Part I Investment Treaties and the Settlement of Investment Disputes: The Framework, 1 Bilateral Investment Treaties and Investment Provisions in Preferential Trade Agreements: Recent Developments in Investment Rule-making
From: Arbitration Under International Investment Agreements: A Guide to the Key Issues (2nd Edition)
Edited By: Katia Yannaca-Small
- NAFTA (North American Free Trade Agreement) — Full protection and security
Recent Developments in Investment Rule-making
1.01 Given that no widely adhered to multilateral legal framework on investment exists, a significant part of the legal disciplines to date that address the relationship between host states and international investors has been developed at a bilateral and regional level, that is, through bilateral investment treaties (BITs) and investment chapters included in preferential trade agreements (PTAs), collectively referred to as international investment agreements (IIAs).
1.02 Agreed rules establishing minimum guarantees applicable to the treatment of foreign investment have existed for more than two centuries.1 However, BITs are the first international agreements to focus on the treatment of foreign investment. BITs are negotiated between two states to protect and promote investments by investors of one party in the territory of the other party. These treaties date back to 1959 and, until recently, had not changed markedly. Traditionally, they have had a relatively uniform content, with the exception of provisions on investor-state dispute resolution introduced in the 1960s. The number of BITs negotiated worldwide increased dramatically in the mid-1990s. Although the number (p. 4) negotiated yearly has declined over the last decade, more than 2,926 had been negotiated by the end of 2017.2
1.03 A second group of IIAs consists of investment chapters included in PTAs. Over the last decade, the number of PTAs worldwide has grown steadily, reaching more than 345 by the end of 2017.3 PTAs are usually negotiated among countries of the same region to facilitate the cross-border movement of goods, services, capital, or people. PTAs vary enormously and range from agreements that provide only for economic cooperation to agreements that create a common market. Such agreements may be bilateral, plurilateral, regional, interregional or more broadly multilateral. They may involve states at the same or distinct levels of economic development. Examples of recent or on-going negotiations are Trans-Pacific Partnership (TPP),4 the Canada–EU Comprehensive Economic and Trade Agreement (CETA),5 the Transatlantic Trade and Investment Partnership (TTIP),6 the Regional Comprehensive Economic Partnership (RCEP),7 and the Pacific Agreement on Closer Economic Relations (PACER) Plus.8 Together, they involve close to ninety countries worldwide.
1.04 This chapter is not intended to describe the contents of the obligations included in BITs and investment chapters of PTAs, which has been undertaken elsewhere in detail.9 Rather, it focuses on the dynamism of investment rule-making over the last two decades in the context of BITs and investment chapters in RTAs. Contrary to other areas of public international law, over the last twenty years, the negotiation of international rules and disciplines in investment has been responsive to changing international economic and political context. Two trends are evident in this regard.
1.05 First, investment rule-making has responded to the deep transformation and ‘globalization’ of the international economy. The old paradigm where investment was visualized as a substitute for trade has long been overcome. Today, the positive interaction between trade and investment is not only evident and well documented, but it has become evident that both trade and investment are complementary strategies at the hand of international enterprises to serve an increasingly competitive and globalized international market. With the dramatic growth in international trade in services and the disaggregation of production on a global scale, governments in both developed and developing countries have become increasingly aware of the (p. 5) key role that foreign investment plays in positioning their national economies in an interdependent world economy. Investment rule-making over the last decade has been responsive to this evolving international context, which explains the main distinctions between BITs and investment chapters in PTAs.
1.06 Despite minor specificities, the main distinction between most BITs and investment chapters in PTAs is the breadth of their respective underlying rationales. While all BITs contain obligations aimed at providing investment protection for established investments, the overwhelming majority do not provide guarantees for the establishment of new investments. The logic behind the majority of investment chapters in PTAs is to provide not only protection to existing investment, but also guarantees regarding the conditions under which foreign investment may be established in the host country. Such evolution in the rationale of IIAs is, to a great extent, a side effect of the evolution of the historical context in which international investment flows have taken place over the last fifty years.
1.07 The other important factor shaping investment rule-making over the last decade has been the tremendous increase in the number of investor-state dispute settlement (ISDS) cases. Provisions concerning investor-state dispute settlement have been included in BITs since the 1960s. However, these provisions were rarely used to institute arbitral proceedings until the last two decades. From 1987, when the first investor-state dispute based on a BIT was recorded under the arbitral proceedings of the International Centre for Settlement of Investment Dispute (ICSID) of the World Bank, until April 1998, only fourteen BIT-related cases had been brought before ICSID, and only two awards and two other settlements were issued.10 However, since the late 1990s the cumulative number of treaty-based cases has risen to at least 696 as of 1 January 2016, with 62 per cent of all known cases filed under the ICSID Convention or ICSID Additional Facility Rules and the rest under other arbitration rules and fora, for example the United Nations Commission on International Trade Law (UNCITRAL) Rules, the Stockholm Chamber of Commerce (SCC), the International Chamber of Commerce, and others.11
1.08 A creative dynamic has been generated between investment negotiation and adjudication, as the latter, in the context of actual disputes, interprets and tests the breadth of the concepts and obligations assumed by contracting parties to IIAs. Over the past two decades, many countries have concluded a ‘new generation’ of RTAs that liberalize trade in goods and services, while also containing investment protection provisions similar to those that have traditionally appeared in BITs. This new generation of RTAs, like the ‘new generation’ of BITs, has generated important innovations in IIA practice.
1.09 Although not yet the majority of existing IIAs, these new generation agreements represent the most significant innovation in investment rule-making over the last decades. They are mostly new BIT models and investment chapters negotiated in the context of RTAs by states party to the North-American Free Trade Agreement (NAFTA) and other countries in the Americas, the Asia-Pacific Rim, and North Africa.
1.10 This chapter asserts that investment disputes and, in particular, those that have arisen in the context of the implementation of the NAFTA, have influenced the refinement of the (p. 6) provisions of this new generation of IIAs, as well as the inclusion of a series of procedural and substantive innovations.
1.11 The chapter addresses the main distinction between BITs and investment chapters in PTAs, focusing on the evolution of their respective rationales. It looks at the main features of the new generation of IIAs and explains how such features respond to challenges derived from the interpretation of substantive and procedural provisions included in previous agreements. The discussion is organized under two themes: (i) moving from the original exclusive focus on investment protection towards also promoting liberalization of investment flows; and (ii) the impact of ISDS on investment rule-making. The second addresses five issues: greater precision in drafting definitions in respect to the coverage of the treaty; greater precision in specifying the normative content of investment treaty obligations; balancing regulatory autonomy and investment protection; fostering transparency in investment rule-making; and developments in ISDS.
II. BITs and Investment Provisions in PTAs: The Gradual Shift from Investment Protection to the Promotion of Liberalization of Investment Flows
1.12 From a legal perspective, the structure and content of the BITs tend to be strikingly similar worldwide. Core elements found in all such treaties include provisions dealing with the scope of application, admission of investment, fair and equitable treatment, national treatment and most favoured nation treatment (MFN), expropriation and compensation, transfers of payments, and dispute settlement, both between contracting parties and between a contracting party and an investor.12
1.13 One of the key distinctive features of traditional BITs is that they only protect investment which has been established and admitted in the territory of the host country in accordance with the latter’s domestic legislation. The main implication of this ‘admission clause’ is that it limits the scope of application of the agreement to the established investment. Traditional BITs do not grant any protection to the investor in what is known in the investment jargon as protection in the ‘pre-establishment’ phase.
1.14 This allows the host country to apply any screening mechanism for foreign investment it may have in place and, therefore, to determine freely the conditions under which foreign investment, if any, would be allowed. Further, the admission clause allows the host country to maintain existing discriminatory legislation which may affect the entry of foreign investment into any sphere of economic activity. Domestic legislation that allows for the existence of state monopolies or reserves certain economic activities to national investors or even to foreign investors of a particular nationality is part of the legal context in which foreign investment is admitted.
1.15 Clearly, traditional BITs have not been conceived as instruments to provide foreign investment with the right of establishment in the host countries. They focus on providing a set of guarantees to protect the property of foreign investors only in those economic activities where they have been permitted to invest.
(p. 7) 1.16 The nature and objectives of BITs can be better understood by looking at the historical context from which they emerged. The first BIT was signed between the Federal Republic of Germany and Pakistan in 1959.13 During the 1960s and 1970s, other European countries followed the same path, and an important number of BITs with developing countries were also concluded.
1.17 From a political economy perspective, two fundamental systemic factors explain the emergence of BITs during this period. First, with the decolonization movement in full sway, many former European colonies became newly independent states. Foreign entrepreneurs with investments in these countries were confronted not only with the loss of the legal protection granted by existing legislation and administration of the former colonial power but also by the rising trend of economic nationalism promoted by the new governing élites. Governments in many newly independent states were hostile to what they considered long-standing exploitation of their economies by foreign interests and consequently geared their political and economic policies towards asserting national sovereignty, particularly over their natural resources. In this context, capital-exporting countries had a clear incentive to negotiate investment regimes which would set a minimum standard of protection for their nationals’ investments abroad.
1.18 The second systemic factor that explains the emergence and character of BITs is the pattern of production and international division of labour that prevailed in the world during the 1950s and 1960s. During this period, foreign direct investment (FDI) in developing countries tended to focus either on the extraction and processing of raw materials, in the mining and agricultural sectors for example, or on manufacturing industries promoted by import-substitution industrialization (ISI) policies.
1.19 These two factors explain why traditional BITs were originally conceived as instruments to protect the private property that foreign investors owned abroad. In this historical juncture, economic nationalism was rife and the risk of being subject to expropriation or nationalization appeared to be always present. This explanation is further supported by the fact that the overwhelming majority of the approximately 400 BITs concluded worldwide by the 1980s were negotiated between a developed capital exporting country and a developing capital importing country,14 usually between a European country and a country from the African or Asian region.15
1.20 The historical context in which the BITs were originally conceived has changed.16 We are living in a world in which patterns of international production of manufactures as well as (p. 8) international trade in services, most of which need commercial presence to be effectively provided, have become key not only to better standards of living, but also to providing the domestic economy of both developed and developing countries with the competitive edge required to increase and diversify their exports to the world market. The role of global value chains (GVCs) has been extremely relevant over the last decade but new consumption trends, more and easier access to market information, and a much tougher international competitive environment have also affected the way countries negotiate investment treaties.
1.21 Within this context, greater market access through market presence, and not just protection for private property, is gradually becoming part of the main interest of international investors when seeking to benefit from an IIA. International investment rules have increasingly been adopted as part of bilateral and PTAs that address and seek to facilitate trade and investment transactions. IIAs are increasingly being formulated as part of agreements that encompass a broader set of issues including, notably, trade in goods and services and other factors of production. These agreements, in addition to a variable range of trade liberalization and promotion provisions, contain commitments to liberalize, protect, and/or promote investment flows between the parties. As explained above, the number of such agreements, now reaching more than 345 PTAs, has been growing steadily over the last fifteen years; more than 85 per cent were concluded since the mid-1990s. Further, BITs negotiated by the United States and Canada have traditionally applied not only to established investment, but also in the pre-establishment phase.
1.22 As explained, this new and continuously evolving international economic context has led to the negotiation of the recent wave of mega-regional agreements. Investment is now more connected than ever before to trade in both goods and services and that is why these agreements are no longer only about protection, but also about promotion and connection (through the aforementioned GVCs).
B. Investment Protection and Liberalization in ‘New Generation’ BITs and Investment Chapters of RTAs
1.23 New generation IIAs, both BITs and investment chapters of PTAs, provide not only for investment protection but also gradual liberalization. That is the case of IIAs concluded by countries such as Canada, Chile, Japan, Mexico, Peru, Colombia, Central American countries, Singapore, Morocco, Australia, and the United States. These IIAs are more comprehensive, more detailed, and, for the most part, more rigorous than any agreement previously concluded. While they address many of the same topics, they also deal with additional issues or modify the approach taken in the NAFTA on the basis of accumulated experience. This trend has been followed by the most recent wave of mega-regional agreements.
1.24 New generation IIAs grant covered foreign investors national and most favoured nation treatment with respect to the right of establishment in the host state. This is generally qualified by a provision allowing the host state to specify economic sectors or activities in which the right does not apply, the so-called ‘negative list’ approach. This approach was pioneered by the United States in its BITs but, in the late 1990s and early 2000s, started to be employed by Canada and Japan in their BITs and by various countries of Latin America and the Asia-Pacific region in their RTAs. European countries adopted this approach for the first time in the CETA and the PTA between the European Union and Vietnam. These treaties also follow a negative list approach and include a series of reservations and exceptions and specifying articles of the PTA investment chapter that do not apply to sectors, subsectors, or activities listed in one of its Annexes.
(p. 9) 1.25 As more agreements using this approach started to be concluded in the 2000s, the annexes became somewhat more complex. One annex includes a list of existing laws and regulations that are inconsistent with one or several of the obligations in respect of which contracting parties may take reservations. The effect of an annex of non-conforming measures is to lock in the level of conformity existing between the domestic legislation of the contracting parties and the obligations of the IIA at the time of conclusion of the agreement. Once the IIA enters into force, the parties may amend a non-conforming measure included in this annex only if the amendment does not decrease the conformity of the measure with the obligation concerned. Article 6 of the Japan–Vietnam BIT illustrates this approach,17 as does Article 9.12 of the recently negotiated TPP, which treats the subject in substantially more detail.18
1.26 Most new generation IIAs also have a second kind of annex, a list of economic activities or sectors where the contracting parties may maintain or adopt measures inconsistent with one or several of the obligations of the IIA. In the areas or sectors included in this annex, contracting parties do not enter into binding commitments but reserve their right to adopt new non-conforming measures, which may have not existed at the time of negotiations. This kind of annex is often known as an annex of ‘future measures’. Article 10.9 of the Investment Chapter of the Chile–South Korea FTA illustrates this approach,19 as does Article 8.15 (Reservations and Exceptions) of the CETA.20
(p. 10) 1.27 The use of the negative list approach combined with the increased sophistication of the annexes evidences that signatories of new generation IIAs had not suffered from any regulatory ‘chilling effect’ from the increase in investment disputes over the last decades. Further, governments negotiating new generation IIAs and the new wave of mega-regional agreements have not responded by ignoring the importance of promoting and protecting international investment flows. The negative list approach tends to have a greater liberalizing effect than other existing approaches.
C. Impact of Investor-state Dispute Settlement Experience on Investment Rule-making: A New Generation of IIAs
1.28 The significant increase in the number of ISDS claims over the last two decades has clearly had an impact on the process of investment rule-making. ISDS practice has led numerous countries to realize that the specific wording of IIA provisions does matter. Thus, it is no coincidence that several countries recently revised their model BITs as well as investment chapters in PTAs and updated their wording, content, and structure to incorporate the lessons learned from investment-related litigation.
1.29 In the 1990s, a new generation of IIAs gradually emerged. This ‘new generation’ of IIAs fell mainly into two groups: The first group consists of PTAs containing a chapter on investment. Originally influenced by the NAFTA, such treaties have been concluded mainly by the United States with an increasing number of countries such as Chile, Singapore, the five Central American countries and the Dominican Republic, Colombia, Peru, South Korea, Morocco, and Australia. A second group of IIAs comprises BITs incorporating important innovations, and which are exemplified by the new model BITs of the United States and Canada and, to a lesser degree, those of Mexico.
1.30 Over the last couple of years, mega-regional agreements, which have investment chapters, are a key priority on the global trade and investment agenda and have increasingly attracted public attention. The TPP and CETA negotiations21 renewed attention to the potential for treaty parties to frame the substantive obligations in new investment treaties in a manner that is more supportive of regulatory autonomy than earlier treaties.
1.32 First, some recent IIAs have deviated from the traditional open-ended, asset-based definition of investment. They have attempted to strike a balance between maintaining a comprehensive definition of investment and excluding assets the parties do not intend to be covered investments.
1.33 Secondly, the wording of various substantive treaty obligations has been revised. Learning from the technical intricacies faced in the implementation of the NAFTA’s Chapter 11 and other agreements, new IIAs clarify the meaning of provisions dealing with absolute standards of protection, in particular, the international minimum standard of treatment in accordance with international law and indirect expropriation.
1.34 Thirdly, these IIAs address a broader scope of issues—not only specific economic aspects like investment in financial services, but also other kinds of issues where more room for host country regulation is sought. They include specific language aimed at clarifying that the investment promotion and liberalization objectives of IIAs must not be pursued at the (p. 11) expense of these other key public policy goals such as protection of health, safety, the environment, and the promotion of internationally recognized labour rights.
1.35 Fourthly, recent IIAs include transparency provisions, which represent an important qualitative innovation. From an earlier conception of transparency as an obligation to exchange information between states, these IIAs tend to establish transparency also as an obligation with respect to the investor. Further, transparency obligations are no longer exclusively geared towards fostering exchange of information, but also to transparency in the domestic process of rule-making, aiming to enable interested investors to participate.
1.36 Fifthly, new IIAs contain significant innovations regarding ISDS procedures. Greater transparency in arbitral proceedings, including open hearings, publication of related legal documents, and the possibility for representatives of civil society to submit ‘amicus curiae briefs to arbitral tribunals is foreseen. In addition, other very detailed provisions on ISDS are included to provide for a more legally oriented, predictable, and orderly conduct of the different stages of the ISDS process.
1. Greater precision in the scope of the definition of investment
1.38 For over a decade from the mid-1990s, one aspect that generated concern in some countries was the interpretation by some arbitral tribunals of the concept of ‘investment’ under the applicable IIA. It had been considered that some of these interpretations were too broad, and went beyond what the contracting parties conceived as ‘investment’ when negotiating the IIA. For instance, in the case of Pope & Talbot v Canada,22 the tribunal found that a market share through trade could be regarded as part of the assets of an investment; and in S.D. Myers v Canada,23 the arbitral tribunal held that the establishment of a sales office and commitment of marketing time formed a sufficient investment.
1.39 Investments can take many forms. This explains why most IIAs use the traditional broad asset-based definition of investment. However, the ISDS experience has shown the risks of having an extremely broad and unqualified definition of investment.
1.40 One approach to avoiding an over-reaching definition of investment, which, however, has not been frequently used in recent negotiations, is called a ‘closed-list’ definition. This approach consists in an ample but finite list of tangible and intangible assets. Originally envisaged as an ‘enterprise-based’ definition used in the context of the US-Canada Free Trade Agreement (FTA), this approach evolved towards the definition used in Article 1139 of the NAFTA. Subsequently, several APEC member countries have frequently used the ‘closed-list’ approach in the definition of investment in their IIAs. Article 96 of the Japan–Mexico FTA illustrates this approach.
1.41 From the mid-1990s onwards, the ‘closed-list’ definition of investment was used in the context of some BIT negotiations. In 2004, Canada abandoned the asset-based definition of ‘investment’ in its FIPAs and opted for a relatively detailed ‘closed-list’ definition of ‘investment’’. In addition to being finite, the list contained a series of specific clarifications to avoid applying the agreement to certain kinds of assets that otherwise would fall under (p. 12) the investment definition. However, Canada replaced the ‘closed list’ approach in its CETA negotiations with the European Union.
1.42 As the Canadian experience evidenced, the difficulty with the ‘closed list’ approach was not how ample the definition of investment should be. Countries still prefer a comprehensive definition of investment in their IIAs, but they are similarly eager to include clarifications and additional language to make the definition of investment more precise.
1.43 Another approach used to make the definition of investment more accurate was to qualify an otherwise very broad definition. Beginning in the early 2000s, numerous IIAs incorporated a definition of ‘investment’ in economic terms, that is, they cover, in principle, every asset that an investor owns and controls, but add the qualification that such assets must have the ‘characteristics of an investment’. For this purpose, they refer to criteria developed in ICSID practice, such as ‘the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk’. This approach is complemented by explicit exclusions of several kinds of assets, which are not to fall within the category of covered investments under the agreement. Most of the investment chapters included in PTAs negotiated by the United States since the early 2000s, as well as the TPP, follow this approach, as does Article 8.1 of the CETA negotiated between Canada and the European Union.24
2. Clarification of the meaning of several key obligations
1.44 A second trend in investment rule-making derived from the ISDS experience over the last decades relates to the revision of the wording of various substantive IIA obligations. New BITs and investment chapters in RTAs negotiated with various countries by Canada, the United States, the EU, and the Pacific countries have tended to clarify the meaning of several substantive provisions, in particular, those dealing with absolute standards of protection, such as the international minimum standard of treatment and expropriation.
(a) International minimum standard of treatment
1.45 A new generation of BITs25 and PTAs, such as the TPP and the CETA, tends to include a provision that explicitly clarifies that the obligation undertaken by the contracting parties is to accord covered investments treatment in accordance with customary international law. According to these IIAs, this includes the notions of fair and equitable treatment and full protection and security. These standards are also explicitly defined in the text of these agreements.
1. Each Party shall accord to covered investments treatment in accordance with the customary international law minimum standard of treatment of aliens, including fair and equitable treatment and full protection and security.
2. For greater certainty, the concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide:(p. 13)
(a) ‘fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and
(b) ‘full protection and security’ requires each Party to provide the level of police protection required under customary international law.
3. A determination that there has been a breach of another provision of this Agreement, or of a separate international agreement, does not establish that there has been a breach of this Article.
The Parties confirm their shared understanding that ‘customary international law’ generally and as specifically referenced in Article 11.5 and Annex 11.B results from a general and consistent practice of States that they follow from a sense of legal obligation. With regard to Article 11.5, the customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the economic rights and interests of aliens.26
1.48 Such language seems to be partly a result of the experience with Article 1105 of the NAFTA.27 The fair and equitable treatment clause in Chapter 11 of the NAFTA and in some BIT disputes could be broad enough to apply to virtually any adverse circumstance involving an investment, making the fair and equitable treatment provision among those most frequently invoked and most often successfully argued standard of investment protection.28
1.49 The inclusion of language clarifying the meaning of customary international law provides important guidance as to how to interpret the fair and equitable treatment standard properly. Some recent arbitration panels have found that the content of the fair and equitable treatment standard no longer requires bad faith or ‘outrageous’ behaviour on behalf of the host state, which had the effect of equating the minimum standard under customary international law with the plain meaning approach to the text. However, it is not self-evident that customary international law has evolved to such a degree.
1.50 The clarification in new generation IIAs that the minimum standard of treatment comprises two different concepts, that is, the fair and equitable standard and the standard of full protection and security, is useful to counterbalance some recent arbitral decisions that merged the two standards into one. For instance, in Occidental Exploration and Production Company v Ecuador, the standard was found to be breached despite the non-existence of any physical violence or damage.29
1.51 The CETA fair and equitable treatment clause takes a novel approach, framing states’ obligations as a list of proscribed behaviours. While specifying the types of conduct that would violate fair and equitable treatment and the threshold of gravity that would, in some circumstances, establish a breach, both clauses provide a mechanism enabling the parties to adopt further elements of fair and equitable treatment. In an attempt to provide more clarity in relation to the threshold (p. 14) for breach of the fair and equitable treatment, the CETA has expanded on specific concepts, including (i) manifest arbitrariness and (ii) legitimate expectations.
1.52 First, when deciding on fair and equitable treatment, tribunals have looked at bad faith as a necessary element of arbitrary conduct.30 Following this trend, under the CETA, the legal test for a claim relating to regulatory conduct includes establishing that such governmental conduct was manifestly arbitrary. Yet, because ‘manifestly’ and ‘arbitrary’ are subjective concepts, arbitral tribunals might interpret them in a broad or narrow way.
1.53 Secondly, the term ‘legitimate expectations’ has been interpreted by recent tribunals to require that there must be a specific and enforceable legal right vested in the claimant or that the government had made specific representations or assurances to the claimant.31 Moreover, tribunals have held that a host state may legally depart from the course of conduct that had given rise to the legitimate expectation of the investor where the state’s action was reasonable in the circumstances, for example. by making reasonable regulatory changes.32
1.54 The TPP fair and equitable treatment clause, in a more traditional way, refers to expectations held by an investor, stating that ‘the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations does not constitute a breach even if there is loss of damage to the covered investment as a result’.
1.55 The CETA goes beyond this. When determining whether challenged state conduct frustrated a legitimate expectation, a tribunal may take into account whether the government made a specific representation to an investor to induce a covered investment that created a legitimate expectation upon which the investor relied in deciding to make or maintain the investment. It can be argued that the CETA approach of holding governments only to actual representations made to induce investment is less likely to have systemic implications for public administration than holding them to expectations arising from a broad regulatory environment.
1.56 Lack of clarity concerning the degree of interference with the rights of ownership required for an act or series of acts to constitute an indirect expropriation has been one of the most controversial issues during the last decade.33
1.57 Only a small number of ISDS cases have found that an indirect expropriation has occurred. Nonetheless, parts of civil society in some countries have expressed fears that the prospect of investors bringing arbitration claims state based on alleged regulatory takings could result in (p. 15) a ‘regulatory chill’, that is, that concern over liability exposure might lead some host countries to abstain from necessary regulation.
1.58 Within this context, new generation BITs and investment chapters in RTAs contain provisions clarifying two specific aspects. First, they make it explicit that the obligations regarding expropriation are intended to reflect the level of protection granted by customary international law. Secondly, they set out guidelines and criteria for determining whether, in a particular situation, an indirect expropriation has in fact taken place. They clarify that an adverse effect on the economic value of an investment, as such, does not by itself establish that an indirect expropriation has occurred. They also state that, except in rare circumstances, non-discriminatory regulatory actions by a party aimed at protecting legitimate public welfare objectives, such as public health, safety, and the environment do not constitute indirect expropriation.34
1.59 It could be argued that such provisions provide some important guidance for future cases. Another significant role of such clarifying provisions may be to assure those concerned about a ‘regulatory chill’ of potential ISDS proceedings that IIAs are not intended to put in question the regulatory power of host states.
1.60 Recent IIAs including the TPP and CETA have expanded on this issue, based on the US Model BIT, which further clarifies that ‘except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives such as public health, safety and the environment, do not constitute indirect expropriation’’.35 Both the TPP36 and the CETA37 refer to the extent of interference with the claimant’s ‘distinct, reasonable investment-backed expectations’ as a relevant consideration.
1.61 The TPP clause considers the nature and extent of governmental regulation or the potential for government regulation in the relevant sector and whether the government provided the claimant with a binding written assurance.38 This clarification might suggest that an expectation would be unlikely to be regarded as reasonable where the purported assurance was informal or where the relevant sector was subject to regular regulatory changes or becoming increasingly regulated. The CETA, however, leaves open the possibility that the subjective (p. 16) expectations of the claimant are relevant to the determination of whether an expropriation has taken place.
1.62 The CETA clause suggests, moreover, that tribunals might take into account the duration of the measure as part of determining its impact on the investor. The provision also refers to the measure’s ‘object, context and intent’39 when ascertaining and considering the character of the measure, suggesting that the parties intend to place extra emphasis on the measure’s objective in determining whether an expropriation has taken place.
(c) National treatment
1.63 As part of their non-discrimination obligations, investment treaties typically include a clause on national treatment requiring states to accord treatment to foreign investors and investments no less favourable than that provided to domestic investors and investments ‘in like circumstances’.
1.64 To clarify the normative content of the national treatment obligation, the recently concluded TPP states, for greater certainty, that whether treatment is accorded in ‘like circumstances’ depends on the totality of the circumstances, including whether the relevant treatment distinguishes between investors or investments based on legitimate public welfare objectives. This suggests that only intentionally discriminatory measures would breach national treatment and that measures implemented based on legitimate objectives would not breach such an obligation.
(d) Clarification that investment protection should not be pursued at the expense of other public policy objectives
1.65 In addition to the features already mentioned, some new BITs and investment chapters in RTAs include language clarifying that the investment promotion and liberalization objectives of IIAs must not be pursued at the expense of other key public policy objectives, such as the protection of health, safety, cultural identity, the environment, and the promotion of internationally recognized labour rights. Different techniques have been used for that purpose. While some BITs and investment chapters of RTAs have included general treaty exceptions, other treaties have opted for positive language in order to reinforce commitments of the contracting parties to safeguard certain values. Some IIAs have combined the two.
1.66 Examples of IIAs including exceptions to safeguard flexibility for regulation are the new US and Canadian model BITs. The latter includes a series of exceptions to preserve a wide range of public policy objectives, such as the protection of human, animal, or plant life and health, the integrity and stability of the financial system, cultural industries, and essential security interests. Further, the 2004 Canadian model FIPA includes the following Article 11:
Health, Safety and Environmental Measures
The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory or an investment of an investor. If a Party considers that the other Party has offered such an encouragement, it may request consultations with the other Party and the two Parties shall consult with a view to avoiding any such encouragement.40
1.67 Countries have not only opted to use exceptions, but have also incorporated positive language into the IIAs to protect other public policy objectives, notably protection of the environment (p. 17) and respect for core labour rights. Once more, the legal techniques used for such purpose vary among the different IIAs.
1.68 One approach has been to make reference to these values in the preamble of the agreement. For instance, the preamble of the Japan–Vietnam BIT explicitly provides that the objective of promoting investment can be achieved ‘without relaxing health, safety and environmental measures of general application …’.
1.69 Other IIAs have included ‘side agreements’ to protect labour and environmental standards. For instance, the parties to the Trans-Pacific Strategic Economic Partnership Agreement between Brunei Darussalam, Chile, New Zealand, and Singapore,41 negotiated side agreements on environment,42 and labour cooperation.43 They make clear, inter alia, that investment promotion and liberalization will not impair the capacity of the contracting parties to protect the environment or labour rights in their respective territories. The same technique can be observed in the NAFTA and in the free trade agreement between Canada and Chile.
1.70 Other BITs and RTAs, in the investment chapter as well as in additional sections, have incorporated specific provisions on labour and the environment. This is the case with several free trade agreements negotiated by the United States with countries such as Australia, Chile, Central America, Colombia, Singapore, and Peru. The investment chapters in these IIAs include a provision on environmental measures similar to Article 10.18 of the South Korea–Chile FTA, which states:
1. Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that an investment activity in its territory is undertaken in a manner sensitive to environmental concerns.
2. The Parties recognize that it is inappropriate to encourage investment by relaxing domestic health, safety or environmental measures. Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate from, such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment of an investor. If a Party considers that the other Party has offered such an encouragement, it may request consultations with the other Party and the Parties shall consult with a view to avoiding any such encouragement.
[s]ubject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by a Party of measures necessary:
(a) to protect public security or public morals or to maintain public order;
(b) to protect human, animal or plant life or health; or
(i) the prevention of deceptive and fraudulent practices or to deal with the effects of a default on contracts;
(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; or
1.72 Although relatively few investment cases have been decided on the basis of an exception clause, the CETA goes further and elaborates on the meaning of some of the permissible objectives of the exception clause. For example, the CETA states that the measures necessary to protect human, animal, or plant life and health include environmental measures and that measures relating to the conservation of exhaustible natural resources apply to both the conservation of living and non-living exhaustible natural resources.
1.73 The inclusion of provisions clarifying that the protection and liberalization of investment should not be pursued at the expense of other key public policy objectives may be more of an indirect rather than a direct result of ISDS practice over the last decade. These normative developments seem to reflect the intent of contracting parties to address the concerns of labour unions and environmental non-governmental organizations (NGOs) regarding investment agreements through a fail-safe provision giving greater assurance that public welfare measures will be shielded from liability.
(e) Promotion of greater transparency between the contracting parties and in the process of domestic rule-making
1.74 A fourth feature of new generation BITs and investment chapters in PTAs is the qualitative evolution in the conception of their transparency obligations. In addition to the obligation of the contracting parties to publish their laws,44 new approaches include the investors in transparency regulations, providing them not only with rights, but also with obligations vis-à-vis the host state.45 Secondly, this new method broadens transparency beyond the traditional notion of publication of laws and regulations. It also focuses on the process of rule-making, (p. 19) attempting to use it as an instrument to promote the principle of due process. Thus, in addition to enabling investors to know and understand the applicable rules and disciplines affecting their investments, it is a tool to enable interested persons to participate in the process of investment-related rule-making. An example of this approach is Article 19, on transparency, of the 2004 Canadian Model FIPA.46 This same approach is duplicated, with minor changes, in the CETA’s Chapter 27 on Transparency.
1.75 This approach applies transparency not only to existing legislation, but also to draft bills and regulations. In this respect, both Article 19.2 of the 2004 Canadian model FIPA and Article 27.1 of the CETA provide that, to the extent possible, the contracting parties shall publish in advance any proposed measure of general application that affects investments and ‘provide interested persons and the other Party a reasonable opportunity to comment on such proposed measures’. This approach, which is also used in the latest US model BIT, represents a qualitative leap in the content and rationale of transparency provisions in IIAs.
1.76 Under this approach, transparency no longer means merely information, but also participation in investment rule-making. Secondly, the obligation does not provide an exclusive right to a foreign investor vis-à-vis the host country. Rather, the obligation is to provide a reasonable opportunity to all interested persons to comment on proposed investment-related measures, not only the investors of the other contracting party, but also its own citizens.
1.77 It is true that, for some countries, developing the mechanisms to comply effectively with principles of due process may entail legal reforms and financial costs. However, if those adjustments are necessary, it is because the developing countries concerned lack a modern body of administrative law and implementation procedures, a sine qua non not only for the modernization of the administration of justice but also for strengthening democratic institutions in general. Within this context, transparency provisions in IIAs may be significant not only for the generation of a more predictable business climate in favour of foreign investors but, more important from a development perspective, to foster a more legalistic and rule-oriented administrative practice, which is in the general interest of the population of the host country.
1.78 The emphasis of some IIAs on using transparency provisions to strengthen the principle of due process of law is also evidenced by some additional obligations. An example is the US–Uruguay BIT (2005), which includes within the transparency provision additional explicit obligations on administrative procedures and the right of an impartial review and appeal of administrative decisions on investment-related matters. Once more, these kinds of obligations matter not only because of the more predictable investment climate they tend to generate, but also because of the institutional strengthening that their full compliance may entail for the entire citizenry of the countries concerned.
(p. 20) 1.79 Further elaborating on transparency provisions, both the TPP and the CETA include a separate transparency-related chapter. Chapter 26 on Transparency and Anti-corruption of the TPP47 requires contracting parties: (i) to ensure that, to the extent possible, their laws, regulations, and administrative rulings related to any matters covered by the TPP Agreement are publicly available and that regulations are subject to notice and comment; and (ii) to ensure certain due process rights for TPP stakeholders in connection with administrative proceedings, including prompt review of any administrative action through independent and impartial judicial or administrative tribunals or procedures. The CETA also incorporates in Chapter 21 the obligation of interagency cooperation to foster transparency in rule-making.
3. Innovations in ISDS procedures
1.80 New generation BITs and investment chapters in PTAs also regulate ISDS procedures in more detail, providing greater guidance, both to the disputing parties and tribunals, with respect to the conduct of the arbitration proceedings. During the first part of the last decade, Chapter 11 of the NAFTA significantly influenced the features of the investor-state dispute settlement provisions in many other IIAs. More recently, it is the experience with the increasing number of investment disputes that has triggered innovations in new IIAs.
1.81 Traditionally, most IIAs have had very few general provisions on ISDS procedures. This changed with the NAFTA, which, for the first time, regulated a series of aspects of arbitration proceedings. NAFTA’s Chapter 11 devotes a whole section to ISDS procedures. New generation BITs and investment chapters in RTAs have continued with this development and have even taken the evolution in rule-making one step further. In fact, ISDS procedures are one of the areas where significant developments in IIAs have taken place over the last decade.
1.82 New generation IIAs have incorporated various innovative provisions directed to foster four general objectives: First, they have purported to provide greater control by the contracting parties over arbitration procedures; secondly, they promote the principle of judicial economy in investment-related disputes; thirdly, they seek to ensure consistency among arbitral awards; and, fourthly, they promote greater legitimacy of ISDS within civil society. These objectives are derived from the experience on investment disputes that several countries of the region have gathered over the last decade.
(a) Greater control of the contracting parties over arbitration procedures
1.83 New generation IIAs contain innovations promoting greater control of the contracting parties over arbitration procedures. The rationale is to diminish the degree of discretion arbitral tribunals have in deciding how to conduct the arbitration proceedings, thereby making the proceedings more predictable. This objective has been pursued through two different techniques.
1.84 First, several countries have opted to increase the level of detail of procedural aspects of ISDS in order to clarify in advance certain issues that otherwise would have to be decided by arbitral tribunals. New generation IIAs draw from the experience of the NAFTA and contain more detailed ISDS provisions.48 These agreements even go beyond the NAFTA and contain (p. 21) clauses that clarify particular procedural aspects that have been subject to debate in ISDS practice over the last decade.
1.85 For instance, one of the issues that has been discussed in the context of the application of other IIAs is whether treaty-based arbitral tribunals have jurisdiction to deal with claims based solely on an investment contract. The investment chapter of the US–Singapore FTA explicitly addresses this in its Article 15.15.49 Similarly, the TPP provides for ISDS procedures not only regarding substantive obligations under the agreement but also under investment authorizations (i.e. an authorization that a TPP member state’s foreign investment authority grants to an investor of another TPP member state or a covered investment) and investment agreements (i.e. a written agreement between a central government authority of a TPP member state and an investor of another TPP member state or covered investment, which the investor or covered investment relies upon to establish or acquire a covered investment).50
1.87 Some IIAs apply ISDS to all kinds of disputes arising between an investor of one party and the other contracting party. Although the most likely scenario would be that the difference relates to an investment matter, one might also think of interpreting this provision in such a way that it would not be strictly necessary for the conflict to fall within that category.
1.88 Another group of IIAs include ISDS that applies to disputes directly related to a covered investment. This approach is by far the most common. Under this category, IIAs provide that the ISDS procedures apply to disputes arising ‘in connection with’, ‘arising out of’, ‘with respect to’, ‘concerning’, or ‘related to’ an investment. These formulations might be sufficiently broad to include disputes not involving an alleged violation of the IIA.
1.89 A third category of IIAs apply the ISDS clause to disputes involving a violation of a specific provision of the agreement. For example, some IIAs stipulate that the ISDS procedures apply to disputes ‘concerning an obligation’ of contracting parties under the IIA. Other IIAs provide that the dispute has to relate to ‘interpretations or applications of the agreement’, while yet others state that these procedures shall apply to disputes which arise ‘within the terms’ of the agreement. A variation of this approach limits the application of the ISDS procedures to one or a very few obligations in an IIA.
1.90 A fourth, and most recently used, category of ISDS clause requires more than an alleged breach of an obligation in the IIA for the ISDS mechanism to be activated. This approach also requires that the investor has incurred loss or damage as a result of the violation. The requirements of this approach are threefold: (i) a claim of a breach of an obligation under the IIA; (ii) the existence of a loss or damage for the investor; and (iii) a causal link between the two. This approach reinforces the notion that arbitral procedures are mainly geared to addressing conflicts related to property rights. The ISDS provision under the TPP uses this approach.
(p. 22) 1.91 New generation BITs or investment chapters in RTAs include provisions ensuring the involvement of the contracting parties in arbitration proceedings which address specific subject matters, such as financial services, the interpretation of non-conforming measures, or taxation measures. In all these cases, these IIAs grant specialized competent authorities of the contracting parties concerned the right to make agreed interpretations of certain matters or provisions of the treaty, which will be binding for the arbitral tribunal.
1.92 For example, Article 10.36 of the South Korea–Chile FTA provides that, when a respondent invokes a non-conforming measure as a defence to a claim, it will be, in principle, the Commission (comprised by the ministers of both contracting parties) and not the arbitral tribunal that will interpret the non-conforming measure.51 Another example is Article 17(1) and (2) of the 2004 Canadian Model FIPA, which provides that, where an investor submits a claim to arbitration related to financial services and the disputing contracting party, as a defence, invokes the general exception based on prudential reasons included in Articles 10(2) or 14(6) of the agreement, the arbitral tribunal:
[s]hall, at the request of that Party, seek a report in writing from the Parties on the issue of whether and to what extent the said paragraphs are a valid defense to the claim of the investor. The tribunal may not proceed pending receipt of a report under this Article … The Parties shall proceed … to prepare a written report, either on the basis of agreement following consultations, or by means of an arbitral panel. The consultations shall be between the financial services authorities of the Parties. The report shall be transmitted to the Tribunal, and shall be binding on the Tribunal.52
1.93 The two examples cited evidence a pattern in new generation IIAs pursuant to which the contracting parties enhance their control over the interpretation of certain key provisions of the agreements. The underlying assumption is that the contracting parties are better suited than an arbitral tribunal to assess certain specific matters such as, inter alia, the interpretation of non-conforming measures or prudential measures for financial services.
(b) Promotion of judicial economy
1.94 To defend a case in ISDS proceedings properly entails a significant amount of time and resources for the party involved. Therefore, some countries have recently included various procedural innovations in their IIAs that may be instrumental in fostering judicial economy in ISDS procedures.
1.95 Three particular mechanisms illustrate this. One is a specific provision dealing with potentially ‘frivolous claims’ submitted by an investor. Another is the possibility to consolidate separate claims having a question of law or fact in common, and arising out of the same events or circumstances. The third mechanism fostering judicial economy prevents a particular investment dispute from being addressed in more than one adjudication forum at the same time. While the first of these represents an innovation in recent IIAs, the other two mechanisms were originally included in the NAFTA and have become a common feature among new (p. 23) generation agreements negotiated by the United States. Each of these is explained in the next section in more detail.
(c) Mechanism to avoid ‘frivolous claims’
1.96 The significant increase in investment disputes over the last decade has raised the concern that investors may abuse the system. As in domestic litigation, investors may be eager to claim as many violations of the applicable IIA as possible in order to increase their chances of succeeding. This may take a high toll in terms of time, effort, fees, and other costs, not only for the parties to the dispute, but also for the arbitral tribunal.
1.97 It is within this context that several countries have advocated a procedure to avoid ‘frivolous claims’ in investment-related disputes, that is, claims that evidently lack a sound legal basis.53 Thus, several new generation IIAs include a provision introducing the possibility for the arbitral tribunal to apply an ‘admissibility test’ to the claims submitted. Under this innovative approach, an arbitration tribunal shall address and decide as a preliminary question any objection raised by the respondent that, as a matter of law, a claim submitted is not a claim for which an award in favour of the claimant may be rendered. In deciding upon an objection under this procedure, the arbitration tribunal shall assume that the claimant’s factual allegations in support of the claims are true, and shall issue a decision or award on the objection on an expedited basis.
1.98 The experience from the dispute in Methanex v United States had an important influence on this particular innovation in investment rule-making. In that case, the tribunal addressed the distinction between the concepts of admissibility and jurisdiction.54 The United States challenged the admissibility of Methanex’s claims on the basis that, even assuming that all facts alleged by Methanex were true, there could never be a breach of the substantive obligation provisions pleaded by the claimant. Hence, according to the US, Methanex’s claims were bound to fail. The tribunal found that the UNCITRAL Arbitration Rules do not grant arbitral tribunals the authority to reject claims on the basis that they are not admissible.55 Consequently, the tribunal concluded that it had no express or implied power to reject claims based on this type of objection.
1.99 The introduction of a specific provision empowering arbitral tribunals to reject claims as inadmissible if lacking a legal basis is one of the significant innovations of new IIAs. Article 9.23(4) and (5) of the investment chapter of the TPP illustrates this approach. It has also been included in other investment chapters of several FTAs recently negotiated between the United States and other countries worldwide.56
1.100 The objective of the expedited procedure is to enable arbitral tribunals, as a preliminary matter, to reject a claim as inadmissible, thereby avoiding expenditure of time and resources in adjudicating a dispute based on claims lacking any sound legal foundation. The desire of the contracting parties to promote judicial economy is further evidenced by the inclusion (p. 24) in these Articles of specific timeframes provided as in Article 10.19(5) of the investment chapter of the TPP. It should also be noted that, under these provisions, not all claims that are inadmissible are necessarily frivolous. Such determination will fall under the discretion of the tribunal. Presumably, if a claim is found to be frivolous, this would have an impact on the award concerning costs and legal costs.
(d) Consolidation of claims
1.101 Another mechanism included in new generation IIAs to foster judicial economy, as well as to diminish the risk of inconsistent results, is a provision allowing the consolidation of separate claims that have a question of law or fact in common and which arise out of the same events or circumstances. It can spare a contracting party from simultaneously facing several disputes as a result of multiple challenges against the same contested measure.
1.102 Most IIAs concluded by Mexico during the last decade, as well as the IIAs recently negotiated by the United States and the 2004 Canadian Model FIPA, include provisions that authorize the formation of a special tribunal to assume jurisdiction over separate claims having these features.57 Similarly, Article 9.28 of the TPP and Article 8.43 of the CETA include specific provisions on consolidation, with detailed rules on procedure.
(e) Mechanism to avoid a dispute being submitted to more than one dispute settlement forum: improving the ‘fork in the road’
1.103 The increase in the number of investment disputes shows the importance of preventing a particular investment dispute from being addressed in more than one dispute settlement forum at the same time. Otherwise, the host state would be required to respond to the same claims more than once and there would be the risk of inconsistent decisions. Of special concern is the possibility that the investor submits a dispute to the domestic courts of the host state and simultaneously or subsequently to international arbitration. ‘Fork in the road’ provisions intend to avoid this risk. However, ISDS practice over the last decade has shown some weaknesses in these particular clauses.
1.104 Given the multiplicity of existing IIAs, and considering that the same set of measures implemented by the host state may affect numerous foreign investors, it is not uncommon that the same facts and circumstances are litigated by different investors in different tribunals. The contradictory outcomes in the Lauder cases are often cited as an illustration of this potential problem.58 In these disputes, two different arbitration tribunals held that parallel proceedings relating to the same facts were admissible on grounds that nominally the parties and the two BITs involved were different.59 The Lauder cases illustrate the risk that host countries could lose arbitration proceedings several times and thus be subject to multiple awards.
1.105 Most IIAs lack specific provisions addressing the possibility of consolidating different disputes arising from the same set of facts or measures. Given that under arbitration proceedings the parties to the dispute enjoy considerable discretion to agree on procedural matters, (p. 25) nothing would, in principle, prevent them from agreeing on consolidating two or more disputes in a single proceeding. However, once a dispute is submitted to arbitration, the acrimony between the parties involved in the dispute may inhibit them from agreeing on this kind of procedure.
1.106 Prevailing ISDS jurisprudence is that lis pendens exists only in case of identity of parties, object, and cause of action.60 Thus, arbitral awards have interpreted the ‘fork in the road’ provision as resulting in a loss of access to international arbitration only where the dispute and the parties before the domestic courts are identical with the dispute and the parties in the international proceeding. This interpretation has made ‘fork in the road’ provisions very difficult to invoke. For instance, it is easy to envisage a situation in which a shareholder initiates an arbitration to protect its rights under the IIA, while the investment (i.e. the subsidiary) initiates a domestic dispute to protect its contract or other legal rights, including those derived from the IIA.61
1.107 New generation BITs and investment chapters in RTAs do not use ‘fork in the road’ clauses. Instead, to fulfil the same objective in a more effective manner these agreements use an approach known in the investment literature as the ‘no U-turn’, which focuses on the measure that has triggered the dispute. The ‘no-U-turn’ concept allows the investor to opt for international arbitration even after the investor has submitted it to the administrative or judicial tribunals of the host country, as long as domestic tribunals have not rendered a final judgment on the dispute. Article 9.21 of the TPP illustrates this technique and provides that an investor may submit a dispute to arbitration only if:
1.108 The approach illustrated also forecloses another situation in which the same dispute could be submitted to multiple fora, that is, an investor first submits the dispute to investor-state arbitration and, depending on the outcome, then opts to submit it to local courts. Such a result would be prevented under this type of clause.
4. Promotion of a consistent and sound jurisprudence on international investment law
1.109 A third category of innovations in investor-state arbitration provisions in new generation IIAs is geared towards ensuring a consistent and correct application of international law in arbitral awards. As previously explained, new generation IIAs have been negotiated in the context of a significant increase in investor-state disputes. These disputes have yielded awards that have not always been consistent and, in some cases, have rendered controversial legal interpretations of the terms of the investment agreements and of international law in general. As investor-state arbitration is likely to continue increasing in the future, some new generation BITs and RTAs have included innovative provisions to foster a consistent and sound development of jurisprudence. This objective has been pursued mainly through two different means.
(p. 26) 1.110 One has been to include in IIAs more detailed provisions on several key substantive issues, the interpretation of which has been controversial in arbitration proceedings. For example, the United States and Canada modified the language of their model BITs and RTAs to clarify the content of the fair and equitable treatment standard and the concept of indirect expropriation. Both changes intend to limit the scope that arbitral tribunals might otherwise give to the relevant IIA provisions.
1.111 Another innovation aimed at preventing incorrect or inconsistent jurisprudence has been the proposal that arbitral awards be subject to appeal. For example, the investment chapter of the US–Peru FTA provides that, within three years after entry into force of the agreement, the parties shall consider whether to establish an appellate body to review awards.
1.112 The CETA breaks the most new ground in this area, significantly modifying an important aspect of the traditional logic of investor-state arbitration. Inspired by the WTO Dispute Settlement Understanding, the CETA introduces a two-stage investor-state dispute settlement mechanism, establishing an investment tribunal with an appellate review mechanism.62 This two-stage mechanism, however, maintains the traditional ISDS nature and function of compensating for damages resulting from violations of the investment chapter, rather than requiring elimination of a measure inconsistent with the CETA.
1.113 Under the CETA, the tribunal will be composed of fifteen members (five from the EU, five from Canada, and five from third countries) appointed for five years, renewable once, and their remuneration will be paid by the contracting parties. The tribunal will have a president and vice president who will oversee administrative matters and will be appointed for two years by lottery of the non-members. The ICSID Secretariat will operate as the Secretariat of the tribunal. Further, in all those matters regulated by Section F of the CETA, the ICSID, or UNCITRAL rules will operate by default. The CETA does not clarify how many members the appellate tribunal will have, but states that it will be established by the CETA Joint Committee at the same time as it establishes the first tribunal.
1.114 Other than establishing an appellate tribunal, the CETA maintains most of the features of the traditional investor-state arbitration, although it incorporates much more detailed rules of procedure and establishes much more detailed admissibility requirements. It mandates consultations that require very specific claims on violations and estimated damages, which cannot be modified at a later stage of the process, requirements that can deter potential claimants from submitting a dispute to the tribunal.
1.115 The establishment of appellate mechanisms raises many issues that require profound discussion. There is currently no clarity regarding the particular features of such an appeal mechanism and its interaction with the existing arbitration conventions or IIAs negotiated by the parties concerned. Furthermore, if the main purpose of an appellate mechanism is to ensure consistency in arbitral awards and in the development of international investment law, it should bring under its umbrella most, if not all, the existing IIAs. Such an outcome could not be achieved by an appellate mechanism established by one or a couple of BITs.
5. Promotion of legitimacy of investor-state arbitration within civil society
1.116 A fourth category of innovations that has emerged in a new generation of IIAs aim towards improving the legitimacy of investor-state arbitration within civil society by responding to concerns that have been raised over the years by some NGOs. One such concern relates to the limited transparency of these proceedings. In response to such concerns, the 2004 Canadian (p. 27) Model FIPA as well as the IIAs recently negotiated by the United States include provisions enhancing transparency.
1.117 For instance, the IIAs negotiated between the United States, on the one hand, and Chile, Peru, Colombia, Central America, and Singapore, on the other hand, require the respondent in an investment dispute to transmit to the home state and to make available to the public certain documents, including the notice of arbitration, the memorials, the transcripts of hearings, and the awards of the tribunal. Transparency provisions in these IIAs also require that the hearings be open to the public, although provisions are made for the protection of confidential business information. However, these rules do not require the parties to make public any settlement discussions; nor do they interfere with the confidentiality of the tribunal’s deliberations.
1.118 The enhancement of transparency in ISDS procedures goes beyond allowing the public to be informed about the different stages of the arbitral proceedings. Several new IIAs, such as the 2004 Canadian Model FIPA and IIAs negotiated by the United States, including the TPP and the CETA, also allow non-disputing parties, including civil society, to submit briefs and authorize arbitral tribunals to consider their submissions. As a result, the contracting parties had to regulate in detail the procedures under which amicus curiae briefs could be submitted and administered, attempting to prevent these submissions from negatively affecting the conduct of the arbitration. This explains, for instance, the screening mechanism included in Article 39 of the 2004 Canadian Model BIT. It first establishes certain criteria under which the arbitral tribunal would decide whether a non-disputing party may file a submission and, if the authorization is granted, provide guidance to the tribunal as to the weight that such submission should have in the proceedings.63
1.119 Transparency provisions serve important goals; however, they may also increase the burden on the parties to the dispute and limit their discretion. For example, parties may feel the need to submit additional materials responding to arguments made in the amicus curiae(p. 28) briefs. Public knowledge of the disputes may result in public pressure on the parties to settle or to refuse to settle certain disputes. Such pressure may undermine one of the main objectives of investor-state dispute settlement procedures: to foster a rule-oriented adjudication mechanism, where politics interfere as little as possible with the development of a sound international legal investment regime.
1.120 Contrary to other areas of public international law, there has been a significant dynamism of investment rule-making over the last decade in the context of BITs and investment chapters in PTAs. The negotiation of international rules and disciplines in investment has been responsive to changing international economic and political context. The evolution in investment rule-making has occurred at two different levels.
1.121 First, there is a gradual evolution in the rationale behind BITs, and, more evident in investment chapters of PTAs, towards providing international investment not only with the traditional guarantees of investment protection and treatment, such as national treatment, MFN, fair and equitable treatment, protection against unlawful expropriation, transfers, key managerial personnel, and dispute settlement, both state-to-state as well as investor-state, but also rights regarding the right of establishment into the host economy. The overwhelming majority of BITs negotiated over the last decade still refrain from giving any right of entry to international investors into the host country and subject it to the existing domestic legislation through the admission clause. However, the number of IIAs applied in the pre-establishment phase, together with the number of countries starting to follow this approach in their negotiations, has significantly increased over the last decade. In fact, most investment chapters negotiated in the context of PTAs now tend to provide international investors with national and MFN treatment in the pre-establishment phase. The evolution of IIAs towards promoting liberalization of investment flows stems from the deep transformations experienced by the world economy over the last fifty years, where investment has become the vehicle for international production and another mode to serve more integrated markets of goods and services.
1.122 Secondly, it is evident in the normative evolution of BITs and investment chapters in PTAs that ISDS practice has had a significant impact in adjusting and refining investment provisions. In the development of a new generation of IIAs, several governments, observing how previous IIAs have been interpreted and applied by arbitral tribunals, have come up with new provisions and language that address most of the problems evidenced in the context of investment disputes. It could be said that new generation IIAs represent the response on the part of those governments to the various procedural and substantive issues raised in the context of ISDS practice over the period.
1.123 New generation BITs and investment chapters in PTAs have made the definition of investment more precise, have redrafted and clarified several provisions dealing with standards of protection, have improved and redefined the concept of transparency in the context of investment agreements, have clarified that investment protection and liberalization must not be pursued at the expense of other key public policy objectives, and have updated and modernized ISDS procedures, thereby, inter alia, fostering increased information and participation of civil society in those proceedings. Regardless of the particular merits of these modifications, the surge of new generation IIAs demonstrates a trend which is even more important from a systemic perspective, that is, that governments are being responsive to the challenges posed by new realities.
(p. 29) 1.124 The increase in the number of investment disputes is often associated with challenges for developing countries. It is true that developing countries are confronted with important challenges as a result of the increase in investment-related litigation. However, the existence of such challenges should not obscure the fact that the intensification of ISDS is symptomatic of two extremely positive trends for developing countries.
1.125 One of them is the legalization of investment dispute resolution. Indeed, the fact that, until the last decade, there were a limited number of ISDS cases does not mean that previously there were no investment-related disputes: international investment-related disputes have existed for a very long time. What is new is the fact that investors are increasingly relying on international law to resolve their grievances with host governments. In perspective, this is a remarkable development in the path towards a more stable, fair, and balanced international order. Indeed, nowadays, the use of ‘gunboat diplomacy’ to deal with investment-related disputes seems barbarian. However, civil society tends to forget that just one century ago that was the means through which investment-related disputes were often solved.
1.126 The legalization of the international investment system obviously serves the interests of all the involved parties: investors, developed, and developing countries. However, given that developing countries lack the economic, political, or military might of industrial nations, they should be most interested in pursuing the legalization of the international investment system, as the only means at their disposal to defend their interests in a world prone to conflict lies in the strengthening of the rule of law at the international level.
1.127 A second positive aspect evidenced by the increase in ISDS activity is that it is gradually motivating developing host countries to improve domestic administrative practices in order to avoid future cases. Indeed, the ISDS experience shows that, in addition to fostering the rule of law at the international level, it fosters it on the domestic front as well. Fostering greater rigour, discipline, and due process in the application of legislation is a goal which should be pursued in every country, developing as well as developed. ISDS procedures are instrumental in promoting this objective. Of course, to make that happen, important capacity-building initiatives must be undertaken, particularly in developing countries. In this regard, further work is required on four different fronts.
1.128 Governments of developing countries must learn how to use the international investment adjudication system. International investment law is a complex and specialized subject, with multiple sources and in constant evolution. Thus, developing the domestic capacities of governments and the private sector of developing countries is paramount. The current level of dependence on foreign assistance for these countries to defend their interests in international arbitration cases adequately is not fair or advisable for the health of the international investment system as a whole.
1.129 Further, having more capable and informed government officials in developing countries, who fully understood the content and implications of IIAs, is in the best interest not only of developing countries but also of foreign investors and developed countries as well. Better-prepared officials would probably increase the possibility of a better administration of domestic law and diminish the need for foreign investors to invoke ISDS procedures to defend their interests.
1.130 IIAs are important for developing countries not only because of their potential international impact in terms of attracting FDI or sending positive signals to foreign investors but, equally, because of the domestic impact these IIAs can have. IIAs can be instrumental in fostering key domestic reforms in developing economies, which are often postponed in order to promote (p. 30) the modernization of their institutions and, in this way, to create incentives for fair and sustainable economic development. Although, in the short term, investment disputes may entail a significant financial burden for developing countries, it is important not to overlook the potential beneficial effect of ISDS in fostering domestic reform.
1.131 Countries might benefit from IIAs if implemented correctly. For instance, recently, countries have started to implement internal mechanisms to detect systemic issues arising from governmental conduct that could potentially escalate to an investor-state dispute.64 This type of ‘early alert’ mechanism essentially provides the minimum institutional infrastructure that enables governments to identify, track, and manage grievances arising between investors and public agencies as early as possible. This mechanism ensures that the government responds to investor grievances in a suitable manner and in accordance with the country’s IIAs and domestic laws and regulations.
1.132 In this way, IIAs could serve countries as a tool to persuade public agencies that generate investor grievances to consider whether their actions are in fact in conformity with the applicable investment frameworks well before those grievances escalate into a legal dispute. From a transparency perspective, this mechanism helps identify specific cases of violation of transparency obligations (i.e. through individual investor complaints), the tangible amount of investment impacted by the violation, and any other impact on the investor owing to the violation. It enables governments to provide an effective and timely response to resolve a specific case. While a single investor’s complaint helps to identify instances of lack of transparency, the proposed solution would typically involve a systemic improvement.
1.133 To a great extent, promotion of transparency, due process, and a strict application of the rule of law is the best way to avoid investment disputes. Indeed, for a developing country, the best way to win an investment dispute is not to have it in the first place. Further, the role of the rule of law in fostering economic development has been widely acknowledged in the international economic literature. Through appropriate capacity building, developing countries could improve their discipline in the administration of investment-related laws and regulations and, in this way, not only avoid the possibility of being subject to investment disputes, but also improve the general investment climate.
1.134 Another front of action is clearly civil society. It is likely that the interaction between national investment policies and IIAs will undergo a broader political debate. This would be a positive development in the sense that more awareness and information about the importance and role of IIAs in general and ISDS in particular could yield stronger and more coherent policies in the long run.
1.135 Interaction between foreign investors and host states will probably continue to increase in the future. Within this context, rather than resisting the development of international regimes, there is a need to make civil society understand the importance of those regimes in promoting a more rule-oriented and predictable international order and, as a result, a more stable, fair, and peaceful world.
1 The Treaty of Amity and Commerce between the United States and France, signed in 1788, contained provisions in effect addressing treatment of foreign investment, i.e. MFN treatment regarding commerce, navigation, duties, and taxes and the right of U.S. nationals to own and dispose of property in France without certain duties and restrictions that might otherwise apply.
2 See United Nations Conference on Trade and Development (UNCTAD), International Investment Policy Hub (2017), http://investmentpolicyhub.unctad.org/IIA.
4 Trans-Pacific Partnership (TPP), currently being renegotiated after the United States’ withdrawal as Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
5 Canada–European Union Comprehensive Economic and Trade Agreement (CETA), http://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/ (last visited Dec. 12, 2017).
6 Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States, currently under negotiation, https://ustr.gov/ttip (last visited Dec. 12, 2017).
7 Regional Comprehensive Economic Partnership (RCEP), FTA under negotiation between the states of the Association of Southeast Asian Nations (ASEAN) and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea, and New Zealand), http://asean.org/?static_post=rcep-regional-comprehensive-economic-partnership (last visited Dec. 12, 2017).
8 Pacific Agreement on Closer Economic Relations (PACER) Plus is an FTA signed on June 14, 2017 by Australia, New Zealand, and eight Pacific island countries—Cook Islands, Kiribati, Nauru, Niue, Samoa, Solomon Islands, Tonga, and Tuvalu. Vanuatu signed in Apia in Samoa on September 7, 2017, http://dfat.gov.au/trade/agreements/pacer/Pages/documents.aspx (last visited Dec. 12, 2017).
9 See, inter alia, United Nations Conference on Trade and Development (UNCTAD), Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (2007); UNCTAD, International Investment Arrangements: Trends and Emerging Issues (2006); R. Dolzer & M. Stevens, Bilateral Investment Treaties (1995).
10 Source: ICSID webpage, https://icsid.worldbank.org/en/Pages/cases/ConcludedCases.aspx?status=c (last visited Nov. 1, 2017).
11 United Nations Conference on Trade and Development (UNCTAD), Investor-State Dispute Settlement: Review of Developments in 2015, IIA Issues Note No. 2, International Investment Agreements (United Nations, 2016).
12 For a detailed analytical description of each of these provisions, see references cited in note 9 supra.
14 The explosion in South–South negotiation of BITs started in the late 1980s and prevailed throughout the 1990s. To date, BITs have not tended to be negotiated between two developed countries, although this trend is changing and PTAs including investment chapters are now negotiated between developed countries.
15 For many reasons, most Latin American countries refrained from negotiating BITs until the 1980s. One reason was the Calvo Doctrine, according to which a foreign investor was required to rely solely on local remedies to solve any potential investment-related dispute with the host state.
16 An analysis of the BITs negotiated worldwide during the last two decades shows three prevailing trends: first, the total number of BITs negotiated has proliferated significantly. Since the end of the 1980s and up to 2014, more than 2,800 additional BITs were negotiated. Secondly, during this period there was a deviation from the North–South pattern which had characterized the negotiations of these agreements in the past. After the 1980s, an increasing number of BITs began to be negotiated between developing countries as well as by economies in transition. Thirdly, it was during this period that most of the countries of the Western hemisphere engaged in negotiations of BITs. By mid-1999, the total number of BITs concluded by the countries of the Western hemisphere was approximately 58, 55 of which were in fact negotiated after 1990. See UNCTAD, supra notes 9 & 11.
1. Notwithstanding the provisions of Article 2 or 4, each Contracting Party may maintain any exceptional measure, which exists on the date on which this Agreement comes into force, in the sectors or with respect to the matters specified in Annex II to this Agreement.
2. Each Contracting Party shall, on the date on which this Agreement comes into force, notify the other Contracting Party of all existing exceptional measures in the sectors or with respect to the matters specified in Annex II. Such notification shall include information on the following elements of each exceptional measure: (a) sector and sub-sector or matter; (b) obligation or article in respect of the exceptional measure; (c) legal source of the exceptional measure; (d) succinct description of the exceptional measure; and (e) purpose of the exceptional measure.
3. Each Contracting Party shall endeavour to progressively reduce or eliminate the exceptional measures notified pursuant to paragraph 2 above.
4. Neither Contracting Party shall, after the entry into force of this Agreement, adopt any new exceptional measure in the sectors or with respect to the matters specified in Annex II.
18 TPP, supra note 4 art. 9.12: Non-Conforming Measures, provides, inter alia:
1. Article 9.4 (National Treatment), Article 9.5 (Most-Favored-Nation Treatment), Article 9.10 (Performance Requirements) and Article 9.11 (Senior Management and Boards of Directors) shall not apply to:
(a) any existing non-conforming measure that is maintained by a Party at:
(i) the central level of government, as set out by that Party in its Schedule to Annex I;
(ii) a regional level of government, as set out by that Party in its Schedule to Annex I; or
(iii) a local level of government;
(b) the continuation or prompt renewal of any non-conforming measure referred to in subparagraph (a); or
(c) an amendment to any non-conforming measure referred to in subparagraph (a), to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Article 9.4 (National Treatment), Article 9.5 (Most-Favored-Nation Treatment), Article 9.10 (Performance Requirements) or Article 9.11 (Senior Management and Boards of Directors).
20 CETA, supra note 5.
24 See CETA, supra note 5 , art. 8.1.
25 See, e.g., art. 12(1) of the New Zealand–Australia Closer Economic Relations Trade Agreement Investment Protocol ((Jan. 3, 2013); art. 132(2) of the China–Peru FTA; and art. 6(2) of the ASEAN–Australia–New Zealand FTA.
27 Article 1105(1) of NAFTA (1994): ‘Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security’.
28 UNCTAD, Fair and Equitable Treatment: A Sequel 1 (2012). See also K. Yannaca-Small, Fair and Equitable Treatment Standard, in Arbitration under International Investment Agreements: A Guide to the Key Issues ch. 20 (K. Yannaca-Small ed., 2018).
29 Award (July 1, 2004), London Court of International Arbitration, Case No. UN 346, ¶ 18. After finding that Ecuador, by revoking previous decisions regarding a contract with the state-owned oil company, had frustrated the legitimate expectations of the investor when the investment was made, the tribunal found that Ecuador had breached its obligations to accord fair and equitable treatment. It went on to state: ‘In the context of this finding the question of whether in addition there has been a breach of full protection and security under this Article becomes moot as treatment that is not fair and equitable automatically entails an absence of full protection and security of the investment’. The approach used in the Occidental case has been followed by other arbitral tribunals, e.g., Azurix v. Arg., ICISD Case No. ARB/01/02, Award (July 26, 2006). That tribunal also merged the full protection and security standard with the fair and equitable treatment principle.
30 See, e.g., Metalpar S.A. & Buen Aire S.A. v. Argentine Republic, ICSID Case No. ARB/03/5, Award (June 6, 2008), ¶ 187; AES Summit Generation Limited & AES-Tisza Erömü Kft v. Republic of Hungary, ICSID Case No. ARB/07/22, Award (Sept. 23, 2010), ¶ 9.3.40.
31 See, e.g., LG&E Energy Corp., LG&E Capital Corp. & LG&E Int’l Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (Oct. 3, 2006), ¶¶ 130–39; BG Group Plc. v. Argentine Republic, UNCITRAL, Final Award (Dec. 24, 2007), ¶ 308.
33 For a detailed analysis on this subject, see K. Yannaca-Small, Indirect Expropriation and the Right to Regulate: How to Draw the Line?, in Arbitration under International Investment Agreements: A Guide to the Key Issues ch. 22 (Katia Yannaca-Small ed., 2018); UNCTAD, Investor-State Dispute Settlement and Impact on Investment Rulemaking 58 (2007).
1. Article 10.9(1) is intended to reflect customary international law concerning the obligation of States with respect to expropriation.
4. The second situation addressed by Article 10.9(1) is indirect expropriation …
(a) The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors:
(i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred;
(b) Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.
36 TPP, supra note 4, Annex 9-B(3)(a)(ii).
37 CETA, supra note 5, Annex 8-A(2)(c).
38 TPP, supra note 4, Annex 9-B(3)(a)(ii), fn. 36.
39 CETA, supra note 5, Annex 8-A(2)(d).
42 Environment Cooperation Agreement among the Parties to the Trans-Pacific Strategic Economic Partnership Agreement, https://www.mfat.govt.nz/assets/FTAs-agreements-in-force/P4/Full-text-of-P4-agreement.pdf (last visited Dec. 12, 2017).
43 Memorandum of Understanding on Labour Cooperation among the Parties to the Trans-Pacific Strategic Economic Partnership Agreement, http://www.sice.oas.org/Trade/CHL_Asia_e/Side_Agreements/Labor_e.pdf (last visited Dec. 12, 2017).
1. Each Party shall ensure that its:
(a) laws, regulations, procedures, and administrative rulings of general application; and
(b) adjudicatory decisions respecting any matter covered by this Treaty are promptly published or otherwise made publicly available.
2. For purposes of this Article, ‘administrative ruling of general application’ means an administrative ruling or interpretation that applies to all persons and fact situations that fall generally within its ambit and that establishes a norm of conduct but does not include:
(a) a determination or ruling made in an administrative or quasi-judicial proceeding that applies to a particular covered investment or investor of the other Party in a specific case; or
(b) a ruling that adjudicates with respect to a particular act or practice.
2. Notwithstanding Articles 3 and 4, a Party may require an investor of the other Party, or its covered investment, to provide information concerning that investment solely for informational or statistical purposes. The Party shall protect any confidential business information from any disclosure that would prejudice the competitive position of the investor or the covered investment. Nothing in this paragraph shall be construed to prevent a Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its law.
This same approach with very minor differences regarding the reasonability of the information to provide and the timeframe of the exercise can be found in the recently negotiated CETA.
1. Each Party shall, to the extent possible, ensure that its laws, regulations, procedures, and administrative rulings of general application respecting any matter covered by this Agreement are promptly published or otherwise made available in such a manner as to enable interested persons and the other Party to become acquainted with them.
2. To the extent possible, each Party shall:
(a) publish in advance any such measure that it proposes to adopt; and
(b) provide interested persons and the other Party a reasonable opportunity to comment on such proposed measures.
3. Upon request by a Party, information shall be exchanged on the measures of the other Party that may have an impact on covered investments.
47 A key development in this area worth mentioning is the one related to provisions aimed at combating corruption. A new development brought by the TPP in its chapter on Transparency and Anti-corruption is that parties must commit to eliminate corruption by adopting the necessary measures. This is the first attempt in the international trade and investment arena to introduce such measures.
48 Examples include, inter alia, the specific procedures to apply when submitting a notice of intent for arbitration, provisions to avoid the same dispute from being simultaneously addressed in more than one legal forum, specific procedures for the appointment of arbitrators and expert review groups, specification of the place of arbitration, measures for interim injunctive relief, preliminary objections, conduct of arbitral proceedings, and enforcement of awards.
49 Article 15.15 of the Singapore–United States FTA provides, inter alia: 1. In the event that a disputing party considers that an investment dispute cannot be settled by consultation and negotiation: (a) the claimant, on its own behalf, may submit to arbitration under this Section a claim: (i) that the respondent has breached … (B) an investment authorization, or (C) an investment agreement …
50 However, four TPP member states (Australia, Canada, Mexico, and New Zealand) have expressly excluded a number of specific investment review and investment approval processes under their domestic legislation from the ISDS mechanism of TPP (TPP Annex 9-H).
1. Where a disputing Party asserts as a defence that the measure alleged to be a breach is within the scope of a reservation or exception set out in Annex I or Annex II, upon request of the disputing Party, the Tribunal shall request the interpretation of the Commission on the issue. The Commission, within 60 days of delivery of the request, shall submit in writing its interpretation to the Tribunal.
2. Further to paragraph 2 of Article 10.35, a Commission interpretation submitted under paragraph 1 shall be binding on the Tribunal. If the Commission fails to submit an interpretation within 60 days, the Tribunal shall decide the issue.
53 For a more detailed discussion, see K. Yannaca-Small & D. Earnest, The Fate of Frivolous and Unmeritorious Claims, in Arbitration under International Investment Agreements: A Guide to the Key Issues ch. 7 (K. Yannaca-Small ed., 2018).
54 Although numerous ISDS tribunals tend to consider the two concepts as being essentially synonymous, international legal doctrine has made a distinction between admissibility and jurisdiction. While ‘jurisdiction is the power of the tribunal to hear the case; admissibility is whether the case itself is defective — whether it is appropriate for the tribunal to hear it’. Waste Management, Inc. v. Mexico, Dissenting Opinion of Keith Highet, ICSID Case No. ARB(AF)/98/2 (June 2, 2000), ¶ 58.
58 These disputes involved a common set of facts and measures, i.e., an alleged improper interference of the Czech government in the investors’ investments in the television business. One such investor lost its case, but the other won an award of over U.S.$300 million. See K. Yannaca-Small, Who is Entitled to Claim? The Definition of Nationality in Investment Arbitration, in Arbitration under International Investment Agreements: A Guide to the Key Issues ch. 10 (K. Yannaca-Small ed., 2018); UNCTAD, Investor-State Disputes Arising from Investment Treaties: A Review, UNCTAD Series on International Investment Policies for Development 19 (2005).
59 See Ronald S. Lauder v. Czech Republic, UNCITRAL, Final Award (Sept. 3, 2001); CME Czech Republic v. Czech Republic, UNCITRAL, Partial Award (Sept. 13, 2001); and Czech Republic v. CME Czech Republic B.V., Court of Appeal, Stockholm, Sweden, Case No. T-8735-01, 42 I.L.M. 919 (2003).
60 See, in this regard, Canfor Corp. v. United States of America, Terminal Forest Products Ltd. v. United States of America & Tembec Inc. et al. v. United States of America, Order of the Consolidation Tribunal (Sept. 7, 2005).
61 Furthermore, under the prevailing interpretation of ‘fork in the road’ provisions, as ISDS jurisprudence has shown, it is also easy to envisage situations under which an investor may submit a claim under ISDS procedures despite the existence of a ‘domestic forum’ clause in an investment contract between the investor and the host country.
62 CETA, supra note 5, arts. 8.18–8.45.
1. Any non-disputing party that is a person of a Party, or has a significant presence in the territory of a Party, that wishes to file a written submission with a Tribunal (the “applicant”) shall apply for leave from the Tribunal to file such a submission …
(a) the non-disputing party submission would assist the Tribunal in the determination of a factual or legal issue related to the arbitration by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties;
(b) the non-disputing party submission would address a matter within the scope of the dispute;
6. The Tribunal shall decide whether to grant leave to file a non-disputing party submission. If leave to file a non-disputing party submission is granted, the Tribunal shall set an appropriate date for the disputing parties to respond in writing to the non-disputing party submission. By that date, the non-disputing Party may, pursuant to Article 34 (Participation by the Non-Disputing Party), address any issues of interpretation of this Agreement presented in the non-disputing party submission.
7. The Tribunal that grants leave to file a non-disputing party submission is not required to address the submission at any point in the arbitration, nor is the non-disputing party that files the submission entitled to make further submissions in the arbitration …