Journal of WORLD TRADE - SSRN papers

Journal of WORLD TRADE

Electronic copy available at: http://ssrn.com/abstract=2245920

Published by: Kluwer Law International PO Box 316 2400 AH Alphen aan den Rijn The Netherlands Website: www.kluwerlaw.com Sold and distributed in North, Central and South America by: Aspen Publishers, Inc. 7201 McKinney Circle Frederick, MD 21704 United States of America Email: [email protected] Sold and distributed in all other countries by: Turpin Distribution Services Ltd. Stratton Business Park Pegasus Drive, Biggleswade Bedfordshire SG18 8TQ United Kingdom Email: [email protected] Journal of World Trade is published six times per year. Print subscription prices, including postage (2013):EUR 1015/USD 1353/GBP 746. Online subscription prices (2013):EUR 940/USD 1253/GBP 691 (covers two concurrent users). Journal of World Trade is indexed/abstracted in the European Legal Journals Index. Printed on acid-free paper. ISSN 1011-6702 ©2013 Kluwer Law International BV, The Netherlands All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the publisher. Permission to use this content must be obtained from the copyright owner. Please apply to: Permissions Department,Wolters Kluwer Legal, 76 Ninth Avenue, 7th Floor, New York, NY 10011- 5201, USA. Email: [email protected] Printed and Bound by CPI Group (UK) Ltd, Croydon, CR0 4YY.

Electronic copy available at: http://ssrn.com/abstract=2245920

Editor

Author Guide

Edwin Vermulst VVGB Advocaten / Avocats Brussels, Belgium

[A] Aim of the Journal

Associate Editors Petros C. Mavroidis Edwin B. Parker Professor of Law at Columbia Law School, New York, Professor of Law at the University of Neuchatel & CEPR Thomas Cottier Professor of European and International Economic Law, Managing Director World Trade Institute, University of Berne, Switzerland Simon Evenett University of St.Gallen Bernard Hoekman Development Research Group, The World Bank Junji Nakagawa Professor, University of Tokyo, Tokyo, Japan Yong-Shik Lee Director and Professorial Fellow, The Law and Development Institute Faizel Ismail Head of the South African Delegation to the WTO, Geneva Gary N. Horlick Law Offices of Gary N. Horlick Henrik Horn Senior Research Fellow, Research Institute of Industrial Economics (IFN), Stockholm Pierre Sauvé World Trade Institute, University of Berne Lorand Bartels Faculty of Law, University of Cambridge Thomas J. Prusa Department of Economics, Rutgers University, New Brunswick, NJ, USA

The journal deals authoritatively with the most crucial issues affecting world trade today, with focus on multilateral, regional, and bilateral trade negotiations, on various anti-dumping and unfair trade practices issues, and on the endless succession of vital new issues that arise constantly in this turbulent field of activity. The approach is consistently multidisciplinary, aimed at trade practitioners, government officials, negotiators and scholars who seek to expose ground-breaking theses, to make important policy statements or to offer in-depth analysis and discussion of delicate trade issues. [B] Contact Details Manuscripts should be submitted to the Editor, Edwin Vermulst. E-mail address: [email protected] [C] Submission Guidelines [1] Manuscripts should be submitted electronically, in Word format, via e-mail. [2] Submitted manuscripts are understood to be final versions. They must not have been published or submitted for publication elsewhere. [3] Articles should not exceed 10,000 words. [4] Only articles in English will be considered for publication. Manuscripts should be written in standard English, while using ‘ize’ and ‘ization’ instead of ‘ise’ and ‘isation’. Preferred reference source is the Oxford English Dictionary. However, in case of quotations the original spelling should be maintained. In case the complete article is written by an American author, US spelling may also be used. [5] The article should contain an abstract, a short summary of about 200 words. This abstract will also be added to the free search zone of the Kluwer Online database. [6] A brief biographical note, including both the current affiliation as well as the e-mail address of the author(s), should be provided in the first footnote of the manuscript. [7] An article title should be concise, with a maximum of 70 characters. [8] Special attention should be paid to quotations, footnotes, and references. All citations and quotations must be verified before submission of the manuscript. The accuracy of the contribution is the responsibility of the author. The journal has adopted the Association of Legal Writing Directors (ALWD) legal citation style to ensure uniformity. Citations should not appear in the text but in the footnotes. Footnotes should be numbered consecutively, using the footnote function in Word so that if any footnotes are added or deleted the others are automatically renumbered. [9] Tables should be self-explanatory and their content should not be repeated in the text. Do not tabulate unnecessarily. Tables should be numbered and should include concise titles. [10] Heading levels should be clearly indicated. For further information on style, see the House Style Guide on the website: www.kluwerlaw.com/ContactUs/ [D] Review Process

All correspondence should be addressed to the Editor under reference of: Journal of World Trade Email: [email protected] All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic mechanical, photocopying, recording, or otherwise, without written permission from the publisher. Permission to use this content must be obtained from the copyright owner. Please apply to: Permissions Department, Wolters Kluwer Legal, 76 Ninth Avenue, 7th Floor, New York, NY 1001-5201, USA. Email: [email protected] © 2013 Kluwer Law International BV, The Netherlands ISSN 1011-6702 Mode of citation: 47:1 J.W.T.

[1] Before submission to the publisher, manuscripts will be reviewed by the Editor or by an associate editor selected by the Editor and may be accepted, rejected or returned to the author for revision. [2] The journal’s policy is to provide an initial assessment of the submission within thirty days of receiving the posted submission. In cases where the article is externally referred for review, this period may be extended. [3] The Editor reserves the right to make alterations as to style, punctuation, grammar etc. [4] The author will also receive PDF proofs of the article, and any corrections should be returned within the scheduled dates. [E] Copyright [1] Publication in the journal is subject to authors signing a ‘Consent to Publish and Transfer of Copyright’ form. [2] The following rights remain reserved to the author: the right to make copies and distribute copies (including via e-mail) of the contribution for own personal use, including for own classroom teaching use and to research colleagues, for personal use by such colleagues, and the right to present the contribution at meetings or conferences and to distribute copies of the contribution to the delegates attending the meeting; the right to post the contribution on the author’s personal or institutional web site or server, provided acknowledgement is given to the original source of publication; for the author’s employer, if the contribution is a ‘work for hire’, made within the scope of the author’s employment, the right to use all or part of the contribution for other intra-company use (e.g. training), including by posting the contribution on secure, internal corporate intranets; and the right to use the contribution for his/her further career by including the contribution in other publications such as a dissertation and/or a collection of articles provided acknowledgement is given to the original source of publication. [3] The author shall receive for the rights granted a free copy of the issue of the journal in which the article is published, plus a PDF file of his/her article.

Investor-State Arbitration under Bilateral Trade and Investment Agreements: Finding Rhythm in Inconsistent Drumbeats Ling Ling HE & Razeen SAPPIDEEN * The investor-state arbitration process has been commonly used under bilateral trade and investment agreements since first adopted by the North American Free Trade Agreement (NAFTA) in 1994.This mechanism has well served the investment interests of multinational corporations. In recent times, some countries have been rethinking the special legal rights offered to foreign investors over domestic investors in dispute resolution through the investor-state arbitration process. This article examines the changing landscape in investor-state dispute resolution and its impact on bilateral trade and investment agreements.

1

INTRODUCTION

The investor-state arbitration (ISA) provisions under bilateral trade and investment agreements permit investors to make direct claims against the host country. More importantly, these actions are settled by way of arbitration quite independently of the judicial system of the host country. This approach to dispute resolution was first adopted under Chapter II of NAFTA. Since then, the adoption of such provisions has become a standard practice in free trade agreements (FTAs) and bilateral investment treaties (BITs). For example, the year 2011 saw forty-six ISA cases filed for resolution, constituting the highest number of ISA disputes ever filed in one year and bringing the total number of treaty-based investor-state cases to 450.1 Recent developments, however, show the emergence of lobby groups within developing, and some developed countries demanding a rethink in continuing with ISA practice. Evidence has shown that some countries such as, for example, Bolivia, Ecuador and more recently Venezuela have already withdrawn from the International Centre for the Settlement of Investment Disputes (ICSID), and terminated some of their BITs. The decision of the Australian government to *

1

Razeen Sappideen, Professor of Law, University of Western Sydney. Ling Ling He, PhD Candidate in Law (University of Western Sydney); LLM, LLM Hons (University of Western Sydney); LLB (Zhongnan University of Economics and Law, China). UN Conf. Trade & Dev., Latest Developments in Investor-State Dispute Settlement1, http:// unctad.org/en/PublicationsLibrary/webdiaeia2012d10_en.pdf (Apr. 2012). [Hereinafter Latest Development].

He, Ling Ling & Sappideen, Razeen. ‘Investor-State Arbitration under Bilateral Trade and Investment Agreements: Finding Rhythm in Inconsistent Drumbeats’. Journal of World Trade 47, no. 1 (2013): 215–242. © 2013 Kluwer Law International BV, The Netherlands

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discontinue the ISA practice in its future FTAs and BITs announced in April 2011 is also noteworthy. More recently, India has declined to include the ISA provision in the FTA it is currently negotiating with the EU, and in April 2012 released its plan to abolish the ISA clause in its future FTAs and to renegotiate it in the FTAs it had entered into with South Korea, Singapore and other countries. Such actions evidence a radical departure from investor-state dispute settlement rules as originally designed under the ISA regime, and raise fundamental issues on the future of the ISA process. Part II of the paper looks at the origins of ISA practice by reference to a cross section of FTAs and BITs of major economies such as the US, Australia, New Zealand and China. Part III examines the debate on ISA practice under existing FTAs and BITs. Part IV investigates recent developments in ISA practice in relation to countries that have shown signs of wanting to limit investor protections and ISA practice, such as Venezuela, Australia and India.While their motives may have differed, these countries have all expressed their reservation, if not displeasure, about the prevailing ISA system. Bucking this trend are China’s ISA commitments, which seems moving towards an opposite direction. Part V concludes the discussion. 2

ISA AS A DIRECT FOREIGN INVESTMENT NEED

To promote foreign investment, it is a common practice that countries sign a BIT with each other. Since the liberalization of foreign investment policy worldwide in 1990s, the number of BITs has risen from 370 in 1989 to 1,799 in 1999.2 One of the most important principles of such BITs is to make sure foreign investors’ rights are protected in the signatory countries. Consequently, the investors are granted procedural and substantive rights in the host countries. Along with other rights, such as national treatment and compensation, investors are entitled to settle their disputes with the host state on investor-related matters under a neutral arbitration forum such as ICSID, ICSID Additional Facility Rules and the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.The main purpose of creating such an ISA system was to relieve investors of the need to rely on their home state to represent them against the host state and thus avoid the possibility of being caught up in geo-political disputes between home and host governments.3 The access to independent and qualified arbitration 2

3

Karl P. Sauvant, The Times They are a-Changin’ - Again - in the Relationships Between Governments and Multinational Enterprises: From Control, to Liberalization to Rebalancing (May 21, 2012) Vale Columbia Centre Sustainable Intl. Inv. http://www.vcc.columbia.edu/content/times-they-are-changinagain-relationships-between-governments-and-multinational-enterprises. UN Conf. Trade & Dev., Investor–State Disputes: Prevention and Alternatives to Arbitration 13, http://archive.unctad.org/en/docs/diaeia200911_en.pdf (2010) [Hereinafter Prevention and Alternatives to Arbitration 2010].

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tribunal is intended to ensure the adjudicative neutrality needed for foreign direct investment, particularly when investors have reservations about the legal processes of the host state. The ISA system offered a way around these concerns, which explains its initial acceptance. The structure and operation of the ISA provisions under the existing FTAs and BITs are further examined below. 2.1

ISA UNDER FTAS

The proliferation of FTAs since 1990s contributed to the adoption of ISA. Most of the FTAs contain investment protection provisions, commonly incorporated under an independent Investment Chapter. The paragraphs following examine the operation of the ISA under the FTAs of the US, EU, Australia, New Zealand and China. Except for the EU, more than half of the FTAs entered into by the others have incorporated the ISA system. 2.1[a]

US FTAs

As at December 2012, the US has entered into FTAs with twenty countries.4 Except for those with Australia, Bahrain, Israel and Jordan, all the other FTAs include an ISA mechanism under their respective ‘Investment’ chapters along the lines of NAFTA Chapter 11. NAFTA provides a multiple dispute settlement process. Chapter 11 addresses investor-state disputes exclusively, while Chapters 19 and 20 addresses antidumping and countervailing duty decisions, and general disputes respectively. Under Chapter 11, investors are not limited to seeking redress in the courts of the host country, but have the right to bring a claim for compensation against the host government in an international tribunal, whose awards are enforceable in domestic courts. This mechanism allowed NAFTA investors to bypass the local courts of a host government through access to binding arbitration under the ICSID or the ICSID Additional Facility Rules, or the rules of the UNCITRAL.5 The NAFTA ISA system has since been used as the blueprint for the FTAs and BITs subsequently entered into by the US and other countries. However, the granting of the right created by Chapter 11 to private foreign investors to take their host government directly to binding international arbitration has generated considerable controversy, raising community concern and fears over the consequences of these new forms of rights. Critics claim for example, that it has not been used, as intended, to protect investor rights against 4

5

Office US Trade Rep., Free Trade Agreements, http://www.ustr.gov/trade-agreements/freetrade-agreements (accessed Dec. 28, 2012). NAFTA, Art. 1120.

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host government measures ‘tantamount to expropriation’, but rather to legalize a peculiar American conception of property rights.6 As observed by Professor Abbott, while ISA system of NAFTA Chapter 11 went as far as establishing a legal framework which provides attractive financial guarantees to the investors, it has not built a framework strong enough to accommodate social policies.7 Despite these expressions of concern, such outsourcing has become a very popular mode of resolving investor-state dispute between FTA members. 2.1[b] EU FTAs Europe was among the earliest to enter into FTAs. Its post-war regional integration was aided substantially by the creation of the European Coal and Steel Community in 1951, and its transformation into the European Economic Community (EC)8 (now known as the EU). Driven by direct competition with the US as well as a desire to keep control of former European colonies, the EU has been working hard on building its FTAs network, both within and outside the continent. It has very recently signed comprehensive trade agreement with Peru and Columbia as well as Central America, and commenced FTA negotiations with Vietnam in June 2012.9 The FTAs currently in force between the EU and its trading partners include Mexico (concluded in 1997), South Africa (concluded in 1999), Chile (concluded in 2002) and South Korea (concluded in 2010). It is currently negotiating a number of FTAs with the Association of Southeast Asian Nations (ASEAN), Canada, the Gulf Co-operation Council, India, Malaysia, Singapore, Uruguay, and some other association agreements with FTAs component.10 Notably, the existing FTAs of the EU do not have an independent investment chapter as those of the US, let alone the ISA system. For instance, the recently finalized EU-Korea FTA contains no investment chapter and ISA provisions, as competency for investment matters rests with each individual EU Member State.11 This situation, however, has been changed by the Lisbon Treaty entered into force in December 2009. Under the Lisbon Treaty, the exclusive competence for foreign 6

7

8 9

10

11

Linking Trade Environment and Social Cohesion: Nafta Experiences, Global Challenges (John J. Kirton & Virginia W. Maclaren eds.,Ashgate 2002). Frederick M Abbott, The Political Economy of NAFTA Chapter Eleven: Equality Before the Law and the Boundaries of North American Integration, 23 Hasting Intl. & Comp. L. Rev. 309 (2000). L. Alan Winters, Regional Integration and the Global Trading System 104 (Palgrave Macmillan 1993). European Commn., EU Signs Comprehensive Trade Agreement with Colombia and Peru, http://trade.ec.europa.eu/doclib/press/index.cfm?id=810 (accessed June 26, 2012). European Commn., International Affairs: Free Trade Agreements, http://ec.europa.eu/ enterprise/policies/international/facilitating-trade/free-trade/index_en.htm (accessed June 25, 2012). Office U.S. Trade Rep., USTR Releases Preliminary Analysis of KOREA-EU Free Trade Agreement, http://www.ustr.gov/about-us/press-office/press-releases/2009/october/ustr-releases-preliminaryanalysis-korea-eu-free-t (accessed Oct. 19, 2009).


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investment-related matters has been transferred to the EU.12 As a result, a single comprehensive set of investment rules of the EU was needed to replace those various investment rules under more than 1200 BITs between the EU Member States and a third party.13 On how to structure such a set of investment rules within the European legal order is the subject of vigorous debate among the EU institutions. A draft text on the ISA on EU investment agreements was released by the European Commission in May 2012, signalling its desire to include the ISA system under its ongoing FTAs with India, Canada and Singapore.14 The draft also incorporates an array of important provisions to improve the ISA system, such as clarifying the scope of ISA disputes, the avoidance of multiple claims on the same issue, and a Committee for ISA disputes.15 The response of the EU members on the ISA draft appears to be divided, and a dual approach has been proposed to fairly balance investment protection on the one hand, while enabling the EU to promote the interests of its citizens through public law and policy initiatives on the other hand.16 2.1[c]

Australia FTAs

Currently, four out of the six FTAs that Australia has entered into include the ISA mechanism, namely, the Singapore-Australia FTA, Thailand-Australia FTA, Australia-Chile FTA, and Association of Southeast Asian Nations (ASEAN)-Australia-New Zealand FTA.17 Closer examination shows that these FTAs offer similar procedures and rules for investor-state dispute settlement. Third-party arbitration is broadly used. As compared with Australia’s other agreements, the Australia-Chile FTA contains considerably more detailed procedural requirements for investor-state arbitration. For example, investors are first required to consult with the host government to resolve the dispute. Arbitration is available after six months of receipt of the request for consultations. However, the investor must deliver a ‘notice of intent’ to the host state at least 12

13 14

15 16 17

David Martin, New Europe, Chance for Major Re-think of Investment Rules, http://www.neurope .eu/blog/chance-major-re-think-investment-rules (July 15, 2012). Ibid. Nathalie Bernasconi-Osterwalder, Analysis of the European Commission’s Draft Text on Investor-State Dispute Settlement for EU Agreements (July 19, 2012) Inv. Treaty News http://www.iisd.org/itn/ 2012/07/19/analysis-of-the-european-commissions-draft-text-on-investor-state-dispute-settlementfor-eu-agreements/. Ibid. Martin, supra n. 12. Singapore-Australia FTA Chapter 8 Art. 16 (July 2003); Thailand-Australia FTA (January 2005), Art. 917; Australia-Chile FTA (March 2009), Art. 10.16; and ASEAN-Australia-New Zealand FTA (January 2010), Art. 21. Australia-New Zealand Closer Economic Relations and Australia-US FTA do not have such provisions.

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ninety days before submitting the claim to arbitration.18 The host state is required to deliver the listed documentation, for example arbitration notice, to the investor’s home state to enhance the transparency of arbitration process.19 The arbitral tribunals comprises of three arbitrators acting under detailed conduct rules as well as transparency requirements.20 The rules of ICSID, ICSID Additional Facility Rules, and the UNCITRAL arbitration rules are available for arbitration.21 Alternatively, the dispute can be resolved by any other arbitration institution or set of arbitration rules agreed to by the parties.22 Such third-party arbitration rules are similar to those under the ASEAN-Australia-New Zealand FTA (AANZFTA), which is the largest FTA that Australia has signed up to. The difference is that the ISA under the latter does not apply to Australia and New Zealand.23 Moreover, where an investment claim is made against the Philippines or Vietnam, such countries have the option of referring the disputes to the local courts or tribunals, provided that they have jurisdiction.24 Unlike the other FTAs, the Australia-US FTA does not provide ISA that allows the investor to seek direct claims from the host government. One of the likely reasons for this is a desire by Australia to avoid the experiences of Canada, which has been exposed to claims by American investors under NAFTA Chapter 11. Another reason is related to the imbalance of the investment level between Australia and the US. In 2004, when the agreement was under negotiation, the US was the largest foreign investor in Australia, supplying nearly 30% of its foreign investment, while Australia was the tenth largest foreign owner of US assets.25 Under such a situation, adoption of the ISA would no doubt have put Australia in a disadvantageous position. The official explanation of the Australian Government on the absence of the ISA was that it was in recognition of ‘the Parties’ open economic environments and shared legal traditions, and the confidence of investors

18 19

20 21 22 23

24 25

Australia-Chile FTA, Art. 10.16. Ibid., Art. 10.21. For detailed discussion, see Micah Burch, Luke Nottage & Brett Williams, Appropriate Treaty-Based Dispute Resolution for Asia-Pacific Commerce in the 21st Century, 35 Univ. New South Wales Law J. 1033 (2012). Australia-Chile FTA, Arts. 10.20 and 10.22. Ibid.,Art. 10.16 (a), (b), and (c). Ibid.,Art. 10.16 (d). In the exchange of letters between Australia’s Minister for Trade and New Zealand’s Minister of Trade on the application of AANZFTA between Australia and New Zealand, both countries agree that the Investment Chapter of the ASEAN-Australia-New Zealand FTA does not create any rights or obligations between New Zealand and Australia. See, ASEAN-Australia-New Zealand Free Trade Agreement, Australian Dept. For. Affairs & Trade, http://www.dfat .gov.au/fta/aanzfta/index.html#FullText. ASEAN-Australia-New Zealand FTA, Ch. 11 Art. 21. Dept. For. Affairs & Trade, Austrl., Australia-US Free Trade Agreement: Advancing Australia’s Economic Future, http://www.dfat.gov.au/trade/negotiations/us_fta/ausfta_brochure.pdf (2004).


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in the fairness and integrity of their respective legal systems’.26 While the US went along with this, it appears that it seemed less pleased with the result and more concerned not to set a precedent.27 While this system undoubtedly protects the Australian and US governments from having to defend themselves against direct claims from each other’s investors, the foreign investors are left to the option of pure diplomatic and political protection. 2.1[d]. New Zealand FTAs As of this writing, New Zealand has eight trade agreements, most of which are with its neighbouring countries.28 Five of these agreements adopt the ISA mechanism. As with the FTAs of Australia, the New Zealand agreements rely heavily on consultation and negotiations as part of the dispute settlement process. For example, it is only if the dispute cannot be resolved within six months from the date of request for negotiation, that an arbitration panel is selected under detailed rules to help achieve a mutually satisfactory agreement. The arbitration rules under ICSID and UNCITRAL apply in most cases, except the ASEAN-Australia-New Zealand FTA.29 Unlike other countries, some of these trade agreements entered into by New Zealand are titled ‘Closer Economic Relationship/Partnership’, and do not cover investment, and thus no ISA provisions are included, for example, the New Zealand-Hong Kong, China Closer Economic Partnership and the Australia-New Zealand Closer Economic Relationship. Moreover, although the Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement was finally signed in February 2011, it only contains one brief article for consultations between Australia and New Zealand, without mentioning investors at all.30 Notably, the 26

27

28

29

30

Dept. for Affairs & Trade, Austrl., Australia-US Free Trade Agreement: Guide to the Agreement, http://www.dfat.gov.au/fta/ausfta/guide/ausfta_guide.pdf, March 2004, 121. William S. Dodge, Investor-State Dispute Settlement between Developed Countries: Reflections on the Australia–United States Free Trade Agreement, 39 Vand. J.Transnatl. L. 1, 25 (2006). Minister For. Affairs & Trade, N.Z., Trade Relationships and Agreement, http://www.mfat .govt.nz/Trade-and-Economic-Relations/2-Trade-Relationships-and-Agreements/index.php (accessed June 20, 2012). Article 21 of that Agreement provides an exception that if Philippines or Vietnam is the disputing Party against the investor, the dispute should be settled by the courts or tribunal of these two countries, rather than by international arbitration institution. See also, the exchange of letters between Australia’s Minister for Trade and New Zealand’s Minister of Trade on the application of AANZFTA between Australia and New Zealand supra n. 23. Protocol on Investment to the New Zealand-Australia Closer Economic Relations Trade Agreement, Art. 25 reads, if a Party considers that: (a) an obligation under this Protocol has not been, is not being, or may not be fulfilled; or (b) the achievement of any objective of this Protocol is being or may be frustrated, it may request consultations with the other Party. Following such a request, the Parties shall promptly enter into consultations with a view to seeking an early, equitable, and mutually satisfactory solution.

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original Trans-Pacific Partnership Agreement (TPP Agreement) signed between New Zealand, Brunei Darussalam, Chile and Singapore in 2005, does not include any investment provisions either. Although Article 20.1 of the Agreement specifies that ‘no later than 2 years after entry into force of this Agreement the Parties shall commence negotiations with a view to including a chapter on investment in this Agreement on a mutually advantageous basis’, no action has been seen so far. 2.1[e]

China FTAs

China so far is a party to seven FTAs and three special trade agreements with Hong Kong, Macau and Taiwan respectively. Five of these seven FTAs include dispute settlement systems on investor-state dispute.31 As with the US and Australia, China adopts similar investor-state arbitration mechanisms, where the dispute is to be submitted to the international conciliation or arbitration fora for solution.The rules of ICSID and the UNCITRAL have been the most frequently selected. A typical example of this is the New Zealand-China FTA,32 which provides that where consultation and negotiations fail to resolve the disputes within six months from the date of request, the disputing parties under this Agreement are entitled to have the choices of conciliation or arbitration by ICSID, or arbitration under the rules of UNCITRAL.33 This procedure is quite similar to the China-ASEAN FTA in dealing with the same subject disputes. The difference is that instead of including the ISA mechanism in the agreement, China-ASEAN FTA sets it in an independent side agreement, that is, Agreement on Investment of the China-ASEAN FTA, providing more rules and details.34 Another example that has special provisions for investment disputes is the China-Pakistan FTA. It too adopts the ISA mechanism. The dispute is encouraged to be settled amicably through negotiations, otherwise, by the choice of the investor, either to the competent court of the Party that is a party to the dispute or to the ICSID.35 Once the investor has submitted the dispute, the choice of the forum is final to avoid forum-shopping. Interestingly, unlike other FTAs, it especially sets up the rules for the investment disputes between Parties. Any disputes arising regarding the 31

32

33 34 35

They are Agreement on Investment of the China-ASEAN FTA (2009), Art. 14; China-Pakistan FTA (2009), Art. 54; China-Singapore FTA (2008), Art. 84; China-Peru FTA (2009), Art. 139; and China-New Zealand (2008), Ch. 11, sec. 2. China-Chile FTA so far does not include ‘Investment’ sector and thus no investor-state arbitration mechanism incorporated. New Zealand-China FTA was signed on 7 Apr. 2008 in Beijing, after long drawn negotiations spanning fifteen rounds over three years. Ministry For. Affairs & Trade, N. Z., Free Trade Agreement between the Government of New Zealand and the Government of the People’s Republic of China (2008) http://www.mfat.govt.nz/Trade-and-Economic-Relations/Trade-Agreements/China/index.php. New Zealand-China FTA, Art. 153. Agreement on Investment of the China-ASEAN FTA (2009), Art. 14. China-Pakistan FTA, Art. 54.


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interpretation and application of the Investment chapter are to be settled by consultations through diplomatic channels, otherwise by an ad hoc arbitral tribunal composed of three arbitrators.36 2.2

ISA UNDER BITS

As with the FTAs, there are standard investment protection provisions in all BITs, with variations of rules to be applied between specific parties. Generally, the ISA provisions of BITs require a period of time in which consultations must be attempted by the investor and host country prior to arbitration. For example, under the Korea-Finland BIT, six months’ negotiation time is requested, after which the disputing parties could bring the dispute to ICSID.37 Similar to FTAs, most BITs provide for the resolution of disputes arising from the foreign investment by specifying arbitration in a neutral forum as the method of resolution of the dispute. Thus, under the UK-Poland BIT, Article 8 provides that if the investor and host state fail to settle the dispute amicably within three months, they may refer it to ICSID, or an international arbitrator or ad hoc arbitral tribunal by agreement between the parties, or to be established under the arbitration rules of UNCITRAL. Such provisions are present with more details in the US BITs. For instance, the US-Poland BIT provides that at any time after six months from the date on which the dispute arose, the disputing parties may choose to consent in writing to the submission of the dispute for settlement by conciliation or binding arbitration to ICSID or to the Additional Facility of ICSID, or to the arbitration rules of UNCITRAL, or to the arbitral rules of any arbitral institution mutually agreed to between the parties to the dispute.38 Moreover, despite requests for the US to either replace investor-state arbitration with state-state dispute resolution, or delay or limit recourse to such arbitration, the new 2012 US Model BIT continues to retain arbitration and its underlying principles as its centrepiece by leaving the arbitration clauses largely untouched.39 3

DEBATE ON THE ISA MECHANISM

The ISA process has been criticized on three main grounds namely: (1) conferring special rights on foreign investors at the expense of domestic investors, (2) causing 36 37 38 39

Ibid.,Art. 53. Korean-Finland BIT, Art. 9. US-Poland BIT, Art. IX (3). 2004 US Model BIT, Art. 24 (3). See Paolo Di Rosa, Kluwer L. Intl. Blog, The New 2012 U.S. Model BIT: Staying the Course, http://kluwer.practicesource.com/blog/tag/investment-protection/ (May 15, 2012).

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regulatory chill, and (3) lack of transparency in international arbitration process and outcome. 3.1

SPECIAL RIGHTS TO FOREIGN INVESTORS

Despite the ISA mechanism being broadly practised in the FTAs and BITs, it has been subjected to considerable criticism on grounds that it grants procedural rights to foreign investors that are not afforded to domestic citizens and investors, who are unable to seek third-party arbitration against the government. The granting of these special rights and privileges by way of the ISA process has been criticized as being an unacceptable expansion of the rights of corporate investors at the expense of democratic government and as giving disproportionate additional legal powers to investors.40 Such negative sentiments emanate mainly from NAFTA Chapter 11, which provides investors substantial rights against the host government and placing the host government at a substantial disadvantage. The recent increase in ISA disputes and the challenges posed by investors to public health and law public policies of the host state have increased the level of these concerns globally. Defenders of the ISA system, however, rebut the above criticism by pointing to the reciprocity involved in these provisions for investors from both countries. For instance, investors from Country A enjoy the legal rights under the ISA provided by a FTA with Country B, which is not available to the domestic investors of Country B. However, investors from Country B receive the reciprocal rights when they invest in Country A under the same ISA provisions included in the same FTA. As a result, foreign investors from both countries A and B may equally benefit from such provisions in respect of their investments in each other. Moreover, both domestic and foreign investors are entitled to rights of compensation in certain circumstances, whether under domestic law or under FTAs or BITs. The existence of the ISA in FTAs or BITs does not change this equality in the substantive treatment of foreign and domestic investors. The shortcoming in this claim, however, is that such reciprocity prevails only where both nations have entities that invest across borders, and will not be true of developed country multinational corporations investing in least developed countries, as the latter is unlikely to have capital exporting multinational corporations. However, the imbalance is more acutely felt by entities engaged in

40

Patricia Ranald & Harvey Purse, Supplementary Submission on behalf of the Australian Fair Trade and Investment Network (AFTINET) to the Productivity Commission Review into Bilateral and Regional Trade Agreements 11 (Australian Government Productivity Commission 2010) (available at http://www.pc .gov.au/__data/assets/pdf_file/0015/102525/subdr068.pdf).


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domestic trade only as they will be limited to accessing the local courts and system of domestic dispute settlement only. 3.2

REGULATORY CHILL

The ISA provisions, it is argued, have caused host governments not to undertake regulatory action for fear of triggering arbitration claims or paying compensation to the foreign investors under certain circumstances. For instance, Professor Van Harten has noted the documented withdrawal by the Canadian Government of a proposal to impose cigarette plain-packaging regulations following the threat of investor-state arbitration.41 Consequently, it is claimed that the ISA results in states abrogating their sovereignty for the benefit of multinational corporation investors. The resulting ‘regulatory chill’ is considered a risk brought on by ISA rulings that go against the public interest, not just for developing countries seeking to improve their standards of regulation, but also for developed countries. The International Trade Committee of the European Parliament has recently called for balancing private investor protection and public regulation prerogatives under bilateral investment agreements which infringe on the right of countries to regulate in the name of ‘national security, the environment, public health, workers’ and consumer rights, industrial policy and cultural diversity’ in its future bilateral agreements.42 Investors, however, argue that the inclusion of the ISA under FTAs and BITs is not only essential to provide attractive financial guarantees and attract foreign direct investment into the countries, but is also necessary in terms of making direct claims. For example, if Australian investors into China face greater political risk in the absence of a treaty than do Chinese domestic investors, then no doubt the levels of investment into China from Australia will be much more limited. And in the absence of a mechanism such as ISA, it may be difficult for investors to make indirect claims through their home state as trade disputes tend to be politicized. In other words, broader geo-political considerations taken into account by a home state in deciding whether or not to advocate an investor’s claim will no doubt adversely affect the interests of a particular investor.43 As stated by a former Legal Adviser to the US Department of State:

41

42

43

Gus Van Harten, Submission to the Productivity Commission: Bilateral and Regional Trade Agreements Study 5 (Australian Government Productivity Commission 2010) (available at http://www.pc.gov.au/__ data/assets/pdf_file/0017/102842/subdr099.pdf). European Parliament, EU Investment Policy Needs to Balance Investor Protection and Public Regulation, says International Trade Committee, http://www.europarl.europa.eu/en/pressroom/content/ 20110314IPR15476/html/EU-investment-policy-needs-to-balance-investor-protection-and-publicregulation (accessed Mar. 17, 2011). Dodge, supra n. 27, at 8.

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the Department’s decision with respect to espousal is likely to be influenced, not only by the merits of the case, but by the Department’s concern for offending a foreign state and creating a potential irritant in its dealings with that state.44

In other words, inclusion of the ISA provisions under FTAs and BITs provide investors the opportunity of direct claim and to depoliticize the settlement of investment disputes. In this way, investors could press their claims directly without worrying that government officials may sacrifice them in the interests of foreign relations. Moreover, by resorting to settlement of disputes through ISA, the home state of the investor could remain neutral in disputes between their nationals and other states. As Professor Caron has observed, the trend toward direct claims ‘is desirable politically because it reduces the significance of the state as a world actor in areas where the sensitivities of the state need not be implicated’.45 Therefore, to exclude the ISA in FTAs and BITs based on grounds of ‘regulatory chill’ pushes the disputes back to diplomatic means - a step that may be considered to be regressive in the context of the freeing up of trade laws. This highlights the need for a mechanism to balance investment protection on the one hand while ensuring adequate policy space for government to regulate in the interests of the public on the other. More particularly, recognition of the right of government to regulate in the public interests, while at the same time preventing expropriation of foreign investment and without compensation and by way of stealth. This is what appears to be badly lacking in the FTAs and BITs that have been entered into. 3.3

LACK OF TRANSPARENCY IN INTERNATIONAL ARBITRATION PROCESS

The current international arbitration system has been considered as seriously failing. First, the arbitration process is criticized for lacking transparency in nature as it generally does not contain a requirement for cases to be made public. Arbitration awards are usually published only with the consent of the disputing parties. As such, the chance for public access to documentation or awards made in a case is very much limited. It can be difficult or impossible for citizens to get access to the relevant information. Second, the focus of arbitration normally is entirely on the payment of compensation and not on maintaining a working relationship between the parties.46 There is limited room for the investor and state to strike other deals which are conducive to long term business relationships. To make it worse, the cost for conducting arbitration procedures and legal fees have

44 45

46

Ibid., 28. David D. Caron, The Nature of the Iran-United States Claims Tribunal and the Evolving Structure of International Dispute Resolution, 84 Am. J. Intl. L. 154 (1990). Prevention and Alternatives to Arbitration 2010, supra n. 3, XXIII.


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been shown to be extremely high.47 Third is the inconsistency and jurisdiction of arbitration rulings. Unlike court systems where decisions of the court are binding on future cases, rulings of arbitral panels are binding only on the participants. As such, arbitral decisions offer little or no guidance as precedents with resulting inconsistency in the interpretation even of core investment protection definitions and standards,48 and even cases with similar or identical facts can end up with opposing conclusions. Supporters of international arbitration, however, argue that third-party arbitration rules have been working well for investor-states disputes, especially those of ICSID and UNCITRAL. Of the total 450 known treaty-based investor-state disputes at the end of 2011, 279 were filed with the ICSID or under the ICSID Additional Facility, and 126 under the UNCITRAL rules.49 While not giving rise to judicial precedents, it is claimed ISA is still more certain and stable in nature than a myriad of different state laws and rules applied by various local courts dealing with the investor-state disputes. Moreover, investors no longer need to bear the uncertainties from the diplomatic dispute resolution, and the states no longer need to worry about offending another state by bringing a dispute against it. For example, with the arbitration rules provided under ICSID, foreign investors could find their own way in pursuing a dispute with the host country and obtain direct access to an international remedy. In turn, the host state by consenting to ICSID arbitration obtains the assurance that it will not be exposed to an international claim by the investor’s home state but the investors.50 What is needed is to work out how to further improve the operations of the international arbitration process so that it can serve the purpose of resolving the investor-state disputes better. An example is the appellate mechanism to review ISA rewards which has been canvassed as an effective way to improve the consistency of arbitral decisions on investment, and to which the Parties to Dominican Republic-Central America–United States FTA have already agreed to do.51 4

THE RETREAT FROM ISA

While the debate on ISA continues, some recent developments on ISA need to be noted. First, there has been an increase in disputes between investors and host nations since the inclusion of the ISA provisions under FTAs and BITs. By the end 47

48 49 50 51

In addition to legal fees, there are arbitrator’s fees, administration fees of arbitration centres and additional costs for the involvement of experts and witnesses. Ibid., 16. Latest Development, supra n. 1, at 14. Ibid. Christoph H. Schreuer, The ICSID Convention: A Commentary 398 (Cambridge U. Press 2001). Joshua P. Meltzer, Bilateral and Regional Trade Agreements Case Studies, 271 (Simon Nicholas Lester & Bryan Mercurio eds., Cambridge U. Press 2009).

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of 2011, the number of countries that have responded to one or more ISA claims is eighty-nine, with the largest number of claims against Argentina (51),Venezuela (25), Ecuador (23), Mexico (19) and the Czech Republic (18).52 Most of these claims were initiated by investors from developed countries against the developing country hosts. For instance, of the 46 new ISA cases filed in 2011, investors from developed countries are responsible for 35, 80% (28) of which were filed against developing countries or transition economies. 53 Outcomes from such dispute resolution have made some developing countries to reconsider the superior legal rights offered to foreign investors under FTAs and BITs. Second, the increasing ISA claims now touch new and sensitive subjects involving public policy legislation in areas such as tobacco control and nuclear phase-out, which go well beyond its original intention.54 Consequently, the clamour to reserve more space for host countries to regulate in certain circumstances, for example, health reform, has been increasing. Third, there has been an emergence of lobbies within the developing as well as some developed countries demanding a rethink of ISA practice. Some changes responding to such concerns have already been observed. 4.1

THE US

With the changing role of developed countries from being capital exporters to capital importers, some developed countries have come around to questioning aspects of the law relating to investor-state dispute settlement which they had helped fashion as they increasingly become the targets of litigation as capital importers under bilateral treaties.55 The new generation of trade and investment agreements is therefore moving away from the original purpose of investment protection and evincing a movement towards preserving regulatory discretion to interfere with foreign investment arrangements where public interests so dictate.56 An example is the 2004 US Model BIT which has dramatically amended the traditional rules contained in the BITs for the purpose of safeguarding the states’ right to intervene, even to the detriment of foreign investors’ interests, to protect general interests with respect to the environment, labour rights and competition.57 52

53 54

55

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Among these 89 respondents, 55 are developing countries, 18 developed countries, and 16 transition economies. See Latest Development, supra n. 1, at 2. Ibid. Example of such cases involving public policies are: Philip Morris v. Australia, and Vattenfall AB, Vattenfall Europe AG,Vattenfall Europe Generation AG v.The Federal Republic of Germany (ICSID Case No. ARB/09/6). Muthucumaraswamy Sornarajah, The International Law on Foreign Investment 25 (3rd ed., Cambridge U. Press 2010). Ibid., 235. For example, Art. 12 of the 2004 US Model BIT on Investment and Environment provides, ‘Nothing in this Treaty shall be construed to prevent a Party from adopting, maintaining, or


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The Model makes it clear that the fair and equitable standard is nothing more than the ‘customary international minimum standard’.58 Moreover, Annex B 4 (b) of the 2004 Model states that regulatory expropriations are not compensable ‘except in rare circumstances’, and regulatory actions of host state relating to ‘public health, safety and the environment’ do not constitute indirect expropriations. The 2012 US Model BIT retains these principles, thereby ensuring the government’s ability to regulate in the public interest. Moreover, by retaining the exact wording of the 2004 version, it revives the notion of regulatory expropriation while curtailing the scope of the fair and equitable standard of treatment.59 It also states the principle that the standards of protection to investors are the same in domestic law, resurrecting thereby the ‘consistently rejected Calvo doctrine’.60 These changes mark a significant departure by the US from the strong investment protection standard it had previously advocated so fervently. Although ISA practice is retained, it highlights the move to limit the scope of investment protection, or to restrict the circumstances when it can be claimed under the ISA by means of a revision of the relevant investment provisions under the investment-related bilateral agreements. 4.2

LATIN AMERICAN COUNTRIES: BOLIVIA, ECUADOR, NICARAGUA AND VENEZUELA

Latin American countries have become the major generators of ISA disputes relating to natural resource such as oil, gas and mining. Of the forty-three cases over resource rights pending under ICSID at the end of 2011, 25 (58%) are against countries from Latin America.61 Faced with frequent claims made by multinational corporations, Bolivia was the first Latin American country that denounced the ICSID Convention in May 2007. A comment made by Bolivian President Evo Morales that governments in Latin America never win ISA cases, whereas ‘transnationals always win’,62 reflects their displeasure. This comment was immediately backed by the Venezuelan President Hugo Chavez, encouraging the

58 59

60

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enforcing any measure otherwise consistent with this Treaty that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.’ 2004 US Model BIT, Annex A Customary International Law. Paolo Di Rosa, Kluwer L. Intl., The New 2012 U.S. Model BIT: Staying the Course, kluwer Arbitration Blog http://kluwer.practicesource.com/blog/tag/investment-protection/ (May 15, 2012). Muthucumaraswamy Sornarajah, Starting Anew in International Investment Law, 74 Vale Colum. Centre Sustainable Intl. Inv. (July 16, 2012). (available at http://www.vcc.columbia.edu/content/starting-anew -international-investment-law). Sarah Anderson et al., Corporate Lawsuits against Governments over Resource Rights Continue to Increase 5 (Inst. Policy Stud. 2011) (available at http://www.ips-dc.org/reports/mining_for_profits _in_international_tribunals). Venezuela to Sell off US Refineries, Taipei Times May 1, 2007 (available at http://www.taipei times.com/News/worldbiz/archives/2007/05/01/2003359053).

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Latin American countries to create their own arbitration body for ISA claims.63 To limit the access to international arbitration in some sensitive sectors, Ecuador followed Bolivia and withdrew from the ICSID Convention in December 2007 to circumscribe ICSID’s jurisdiction over ISA disputes involving its natural resources.64 In addition, Ecuador terminated nine of its BITs in 2008 with its partner countries, namely, Cuba, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Paraguay, Romania and Uruguay.65 In 2008, Nicaragua threatened to withdraw from ICSID, motivated partly by the large amount of damages awarded by ICSID against Argentina for a string of ISA claims.66 The reason why these countries withdrew or threatened to withdraw from ICSID instead of other international arbitration rules, for example, UNCITRAL is that, arbitral awards under ICSID are unique in that they more or less amount to ‘a final judgment of a court’67 in all of the ICSID Contracting States. It means that such awards do not require internal judicial procedures to enable enforcement, and Contracting states have to enforce the award without any conditions.68 In contrast, any arbitral awards rendered under the ICSID Additional Facility and UNCITRAL require additional domestic enforcement procedures, although the process is largely facilitated by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.69 As a result, ICSID generates the most number of investor-state disputes every year. For instance, of the forty-six new disputes filed in 2011, thirty-four were filed with ICSID or the ICSID Additional Facility, and only six under the UNCITRAL.70 63 64

65

66

67 68

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Ibid. Arps Skadden, Slate, Meagher & Flom LLP & Affiliates, Nicaragua Threatens Withdrawal From ICSID: Implications for Investors, http://www.skadden.com/sites/default/files/publications/ Publications1391_0.pdf (accessed Apr. 24, 2008). In 2010, Ecuador’s Constitutional Court declared arbitration provisions of six more BITs (China, Finland, Germany, the UK, Venezuela and the United States) to be inconsistent with the country’s Constitution. It is possible that Ecuador will take action to terminate these (and possibly other) BITs. See UN Conf. Trade & Dev., Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims 1 IAA Issues Note, No. 2 http://unctad.org/en/docs/webdiaeia20106_en.pdf). On 14 Apr. 2008, the Nicaraguan attorney general announced that Nicaragua was considering denouncing the ICSID Convention. See, Arps Skadden, Slate, Meagher & Flom LLP & Affiliates, Nicaragua Threatens Withdrawal From ICSID: Implications for Investors, http://www .skadden.com/sites/default/files/publications/Publications1391_0.pdf (accessed Apr. 24, 2008). ICSID Convention, Art. 54(1). Argentina, however, has a different interpretation of this term. In its dispute with Azurix, a US investor, Argentina argued that Azurix can only collect the ICSID award if the award is also approved by a domestic court of Argentina. See U.S. Firm Readies Section 301 Petition To Collect ICSID Award From Argentina 6 World Trade Online (Dec. 8, 2011), http://www .embassyofargentina.us/v2011/files/20110831cartaajuttahennig.pdf . Sergey Ripinsky, Venezuela’s Withdrawal From ICSID:What it Does and Does Not Achieve, 2 Inv. Treaty News 11 (2012). Another reason ICSID is more frequently used is because it functions under the banner of the World Bank, while UNCITRAL is a tribunal under the aegis of the United Nations. Unlike UNCITRAL, ICSID publishes a registry of its cases. See Latest Development, supra n. 1, at 1.


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Following widespread nationalization by Venezuela of foreign-owned investment, there has been a spate of claims against it. In 2011 alone,Venezuela was the respondent in ten new ISA cases.71 Other claims were against Egypt and Ecuador (4), Peru (3) and Poland, Philippines and Turkmenistan (2).72 As a result of such frequent ISA claims, Venezuela renounced the ICSID Convention in January 2012, effective from 25 July, 2012.73 This makes Venezuela the third country to withdraw from ICSID after Bolivia and Ecuador. ICSID is currently hearing more than twenty ISA claims against Venezuela.74 Venezuela’s decision to withdraw from ICSID raises questions on the legality of cases pending before ICSID as well as the right of investors to file new claims against it. The dominant view is that while no new ISA claims can be initiated by foreign investors against Venezuela under ICSID (despite its BITs remaining in force), existing ISA claims must be arbitrated on.75 Such ICSID withdrawal or threat of withdraw and BITs termination send a clear message that developing countries, in particular, have lost faith in ICSID system and are concerned about decisions by arbitrators. To Latin American countries, the current investment regime is not balanced, as it seems more geared toward enabling secure transnational investment flows than ensuring such flows benefit the citizen of their own.To address the issue, a range of options have been proposed, such as rewriting the investment rules to support sustainable development and protect national sovereignty, and replacing the current system with alternative institutions.76 4.3

AUSTRALIA

As noted above, Australia routinely incorporates the ISA provisions into its FTAs. Except for those with the US and New Zealand, all its other FTAs have made such provisions a part of the agreements. However, in a trade policy statement 71

72 73

74

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Ibid., 2. Following Ecuador,Venezuela has also terminated its BITs with the Netherlands in 2008. See Ripinsky, supra n. 69, at 12. Latest Development, supra n. 1, at 2. Ripinsky, supra n. 69, at 11. Its decision to withdraw from ICSID has taken place just a few weeks after the International Chamber of Commerce awarded USD 907 million to Exxon Mobil for Venezuelan government’s expropriation and breach of contract of Cerro Negro and La Ceiba projects. See, Exxon Mobil Awarded $900m Compensation (Jan. 2, 2012) Ninemsn, http://finance.ninemsn.com.au/news business/aap/8397401/exxon-mobil-awarded-900-mln-compensation. Brian Ellsworth & Robert Edison Sandiford, Top Venezuela Firm Files Arbitration Against Chavez Government, http://uk.reuters.com/article/2012/02/16/uk-venezuela-arbitration-idUKTRE81F0TB 20120216 (accessed Feb. 16, 2012). Foreign investors still have the chance to arbitrate the disputes outside Venezuela’s domestic courts, as most of Venezuela’s BITs not only provide arbitration under ICSID, but also ICSID Additional Facility Rules, and the rules of UNCITRAL. See Denunciation of the ICSID Convention and BITs, supra n. 65. See also Ripinsky, supra n. 69. Anderson et al., supra n. 61, at 12.

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launched by Trade Minister Craig Emerson in April 2011, the Gillard Government decided to discontinue its traditional practice and to limit, if not exclude, the ISA mechanism in its future FTAs.To quote: In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses. The Gillard Government will discontinue this practice. If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries.77

The Australian Government’s policy shift, largely motivated by the Government’s reluctance to be dragged into arbitration for disputes relating to its politically contentious reforms, such as plain cigarette packaging and carbon tax, has had an encouraging reception in a number of countries.78 This development, however, raises all the important questions of how, with the exclusion of international arbitration, future investor-state disputes to which Australia is a Party are to be settled. One option is for investors to rely on the home state to use its traditional diplomatic negotiation process for resolution as under the WTO. But this could put the investors’ stake at risk because the home state normally tends to politicize the disputes, as explained above. Another option is for investors to bring the disputes to the court of the host country for resolution.This however is a difficult option, as the investor will feel that the local court tends to favour the host state and thus biased.Yet, another option is for investment contract-based arbitration or legislation-based arbitration that allows the investors to negotiate specific agreements referring dispute to arbitration with host country prior to undertaking any investment. However, this option will normally be open only to large investors with bargaining power. For example, American and Netherlands investors struck an agreement with the government of Western Australia over the Gorgon gas

77

78

Australian Govt.: Dept. For. Affairs & Trade, Gillard Government Trade Policy Statement: Trading our way to more jobs and prosperity, 14 (2011) http://www.dfat.gov.au/publications/trade/trading-our-way-to -more-jobs-and-prosperity.html. Critics, however, pointed out that this policy shift was an ‘overreaction’ to the threat of the legal actions by tobacco companies, arguing that the government’s stance could detract from foreign investors’ attraction to Australia and undermining its support for Australian companies operating or looking to expand overseas. Alex Boxsell, Trade Agreements Meet New Hurdles, Australian Financial Rev. 36 (Aug. 17, 2012). Australia won a much-needed victory against big tobacco companies challenging the validity of the Tobacco Plain Packaging Act 2011 (Cth) in High Court of Australia on Aug. 15, 2012. It currently has one case pending in the International Centre for Settlement of Investment Dispute brought by Phillip Morris against this Act and another three on the same subject pending under the World Trade Organization brought by Ukraine (WT/DS434), Honduras (WT/DS435), and Dominican Republic (WT/DS441). See High Court of Australia, JT International SA v. Commonwealth of Australia; British American Tobacco Australasia Limited & Ors v.The Commonwealth of Australia [2012] HCA 30 (Judgment Summary, 15 Aug. 2012).


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project that included a provision that refers disputes to arbitration.79 Similarly, Rio Tinto’s agreements with the Canadian Government regarding the environmental treatment of the Diavik diamond mines also contain clauses referring disputes to arbitration.80 Moreover, it raises significant questions on how Australia will approach FTAs and BITs it will enter into the future. One such instance is the TPP Agreement81 currently under negotiation, and in which process Australia is a key player. Australia’s new stance on ISA is expected to impact on the outcome of the ISA provisions of the TPP agreement.While it is not quite clear as to whether and how the currently negotiated TPP will incorporate the ISA, a leaked TPP Investment Chapter released in June 2012 clearly shows the inclusion of such a mechanism. As it reads, consultation and negotiation are required before the dispute is sent to arbitration, and that the popular international arbitration rules, such as ICSID, and UNCITRAL will be adopted.82 This is not surprising given that the US has been pushing for TPP to include such a mechanism ever since the beginning of negotiations. The US firms see the inclusion of ISA under the TPP as a crucial means of protecting their foreign investments in the TPP member countries. What is noteworthy is Australia’s indication in Footnote 20 of the leaked TPP Investment Chapter that ISA under TPP will not apply to it or to an Australian 79

80

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See Western Australia (WA) Barrow Island Act (2003), Sch. 1. Sec. 30 (1) of the Act provides that: ‘Any dispute or difference between the State and the Joint Venturers arising out of or in connection with this Agreement, the construction of this Agreement or as to the rights duties or liabilities of either of them under this Agreement or as to any matter to be agreed upon between them under this Agreement shall, in default of agreement between them and in the absence of any provision in this Agreement to the contrary, be referred to and settled by arbitration under the provisions of the Commercial Arbitration Act 1985 and each party may be represented before the arbitrator by a duly qualified legal practitioner or other representative.’ See Austrl. Productivity Commn., Bilateral and Regional Trade Agreements 270, http://www.pc.gov.au/__data/assets/pdf_file/0006/99762/trade -agreements-draft.pdf (accessed Dec. 13, 2010). Ibid.,271.More detailed arrangement can be found under an investment agreement between the Liberian Government and Chinese mining investors,where arbitration is explicitly set as the exclusive and final remedy under arbitration rules of UNCITRAL for investment-related claims, and the Chinese investors are not required to exhaust any local administrative or judicial remedies,unless the claim involves a violation of Law.Relying on such provisions,Chinese investors can seek international arbitration protection regarding their investment in Liberia, regardless of whether or not such mechanism has been incorporated under trade or investment-related agreements between China and Liberia. See Section 16.1 (a) of the Mineral Development Agreement between Liberia and China-Union (Hong Kong) Mining Co., Ltd and China-Union Investment (Liberia) Bong Mines Co., Ltd, signed on 19 Jan. 2009. TPP is a multilateral deal, and is now under negotiation with another five additional countries, i.e., the US, Australia, Peru and Viet Nam, and Malaysia. Mexico and Canada formally expressed their interest in joining the TPP negotiations at the Asia-Pacific Economic Co-operation Summit in November 2011, and joined the talks in June 2012. Japan has been seeking entry to the deal and Thailand has been planning to join very recently. As at the end of December 2012, fifteen rounds of negotiations have taken place. The leaked TPP Investment Chapter, Arts. 12.17 and 12.18. Simon Lester, Intl. Econ. L. & Policy Blog, The Leaked TPP Investment Chapter, http://www.citizenstrade.org/ctc/wp-content/uploads/ 2012/06/tppinvestment.pdf (June 14, 2012 ).

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investor.83 As the leaked TPP Investment Chapter is only a draft not yet agreed to by all members, it is not clear as yet whether other countries are also considering opting out of ISA, like Australia has done. It has been suggested that some TPP members are yet to agree on incorporating the ISA application based on the fact that while details of contact addresses of investment-related disputes have already been inserted into the draft of Chile, Malaysia, New Zealand and the United States, others such as Brunei, Peru, Singapore and Vietnam are still to do so.84 Given the importance that the TPP has assumed, whether and how to have the ISA mechanism included in the final agreement has become a vexing task for its negotiators. On the one hand, given the pressure from the US, it might not be easy for Australia to maintain its position against the ISA under the TPP; on the other hand, Australia’s decision of discontinuing its ISA practice is likely to influence the other TPP members and thus might slow down the TPP negotiation process. An attempt to conclude the TPP agreement at the Honolulu APEC Summit in November 2011 failed, and moves to expand its membership are being made with Mexico and Canada being admitted into the pact in June 2012, with Japan and Thailand planning to join recently. 85 Other sensitive issues such as labour and environmental regulations, rules of origin, and state-owned enterprises also loom large, causing substantive disagreements and negotiating delays between the countries. 4.4

INDIA

In July 2011, India indicated its decision not to include an ISA system under its FTA with the EU currently under negotiation.86 More importantly,inApril 2012,India released its plan to abolish the ISA clause in all its future FTAs and BITs, and to renegotiate the ISA provisions in its existing FTAs with South Korea, Singapore and other countries.87 The change in plan was triggered by the increasing ISA disputes the Indian Government has had to contend with recently. One such case was that brought by 83

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Ibid. The leaked TPP Investment Chapter, footnote 20 states, ‘Section B does not apply to Australia or an investor of Australia. Notwithstanding any provision of this Agreement, Australia does not consent to the submission of a claim to arbitration under this Section.’ Benn McGrady, Leaked Trans Pacific Partnership Investment Chapter, Trade, Inv. & Health, http://www .oneillinstitutetradeblog.org/leaked-trans-pacific-partnership-investment-chapter/ (accessed June 12, 2012). Claude Barfield, A Big Deal: Canada and Mexico join the Pacific Trade Pact, Vox (Aug. 1, 2012), http:// www.voxeu.org/article/trans-pacific-partnership-enlarged-trade-agreement-may-remake-world-tradegovernance. See also Matt Spetalnick et al., Thailand Says to Join Trans-Pacific Partnership Trade Talks, Reuters (18 Nov. 2012), http://www.reuters.com/article/2012/11/18/us-asia-obama-trade-idUSB RE8AH06R20121118. Asit Ranjan Mishra, India May Exclude Clause on Lawsuits from Trade Pacts (Jan. 29, 2012) Wall St. J., http://www.livemint.com/2012/01/29231517/India-may-exclude-clause-on-la.html. Jung Eun-joo, India plans to abolish ISD clause in FTAs (Apr. 6, 2012) Bilateral.org http://www.bilaterals.org/spip.php?article21295.


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White Industries Australia Limited, a mining company in July 2011.White Industries claimed that the prolonged judicial delays to enforce an international arbitration award by Indian courts caused a denial of justice and left India in breach of its obligation to accord ‘fair and equitable treatment’ to investors under Australia-India BIT.88 The UNCITRAL tribunal held that even though the undue court delay in this instance did not constitute a denial of justice,India did breach its obligation under the India-Kuwait BIT to provide investors with an ‘effective means of asserting claims and enforcing rights’.89 Consequently, the tribunal in November 2011 awarded White Industries AUD 4 million,plus interest,cost and legal fees.90 While this case may place pressure on India to reform its arbitration award enforcement processes, it might equally prompt the Indian Government to exclude ISA from its future investment-related agreements and treaties. Following its loss in White Industries, India has woken to a growing list of potential ISA cases against it.These include an arbitration notice from the Russian telecom company Sistema in February 2012,91 and two threats of arbitration from Norwegian telecom firm Telenor in March,92 and a UK hedge fund company, the Children’s Investment Fund Management, in April 2012.93 More recently, British Telecom giant Vodafone has served a dispute notice on the Indian Governmentthe first step to initiate arbitration proceedings under the India-Netherlands Bilateral Investment Protection Agreement.94 The dispute follows the Indian Government’s

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90 91

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93

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Larisa Babiy, India in Breach of BIT for Court Delays (April 13, 2012) Inv. Treaty News, http://www.iisd.org/itn/2012/04/13/awards-and-decisions-7/. White Industries took advantage of such protection and imported it to Australia-India BIT through the ‘most-favoured nation’ clause. The UNCITRAL tribunal concluded that ‘had India not failed to provide White with “effective means” of asserting its claims, the Indian courts ought by now to have determined the Award to be enforceable in India’. Jayati Ghosh, India’s Bilateral Investment Treaties:Worst Fears Realised, 29 Frontline 10, at 18 (2012). Babiy, supra n. 88. The dispute was triggered by the Indian Supreme Court’s decision to revoke Sistema’s telecoms licences. Sistema has since the beginning of December 2012 set a deadline for India to finalise a strategy for restoring its operating licences for local wireless before it seeks damages via international arbitration. No positive outcomes have as yet resulted. See Kalyan Parbat, Quashed Mobile Permits: Sistema Sets Deadline for Government, The Economic Times (Dec. 10, 2012), http:// articles.economictimes.indiatimes.com/2012-12-10/news/35726554_1_russian-conglomerate-sistemasistema-shyam-sstl. Siddharth Gaikwad, Telenor Seeks Arbitration, Claims Damages of $14bn from Goverment in 2G Case, The Times of India (Mar. 27, 2012), http://timesofindia.indiatimes.com/business/india-business/Telenorseeks-arbitration-claims-damages-of-14bn-from-govt-in-2G-case/articleshow/12420404.cms. The Children’s Investment Fund Management, TCI to Launch Legal Action against Coal India (Apr. 1, 2012), http://coal4india.com/Coal4India/c4i9.pdf. Joji Thomas Philip & Vinay Pandey, Vodafone Plans no Further Legal Action against the Indian Government; to Rely on International Arbitration Econ. Times (May 28, 2012) (available at http:// economictimes.indiatimes.com/news/news-by-industry/telecom/vodafone-plans-no-further-legalaction-against-the-indian-government-to-rely-on-international-arbitration/articleshow/13610673.cms).

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proposal to retrospectively apply capital gains tax under its Finance Bill 2012.95 Vodafone claimed that these retrospective tax proposals violated the international legal protections granted to foreign investors, and that such proposals amounted to a breach of the Indian Government’s obligations under the bilateral investment treaties to accord fair and equitable treatment to investors.96 The outcome of this case is being watched with great interest, and may prove the tipping point for India to discontinue with ISA. 4.5

CHINA

Compared to the countries discussed above, China has been subject to fewer investment treaty-related arbitration claims. As of this writing, China has only been involved in three ISA cases, two brought by Chinese investors and one againstChina.The first case was between Tza Yap Shum (TYS), a Chinese national resident in Hong Kong against Peru filed in 2007 with ICSID.97 The dispute arose when Peru’s tax authority froze the bank account of TYS and confiscated the assets of his company for unpaid company tax. TYS claimed that such action amounted to an expropriation of the company and demanded USD 20 million in compensation under China-Peru BIT.98 The ICSID tribunal found in favour of TYS in July 2011, awarding him USD 786,000 plus interest, which subsequently triggered the application of the annulment of the award by Peru four months later.99 An ad hoc annulment committee was constituted in January 2012, and Peru has just filed a memorial on annulment in June this year.100 The second ISA case arose in 2010, when three Chinese mining companies brought an ISA claim against the Republic of Mongolia under the China-Mongolia BIT.101 As with the TYS v. Peru case, the Chinese investors claimed that the cancellation of a mining license by Mongolia amounted to 95

96 97

98 99

100

101

India: Investment Treaties Stifle Public Policy Objectives,Third World Network http://www.twnside.org.sg/ title2/FTAs/info.service/2012/fta.info.223.htm (accessed Apr. 24, 2012). Ibid. Tza Yap Shum v. Republic of Peru (ICSID Case No. ARB/07/6), Intl. Centre Settle. Inv. Dispute (available at http://icsid.worldbank.org/ICSID/FrontServlet (accessed June 29, 2012)). Richard Chalk & Adam Silverman, Country Chapters: China,The Asia-Pacific Arb. Rev. (2012). Fernando Cabrera, Chinese Investor Receives Compensation for Expropriation of Fish Meal Business by Peru Inv. Treaty News, 7 Oct. 2011 (available at http://www.iisd.org/itn/2011/10/07/awards-and -decisions-5/). Following the resignation of an ad hoc Committee member, Mr David Williams, the Secretary-General notified the parties of the vacancy on the ad hoc Committee, following which the proceedings were suspended pursuant to ICSID Arbitration Rules 53 and 10(2) on 3 Dec. 2012. TzaYap Shum v. Republic of Peru, supra n. 97. China Heilongjiang International & Technical Cooperative Corp, Qinhuangdaoshi Qinlong International Industrial, and Beijing Shougang Mining Investment v. Republic of Mongolia. See UNCTAD Database of Treaty-Based Investor-State Dispute Settlement Cases (Dec. 18, 2011), http://www.unctad. org/iia-dbcases/cases.aspx.


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expropriation. As of this writing, the case is still pending.The third case concerned Ekran Nerhad, a Malaysian company which brought a dispute against China to ICSID in May 2011102 under the China-Malaysia BIT.This is the first ISA dispute filed against China under its investment-related treaties. The claim was over rights to a leasehold of land in a Southern Chinese province held by a subsidiary of Erkan Berhad.The case was expected to possibly mark the beginning of a new era of China’s ISA claims. ICSID, however, records that the proceeding of this case was suspended on 22 July 2011, following the Parties’ resolving the issue between themselves.103 None of these cases have as yet had any significant impact on China’s ISA practice. The recent development of China’s newer investment-related treaties, however, has shown that instead of moving away from the ISA practice, China is moving in the opposite direction by incorporating broader ISA provisions under its investment-related treaties. An example is the new China-Germany BIT which extends the coverage of ISA into ‘any dispute concerning investments between a Contracting Party and an investor of the other Contracting Party’, helping improve thereby the ability of foreign investors to access international arbitration for dispute settlement.104 Another example is the Trilateral Investment Agreement between China, Japan and Korea just concluded in May this year. The Agreement defines ‘investments’ as ‘every kind of asset that an investor owns or controls, directly or indirectly’.105 This definition differs sharply from those under China’s earlier BITs in two ways, first by covering investments ‘indirectly’ controlled by investors, and second by removing the requirement of making investment ‘in accordance with the laws of the host State’.106 That means that investors under the Trilateral Investment Agreement get broader protection, and can even make claims 102

103

104

105

106

Ekran Berhad v. People’s Republic of China (ICSID Case No. ARB/11/15) Intl. Centre Settle. Inv. Disputes (available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=GenCase DtlsRH&actionVal=ListPending (accessed May 24, 2011)). Ekran Berhad v. People’s Republic of China (2011) Intl. Centre Settle. Inv. Disputes http:// icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&reqFrom=ListCases&caseId=C1600 &actionVal=viewCas. China-Germany BIT, Art. 9. The new China-Germany BIT entered into force in December 2005, replaced the 1983 China-Germany BIT. Other examples of broader ISA coverage include New Zealand-China FTA, China-ASEAN FTA, and Netherlands-China BIT. See, Brenda Horrigan, Felix Hess & Siew Lin Mok, Chapter 8: China. Intl. Arb. Rev. 99, at 112 (2011). Agreement among the Government of Japan, the Government of the Republic of Korea and the Government of the People’s Republic of China for the Promotion, Facilitation and Protection of Investment, Art. 1(1). See e.g., Art. 1(1) of Korea-China BIT defines the term ‘investments’ as ‘means every kind of asset, used as investment by investors of one state within the territory of the other state, in accordance with the applicable laws and regulations of the other State at the time of investment’. China-Japan BIT provides a similar definition of ‘investments’, stating that ‘the term of investment comprises every kind of asset, used as investment by nationals or companies of one Contracting Party within the territory of the other Contracting Party in accordance with, or not in violation of the laws and regulations of the latter Contracting Party at the time of investment’.

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on established investment that does not strictly adhere to the laws and regulations of the host state. More importantly, the Agreement explicitly expands the coverage of investor to ‘government-owned or controlled’ enterprises.107 This confers crucial rights to Chinese state-owned enterprises and provides the legal basis for them to make investor-state arbitration claims against Japan or Korea. It appears that China has set its own drumbeat, quite different from those of Australia, India and some of the Latin American countries which have shown a move away from ISA practice.This can be explained perhaps by reference to China’s emergence as a capital exporter. With its increasing outbound investments, China has changed its position from circumscribing the scope of ISA application in its earlier BITs to expanding the coverage of ISA and improving its utilization in protecting China’s investments overseas. China’s stance can also be explained by its role as a capital importer where the availability of ISA is one of the key elements to attract foreign investments. 5

CONCLUSION

Nearly two decades of experience with ISAs show the emergence of a groundswell of opinion on the need to modify its application. As originally contemplated, ISA was meant to be a protective mechanism against the expropriation of investor property by governments (third world especially) as a result of which investors had to suffer inordinate delays in recouping compensation by reason of the exhaustion of local remedies rule,108 and sometimes received no compensation at all. But as the experience of ISA over the last two decades has shown, multinational corporate investors have used it to invalidate state public policy legislation intended to benefit its citizenry but which marginally impacts on the manner in which these entities carry on their business activities. State legislation against tobacco and alcohol advertising are good examples of this. Withdrawal by Bolivia, Ecuador and Bolivia from ICSID, as well as the recent signals sent by the Indian Government to abolish ISA, all make clear the desire of states to revisit the principles underlying the ISA system. Moreover, even 107

108

Agreement among the Government of Japan, the Government of the Republic of Korea and the Government of the People’s Republic of China for the Promotion, Facilitation and Protection of Investment, Art. 1(4). Notably, neither Korea-China BIT nor China-Japan BIT specifies whether the term ‘enterprises’ includes ‘government-owned or controlled’ enterprises. Instead, they state the coverage of ‘enterprises’ in relation to China as ‘enterprises, other economic organisation and associations’. See Korea-China BIT Art. 1(3)(d); China-Japan BIT Art. 1(4)(b). Under the Calvo Clause rule in Public International law. See Ralph H. Folsom et al., International Business Transactions:A Problem-Oriented Coursebook 1258 (10th ed.,Thomson Reuters 2009).


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developed states are now showing a remarkable ambivalence in their approaches to ISA, and are dancing to inconsistent drumbeats. A good example of this is the decision by the Australian government to exclude ISAs from future agreements following its decision to regulate tobacco advertising in the interest of public health. More intriguing is the stance adopted by the US, which while reserving its sovereign power to legislate in the interests of its people and against the powers of investors in particular, at the same time is busy actively promoting the incorporation of ISA in the proposed TPP agreement. Although there still are considerable restraints on changing the current investment protection system, such moves toward discontinuing the practice of ISA show a desire by developing countries and some developed countries to reaffirm control over their sovereign regulatory framework so as to give effect to their respective visions of public law and public policy. In its place is the search for a more viable balancing of foreign investor protection with national public policy legislation where the property rights of investors are conditioned by the demands of public health, safety and security. Bucking this trend is China’s commitment to ISA.109 In this background, China’s continued reliance on ISA as the means of resolving investor-state disputes may be partly explainable in terms of its emergence as a capital exporter, and partly its realization that it is still a capital importer and with it the benefits of technology and modern management skills including knowhow as well as showhow. As will be seen then, nearly two decades after the WTO agreements and NAFTA came into existence, nations have begun to dance to their own drumbeats on the important issue of investor-state dispute settlement.This trend suggests that the bold move to confer on multinational corporations the power to sue states in their own right under the proposed Multinational Agreement on Investment,110 appears to being finally put to rest by the march away from ISA settlement. The search for ways of addressing the problems raised by the ISA process will in this environment be a continuing one. Several possible ways of dealing with the increasing number of ISA disputes have been mooted. First, is for greater reliance to be placed on alternative dispute resolution (ADR) mechanisms such as mediation and conciliation to manage ISA claims more effectively.111 Despite 109 110

111

See e.g., supra nn.104–105. An attempt to launch the Multinational Agreement on Investment by developed countries was made at the Annual Meeting of the OECD Council at Ministerial level in May 1995. Org. Econ. Co-operation & Dev., Multilateral Agreement on Investment, http://www.oecd.org/document/ 35/0,3343,en_2649_33783766_1894819_1_1_1_1,00.html (accessed June 8, 2011). UN Conf. Trade & Dev., Investor-State Disputes: Prevention and Alternatives to Arbitration II xvii (2011) (available at http://archive.unctad.org/en/docs/webdiaeia20108_en.pdf) [Hereinafter Prevention and Alternatives to Arbitration 2011]. See also, Prevention and Alternatives to Arbitration 2010, supra n. 3. See also, Denunciation of the ICSID Convention, supra n. 65, at 8.

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ADR being referred to in most of the FTAs and BITs, its use in ISA disputes has so far been very limited. In some agreements, ADR is only ‘encouraged’ rather than ‘required’. As compared to arbitration, ADR is flexible in both procedural and substantive aspects, and as such be promoted as effectively resolving ISA cases. However, more attention needs to be paid to ADR methods by for example, building the necessary government authority to enable the appropriate application of such methods.112 Second, while ADR is useful in resolving ISA disputes, approaches seeking to prevent ISA disputes need to be fostered. One way for the host states to prevent and avoid ISA disputes is to put in place some prevention policies and institutional cooperation.113 Such dispute prevention policies could alert the host states of a possible emerging conflict with an investor and give the host states enough time to address investor concerns before it escalates into formal disputes.114 For instance, the government of Peru has established a ‘coordination and response system’ mechanism to alter potential ISA disputes under its new legislation.115 Likewise, Colombia has recently launched a programme to establish a ‘lead agency’ and other institutional arrangements aimed to enable it to avoid ISA claims under its FTAs.116 Guatemala too is considering new institutional approaches in dealing with ISA claims, and has recently set up an inter-institutional Commission to handle pending ISA cases, which also functions as an institutional mechanism for dispute prevention and early settlement.117 Third, in order to address the unpredictability of arbitration awards, there has been increasing interest in seeking efforts to improve the consistency and coherence of international treaty interpretation. As FTAs and BITs are concluded by states, it is recommended that states take a more proactive approach and be assertive in exercising their interpretive power to foster a more predictable and coherent reading of the treaty provisions.118 Such an interpretive approach is

112

113 114

115 116 117 118

This includes the delegation of authority, including budgetary authority, to the relevant government officials or authorities at the appropriate level of the government, allowing them to settle a claim through amicable settlement, conciliation, mediation or other relevant techniques, and providing them with the necessary protection and safeguards under law. Ibid., Prevention and Alternatives to Arbitration 2011, 19. Prevention and Alternatives to Arbitration 2010, supra n. 3, at 62. Prevention and Alternatives to Arbitration 2011, supra n. 111, at xvii. See UN Conf. Trade & Dev., Best Practices in Investment for Development, Case Studies in FDI, How to Prevent and Manage Investor-State Disputes: Lessons from Peru (2011) (available at http://unctad.org/en/docs/webdiaepcb2011d9_en.pdf). See also, Denunciation of the ICSID Convention and BITs, supra n. 65, at 8. Prevention and Alternatives to Arbitration 2010, supra n. 3, at 69–71. Ibid., 78. Ibid., 82. For a detailed discussion on this, see UNCTAD, Interpreptation of IIAs: What States Can Do (2011) IAA Issues Note, No. 3, http://archive.unctad.org/en/docs/webdiaeia2011d10_en.pdf.


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believed to guide arbitration tribunals towards a proper reading of FTAs and BITs, and thus improve the quality and predictability of tribunal awards. Finally, and perhaps most importantly, a public interest exception limited to the protection of public health, education and morals should be provided for, with the scope of it varying with each agreement where necessary.

Editor

Author Guide

Edwin Vermulst VVGB Advocaten / Avocats Brussels, Belgium

[A] Aim of the Journal

Associate Editors Petros C. Mavroidis Edwin B. Parker Professor of Law at Columbia Law School, New York, Professor of Law at the University of Neuchatel & CEPR Thomas Cottier Professor of European and International Economic Law, Managing Director World Trade Institute, University of Berne, Switzerland Simon Evenett University of St.Gallen Bernard Hoekman Development Research Group, The World Bank Junji Nakagawa Professor, University of Tokyo, Tokyo, Japan Yong-Shik Lee Director and Professorial Fellow, The Law and Development Institute Faizel Ismail Head of the South African Delegation to the WTO, Geneva Gary N. Horlick Law Offices of Gary N. Horlick Henrik Horn Senior Research Fellow, Research Institute of Industrial Economics (IFN), Stockholm Pierre Sauvé World Trade Institute, University of Berne Lorand Bartels Faculty of Law, University of Cambridge Thomas J. Prusa Department of Economics, Rutgers University, New Brunswick, NJ, USA

The journal deals authoritatively with the most crucial issues affecting world trade today, with focus on multilateral, regional, and bilateral trade negotiations, on various anti-dumping and unfair trade practices issues, and on the endless succession of vital new issues that arise constantly in this turbulent field of activity. The approach is consistently multidisciplinary, aimed at trade practitioners, government officials, negotiators and scholars who seek to expose ground-breaking theses, to make important policy statements or to offer in-depth analysis and discussion of delicate trade issues. [B] Contact Details Manuscripts should be submitted to the Editor, Edwin Vermulst. E-mail address: [email protected] [C] Submission Guidelines [1] Manuscripts should be submitted electronically, in Word format, via e-mail. [2] Submitted manuscripts are understood to be final versions. They must not have been published or submitted for publication elsewhere. [3] Articles should not exceed 10,000 words. [4] Only articles in English will be considered for publication. Manuscripts should be written in standard English, while using ‘ize’ and ‘ization’ instead of ‘ise’ and ‘isation’. Preferred reference source is the Oxford English Dictionary. However, in case of quotations the original spelling should be maintained. In case the complete article is written by an American author, US spelling may also be used. [5] The article should contain an abstract, a short summary of about 200 words. This abstract will also be added to the free search zone of the Kluwer Online database. [6] A brief biographical note, including both the current affiliation as well as the e-mail address of the author(s), should be provided in the first footnote of the manuscript. [7] An article title should be concise, with a maximum of 70 characters. [8] Special attention should be paid to quotations, footnotes, and references. All citations and quotations must be verified before submission of the manuscript. The accuracy of the contribution is the responsibility of the author. The journal has adopted the Association of Legal Writing Directors (ALWD) legal citation style to ensure uniformity. Citations should not appear in the text but in the footnotes. Footnotes should be numbered consecutively, using the footnote function in Word so that if any footnotes are added or deleted the others are automatically renumbered. [9] Tables should be self-explanatory and their content should not be repeated in the text. Do not tabulate unnecessarily. Tables should be numbered and should include concise titles. [10] Heading levels should be clearly indicated. For further information on style, see the House Style Guide on the website: www.kluwerlaw.com/ContactUs/ [D] Review Process

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