This is a guest post by Lise Johnson and Lorenzo Cotula
On January 20-24, 2020, delegates to UNCITRAL’s Working Group III met in Vienna to continue their work on ISDS reform. This was the first session devoted to discussing “structural” reforms, such as a standing investment court and an appellate mechanism. Over the course of the week, the Working Group discussed what could eventually become, in effect, the building blocks of a standing institution – including scope and availability of appellate review, enforcement of decisions, financing issues, and appointment of adjudicators (for appeals and/or a first instance body).
The Working Group tasked the Secretariat with conducting additional research on adjudicator appointment and on funding for a standing dispute settlement mechanism; and to begin providing text that could be used to set up an appellate mechanism and support the enforceability of decisions by a standing body. In an earlier blog, Julian Arato provided a more thorough summary of the Working Group’s discussions.
Overall, the week’s work reflected a spirit of pragmatism and flexibility. The Chair steered delegates through, or away from, complex questions: delegates were not asked to – indeed, they were often advised not to – associate themselves with any position on the desirability of a standing body or appellate mechanism, focusing instead on what these reforms might look like, in order to inform decisions further down the line. Through this way of proceeding, much progress can be said to have been made. But the overall results of this UN process may be less than remarkable and ultimately unsatisfying.
Pragmatism: Narrowing the agenda
Back in October, the Working Group agreed that the January 2020 session would focus on: (i) stand-alone review or appellate mechanism; (ii) standing multilateral investment court; and (iii) selection and appointment of arbitrators and adjudicators. In practice, the Chair organized the week’s agenda around discussing an appellate mechanism, enforcement of decisions from a standing body, financing of a standing body, and selection and appointment of adjudicators.
This shift meant that, while the proposal of a standing multilateral investment court (MIC) permeated discussions throughout the week, there never was an explicit debate on the merits and demerits of a MIC as such. The approach enabled the Working Group to move the discussion forward, avoiding broad questions of policy or principle, and instead breaking down a possible MIC into certain constituent parts.
Most delegates constructively engaged with the discussions, for example debating at length the technical options for ensuring enforceability of decisions, while also often clarifying that their reflections were without prejudice to their ultimate policy position. This pragmatic approach offered a masterclass on how to move forward politically fraught agendas notwithstanding palpable hesitance with regards to the substance of relevant proposals.
But the pragmatic approach also left many questions unanswered, because it foreclosed space to discuss the more foundational dimensions relevant to the possible creation of a MIC. This issue has affected the process from the start: the Working Group identified certain “concerns” about ISDS, concluded that reform was desirable to address those concerns, and is now exploring reform solutions. This approach may well help fix certain flaws affecting present-day ISDS. But it does not allow a more open discussion about designing an international system for settling investment-related disputes that responds to the social, environmental and economic challenges the world faces today.
A more open discussion could explore questions such as: what purpose should such a system serve, what policy tools would be best suited, what are their respective costs and benefits, and how could any policy trade-offs be navigated? How would the system interface with other areas of international law? How will it, could it, and should it interact with domestic courts and institutions? Will it, for instance, be guided by principles of complementarity and subsidiarity, only stepping in where domestic institutions are not willing, able, or otherwise suited to resolve the underlying dispute?
Without asking such foundational questions, the process may result in creating a standing body to take the place of, or sit alongside, the existing ISDS model, with international adjudicators deciding the same types of disputes, by the same types of claimants, under the same causes of action, with the same remedies. This would tackle certain procedural problems but would not address the more systemic critiques of ISDS that prompted this reform initiative in the first place. And while considering the building blocks can enable focused discussions of technical issues, it can also obscure the more systemic and entrenching effects a multilateral instrument could inherently create.
On the last day of the session, the Chair acknowledged that there were many more aspects of a MIC – such as its jurisdiction – that had not yet been discussed, and flagged that they are for future consideration. But it is not clear whether or when all or some of these bigger-picture issues will be on the agenda. The same can be said about more specific issues that some developing country delegates have raised, both at this and the last session, such as how damages are calculated, and that link directly to wider public concerns about ISDS, such as “regulatory chill”.
Flexibility, and negotiating leverage
Flexibility was another core theme arising from the January session. Continuing on the Working Group’s discussions in October, some delegates emphasized the need for an “open architecture”, and a “flexible approach”, that would enable states to pick and choose, via opt-ins or out-outs, from the reform outputs developed through the process. This approach has undoubted appeal in that, under it, no state would be required to accept a reform solution it does not wish to adopt. This can help maximize buy-in for the multilateral instrument, and potentially for a standing body, by allowing states to only opt into certain aspects, such as an appellate mechanism.
But flexibility also presents some drawbacks. One advantage of the UNCITRAL process is that it is multilateral. In a policy landscape dominated by bilateral and regional arrangements, this feature offers the potential to deliver more systemic solutions. Yet, a multilateral instrument with potentially limited ratifications (and thus sitting alongside the current ISDS system, rather than replacing it), and with variable geometries of opt-ins and opt-outs, could in fact compound fragmentation. As the observer from the Third World Network pointed out,[1] this problem would be particularly acute for developing countries, as they risk ending up with a very diverse treaty network, reflecting the different models promoted by their higher-income country counterparts.
The multilateral nature of this policy forum also means that developing country governments – that might be outmatched in bilateral negotiations with more powerful states – could collaborate to secure an outcome more in line with their policy preferences. In a multilateral forum that operates on a consensus basis, even a small number of like-minded delegations might be able to advance shared interests. But the “à la carte” approach might mean that the increased leverage developing countries could have in a multilateral setting might ultimately have little practical effect, if their demands and preferred reform solutions are deemed optional.
The question then is whether and what limits developing countries in particular might want to place on permissible flexibility; whether, for instance, in exchange for engaging on the EU-backed proposal for a standing body, they would be able to demand other reforms that would apply on a mandatory basis to existing investment treaties, both modifying traditional ISDS and shaping any future MIC-based ISDS.
In a written submission, Colombia proposed an approach that would combine flexibility with a “core” minimum set of reforms that would apply across the spectrum – and a blog by Anthea Roberts and Taylor St. John elaborated on the possible contours of such a flexible framework. This could be a productive approach, though much depends on what aspects become part of the core, and whose priorities are most fully reflected. There is also the question of whether, beyond the broad consensus over the need for reform, states’ diverging reform visions can be fruitfully accommodated within a single multilateral instrument, albeit a flexible one.
Moving forward
After an intense week of discussions, delegates will now focus on preparations for the next session (New York, 30 March – 3 April 2020). Important issues will be on the agenda, including how to handle the problems associated with shareholder claims and “reflective loss”, how states can influence the interpretation of their investment treaties, and how reforming counterclaims could change the one-way street nature of ISDS. The Working Group will also consider how to plan its future work.
This planning exercise will provide an opportunity for delegates to clarify when and how the more overarching issues will be considered – including some of the cross-cutting issues that the Working Group has already identified, but the reform implications of which are yet to be explored. In formulating its workplan, the Working Group may also wish to create adequate space for discussing the multilateral instrument itself, and the “ground rules” for balancing core and flexible reforms.
[1] Comment made in the morning session of January 23, 2020 (beginning at 53:00 in the English version of the recording available from the UNCITRAL Library).
