Towards a European Investor State Dispute Settlement? : Tackling the criticisms about ISDS while incorporating EU special features

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Noémie Melen July 2015

Towards a European Investor State Dispute

Settlement?

Tackling the criticisms about ISDS while incorporating EU special

features: a journey towards a European Investor State Dispute

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Noémie Melen

Supervisor: Hege Elisabeth Kjos July 2015

Towards a European Investor State Dispute

Settlement?

Tackling the criticisms about ISDS while incorporating EU special

features: a journey towards a European Investor State Dispute

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TABLE OF CONTENTS

Introduction ... 7

1. Investor State Dispute Settlement: presentation and shortcomings. ... 9

2. 2.1 An overview of ISDS. ... 10

2.2 Criticism ... 11

2.2.1 Inconsistency and unpredictability of decisions ... 12

2.2.2 Lack of transparency ... 13

2.2.3 Lack of independence and impartiality ... 15

2.2.4 Costs ... 17

2.2.5 “Chilling effect” on state regulatory powers ... 17

2.3 Interim Conclusion ... 19

The need for an adapted ISDS procedure in light of the special character of the EU. 3. 20 3.1 Prerogatives of the CJEU in matter of EU law ... 21

3.2 Impossibility of the EU to be a part of the International Centre for the Settlement of Investment Disputes. ... 25

3.3 Enhanced role for the European Parliament ... 26

The recent and on-going Treaty negotiations in light of the criticisms. ... 29

4. 4.1 The EU-Singapore (EUSFTA) and the CETA: what is new? What has been improved? 29 4.1.1 Increased transparency ... 30

4.1.2 Increased independence and impartiality ... 31

4.1.3 Strengthened right to regulate... 31

4.1.4 Diminishing costs ... 33

4.1.5 Reduce inconsistency and unpredictability of decisions ... 33

4.2 What is still on the table and may not be addressed by these agreements. ... 34

5. Further solutions... 35

5.1 Concept paper ... 35

TTIP: what can we expect? Will there be a significant address of the remaining 5.1.1 problems? ... 36

EU Commission concept paper ... 37

5.1.2 Improve the right to regulate. ... 38

5.1.2.1 Improve the establishment and functioning of arbitral tribunals ... 38

5.1.2.2 The creation of an appellate mechanism ... 39

5.1.2.3 Addressing the relationship between national courts and ISDS ... 39

5.1.2.4 Towards a multilateral system? ... 40

5.1.2.5 5.2 Would a European ISDS be the solution to all the evils of ISDS as it stands in 2015? 41 Why a European ISDS? Taking into account the special features and critics of the EU in 5.2.1 the shaping of a new ISDS. ... 41

Main possible features of a European ISDS: the need for a system-wide coordination of 5.2.2 the international investment rule making. ... 42

A multilateral agreement on investment including all EU members. ... 42

5.2.2.1 A global body administering the process. ... 43

5.2.2.2 A European based permanent court. ... 44

5.2.2.3 An appeal mechanism. ... 46

5.2.2.4 Binding authoritative interpretations. ... 47

5.2.2.5 5.3 Critical analysis ... 48

Potential hurdles of the European ISDS ... 48

5.3.1 Political reticence ... 48

5.3.1.1 Are we drowning the system we are trying to save? ... 49

5.3.1.2 5.4 Interim conclusion. ... 50

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6. Conclusion ... 51

7. Tables ... 53

7.1. Table 1 ... 53

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LIST OF ABBREVIATIONS

BIT Bilateral Investment Treaty

CETA Comprehensive Economic and Trade Agreement CJEU Court of Justice of the European Union

ECJ European Court of Justice

ECtHR European Court of Human Rights

EFILA European Federation for Investment Law and Arbitration EFTA European Free Trade Association

EP European Parliament

EPRS European Parliament Research Service EU European Union

EUSFTA European Union Singapore Free Trade Agreement FET Fair and Equitable Treatment

FDI Foreign Direct Investment FTA Free Trade Agreement IBA International Bar Association ICC International Court of Arbitration ICJ International Court of Justice

ICSID International Centre for the Settlement of Investment Disputes IIA International Investment Agreement

ISDS Investor-State Dispute Settlement

LCIA London Centre for International Arbitration MFN Most Favoured Nation

NAFTA North American Free Trade Agreement NGO Non-Governmental Organisation

OECD Organisation for Economic Co-operation and Development PCA Permanent Court of Arbitration

SME Small and Medium Enterprise

TTIP Transatlantic Trade and Investment Partnership

UNCITRAL United Nations Commission on International Trade Law US United States of America

WB World Bank

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LIST OF TABLES

TABLE 1 Statistics: who “wins” more: States or investors?

TABLE 2 Analysis of the investment standards and ISDS provisions in the different systems at hand: ad-hoc system pre-Lisbon, EUSFTA and CETA, Concept paper and proposed European ISDS.

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Introduction 1.

On 1 December 2009 the Lisbon Treaty entered into force and brought a lot of changes in the European Union organisational and institutional structure.1 One of the most striking novelties carried by the Treaty was the inclusion of the Foreign Direct Investments within the exclusive competence of the EU as part of the common commercial policy. In addition, the EU now also acts as the prime actor in conducting the negotiations of international investment agreements.2 However, such modifications together with the recent explosion of treaties, cases and the overall acknowledgment of the power of international investment law have brought light on a system that until then was functioning quite smoothly, 3 the Investor State Dispute Settlement system. 4 Indeed, ten years ago there was little knowledge, comprehension or concern about international investment law outside the specialist investment law community.5 But a series of controversial cases such as North American Free Trade Agreement environmental cases, Water and sanitation cases or Australia and plain packaging of cigarettes, have focused attention on the system and especially on the nature of the arbitration system through which decisions are made.6 Such attention constantly increased and reached an apex with the EU-Bilateral Investment Treaties negotiations. Therefore while EU was gaining a highly desired competence, the criticisms have never been so important,7 coming both from professionals of the field whether they are investors, lawyers

1

Lisbon Treaty; see also Latek, Investor-State Dispute Settlement (ISDS) State of play and

prospects for reform, 2014, p2 (online available at

http://www.europarl.europa.eu/RegData/bibliotheque/briefing/2014/130710/LDM_BRI(2014)13 0710_REV2_EN.pdf ).

2

Art. 206 and 207 Treaty on the functioning of the European Union, (TFEU); see also Brown,

Changes in the Common Commercial Policy of the European Union After the Entry  into F orce

of the Treaty of Lisbon:  A P ractitioner’Common Commercial Policy after s P erspective in

Lisbon, 2013, p163.

3

Allen, TTIPping the balance: The Crusade against Investor-State Arbitration, Global Arbitration News, 03-06-2015, p1 (online available at http://globalarbitrationnews.com ). 4

Vaudano, Bruxelles lance enfin sa réforme de l’arbitrage privé dans le traité transatlantique, Blog Le Monde, La Bataille Transatlantique , 15-01-2015, §1 (online via

http://transatlantique.blog.lemonde.fr ). 5

Harrison, Lecture 8- International Investment Agreements (2), International Economic Law (IEL) course , year 2012-2013.

6 Ibid. 7

EFILA, A response to the criticisms against ISDS, 17-05-2015, p3-4 (online available at

http://efila.org/wp-content/uploads/2015/05/EFILA_in_response_to_the-criticism_of_ISDS_final_draft.pdf ).

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representing them or even scholars writing on the subject and the civil society.8

This discrepancy might be a good thing if we know how to deal with it. Indeed, at the moment EU is standing at a crossroads and it has the unique opportunity to be able to choose whether to keep up with the arbitration and ISDS system as it stands at present or make use of this particular situation to take the lead and make real and lasting changes.9 The latter proposition seems to be the one recently chosen by the EU. Indeed, some weeks ago the EU commissioner for trade Cecilia Malmström issued in the name of the EU a concept paper calling, among other innovative propositions, for a global investment court.10 This decision that is already raising controversies both from people who see this idea as too far reaching and those who see it only as an encouraging first step, was taken in the wake of the public consultations on the inclusion of ISDS to the Transatlantic Trade and Investment Partnership.11 Facing more and more controversy,12 the EU decided some months ago to pause the negotiations of this new agreement with the United States while consulting the civil society.13 The results that came out in January revealed an overall opposition to the inclusion of ISDS in TTIP of no less than 97%.14 Such affront called for a serious reaction from the EU that had to give up on its previous strategy of patching things up whenever an issue was arising. “Everything needs to change, so everything can stay the same”. The famous expression of Tancredi Falconeri in the Leopard seems to adhere perfectly to

8

Latek, Investor-State Dispute Settlement (ISDS) State of play and prospects for reform, 2014, p1; see also EFILA, A response to the criticisms against ISDS, 17-05-2015, p24.

9

European Commission, Investment protection and ISDS in EU agreements : Settlement in

EU agreements, Facts sheet, 11-2013, p3 (online available at

http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151916.pdf ). 10

European Commission, Investment in TTIP and beyond, Concept paper, 05-2015, p11-12 (online available at http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF )

11

Public consultations on modalities for investment protection and ISDS in TTIP, (online available at http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf ).

12

Lewis, EU holds public consultations on TTIP investment chapter, Centre for International Environmental Law (CIEL), §1 (online available at http://www.ciel.org/eu-holds-public-consultations-on-ttip-investment-chapter/ ).

13

Allen, TTIPping the balance: The Crusade against Investor-State Arbitration, Global Arbitration News, 03-06-2015, p2 (online).

14

Vaudano, Traité transatlantique: réformer les tribunaux d’arbitrage pour mieux les sauver, Blog Le Monde, La Bataille Transatlantique, 11-05-2015 (online available at

http://transatlantique.blog.lemonde.fr ); see also Association International de Techniciens, Experts et Chercheurs (AITEC), Réforme de l’ISDS : nouvelle tentative de diversion de la

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the current state of mind of the European Commission.15 In order to allow the TTIP to pass the barrage of the European, and potentially National Parliaments, it needs to bring fundamental changes to the most controversial element of this treaty, ISDS.16

But is the proposed solution enough to tackle the growing criticism of ISDS? Is there an even more adapted solution that would allow the EU to make a major breakthrough and durably change the system for the best? In other terms: is the creation of a European investor-state dispute settlement mechanism a possible answer to the shortcomings of the current system?

Indeed, what needs to be done in our view is creating a new European ISDS. A viable proposal needs not only to seriously address the issues encountered by ISDS but should also take into account the special features of the EU. This could be done by creating a comprehensive EU-based system, conducted under the auspices of a EU multilateral agreement and composed mainly of a permanent court and a global administrative body. This might be again, too far-reaching or even unrealistic for some, but one should at least take the time to weight all the possible solutions at stake in order to determine which option is the best.

In doing so, we will first try to understand why there is a need for a reform of ISDS by looking at the criticisms it faces and the special features of the EU that would call for a EU tailored system. We will then analyse what has been done so far by the EU and its partners to tackle these issues; and finally comment on the possible solutions that could be proposed.

Investor State Dispute Settlement: presentation and shortcomings. 2.

If ISDS came under the spotlight only recently,17 it has nonetheless been functioning for several decades.18 In fact, it is usually one of the main features of every International Investment Agreement and the EU is following this path

15

Lampedusa, The Leopard in Vaudano, Traité transatlantique: réformer les tribunaux

d’arbitrage pour mieux les sauver, Blog Le Monde, La Bataille Transatlantique, 11-05-2015

(online). 16

Vaudano, Traité transatlantique: réformer les tribunaux d’arbitrage pour mieux les sauver, Blog Le Monde, La Bataille Transatlantique, 11-05-2015, §11-13 (online).

17

Latek, Investor-State Dispute Settlement (ISDS) State of play and prospects for reform, 2014, p2 ; see also Vaudano, Bruxelles lance enfin sa réforme de l’arbitrage privé dans le

traité transatlantique, Blog Le Monde, La Bataille Transatlantique , 15-01-2015, §1 (online).

18

Lavranos, ‘EU Emerging Investment Policy and Investment Protection’. The place of the EU

in the world of investor-state arbitration. The view from EU Trade Policy, Universiteit van

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by working on the inclusion of ISDS in its BITs.19 Indeed, as the EU underlined itself in its Concept paper, it has a strong interest in protecting its investors and investments abroad by the double and complementary lever that constitute investment protection and ISDS provisions in IIAs. They are there to ensure not only that EU investors and investments are protected abroad but also that foreign investors are attracted to invest within the EU territory. 20 As a matter of fact, the EU is, now more than ever, willing to protect its highly desired position as the world’s largest source and destination of FDI.21 It considers that investment “is essential for growth and for job creation” and what is more, that “it integrates the EU in global value chains to achieve a stronger economic recovery” from the crisis.22 In the different papers the EU published regarding its BITs negotiations it always claims to be attached to the ISDS system. The UE works on including ISDS in the agreements it is negotiating.23 It is therefore necessary to understand not only what such system entails in terms of objectives and features but also what are its main shortcomings. Why is the EU trying to preserve a system that so many NGO, citizens and even scholars and practitioners decry so strongly?24

2.1 An overview of ISDS.

The ISDS system is nowadays the most important mechanism at hand for the wronged investors who wish to seek relief.25 It allows a foreign investor to bring a claim before an arbitral tribunal, against the host state where she has made her investment, if she feels that her financial interests have been damaged or at least not treated in a satisfactory manner.26 In order to do so, the investor needs a cause of action, meaning that she must prove that the host state has breached its obligations towards her, whether these are

19

European Commission, The TTIP, TTIP explained, p5 (online available at

http://trade.ec.europa.eu/doclib/docs/2014/may/tradoc_152462.pdf ). 20

European Commission, Investment in TTIP and beyond, Concept paper, 05-2015, p1 21

Ibid. 22

Ibid. 23

Ibid; see also European Commission, The TTIP, TTIP explained, p5. 24

Vaudano, Traité transatlantique: réformer les tribunaux d’arbitrage pour mieux les sauver, Blog Le Monde, La Bataille Transatlantique, 11-05-2015, §1 (online).

25

Schefer, International Investment Law, 2013, p363. 26

European Commission, Factsheets on ISDS, 03-10-2013, p1 (online available at

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contained in a treaty between the host and the home state, a contract between the investor and the host state, or the national law of the host state.27

Most of these documents contain arbitration clauses that provide for the consent of the parties to arbitration in case of dispute between the host state and the investor.28

The most common arbitration rules set out in IIAs are the ones contained in the ICSID Convention and its additional facilities.29 Still most BITs allow the parties to choose between the ICSID and other arbitration rules or facilities such as the UNCITRAL Arbitration Rules, the Stockholm Chamber of Commerce Arbitration Rules, the London Court of International Arbitration, and the International Court of Arbitration of the International Chamber of Commerce.30

The objective of ISDS is to tackle the potential risks that usually come with an investment by ensuring the investor he will be able to seek relief in case something goes wrong. It also renders the commitments made by the host states in their IIAs more readily enforceable.31

2.2 Criticism.

Even though the importance of this system in today’s economic world is indubitable, the mistrust towards it is also clear and growing, coming both from its prime users, the states and investors but also, and mainly from the civil society.32 The criticism increased when ISDS came into the public attention following the EU’s negotiations on the Canada EU Trade Agreement and

27

Latek, Investor-State Dispute Settlement (ISDS) State of play and prospects for reform, 2014, p2; see also inter alia Herbert Smith Freehills, Long awaited EU-Canada trade

agreement agreed – a blueprint to set the standard for future investment protection?– PIL

notes, 26/02/15, p1 (online via http://hsfnotes.com/arbitration/2014/10/02/long-awaited-eu-

canada-trade-agreement-agreed-a-blueprint-to-set-the-standard-for-future-investment-protection/) and European Commission, Factsheets on ISDS, 03-10-2013. 28

Latek, Investor-State Dispute Settlement (ISDS) State of play and prospects for reform, 2014, p2.

29

ICSID Convention ; see also inter alia ICSID additional facilities rules, and Hanno Wehland,

International Investment Arbitration – the Perspective and Role of the PCA, Presentation at

the PCA, 24 April 2015 30

UNCITRAL Arbitration Rules; see also inter alia Stockholm Chamber of Commerce Arbitration Rules, London Court of International Arbitration rules and International Court of Arbitration of the International Chamber of Commerce rules; see also Latek, Investor-State Dispute Settlement (ISDS) State of play and prospects for reform, 2014, p3.

31

32

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TTIP.33 It remains unclear whether or not it will be included in the TTIP in the end. The EU insisting that “the negotiating directives include an element of conditionality and make clear that a decision on whether or not to include ISDS is to be taken during the final phase of the negotiations”.34

According to the critics, in the following we will discuss the five main shortcomings of the ISDS mechanism: the alleged inconsistency and unpredictability of arbitral decisions, the lack of transparency, the need for more independence and impartiality of the arbitrators and the supposed overly high costs of the proceedings with finally the “chilling” effect on states’ right to regulate.35

2.2.1 Inconsistency and unpredictability of decisions.

The alleged inconsistency and unpredictability of arbitral decisions is one of the most recurring criticisms that ISDS has to face. This particular issue has been brought to light by the Argentinian cases where different arbitral tribunals reached different conclusions in fact and in law as regards the necessity defence used by Argentina against its investors.36 The critics usually say that the sometime vague formulation of provisions in IIAs allows the investors to take advantage of that (by resorting to nationality shopping for instance) and also leave too much liberty to the arbitrators interpreting these provisions. The consequence of these shortcomings is the diverging interpretation of rather similar, not to say identical IIA provisions. What comes with that is uncertainty about the real meaning of these provisions, such as “fair and equitable treatment”, and an insufficient predictability regarding the outcome of arbitral decisions.37 For the European Parliament Research Service, in addition to that

33

Latek, Investor-State Dispute Settlement (ISDS) State of play and prospects for reform, 2014.

34

European Commission, Online public consultation on investment protection and

investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership

Agreement, Report, 13-01-2015, p3 (online available at

http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_153044.pdf ). 35

36

ICSID, LG&E (online available at https://icsid.worldbank.org); see also ICSID, CMS, Enron, Sempra (online available at http://www.italaw.com ); see interalia Burke-White, THE

ARGENTINE FINANCIAL CRISIS: STATE LIABILITY UNDER BITS AND THE LEGITIMACY OF THE ICSID SYSTEM, 3 Asian J.WTO & Int’l Health L & Pol’y 199 , 2008, p199, 201,

220-221. 37

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comes the absence of an appeal mechanism that aggravates the effects of divergent or erroneous awards.38

The overall reason for such issues is the fragmentation of the ISDS system between a myriad of treaties and procedural rules.39 Unlike in the international trade law regime there is no such thing as a multilateral agreement or international organisation responsible for international investment law. All the efforts to create a Multilateral Agreement on Investment failed so far. Neither the OECD in 1998 nor the WTO in 2004 could find an agreement.40 There are as many ISDS mechanisms as there are investment instruments: numerous, independent, ad- hoc investment arbitral tribunals adjudicating disputes on the basis of different rules. This inevitably derives into divergent and sometimes even conflicting decisions on apparently similar or identical legal issues. 41

2.2.2 Lack of transparency

Another alleged deficiency of the ISDS mechanism is its lack of transparency. Indeed such issue is inherent to the system as ISDS procedures often allows for confidentiality. 42 The ICSID system stands slightly apart from these criticisms as most of its awards are published together with a list of cases and some information.43 It should be noted however that even within the World Bank fora, not all awards are published and the submissions of the parties are

38

39

EFILA, A response to the criticisms against ISDS, 17-05-2015, p13 (online); see also inter alia Harrison Lecture 7- International Investment Agreements, IEL course, Warwick School of Law, 2012-2013, and PART II: STUDY IN ISDS AND ALTERNATIVES OF DISPUTE RESOLUTION IN INTERNATIONAL INVESTMENT LAW, commissioned by the European

Parliament’s Committee on International Trade, 09-2014, p10 (online at

http://www.academia.edu/8429659/OFF_PRINT_PART_II_STUDY_FOR_THE_EP_ON_INVE

STOR-STATE_DISPUTE_SETTLEMENT_ISDS_AND_ALTERNATIVES_OF_DISPUTE_RESOLUTI

ON_IN_INTERNATIONAL_INVESTMENT_LAW ) .

40

Harrison Lecture 7- International Investment Agreements, IEL course, Warwick School of Law, 2012-2013.

41

Lavranos, New developments in the interaction between International Investment Law and

EU Law in The Law and Practice of  International C ourts and T ri), p7 ; and

PART II: STUDY IN ISDS AND ALTERNATIVES OF DISPUTE RESOLUTION IN INTERNATIONAL INVESTMENT LAW, commissioned by the European Parliament’s Committee on International Trade, 09-2014, p67.

43

ICSID arbitration rules ; see also inter alia art. 48(5) ICSID Convention; Regulation 22 of

the Administrative and Financial Regulations, Publication (online via

https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf ); and Perez, Gistelinck, Karbala, Sleeping Lions : International investment treaties, state-investor disputes

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not made public either. The ICSID is a World Bank’s institution and is the only one that as been created specifically for settling disputes between investors and governments. However, it acts independently from the WB.44 The other arbitration fora show even less transparency with a special mention to the ICC “where all details of individual cases are secret”.45

The absence of provisions on the matter can be explained by the fact that usually these rules were first tailored for sole commercial arbitration, where confidentiality is a requirement due to the private nature of the relations at stake.46 However, it should be highlighted that recently the UNCITRAL transparency rules have made a significant progress in the way to more transparency.47 This has been done in the wake of the increasing number of states publicly expressing their support for the publication of arbitration documents, open hearings and the inclusion of explicit transparency provisions in their treaties.48 They nonetheless only apply to subsequent agreements, unless the country has ratified the Mauritius convention, which is not yet into force.49

Generally, the assertion that investor-state arbitration remains highly confidential should be nuanced. As Brower is highlighting, ISDS is no longer hidden from the public eye since a while. Most awards are made public and can be found easily on the Internet, so are hearings, party submissions and other relevant data. In addition, in the light of what is done by the ICSID, more and more investor-state arbitrations use open hearings that are sometimes live streamed on the Internet. Even when the parties did not agree to any kind of publication regarding the case, the press is however usually able to comment

44

Perez, Gistelinck, Karbala, Sleeping Lions : International investment treaties, state-investor

disputes and access to food, land and water, Oxfam, May 2011.

45

46

Ibidem; see also Harrison Lecture 7- International Investment Agreements, IEL course, Warwick School of Law, 2012-2013.

47

UNCITRAL transparency rules ; see also Kjos, Introduction, procedure and regulatory

framework, Lecture 1, International Arbitration course, UvA, 2014-2015.

48

Brower, Blanchard, What’s in a Meme? The Truth about Investor- State Arbitration: Why It

Need Not, and Must Not, Be Repossessed by States, Columbia Journal of Transnational Law,

p 718. 49

Kjos, Introduction, procedure and regulatory framework, Lecture 1, International Arbitration course, UvA, 2014-2015.

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on the existence of the case, the name of the parties and the subject matter of the dispute.50 In any case, confidentiality is up to the parties.51

2.2.3 Lack of independence and impartiality

The main problem regarding arbitrators is that, first of all, they are almost exclusively males (95%) and whether Western European or Northern American. Indeed, the proportion of the latter is of 69% for all cases decided at the ICSID and even 83% if taking into account arbitrators who sat in more than 10 cases. As for women, they only represent 4% of the arbitrators with two women dominating the list, Brigitte Stern and Gabrielle Kaufman-Kohler. These two account for three quarters of the cases taken by women. It is clear that there is a lack of gender, racial and cultural diversity in the small arbitral world.52

What is also claimed by their detractors is that one day they could act as arbitrators in a case and the day after they might be found on the other side, acting as a legal counsel to one of the parties they were arbitrating the previous case for.53 However, it should be noted that such perception is the one shared by the fiercest opponents of the system and do not usually reflects the reality of an arbitrator work. Indeed, rules such as the International Bar Association conflict of interest rules or other arbitration rules exist in order to prevent such abuse.54 The newly released LCIA Notes for arbitrators show once more that the different arbitration fora are concerned about the issue and are acting accordingly.55 Still, there are too few lawyers in the field that can endorse the role of arbitrator and therefore the reality of arbitration mainly remains that of a restricted elite of investment lawyers. 15 arbitrators had taken the decisions in 55% of the total investment treaty cases known as of

50

p178. 51

Wehland, International Investment Arbitration – the Perspective and Role of the PCA, Presentation at the PCA, 24-04-2015.

52

Corporate Europe Observatory and the Transnational Institute, Profiting from injustice: How

law firms, arbitrators and financiers are fuelling an investment arbitration boom, 11-2012

(online available at http://corporateeurope.org). 53

Ibidem. 54

IBA Guidelines on conflicts of interests in arbitration, 2014. 55

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2012.56 This problem is particularly well illustrated in the Argentine cases. The arbitral panels in CMS, Enron and Sempra cases had overlapping arbitrators. Professor Vicuna was the President of all three tribunals and Lalonde sat on both the Sempra and CMS panels. Therefore the probability that they will assess identical facts and legal analysis differently in a second case decreases notably. Such repeat precedents may therefore gain undue weight and authority, especially if they are erroneous. 57

What is also feared is that the “arbitration industry” has become the “active promoter” of the ISDS system. The strong ties that exist between investment lawyers have made them the “influential advocates” of this system. It is therefore seen by many commentators as biased and the number of arbitrator challenges is growing.58 What is believed is that not only arbitrators are biased but also investor-state arbitration tends to favour investors.59 Again, this last view is certainly exaggerated, as recent statistics tend to show that usually awards are rendered more in favour of States than investors.60 What is more, even when damages are awarded they are not high and in any case they are usually below the amount asked by the claimant.Brower goes as far as calling the criticisms on the subject “empty rhetoric”. 61 However, legitimacy is also what makes the system and without the confidence of its users it looses a lot of its power and efficiency. Nevertheless, we are of the view that the most urgent reform when it comes to arbitrators is the composition of the arbitrator’s pool. We need more diversity: more women, more eastern and southern representatives. The debate might gain in relevance if we focused on that, rather than on some unproven assertions.

56

Corporate Europe Observatory and the Transnational Institute, Profiting from injustice: How

law firms, arbitrators and financiers are fuelling an investment arbitration boom, 11-2012

(online available at http://corporateeurope.org). 57

Burke-White, THE ARGENTINE FINANCIAL CRISIS: STATE LIABILITY UNDER BITS AND

THE LEGITIMACY OF THE ICSID SYSTEM, 3 Asian J.WTO & Int’l Health L & Pol’y 199,

2008, p222. 58

5959

p 709. 60

UNCTAD, Report 2015 (online via http://unctad.org ); see also inter alia Brower, Blanchard,

What’s in a Meme? The Truth about Investor- State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States, Columbia Journal of Transnational Law, p710 ; and Mann, ISDS : who wins more, investors or states ?, International Institute for Sustainable Developmet

(IISD), 06-2015 (online available at http://www.iisd.org ) 61

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2.2.4 Costs

There are growing concerns about the costs of arbitration, primarily for states that are usually already in a difficult financial position and that may have to pay large amounts of compensation in case they lose the case.

Indeed, as the European Parliament Research Service highlights the average cost of an award is US$ 8 million with usually 80% of this amount dedicated to the cost of legal representation and experts. What is more, if the state loses the case it is often ordered by the arbitral tribunal to pay high damages to the investor as compensation. 62 The record of amount to be paid by a state to an investor is held by Russia who has been required to pay $50 billion damages to the Yukos shareholders in July 2014.63 However, it should be noted that nothing proves that domestic litigation is more expensive.64 What is more, some arbitration rules such as the recent LCIA Notes for arbitrators have acknowledged the problem and are trying to find solutions to reduce the overall cost of the arbitration for both parties.65

2.2.5 “Chilling effect” on state regulatory powers.

The last but not least fear as regards the current ISDS system is the supposed daunting effect that the perspective of paying compensation has on the governments. Indeed, they may decide to repeal the controversial legislation in order not to pay large amounts of compensation or damages.66 In the words of Tietje and Baetens, regulatory chill refers to a situation where “a State actor will fail to enact or enforce bona fide regulatory measures because of a perceived or actual threat of investment arbitration”. In practice this amounts to “not drafting (a) particular legislation in anticipation of arbitration” or chilling

62

63

Worstall, Hague Court; Russia did steal Yukos and must pay $ 50 Billion damages, Forbes, 28-07-2014 (online available at http://www.forbes.com/sites/timworstall/2014/07/28/hague-court-russia-did-steal-yukos-and-must-pay-50-billion-damages/ )

64

EFILA, A response to the criticisms against ISDS, 17-05-2015, p24-25 (online). 65

LCIA Notes for arbitrators, p8-10. 66

THE LEGITIMACY OF THE ICSID SYSTEM, 3 Asian J.WTO & Int’l Health L & Pol’y 199,

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legislation whether upon “awareness of arbitration risks” or after the outcome of a specific dispute.67

This question is particularly relevant in the context of the EU where the right to regulate of the Member States and the EU has become an important issue in IIA negotiations. To get an idea of the importance of this problem for the EU and its Member States, suffice is to have a look at the formulation of question asked in the TTIP public consultation that was, is “EU’s proposed approach for TTIP achieve(d) the right balance between protecting investors and safeguarding the EU's right and ability to regulate in the public interest “?68 One of the main concerns here is clearly about the right of states to regulate. The question on that matter is whether ad hoc arbitrators have the required legitimacy to call into question and assess the validity of the domestic law of sovereign states and therefore restrict their policy choices.69

It is even more preoccupying, in the eyes of the critics, because such claims can be directed at any level of a government. Local authorities such as city halls or regions can be the first victims and give way to inertia in the conduct of local affairs.70

Such issue regularly makes the headlines in the newspapers in the wake of cases such as Phillip Morris or Vatenfall.71 As a matter of fact, as we just said, the right to regulate has been one of the main concerns expressed in the public debate organised by the EU about investment protection and ISDS in the TTIP.72 What has been particularly highlighted is the fear that the “right to a stable business environment” enshrined in some IIAs may be interpreted by some arbitral tribunals as a “general guarantee against repeated legislative changes”. What is more, many dread that these tribunals in interpreting IIAs might only focus on the objective of protecting the economic interests of the

67

Tietje, Baetens and Ecorys Rotterdam, “The Impact of Investor- State-Dispute Settlement

(ISDS) in the Transatlantic Trade and Investment Partnership” [2014] Study prepared for the

Minister of Foreign Trade and Development Cooperation, Ministry of Foreign affairs, The Netherlands, para. 68.

68

Public consultations on modalities for investment protection and ISDS in TTIP, (online available at http://trade.ec.europa.eu/doclib/docs/2014/march/tradoc_152280.pdf) .

69

Hindelang, Towards a Repository of Policy Options for IIA Reform, Research

Project  Investor-State Dispute Settlement (‘ISDS’) and Alternatives of Dispute Resolution in International Investment Law, Research Project, 22-09-2014, p5 (online available at

http://unctad-worldinvestmentforum.org/wp-content/uploads/2015/02/Hindelang2.pdf ). 70

Vaudano, Mythes et réalités sur les tribunaux d’arbitrage privés du Traité transatlantique, La Bataille transatlantique, Blog Le Monde, 18-04-2015.

71

PCA, Case n°2012-12, Phillip Morris v Australia (online via http://www.italaw.com/cases) and ICSID, ARB/09/6, Vatenfall (online available at http://www.italaw.com/cases ).

72

Public consultations on modalities for investment protection and ISDS in TTIP (online); see also European Commission, Investment in TTIP and beyond, Concept paper, 05-2015, p5.

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investors without appropriately weighting them with the sovereign right of the states to legislate in the public interest.73

It should be recalled however, that such constraint on state sovereignty is actually inherent to international treaties in general and not only to investment treaties. It is among the characteristics of international law as a whole to limit the right of states to regulate. By signing any international treaty, a state consent to limit its sovereignty in exchange for overriding benefits. In investment law it can be an increased attractiveness to foreign capital or a stable economic and legal environment.74 Furthermore, in practice, no award has ever forced a state to repeal a legitimate domestic legislation, and certainly not in the controversial area of environmental protection. Indeed, when having a look at actual arbitral awards like Brower did, what stands out is that there is usually a strong respect for environmental protection attempts and domestic policy discretion.When assessing environmental regulations, the tribunals always made sure that their inquiry was limited to the scope of the obligations states have as regards foreign investors. The power to regulate is usually not challenged. 75

2.3 Interim Conclusion

Criticisms about ISDS have never been so fierce as with the on-going negotiations the EU is leading with Canada and particularly TTIP. These have been particularly expressed in the public consultations held by the EU as regards its inclusion in the TTIP. The fears voiced mainly by the civil society, including many Non Governmental Organisations, range from the high costs of the proceedings to the supposed bias in favour of investors that can affect the right of states to regulate.76 Some are legitimate, such as the inconsistency and unpredictability of some arbitral decisions but some are clearly unfounded or exaggerated. Nonetheless, in the wake of these increasing criticisms, certain states have also revoked their investments treaties when they contain

73

European Commission, Investment in TTIP and beyond, Concept paper, 05-2015. 74

p720-722. 75

EFILA, A response to the criticisms against ISDS, 17-05-2015, p29 ; see also inter alia Brower, Lecture at the PCA ; and Brower, Blanchard, What’s in a Meme? The Truth about

Investor- State Arbitration: Why It Need Not, and Must Not, Be Repossessed by States,

Columbia Journal of Transnational Law, p725-726,728,748. 76

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ISDS mechanisms and Australia has already announced that its future agreements will not contain such provisions.77 It did so as a consequence of the starting of the proceedings in the Philip Morris case.78 Italy has also decided to withdraw from the Energy Charter Treaty,79 while Bolivia terminated its BIT with the US in 2012.80 By doing so these states are trying to diminish the possibility for investor-state arbitrations based on their BIT obligations in a system which they feel lack legitimacy. Leading scholars and practitioners are also calling into question the viability and legitimacy of the system.81

These general criticisms directed at ISDS as such are not the only obstacle in Europe, the special features of the EU also needs to be considered in shaping such mechanism.

The need for an adapted ISDS procedure in light of the special character of 3.

the EU.

The abovementioned criticisms towards the ISDS mechanism are one thing and the EU is trying to figure out a way to deal with at least part of them while negotiating its agreements and particularly the TTIP. However, the EU is facing additional problems due to its particular features, including the possible conflicts of jurisdiction that could arise between the CJEU and the arbitral tribunals that will have to deal with the disputes arising out of the new EU BITs. Together with the overall economical weight of the EU, these fundamental particularities call for a key role of the EU in the reform of ISDS.82 Before going on to see what could be the characteristics of such reform, we will analyse the relevant features of the EU that require this future system to be EU tailored. We will first focus on the prerogatives of the CJEU when it

77

78

PCA, Case n°2012-12, Phillip Morris v Australia (online via http://www.italaw.com/cases); see also Department of Foreign Affairs and Trade, Gillard Government Trade Policy Statement : Trading our way to more jobs and prosperity, 04-2011 (online available at

http://www.dfat.gov.au/publications/trade/trading-ourway-to-more-jobs-and-prosperity.html ) in

Philip Morris v Australia : the challenges of investor-state arbitration (online available at

http://www.mallesons.com/publications/marketAlerts/2011/Pages/Philip-Morris-v-Australia-the-challenges-of-investor-state-arbitration.aspx)

79

Fiorelli, Italy withdraws from the Energy Charter Treaty, 06-05-2015, Global Arbitration Naw, (online via http://globalarbitrationnews.com )

80

Harrison, Lecture 8- International Investment Agreements (2), International Economic Law (IEL) course, year 2012-2013.

81

THE LEGITIMACY OF THE ICSID SYSTEM, 3 Asian J.WTO & Int’l Health L & Pol’y 199, 2008

82

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comes to EU law, before dealing with the impossibility for the EU to be part of the ICSID and finally, the recently enhanced role of the parliament in the legislative process.

3.1 Prerogatives of the CJEU in matter of EU law.

The well-known defiance that the CJEU shows towards other systems of international law and especially towards other international courts is of particular relevance here, as it may constitute an obstacle for further rulings of arbitral tribunals on disputes relating to the new EU-IIAs. Indeed, the fact that the EU considers every aspect of EU law as its “chasse gardée” could come in the way of arbitral tribunals that would need to interpret or consider certain aspects of EU law. We need therefore to conduct a brief overview of the position of the CJEU on that matter. In so doing, we will draw from Lavrano’s article “Is an international investor-to-state arbitration system under the auspices of the ECJ possible?”83

We will first have a look at the prerogatives the CJEU has towards EU law before going on to see how they are illustrated in the light of the CJEU attitude towards international courts or tribunals. We will then turn to observe the recurrent interventions of the Commission in investor-state arbitrations and finally assess the control the CJEU is exercising on Member States’ external policy.

First and foremost, the CJEU has recalled on many occasions that the EU legal order is sui-generis, meaning that it is a new legal order to be separated from the “ordinary” international legal order. 84 As a consequence, primary EU law is placed on top of the hierarchy existing within this EU legal order and is superior to all the other sources of law including international law.85

Another important part of the CJEU position as regards international law is the existence of the preliminary ruling procedure. It has been established by the CJEU “in order to ensure the uniform and consistent interpretation and

83

Lavranos, Is an international investor-to-state arbitration system under the auspices of the

ECJ possible?, available at

84

CJEC, C26/62, Van Gend & Loos and C 6/64 Costa v/ ENEL (online viahttp://curia.europa.eu/ ) .

85

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application of the EU law throughout the EU” (e.g. by the domestic courts of the EU Member States).86

To this end the CJEU has decided that the domestic courts would be primarily European courts with the task to ensure the “effet utile” of the European Law together with the CJEU. In doing so it has also placed upon them an obligation to request a preliminary ruling. The highest courts must always do so while the other courts are only requested to ask for a preliminary ruling when it is deemed necessary.87 The reference for a preliminary ruling is a procedure applied before the CJEU. It enables national courts to question the Court of Justice on the interpretation or validity of European law. It offers therefore a means to guarantee legal certainty by uniform application of EU law.88 In addition, these domestic courts are prohibited to set aside European Law measures that would be regarded as invalid or inconsistent with higher norms (e.g. international law) as it is the exclusive competence of the CJEU.

As a direct consequence, EU law is placed on top of the legal order of the Member States and the CJEU itself stands at the “apex of the pyramids of all courts within the EU”, as it has given itself the final say in interpreting and applying all European Law.89

What we have been describing so far is reflected in the position the CJEU has constantly held towards other international courts when it comes to their possible interaction with EU law. We will not enter into such a detailed appreciation as did Dr. Lavranos, as it is not the purpose of this thesis, but rather we will conduct a brief overview of the jurisprudence of the CJEU towards four different types of international courts namely the European Free Trade Association court, the European Court of Human Rights, the World Trade Organisation Appellate Body and the state-to-state arbitration.90

The conclusion that can be drawn out of this is that the ECJ is attentive to preserve both the sui generis nature of the European legal order and its own duty to maintain and protect such nature. Its attitude towards each of these

86

European Commission, The reference for a preliminary ruling (online via http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:l14552 )

87

ECJ possible?, p 5-6.

88

European Commission, The reference for a preliminary ruling (online via http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:l14552 )

89

ECJ possible?, p 6.

90

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international courts invariably follows the same pattern of rejecting the possible interpretation of EU law by a court other than itself or the Member States domestic courts, and perpetuating the strict separation between the European legal order and any other international legal order.91

Indeed, in its opinion 1/91 it denied to the EFTA the right to interpret and apply community rules. 92

With the ECtHR, it arrived to a compromise using the Solange method following which while the ECJ stays within the limits of the European Convention on Human Rights, the ECtHR will abstain from exercising its jurisdiction towards EU law measures or measures of the Member States implementing EU law obligations. 93

As regards WTO Appellate Body, in the line of its denial to grant any direct effect to WTO law in the European legal order, it consistently refuses to invalidate EU law measures that have been found inconsistent with WTO commitments by the WTO Appellate Body and this, even though Member States are theoretically compelled to implement rulings of Appellate Body reports.94

When it comes to state-to-state arbitration, with the Mox Plant case the CJEU caught in the air the opportunity to prevent Member States to let a dispute that could involve EU law aspects to be resolved by an international arbitral tribunal until the CJEU itself has decided whether it could do so. It would only give its approval in the case such EU law issues are not involved in the end. 95 It takes away the theoretical right EU Member States have to opt for the dispute settlement system of their choice.96

As illustrated by all these examples, the CJEU continues to impose itself as the ultimate “gatekeeper” of the interpretation of EU law. Such position has been reaffirmed in its opinion 1/09 concerning the establishment of a

91

Ibid. 92

ECJ Opinion 1/91 EEA Agreement [1991] in Lavranos, Is an international investor-to-state

arbitration system under the auspices of the ECJ possible?, p7.

93

ECJ possible?, p8.

94

95

C-459/03 Commission v. Ireland [2006]  in Lavranos, Is an international investor-to-state

arbitration system under the auspices of the ECJ possible?, p 9.

96

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European-wide patent court. 97 In this case even though the Member States had taken the precaution to bound this court to follow the CJEU jurisprudence and allow it to request preliminary rulings, the CJEU still found it incompatible with EU treaties. It uses all the specific features of EU law in order to limit ability of the Member States to establish an international court system that may be out of its entire control. In short, the CJEU decided to address itself only to “properly established” Member States domestic courts on matter of interpretation and application of EU law or International law that has become integral part of the EU legal order.98

What is more, an increasing interference of the European Commission in investor-state arbitrations has been observed since its first intervention in the AES v Hungary case.99 It has developed an effective and determined role through cases such as Antin Infrastructure Services Luxembourg S.à.r.l.,100 or Eiser Infrastructure Limited.101 In these cases it has submitted amicus curiae petitions pursuant to ICSID rule 37.2102 and Regulation No 1219/2012.103 The commission has used these provisions in order to develop an analysis of the relationship between intra-EU BIT and EU law. It has done so in light of its role in the EU investment protection policy in an attempt to increase the protection of the public interest in the proceedings and transparency and what the commission thinks to be EU’s direct legal interest in the outcome of the dispute. However, the trend has recently changed and the tribunals in Antin v Spain and Eiser v Spain rejected the EC amicus petitions.104 This can be seen in the light of many investors’ concern about the active role of the EC and the prevalence that might be given to privacy over the legal interest of the EU, which may not be as relevant as before. However, even in the latter cases the Commission successfully obtained participation rights.105

97

ECJ Opinion 1/09 in Lavranos, Is an international investor-to-state arbitration system under

the auspices of the ECJ possible?, p 11.

98

ECJ possible?, p 11-13.

99

ICSID, ARB 07/22, AES v Hungary, (online via www.italaw.com ) 100

ICSID, ARB 13/31, Antin Infrastructure Services Luxembourg S.à.r.l (online via

www.italaw.com ). 101

ICSID, ARB 13/36, Eiser Infrastructure Limited (online via www.italaw.com ) 102

rule 37.2 ICSID. 103

Regulation No 1219/2012 104

Antin v Spain and Eiser v Spain (online via www.italaw.com ) 105

Gonzalez-Bueno, Lozano, More Than a Friend of the Court: The Evolving Role of the European Commission in Investor-State Arbitration, Kluwer Arbitration Blog, 26-01-2015 (online via http://kluwerarbitrationblog.com/blog/author/lauralozano/ )

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As Lavranos is pointing out, even though the EU accepts to some extent that its Member States enter freely into international agreements, it nonetheless exercises an ultimate control by rejecting the content of such agreements if they are to be “incompatible with the EU Treaties or the nature of the EU legal order”.106 Therefore, it also attributes itself the final say in deciding whether and how international law can enter the EU legal order.

As a matter of fact, because “(quasi) judicial enforcement mechanism of international agreements” are now a part of the tasks that are incumbent upon the Member States, international courts and tribunals are more and more called to interpret and apply EU law provisions or international law rules that have been integrated into the EU legal order. However, as aforementioned, the CJEU is more than ever wary to allow Member States to create such courts. So far, its control in this matter has been almost unlimited.107

3.2 Impossibility of the EU to be a part of the International Centre for the Settlement of Investment Disputes.

Another obstacle to a full participation of the EU to the arbitration system as it stands is the fact that it cannot be a part to the ICSID convention. It will therefore not be able to act as a respondent in cases that would be brought under these particular rules. As a matter of fact, what causes problem with the membership of ICSID is that it is only opened to states.108 These states are either members of the World Bank or parties to the International Court of Justice and invited by two-thirds of the current ICSID members.109 Obviously, the EU is barred from joining the ICSID system as it currently stands, and that is an actual issue as this mechanism represent 55% of arbitration cases110 and no less than 159 members.111 Even though some significant countries are not members, such as Poland, Mexico, Brazil and India, the ICSID additional facilities allow non-members to benefit from the institution and its rules

106

107

Ibid, p 14-15. 108

art 1(2) ICSID Convention: The purpose of the Centre shall be to provide facilities for conciliation and arbitration of investment disputes between Contracting States and nationals of other Contracting States in accordance with the provisions of this Convention.

109

Wehland, International Investment Arbitration – the Perspective and Role of the PCA Presentation at the PCA, 24-04-2015

111

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states entities cannot make use of these facilities either).112 What is more, as Schefer is pointing out, even the ICSID decisions have a significant weight on non-ICSID arbitrations. Indeed, the predominance of ICSID arbitration decisions means that they also have an important influence on non-ICSID arbitrations.113

Such restriction is therefore of high importance for the EU in the context of its newly acquired investment competence. In our view, the fact that it cannot take part into the proceedings of the major arbitration institution should be dealt with, whether by adapting those rules or by choosing another fora, may it be already existing or not, the onus is on us to determine. The main problem is that, even though the European Commission seems to consider the accession to the ICSID as a “high priority”, such possibility would in theory require the vote of the 159 members and this would obviously takes quite some time before entering into effect. It should be noted however, that the ICSID Secretariat and the European Commission are also thinking about a faster and easier way to amend the ICSID convention (e.g. a protocol or a Memorandum of Understanding).114

3.3 Enhanced role for the European Parliament

The Lisbon Treaty has not only given the exclusive competence in terms of common commercial policy to the EU but it has also strongly enhanced the role of the EP in general and in the field of investment in particular. Indeed, the Parliament has now a role in adopting legislation through the ordinary legislative procedure. And, as a consequence, its consent is required for all IIAs signed in the field of the common commercial policy.115 This is of particular significance even though article 218 (5) TFEU gives the possibility to the EU to provisionally apply such agreements without the Parliament consent.116 Indeed, in practice, as the case of the EU-Korea FTA has proven,

112

ICSID additional facilities, p301; see also inter alia Kjos, Introduction, procedure and

regulatory framework, Lecture 1, International Arbitration course, UvA, 2014-2015.

and Schefer, International Investment Law, 2013, p373. 113

ECJ possible?, p13.

115

Article 218 (6) (a) (v) TFEU; see also Brown, Changes in the Common Commercial Policy

of the European Union After the Entry  into F orce of the Treaty of Lisbon:  A P ractitioner’s Perspective in Common Commercial Policy after Lisbon, 2013, p163

116

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the endorsement of the Parliament even if not mandatorily needed will be sought anyway. In this case, the Council decided that the Agreement could not be provisionally applied before the safeguard regulation implementing the Agreement was in place. As a consequence, the Agreement could not be provisionally applied before the Parliament gave its consent, because the safeguard regulation was subject to the ordinary legislative procedure and therefore required the agreement of Parliament.117

What is more, the case of the EU-Korea FTA has also demonstrated that the Parliament was taking its newly acquired role seriously. As Brown states, the legislation itself only allows the EP to give or refuse its consent to an agreement. But, against all odds, the Parliament, in the wake of the numerous discussions it conducted with the European Commission, issued a Resolution and a Joint Declaration with the Commission on the matter. The Joint Declaration is of particular relevance as the Commission committed itself to not only respond to the adoption by the Parliament of a resolution calling for a safeguard investigation, when in theory this is not part of the Parliament prerogatives, but also report on Korea’s implementation of the non-tariff barrier and sustainable development commitments in the EU-Korea FTA.118 One thing is certain, in the process the EP has succeeded in creating itself a place in the system for implementing the EU-Korea FTA, when it is not called upon such task as a legislative body; and in addition, to creating a kind of precedence that will allow it to keep a certain oversight of the future implementation of EU IIAs in general.119

What might be seen as a detail for some should rather be regarded in the light of the debate surrounding the inclusion of ISDS provisions within the new EU IIAs. Indeed, as some commentators are pointing out, in the wake of the recent EU concept paper, it is now unlikely that the EU Parliament and the National Parliaments, whose role has also been increased by the Lisbon Treaty, will ratify the CETA and the EU-Singapore treaty without resistance, if they do it at all. 120 The recent French proposal on a European investment court is an example of that recurrent resistance exercised by certain Member

117

Brown, Changes in the Common Commercial Policy of the European Union After the Entry  into F orce of the T reaty of Lisbon:  A P ractitioner’s Perspective in Common

Commercial Policy after Lisbon, 2013, p166 (online).

118

Ibid, p168 (online). 119

Ibid. 120

Vaudano, Bruxelles lance enfin sa réforme de l’arbitrage privé dans le traité

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States.121 In addition, if the European Parliament just gave its consent to the TTIP, it did so under some conditions. Deputies are still insisting on “a new system for the settlement of disputes (…) where the possible cases will be dealt with in transparency by professional and independent judges, named by the public authorities, in public hearings, and that will contain an appeal mechanism”.122

It should be noted however that the role of the member states and of their national parliament will differ whether the treaty in question is signed as a mixed agreement or by the EU alone. A mixed agreement is signed jointly by the EU and its Member States and as such requires the assent of the domestic parliaments. In the event any of the future EU-BITs was to be a mixed agreement, it would be sent to the Member States for endorsement in accordance with their respective constitutional procedures once the Council decision on signature is approved. While the Member States are obviously of the view that such road should be preferred, the EU does not entirely agree. Indeed, in the latter’s view Member States have already plenty of occasions to make their voices heard throughout the whole negotiation and approval process. Public consultations are held at the beginning of the discussions, a formal authorization is requested from the council in order to officially start the discussion while the Council and the European Parliament are regularly informed about the advancement of the negotiations etc. For the EU, these constitute enough opportunities for the national parliaments to make their voice heard.123 However, nothing is settled yet and it remains highly uncertain which road will be preferred. In the light of this, the Commission requested in October 2014 an opinion of the CJEU regarding the EUFSTA. The objective of this opinion is to make clearer which provisions of this agreement fall within the EU's exclusive or shared competence and which remain in the Member States' attributions.124

121

Vers un nouveau moyen de régler les différends entre Etat et investisseurs, 05-2015. 122

Le Parlement Européen apporte son soutien sous condition au Traité Transatlantique,

08-07-2015, Lemonde.fr (online via

http://www.lemonde.fr/economie- mondiale/article/2015/07/08/le-parlement-europeen-apporte-son-soutien-au-traite-transatlantique_4675909_1656941.html )

123

European Commission communication, 16-10-2014, (online via

http://ec.europa.eu/transparency/regdoc/rep/3/2014/EN/3-2014-7557-EN-F1-1.Pdf)

124

European Commission, Singapore: The Commission to Request a Court of Justice Opinion on the trade deal, 30-10-2014, (online via http://europa.eu/rapid/press-release_IP-14-1235_en.htm)

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The recent and on-going Treaty negotiations in light of the criticisms. 4.

As we said, ISDS has come into the light in the aftermath of the negotiations the EU has led respectively with Singapore, Canada and the US. Such attention and the batch of criticisms towards ISDS that came with it had led the EU and its trade partners to try to find even more innovative answers than what was initially intended. Of the three aforementioned treaties, so far only the EU-Singapore Free Trade Agreement and the CETA have reached the final stage of negotiations and are now in the process of being approved by the respective parliaments of the parties.125 In light of these considerations, it seems appropriate to conduct a brief overview of the progress that has been made in these two treaties to tackle the recurring criticisms against ISDS mentioned in section 2, before seeing what remains to be done. In order to make things clearer we will divide the first section dedicated to the progress into subsections named after the criticisms that it intend to answer to.

4.1 The EU-Singapore (EUSFTA) and the CETA: what is new? What has been improved?

For purposes of economy, the CETA and the EUSFTA will be studied jointly as most of their provisions are similar if not identical; it will be specified if there is any difference.

The CETA negotiations were officially terminated on the 26th September 2014 at the EU-Canada Summit,126 the EUSFTA still need to be agreed upon by the Council of ministers and the European Commission.127 In the mind of the EU, both treaties and particularly the CETA constitute a “turning point” in the history of the BITs in general and the EU-BITs in particular. The CETA is said to be the first agreement to put all EU investors on the same footing.128 It is the

125

European Commission, CETA-Summary of the final negotiations results, (online via

http://trade.ec.europa.eu/doclib/docs/2014/december/tradoc_152982.pdf); see also European Commission, EU and Singapore conclude investment talks, 17-10-2014 (online via

http://trade.ec.europa.eu/doclib/press/index.cfm?id=1164 ) 126

European Commission, CETA-Summary of the final negotiating results, 12-2014, p1; see also Herbert Smith Freehills, Long awaited EU-Canada trade agreement agreed – a blueprint

to set the standard for future investment protection?– PIL notes, 26/02/155, p1.

127

European Commission, Countries and regions, (online via

http://ec.europa.eu/trade/policy/countries-and-regions/countries/singapore/ ) 128

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fist agreement signed by the EU as part of its post-Lisbon common commercial policy.129 While both treaties ensure a high level of protection for the said investors, they also preserve the right of the EU and Canada/ Singapore to regulate and conduct public policies, such as the protection of health, safety or environment. The EU also underlines the fact that through CETA and EUSFTA the most progressive mechanism is applied to ISDS.130 What can be said on a more impartial level is that the overall outcome regarding ISDS is certainly promising and answers part of the criticisms that has been raised against the mechanism. However, much still needs to be done to cover the full extent of the concerns.

The provisions relevant to ISDS can be found in chapter X of the CETA and article 9 for the EUSFTA.

4.1.1 Increased transparency

Under these agreements, EU and Canada/ Singapore have sought to make available a wide choice of ISDS facilities, ranging from the ICSID Convention or Additional Facility Rules to the United Nations Commission on International Trade Law Arbitration Rules or even any other rules the parties would agree on.131

What is more, and new, in CETA, the UNCITRAL Transparency rules will apply to all disputes (the UNCITRAL rules are not mentioned as such in the EUSFTA but similar transparency rules are promoted). 132 This incorporation is one of the responses to the accusation of lack of transparency faced by ISDS. Indeed, such rules are meant to tackle the problem by enhancing the public nature of any proceedings, especially when conducted outside the ICSID framework where the rules on transparency are already more advanced.133 The consequence is that both the hearings and the documents of the parties will be made available to the public, the latter through an EU-financed website. It should also be noted that the recourse to amicus curiae is ensured by the

129

Herbert Smith Freehills, Long awaited EU-Canada trade agreement agreed – a blueprint to

set the standard for future investment protection?– PIL notes, 26/02/155, p1

130

European Commission, CETA-Summary of the final negotiating results, 12-2014, p1. 131

Art X.22 CETA. 132

Art X.33 CETA 133

UNCITRAL arbitration rules; see also Herbert Smith Freehills, Long awaited EU-Canada

trade agreement agreed – a blueprint to set the standard for future investment protection?–