by the EP of the reformed version of ISDS contained in the

Commission´s May 2015 Concept Paper. Once the majority of the EP rejected ISDS, the

Commission had to react accordingly as the approval of the EP is required for international

agreements. The Commission has thus developed its thinking over a number of years

towards a commitment to the eventual establishment of an MIC. Moreover, it has held a

number of stakeholder meetings, garnered support for the MIC at Member State level and

indeed taken opportunities to extend this support internationally.[4]

On 20 March, 2018 the EU Council published Negotiating Directives authorising the

Commission to negotiate a Convention establishing a multilateral court for the settlement of

investment disputes between investors and states. The Negotiating Directives have their

foundation in the Commission´s Recommendation for a Council Decision authorising the

opening of negotiations for a Convention establishing a multilateral investment court,

published in September 2017. However, the timing of the publication and the significance of

the Negotiating Directives in terms of the EU´s position in the UNCITRAL discussions cannot

be overlooked. The EU itself is not a member of UNCITRAL - but its member states are. It is

recorded in the Negotiating Directives that "[i]n accordance with the principles of sincere

cooperation and of unity of external representation as laid down in the Treaties, the Union

and the Member States of the Union participating in the negotiations shall fully coordinate

positions and act accordingly throughout the negotiations" and further confirmed that "[i]n the

event of a vote, the Member States which are Members of the United Nations Commission

on International Trade Law [UNCITRAL] shall exercise their voting rights in accordance with

these directives and previously agreed EU positions" (emphasis added). The Commission

therefore appears to be in a strong position: in theory at least, it can anticipate that the

currently 28-strong bloc will support and progress its MIC proposal within the discussions in

the UNCITRAL WG III.[5] Such support may be considered to be consistent with the approval

of the Negotiating Directives by the Council in the first place, given the Council is comprised

of the heads of state or head of government of the EU member states.

EU-Singapore IPA: a "win" for the Commission?

There have been a number of opportunities for the Commission to test the appetite of other

countries for a move away from investment arbitration for resolution of investor-state

disputes. Most recently, the Commission has concluded an important trading and investment

partnership with Singapore by way of the EU-Singapore Free Trade Agreement and

EU-Singapore Investment Protection Agreement (the EUSIPA).[6] Under the EUSIPA,

investor-state disputes will be resolved by a permanent two-tier investment court established

for that purpose.[7] Moreover, both the EU and Singapore commit to "pursue with each other

and other interested trading partners, the establishment of a multilateral investment tribunal

and appellate mechanism for the resolution of international investment disputes".

This commitment is significant. As one of the richest countries in the world in terms of GDP

per capita, Singapore may find itself contributing to any MIC in a way which is wholly

disproportionate to its historic use of ISDS (either as respondent or by its investors). This

may have suggested it would be predisposed to reject the proposal. It has not done so and,

as a member of ASEAN and current ASEAN chair, Singapore may be able to influence other

countries in the region to take the same path.

However, the EUSIPA does not necessarily represent the wholesale rejection of investment

arbitration by Singapore or indeed indicate a shift away from investment arbitration in the

Asia-Pac region. Finalisation of the text of the EUSIPA comes shortly after the conclusion of

another important trade agreement in that region, the Comprehensive and Progressive

Agreement for Trans-Pacific Partnership, or CPTPP. In the CPTPP, both the substantive

investor protections and the procedural framework for dispute resolution have developed

from those contained in more traditional BITs and MITs - both could be seen to be more

protective of state interests. This may or may not be why eleven states (notably including

Singapore and three other of the ten ASEAN member states) have agreed that investor-state

disputes under the CPTPP will be resolved by ad hoc arbitration.[8] Interestingly, the

Government of Korea has proposed an intersessional Asia-Pacific meeting on ISDS reform

in advance of the 36th Session of WGIII: this meeting may shed further light on current

thinking amongst the governments in the region.

The EUSIPA text is significant for another reason: enforcement. The Negotiating Directives

recognise the importance of an effective way of enforcing the decisions of an investment

court but do not indicate how the EU envisages this will be achieved. Article 3.22 of the

EUSIPA contains a commitment by the parties to recognise an award rendered pursuant to

the EUSIPA as binding and "enforce the pecuniary obligation within its territory as if it were a

final judgment of a court in that party" (language transposed almost word for word from the

ICSID Convention). The text also confirms that final awards are arbitral awards relating to

claims that are considered to arise out of a commercial relationship for the purposes of the

New York Convention. This does not provide a perfect solution for enforcement of decisions

of the EUSIPA investment court - states which are not party to the EUSIPA are not bound by

its terms and therefore their domestic courts may not recognise a decision of the court as an

arbitral award in this way. However, it does indicate that the negative view of investor-state

arbitration within the EU - Trade Commissioner Malmström has described ISDS as "the most

toxic acronym in Europe" - has not dissuaded the EU from using current systems for the

enforcement of arbitral awards to suit the investment court agenda.

A bigger test - EU-Japan

The EU continues to discuss ISDS in the context of its negotiation of an economic

partnership agreement with Japan. The text of the EU-Japan Economic Partnership

Agreement (the EUJEPA) has been agreed with the only outstanding issues to be resolved

being investment protection and ISDS. It is apparent that the investment court proposal is

causing some disquiet. Over the years, there has been some inconsistency in the way ISDS

(and investment protection) has been viewed by Japan.[9] Further, Japan has demonstrated

some flexibility towards the inclusion (or not) of traditional ISDS provisions in its trade and

investment agreements, with the decision apparently based on circumstance rather than

principle.[10] More recent anecdotal evidence suggests that Japan remains as yet

unconvinced about an investment court for the EUJEPA or the broader MIC initiative: the

permanent multilateral court will likely place a significant financial burden on Japan (which, as

host state, has never faced an investment claim) and may not represent the best system for

Japanese investors. This latter point is a significant concern for a capital-exporting nation. On

26 April, the EU confirmed that no conclusion has been reached on "the mechanism for

resolving investment protection disputes". Given that the investment chapter is already hived

off, the differences should not interfere with the swift ratification of the rest of the EU-Japan

EPA. However, the parties have confirmed that a further meeting will take place before the

summer break 2018 with the ambition of resolving the issue. Notably, the Japanese delegate

made clear during the 34th Session of WGIII that his mandate was to engage in discussion

on a "step by step" basis and that, whilst the Japanese delegation was open to future

discussion about the reform of ISDS, Japan was not prepared to talk to a future solution,

including a permanent court, prematurely.

UNCITRAL WG III: more division than consensus and an early polarisation of the debate?

The 34th Session of WGIII was intended to focus on evaluation and identification of problems

rather than solutions, but in any case saw a degree of polarisation between groups of

member states which considered that the current system should be the focus of specific

improvements, and those which wish to adopt a more wholesale systemic reform. The audio

recordings reveal that, whilst the EU may have garnered some support for systemic reform

(and continued to push for this in its observations), there remained considerable work to be

done in convincing a number of states, not least the US.

The report from the 35th Session has just been published. At a superficial level, there is less

evidence of the apparent polarisation of opinion perceptible from the report of the 34th

Session. On the contrary, the general sense one gets from the more recent report is of a

more consistent focus on shaping the current system to address concerns. Whilst the report

indicates some support for creation of a permanent judicial body, this does not resonate

throughout. The audio recordings are not yet available - a more detailed consideration of the

dialogue amongst the delegations will give more insight into the direction which reform of

ISDS may take. If the outcome of WGIII is not to establish an MIC, the EU may nonetheless

seek to establish a plurilateral court to replace the separate investment courts set up to

determine investor-state disputes under various of its free trade and investment

agreements.[11] The support of its counter-parties to those agreements may not be

guaranteed.

For more information, please contact Andrew Cannon, Partner, Vanessa Naish, Professional

Support Consultant, Hannah Ambrose, Professional Support Consultant, or your usual

Herbert Smith Freehills contact.

A version of this article was first published on 14 May 2018 on Practical Law and is

reproduced with the kind permission of Thomson Reuters.

Herbert Smith Freehills LLP - Andrew Cannon, Hannah Ambrose and Vanessa Naish

https://www.lexology.com/767/author/Andrew_Cannon/

------- End of forwarded message -------

  

[Jürgen Maier]

Thank you – we will see whether the new Italian government seriously will follow this line…

Jürgen

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