- •In addition, an iia should display a commitment to flexibility for development. In this context, flexibility denotes:
- •In that the shorter the period between the governmental act that needs to be disclosed and the date of such disclosure, the greater the extent of the obligation. 108
- •In the Barcelona Traction case, Judge Jessup, in his Separate Opinion, 133 stated the following:
- •Igbokwe, vc, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’, 23 j Int'l Arb 267 (2006)
- •Igbokwe, vc, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’, 23 j Int'l Arb 267 (2006)
- •Very detailed, technical aspects such as sanitary and phytosanitary measures and intellectual property rights.
- •Interest and Public Purpose (Ottawa, cd Howe Institute, Policy Study 44, The Border Papers, 2006)
- •Van Hecke, g, ‘Contracts between States and Foreign Private Law Persons’, 1 epil 814 (1992)
- •Interest and Public Purpose (Ottawa, cd Howe Institute, Policy Study 44, The Border Papers, 2006)
- •Van Hecke, g, ‘Contracts between States and Foreign Private Law Persons’, 1 epil 814 (1992)
- •1. In the event of any inconsistency between this Agreement and the specific trade obligations set out in:
- •Investment treaty practice of the usa and Canada. 66 For example, the us-Uruguay bit of 25 October 2004 states, by Article 3(1):
- •In this respect, the wto Appellate Body and the International Court of Justice remind us of the principle of effectiveness in treaty interpretation. 21 It is not
- •Impairment” standards, when] (I) similar cases are (II) treated differently (III) and without reasonable justification’. 84
- •Vicu?a, f Orrego, ‘Regulatory Authority and Legitimate Expectations’, 5 Intl Law Forum, 188m 193 (2003)
- •Vicu?a, f Orrego, ‘Regulatory Authority and Legitimate Expectations’, 5 Intl Law Forum, 188m 193 (2003)
- •In order to avoid possible free-riding behaviour within the gatt framework, the Protocol to the 1992 us-Russia bit provides for a specific exception which reads as follows:
- •In addition, the distinction between breach of contract and expropriation has become relevant in the related jurisdictional debate about contract versus treaty
- •It is on the whole undisputed that the prohibition of expropriation of foreign property, both under customary international law and under applicable treaty law, covers
- •In addition, other investment relevant instruments speak of ‘expropriations or other measures affecting property rights’. 81
- •In the recent Occidental case, the arbitral tribunal confirmed that:
- •Is required is at least a ‘substantial loss of control or value’ 181 or ‘severe economic impact’. 182 The difficulty again lies in establishing the exact level of interference.
- •In Phelps Dodge , the Iran-us Claims Tribunal expressly stated that even acceptable motivations would not change its view that certain measures had an expropriatory effect:
- •In the doctrines of necessity and force majeure, if they view compliance with either doctrine to be essentially empty.
- •In the doctrines of necessity and force majeure, if they view compliance with either doctrine to be essentially empty.
- •In one of the early nafta cases—Metalclad Corporation V The United Mexican States84—the arbitral tribunal was required to address this issue, essentially as
- •5. Review and Appeal
- •5. Review and Appeal
- •In this kind of provision, when a dispute settlement forum is selected, this choice is made to the exclusion of any other (electa una via, non datur recursus ad alteram).
- •In a subsequent request for participation as amicus curiae, the tribunal found that it could not open up the hearings to the petitioners without the parties' consent:
- •In addition to the provisions of nafta, disputing parties are also bound by the arbitration rules that the investor selects. 64 When bringing a claim against a
- •In the Notes of Interpretation of Certain Chapter Eleven Provisions issued by the Free Trade Commission on 31 July 2001, the Commission declared that:
- •In determining whether to accept a written submission, the Free Trade Commission recommends in paragraph 6 that a tribunal consider the extent to which:
- •In practice, there is also no doubt whatever that users of commercial arbitration in England place much importance on privacy and confidentiality as essential features of English arbitration. 122
- •Increased transparency and public participation may impact upon the principles of confidentiality and privacy that have traditionally been respected in international
- •Is real, and experience shows that facts relating to such relationships should be disclosed even when they arise in the course of the arbitration and not at the time of appointment.
- •Investment disputes in respect of the implementation of the provisions of this Law shall be settled in a manner to be agreed upon with the investor, or within the framework of the
- •In Ronald s Lauder V The Czech Republic , 69 the bit between the Czech Republic and the usa provided as follows: ‘At any time after six months from the date on
- •Vandevelde, kj, United States Investment Treaties: Policy and Practice (Deventer, Netherlands, Kluwer Law and Taxation, 1992)
- •Vandevelde, kj, United States Investment Treaties: Policy and Practice (Deventer, Netherlands, Kluwer Law and Taxation, 1992)
- •It will be recalled that under Article 25(2)(b) a ‘juridical’ national is:
- •In Tokios , the tribunal was faced with an objection to jurisdiction founded on the argument that the control test was the appropriate test for the purposes of Article 25.
- •Vicu?a, Francisco Orrego, ‘Changing Approaches to the Nationality of Claims in the Context of Diplomatic Protection and International Dispute Settlement’, 15 icsid Rev-filj 340 (2000)
- •Vicu?a, Francisco Orrego, ‘Changing Approaches to the Nationality of Claims in the Context of Diplomatic Protection and International Dispute Settlement’, 15 icsid Rev-filj 340 (2000)
- •In the end, however, the tribunal did not apply the clause and therefore it considered that there was no need to express any definitive conclusion as to whether the
- •In Eureko V Poland , 106 the Tribunal saw and addressed this problem briefly when it concluded:
- •In the cme case, the tribunal quoted the tribunal in The Mox Plant Case , 29 which stated that:
- •Identity of Parties
- •Interim or Injunctive Relief
- •Ila Committee on International Commercial Arbitration, Final Report on ‘Lis Pendens and Arbitration’(Toronto, 2006)
- •Ila Committee on International Commercial Arbitration, Final Report on ‘Lis Pendens and Arbitration’(Toronto, 2006)
- •It would be within the logic of the npv/dcf approach to disregard the fact that an investment may only be in its early stages. In these early stages, there will always
- •In conventional international law, in particular in icj jurisprudence, equitable circumstances play a role not only, for example, in boundary determinations, 231 but
- •Investor of the other party to the treaty concerning inter alia an alleged breach of the treaty itself.
- •If the award is annulled, the dispute may be decided by a new arbitration tribunal constituted in accordance with section 2 of Chapter IV of the Treaty. 40
- •Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (icsid Secretariat, Discussion Paper, 22 October 2004)
- •Veeder, VV, ‘The Necessary Safeguards of an Appellate System’, in f Ortino, a Sheppard, and h Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, biicl, 2006)
- •Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (icsid Secretariat, Discussion Paper, 22 October 2004)
- •Veeder, VV, ‘The Necessary Safeguards of an Appellate System’, in f Ortino, a Sheppard, and h Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, biicl, 2006)
- •Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (icsid Secretariat, Discussion Paper, 22 October 2004)
- •Veeder, VV, ‘The Necessary Safeguards of an Appellate System’, in f Ortino, a Sheppard, and h Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, biicl, 2006)
- •Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (icsid Secretariat, Discussion Paper, 22 October 2004)
- •Veeder, VV, ‘The Necessary Safeguards of an Appellate System’, in f Ortino, a Sheppard, and h Warner (eds), Investment Treaty Law: Current Issues—Vol I (London, biicl, 2006)
- •Van den Berg, aj, ‘Some Recent Problems in the Practice of Enforcement under the New York and icsid Conventions’, 2 icsid Rev-filj 439 (1987)
- •Van den Berg, aj, ‘Some Recent Problems in the Practice of Enforcement under the New York and icsid Conventions’, 2 icsid Rev-filj 439 (1987)
- •Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (Discussion Paper, 22 October 2004)
- •Icsid Secretariat, ‘Possible Improvements of the Framework for icsid Arbitration’ (Discussion Paper, 22 October 2004)
- •In the context of investment arbitration, there is not necessarily always an arbitration agreement in
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Verdross, A, ‘The Status of Foreign Private Interests Stemming from Economic Development Agreements with Arbitration Clauses’, 9 ?sterreichische Zeitschrift f?r ?ffentliches Recht und V?lkerrecht 449 (1958–9)
Weil, Prosper, ‘Probl?mes relatifs aux contrats pass?s entre un Etat et un particulier’, 128 Recueil des Cours 95 (1969) Footnotes 1 See eg J-F Poudret and S Besson, Droit compar? de l'arbitrage international (Zurich, Schulthess, 2002) 521–2, 783–5, and 789–90 and also F Perret, ‘Les Conclusions et les chefs de demande dans l'arbitrage international’ ASA Bulletin 7 (1996) and M Kurkela, ‘Jura Novit Curia and the Burden of Education in International Arbitration: A Nordic Perspective’ ASA Bulletin 486 (2003). 2Kl?ckner v Cameroon , Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at para 91. See also Encana v Ecuador , Award, 3 February 2006, at para 156 available at <http://ita.law.unic.ca/ documents/EncanaAwardEnglish.pdf>. 3Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at para 69 n 24. 4CAA and Vivendi v Argentina , Annulment Decision, 3 July 2002, 6 ICSID Reports 340 at paras 84–5. 5Mitchell v Congo , Annulment Decision, 1 November 2006, at para 57, available at <http://ita.law.uvic.ca/documents/mitchellannulment.pdf>. 6 On the occasion of the respondent defaulting, different approaches were taken in the Libyan oil arbitrations, see BP v Libya , Award, 10 October 1973, 53 ILR 300 at 313, Texaco v. Libya , Award, 19 January 1977, 53 ILR 420 at para 53 and Liamco v Libya , Award, 12 April 1977, 62 ILR 145 at 151 and 181. The first award might have been going too far. Claimant filed an application for the tribunal to reopen the proceedings, which ultimately was declined under the applicable procedural law, cf BP v Libya , Decision on Competence, 1 August 1974, 53 ILR 375. 7CME v Czech Republic , Final Award, 14 March 2003, 9 ICSID Reports 264 at para 400 and see paras 407 and 411. The tribunal's view is questioned in C Schreuer, ‘Failure to Apply the Governing Law in International Investment Arbitration’ 7 Austrian Rev Int'l and European Law 147 (2002) at 189–92 and Taida Begic, Applicable Law in International Investment Disputes (Utrecht, Eleven International Publishing, 2005) 45'6 and 201. In its Judgment of 15 May 2003, the Svea Court of Appeal found that the arbitral tribunal had not exceeded its mandate by failing to apply the applicable law, its review being far less strict than that exercised by the ad hoc committees in Kl?ckner v Cameroon and Amco v Indonesia , see 9 ICSID Reports 441 at 497–9. 8CME v Czech Republic , Final Award, 14 March 2003, above n 7, at para 403. 9 See CSOB v Slovak Republic , Award, 29 December 2004, at para 52, available at <http://ita.law.uvic.ca/documents/Cesk-Slovakia-AwardDec2004.pdf>. 10Saudi Arabia v Aramco , Award, 23 August 1958, 27 ILR 117 at 154–6 and 162. The tribunal was presided over by Georges Sauser-Hall, who had served as rapporteur when, in 1957, the Institut de droit international had adopted a resolution to the effect that ‘[t]he rules of choice of law in force in the state of the seat of the arbitral tribunal must be followed to settle the law applicable to the substance of the dispute’: see Annuaire de l'Institut de droit international (vol 47-II, 1957) 496 and also (vol 44-I, 1952) 571-2 and (vol 48-II, 1959) 264. 11 See eg Sapphire v NIOC , Award, 15 March 1963, 35 ILR 136 at 170, BP v Libya , Award, 10 October 1973, 53 ILR 300 at 326 and Liamco v Libya , Award, 12 April 1977, 62 ILR 145 at 171. 12Annuaire de l'Institut de droit international (vol 63-I, 1989) 38 and 44. 13Lena Goldfields Arbitration, 5 Annual Digest 3 (1930) at 3; see also (1950) 36 Cornell L Q 42 at para 22. 14 VV Veeder, ‘The Lena Goldfields Arbitration: The Historical Roots of Three Ideas' 47 ICLQ 747 at 772 (1998). 15 See eg M Bourquin, ‘Arbitration and Economic Development Agreements’ 15 Bus Law 860 (1959–60) at 867; Schmitthoff in G Kojanec (ed), Les accords de commerce international, (Leiden, 1969) 366; and P Lalive, ‘L'?tat en tant que partie ? des contrats de concession ou d'investissements conclus avec des soci?t?s priv?es ?trang?res’, in UNIDROIT, New Directions in International Trade Law (vol 1, Dobbs Ferry, NY, 1977) 317 at 340. 16ICSID, History of the ICSID Convention—Documents Concerning the Origin and the Formulation of the Convention (vol 2, Washington, ICSID, 1968) 268 and 330. 17 HLA Hart, The Concept of Law (Oxford, Oxford University Press, 2nd edn, 1994) 193. 18Case concerning the Payment in Gold of Brazilian Federal Loans contracted in France, PCIJ Series A No. 21 (1929) at 116, and see also ibid 111–12, 114–15, 118, and 120, referring to the bondholders ‘that as individuals … were powerless as against the Brazilian Government’. This pronouncement points to certain inadequacies in the traditional reading of the parallel judgment in Case concerning the Payment of Various Serbian Loans issued in France, PCIJ Series A No. 20 (1929) at 41–2. 19 LL El-Zein, Les Contrats d‘Etat ? l‘?preuve du droit international (Brussels, Bruyant, 2001) 113 and also 126. See also P Leboulanger, ‘Rapport introductif’ Revue de l'arbitrage 617 (2003) at 625. 20 See SPP v Egypt , Award, 20 May 1992, 3 ICSID Reports 189 at 211–12, 215, and 222. 21 LB Sohn and RR Baxter, ‘Responsibility of States for Injuries to the Economic Interests of Aliens’ 55 AJIL 545 (1961) at 569. See also eg RY Jennings, ‘State Contracts in International Law’ 37 BYIL 156 (1961) at 175–6, Prosper Weil, ‘Probl?mes relatifs aux contrats pass?s entre un Etat et un particulier’ 128 Recueil des Cours 95 (1969) at 199 and Derek William Bowett, ‘State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach’ 59 BYIL 49 (1988) at 55 (‘such a level of generality as to be misleading and even erroneous’). 22 Eg, Administration of Posts and Telegraphs of Czechoslovakia v Radio Corporation of America , Award, 1932, 30 AJIL 523 (1936) at 530–1, Alsing Trading Company Ltd v Greece , Award, 22 December 1954, 23 ILR 633 at 637–8, 641–3, 645, 649–51, and 656, and Monsieur Y c. l'Etat Y , Award, 1968, 1 ICC Awards 218 at 220 and ICC Award No. 3327, 1981, 1 ICC Awards 433 at 434. See also AGIP v Congo , Award, 30 November 1979, 1 ICSID Reports 306 at 323. 23Soci?t? Rialet v Ethiopia , Award, 15 January 1929, 8 Recueil des d?cisions des Tribunaux Arbitraux Mixtes 742 at 748 (also referring to party autonomy), Petroleum Development Ltd v Sheikh of Abu Dhabi , Award, September 1951, 18 ILR 144 at 149, Ruler of Qatar v International Marine Oil Company Ltd. , Award, June 1953, 20 ILR 534 at 544–5 and Saudi Arabia v Aramco , Award, 23 August 1958, 27 ILR 117 at 163 and 168–9. As for more recent examples, see Amco v Indonesia , Award No. 2, 31 May 1990, 1 ICSID Reports 569 at 599 and 604–5, and SPP v Egypt , Award, 20 May 1992, 3 ICSID Reports 189 at 207 and 234–5. 24Saudi Arabia v Aramco , Award, 23 August 1958, 27 ILR 117 at 165–71 and see also Sapphire v NIOC , Award, 15 March 1963, 35 ILR 136 at 171. 25 As for this latter embodiment of Zeitgeist, see, in particular, Lord McNair, ‘The General Principles of Law Recognized by Civilized Nations’ 33 BYIL 1 (1957) at 6, 10 and 19 and also M Bourquin, above n 15 at 869. Mention should also be made of A Verdross, ‘The Status of Foreign Private Interests Stemming from Economic Development Agreements with Arbitration Clauses’ 9 sterreichische Zeitschrift f?r ffentliches Recht und V?lkerrecht 449 (1958–9) at 455. Of course, general principles of law are also known to the list of sources in the archaic Article 38 of the Statute of the International Court of Justice, mainly due to the spectre of a non liquet, see O Spiermann, ‘ “Who Attempts too Much Does Nothing Well”: The 1920 Advisory Committee and the Statute of the Permanent Court of International Justice’ 73 BYIL 187 (2002) at 215–18. 26Elf Aquitaine Iran v National Iranian Oil Company , Preliminary Award, 14 January 1982, 96 ILR 254 at para 19 and see also para 15 according to which ‘[t]he law chosen in the Agreement as the competent law coincides with the law that, in the absence of the choice of law clause, would have been the proper law of the Agreement’ (this time referring to Sapphire v NIOC ). 27Company Z and others v State Organization ABC , Award, April 1982, (1983) 8 Yearbook of Commercial Arbitration 94 at 114. 28 Ibid 108–9. 29 See E Gaillard, La Jurisprudence du CIRDI (Paris, Pedone, 2004) 383 and S Manciaux, Investissements ?trangers et arbitrage entre Etats et ressortissants d‘autres Etats (Dijon, Litec, 2004) 287–8 and 290. See also eg Soci?t? des Grands Travaux de Marseille v East Pakistan Industrial Development Corporation , Award 1972, 1 ICC Awards 40 at 44–5 and 47. 30 eg Deutsche Schachtban- und Tiefbohrgesellschaft v United Arab Emirates , Award, 2 ICC Reports 154 at para 18 and Mobil Oil Iran v Iran , Award, 14 July 1984, 16 Iran-US Claims Tribunal Reports 3 at para 81. 31 It also naturally leads to acceptance of the individual as a subject of public international law, see O Spiermann, ‘Individual Rights, State Interests and the Power to Waive ICSID Jurisdiction under Bilateral Investment Treaties’ 20 Arb Int'l 179 (2004) at 183–6. 32ICSID, History of the ICSID Convention—Documents Concerning the Origin and the Formulation of the Convention (vol. 2, Washington, ICSID, 1968) 41, 157, 214, 259, 322, and 330; see also ibid 630–1. 33 Ibid 804. As for the subsidiary role of international law, see also ibid 800, 984, and 986. In an attempt to play down further the significance of international law, Aron Broches, who as General Counsel of the International Bank for Reconstruction and Development was the principal architect of the ICSID Convention, said that ‘the reference to international law in Article 42 … , in reality, comprised (apart from treaty law) only such principles as that of good faith and the principle that one ought to abide by agreements voluntarily made and ought to carry them out in good faith’, ibid 985. 34Amoco v Iran , Award, 14 July 1987, 15 Iran-US Claims Tribunal Reports 189 at para 177. 35Texaco v Libya , Award, 19 January 1977, 53 ILR 420 at paras 26, 35, 41–2, and see R-J Dupuy, The Law of the Sea (Leiden, Sijthoff, 1974) at 153–6. The approach was broadly followed in Revere Copper and Brass Inc v Overseas Private Investment Corporation , Award, 24 August 1978, 56 ILR 261 at 271–2. 36 Ibid paras 29 and 50. 37 Weil, above n 21 at 118–19, 158, 173, 184–8, and 191–5. 38 See BP v Libya , Award, 10 October 1973, 53 ILR 300 at 328–9, 348–9, and 354 and Liamco v Libya , Award, 12 April 1977, 62 ILR 145 at 175–6. Out of the three awards, it was Texaco v Libya that was most creative, or incorrect, in applying international law, see 53 ILR 420 at paras 71, 73, and 93–109 as to the effect of a stabilization clause. 39 The general principle of separability of arbitration clauses reflects the same rationale, the termination of the arbitration agreement not being subject to the discretion of only one of the parties, see eg Texaco v Libya , Preliminary Award, 27 November 1975, 53 ILR 393 at paras 16–19 and Liamco v Libya , Award, 12 April 1977, 62 ILR 145 at 178. 40 RB Lillich, ‘The Law Governing Disputes under Economic Development Agreements: Reexamining the Concept of “Internationalization” ’, in RB Lillich and CN Brower (eds), International Arbitration in the 21st Century: Towards ‘Judicialization’ and Uniformity? (Irvington, NY, Transnational Publishers, 1994) 61 at 92. 41 E Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment Disputes’ in Recueil d‘?tudes de droit international en hommage ? Paul Guggenheim (Gen?ve, Faculte de Droit, l'Universit? de Gen?ve, Institut Universitaire des Hautes Etudes Internationales, 1968) 642 at 658 and 660–1, P Feuerle, ‘International Arbitration and Choice of Law under Article 42 of the Convention on the Settlement of Investment Disputes’ 4 Yale Studies in World Public Order 89 (1977) at 105–13, A Broches, ‘Convention on the Settlement of Investment Disputes between States and Nationals of other States of 1965: Explanatory Notes and Survey of its Application’ 18 YB Com Arb 627 (1993) at 669, R Higgins, Problems and Process: International Law and How We Use It (Oxford, Oxford University Press, 1994) 141, C Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) 588, and C Leben, ‘La Th?orie du contrat d'?tat et l'?volution du droit international des investissements’ 302 Recueil des Cours 197 (2003) at 283–4. 42Amco v Indonesia , Annulment Decision, 16 May 1986, 1 ICSID Reports 509 at para 21. 43SPP v Egypt , Award, 20 May 1992, 3 ICSID Reports 189 at 207. See also Letco v Liberia , Award, 31 March 1986, 2 ICSID Reports 346 at 358 and CDC v Seychelles , Award, 17 December 2003, 11 ICSID Reports 211 at paras 32 and 43 and CDC v Seychelles , Annulment Decision, 29 June 2005, 11 ICSID Reports 237 at paras 26 and 45. 44Company Z and others v State Organization ABC , Award, April 1982, 8 YB Com Arbi 94 (1983) at 108. 45 P Bernardini, ‘International Arbitration and A-National Rules of Law’ 15-2 ICC International Court of Arbitration Bulletin 58 (2004) at 61. 46BP v Libya , Award, 10 October 1973, 53 ILR 300 at 331; see also Texaco v Libya , Award, 19 January 1977, 53 ILR 420 at para 49. 47 Cf IFI Shihata and AR Parra, ‘Applicable Substantive Law in Disputes between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention’ 9 ICSID Rev-FILJ 183 (1994) at 205. 48 K-H B?ckstiegel, Der Staat als Vertragspartner ausl?ndischer Privatunternehmen (Frankfurt am Main, Athen?um Verlay, 1971) 106–10 and 115–19. 49 Kuwait v Aminoil, Award, 24 March 1982, 66 ILR 529 at para 2. 50BP v Libya , Award, 10 October 1973, 53 ILR 300 at 326–7, Texaco v Libya , Award, 19 January 1977, 53 ILR 420 at paras 25–35 (cf ibid para 11) and Liamco v Libya , Award, 12 April 1977, 62 ILR 145 at 171–3. 51Annuaire d'Institut de droit international (vol 58-II, 1979) 192–5 and also 72, 82, and 84. 52 Cf Elf Aquitaine Iran v National Iranian Oil Company , Preliminary Award, 14 January 1982, 96 ILR 254 at paras 15 and 17. 53 P Lalive, ‘Concluding Remarks’, in E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (Hunnington, NY, Juris Publishing, 2004) 297 at 313. 54 See Broches, above n 39 at 668 and Schreuer, above n 39 at 627–31. For early academic contributions pointing in the same direction, see A Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’ (1972) 136 Recueil des Cours 331 at 390 and 392, Lauterpacht, above n 39 at 659–60 and B Goldman, ‘Le Droit applicable selon la Convention de la B.I.R.D., du 18 mars 1965, pour le r?glement des diff?rends relatifs aux investissements entre Etats et ressortissants d'autres Etats', in Investissements ?trangers et arbitrage entre Etats et Personnes Priv?es: La Convention B.I.R.D. du 18 mars 1965 (Paris, 1969) 133 at 151. 55 The ad hoc committee also found that the arbitral tribunal had failed to deal with questions submitted to it and to state reasons, see Kl?ckner v Cameroon , Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at paras 144, 151, 157, 164, 171, and 176. 56 See Kl?ckner v Cameroon , Award, 21 October 1983, 2 ICSID Reports 9 at 59 and Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at paras 121–2. 57 See Kl?ckner v Cameroon , Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at paras 122–5, 156, and 159. 58 Ibid para 122. 59 See Amco v Indonesia , Annulment Decision, 16 May 1986, 1 ICSID Reports 509 at paras 20–2. 60 E Gaillard and Y Banifatemi, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ 18 ICSID Rev-FILJ 375 (2003) at 398. See previously Emmanuel Gaillard's case notes in (1987) 114 Journal du droit international 135 at 157 and (1991) Journal du droit international 165 at 182–3 and also Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford, Oxford University Press, 2008) 265–71. 61Amco v Indonesia , Award No. 2, 31 May 1990, 1 ICSID Reports 569 at 580. This observation takes much away from the analysis in WM Reisman, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of Threshold’ 15 ICSID Rev-FILJ 362 (2000) at 371 and 375. 62 See Aucoven v Venezuela , Award, 23 September 2003, at para 102 available at <http://www.world bank.org/icsid/cases/Award_Total.pdf>. 63CME v Czech Republic , Final Award, 14 March 2003, n 7 above at para 410. 64CAA and CGE v Argentina , Award, 21 November 2000, 5 ICSID Reports 299 at para 55, SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406 at para 161, LESI Dipenta v Algeria , Award, 19 ICSID Rev-FILJ 426 (2005), at para 25; and Occidental Exploration and Production Company v Ecuador , Award, 1 July 2004, at paras 52–7 available at <http://ita.law.unic.ca/documents/oxy-EcuadorFinalAward_001.pdf>. 65SGS v Pakistan , Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406 at paras 167–73. 66 See eg Soci?t? des Grands Travaux de Marseille v East Pakistan Industrial Development Corporation , Award, 1972, 1 ICC Awards 40 at 43, SPP v Egypt , Award of 16 February 1983, 1 ICC Awards 124 at para 49 and Wintershall AG, et al v Qatar , Partial Award, 5 February 1988, (1989) 28 ILM 795 at 802. It is not only unlikely, but impossible, for the most closely related legal system to be a ‘neutral’ system of a third state, cf RH Kreindler, ‘The Law Applicable to International Investment Diputes’, in N Horn and S Kr?ll (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer Law International, 2004) 401 at 404. 67 For purposes of illustration, see Eureko v Poland, Partial Award, 19 August 2005, 12 ICSID Reports 335 at paras 91, 126, and 247. 68 It is difficult to subscribe to the judgment of 2 May 2001 of the Supreme Court of British Columbia partially annulling the award of the NAFTA tribunal in Mexico v Metalclad on the ground that the tribunal had interpreted Chapter 11 in the light of provisions in different chapters, cf 5 ICSID Reports 238 at paras 68–76. 69CAA and Vivendi v Argentina , Annulment Decision, 3 July 2002, 6 ICSID Reports 340 at para 96. 70 Ibid para 102, quoted with approval in Azurix v Argentina , Award, 14 July 2006 at paras 667, available at <http://ita.law.uvic.ca/documents/AzurixAwardJuly2006.pdf>. 71MTD and MTD v Chile , Annulment Decision, 21 March 2007, at para 72 and see also para 61, available at <http://ita.law.uvic.ca/documents/MTD-Chile_Ad_Hoc_Committee_Decision.pdf>. 72 Broches, above n 52 at 392. See also G Sacerdoti, ‘Investment Arbitration: Under ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’ 19 ICSID Rev-FILJ 1 (2004) at 25, Virtus Chitoo Igbokwe, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’ 23 J Int'l Arb 267 (2006) at 277–80 and Campell McLachlan, Laurence Shore, and Matthew Weiniger, International Investment Arbitration: Substantive Principles (Oxford, Oxford University Press, 2007) 6–7. 73 See CAA and Vivendi v Argentina , Annulment Decision, 3 July 2002, 6 ICSID Reports 340 at paras 102, 110, and 112, annulling CAA and CGE v Argentina , Award, 21 November 2000, 5 ICSID Reports 299 at paras 78–81. 74AAP v Sri Lanka , Award, 27 June 1990, 4 ICSID Reports 250 at paras 20 and 38 (cf the Dissenting Opinion appended by Dr Asante, ibid 297–9). 75Wena v Egypt , Award, 8 December 2000, 6 ICSID Reports 89 at para 78, MTD and MTD v Chile , Award, 25 May 2004, 12 ICSID 6 at para 87 and ADC and ADC v Hungary , Award, 2 October 2006, at para 290 available at <http://ita.law.uvic.ca/documents/ADCvHungaryAward.pdf> and also MCI Power and New Turbine v Ecuador , Award, 31 July 2007, at paras 217–18 and 252 available at <http://ita.law.uvic.ca/documents/MCIEcuador.pdf>. In CAA and Vivendi v Argentina , the second arbitral tribunal took it that all provisions of the bilateral investment treaty had been agreed to by the parties for purposes of Article 42(1) of the ICSID Convention, see Award, 20 August 2007, at para 8.2.2 available at <http://ita.law.uvic.ca/documents/VivendiAwardEnglish.pdf>. The ad hoc committee deciding on annulment in Wena v Egypt based itself on the argument that the treaty was not in derogation or contradiction of Egyptian law, see Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 36 and 45. 76 See above n 60. 77Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 39–41; see also LG&E v Argentina , Decision on Liability, 3 October 2006, available at <http://ita.law.uvic.ca/documents/ARB021_LGE-Decision-on-Liability-en.pdf> at para 96 and Siemens v Argentina , Award, 6 February 2007, available at <http://ita.law.uvic.ca/documents/Siemens-Argentina-Award.pdf> at para 77. 78CMS v Argentina , Award, 12 May 2005, 44 ILM 1205 (2005) at para 116. 79 Ibid paras 117–18. 80Enron v Argentina , Award, 22 May 2007, available at <http://ita.law.uvic.ca/documents/Enron-Award.pdf> at para 207 and Sempra v Argentina , Award, 28 September 2007, at paras 235–6 available at <http://ita.law.uvic.ca/documents/SempraAward.pdf>. 81 cf Enron v Argentina , Award, 22 May 2007, above n 80, at paras 210–32, 269–77, and Sempra v Argentina , Award, 28 September 2007, above n 80, at paras 241–69, 311–14, 325–32, and 398. 82Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 52–3 and see also ibid paras 91 and 96. See also Wena v Egypt , Award, 8 December 2000, 6 ICSID Reports 89 at para 118 as well as eg AAP v Sri Lanka , Award, 27 June 1990, 4 ICSID Reports 250 at para 114, Santa Elena v Costa Rica , Award, 17 Feburary 2000, 5 ICSID Reports 157 at para 104, Metalclad v Mexico , Award, 30 August 2000, 5 ICSID Reports 212 at para 128, Middle East Cement v Egypt , Award, 12 April 2002, 7 ICSID Reports 178 at para 174, and Siemens v Argentina , Award, 6 February 2007, above n 77 at paras 395–6. 83 See previously CDSE v Costa Rica , Award, 17 February 2000, 5 ICSID Reports 157 at paras 65–7. This author is aware of only a single decision in which the misconception prevailed, namely the award of the UNCITRAL tribunal in SwemBalt AB v Latvia , Award, 23 October 2000, at paras 45–6 available at <http://ita.law.uvic.ca/documents/Swembalt-Latvia-Award-23Oct2000.pdf>. In CAA and Vivendi v Argentina , the second arbitral tribunal found that it could award interest ‘[a]bsent treaty terms or provisions in the governing law to the Contrary’; see Award, 20 August 2007, above n 77, at para 9.2.1. 84Aucoven v Venezuela , Award, 23 September 2003, above n 60 at para 102. Cf Goetz v Burundi , Award, 10 February 1999, 6 ICSID Reports 5 at para 69. 85Waste Management v Mexico , Award No. 2, 30 April 2004, 11 ICSID Reports 362, at para 73. 86MTD and MTD v Chile , Award, 25 May 2004, above n 73 at para 204. 87 Ibid paras 187 and 204, respectively. 88MTD and MTD v Chile , Annulment Decision, 21 March 2007, above n 69 at para 72. 89 Cf Inceysa Vallisoletana v El Salvador , ICSID Case No. ARB/03/26 Award, 2 August 2006, at para 203 available at <http://ita.law.uvic.ca/documents/Inceysa_Vallisoletana_sp_001.pdf> (in Spanish) and World Duty Free Company v Kenya , ICSID Case No. ARB/00/7 Award, 4 October 2006, at paras 158–9 and 180–1 (concerning clauses explicitly referring to national laws) available at <http://ita.law.uvic.ca/documents/WDFv.KenyaAward.pdf>. A different question is the definition of investment, which is a matter of treaty interpretation governed by international law, see Salini v Morocco , Decision on Jurisdiction, 23 July 2001, 6 ICSID Reports 400 at para 46 and also Bayindir v Pakistan , Decision on Jurisdiction, 14 November 2005, at paras 105–10 available at <http://ita.law.uvic.ca/documents/Bayindr-jurisdiction.pdf>. See also Z Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ 74 BYIL 151 (2003) at 205–7 and 269, criticizing the decision of the ad hoc committee in Wena v Egypt ; but see Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 33 and also 49, 86, 105, and 108. 90Maffezini v Spain , Award, 13 November 2000, 5 ICSID Reports 419 at paras 89–90. 91Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at para 33 and Azurix v Argentina , Award, 14 July 2006 at para 258. 92Olguin v Paraguay , Award, 26 July 2001, 6 ICSID Reports 164 at para 65, Kardassopoulos v Georgia , Decision on Jurisdiction, 6 July 2007, at paras 145–6 available at <http://ita.law.uvic.ca/documents/kardassopoulos-jurisdiction.pdf>, and Fraport v Philippines , Award, 16 August 2007, at para 394 (referring to ‘a renvoi to national law’) available at <http://ita.law.uvic.ca/documentsFraportAward.pdf>. 93MTD and MTD v Chile , Annulment Decision, 21 March 2007, above n 69 at para 75. 94 LESI-Dipenta v Algeria, Decision on Jurisdiction, 10 January 2005, above n 62 above at para 39. 95Maffezini v Spain , Award, 13 November 2000, 5 ICSID Reports 419 at paras 66–71 (also referring to obligations under EU law and international law). 96MTD and MTD v Chile , Award, 25 May 2004, above n 73 at paras 205 and 214 and Generation Ukraine v Ukraine , Award, 16 September 2003, 10 ICSID Reports 240 at para 20.33. 97Occidental Exploration and Production Company v Ecuador , Award, 1 July 2004, 12 ICSID Reports 59 at para 93. 98Channel Tunnel Group and France-Manche v United Kingdom and France , Partial Award, 30 January 2007, at para 338 available at <http://ita.law.uvic.ca/documents/Eurotunnel-partialaward-eng.pdf>. 99CMS v Argentina , Award, 12 May 2005, above n 78 at paras 127–44 and also eg ibid, paras 198–9 regarding the duration of the licence. 100 See, in relation to Art 1416 of NAFTA, Fireman's Fund Insurance Company v Mexico , Decision on Jurisdiction, 17 July 2003, 10 ICSID Reports 214 at paras 81–91. In the absence of clear indications to this effect, a presumption against the importance of national law may be based on Art 31(4) of the Vienna Convention on the Law of Treaties, see also ADC and ADC v Hungary , Award, 2 October 2006, above n 75 at paras 290 and 482–3 and Saipem v Bangladesh , Decision on Jurisdiction, 21 March 2007, at para 82 available at <http://ita.law.uvic.ca/documents/Saipem-Bangladesh-Jurisdiction.pdf>. 101 Ian Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) 40. 102 Cf Soufraki v United Arab Emirates , Decision on Annulment, 5 June 2007, at para 28 available at <http://ita.law.uvic.ca/documents/SoufrakiAnnulment.pdf>. 103Occidental Exploration and Production Company v Ecuador , Award, 1 July 2004, above n 97, at paras 93–152. 104EnCana v Ecuador , Award, 3 February 2006, above n 2, at para 187. 105 Ibid paras 194–5. 106 Ibid para. 200 n 138 responding to the partial dissenting opinion appended by Dr Na?n. In the context of diplomatic protection, exhaustion of local remedies is a procedural condition for exercising diplomatic protection, as opposed to a substantive condition for incurring state responsibility, see Phosphates in Morocco Case, PCIJ Series A/B No. 74 (1938) at 28 (the administrative decision in question was ‘a definitive act which would, by itself, directly involve international responsibility’), James Crawford, The International Law Commission's Articles on State Responsibility (Cambridge, Cambridge University Press, 2002) 23 and Ole Spiermann, International Legal Argument in the Permanent Court of International Justice (Cambridge, Cambridge University Press, 2005) 377–8. 107EnCana v Ecuador , Award, 3 February 2006, above n 2, at para 200 n 138 (cf ibid, para 93 on the notion of binding precedent under Ecuadorian law). The tribunal summarized its argument by stating that it was not ‘a court of appeal in Ecuadorian tax matters’, see ibid paras 142, 145 and 200 n 138. Similarly, albeit in a different context, the International Court of Justice has recalled that its function ‘is to resolve international legal disputes between States … and not to act as a court of criminal appeal’, see Case concerning the Vienna Convention on Consular Relations, ICJ Reports [1998] 248 at para 38 and also eg LaGrand, ICJ Reports [2001] 466 at para 52. 108Soufraki v United Arab Emirates , Decision on Annulment, 5 June 2007, above n 102, at para 96, referring to Case concerning the Payment of Various Serbian Loans issued in France, above n 18, at 36 and 46–7 and Case concerning the Payment in Gold of Brazilian Federal Loans contracted in France, above n 18, at 124. See also Spiermann, above n 106, 279–82 and Elettronica Sicula SpA, ICJ Reports [1989] 15 at para 62. 109ICC Award No. 3327, 1981, 1 ICC Awards 433 at 433–4, Amco v Indonesia , Award, 20 November 1984, 1 ICSID Reports 413 at paras 150, 177, and 262, Azinian v Mexico , Award, 1 November 1998, 5 ICSID Reports 272 at para 86, CSOB v Slovakia , Decision, 1 December 2000, 5 ICSID Reports 358 at para 35, Occidental Exploration and Production Company v Ecuador , Award, 1 July 2004, above n 97, at paras 58 and 137 and Fraport v Philippines , Award, 16 August 2007, above n 92, at para 391. Regarding state organs other than courts, see eg SPP v Egypt , Decision on Jurisdiction, 14 April 1988, 3 ICSID Reports 131 at para 60 and Soufraki v United Arab Emirates , Decision on Annulment, 5 June 2007, above n 102, at para 59. 110Industria National de Alimentos v Peru , Decision on Annulment, 5 September 2007, at para 88 available at <http://ita.law.unic.ca/documents/LucchettiAnnulment.pdf>. See also Inceysa Vallisoletana v El Salvador , Award, 2 August 2006, above n 89, at paras 214–17. 111 Eg CAA and Vivendi v Argentina , Annulment Decision, 3 July 2002, above n 4, at para 110 and CAA and Vivendi v Argentina , Award, 20 August 2007, at paras 7.3.8-7.3.10 available at <http://ita.law.uvic.ca/documents/VivendiAwardEnglish.pdf>. Cf Parkerings-Compagniet v Lithuania , Award, 11 September 2007, at para 316 available at <http://ita.law.uvic.ca/documents/Pakerings.pdf>. 112CME v Czech Republic , Preliminary Award, 13 September 2001, above n 7 at para 467; see also the judgment of 15 May 2003 by the Svea Court of Appeal according to which the tribunal had ‘applied relevant sources of law, primarily international law’, 9 ICSID Reports 441 at 499. 113Siemens v Argentina , Award, 6 February 2007, above n 75 at para 267. 114Kardassopoulos v Georgia , Decision on Jurisdiction, 6 July 2007, available at <http://ita.law.uvic.ca/documents/kardassopoulos-jurisdiction.pdf> at para 182 and also paras 191–4 referring to SPP v Egypt , Award, 29 May 1992, above n 20, at paras 81–5. See also about this estoppel argument Fraport v Philippines , Award, 16 August 2007, above n 12, at para 346 and the diccenting opinion of Professor Cremodes. 115Wena v Egypt , Award, 8 December 2000, 6 ICSID Reports 89 at para 107. As for statutory limitation, see also Maffezini v Spain , Award, 13 November 2000, 5 ICSID Reports 419 (2000) at para 93. 116Middle East Cement v Egypt , Award, 12 April 2002, 7 ICSID Reports 178 at para 174, Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at para 52 and see also ibid paras 91 and 96. See also Wena v Egypt , Award, 8 December 2000, 6 ICSID Reports 89 at para 118 as well as eg AAP v Sri Lanka , Award, 27 June 1990, 4 ICSID Reports 250 at para 114 and Siemens v Argentina , Award, 6 February 2007, above n 75 at paras 395–6. 117Santa Elena v Costa Rica , Award, 17 February 2000, 5 ICSID Reports 157 at para 104, Metalclad v Mexico , Award, 30 August 2000, 5 ICSID Reports 212 at para 128, Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 52–3, and Siemens v Argentina , Award, 6 February 2007, at paras 349–52 available at <http://ita.law.uvic.ca/documents/Siemes-Argentina-Award.pdf>. 118 See eg CMS Gas Transmission v Argentina , Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494 at para 88, Azurix Corp v Argentina , Decision on Jurisdiction, 8 December 2003, above n 68 at paras 48–50, Camuzzi International v Argentina , Decision on Jurisdiction, 11 May 2005, at para 17, available at <http://ita.law.uvic.ca/documents/camuzzi-en.pdf>, Saipem v Bangladesh , Decision on Jurisdiction, 21 March 2007, above n 96 at para 68, and CMS Gas Transmission v Argentina , Decision on Annulment, 25 September 2007, at para 68 available at <http://ita.law.uvic.ca/documents/CMSAnnulmentDecision.pdf>. See also CSOB v Slovakia , Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335 at para 35, National Grid v Argentina , Decision on Jurisdiction, 20 June 2006, at para 51 available at <http://ita.law.uvic.ca/documents/NationalGrid-Jurisdiction-En.pdf> and Malaysian Historical Salvors v Malaysia , Award, 17 May 2007, at para 65, available at <http://ita.law.uvic.ca/documents/MHS-jurisdiction.pdf>. Cf Wena v Egypt , Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 40–1. Art 42(1) is clearly relevant in deciding whether an arbitration agreement has been breached (this being a contract claim), see Aucoven v Venezuela , Award, 23 September 2003, above n 60 at para 207. 119 In CSOB v Slovak Republic , the tribunal found that Arbitration Rule 34(1), according to which the tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value, prevailed over the standard of proof laid down by Czech law (chosen by the parties), see CSOB v Slovak Republic , Award, 29 December 2004, above n 9 at para 226. See also Soufraki v United Arab Emirates , Decision on Annulment, 5 June 2007, above n 102, at paras 105–14. Authors: Stefan D Amarasinha, Juliane Kokott ? Keywords: Specialized treaty frameworks – Investment – Investor – Standards of treatment This chapter addresses the question of whether it is possible to retain a multifaceted and multi-layered system of bilateral and regional agreements, which leads to what some have termed a ‘spaghetti-bowl’ of legal instruments, or whether it is necessary to reform that system by way of multilateral disciplines on foreign investment. Section 1 sets the scene by examining the current international regulation of foreign investment and discussing previous attempts in the WTO and under the auspices of the OECD to negotiate multilateral rules. Section 2 identifies the main lessons to be learned from deliberations of the WTO Working Group on Trade and Investment, when it was tasked with considering which issues should be included in any possible WTO-based initiative on foreign investment rules. Section 3 discusses and offers recommendations for possible future multilateral investment rules which would encompass not merely rights of investors and obligations on the part of host countries, but rather a more comprehensive ‘compact’ comprising pre- and post-establishment aspects of investment, as well as a number of supporting elements regarding the environment, good governance, labour standards and human rights, and the overall conduct of foreign investors. Section 4 offers suggestions for substantive elements and aspects of dispute settlement in addition to the Model International Investment Agreement for Sustainable Development (IIASD Agreement) draft. Finally, Section 5 suggests and concludes that given the existing regulation of foreign investment, future multilateral investment rules would not altogether replace existing investment regulation, but would rather clarify it in some areas and add value in others, including through substantive provisions relating to environmental and labour standards.
0subscriber_article?script=yes&id=%2Fic%2FMonograph%2Flaw-iic-9780199231386&recno=62&searchType=browse Chapter 4 Multilateral Investment Rules Revisited
(1)The Current International Investment Regime122
(2)Previous Attempts at Negotiating Multilateral Investment Rules125
(3)Lessons from the WTO Working Group130
(4)What Could Future Multilateral Investment Rules Look Like?134
(a) Institutional Setting for Future Negotiations 135
(b) Scope of Multilateral Investment Rules 138
(i) Definition of Investment 138
(ii) Application to Transnational Corporations 139
(iii) Investment Protection 142
(iv) Right of Establishment 143
(v) Performance Requirements, Investment Incentives, and Taxation 145
(vi) Basic Environmental and Labour Standards 146
(vii) Dispute Settlement 148
Concluding Remarks151
NOTWITHSTANDING the close links and complementarities between international trade and foreign direct investment, and their importance for international business transactions, there is an imbalance in the extent and intensity of their regulation and liberalization at the multilateral level. The overall conditions of international trade are established through the World Trade Organization (WTO) and the Uruguay Round Agreements. By contrast foreign investment is currently regulated, by and large, through either bilateral or regional agreements. No similar system for the multilateral regulation of foreign investment exists. This is surprising given the significance of foreign investment in the globalizing economy.
The term ‘foreign investment’, comprises ‘[t]he transfer of funds or materials from one country (home State)…to another country (host State)…to be used in the conduct of an enterprise (investor) in that country in return for a direct or indirect participation in the earnings of the enterprise’. 1 Foreign Investment can be further divided into FDI and indirect (or portfolio) investment where the element of direct management of the investment by its foreign controller is absent. 2 Likewise, the establishment of or transfer of a whole enterprise into another country can also constitute an investment. Foreign investment has become as important as ‘traditional’ trade for international transactions between countries, 3 and can contribute directly to the delivery of both goods and (increasingly) services to foreign markets.
An investor typically invests abroad for one or more of the following reasons: market access or cost reductions, as well as access to natural resources and export platforms or access to efficiency-enhancing knowledge. 4 An enterprise may choose to perform the same or a similar production process in a different country (market access), or split up its production process and localize different stages of the process in different places (cost reductions). In both cases the investor's ultimate aim is the maximization of profits and shareholder value. From the point of view of the host state, foreign investment may be welcome as it is seen as a very important tool for growth and economic development. Developing countries in particular may hope that the inflow of foreign investment improves their domestic production
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capacity, leading to higher income levels and export growth. 5 Needless to say, foreign investors invest not only in developing countries, but more frequently in emerging economies and developed countries, hence also the continued calls from for example Sub-Saharan African countries for increased foreign investment. Even within customs unions such as the European Communities (EC), there is a significant volume of cross-border foreign investment internally, especially from the existing EC member states into those which acceded on 1 May 2004 and 1 January 2007.
Against this background, it may be asked whether it is possible to retain a multifaceted and multi-layered system of bilateral and regional agreements, which leads to what some have termed a ‘spaghetti-bowl’ of legal instruments, or whether it is necessary to reform that system by way of multilateral disciplines on foreign investment. This chapter seeks to give an answer to this question. Section 1 sets the scene by examining the current international regulation of foreign investment and discussing previous attempts in the WTO and under the auspices of the OECD to negotiate multilateral rules. Section 2 goes on to identify the main lessons to be learned from the deliberations of the WTO Working Group on Trade and Investment, when it was tasked with considering which issues should be included in any possible WTO-based initiative on foreign investment rules. Section 3 then discusses and offers recommendations for possible future multilateral investment rules which would encompass not merely rights of investors and obligations on the part of host countries, but rather a more comprehensive ‘compact’ comprising pre- and post-establishment aspects of investment, as well as a number of supporting elements regarding the environment, good governance, labour standards and human rights, and the overall conduct of foreign investors.
Section 4 offers suggestions for substantive elements and aspects of dispute settlement in addition to the Model International Investment Agreement for Sustainable Development (IIASD Agreement) draft. Finally, Section 5 suggests and concludes that given the existing regulation of foreign investment, future multilateral investment rules would not altogether replace existing investment regulation, but would rather clarify it in some areas and add value in others, including through substantive provisions relating to environmental and labour standards.
In coming to their conclusions, the authors draw upon the IIASD Agreement draft submitted for consultation to the International Institute for Sustainable Development in November 2004 as an example of comprehensive rules which go beyond mere
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rights for investors and obligations for host countries. The draft reflects a clear trend, namely recognition that foreign investment is not a one-sided equation according to which special rights are bestowed upon the investor and obligations upon the host country, but rather one where foreign investors may also be expected to observe certain standards and obligations. Foreign investors must observe the laws of the host country in the same way as nationals, and those laws must not undercut certain minimum standards. Where national law does not meet such accepted basic human rights or environmental standards, foreign investors should nevertheless observe such standards. Corporate responsibility, the principle of non-intervention in the relations between a state and its own nationals as well as special circumstances in an underdeveloped or powerless host state, may justify limited and exceptional deviations from national treatment (ie foreign investors could be held to a higher standard than their domestic counterparts), in the case of inadequate protection of human rights and the environment. Needless to say, a more precise definition of the standard is wrought with difficulty. In any case, investors cannot be required to observe standards which neither the host country not the home country requires from its nationals.
(1) The Current International Investment Regime
Absent a multilateral investment agreement or other comprehensive rules, such as investment provisions in a bilateral Free Trade Agreement, foreign investment is currently covered by Bilateral Investment Treaties (BITs), 6 which number more than 2,000 at present. 7 BITs, usually, but not exclusively, signed between developed and developing countries, focus mainly on the rights of the foreign investor and on the duties of the host state vis-?-vis the investor and their investment. BITs typically only cover post-investment protection, rather than actual pre-establishment rights for the investor. 8 In addition to BITs, the last 17 years have also seen a steady
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increase in regional agreements between more than two states including provisions on investment, 9 just as a number of bilateral trade agreements include a chapter on investment. 10 The Energy Charter Treaty is a further example of an agreement which also includes rules on international investment, though in this case located within an inter-regional sector-specific agreement. 11
Within the framework of the WTO, two of the so-called Uruguay Round Agreements contain provisions which directly concern foreign investment, namely the General Agreement on Trade in Services (GATS) 12 and the Agreement on Trade-Related Investment Measures (TRIMs). However, both agreements deal with foreign investment in a somewhat fragmented manner. 13 The GATS sets out, as one of the four so-called modes of delivery of services, ‘the supply of a service: … c) by a service supplier of one Member through commercial presence in the territory of any other Member’. 14‘Commercial presence’ in this context means the actual physical presence within the territory of a WTO member other than that of the service provider and can thus be seen as a significant step forward for investors who are engaged in the provision of services. The GATS Agreement and commitments scheduled for Mode 3 only cover trade in services and not trade in goods, manufacturing, or extraction. However, unlike the BITs, GATS does not focus on the protection of investment and investors, but rather on what is the main purpose of the WTO, that is market access and non-discrimination. 15 Another defining characteristic of GATS is that it is a framework agreement which takes a ‘bottom-up’ approach to market
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access, and needs to be scheduled by the individual WTO members. Consequently, there are wide discrepancies in terms of the types of services for which WTO members have scheduled Mode 3 commitments. What is noteworthy is the fact that discriminatory barriers facing foreign investors, both pre- and post-entry, tend to be in the services area in sectors such as finance, transport, energy, and telecommunications. As evidence of this, one commentator points to the negative-lists of non-conforming measures under NAFTA Chapter 11 and the preliminary exceptions to the draft of the Multilateral Agreement on Investment (MAI) in which measures relating to these sectors allegedly accounted for more than 80 per cent of the listed non-conforming measures. 16 This has also led some commentators to suggest that the most viable road towards meaningful investment liberalization could be through GATS Mode 3, noting also that a review of the TRIMs Agreement would (presumably) apply only to trade in goods. 17
The TRIMs Agreement does little more than elaborate and clarify certain aspects of the GATT's Agreement key provisions regarding national treatment (Art III) and the prohibition on quantitative restrictions (Art XI). 18 The agreement does not add to existing GATT rules, but does offer some value-added through the illustrative (ie non-exhaustive) list attached to the Agreement. Like GATTS, the TRIMs Agreement and its broader relevance is limited by the fact that it applies only to one specific area of economic activity, namely trade in goods.
From the foregoing it would be wrong to conclude that there is no multilateral regime for foreign investment. Rather, it is a fragmented regime with many different agreements at different levels of detail and complexity, with a variety of contracting parties, some being bilateral, others regional or even multilateral, as in the case of WTO Agreements. The result is that for each pair or group of countries, different investment regimes may apply. Equally, such fragmentation can encourage regulatory competition between different models of international investment agreements (IIAs), creating incentives for ‘treaty shopping’ by foreign investors who seek to enhance their protection even in cases where their own country has not concluded agreements that offer the same level of protection as those used by other countries. Thus there may be significant reasons for moving to a new multilateral investment regime. Before this is considered in detail, it is, first, necessary to examine past attempts at the establishment of a multilateral regime and to discover the reasons behind their failure to date, and secondly, to consider the contribution of the WTO Working Group on the Relationship between Trade and Investment.
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(2) Previous Attempts at Negotiating Multilateral Investment Rules
At the launch of the Uruguay Round negotiations in 1986, the USA proposed negotiating stricter disciplines on trade-distorting investment measures and argued that such negotiations should also address other factors which had an impact on investment flows. More specifically, the USA proposed that GATT contracting parties consider the application of the core GATT principles of national treatment (which could entail ‘equality’ between domestic and foreign firms as regards the right to invest in, and run, local operations) and the most-favoured-nation (MFN) treatment (which would place all foreign investors/investment on an equal footing) to foreign investment.
The USA's position found broad support among other developed countries, as opposed to developing countries who not only disputed the permissibility of investment negotiations under the ambit of the GATT, but also insisted that negotiations—if any—would have to address issues relating to transnational corporations, including transfer pricing and restrictive business practices (some of which are also addressed in the non-binding UN ‘Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices’, hereinafter referred to as ‘the 1980 UN Set’). 19
The (rather) opposed positions resulted in the negotiations (and the corresponding mandate) being more narrowly focused in scope, that is, restricted to trade-related investment measures. The Ministerial Declaration of 20 September 1986 (the ‘Punta Del Este Declaration’), Section D, established the following mandate for the negotiations:
Trade-Related investment measures
Following an examination of the operation of GATT Articles related to the trade restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade.
The mandate for the TRIMs negotiations explains why the current agreement does little more than elaborate on GATT Articles III and XI, and despite the fact that Article 9 of the TRIMs Agreement contains a provision according to which the Agreement may be ‘complemented’ by provisions on investment and competition following a review of the operation of the Agreement, no WTO member has so far invoked that provision (quite possibly also as ‘investment’ and ‘competition’ had been singled out as negotiation subjects in their own right).
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Given the lack of progress in terms of negotiating binding multilateral rules on investment under the GATT (the WTO as of 1 January 1995), 20 OECD member states in 1995 embarked on a long and winding road towards a multilateral framework of investment rules, later to be referred to as the MAI. 21 The driving philosophy was that given the reluctance of developing countries to negotiate under GATT/WTO, a smaller group of like-minded countries (and their negotiators) could congregate under the auspices of the OECD and negotiate what was intended to be a state-of-the-art investment agreement which upon completion would be open to non-OECD countries, and might one day have served as inspiration (if not an actual blueprint) for a WTO agreement. Non-OECD countries did not take part in the actual negotiations, but were continuously briefed on major developments in the negotiations. With the benefit of hindsight, one may ask whether it was not wrong to exclude from the negotiating table the very countries from which OECD members were looking for access for foreign investment and investment protection. 22 Also, one could ask whether the push for the MAI negotiations was not more on the part of WTO and/or trade and investment negotiators, rather than investors who would ultimately be affected by—and benefit from—such rules. Both questions hold lessons for future negotiators and negotiations in terms of prioritizing and balancing negotiations and ensuring relevant support thereof.
In 1997, the original deadline for completion of the MAI negotiations came and went, and negotiators were given a one-year extension. A range of NGOs and other groupings had now started directing their attention (and anger) towards the MAI. The NGO opposition, which to a large extent originated in Canada following the Ethyl Corporation dispute under NAFTA, 23 ranged from NGOs worried about the potential implications for the environment and labour standards, to organized labour, such as the AFL-CIO, who feared that jobs would move abroad, accompanied by what Ross Perot (referring to NAFTA) had described as a ‘great sucking sound’. The overriding fear was that multinationals would move their operations to jurisdictions where they could pollute with impunity and exploit workers. In October 1997, the French Socialist government stated publicly that it would no longer take part in the negotiations, pointing to irreconcilable differences over certain issues, including a possible ‘cultural exception’ which Canada, France, and others had sought, and which the USA had adamantly opposed.
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In December 1998, the negotiations were finally suspended and remain so to this date. The authors believe that rather than the NGOs having defeated the MAI, it failed for a number of reasons, chief among which were the (overly) ambitious attempt to cover both pre-investment and post-investment in one go, that pre-investment based on a top-down approach led to the submission of provisional exclusions and exemptions documents which for certain countries were extremely bulky, lack of support from industry who found that the text was unclear and that existing BITs provided better protection (despite NGO claims that the agreement was dictated by TNCs), the inability of negotiators to compromise and to deal effectively and credibly with environmental issues and core labour standards (due also to lack of agreement on the substantive content and reach of such standards), lack of clarity as regards the relationship between the MAI, BITs, and the GATS and TRIMs Agreements, and, finally, the fact that some OECD members were adamantly opposed to the notion of according national treatment in respect of the privatization of state-owned enterprises or other assets. The latter is a regrettable characteristic, which still characterizes the policies of certain EU member states, especially in areas of economic activity considered to be ‘strategic’ sectors such as energy and infrastructure. One may also ask whether the ability of EC member states to speak on their own behalf in the MAI negotiations (as opposed to in the WTO where the European Commission speaks on behalf of the European Communities and all its member states) somehow contributed to spoiling the broth. It remains a fact that the EC member states used their speaking powers to the fullest extent and showed little restraint in contradicting the Commission negotiators. However, this would appear to have been no more than one of several contributory factors, rather than a cause in and by itself.
To a large extent, it was the lack of ambition and inability or unwillingness to compromise that ultimately caused the negotiations to collapse, rather than the ill-informed and agitated NGOs claiming to have defeated the MAI following their protests in front of the Paris OECD headquarters and their anti-MAI propaganda in leading newspapers. 24 That said, some of the NGOs' concerns were justified and were in fact not too dissimilar from certain specific points raised by some MAI negotiators.
The 1998 MAI Negotiating Text 25 itself is somewhat of a hotchpotch, which seeks to combine traditional investment protection with more novel mechanisms for pre-investment. In contrast to the bottom-up approach applied by the GATS Agreement (see above), the MAI envisaged a ‘top-down’ approach for pre-investment according to which all sectors of the economy would be covered by the national treatment and MFN disciplines unless explicitly exempted or excluded. These twin
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parts, that is pre- and post-investment, would then be bolstered by a robust dispute settlement mechanism allowing for both state-state as well as investor-state arbitration of various forms. Whereas the draft text takes a novel approach as regards pre-investment, there was nothing novel in terms of duties for foreign investors, other than the possibility of somehow associating the OECD Guidelines for Multinational Enterprises with the Agreement. Some have subsequently argued that the incorporation of non-binding guidelines into a binding agreement was contradictory, with some arguing further that such incorporation could risk undermining the existing support and consensus for the guidelines. One may also ask to what extent the proposed incorporation would have been feasible had the Guidelines been made binding and enforceable.
Some have argued that the draft agreement was nothing but a pure investor and investment protection instrument which failed to address crucial questions relating to environmental protection and fundamental labour standards. 26 Or, put differently, that it may well have been state-of-the-art, but only ? la carte, and not as regards important issues such as environmental and labour standards which are increasingly seen as inseparable from the area of foreign investment. The authors can largely agree with that assessment, although the main challenge as regards environment and labour standards where no real consensus exists will be to ensure that they are incorporated and reflected in a substantively meaningful way which, at the same time, does not go as far as to prove divisive and impractical. Others have argued that the negotiating process sorely lacked transparency and that this fed a feeling that the public and interested NGOs were being excluded. 27 This criticism, however, is misguided. Nothing about the negotiations as such was secret, but for obvious (and practical) reasons international negotiations take place between sovereign countries who can be held accountable for their positions at the domestic level, be it in parliament, consultations with business and NGOs, or elsewhere. Just as charity begins at home, so does transparency. That being said, however, the experience of the MAI, as well as that of the WTO to some extent, has served to show that initiatives for negotiations within such areas are best launched after an appropriate public airing of their merits and demerits, and driving rationales.
As regards the WTO, despite the limited outcome of the TRIMs negotiations, WTO members meeting at ministerial level in Singapore in 1996 decided at the
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insistence of developed countries, in particular the EU, to establish working groups to discuss the areas of competition, transparency in government procurement, trade facilitation, and investment (ie the so-called ‘Singapore Issues’). The respective mandates clearly stipulated that the work was to be of an educational nature, rather than aimed at negotiations. At the WTO Ministerial Conference in Doha in 2001, members agreed that negotiations on all four issues would form part of the Doha Development Agenda trade negotiations launched at that time, but would only start after the 2003 Ministerial Conference, and only on the basis of modalities to be decided upon on the basis of explicit consensus. 28
However, fundamental disagreement over agriculture in particular, as well as concerns over the implementation of the Uruguay Round Agreements, caused a certain group of developing countries to rally against the Singapore Issues during the 2003 WTO Ministerial Meeting in Canc?n, arguing that they could not accept negotiations on any of the four issues despite the agreement reached in Doha two years earlier. The Canc?n Ministerial ended in acrimony and prompted much soul-searching among most WTO members.
The first to break the post-Canc?n silence was (then) US Trade Representative Robert Zoellick, who in a letter circulated on 11 January 2004 stated that he would prefer to drop the topic of investment in the WTO and also referred more broadly to the Singapore Issues as ‘distractions’. 29 The EU had also indicated flexibility on the Singapore Issues, 30 and this flexibility was confirmed in a letter of 9 May 2004 from (then) Trade Commissioner Pascal Lamy and Agricultural Commissioner Franz Fischler. As regards the Singapore Issues, the 9 May letter made clear that the EU acknowledged that trade facilitation was the most likely candidate to be negotiated, whereas the remaining three issues would need to be dealt with in the WTO on some other basis. Eventually, a formula of ‘1 + 3’ emerged as the solution for the Singapore Issues, that is, trade facilitation would be negotiated within the so-called Single Undertaking, whereas the remaining three issues would be dealt with on another basis, possibly through a continuation of the working groups in ‘study mode’.
Beyond a mere continuation of the working groups in ‘study mode’ lies the more contentious question of the scope and likelihood (if any) of future WTO negotiations on the Singapore Issues generally, and on investment in particular. Would possible future WTO agreements be plurilateral or multilateral? If plurilateral, what would then constitute ‘critical mass’? On what basis would negotiations take place? The elements listed in the relevant parts of the Doha Declaration or something different? What would be the level of ambition of the agreements?
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(3) Lessons from the WTO Working Group
To date, the three WTO working groups dealing with the so-called ‘Singapore Issues’, including the one on investment, remain inactive. They have no Chairs and their mandate, if any, remains unclear. However, the issue of multilateral investment rules remains as relevant as ever, also in terms of its implications for and interlinkages with the multilateral trading system. Based on the reports of the Working Group on the Relation between Trade and Investment (WGTI), 31 this section highlights the perspectives of developed/home countries on one side and developing/ host countries on the other as regards multilateral investment rules in order to highlight the issues to be addressed in future multilateral investment rules in order to make them broadly acceptable. It should be noted, however, that the traditional distinction between developed/home countries and developing/host countries is in a state of flux. Companies from developing countries such as Brazil, China, and India are increasingly investing abroad. The traditional developed (home)/developing (host) country dichotomy has now been further muddled by the fact that developed countries have increasingly become targets of investor disputes (that is as host countries) and are therefore becoming more concerned with their own defensive interests.
As regards investment protection, some industrialized countries have been in favour of multilateral investment rules. From an historical perspective, as noted above, the USA's attempts to launch broader investment negotiations during the Uruguay Round were met with suspicion and outright hostility from developing countries. 32 That said, the developed countries have argued that the current web of BITs makes it very difficult for investors to assess their rights under the various agreements. As regards ‘market access’ (or pre-investment), they have been seeking more extensive investor rights than the current system provides for. More specifically, they have advocated a right to admission of investment and establishment.
Developed countries have argued that multilateral investment rules could help overcome the deficiencies of the ‘current patchwork of bilateral, regional, sectoral and few multilateral rules of investment’ 33 by establishing a framework of
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transparent, stable, and predictable rules. 34 It has also been argued that this would not only be of benefit to investors, but also to host countries, which would benefit from an increase in the inflow of foreign investment. Such an increase could offer vast benefits to host states, not only in terms of capital, but also in associated transfer of know-how and technology, creation of jobs, and competition and innovation, which may be accelerated. Needless to say, other factors also affect investment flows, including intellectual property protection, infrastructure, and the overall regulatory environment.
At a more general, institutional, level it has been argued that host countries could also gain from investment, which could help induce positive changes to their existing institutions and economic systems, and increased transparency, just as they may be less prone to state-created distortions and corruption; 35 in other words, good governance would somehow be promoted and flow from foreign investment.
Developing countries (when host to inward foreign investment) have traditionally favoured the system of the current BITs. These countries are familiar with the BITs and believe that they send a sufficiently strong and clear signal to foreign investors that regulatory reforms will not be reversed and that foreign investment is welcome (and protected). What is ironic is the fact that the BITs contain a number of the features that these countries have objected to in the WTO, including far-reaching investor-state dispute settlement mechanisms.
Within the WGTI, India was the most active and vocal opponent of WTO negotiations on investment, 36 and it was also chiefly at the insistence of Indian negotiators that the ‘modalities to be agreed upon explicit consensus’ language was added to the Doha mandates of each of the four Singapore Issues. Although some developing countries/emerging economies such as Brazil and Malaysia did express some support for a ‘GATS-type’ approach to investment (ie bottom-up, as opposed to the top-down approach of the MAI), India's position can nevertheless be regarded as broadly representative of the concerns of many developing countries. 37 Opponents of multilateral investment rules have argued that the current system of international rules on investment and unilateral measures provides all the necessary legal foundations for international investment to take place, while at the same time allowing host countries the necessary flexibility to regulate investment in furtherance of their domestic development objectives. According to these countries, multilateral
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investment rules would have the effect of limiting the scope for government intervention to an extent that is considered incompatible with the imperatives of economic growth and development. Furthermore, these countries question whether multilateral investment rules would lead to significantly higher investment flows. 38 Opponents, in particular India, have argued that overly ambitious multilateral investment rules would restrict the ability of governments to react flexibly to economic crises and to pursue normal regulatory policies pursuant to their legitimate national interests. 39 One may of course ask whether this ‘loss of sovereignty’ (or ‘domestic policy space’ as it is frequently labelled) is fundamentally different from what is the result of BITs or even more traditional trade liberalization within the WTO, such as tariff bindings.
Despite the opposition by India (and shared by other WTO members), it is noteworthy that, for example, Indian companies are increasingly investing abroad and that this may help soften the Indian stance on this issue given time. Whereas the hawkish line is pushed by certain ministers and ministries, as well as certain Indian businesses with strong vested interests that prefer maintaining the status quo, the interests of competitive and outward-looking Indian businesses may eventually hold sway. Similarly, the same group of inward-looking businesses will be opposing the implementation of effective competition legislation, fearing that this would lead to increased competition and thereby the undoing of their privileged position. A telling example of the tension within the Indian business community (and very likely that of other emerging economies) could be observed in the run-up to the Canc?n Ministerial conference. The main Dutch, German, and Indian business federations adopted a joint statement in which they voiced support for negotiations on the Singapore Issues, including investment. The Indian government was less than enthused by the support expressed by the Confederation of Indian Industry (CII)—especially when confronted with the statement at the Canc?n Ministerial. 40 In the view of the authors it is hardly surprising that investors from emerging economies themselves harbour some concerns about the treatment their own investments will be subject to. Dubai Ports' bid for P&O's US port operations and the Chinese company CNOOC's bid for UNOCAL are but two recent examples of treatment which, in the eyes of these investors and their home countries, may be seen as anything but fair and even-handed.
It seems undeniable that multilateral investment rules would establish a more uniform international system compared to the current web of BITs. The conclusion of a multilateral agreement could establish a more transparent and predictable set of
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rules and thereby likely create a more stable environment for investment. 41 It is generally perceived that this leads to a growth in investment flows to developing countries. 42 It is, however, less clear whether it also leads to higher welfare in the host countries, 43 especially in the absence of measures to eliminate distortions of market forces.
Some have argued that one advantage of a multilateral agreement as compared to the current web of BITs is that any future negotiations would be more closely monitored by the public, and NGOs, and civil society more broadly, which might have a more direct impact on the negotiating process and thereby the final rules. While such an ‘inclusive process’ could provide more legitimacy to multilateral investment rules than the conclusion of a BIT by two countries, in terms both of process and result, 44 it raises a range of issues regarding not only the practicalities of such a process, but also more fundamental questions about whether the involvement of NGOs and civil society is not better done at the domestic level by the countries who are the actual participants in the negotiations and before their negotiating positions and objectives are finalized. That said, a greater degree of civil society consultation (ie involving traditional NGOs, as well as business and industry) has become an integral and widely accepted part of the process.
One further advantage of negotiations within the WTO relates to the bargaining power of developing countries. Where these countries would only enjoy limited bargaining power in one-on-one negotiations (such as negotiations on a BIT), they could form alliances with other WTO members with similar interests. By doing so, developing/host countries could protect their interests better than in a purely bilateral setting where they tend to be ‘regime-takers’, and might be capable of extracting concessions in other areas from the demandeurs of a multilateral agreement, possibly through the threat of being ‘regime-breakers’.
So far, home countries have generally displayed interest in further liberalizing FI through multilateral rules, whereas host countries have been reluctant and have stressed their right to regulate access of foreign investment (FI) themselves. 45 While these perspectives may appear contradictory, the authors believe they can eventually be bridged. Much will depend not only on the content of the actual investment rules, but also on the broader surrounding landscape, including institutional anchorage (if any) of the rules, dispute settlement mechanisms, trade-offs, and corresponding concessions, etc.
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(4) What Could Future Multilateral Investment Rules Look Like?
While the authors firmly believe that there is a strong case to be made for a comprehensive approach to investment, they also believe that this must be framed within a broader context of good governance and in a manner which duly takes into account the legitimate interests of developed countries, developing countries, and investors alike. Those interests indeed converge, as minimum standards regarding labour and environment are (or should be) global concerns and, hence, the traditional ‘them versus us’ thinking makes little sense. Such a progressive approach would require a rebalancing as regards the current primary focus of international investment rules of strong investor protection, so as to also include support for sustainable development, the environment, and other issues. This would not be at the expense of investor protection, but would rather be a broadening of the substantive areas to address.
As discussed above, the MAI negotiations failed due to a variety of factors, most of which were related to its design and the unwillingness of OECD members to compromise and make the concessions necessary to render the MAI the state-of-the-art agreement sought. The experiences of the MAI and the history of the WTO WGTI reports make it clear that any future multilateral investment rules have to take a number of issues duly into account in order to be acceptable to a sufficiently broad constituency. One major question is whether an agreement should be a ‘stand-alone’ agreement as was envisaged for the MAI, or whether it should be institutionally anchored somewhere, like the WTO. This question is central as it opens up a plethora of related questions such as secretariat support, dispute settlement mechanisms, enforceability of awards, and possible retaliatory measures.
Leaving the stand-alone/institutional anchorage issue aside, the draft text of the MAI can serve as a starting point for establishing certain guidelines for a future multilateral investment framework. Whereas the MAI draft had its fair share of shortcomings, flaws, and unanswered questions, this does not in any way suggest that negotiators had failed on all fronts. Some of the approaches in draft were both logical and appropriate and could be maintained in a future agreement, as argued further below. As regards the remainder of the draft, that nevertheless provides valuable lessons for the negotiators of any future agreement, although, of course, the draft text in a number of respects merely sets out different options, rather than taking any definitive stance.
In addition to the MAI draft text, major inspiration can be drawn from the recent proposal for a Model International Agreement on Investment for Sustainable Development (IIASD Model Agreement) 46 presented by the International Institute for
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Sustainable Development. The draft counterbalances a number of the shortcomings of the MAI draft and illustrates how a multilateral investment agreement might pursue different aims rather than merely strengthening an investor's rights in the host state.
Below, the key questions to be addressed by any future multilateral investment agreement are discussed in more detail. One key question negotiators ought to ask themselves is what should be the guiding principles for their negotiations. One commentator has suggested that there are five guiding principles for investment regulation/liberalization: 47
(1) promoting a more secure, predictable, and transparent environment in which to plan and operate cross-border investments;
(2) ensuring greater protection for investors and their investments;
(3) promoting the progressive liberalization of barriers restricting the entry and conduct of foreign firms in domestic markets;
(4) reducing or eliminating measures that distort trade and investment decisions and reduce allocative efficiency; and
(5) developing credible institutions and rules for solving potential disputes.
While agreeing fully with all five prescriptions, which may appear self-evident, but nevertheless warrant repetition, the authors would suggest that they should be complemented by the following:
(6) ensuring adequate consideration for environmental issues, core labour standards and other related issues;
(7) ensuring that the relationship between the agreement and other related international instruments is clarified.
As discussed in further detail below, these two additional prescriptions would serve to help avoid some of the pitfalls of the MAI, as well as ensuring balanced rules which adequately reflect the legitimate interests of both investors and the host country.
(a) Institutional Setting for Future Negotiations
The MAI was negotiated among OECD members only and lacked the direct participation of those developing countries and emerging economies which were expected to sign up after its conclusion, for example Brazil, China, India, and South Africa. As already discussed, the reasons for the failure of the MAI were legion and the boisterous statements by NGOs that they somehow brought down the agreement are grossly inaccurate. However, the negative experience of the MAI, including the non-inclusive negotiating process, is likely to have seriously damaged the prospect
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of the OECD becoming a negotiating forum for multilateral investment rules for the foreseeable future.
That brings us to the WTO, which would seem a more appropriate place for negotiating and concluding multilateral investment rules. 48 Given the close relationship between international trade and foreign investment, it would seem logical to address both issues under the auspices of the same institution. What is more, the WTO is the only international organization with a proven track-record of negotiating and effectively enforcing binding, multilateral rules.
As discussed above, the WTO has (or at least had) a Working Group with a mandate to study the relationship between trade and investment. 49 The ‘great bargain’ argument, which is often put forward as the ‘raison d'tre of the WTO' 50 and which is of special significance for developing countries, also points to the WTO as the more appropriate place for negotiating multilateral investment rules. 51 A broader agenda of trade and trade-related issues under negotiation would allow for important trade-offs, which (ideally) will enable all WTO members to return home with some of their priorities met. Finally, the consensus-based nature of the WTO would help ensure that all members have an effective say in the negotiations and could be in a position to influence the design of any rules, unlike the situation over the MAI negotiations.
If multilateral investment rules were to be negotiated in the WTO, the experience of the MAI offers a number of lessons for negotiators as regards the substance of such rules. In addition to key issues such as the definition of ‘investment’ and ‘investor’ (see below) as well as a top-down versus bottom-up approach, negotiators would need to clarify the relationship between any new WTO rules and the TRIMs and GATS Agreements, just as it would have to be decided whether access to the WTO dispute settlement system should be strictly limited to WTO members, or whether investors would also somehow be allowed to bring cases against host WTO members. 52 Also, one may consider whether it might not make sense also to address competition-related aspects of investment, if rules were negotiated in the WTO. The experience from the WTGI and the corresponding Working
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Group on the Relationship between Trade and Competition Policy (WGTCP) shows that a number of developing countries were reluctant to assume investment obligations, especially as regards pre-investment, fearing that transnational corporations (TNCs) would wipe out nascent domestic industries. While these countries privately acknowledged that the answer to any abuse of dominance by TNCs would be domestic competition provisions, some countries felt the adoption and enforcement of such a law was not supported politically and would prove too costly. As a result, they chose to reject WTO negotiations on both investment and competition altogether. What is more, the WGTI and WGTCP conducted their meetings in splendid isolation from one another, and it begs the question whether it might not have made sense to discuss the linkages between investment and competition in a more holistic manner.
In the event that the WTO is chosen as the institutional home for future investment rules, the question arises whether these would be truly multilateral rules, that is, binding upon all WTO members, or rather in the form of some plurilateral agreement or arrangement. In addition to the existing plurilateral agreements of the WTO, 53 the fourth and fifth GATS protocols relating to basic telecommunications services (as well as the so-called ‘reference paper’) and financial services were not signed up to by the entire WTO membership. The decisive criterion here was to achieve ‘critical mass’ calculated not in terms of a simple head-count of WTO members, but rather in the percentage of trade covered. For the fourth protocol 69 members and 91 per cent of trade was covered. For the fifth protocol 70 members and 95 per cent of trade was covered. If a plurilateral investment agreement was negotiated in the WTO, what would then constitute the ‘critical mass’ required to make such negotiations worthwhile? If merely based on FDI flows, an agreement between industrialized countries might constitute critical mass in terms of volume and value, but such an agreement would not include major developing countries and emerging economies, nor Sub-Saharan Africa, and might also be said to resemble the MAI set-up too closely in terms of initial participants. One option could be a formula combining several factors including origin and destination of FDI. That said, however, the failure of the WTO Ministerial Conference at Canc?n, as well as the current state of the Doha Development Round of WTO trade negotiations, make the fate of investment rules in the WTO highly uncertain, to say the least.
One alternative to the WTO could be to use the International Centre for Settlement of Investment Disputes (ICSID) as the institutional anchor of future multilateral investment rules. It is widely agreed that ICSID has the requisite expertise in investment disputes, in particular between developed and developing country parties. However, that would still leave open the question of the actual
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negotiations of such rules . Would they be supported by the ICSID Secretariat, as was the case with the MAI negotiations and the OECD Secretariat? Would the Secretariat be likely to have the expertise necessary to effectively support negotiations on such a scale? If not, would they be free-standing negotiations, and, if so, what would be the realistic likelihood of success?
Yet another alternative forum for negotiations on multilateral investment rules could be UNCTAD. UNCTAD does have significant experience in issues relating to foreign investment, just as the UNCTAD 1980 Set contains a number of elements, which, if properly updated and ‘operationalized’, could help make multilateral investment rules more palatable to certain developing countries. Chapter D of the 1980 UNCTAD Set sets out ‘Principles and Rules for Enterprises, including transnational corporations’ relating to their conduct and business practices. However, UNCTAD admittedly does not have a track-record of negotiating and enforcing multilateral rules and could be viewed by some parties as being too dogmatic and anti-Western. This shortcoming might suggest that the issue could be taken up jointly by UNCTAD and the WTO, possibly along with the other Singapore Issue of competition, thereby also drawing upon some of the further elements contained in the 1980 UN Set, suitably modified to take account of current investment conditions.
(b) Scope of Multilateral Investment Rules
(i) Definition of Investment
The question of the scope of multilateral investment rules centres mainly on the definition of ‘investment’. Under the 1998 MAI draft, as well as under NAFTA, 54 the definition of ‘investment’ is very wide, even including portfolio investment. 55 A broad, asset-based approach was favoured by developed countries, and most BITs apply a broad definition of investment. 56 Although accepted in BITs, the exact definition of ‘investment’ was one of the issues which contributed to the failure of the MAI, 57 as some host states do not support an overly broad definition of ‘investment’.
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Developing countries particularly—but also some OECD members—have traditionally insisted on the right to regulate investment which is of a less permanent nature than foreign direct investment, for example portfolio investment, 58 and numerous developing countries seek to use investment policies as a tool to promote legitimate social, economic, and environmental goals to which they have committed by ratifying human rights treaties. Also, it was generally agreed among developing countries that a broad definition of ‘investment’ called for appropriate safeguard provisions. 59
The rationale for the inclusion of portfolio investments is not obvious, as portfolio investments usually do not require long-term planning and far-reaching dispositions by investors. The discontinuation and withdrawal of portfolio investments will almost certainly be easier and faster than with direct investment and hence less in need of protection.
In accordance with the IIASD Model Agreement, it is recommended that portfolio investment and other intangible objects such as contracts should not be covered—as a priority—by the definition of foreign investment in any future multilateral investment rules. One solution could be separate rules (possibly in the form of a side agreement or protocol) according to which a smaller number of signatories would extend the investment definition (and thereby the ensuing protection) to portfolio investment, contracts, and the like.
(ii) Application to Transnational Corporations
Traditionally, public international law is derived from sovereign states and state practice and applies to states, rather than corporations and individuals. While international rights and duties of international organizations and individuals have received some recognition under public international law, the same is not yet completely true for TNCs, and in the area of human rights the lacuna continues to receive widespread attention. 60 However, a simmering change has become apparent as regards non-state actors in the area of international economic relations, and the impact they have on a variety of non-economic areas. Some now recognize TNCs, which are concluding investment contracts with states, as partial subjects of international law. 61 Given the significant role of TNCs in international economic
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relations, the need for certain responsibilities and duties on their part becomes not only logical, but also justified. 62 If states are capable and willing to confer specific rights and benefits upon TNCs, for example through the adoption of traditional BITs, trade liberalization, and international protection of intellectual property rights, surely the logical corollary would be to ensure that TNCs observe specific obligations on TNCs as well? 63
In particular, there is a widely held opinion among academics that a duty of human rights protection should also apply to TNCs in order to achieve fuller and wider realization of human rights. 64 Admittedly, there are numerous international codes of conduct and other soft law instruments, some of which have been drafted by—or with the participation of—TNCs. 65 The Draft UN Code of Conduct on Transnational Corporations already recognized that ‘the pervasive role of transnational corporations in the world economy requires the formulation of guidelines for their conduct’. 66 However, the Code was never fully adopted, partly due to the North-South divide and the (then) Cold War. On 13 August 2003 the UN Sub-commission for the Promotion and Protection of Human Rights approved the ‘Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights’, 67 which can be seen as a significant step towards involving business in international standard setting. 68 The Norms are based on international human rights law 69 and existing norms relating to TNCs and other business enterprises such as the ILO
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Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, 70 the OECD Guidelines for Multinational Enterprises, 71 the United Nations Global Compact, 72 and the Draft United Nations Code of Conduct on Transnational Corporations. 73 The Norms are intended to evolve (eventually) into a binding set of rules for TNCs. While the specific content of the Norms themselves are the subject of some disagreement, there is considerable and increasing agreement that rules in the area of human rights that directly bind TNCs are overdue, and the Norms are generally viewed as an important and timely contribution to those ends. However, as the former Commission for Human Rights did not adopt the Norms, it remains to be seen whether its successor body, the Human Rights Council, will meaningfully advance this agenda. 74
It should be recalled that one of the criticisms of the MAI draft was the apparent imbalance between investor rights and responsibilities. The draft text did not contain any binding language on the responsibilities of investors regarding the environment, labour standards, and human rights, but merely a voluntary code of conduct. 75 Hardly a state-of-the-art agreement by any reasonable measure.
The sphere of influence of an investor may vary depending on the nature of the investment, with the extractive industry most frequently singled out as an area more likely to have an impact on certain human rights, including the rights of indigenous peoples. Future multilateral investment rules could also seek to take into account how foreign investors ‘can contribute to a form of growth conducive to the right to development’ given that ‘[T]here is no automatic relationship between the arrival of foreign investors in a country and the human rights-driven development of that country: even where the TNCs concerned respect the full range of labour rights, environmental standards, and human rights which their activity could potentially affect, there is no certainty that their presence in the country will contribute to that country moving towards the full realization of human rights of all its population’. 76
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The inclusion of certain binding obligations on the part of investors in future multilateral investment rules requiring investors to observe a set of minimum standards in certain areas, would not only be fair and reasonable, but also in keeping with the prevailing sentiments and trends in international law. Such minimum standards could also importantly help prevent a ‘race to the bottom’ among host countries that may otherwise feel they have to engage in a constant lowering of environmental and labour standards in order to attract foreign investment. In addition, the inclusion of such obligations would also be likely to make multilateral rules more palatable to certain countries, and would address NGO concerns in this area, as well as those of the UN's Special Representative on human rights and transnational corporations, among others. The IIASD Model Agreement contains an entire section on Foreign Investor Obligations and Duties. The authors would argue that, as a starting point, drafters of future multinational rules on investment should focus on core labour standards and certain environmental requirements, including the ‘polluter pays principle’. That is not to say that other human rights do not warrant attention, but negotiators should focus on what the traffic can bear, and on what would constitute a reasonable balance between more general rights and obligations of the broadest possible relevance and application in terms of investors. Certain areas of foreign investment, including the extractive industry, are likely to warrant emphasis on other types of obligations upon TNCs, such as those correlated with the rights of indigenous peoples, the rights to food and health given the possible environmental impact of an investment, and a range of civil rights, for example, the right to security of the person, given the frequent involvement of private military companies acting on their behalf in the protection of their investment. 77
A key benefit of placing a number of direct obligations upon TNCs would be that it provides a mechanism for holding companies accountable in instances where the host state is either unwilling or unable to do so. While one might ask whether assisting the host country in monitoring and enforcing certain standards and principles might not be a feasible way forward, one must bear in mind that this would require an obligation for home countries (and their relevant agencies) to commit actual time and resources. The extent of time and resources needed would be difficult to gauge and would be certain to meet with resistance from the home country agencies in question. What is more, such enforcement assistance would provide no effective tool in instances where the host country is unwilling to take action.
(iii) Investment Protection
The investment protection provisions contained in BITs, the MAI draft, and the DIIASD Model Draft on International Investment for Sustainable Development are
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rather similar in wording. The usual standards for protection are national and MFN treatment, as well as fair and equitable treatment. As regards expropriation, the old controversy between minimum standard and national treatment appears to have been settled in favour of minimum standard. In order to be lawful, expropriations must meet the following criteria: for a public purpose, on a non-discriminatory basis, in accordance with due process of law and on payment of prompt and convertible compensation at fair market value. This standard on its face is similar to that of many Western Constitutions. The term ‘expropriation’ usually covers direct as well as indirect (or creeping) expropriation and nationalization. 78 That reflects the current stage of customary international law in the field of property protection of non-nationals.
The MAI draft text went somewhat further in its general treatment clause by also prohibiting any action by a host state that would have the effect of a state seizure of assets or which would otherwise deprive the investor of ‘enjoyment, maintenance and use’ of the investment. 79NAFTA experience shows that such broad investor protection provisions may have negative (and unwarranted) consequences, namely a proliferation of claims brought by investors against legitimate regulatory measures that somehow had an impact on their economic activities, often referred to as regulatory takings. 80 Any future multilateral investment rules should aim at striking a careful balance between investment protection and legitimate regulatory objectives of host countries, both as regards the actual wording of the investment protection clauses and, perhaps even more importantly, with regard to any dispute settlement mechanism.
(iv) Right of Establishment
As discussed above, the MAI draft aimed at according national and most-favoured-nation treatment with regard to both pre- and post-establishment obligations. 81 With such a right to establishment, the MAI sought to go beyond the majority of existing BITs. While the authors can certainly agree that national treatment and MFN are the most effective means by which to ensure equality of treatment in terms of
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multilateral trade, 82 the question remains whether and if so to what extent it should also be applied in the pre-establishment phase of foreign investment.
The MAI draft adopted a top-down approach according to which the provisions of the agreement would apply to all economic sectors and laws of the host state, unless somehow excluded or exempted, be it specifically or by virtue of one or more of the general exceptions envisaged in the draft. 83 The top-down approach of the MAI draft proved especially problematic with respect to the rights of entry for investors provided under the text, 84 and resulted in a number of the so-called like-minded OECD members submitting an exorbitant number of (preliminary) exceptions to the proposed agreement, 85 Exceptions which in many cases went far beyond those lodged with respect to the OECD Code on Capital Movements. 86 As regards the WTO as a possible forum for international investment rules, the question arises whether such rules should be based on a top-down approach as with the MAI, or a bottom-up approach, as under GATS, which allows WTO members discretion to open up specific sectors only as and when they feel ready to do so.
The IIASD Draft Agreement suggests what appears to be a reasonable compromise between the two, that is, a bottom-up approach as regards pre-establishment and a top-down approach as regards post-establishment rights. While future multilateral investment rules need not create unlimited rights of establishment for investors in a potential host state, parties wishing to list sectors for which they do allow foreign entrants should be able to list these in an annex to the agreement. Sectors listed in the annex ‘shall then be covered by the provisions of this agreement including for the establishment and acquisition of an investment’. 87
Applying a bottom-up approach to pre-establishment seems logical, as foreign investment (leaving aside portfolio investment which would not be covered) has to do with more than just free movement of goods, but may also imply cross-border movement of natural persons and various activities in the host state. The authors
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favour the approach taken by the IIASD Draft Agreement, as it would allow developing countries to decide for themselves when to extend pre-establishment rights to certain sectors in light of their overall developmental and industrial policy objectives.
(v) Performance Requirements, Investment Incentives, and Taxation
The MAI draft included provisions regarding performance requirements which to some extent mirrored those contained in the TRIMs Agreement, that is a ban on local content requirement and other requirements which would violate a national treatment obligation and place conditions on the entry or existence of foreign investment. In a number of respects, the disciplines on performance requirements went further than the TRIMs Agreement.
However, the MAI draft failed to address two other important issues which have a direct impact on foreign investment, namely investment incentives and taxation. Investment incentives will typically be benefits and sweeteners, whether in cash or in kind, used by governments to attract foreign investors and investment. Frequently, incentives are used to counterbalance performance requirements 88 and may cause investors to accept these as part of an overall package comprising both performance requirements and incentives. The main argument against the use of investment incentives is that they may lead to foreign investment going to areas where it is less efficient than would otherwise have been the case, and may ultimately prove a waste of government funds as the local benefits derived from the foreign investment are off-set (or even more than off-set) by the cost to the government of providing the incentive. 89 Both performance requirements and incentives are often linked to the industrial policy objectives of a given country, and attempts at limiting their application may often meet staunch resistance.
While incentives are disciplined within the European Communities through the applicable state aid disciplines, trade-distorting incentives have yet to be more explicitly disciplined under the WTO Agreements on Subsidies and Countervailing Measures, although there would seem to be ample scope for doing so. It would be advisable for future multilateral investment rules to address not only performance requirements, but also issues relating to taxation and investment incentives. Admittedly, when dealing with countries with a federal structure such as Canada and the USA it may prove difficult to ensure a sufficient degree of discipline for the sub-federal entities. However, that should not prevent the formulation of disciplines at the federal level, which may—eventually—be extended to the sub-federal level.
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(vi) Basic Environmental and Labour Standards
It is clear that one of the contributing factors to the failure of the MAI was the inability of negotiators credibly and effectively to address the issue of environmental and labour standards. 90 Such standards are logical within the new public international law order which aims at creating an objective order, rather than a mere network of reciprocal obligations between states. 91 While it may prove unrealistic to agree on more precise substantive standards due to lack of consensus, the authors believe that the creation of soft law standards could serve at least two important objectives, one being to lay the foundations of an eventual substantive, binding standard, the other being their contribution to a sense of corporate responsibility, thereby also creating greater expectations as regards the behaviour of investors.
The MAI draft text did not initially include any provisions on labour or environmental standards. Partly in response to extensive lobbying by NGOs and trade unions, some more general language was included in the preamble 92 and an additional labour and environment clause 93 was proposed. Furthermore, the MAI draft (of 1998) required states not to lower existing environmental and labour standards. 94 In addition to this, the non-binding OECD Guidelines for Multinational Enterprises 95 were annexed to the draft text.
With its very limited provisions on environment and labour standards, the MAI proved incapable of adequately addressing the interlinkages between foreign investment, the environment, and labour standards. 96 Although the draft text recognized the existence of some core rights concerning environmental and labour standards, it created no binding obligations for states or investors with respect to those rights. In this regard, the MAI draft (of 1998) lagged far behind other existing international regimes with respect to the treatment of labour rights. 97 Likewise, the majority of current BITs contain only marginal (if any) provisions on environmental protection and labour standards. The same is true of Chapter 11 of NAFTA dealing with investment. 98
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Additional problems may arise for domestic environmental protection and labour standards in the host State under multilateral investment rules. On the one hand, existing BITs as well as NAFTA Chapter 11 99 accord investors protection against expropriation and measures tantamount to expropriation by the host state. In the area of environmental protection this means that an investor may claim compensation where environmental regulation substantially affects the economic value of foreign investors’ property. In the past, some investors have explored such claims as a useful instrument to shield themselves from regulatory measures that would otherwise have an economic impact on their activities. 100 Already the mere threat of litigation may deter certain governments from adopting legitimate measures protecting the environment and human health. On the other hand, investors have a legitimate interest in legal certainty and adequate protection. A certain internationalization of basic standards could help both sides and would not necessarily affect investor protection adversely.
Existing BITs, NAFTA, and the MAI draft do not contain adequate provisions on basic environmental protection and labour standards. What is more, overly broad and unqualified investment protection provisions in international investment agreements can have negative effects on domestic measures aimed at protecting the environment or establishing minimum labour standards. This is where future multilateral investment rules provide an opportunity to bring about positive change. In addition to ensuring more predictable and stable conditions for foreign investment, the establishment of certain minimum standards binding on states and transnational corporations, 101 is a strong argument for negotiating multilateral investment rules which could establish valuable additional rules on foreign investment and the activities of foreign investors.
Establishing an international system to ensure respect for fundamental rights is a one-sided interest of neither industrialized countries nor of developing countries, but rather a common, public interest. Future multilateral investment rules present countries with an opportunity to incorporate provisions dealing with environmental protection and core labour standards. In this respect, such rules could help ensure that international investment regulation is coherent with international law in other areas. Moreover, today it could also prove essential to the legitimacy of future multilateral investment rules, at least as regards public opinion in OECD countries, but not necessarily more broadly.
However, it has to be taken into account that more lax environmental and labour standards often count among the most important competitive advantages
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of developing countries. 102 Establishing certain international minimum standards could help prevent the risk of a race to the bottom, but at the same time also reduce these advantages. Consequently, environmental and labour standards should be of a more basic and fundamental nature as developing countries have a legitimate interest in competing (within reasonable limits) for foreign investment by offering favourable investment conditions, but not at the expense of basic human rights or the environment. 103 Future multilateral investment rules should use a combination of certain binding minimum standards as regards core labour standards and the environment, combined with an obligation for signatories not to lower their standards in any of these areas in an attempt to attract foreign investment.
(vii) Dispute Settlement
The MAI draft contained provisions on state-to-state and investor-to-state dispute settlement procedures. 104 BITs and other international investment treaties such as NAFTA Chapter 11 allow recourse to arbitration not only for the signatory states but also for investors. Practically all BITs as well as NAFTA confer direct rights on investors to bring claims against signatory states (and investors have frequently done so).
Excluding investor-state dispute settlement from future multilateral investment rules would be a ‘clear step backwards’ and would send a negative signal to investors. 105 Putting forward the argument that the WTO does not allow trader-state dispute settlement misses the point entirely. Dispute settlement under the WTO is fundamentally different in the sense that it deals with challenges to measures of a systemic nature affecting a range of traders, such as a law, regulation, or practice, whereas investment dispute settlement will typically deal with specific steps taken which affect an individual investor and his investment, such as expropriation of an investment or discriminatory treatment against an investor and/or investment.
However, negotiators of any future multilateral investment rules might also consider whether states should not also be allowed to bring certain claims against investors for violations of binding rules, for example on environmental and labour standards. Such a procedure could enhance the enforceability of investors' obligations under
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the rules and would provide an important and effective instrument for corporate accountability. 106 Moreover, it might be considered whether citizens who are somehow directly affected by the actions or inactions of an investor should have the right to bring claims against states and investors. 107 This might be the case for employees who believe the minimum labour standards are not being observed, or neighbours who suffer from activities which do not meet environmental standards.
Under the IIASD Model Agreement, arbitration proceedings may only be initiated by investors against host states and not vice versa. However, the draft does suggest that a host State may raise breaches of the agreement ‘as an objection to jurisdiction in an investor state proceeding initiated by an investor’. ‘A significant breach of an obligation…may vitiate the jurisdiction of a Tribunal’. 108 Whether that would be enough to ensure the proper balance between rights and obligations (and their enforceability) is an open question.
The MAI draft provided for no fewer than three separate proceedings for investors in dispute resolution. 109 NAFTA too provides alternative arbitration options for investors. 110 Future multilateral investment rules do not have to confine dispute settlement to one single body, but it would seem desirable that the options to be made available are based on either the WTO Dispute Settlement Understanding (DSU) and/or on key aspects and principles of UNCITRAL, ICC, and ICSID arbitration. These mechanisms are familiar to most and have proven effective.
The incorporation of comprehensive investment rules in the WTO would logically suggest the use of the WTO dispute settlement system. 111 Some may argue that investment disputes are fundamentally different from trade disputes and that WTO panellists and the members of the Appellate Body normally do not possess the requisite expertise for such disputes. However, there are already examples of the general DSU rules being supplemented by dispute settlement rules specific to a WTO Agreement, such as the possibility of consulting subsidy experts under the Agreement on Subsidies and Countervailing Measures. 112 What is more, WTO panels and Appellate Body are already dealing with disputes involving a number of
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