9 March 2023
Establishing an Advisory Centre on International Investment Law: Key challenges ahead
by
Karl P. Sauvant*
Over 130 countries (of which some 80 developing countries, including 18 least developed countries) have so far faced treaty-based international investment disputes (74 new disputes in 2021 alone), for a total of over 1, 200 such disputes at the end of 2021. The number is higher if disputes are added that are based on contracts and national investment laws. With the stock of global foreign direct investment amounting to over US$45 trillion and annual flows around US$1.6 trillion, international investment disputes have become a fact of life.[1]
Furthermore, the potential for considerably more investor-State dispute settlement (ISDS) cases is substantial, considering:
- On the one hand, there are the obligations States have entered into in international investment agreements (IIAs—numbering over 2,600 in force at the beginning of 2023), many with ISDS provisions; State contracts and national investment laws granting international dispute-settlement recourse; the proclivity of IIAs toward broad definitions of “investor” and “investment”; and their frequently open-ended formulation of investor protections, especially in old treaties. Disputes can also be triggered by actions and measures taken by different branches of governments and specialized agencies, and at any administrative level (i.e., not only the national level), sometimes because of lack of awareness. In the case of natural resources, furthermore, the reality is that natural resource prices can change substantially; this can become a source of conflict in the absence of contract clauses that allow for adjustments in light of changed circumstances, including when new governments come to power. The same can be said about claims arising from investments in renewable energy, where the price paid per kilowatt can fluctuate considerably.
- On the other hand, the number of potential claimants is high, given that there are substantially more than 100,000 enterprises that have considerably more than one million foreign affiliates with a large number of investors in such affiliates—all of which, depending on the applicable IIA, may have a right to initiate arbitration proceedings. The potential for conflict is exacerbated by the embeddedness of FDI in host countries, involving, as it does, a wide range of interactions relating to the production process over the entire life-cycle of a project and, more broadly, the relationship between foreign affiliates and host country governments.
Hence, it is very likely that the number of international investment disputes will grow further, as international investors discover and have recourse to the ISDS mechanism, facilitated (among other things) by third-party funders.
ISDS cases typically involve difficult matters of international investment law, are often expensive to handle and can lead to high monetary awards against host States, not counting potential reputational risks. Thus, the mean costs for respondents in an ISDS proceeding have been calculated at around US$5 million and the mean amount awarded at US$438 million.[2]
However, many developing countries—and especially the least developed countries (LDCs) among them—typically do not have the capacity to represent themselves adequately as respondents in ISDS disputes, nor do they often have the financial resources to hire international counsel.
In light of this situation, it has been proposed[3] to establish an Advisory Centre on International Investment Law (ACIIL), to assist under-resourced developing countries—and especially the least developed among them—in dealing with ISDS disputes. It would be an effort to provide (international) legal aid[4] in the international investment area, akin to the legal aid that the Advisory Centre on WTO Law provides in the trade area to developing countries.
As part of the negotiations on a possible reform of the investor-State dispute settlement regime, Working Group III of the United Nations Commission on International Trade Law (UNCITRAL) is considering the establishment of an ACIIL.[5] Many of its members—especially of course developing countries but also, for instance, the European Commission—have expressed support for “establishing an advisory centre on ISDS, which could usefully complement other reform options to be developed by the Working Group”.[6]
In response, the UNCITRAL Secretariat prepared two Notes[7] that contain the basic building blocks for establishing an ACIIL. It is based on the discussions in the Working Group and submissions by delegations to it, input by the UNCITRAL Academic Forum on ISDS,[8] informal webinars with delegates held on this subject,[9] a scoping study,[10] a study on the financing of an Advisory Centre,[11] and a survey of services provided by NGOs.[12]
Not surprisingly, though, a number of issues still need discussion and deliberation by the Working Group.
This blog focusses on three important issues: an issue related to the scope of the services of an Advisory Centre, specifically whether it should focus on the representation of respondents in investment dispute proceedings; an issue related to the structure of an Advisory Centre and its beneficiaries, specifically whether small and medium-size enterprises (SMEs) should be beneficiaries; and the overarching question of a possible link between establishing an Advisory Centre and establishing a multilateral investment court and the related question of funding.
- The scope of services: Should the focus be on the representation of respondents?
The Secretariat’s Notes[13] clearly lay out the possible scope of the work of an ACIIL. Its mandate could range from assistance in negotiating investment contracts, to training and assistance in negotiating IIAs, to dispute-avoidance services, to representation services in the case of disputes.
No doubt, many developing countries and especially LDCs could benefit from international support in virtually all of these areas. But at least three considerations need to be taken into account:
- Support is already available for the issues that were just mentioned and, for that matter, for other issues for which developing countries could benefit from technical assistance and capacity building.[14] For example, there are three institutions that provide support for investment contract negotiations, free of charge: the CONNEX Support Unit; the African Legal Support Facility and the International Senior Lawyers Project.[15] The World Bank Group has a well-established program to provide dispute-avoidance services to developing countries, implemented so far in over ten countries.[16] Finally, various institutions provide training and support for the negotiation of IIAs. For example, UNCTAD has trained more than 1,000 government officials in over 80 countries and regional organizations in IIA and ISDS issues between 2012 and 2021.[17] There is no need to duplicate this support.
- This leads immediately to the second consideration: the broader an Advisory Centre’s mandate, the more resources are required to establish it—and it will not be easy to raise the resources required for an Advisory Centre that provides meaningful help to developing countries. (This does not exclude the possibility that, once an Advisory Centre has been established and gained experience, additional tasks could be assumed by it, resources permitting.) These two considerations lead to the third one:
- The one area in which virtually no support is available is the area of representation services in international investment dispute proceedings involving developing countries and especially LDCs. This is of course a crucial area, given—as elaborated earlier—how frequent and costly disputes can be.
Hence, in the absence of virtually any support for developing countries and especially LDCs for their representation in actual disputes, representation services are the one area on which members of the Working Group should focus as the core responsibility of an ACIIL.[18]
- Structure and beneficiaries: Should SMEs be beneficiaries?
Again, the Secretariat’s Notes[19] lay out clearly how an ACIIL could be structured. The idea is to open membership to all States and regional economic integration organizations and establish a Governing Board consisting of representatives of members of the Advisory Centre. The Governing Board would be supported by a full-time professional staff.
The internal organization of the Advisory Centre could consist of two pillars:
- Pillar 1 could be an Assistance Mechanism, focused on providing assistance and representation services in international investment dispute proceedings for developing countries and LDCs.
- Pillar 2 could be a Forum for sharing information and experience, and to point beneficiaries to resources that are available for technical assistance and capacity building in the area of international investment law and policy. Importantly, participation in the Forum could be extended to all States members of the Advisory Centre (i.e., also developed countries). The Forum approach would allow the Centre to mobilize resources available elsewhere; it is therefore an approach that is efficient in that it avoids duplication.
But there is one issue that requires special attention, and it relates to the beneficiaries of the work of an Advisory Centre.
The discussions in the Working Group strongly suggest that most members want the beneficiaries of an Advisory Centre to be primarily developing countries and LDCs. Moreover, most members do not seem to want to give SMEs access to representation assistance by the Advisory Centre. The reasons include that representation assistance to SMEs could lead to more ISDS cases, there would be issues of conflict of interest that could compromise the credibility of the Advisory Centre if it represented both respondents and claimants,[20] and there are of course resource constraints.
At the same time, a number of developed countries have raised the issue of SMEs being beneficiaries.
How to resolve this?
The Secretariat Notes deal with this issue by discussing the possibility of establishing—next to the Governing Board—an Advisory Board composed of representatives of SMEs (and perhaps other non-state actors—an intriguing possibility).
At the same time, the Forum—the second pillar of an Advisory Centre itself—could be expanded to include SMEs as well.
A combination of the Advisory Board and the Forum would be a promising way forward: It would allow SMEs to benefit from the ACIIL, and it could perhaps even provide access to interested non-governmental organizations. At the same time, it would avoid most if not all of the issues that might arise if the Advisory Centre were to provide representation assistance to SMEs as well.
- The overarching question of a possible link between establishing an Advisory Centre and establishing a multilateral investment court and the related question of funding
Establishing an Advisory Centre requires resources, and, as discussed, the broader its mandate, the more resources would be required.
An effort has been made[21] to estimate the costs of a very modest ACIIL, focused entirely on representation and mediation. Its key assumption was that a team of 15 full-time lawyers and 3 administrative staff could handle 4-6 mediation cases and 7-9 arbitration cases a year concurrently.[22] Given these (and other assumptions), it was estimated that establishing an Advisory Centre and supporting its functioning for five years would require US$16 million. This is not a huge amount, but it allows an Advisory Centre to deal only with a very limited number of cases.
Realistically, funding would have to come primarily from developed countries, as part of their official development assistance[23] and, again realistically, particularly European countries. What becomes relevant in this context is that the European Commission is promoting the establishment of a multilateral investment court in UNCITRAL’s Working Group.
While establishing such a court is desirable, it is not in the interest of developing countries—and, for that matter, the broader interest of developed countries—that the establishment of an Advisory Centre has to await the establishment of a court. An Advisory Centre addresses a clear and present need of a great number of States in relation to the international investment law and policy regime, and should be established as soon as possible.[24] It is needed independently of anything else, as long as there are international investment disputes.
Conclusions
The Secretariat Notes contain all the elements that allow UNCITRAL’s Working Group III move forward and establish an ACIIL focused on providing representation services to developing countries and especially LDCs in the cases of investment disputes, while also helping SMEs. It should be in the interest of the members of the Working Group to intensify the discussions on the Advisory Centre, with a view toward establishing it as soon as possible. This is important not only in light of the number of ISDS disputes and the considerable potential for more such disputes, but also because the early harvest of an ACIIL could energize the broader reform efforts undertaken by Working Group III. Perhaps a few of the Working Group’s members could take the lead in moving this process forward,[25] for instance, in the framework of a “Friends of an Advisory Centre” informal group,[26] and possibly supported by groups in civil society that have the interest of developing countries at heart.
* Karl P. Sauvant ([email protected]) is Senior Fellow, Columbia Center on Sustainable Investment, Columbia University. He is grateful to Anna Joubin-Bret and Federico Ortino for their feedback on an earlier draft of this Note.
[1] See, UNCTAD, World Investment Report 2022: International Tax Reforms and Sustainable Investment (Geneva: UNCTAD, 2022), annex table 2.
[2] See, Matthew Hodgson, Yarik Kryvoi and Daniel Hrcka, 2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration (London: British Institute of International and Comparative Law and Allen & Overy, 2021), pp. 4, 5. The mean costs for claimants are higher than US6 million; ibid.
[3] For an analysis of the evolution of this proposal see, Robert Schwieder, “Legal aid and international investment treaty disputes: Lessons learned from the ACWL and investment experiences”, Journal of World Investment & Trade, vol. 19 (2018), pp. 628-666. See also, Anna Joubin-Bret, “Establishing an International Advisory Centre on Investment Disputes?” (Geneva: ICTSD, 2015), Karl P. Sauvant, “An Advisory Centre on International Investment Law: Key Features ’, Academic Forum on ISDS Concept Paper 2019/14, September 10, 2019, reprinted in The University of St. Thomas Law Journal, vol.17 (April 2021), pp. 354-372, available here.
[4] See, Schwieder, op. cit., and Karl P. Sauvant and Federico Ortino, “Extending international legal aid from trade to investment: An Advisory Centre on International Investment Law”, Global Trade and Customs Journal, vol. 16 (September 2021), pp. 548-554.
[5] See, UNCITRAL, “Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of Its Thirty-Eight Session (Vienna, 14–18 Oct. 2019)”, document A/CN.9/1004,
paras. 28–50 (Oct. 23, 2019).
[6] Ibid., para. 28.
[7] See, UNCITRAL, “Possible reform of investor-State dispute settlement (ISDS): Advisory Centre. Note by the Secretariat”, A/CN.9/WG.III/WP.212, Dec. 3, 2021, and UNCITRAL, “Possible reform of investor-State dispute settlement (ISDS): Advisory Centre. Note by the Secretariat”, A/CN.9/WG.III/WP.212/Add. 1, Dec. 3, 2021. These Notes cover the entire range of issues that need to be considered in connection with establishing an ACIIL.
[8] See, Sauvant, op. cit.
[9] Between April 2020 and end-June 2021, five webinars took place, organized by the UNCITRAL Secretariat in cooperation with other institutions or the ISDS Academic Forum on ISDS.
[10] See, Columbia Center on Sustainable Investment, “Securing adequate legal defense in proceedings under international investment agreements: A scoping study” (New York: CCSI, 2019).
[11] See, Nicolas Angelet et al., “Note on the costs and financing of an Advisory Centre on International Investment Law” (IAI and ILA, 2020).
[12] See, Institute for Transnational Arbitration, “Proposal for an ISDS Advisory Centre: survey on the non-State observers’ contribution to an ISDS Advisory Centre” (ITA, Aug. 10, 2020).
[13] Op. cit.
[14] The CCSI scoping study (op. cit.) and the ITA survey (op. cit.) provide ample documentation of the kind of support already available.
[15] For a short discussion, see, Vanessa Tsang, “Strengthening international negotiation assistance for developing host countries”, Columbia FDI Perspective, no. 341 (Oct. 3, 2022); for an extensive discussion, see, Wendy Shidi Wu and Vanessa Tsang, “Fair game, fair play: the advocacy of international assistance for developing host States in negotiating investment contracts”, Journal of World Trade and Investment, vol. 23 (June 2022), pp. 417-455.
[16] See, Priyanka Kher, Eloise Obadia and Dongwook Chun, “Managing investor issues through retention mechanisms” (Washington, D.C.: World Bank Group, 2022).
[17] See, UNCTAD, op. cit., p. 90.
[18] For some developing countries, it may be worth to develop in-house capacity (and some have done so), but they still may need to rely on an Advisory Centre for supplementary support. But for countries that typically face a case only every few years, this is not an efficient option, underlining the need for representation services.
[19] Op. cit.
[20] For a discussion of potential conflicts of interest, see, Ticha Ungboriboonpisal, “The Advisory Center on International Investment Law (ACIIL) and the potential conflict of interest situations it could encounter”, American Review of International Arbitration, vol. 33 (Jan. 2023), pp. 129-152.
[21] See, Angelet, et al., op. cit.
[22] See also the UNCITRAL Secretariat report available here.
[23] Also, one could also consider other funding mechanisms, as discussed here and here.
[24] See also, Charlie Garnjana-Goonchorn, “An Advisory Centre on International Investment Law: Is perfect the enemy of good?“ Columbia FDI Perspective, no. 324 (Feb. 7, 2022).
[25] It is noteworthy that a key factor in establishing the Advisory Centre of WTO Law was that the process was driven by delegates from Colombia (Claudia Orozco) and The Netherlands (Otto Genee); see, ACWL, “The ACWL at ten: Looking back, looking forward” (Geneva: ACWL, 2011).
[26] A “Friends of Investment Facilitation for Development” informal group of (developing country) WTO members was instrumental in bringing about the negotiations of an Investment Facilitation for Development Agreement in the WTO. See, Evan Gabor, “Keeping ‘Development’ in a Multilateral Framework on Investment Facilitation for Development”, Journal of World Investment & Trade, vol. 22 (2021), pp. 49ff. These negotiations are scheduled to be concluded in July 2023.
