Forum nonconcurrence: the resolution of investment treaty disputes.

Author:Kizer, Karen L.
Position:Proceedings of the 110th Annual Meeting of the American Society of International Law: Charting New Frontiers in International Law

This panel was convened at 9:00 a.m., Thursday, March 31, 2016 by its moderator Jarrod Wong, of the University of the Pacific, McGeorge School of Law, who introduced the panelists: Judge Dennis M. Davis of the High Court of Cape Town, South Africa; Karen L. Kizer of the U.S. Department of State; Fabio Morosini of the Federal University of Rio Grande do Sul School of Law; and Ko-Yung Tung of Morrison Foerster LLP. *


In what forum are investment treaty disputes best resolved? The Trans-Pacific Partnership has opted to maintain the status quo in its continued reliance on ad hoc investor-state arbitration, although leaving open the possibility of some manner of appeals process down the road. The argument is that with tightened substantive standards and expanded exceptions clauses, this approach can adequately protect investors and still safeguard the legitimate regulatory objectives of states. The European Union, by contrast, is insisting that only a permanent investment court can provide a fair and legitimate forum for investment disputes without harming the (local, regional, and global) public interest. But the EU proposal for the Transatlantic Trade and Investment Partnership faces major implementation hurdles, including how it might sit with the existing International Centre for Settlement of Investment Disputes framework. Countries like Brazil, South Africa, and Indonesia, meanwhile, are moving away from international investor-state dispute resolution altogether and expressing a preference for a combination of state-to-state dispute resolution and reliance upon domestic courts. This panel discussed the implications of the differing approaches and considered whether the radical structural shift from bilateralism to multilateralism will lead to unification or, ironically, to fragmentation of the regime.


By Karin L. Kizer ([double dagger])

The investment provisions of the Trans-Pacific Partnership (TPP) have drawn both kudos and criticism. It is important, however, to remember that they are the latest refinement of the U.S. approach to investment protections and investor-state dispute settlement (ISDS) more generally. The criticism of the ISDS system, which has recently intensified, has prompted the EU and other countries to reconsider their approach to investment protection and ISDS by introducing a variety of alternative disputes settlement mechanisms, such as creating a standing court and appellate mechanism, resort to local courts, or state-to-state dispute settlement. In contrast, the United States has been at the forefront during the twenty-first century of reforming and refining its approach to ISDS and investment protections, especially in the following key areas.


The United States is a leader in promoting transparency in ISDS, given the importance and interest of investor-state cases to the public generally. The investment chapter of the North American Free Trade Agreement (NAFTA) did not originally provide for the publication of relevant documents and awards or guarantee open hearings. In 2001, the NAFTA parties agreed to make public relevant pleadings, publish awards, and hold open hearings, subject to the rules governing a particular proceeding and taking into account limited exceptions to protect confidential business information or other protected information set out in NAFTA.

While this commitment by the NAFTA parties was important, under the older versions of the United Nations Commission on International Trade Law (UNCITRAL) rules, both parties to a dispute must agree to waive confidentiality. As a result, some proceedings still remain confidential when an investor does not agree to waiving the confidentiality provision.

Beginning in 2002 when the United States negotiated free trade agreements (FTA) with Singapore and Chile, the United States included these transparency provisions directly in each FTA's investment chapter and has done so with all subsequent FTA investment chapters, including the TPP. Likewise, beginning with the 2004 U.S. model bilateral investment treaty (BIT), identical provisions are included in U.S. BITs as well. And of course, the United States was one of the first signatories to the Transparency Convention, or Mauritius Convention, which paves the way for providing for transparency in older bilateral investment treaties that do not expressly provide for it.


There has been much debate about whether BITs and related agreements adequately preserve a host state's right to regulate. Some countries have sought to emphasize the right to regulate by adopting general exceptions similar to General Agreement on Tariffs and Trade Article XX and General Agreement on Trade in Services Article XIV. The United States, however, has sought to ensure adequate policy space for regulation through more precise drafting of the relevant obligations that govern investment. For example, in 2001, following somewhat expansive interpretations of the minimum standard of treatment (MST) language in NAFTA, the three NAFTA parties clarified, through a joint interpretation process provided for expressly in the agreement, that the obligations to accord investments fair and equitable treatment and full protection and security were bounded by customary international law. In the vast majority of cases under U.S. agreements, this clarification has served to create a more objective and careful analysis of host state conduct than before the interpretation. This clarification became a part of the template for all subsequent U.S. investment chapters and BITs from 2004 forward. Likewise, early NAFTA tribunals interpreted the language providing for indirect expropriation in an unexpected way. While tribunals eventually corrected their interpretations, beginning with the Chile and Singapore FTA investment chapters in 2002, the United States included an annex that outlined the key elements of direct and indirect expropriation in all subsequent agreements.

Both of these interpretive clarifications are included in the TPP as well. The TPP, however, included a number of additional refinements to the core obligations. One key element was the footnote outlining the contours of the "in like circumstances" criteria for the obligations guaranteeing national treatment and most favored nation treatment. By emphasizing that this analysis rests on the "totality of the circumstances," the additional footnote clarifies that the relevant circumstances include not only the economic sector of the investors or investments but also whether there are legitimate public welfare objectives upon which the distinctions between foreign and domestic investors or investments are based. The TPP's investment chapter also clarifies that, despite much criticism to the contrary, the frustration of "legitimate expectations" alone does not give rise to a claim under MST. The TPP also includes preambular language emphasizing the importance of the right to regulate, which will serve as a guide for interpreting all of the TPP obligations consistent with this objective, including investment.


It is worth recalling that much of the current criticism, such as the types of claims and lack of transparency, is actually aimed at cases arising out of the older European investor-state model, rather than those from the U.S. approach. As part of its commitment to periodically evaluating the operation of ISDS and adjusting it to respond to actual U.S. experiences in arbitration, the United States has made a number of changes to the older European ISDS model. For example, in the wake of the NAFTA case Methanex v. United States, where the tribunal concluded that it did not have the authority to dismiss a claim as a matter of law, even if all of the claimant's facts were true, the United States included language in subsequent agreements giving tribunals just such authority. This so-called "frivolous claims" provision is also accompanied in all recent U.S. agreements with an expedited process for dismissing such claims and providing for the possible award of attorneys' fees in appropriate cases. The TPP, of course, includes this provision, and further adopts the ICSID standard for dismissing claims that are "manifestly without legal merit," to ensure that, regardless of the forum, both grounds for early dismissal of meritless claims are available. Furthermore, the TPP clarifies a longstanding aspect of arbitration; namely, that a claimant bears the burden of proof for all aspects of its claim. The TPP also continues the U.S. practice of including an express provision for the consolidation of claims that involve similar questions of facts and law, which is a practical way to address concerns about consistency in decisions. Further, the TPP continues the willingness of the United States to consider the application of a multilateral appellate mechanism to the agreement, which reflects a revision of U.S. policy on this issue...

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