The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime

in The Journal of World Investment & Trade
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In its recent treaties, the European Union (EU) has established a new model of investor-State dispute settlement (ISDS). The EU’s new model entails the replacement of ad hoc arbitration with standing, treaty-based investment tribunals, staffed with judges appointed by the states parties. Awards produced by the EU’s new process will be subject to appellate review on issues of law and fact. The EU has indicated that it will pursue a treaty to multilateralize its new tribunal system. This article addresses the compatibility of the EU’s new ISDS model with existing instruments of the investment treaty regime: first, whether the introduction of an appellate mechanism or, indeed, the total reworking of ISDS to establish investment tribunals, renders instruments like the ICSID Convention and the New York Convention inapplicable to the modified process of ISDS; second, how the integration of any appellate mechanism with existing international investment treaties might technically be achieved.

The (In)Compatibility of Appellate Mechanisms with Existing Instruments of the Investment Treaty Regime

in The Journal of World Investment & Trade




In 2002the US Congress passed the US Trade Act of 2002 granting trade promotion authority to the Executive Branch of the US Government and establishing a number of negotiating objectives with respect to foreign investment. See 19 USC § 3802(b)(3). These included the objective of negotiating an appellate mechanism for investment disputes under the United States’ free trade agreements: ‘providing for an appellate body or similar mechanism to provide coherence to the interpretations of investment provisions in trade agreements...’. As a result of this Act specific language on an appellate mechanism was inserted into the 2004 US Model BIT and a number of subsequent US FTAs. See eg United States-Singapore Free Trade Agreement (signed 6 May 2003 entered into force 1 January 2004) (Singapore-US FTA) Exchange of Letters on the Possibility of Bilateral Appellate Mechanism; Free Trade Agreement Between the Government of the United States of America and the Government of the Republic of Chile (signed 6 June 2003 entered into force 1 January 2004) (Chile-US FTA) annex 10-H; United States-Morocco Free Trade Agreement (signed 15 June 2004 entered into force 1 January 2006) (US-Morocco FTA) annex D. Indeed the US-Dominican Republic-Central America Free Trade Agreement went so far as to include text providing for the establishment of a negotiating group and identifying the issues for the negotiators to consider. See Free Trade Agreement between Central America the Dominican Republic and the United States of America (signed 5 August 2004 entered into force 1 January 2008) (CAFTA) annex 10-F.


In the spring of 2015the EU published a concept paper in which it described the EU’s commitment to ‘pursue the creation of one permanent [investment] court. This court would apply to multiple agreements and between different trading partners … on the basis of an opt-in system. The objective would be to multilateralise the court either as a self-standing international body or by embedding it into an existing multilateral organization.’ European Union Directorate General for Trade (DG Trade) Concept Paper ‘TTIP and beyond – the path for reform: Enhancing the right to regulate and moving from current ad hoc arbitration towards an Investment Court’ (6 May 2015) 11–12 <> accessed 15 August 2016. See UNCTAD (n 6) s 6.4 108 (identifying a similar approach as a reform option for modifying the current institutional set up of ISDS).


ibid 1103para 19.


Rigaux and Simon (n 93) 1001. Indeed not only would the disallowed modification be unlawful but the conclusion of the inter se agreement could act as a violation of underlying treaty and as such authorise the other parties to exercise their rights under Article 60 of the VCLT (ibid). Moreover in principle at least the States attempting the disallowed modification may also find their international responsibility engaged for the commission of a wrongful act.


Schreuer and others (n 84) 1102para18.


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