Back in May, UNCITRAL published a Note by the Secretariat on "Resources to implement the work programme with respect to investor-State dispute settlement (ISDS) reform." I was surprised to read this part:
24. Under the current pattern of meetings, Working Group III meets twice a year for a one-week session with four days dedicated to substantive discussion and one day dedicated to the adoption of the report. Table 6 estimates that a total of 80 days of conference resources would be required by Working Group III to address all the reform solutions and to complete the ISDS Project. This thus translates into 20 sessions of the Working Group over a period of 10 years beginning 2021, with the expected finalization by the Commission in 2031. For each session, the Secretariat would be preparing an average of 2 working papers, which is similar to the document resources utilized until now.
10 years? That's a lot of time. How much of value will come out of this process? And how much will the process cost?
More importantly, it seems to me that this project ignores, or at least minimizes, one of the main criticisms of ISDS: ISDS has little to no impact on encouraging foreign investment. The UNCITRAL project isn't giving much attention to this issue, and instead is focusing on more technical points that, even if tweaked, would keep the core of the current system in place. Here are the issues they are considering (Table 6 of the Note):
- Code of conduct
- Multilateral advisory centre
- Third-party funding
- Stand-alone review or appellate mechanism
- Standing multilateral body or mechanism
- Selection and appointment of ISDS tribunal members
- Dispute prevention/mitigation and ADR
- Treaty interpretation by States
- Security of costs
- Means to address frivolous claims
- Multiple proceedings including counterclaims
- Reflective loss/share holder claims
- Multilateral instrument on ISDS reform
- Damages
These are all very interesting and important issues, but if you are serious about the effort to reform ISDS, I think you need to consider more fundamental issues as well. In this regard, "terminate all the investment treaties" should be a reform avenue to be studied. I vaguely recall that issues of this sort made a brief appearance at one point in the process, but it seems to me that they were not taken very seriously by most participants.
In contrast to that, take a look at what Australia DFAT is doing in terms of reviewing its BITs:
Review and reform of Australia's BITs can aim to influence the interpretation of key obligations and introduce modern safeguards. A single approach may not suit all situations; a range of options exists, and could be deployed depending on individual circumstances. These options include:
- full renegotiation of a BIT
- amendment of a BIT
- negotiation and adoption of a Joint Interpretative Note
- adoption of a Unilateral Interpretive Note
- termination of a BIT
- continuation of a BIT
- replacement of a BIT with an FTA chapter that may or may not include ISDS.
This list is not intended to be exhaustive; there may be other options available.
A range of safeguards and modern provisions could be included in a revised BIT or FTA investment chapter. Examples from Australia's modern FTA practice include:
- reiteration of the Government's right to regulate
- exclusion of ISDS claims against public health measures, including tobacco control measures, the Pharmaceutical Benefits Scheme and Medicare
- exclusion of ISDS claims that are frivolous or manifestly without merit;
- enabling a case to be blocked by an investor without substantial business activities in Australia
- preventing abuse of process by allowing claims to be dismissed at a preliminary stage
- limiting forum shopping
- providing detailed rules on ethics and conflict of interest of arbitrators.
Whether or not Australia would be able to pursue a particular option will also be dependent on the bilateral treaty partner. Moreover, different bilateral treaty partners may warrant different approaches. Submissions may wish to consider the possible relevance of factors specific to each BIT and each bilateral investment relationship, which could include:
- the nature of the foreign investment relationship (including the quantum and directional flow of the foreign investment);
- the dominant type of foreign investment (foreign direct investment or portfolio investment);
- the legal risk associated with each BIT, taking account of specific provisions and the bilateral investment relationship;
- the views of the bilateral treaty partner regarding full re-negotiation, amendment, continuation or termination of the specific BIT.
Questions for consideration
- In your view, are the existing BITs of benefit to Australian investors operating in these overseas markets? Please comment on their utility.
- In your view, does the existence of a BIT impact on the flow of foreign direct investment and /or portfolio investment? Please comment, if possible, both generally and with reference to specific existing BITs.
- Do you have concerns about Australia's existing BITs? If so, please comment on any specific provisions of concern.
- If Australia took the approach of re-negotiating at least some of the existing BITs, do you have views on which clauses should be included in a renegotiated agreement?
- In your view, would any concerns you have about any of Australia's existing BITs warrant termination of one or more BITs? Please comment, as relevant, both generally and with reference to specific existing BITs.
- There are various models and approaches that different countries take in relation to international investment agreements. For instance, some models are concerned with investment facilitation rather than dispute resolution. In your view, is there a particular approach that is suited to meeting the interests of Australian industry and business?
- In light of the various policy options available, what approach do you consider should be taken? Please comment, if possible, both generally and with reference to specific existing BITs.
These are very good questions and a much broader review than what UNCITRAL is doing. Based on the Australia/UNCITRAL comparison, it seems to me that a serious consideration of the merits of ISDS and the full range of reform options may be more likely at the domestic level.
