2016/2017 – Master Thesis for LLM Programme in International and European Law: International Trade and Investment Law
Reforming the ISDS system through the lens of public law theory: a comparative study on recent EU-related IIAs
AUTHOR: YI ZHANG
SUPERVISOR: DR. HEGE ELISABETH KJOS
DATE: 1 AUGUST 2017
ABSTRACT
With the sharp increase in the number of international investment agreements (IIAs) and investment treaty arbitrations during the past decades, the investor-state dispute settlement (ISDS) mechanism is facing a considerable backlash, which captures numerous forms of critique and contestation, ranging from states’ refusal to negotiate or sign investment treaties to protests from civil society. To respond to the backlash, numerous proposals for reform have emerged. This thesis will focus on reform proposals in the recent EU-related IIAs: the Canada-Europe CETA, the Europe-Singapore FTA, and the European-Vietnam FTA. Public law theory will be used as a theoretical framework for researching the question regarding the extent to which EU-related IIAs have addressed the current concerns of the ISDS system. To explore the research question, this thesis will first discuss the prevailing concerns of the current system; then compare and evaluate the reform proposals through the lens of public law theory. It will finally conclude that establishment of a multilateral ICS conform more to the public law theory, thus it is arguably a preferable approach to reform the current ISDS system.
ACKNOWLEDGMENTS
This thesis would not have been possible without the support of many people. Many thanks to my supervisor, Dr. Hege Elisabeth Kjos, who read my numerous revisions and ideas and helped me make some sense of the confusion. Also thanks to Dr. Kerem Gulay, who offered me valuable advice in understanding the theory I applied in my thesis; and Professor. Schill, who offered me guidance at the primary stage of my thesis. And finally, thanks to my parents, my boyfriend, and numerous friends who are always offering me support and love.
TABLE OF CONTENTS
1. INTRODUCTION ... - 5 -
2. THE CURRENT concerns OF THE ISDS SYSTEM ... - 6 -
2.1. Criticisms of the current ISDS system ... - 7 -
2.1.1. Lack of transparency ... - 7 -
2.1.2. Lack of consistency and coherence ... - 8 -
2.1.3. Lack of independence and impartiality ... - 9 -
2.1.4. Regulatory chill ... - 11 -
2.2. Legitimacy crisis ... - 12 -
2.3. Interim Conclusion ... - 13 -
3. THEORETICAL FRAMEWORK: PUBLIC LAW THEORY ... - 14 -
3.1. Interplay between ISDS and public law theory ... - 14 -
3.1.1. Historical background ... - 15 -
3.1.2. Present system: institutional framework ... - 16 -
3.1.3. Present system: substantive standards of review ... - 17 -
3.2. Key Public Law Concepts ... - 18 -
3.2.1. Accountability... - 18 -
3.2.2. Transparency ... - 19 -
3.2.3. Coherence ... - 20 -
3.2.4. Independence ... - 20 -
3.3. Why public law theory? ... - 21 -
3.4. Interim Conclusion ... - 22 -
4. PROPOSED REFORMS: COMPARATIVE STUDY & EVALUATION ... - 23 -
4.1. EU Approach ... - 23 -
4.1.1. Comparative study: EU-related IIAs ... - 24 -
4.1.2. Establishment of ICS ... - 26 -
4.2. Internal Reform ... - 29 -
4.3. Domestic Court Adjudication ... - 29 -
4.4. A step forward ... - 30 -
5. CONCLUSION ... - 31 -
1. INTRODUCTION
For decades, provisions on investor-state dispute settlement (ISDS) have played a vital role in international investment agreements (IIAs). IIAs grant foreign investors recourse to settle investment-related disputes in international arbitration against the host state for violations of standards accorded in agreements; and recourse to international arbitration has been celebrated as enhancing the rule of law in investor-state relations.1 In recent decades,
however, the ISDS mechanism is facing a considerable backlash. The backlash has captured a variety of forms of critique and contestation from states as well as civil society. On the one hand, several states demonstrate their critical attitude towards the current system through withdraw from existing treaties,2 and refusals to negotiate or sign investment treaties;3 on the other hand, civil society, non-governmental organizations, and academia express their criticisms towards the current system in the form of protests,4 comments in public consultation processes, increased reporting, and academic discussion. In the context of this backlash, it is suggested that reform should be conducted on the current ISDS system. Among a variety of reform proposals, recent EU-related IIAs display outstanding features.
This thesis will focus on reform formulations reflected in three EU-related IIAs - the Canada-Europe CETA,5 the Europe-Singapore FTA,6 and the European-Vietnam FTA7 - against the background of the current ISDS mechanism. The research question will be asked: based on the public law theory, to what extent have EU-related IIAs addressed the current concerns of the ISDS system? To identify the starting point of the research question, and explore the direction to which the reform is directed, the theoretical framework – public law theory – will be applied.
With an end to answering the research question, this thesis is structured as follows. It begins with a critical discussion of the prevailing concerns of the current system:
1 See the classical account provided by SE. Ibrahim, ‘Towards a Greater Depoliticisation of Investment Disputes: The Roles of ICSID and MIGA’, Washington, DC: World Bank, 1992,
http://documents.worldbank.org/curated/en/335931468315286974/Towards-a-greater-depoliticization-of-investment-disputes-the-roles-of-ICSID-and-MIGA [accessed 1 Aug 2017].
2 See, e.g., Press Release, ICSID, Bolivia Submits a Notice Under Article 71 of the ICSID Convention, May 16, 2007, http://icsidfiles.worldbank.org/icsid/icsid/staticfiles/Announcement3.html [accessed 1 Aug 2017]
3 C.N. Brower & S. Blandchard, ‘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, Vol. 52, 2014, p. 692.
4 D. Caron and E. Shirlow, ‘Unpacking the Complexities of Backlash and Identifying its Unintended Consequences’, https://www.ejiltalk.org/unpacking-the-complexities-of-backlash-and-identifying-its-unintended-consequences/ [accessed 1 Aug 2017]
5 Comprehensive Economic and Trade Agreement, Canada -EU, Feb. 29, 2016,
http://trade.ec.europa.eu/doclib/docs/2016/february/tradoc_154329.pdf [hereinafter ‘CETA’]. 6 Free Trade Agreement, Sing.-EU, ch. 9, June 29, 2015,
http://trade.ec.europa.eu/doclib/docs/2014/october/tradoc_152844.pdf [hereinafter ‘Singapore FTA’]. 7 Free Trade Agreement, Vietnam-EU, ch. 1-7, Dec. 2, 2015,
transparency, independence and impartiality, consistence and coherence, as well as regulatory chill, where counterargument towards these prevalent criticisms on the current ISDS system will be critically discussed (Section 2). To take a closer look at the current system and explore the reform possibilities, a theoretical framework – public law theory - will be applied. It will explore the history of the ISDS system and its connection to the public law theory, and its key concepts will be examined (Section 3). To respond to criticisms of the current mechanism, reforms have been proposed. This thesis will focus on three recent EU-related IIAs: the CETA, the Singapore FTA, and the Vietnam FTA. A comparative study will be conducted on two levels: first, similarities and discrepancies among three IIAs will be analysed and examined; second, key features of EU approach reflected in EU-related IIAs will be compared with two other approaches: modifications made to the existing system; and investor- state disputes settled in domestic courts. Public law concepts will be used as the benchmark to examine and evaluate both stages of comparison, and ultimately explore the extent to which they have addressed the concerns of the ISDS system. Ultimately, enlightened by the previous arguments, this thesis will propose a novel approach that the principle of complementarity can be used (Section 4).
2. THE CURRENT CONCERNS OF THE ISDS SYSTEM
To begin with, the ISDS system has been subject to numerous criticisms. The prevalent concerns relating to the current system include the lack of transparency, the insufficient independence and impartiality, the undermined consistence and coherence, and regulatory chill. Arguably, these failings have resulted in legitimacy crisis of the whole ISDS system. Underpinning these critiques is the belief that inherent deficiencies of the ISDS mechanism are severe and the whole system is functioning for the advantage of rich states and multinational enterprises, thus the reform shall correspond to those failings. However, are shortcomings reflected in prevailing criticisms truly so deeply flawed?
In light of the complexities inherent in the current ISDS system, this section will firstly examine the above-mentioned criticisms towards the current ISDS system. It will then critically discuss the counter-arguments that several criticisms aiming at the current ISDS mechanism have been exaggerated. In the end, this section will not attempt to conclude that the current ISDS system is either perfect or deeply flawed, but rather to provoke deeper thought through critically discussing different aspects of arguments.
2.1. Criticisms of the current ISDS system
2.1.1. Lack of transparency
Firstly, recent years have witnessed a pressing need for increasing transparency in international investment arbitration. It should be noted that being departed from the commercial arbitration principles of privacy and confidentiality, the principle of transparency has been recognised as fundamental in the ISDS mechanism, as it reflects good governance.8 Even though efforts have been made to improve transparency of the system since the start of the millennium,9 it is still possible that ISDS proceedings can be kept fully confidential, if both disputing parties so wish, even in cases where the dispute involves matters of public interests.10
However, some may doubt the very basis of this concern: is it necessary that the whole ISDS system should be utterly transparent at all? Put differently, does the certain extent of confidentiality necessarily undermine the whole ISDS system?
It is argued that despite of the evolvement of the current regime into a more transparent system, how to balance the relationship between transparency and confidentiality should be reconsidered.11 Although confidentiality is generally regarded as a product of
commercial arbitration, it can also benefit the ISDS system as a whole.12 Particularly, not
only can confidentiality provide protection to business secrets as well as of governmental secrets, but it can also contribute to the de-politicisation.13 Given that both sides of
8 A. Malatesta and R. Sali, ‘The Rise of Transparency in International Arbitration’, Huntington, NY: Juris, 2013, p. 2. 9 The adoption of UNCITRAL Transparency Rules in 2013 has been marked as a milestone in boosting transparency in the ISDS system. Under the new rules, party submissions and tribunal decisions and awards must be published, hearings must be open to the public, and non-disputing parties must be permitted to make submissions: UNCITRAL, ‘Transparency Rules for Treaty-Based Investor-State Arbitration and Amends the UNCITRAL Arbitration Rules’, 2013,
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2014Transparency.html [accessed 1 Aug 2017]; see also Pope & Talbot Inc. v Canada, Award on Merits, 10 April 2001, 7 ICSID Reports 102, 122 ILR (2002) 352; Methanex Corp. v United States, Awards, 3 August 2005, 44 ILM (2005) 1345; UPS Inc. v Canada, Awards, 24 May 2007, 46 ILM (2007) 922; ADF v United States, Award, 9 January 2003, 6 ICSID Reports 470.
10 This usually applies to cases brought under arbitration rules other than ICSID (only ICSID keeps a public registry of arbitrations). It is indicative that of the 85 cases under the UNCITRAL Arbitration Rules administered by the Permanent Court of Arbitration (PCA), only 18 were public (as of end 2012). Source: The Permanent Court of Arbitration International Bureau. See further UNCTAD, Transparency: A Sequel, Series on Issues in IIAs II (New York and Geneva, 2012); see also KH. Böckstiegel, ‘Commercial and Investment Arbitration: How Different are they Today? The Lalive Lecture 2012’, in
The Journal of the London Court of International Arbitration, Vol. 28, 2012, p. 586.
11 I. Shihata, ‘Towards a Greater Depoliticisation of Investment Disputes: The Roles of ICSID and MIGA’, p. 9. 12 S. Kouris, ‘Confidentiality: Is International Arbitration Losing One of Its Major Benefits?’, Journal of International
Arbitration, Vol. 22, 2005, p. 127.
13 M. Dimsey. ‘The resolution of international Investment Disputes: Challenges and Solutions’, Eleven International
Publishing, 2008, p. 37; see also JW. Sarles, ‘Solving the Arbitral confidentiality conundrum in international arbitration’, p.5,
https://m.mayerbrown.com/Files/Publication/cc689d95-b8ba-4179-b72f-08b83ec47ad1/Presentation/PublicationAttachment/917049de-2412-4695-894d-09fc7f42c303/Confidentiality.pdf [accessed 1 Aug 2017]
considerations supporting transparency and confidentiality are legitimate and can boost the ISDS system to some extent, it is the nuanced and balanced outcome of necessarily compromise that should be reached. 14 However, it is not pragmatically easy, as in the case of
Biwater, where the tribunal has found it difficult to balance two aspects without undermining the procedural integrity.15 In any event, rather than solely reinstating the issue of transparency, reforms aiming at the current ISDS mechanism should focus on how to balance the demands for transparency against the need for the certain extent of confidentiality.
2.1.2. Lack of consistency and coherence
Another prevailing criticism aimed at the current ISDS system is inconsistency and incoherence of arbitral awards.16 Concerns have been raised because even while applying identical treaty clauses to comparable facts, contrasting awards are given.17 It is particularly manifest in divergent legal interpretations of identical treaty provisions,18 which results in low coherence in arbitral decisions and legal certainty and predictability are undermined.19 One of the typical examples is the Lauder cases,20 where two arbitral tribunals – one in Stockholm and one in London – arrived two different decisions over disputes where facts were essentially the same. A Stockholm tribunal held that under the Netherlands-Czech Republic BIT, the Czech Republic breached a variety of its obligations to the Dutch corporate owned by a U.S. investor.21 Meanwhile, on the same set of facts, a London tribunal held that
according to the United States-Czech Republic BIT, the Czech Republic only discriminated
14 C. Knahrand A. Reinisch, ‘Transparency versus Confidentiality in International Investment Arbitration – The Biwater
Gauff Compromise’, The Law & Practice of International Courts and Tribunals, Vol. 6, Issue 1, 2007, p. 97 – 118.
15 Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3, 29 September 2006.
16 UNCTAD, ‘Investor-State Dispute Settlement: UNCTAD Series on Issues in International Investment Agreements II’, 2014, p. 26–27, http://unctad.org/en/PublicationsLibrary/diaeia2013d2_en.pdf [accessed 1 Aug 2017].
17 C. Henckels, ‘Proportionality and Deference in Investor-State Arbitration – Balancing Investment Protection and Regulatory Autonomy’, CUP, 2015, p. 2–3; See, for example, SGS v Philippines, ICSID Case No ARB/02/6; see also JE Alvarez, ‘The Public International Law Regime Governing International Investment’, Hague Academy of International Law, 2012, p. 352–57.
18 SD. Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions’, in Fordham L. Rev, Vol. 73, 2005, p. 1521. In her work, inconsistent cases can be categorised into three types: (1) cases involving the same facts, related parties, and similar investment rights; (2) cases involving similar commercial situations and similar investment rights; and (3) cases involving different parties, different commercial situations, and the same investment rights.
19 S. Schacherer. “TPP, CETA and TTIP between innovation and consolidation - Resolving Investor-State Disputes under Mega-regionals”, in Journal of international Dispute Settlement, Vol. 7. 2016, p. 640.
20 Czech Republic v. CME Czech Rep. B.V., Judgment of the Court of Appeal, Case No. T 8735-01; Lauder v. Czech Republic, Final Award, IT 187-91 (2001) (UNCITRAL)
21 Agreement on Encouragement of Reciprocal Protection of Investments Between the Kingdom of the Netherlands and the Czech and Slovak Federal Republic, Neth.-Czech Rep.-Slovk,
against the U.S. investor pursuant to the BIT.22 Inconsistent decisions like this may further lead to the uncertainty of how they will be applied in future cases. Following this strand, inconsistencies in awards can have troubling result in the system because the current ISDS mechanism offers few methods to correct mistakes, given that only limited reviews can be given by domestic courts and ICSID annulment procedures.23
Regarding the case mentioned above, a sceptical question may be asked: are there other factors that contribute to different arbitral decisions? Some may argue the focal point resulting in different decisions is not the prima facie facts per se, but the factual casualty.24 In light of this view, whether absolute consistency and coherence should be embraced needs to be considered with discernment.
It is found that scepticism exists regarding this criticism. On the one hand, consistency and coherence in interpretation and arbitral awards can indeed contribute to promoting the legal certainty; on the other hand, complete consistency and coherence in arbitral awards may also undermine the flexibility of the whole system, which turns out to be one of the key reasons why the ISDS system prevails over another mechanism for dispute settlement in the first place.25 In addition to this, contrasting or nuanced awards based on
applying identical provision can indicate the flexibility of the current ISDS mechanism.26 Besides, it is also argued that inconsistencies are exceptions not of serious concern because investment law is a relatively young field.27 Therefore, it is essential for the further reform to reflect upon a more balanced perspective: while recognising that consistency and coherence are vital to secure the legal certainty, the application of this concept should not be a rigid one.
2.1.3. Lack of independence and impartiality
In addition, arbitrators have been criticised as lacking sufficient independence and impartiality.28 Although arbitrators are supposed to act independently and impartially
22 Treaty Concerning the Reciprocal Encouragement and Protection of Investment, Oct. 22, 1991, U.S.-Czech Rep. & Slovk, https://www.state.gov/documents/organization/43557.pdf [accessed 1 Aug 2017]
23 J. Paulsson, ‘Avoiding Unintended Consequences’, in KP. Sauvant (ed), Appeals Mechanism in International Investment
Disputes, OUP, 2008, p. 241–65. See also ICSID Convention, Arts 49–53.
24 D. Schneiderman, Judicial Politics and International Investment Arbitration: Seeking an Explanation for Conflicting Outcomes’, in Northwestern Journal of International Law & Business, Vol: 30, 2010, p. 401.
25 IM. Cate, ‘The Costs of Consistency: Precedent in Investment Treaty Arbitration’, in Columbia Journal of Transnational
Law, Vol. 51, 2013, p. 469.
26 TH. Cheng, ‘Precedent and Control in Investment Treaty Arbitration’, Fordham International Law Journal, Vol. 30, 2016, p. 1030.
27 IM. Cate, ‘International Arbitration and the Ends of Appellate Review’, New York University Journal of International Law
& Politics, Vol. 44, 2012, p. 1205.
28 UNCTAD, ‘Investor-State Dispute Settlement: UNCTAD Series on Issues in International Investment Agreements II’, 2014, p. 27–28, http://unctad.org/en/PublicationsLibrary/diaeia2013d2_en.pdf [accessed 1 Aug 2017]
according to arbitral rules,29 the current system has repeatedly been perceived to be one-sided to favour investors.30 To prove that tribunals expansively interpret their jurisdiction to favour
investors,31 Professor. Sornarajah has enumerated several cases to illustrate this bias.32 As a
result, this bias may contribute to a chill on host state’s future rightful regulations,33 which will be discussed subsequently.
The key reason for this criticism is the one-off appointment of arbitrators, where individuals can serve as arbitrators in some cases and as counsel in others, while the rules regulating conflict of interests or arbitrator ethics are insufficient.34 Naturally, disputing party tend to appoint individuals who are sympathetic to their case.35 In this regard, independence and impartiality can hardly be guaranteed since arbitrators are sometimes seen as being the parties’ counsel rather than as a neutral adjudicator acting in a broader interests.36
However, the notion can be rebutted through asking two questions: first, is the evidence displaying the biased result due to the partial arbitrators convincing at all? Second, presuming that it tends to be a biased system, has it directly contributed to problematic consequence, such as regulatory chill?
To answer the questions above, both case analysis and statistics can be used. First, although Professor Sornarajah singled out numerous cases to illustrate the bias, the evidence underpinning his argument is rather weak, because a line of cases being ruled in favour of investor can indicate no more than a consensus on the correct legal analysis of that issue has
29 For example, Arts 14 and 57 ICSID Convention and R 6 ICSID Arbitration Rules (2006); art 11 UNCITRAL Arbitration Rules (2010).
30 N Rubins and B. Lauterburg, ‘Independence, Impartiality and Duty of Disclosure in Investment Arbitration’ in C Knahr and others (eds), Investment and Commercial Arbitration – Similarities and Divergences, Eleven International Publishing 2009, p.157–67; see also GV Harten, ‘Investment Treaty Arbitration, Procedural Fairness and the Rule of Law’ in SW. Schill (ed), Comparative Public Law and International Investment Law, OUP, 2010, p. 630; G. Bottini, ‘Protection of Essential Interests in the BIT Era’, in TJ Grierson Weiler ed, Investment Treaty Arbitration and International, Vol.1, 2008, p. 145.
31 M. Sornarajah, ‘The Retreat of Neo-Liberalism in Investment Treaty Arbitration’, in CA. Rogers & RP. Alford (eds), The
Future of Investment Arbitration, 2009, p. 291–92.
32 Tokios Tokelès v. Ukraine, ICSID Case No. ARB/02/18, Award, p. 41–49 (July 26, 2007); Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Decision of Tribunal on Objections to Jurisdiction, p. 38–64 (Jan. 25, 2000); Aguas del Tunari, S.A. v. Republic of Bolivia, ICSID Case No. ARB/02/3, Decision on Respondent’s Objection to Jurisdiction, p.156– 80 (Oct. 21, 2005); Fedax N.V. v. The Republic of Venezuela, ICSID Case No. ARB/96/3, Decision of the Tribunal on Objections to Jurisdiction, p.18–29 (July 11, 1997)
33 K. Tienhaara, ‘Regulatory Chill and the Treat of Arbitration: A view from Political Science’, in C. Brown and K. Miles (eds), Evolution in Investment Treaty and Arbitration, OUP, 2011, p. 1.
34 I. Venzke, ‘Investor-State Dispute Settlement in TTIP from the Perspective of a Public Law Theory of International Adjudication’, The Journal of World Investment & Trade, Vol. 17, 2016, 392.
35 OECD, ‘Investor-State Dispute Settlement—Public Consultation: 16 May - 9 July 2012’,
http://www.oecd.org/investment/internationalinvestmentagreements/50291642.pdf; International Council for Commercial Arbitration (ICCA), Report of the ASIL-ICCA Joint Task Force on Issue Conflicts in Investor-State Arbitration, No 3, 17 March 2016,
http://www.arbitration-icca.org/media/6/81372711507986/asil-icca_report_final_5_april_final_for_ridderprint.pdf,[accessed 1 Aug 2017]
36 G. Dimitropoulos, ‘Constructing the Independence of International Investment Arbitrators: Past, Present and Future’, in
been reached.37 Second, the evidence underpinning this contention is hardly convincing.38 As far as the statistics are concerned, states have actually won a higher percentage of cases than investors.39
2.1.4. Regulatory chill
Further, the current ISDS system has been criticized as resulting in regulatory chill,40 where the current treaty-based ISDS system –mainly under BITs and NAFTA – has been biased in favour of foreign investors to the detriment of the sovereign power and duty of host States to pursue the public interest and promote their national development.41 The centre of this argument has marked an imbalanced relationship between the state’s right to regulate and investment protection.42 On the one hand, investors frequently accuse the host state of enacting rightful regulation as a ground to arbitrarily treat the foreign investment; on the other hand, the conceptual vagueness in the substantive clauses of IIAs has left a broad leeway for the tribunal to exercise discretion to favour investors.43
For example, the IIA clause relating to indirect expropriation has frequently been criticised as resulting in the imbalanced relationship between the host state and foreign investors. It is argued that there are two main factors contribute to the regulatory chill: first, the expropriation clause encompassed in the IIA is ambiguous, where a clear, consistent and appropriate standard of what constitutes expropriation is absent;44 second, in light of the
ambiguity of the provision, the tribunal exercises its discretion and tends to rule in favour of
37 C.N.Brower & S. Blandchard, Columbia Journal of Transnational Law, p. 713. 38 Ibid, p. 709.
39 International Bar Association, ‘IBA issues fact-correcting statement on ISDS’, 2015,
https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=1DFF6284-E074-40EA-BF0C-F19949340B2F; For the proportion of decisions in favour of investors and states of concluded arbitration proceedings, see UNCTA, Investment Policy Hub,
http://investmentpolicyhub.unctad.org/ISDS?utm_source=World%20Investment%20Network%20(WIN)&utm_campaign=d 604c2bc59-&utm_medium=email&utm_term=0_646aa30cd0-d604c2bc59-70312665 [accessed 1 Aug 2017]
40 The meaning of “regulatory chill” can be defined as the ability of governments to regulate in the public interest be constrained. In this context, it refers to the notion that ISDS panels favour multinational firms, and thus make governments reluctant to adopt appropriate policies.
41 WM. Reisman and MH. Arsanjani, ‘The Question of Unilateral Governmental Statements as Applicable Law in Investment Disputes’, in ICSID Review, Vol. 19, 2014, p. 328.
42 E, Janeba,’ Regulatory Chill and the Effect of Investor State Dispute Settlements’, in CESifo Working Paper Series, No. 6188, 2016, p. 4.
43 Ibid.
44 There are three main doctrines developed by arbitral awards to distinguish non-compensatory regulation and expropriatory measure requires compensation: “sole effect” doctrine; “police powers” doctrine; and proportionality doctrine. For cases applying the first measure, see Metalclad v Mexico, Award, 30 August 2000, 5 ICSID Reports 212, Vivendi v Argentina, Resubmitted Case, Award, 20 August 2007; for cases applying the second measure, see Methanex v United States, Award, 3 August 2005, 44 ILM (2005) 1345; Saluka v Czech Republic, Partial Award, 17 March 2006, 15 ICSID Reports 274; for cases applying the third measure, see TECMED v Mexico, Award, 29 May 2003, 10 ICSID Reports 134; Fireman’s Fund v Mexico, Award, 17 July 2006.
investors.45 This is seen as problematic in the ISDS regime not only because the government is required to pay compensation or revert its policy should it lose the case, but mostly because it may also prevent governments from carrying out legitimate policy changes in the future.46
For this reason, the accountability held towards the public is undermined since the state’s regulatory power to govern the public interests is strongly impacted.47
However, this broadly stated perception is flawed and skewed because one of the functions of treaties is to limit the political discretion of states, therefore the restriction of a state’s discretion through treaties is justified. After all, states usually voluntarily agree to limit their discretion in the treatment of foreign investors in exchange for benefits that attract foreign investment.48 Following this strand, criticisms relating to regulatory chill are not targeting at the binding international obligations per se, but the content and scope of those obligations. 49 Therefore, rather than merely broadening the policy space of states, corresponding reform should touch upon the exact scope of substantive obligations negotiated in agreements,50 and most importantly, it should address the allocation of rights and responsibilities of foreign investors.
2.2. Legitimacy crisis
Despite the fact that the whole ISDS system should not be negated because it has attracted critical attentions, its shortcomings do exist. Building upon the previous arguments, the concerns are connected to both substantive and procedural failings. Although critical voices vary in arguing extent to which the current ISDS system is flawed, they have
contributed to numerous amount of literature that deems the current system as in legitimacy crisis.51
45 C. Henckels, ‘Indirect Expropriation and the Right to Regulate, Revisiting Proportionality Analysis and the Standard of Review in Investor-State Arbitration’, in J Int Economic Law, Vol. 15(1), 2012, p. 223-255.
46 B. Kingsbury and SW. Schill, ‘Public Law Concepts to Balance Investors’ Rights with State Regulatory Actions in the Public Interest – The Concept of Proportionality’, in SW. Schill (ed.), International Investment Law and Comparative Public
Law, OUP, 2010, p. 75.
47 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7.
48 From the perspective of general international law, the International Court of Justice (ICJ) held in the Nicaragua case that the voluntary acceptance of binding international obligations that constrain domestic actors is a basic principle of
international law (see Military and Paramilitary Activities in and Against Nicaragua, Merits, Judgment, 1986 I.C.J. 14, 259, June 27).
49 CN. Brower & S. Blandchard, Columbia Journal of Transnational Law, p. 722.
50 P. Bernardin, ‘Reforming Investor–State Dispute Settlement: The Need to Balance Both Parties’ Interests’, in ICSID
Review, Vol. 3, 2017, p.50.
51 M. Sornarajah, ‘A Coming Crisis: Expansionary Trends in Investment Treaty Arbitration’, in KP. Sauvant, ed, Appeals
Mechanism in International Investment Disputes, Oxford, 2008, p. 39-45; A. Afilalo, ‘Meaning Ambiguity and Legitimacy:
The word “legitimacy” has entailed a variety of definitions,52 and this thesis decides to embrace the approach adopted by David Beetham: “Where power is acquired and
exercised according to justifiable rules, and with evidence of consent, we call it rightful or legitimate.”53 As far as this thesis is concerned, the legitimacy crisis is manifest in two layers of arguments: on the one hand, vagueness and indeterminacy of the substantive standards encompassed in the treaty lead to problematic application of investment treaties;54 on the other hand, procedural aspects of the current ISDS system have aggravated the uncertainty through the overlap between different arbitral institutions.55
Therefore, although advantages of the current ISDS system should not be neglected, concerns relating to the legitimacy crisis should be warily considered, because it concerns the very basis of the ISDS system.56 Following this logic, the further reform cannot be effective unless it adopts the approach that examines the unique feature of the current ISDS system, which is not only a dispute settlement body, but a mechanism of transnational governance.57
2.3. Interim Conclusion
To summarise, it has been asserted that advantages of the current ISDS system should not be neglected and several criticisms should be reconsidered, and the corresponding reform shall reflect concerns that are based on neutral and balanced perceptions. Nevertheless, the flaws with the present system have concerned both substantive and structural weaknesses and failings clearly go beyond that of mere partial arbitrators or controversially incoherent treaty interpretations. These can only be sufficiently addressed and remedied through moving away from the current structure of the system. Arguably, core public law values can be used as a standard to guide the direction to which the reform shall be headed.
p. 279, 282; SD. Franck, Fordham L Rev, p. 1521, 1523; A. Afilalo, ‘Towards a Common Law of International Investment: How NAFTA Chapter11 Panels Should Solve Their Legitimacy Crisis’, in Georgetown Intl Envir L Rev, Vol. 17, 2004, p. 51; CH. Brower II, ‘Structure, Legitimacy, and NAFTA's Investment Chapter’, in Vand J Transnatl L, Vol. 36, 2003, p. 37; CN. Brower, CH. Brower II, and JK. Sharpe, ‘The Coming Crisis in the Global Adjudication System’, in Arb Intl, Vol. 19, 2003, p. 415.
52 T. M. Franck, ‘The Power of Legitimacy among Nations’, Oxford, 1990, p. 24. 53 David Beetham, ‘The Legitimation of Power’, Macmillan,1991, p. 3.
54 Charles H. Brower II, Vanderbilt Journal of Transnationl Law, p. 37.
55 CN. Brower. and Schill, Stephan W. ‘Is Arbitration a threat or a Boon to the Legitimacy of International Investment Law?’, in Chicago Journal of International Law, Vol. 9, 2009, p. 473.
56 SW. Schill, Developing a Framework for the Legitimacy of International Arbitration in Albert Jan van den Berg (ed),
Legitimacy: Myths, Realities, Challenges, ICCA Congress Series, Vol. 18, 2015, p. 802.
3. THEORETICAL FRAMEWORK: PUBLIC LAW THEORY
To take a closer look at the concerns previously discussed and corresponding reforms, a theoretical framework is necessary. To proceed the research in this thesis, the public law theory will be used as the theoretical framework to evaluate the extent to which the current reform proposals have addressed and remedied shortcomings of the current ISDS system, and provide a standard for the direction to which the reform is headed. Although the definition of public law is nuanced, this thesis will adopt the explanation by Abram Chayes: “the subject matter of the lawsuit is not a dispute between private individuals about private rights, but a grievance about the operation of the public policy.”58 As far as the research of this thesis is concerned, there are essentially three approaches within the public law theory: the public authority approach,59 global administrative law approach,60 and global constitutional law approach.61 Due to the length of this thesis, details of three approaches will not be the focus of this work, and this thesis will mainly discuss concepts originating from the former two approaches.
This section will begin with exploring the interplay between the public law theory and the ISDS system from its historical development and the structure of the current system. It will continue to examine four key concepts of public law theory – accountability, transparency, coherence, and independence – that are pertinent to the current ISDS system. Further, it will discuss why public law theory should be applied despite the critical attitudes shared by several scholars towards the public law theory per se.
3.1. Interplay between ISDS and public law theory
ISDS is often approached as a form of adjudication analogical to commercial arbitration where private law concepts are pertinent.62 Yet, the argument of this section is that
58 A. Chayes, ‘The Role of the Judge in Public Law Litigation’, in Havard LR, Vol. 59, 1976, p. 1281, 1302; see also Black’s Law Dictionary, 6th ed, 1990, p. 1230, which defined public law as: “… portion of law that defines rights and duties with either the operation of government, or the relationships between the government and individuals, associations, and corporations’.
59 See, for example, AV. Bogdandy, M. Goldmann, and I. Venzke, ‘From Public International to International Public Law: Translating World Public Opinion into International Public Authority’, The European Journal of International Law, Vol. 28. 2017, p. 115-145.
60 GV. Harten, M. Loughlin, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’, in The European
Journal of International Law. Vol. 17, 2006, p. 121-150.
61 L.B. Chazournes, B. McGarry, ‘What Roles Can Constitutional Law Play in Investment Arbitration?’, in Journal of World
Investment & Trade, vol. 15, 2014, p. 862-888.
62 W. Mattli, ‘Private Justice in a Global Economy: From Litigation to Arbitration’, Int’l Org, Vol. 55, 2001, p. 919 - 945; CN. Brower, CH Brower II, and JK Sharpe, Arb Int’l, Vol. 19, 2003, p.415; see generally VS. Vadi, ‘Through the
Looking-it should instead be viewed as a mechanism of adjudication based on public law, due to Looking-its close connection to sovereign authority. The argument will be unfolded in two steps: the overview of the ISDS system history; and the institutional and substantive structure of the present system. Works of Paulsson, Harten, and Schneiderman will be relied on.
3.1.1. Historical background
Although the modern setting for ISDS differs from that a century ago, the public law nature of investment disputes remains rooted in colonial and post-colonial conflict over foreign ownership and control of local resources and assets.63 During the colonial era, disputes between investors and local authorities were resolved within the imperial legal system and, when subject to adjudication, they fell under the jurisdiction of its courts and administrators.64 In territories that were indirectly colonised,65 disputes were resolved through applying European or American law extraterritorially.66. In the early 20th century, when the government of Cipriano Castro in Venezuela declared that it would not repay its debts to European creditors, a naval armada was dispatched by Germany, Great Britain, and Italy to blockade Caracas and bombed coastal facilities. Under the pressure, the Venezuela agreed to repay the debt and subject to international arbitration, preference on treatment was given to the creditors of countries that had committed military force to enforce the claims.67 Episodes such as these encouraged the negotiation of the Porter Convention of 1907, which refrained states from using force to collect debts and encouraged the use of arbitration to resolve the disputes.68
International arbitration thus emerged as an amicable alternative to the use of force in resolving disputes arising out of the foreign investment. It differed from extraterritorial and post-colonial legal regimes in many aspects. Rather than using direct force and applying the foreign domestic law, customary international law principles were applied. In the event of disputes, diplomatic protection based on state-state negotiation prevailed.69 The limitation of this measure is obvious: only states can be the subjects of negotiation and investors cannot
Glass: International Investment Law through the Lens of a Property Theory’, in Manchester Journal of International
Economic Law, Vol. 8, Issue 3, 2011.
63 AA. Fatouros, ‘International Law and the Third World’, in Virginia Law Review, Vol. 50, 1964, p. 783-794. 64 SM. Hill, ‘Growth of International Law in Africa’, Law Quaterly Review, Vol. 16, 1990, p. 256-9.
65 MO, Hudson, ‘The Rendition of the International Mixed Court at Shanghai’, American Journal of International Law, Vol. 21, 1927, p. 454-5.
66 N. Krisch, ‘International Law in Times of Hegemony’, EJIL, Vol. 16, 2005, p. 401-2. 67 M. Hood, ‘Gunboat Diplomacy 1895-1905’, London: George Allen & Unwin, 1975, p. 187-8. 68 J. Paulsson, ‘Denial of Justice in International Law’, Cambridge: CUP, 2005, p. 22-3.
bring the claim themselves, which leave interests of investors at the mercy of their government.70
Thus, while the mechanism to resolve foreign investment disputes has developed its unique feature through historical progress, one should not lose sight of its ancestry that early international arbitration of investment disputes followed in the wake of foreign invasion and occupation.71 Following this strand, it is not difficult to see the sovereign authority element in the event of resolving disputes of foreign investment through various mechanisms. Although mechanisms applied in the history were different from the present system, they have contributed to the establishment of international standards of investor protection, which has provided the bedrock for the present system.
3.1.2. Present system: institutional framework
It can be seen from the historical development of investment dispute settlement that sovereign authority is an inseparable element in resolving the dispute between the host state and the foreign investor. The present ISDS system displays this feature in developing its institutional framework from two perspectives: treaties, and other international law instruments.
The present system is based on treaties, bilateral and multilateral, and a unique feature that separates it from commercial arbitration is the general consent.72 While in commercial
disputes, parties usually give specific consent to arbitration in each case; parties of investment disputes give general consent in treaties.73 Since the 1990s, the inclusion of
general consent to investment arbitration has become the rule, and it has contributed to the structural framework of the ISDS system today. Because it is based on a reciprocal legal relationship between a person, whether legal or natural; and a state, which makes policy decisions aiming at the public, the general consent has transformed investment arbitration from a private form of dispute settlement to a governing mechanism,74 That said, the general consent has impact on the policy making of the host state.
Not only do treaties construct the institutional framework for the present ISDS system, other international law instruments - such as the ICSID Convention75 and the New York
70 GV. Harten, ‘Investment Treaty Arbitration and Public Law’, Oxford: OUP, 2007, p. 18. 71 Ibid, p. 15.
72 J. Paulsson, ‘Arbitration without Privity’, in ICSID Rev, Vol, 10, 1995, p. 233.
73 There are three ways a state can give consent: through arbitration clause in a contract; enacting a law that contain arbitration provision; and treaties.
74 GV. Harten, ‘Investment Treaty Arbitration and Public Law’, p. 25.
Convention76 - are used to supplement the institutional structure and procedural paradigm for the current ISDS framework, and authorise the recognition and enforcement of awards by domestic courts.77 They also provide a source to establish the tribunal and how to proceed the
case. Essentially, an investment claim is related to decisions made by the host state which affects the foreign investors, and these decisions generally fall within the public law regime.78 Accordingly, the assessment of the exercise of the host state’s authority should be accordance with the public law theory.
3.1.3. Present system: substantive standards of review
Apart from the structure of the whole ISDS system, IIAs also provide a range of substantive standards to measure a host state’s conduct towards foreign investors. The application of the standards exercises constraints on sovereign conduct, through which it determines the specific impact of the treaty. By interpreting the standards, arbitrators specify and elaborate the limits of sovereign power, examining how public authority has been used to restrict capital transfers, tax businesses, control land use, deliver services, and regulate technology.79 Due to the limited length of this thesis, it is impossible to explore all existing substantive standards in detail. National treatment - one of the most basic norms in investment arbitration - will be used as an example.
The core of national treatment has the ancient origin that can be generalised as “non-discrimination”: a state must not discriminate against foreign investors once they have been allowed to its territory.80 Despite its classical status in customary international law, the scope
of this standard is vast. By definition, the standard implies that the treatment of foreign investors is to be identical to the treatment of similarly situated domestic investors. Therefore, the essence of a national standard is that like cases regarding should be treated alike.81 However, how to identify appropriate criteria for “like cases” is hardly simple. On the one hand, investors have advocated far-reaching standard that the “like circumstances” to include de facto discrimination, which can give them the discretion to make arguments in its own
76 New York Convention, http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/New-York-Convention-E.pdf 77 KJ. Vandevelde, ‘The Political Economy of a Bilateral Investment Treaty’, in American Journal of International law, Vol. 92, 1998, p. 621. It should be noted that in this context, ‘recognition’ of arbitral awards serve to bar fresh proceedings by the other party; and ‘enforcement’ refers to the court’s application of legal sanctions, including seizure of property and other assets, forfeit of bank accounts, or imprisonment.
78 AV. Bogdandy and I. Venzke, ‘In Whose Name? A Public Law Theory of International Adjudication’, Oxford: OUP, 2014, p. 102.
79 D. Schneiderman, ‘Investment Rules and the New Constitutionalism’, in Law & Social Inquiry, Vol. 25, 2000, p. 757. 80 H. Neufeld, ‘The International Protection of Private Creditors From the Treaties of Westphalia to the Congress of Vienna’, Leiden: AW Sijthoff, 1971, p. 96.
interest;82 on the other hand, the trend of individualisation of adjudication – which simultaneously shapes other substantive standards 83 - has vastly broadened the standards to
determine the “like circumstances”, which gives the tribunal even wider discretion to interpret the standard.
While interpreting substantive standards, arbitrators rule on the legality of legislative choices, the fairness of regulations, the content of property rights, and the appropriate distribution of the costs of regulation between business and society.84 Following its function, tribunals are analogous to that of any public law body. Therefore, tribunals’ decisions will massively impact the regulatory direction of governments, which indicates that their authority goes to the heart of the public law.
3.2. Key Public Law Concepts
Having explored the connection between public law theory and the current ISDS system, this section will examine four public law concepts – accountability, transparency, coherence, and independence – that are pertinent to the function of the ISDS mechanism, and these standards will be used in the following section to identify flaws in the present system, and provide standards to evaluate reforms. It will mainly build upon the literature of Harten, Venzke, and Schill.
3.2.1. Accountability
Accountability is usually approached as a broad concept that can encompass many different checks and balances on judicial power, from the enactment of the legislature of the public character, to specific legal controls such as the duty to give reasons or disciplinary processes for serious misconduct by individual judges.85 This thesis will focus on the concept of accountability which is closely related to the role of arbitrators.
The concept of accountability can usually be found in domestic law. In domestic legal systems, an adjudicator can be made accountable to the public for the interpretation of public
82 JA. VanDuzer, ‘NAFTA Chapter 11 to Date: The Progress of a Work in Progress’ in LR Dawson (ed), Whose Rights? The
NAFTA Chapter 11 Debate, Ottawa: Centre for Trade Law and Policy, 2002, p. 72-73.
83 Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2; Occidental Exploration and Production Company v Republic of Ecuador (Merits), 2004, World Trade and Arb Mat 165; Eureko v Republic of Poland (Merits), 2005, UNCITRAL Rules, para. 231-5; Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11.
84 GV. Harten, ‘Investment Treaty Arbitration and Public Law’, p. 81.
law simply by allowing the appeal of awards to the courts in matters of legal interpretation.86 It is this specific accountability that is absent from the current ISDS system. The current system incorporates the enforcement structure of international commercial arbitration while functioning as the governance mechanism.87 Therefore, it allows arbitrators to rule on critical issues of public law without the possibility of judicial review to correct errors of law. In addition to this, tribunals in many cases choose the seat of the arbitration, which determines the domestic law that will be applied by the respondent state regarding the process of the arbitration and the enforcement of the award.88 This arguably presents an additional challenge to accountability, because it is difficult to keep the checks and restraints consistent in different legal systems.89
3.2.2. Transparency
The concept of transparency encompasses two layers: the public should have access to information about adjudicative decision-making; and views other than those of the claimant and respondent should be represented in the process of adjudicative decisions. Public access to information is widely recognised as a fundamental principle of judicial decision-making in domestic and international courts.90 It requires that adjudication take place in the public eye, subject to specifically enumerated exceptions, and judicial decisions and relevant documents filed in a litigation are placed on the public record. If adjudication were not fully open and transparent, it can evade the public scrutiny and matters affecting the community at large could routinely be decided in secret. For this reason, transparency seems to be a precondition of both accountability and independence in adjudication.91 Participation
by non-parties in adjudication, in contrast, is not a fundamental principle in customary international law and is approached differently in different legal systems.92
In the ISDS system, the notion of transparency goes to the heart of the mechanism because arbitration is used to resolve regulatory disputes, and controversy is created as it
86 SW. Schill, ‘International Investment Law and Comparative Public law – An introduction’, in International Investment
Law and Comparative Public Law, OUP, 2010, p. 8.
87 GV. Harten, ‘Investment Treaty Arbitration and Public Law’, p. 84.
88 W. Peter, ‘Arbitration and Renegotiation of International Investment Agreements’, in Hague: Kluwer Law International, 1995, p. 284-5.
89 WM. Reisman, ‘Systems of Control in International Ajudication and Arbitration’, Durham: Duke University Press, 1992, p.131.
90 For example, European Convention on Human Rights, Art 40.
91 T. Meron, ‘Judicial Independence and impartiality in International Criminal Tribunals’, in American Journal of
International Law, Vol. 99, 2005, p. 359.
directly connects to the transparency of the process.93 As discussed in the previous section (section 2.1.1), whether the ISDS system should be as transparent as the domestic legal system is debatable. Nevertheless, confidentiality is still embraced in numerous treaties.94
3.2.3. Coherence
Coherence requires that the law should be interpreted in a uniform and relatively predictable manner to allow those affected by the rules to arrange further plans.95 Coherence seems to be a controversial concept in all legal regimes, as interpreting the law in ways that are predictable but still flexible is one of the great challenges of any legal system.96
In the ISDS system, it seems to be more challenging to guarantee coherence in adjudicating the investment disputes. It is from the system’s fragmented and individualised structure that the difficulty arises, especially regarding the absence of an appellate institution to review awards and to correct errors of law made in the first place. Following this strand, with numerous treaties in place, it is inevitable that tribunals will interpret core standards and concepts in different ways.97 Although institutions such as the ICSID annulment process or domestic courts function as supervisory bodies over the tribunal, it is certainly not as much as a hierarchical system to correct legal errors of lower courts.98
3.2.4. Independence
Judicial independence is seen as the cornerstone of the public law theory, and it correlates with previously mentioned three concepts.99 In democratic societies, public courts are perceived to be independent from other branches of the state as well as powerful non-state interests, and the perception of independence rests on the perceived freedom of judges from inappropriate influences and, as is long and widely recognised, on a judicial security of tenure and stable income.100 In disputes involving business or the state, security of tenure
93 CG, Carcia, ‘All the Other Dirty Little Secrets: Investment Treaties, Latin America, and the Necessary Evil of Investor-State Arbitration’, in Florida Journal of International Law, Vol. 16, 2004, p. 301.
94 GV. Harten, ‘Investment Treaty Arbitration and Public Law’, p. 164.
95 TM. Franck, ‘Fairness in International Law and Institutions’, New York: Clarendon Press, 1995, p. 38.
96 DM Price, ‘NAFTA Chapter 11 – Investor-State Dispute Settlement: Frankenstein or Safety Valve?’, in Can – US LJ, Vol. 26, 2001, p. 111.
97 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, para. 104-5. 98 J. Werner, ‘Making Investment Arbitration More Certain – A Modest Proposal’, in Journal of World Investment, Vol. 4, 2003, p. 767.
99 D. Berkowitz and K. Clay. ‘The Effect of Judicial Independence on Courts: Evidence from the American States’ in
Journal of Legal Studies, Vol. 35 (2), 2006, p. 399–400.
isolates the judge from the temptation to further his or her career by interpreting the law in ways that will appease the powerful forces in government and industry.101
It is particularly complex to safeguard judicial independence in the ISDS system, because the current mechanism is not identical to a judicial court; rather, it uses private arbitration to resolve regulatory disputes that arise from the public. Due to this unique character to the ISDS system, the threat to judicial independence is more pressing. First, this threat cannot be separated from the issues of accountability, openness, and coherence as discussed above, because each poses its own challenges to judicial independence.102 Most importantly, a more fundamental challenge arises for the interrelated reasons that arbitrators lack security of tenure and that the system is one-sided in that it allows only investors to bring claims and requires only state to pay damages for treaty violations. Following this strand, these aspects of the system make arbitrators dependent on both executive government and prospective claimants in ways that tenured judges are not.103
3.3. Why public law theory?
Having rooted the connection between the ISDS system and the public law theory in history, we will now move on to examine why the public law theory should be the appropriate approach despite the critical views. Due to the limited length of the thesis, this section will mainly focus on contentions of Alvarez and Thirlway.
Previously, it is argued that the public law theory should be applied as the theoretical framework for the ISDS mechanism, because it recognises the current ISDS system as transnational governance authority that resolves regulatory disputes between individuals and the state. However, one should note that this notion is also subject to nuanced critical contentions. Alvarez contended that, as a theory used to approach the ISDS system, public law theory is a form of boundary crossing, where international investment law regime seems to encourage interactions between different areas of law.104 In his opinion, the analogies of public law theory to the ISDS system may result in states widening the exceptions that states
101 KA. Randazzo, DM. Gibler, and R. Reid, ‘Examining the Development of Judicial Independence’, in Political Research
Quarterly, Vol. 69(3), 2016, p. 583-584.
102 ICSID, ‘Possible Improvements of the Framework for ICSID Arbitration’, 2004, https://www.transnational-dispute-management.com/article.asp?key=307 [accessed 1 Aug 2017].
103 T. Meron, American Journal of International Law, p.360.
104 JE. Alvarez, ‘Beware: Boudary Crossings – A Critical Appraisal of Public Law Approaches to International Investment Law’, in The Journal of World Investment & Trade, Vol. 17, 2016, p. 173.
take in IIAs to enhance its power to the detriment of individual rights.105 It holds true that constructing the ISDS system within the public law theory can alter the features of the present private form of adjudication, but those alterations can be positive if approached with discernment.
Thirlway, in his book review of Bogandy and Venzke’s work, contended that as a public law theory is too prospective for the international arbitration, to the extent that it is “ahead of its time”, where any real prospect of that time coming in the foreseeable future is absent. According to him, the theory is more suitable in a world with a reasonably united form of overall government, and with a widely shared minimum quantum of democracy concern.106 This criticism has indeed precisely noted the ambiguity of the international arbitration mechanism as a whole, but it does not necessarily conform to the ISDS system per se. Moreover, features of the ISDS mechanism are unique and should not be confused with other forms of international adjudication. More importantly, the ISDS regime has been constantly developing. Therefore, it seems acceptable and logical to construct a theoretical framework that both captures the persent ISDS system and provide standards to guide and assess its future reforms.
3.4. Interim Conclusion
The historical development of investment dispute settlement has marked the connection between the ISDS system and public law theory, and the present ISDS system inherits this feature and has developed its structure pertaining the public law theory both institutionally and substantively. There are four concepts - accountability, transparency, coherence, and independence - that can serve as the standards to examine the current system as well as evaluate the corresponding reforms. Although the public law theory has attracted critical attentions, it can still be approached as the theoretical framework for the current ISDS system.
105 Ibid, p. 225.
106 H. Thirlway, ‘A. von Bogandy and I. Venzke: In Whose Name? A Public Law Theory of International Adjudication’ in Neth Int Law Rev, Vol. 62, 2015, p. 475.
4. PROPOSED REFORMS: COMPARATIVE STUDY & EVALUATION
To respond to concerns of the current ISDS mechanism, numerous debates on ways to reform have arisen. Although reform proposals seem to limit to specific IIAs, it is argued that scholarly debate around these proposals have global repercussions.107 At the same time, various international organisations have marked ISDS reform in their agendas, such as ICSID’s proposal on the creation of an optional ICSID Appeals Facility108 and OECD’s
launch of negotiations on a Multilateral Agreement on Investment109. One of their objectives
was to address and remedy shortcomings of the current ISDS system such as incoherence and inconsistency. However, most of their attempts and proposals failed due to immaturity both in terms of timing and strategy.110 Despite their failure, reform proposals prepared by these institutions serve as a significant source of academic debate and further proposed reforms.111
In this section, a comparative study will be conducted through the lens of public law theory in two stages: it first compares the recent proposals of reform formulated in EU-related IIAs: - the CETA, the Singapore FTA, and the Vietnam FTA, it thus assesses the extent to which the establishment of Investment Court System (ICS) – one of the prominent features of the EU approach – has addressed the concerns mentioned previously based on key concepts of public law theory; it then compares the EU approach with the other two approaches: internal reform and domestic court adjudication. Ultimately, in the light of the comparative study, the thesis will presume a novel direction ahead.
4.1. EU Approach
From 2010, UNCTAD has been advocating systemic approach to reforming the current ISDS system. Based on its long-standing experience with its working programme on IIAs,112 it has suggested that a multilateral-level reform is fundamentally crucial to fostering
107 SW. Schill, ‘Reforming Investor-State Dispute Settlement (ISDS): Conceptual Framework and Options for the Way Forward’, in E15 Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World
Economic Forum, 2015. www.e15initiative.org/ [accessed 1 Aug 2017].
108 ICSID Secretariat, ‘Possible Improvements of the Framework for ICSID Arbitration Discussion Paper’, 22 October 2004, http://www.iisd.org/pdf/2004/investment_icsid_response.pdf [accessed 1 Aug 2017].
109 OECD, ‘Investor-State Dispute Settlement—Public Consultation: 16 May - 9 July 2012’
110 S. Schill, E15 Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World
Economic Forum, 2015.
111 European Commission, ‘Concept Paper: Investment in TTIP and beyond – the Path for Reform; Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration Towards an Investment Court’, 2015,
http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF, [accessed 1 Aug 2017].
112 United Nations Conference on Trade and Development (UNCTAD), ‘Investment policy framework for sustainable development’, 2012 (updated in 2015), http://unctad.org/en/PublicationsLibrary/diaepcb2015d5_en.pdf; United Nations
