Academic journal article Business Law International

The International Investment Regime and Investor-State Dispute Settlement: States Bear the Primary Responsibility for Legitimacy

Academic journal article Business Law International

The International Investment Regime and Investor-State Dispute Settlement: States Bear the Primary Responsibility for Legitimacy

Article excerpt

Developed and developing countries, civil society, corporations, lawyers and economists are engaged in a global debate on the legitimacy of the treatybased regime for the promotion and protection of international investment and investor-state dispute settlement (ISDS), which forms an integral part of that regime. As described by Professor Susan Franck, ISDS is 'a global hot button issue'.1 The origins of this debate can be traced to the 1990s when concerns about 'globalisation' were fanned by the entr y into force of the North American Free Trade Agreement (NAFTA) and the establishment of the World Trade Organization (WTO). Opponents of NAFTA and the WTO claimed that both eroded national sovereignty.

These claims were amplified in response to the operation of the NAFTA and WTO dispute settlement regimes. From the ISDS perspective, controversy attended the awards of various arbitral tribunals established under Chapter 11 of NAFTA. Chapter 11 cases continue to generate controversy: witness the debate following the publication in March 2015 of the Award on Jurisdiction and Liability (with the dissent by Professor Donald McRae) in Bilcon v Canada.2 The proliferation of bilateral investment treaties (BITs) in the 1990s and of free-trade agreements (FTAs) containing investment chapters in the first decade of this centur y fuelled the debate.

That the debate has spanned decades should mean it has been progressively informed by the broad experience of BIT-based regimes. The debate has become more sophisticated, but claims that are not evidencebased continue to be made by critics. That said, there is substance to elements of this criticism. The debate can strengthen the treaty-based international investment regime and ISDS. The debate will promote constructive change if it is informed by states and it informs states.

The United Nations Conference on Trade and Development (UNCTAD) has made a significant contribution to the debate through its World Investment Reports. The World Investment Report 2015 contends that '[t]he question is not about whether to reform or not, but about the what, how and extent of such reform'.3 The 2015 Report offers an 'action menu' for reform of the international investment regime and ISDS.4 The scale of the reform challenge is starkly illustrated in the 2015 Report, which notes that by the end of 2014 there were 3,271 international investment agreements (IIAs) (2,926 BITs and 345 other IIAs).5

This article will address the following key issues in the debate:

* transparency in the negotiation of investment agreements and in the conduct of ISDS proceedings;

* protecting the scope for regulator y action by states;

* the obligation on states to provide fair and equitable treatment to investors and investments;

* the challenges posed by 'first generation' BITs; and

* the utility of establishing ISDS appellate mechanisms.

Improving transparency

If states are to inform the debate on the treaty-based international investment regime, they have to promote transparency in relation to the negotiation of investment agreements. Cloaking negotiations of agreements with unwarranted confidentiality invites speculative criticism, which skews the debate.

The issue of transparency looms large in the current negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union. The 'significant interest from the public and civil society' in the negotiations led the European Commission to conduct a public consultation in 2014 on investment protection and ISDS in TTIP.6 The consultation centred on 12 key issues, which covered 'both substantive investment protection issues and ISDS questions'.7 The Commission received nearly 150,000 replies.8 The report on the consultations identified four areas of particular concern:

1. the protection of the right to regulate;

2. the establishment and functioning of arbitral tribunals;

3. …

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