What are international investment agreements (iias) for? Although clearly interlinked, the functions and provisions of iias do not always match. Arguably, the drafting of investment rules depends on the function(s) attributed to and expected to be performed by investment treaties. The problem, however, is that the main function of investment treaties remains a moving target: is it to attract and protect investment? Is it to subject host countries to certain principles of conduct? Or is it to pursue economic development? While one does not necessarily have to exclude the other, without a clear purpose the interpretative activity of arbitral tribunals has often impinged, perhaps unintentionally, on a wide range of domestic policy sensitivities. Indeed, arbitral tribunals have found themselves in the position of assessing what constitutes a normal exercise of host states’ regulatory powers according to what investment protection obligations prescribe, often without factoring other interests and needs in the process.
This lack of purpose and its resulting foreign interference from arbitral tribunals in domestic sensitivities have become increasingly noticeable. The dissatisfaction with investment arbitration has grown considerably both in academia and the generable political debate. While it may be difficult to identify a precise time when the malaise first arose, states’ dissatisfaction with the investment adjudication system has become increasingly hard to hide. The crisis reached its peak during the 2010s when some states withdrew from the icsid Convention, and others decided to terminate their bits. A widespread dissatisfaction that emerged at many levels and from multiple fronts put so much pressure on the investment system that the economic neoliberal tenet according to which foreign capitals deliver prosperity in the forms of more growth and jobs began to tremble. Albeit neoliberalism remains resilient, its narrative is no longer sufficient to accept unreservedly that foreign
The re-orientation processes that have been instated in the last decade within the investment system have attempted to respond to this pressure, although the processes are quite broad in scope and offer many angles of analysis. Looking at these processes of reform retrospectively, one particularly convincing and somewhat original perspective of analysis is to understand whether, and if so the extent to which, non-economic concerns had been factored into the reform process. To this end, a constitutionally-oriented reform appears the most apt to address the issue. This chapter thus developed accordingly around the concept of justice and articulates in the following three stages. The analysis begins by outlining the emergence of a growing sense of dissatisfaction within the investment system and the directions of reform taken so far (Section 1). It then moves to elaborate on the concept of justice as a premise for ensuring the pursuit of more satisfactory reform processes. In so doing, it assesses the progresses of three key players, the European Union (EU) and the United Nations (UN) – both United Nation Commission on International Trade Law (uncitral) and United Nation Commission on Trade and Development (unctad) – in pursuing a constitutionally-oriented reform (Section 2). In light of the analysis provided, the third and last section critically discusses the limits of these approaches and the questions that remain unanswered (Section 3).
1 From Dissatisfaction towards Reform
Over the last twenty years (2000–2020), a growing dissatisfaction has acutely emerged against one of the less palatable features of the investment system: the mechanism for resolving investment disputes, i.e. investment arbitration or investor-state arbitration.1 Investment arbitration consists of a small group of arbitrators sitting impermanent tribunals chosen to decide disputes between foreign investors and governments. These tribunals deliver decision that are often inconsistent, costly, lengthy, opaque and present very narrow grounds to be challenged. As Sornarajah warns, it is hard to pinpoint a precise time when the malaise against investor-state arbitration first arose, but states’ dissatisfaction with the investment adjudication system became increasingly
The problems of policy coherence are intrinsically related to one of the most controversial points of the arbitral tribunal’s interpretative activity: the assessment of whether the host state’s conduct in question might (or not) constitute a normal exercise of its regulatory powers according to what is prescribed by the investment agreement in question. Such a broader interpretative power has generated the potential effect of deterring host states from changing their domestic regulatory framework to escape even the prospect itself of being hit with (costly) investment claims. This phenomenon is known as ‘regulatory chill’ and is one of the manifestations that most vividly have revealed the far-reaching implications of investment arbitration.
The problems with investment arbitration, however, go beyond the problem of regulatory chill and encompass issues such as the lack of transparency, of
Several attempts of reform in investment arbitration have tried to achieve greater protection for a state that finds itself caught between a potential financial obligation towards investors and a public policy obligation to its citizens. The public policy obligation is particularly revealing of a persistent dissatisfaction vis-à-vis investment arbitration that is inextricably linked to a global tendency of disillusionment towards free markets. This disillusionment is the result of neo-liberalizing policies instated in the first decade of the 2000s, which, in principle, aimed to normalize legally binding constraints by drawing on the normative ideas of comparative advantage (enhanced social well-being), consumer freedom (opportunity to consume goods and services from any place), and rule of law (as a mean to cabin the tendency of governments to stray from the range of acceptable responses).7 Economically, this was associated with a strong normative preference for ‘free market’ and ‘free trade’ and tended to valorise material prosperity as a central human good.8 In practice, however, ideas such as the ability of the market to correct itself, the advantages of economic liberalisation, and the emphasis on the right to property became hard to justify in light of market failures, especially when the costs of these failures have to be borne by societies. This appears even more cumbersome within the investment system and the limits placed on states’ capacity to solve redistributive problems in case of failed economic investments.9
These characteristics are problematic for many reasons. To begin with, the lack of obligations on investors does not sanction for or offer remedies in case of investments that failed to perform efficiently. As things stand, even in the presence of failed investments, the regime operates as a meaningful constraint on politics with tribunals called to assess whether states’ behaviours conform to what is prescribed by the investment treaty in question and whether such behaviours is ultimately the cause for the investment’s failure.11 The systemic inability to hold investors liable does not provide for non-market based solutions and is unavoidably exposed to the criticism that it creates imbalances and is inattentive to alternative social values, thus questioning the effectiveness in
Although economic globalization is hard to resist, the unaccountability for market failures revealed a chronic weakness of the economic neoliberalism tenet. As Schneiderman argues, the investment rules regime aims to establish thresholds of tolerable behaviours promoting a culture of marketing seemingly freed from the control of politics.13 This logic finds confirmation in the fact that the system’s approach is to punish deviant governments with large damage awards in case of unusual commercial behaviours that negatively impact the investment – political choices nuisances included. Investment treaty norms and procedures thus become a matter of concern because they leave scarce, if any, room, for accommodating foreign investments with needs that go beyond the purely economic sphere – for example, health, environmental, social and labour issues. The consequences of this logic are increasingly hard to hide. Even the general public has come to grasp how investments norms impinge on a wide range of domestic policies and on sovereignty sensitivities in unprecedented ways. A few countries remained supportive of classic liberalism as its central body of doctrine,14 and an increasing number of states have recently initiated a process of reform of their investment agreements to strengthen the defensive character of their treaties. By reasserting their control over the interpretation and application of investment treaties,15 states have attempted to place their treaties more in line with other policy objectives.
Here lies the problem with many processes of reform. Largely ignoring the substantive injustices that the systemic asymmetries have generated, the gist of the problem has predominantly been framed in procedural terms. From this perspective, it is the margin of judicial discretion voluntarily bestowed
2 From Reform towards Justice
Following on a growing sense of dissatisfaction, the official reform initiatives have sought to intervene on those points of friction (whether real or perceived) that trigger public criticism against the legitimacy of investment arbitration. They introduced textual clarifications, focused on increasing transparency and public participation with a view to enhancing coherence and consistency in arbitrator decision-making. While these are important concerns, the current reform initiatives overlook the central issues with the process and structure of the investment arbitration system.17 The special status accorded to foreign investors remains unaltered, as does the power of arbitrators to decide arbitration claims on the basis of adherence to investment agreements’ norms, and allocate public funds accordingly, albeit the reform processes made it more disciplined. The proposed reforms lack a vision of justice that would review and discipline iias as instrument to foster development without questioning
In this section, I will review the approaches of the EU, uncitral and unctad towards reforming investment arbitration from the perspective of justice, intended as a constitutionally-anchored principle. For present purposes, justice is intended as justification as proposed by Forst. From this standpoint, justice is the premise from where the input is derived to ensure legitimacy (output), instead of a utilitarian source that could deliver legitimacy anyway. The logical starting point of the analysis is the same as that of legal and economic constitutionalism. Rules and ‘welfare’ must be justified by a vision of justice where (potential) voluntary, informed consent is given by reasonable individuals. The input legitimacy is based on methodological individualism rather than by utilitarian output-legitimacy only. Simply put, the assumption is that that iias are instruments to foster development. They certainly seek to attract and protect fdis but cannot be constrained exclusively by an utilitarian output-legitimacy that would focus one-sidedly on investor interests and neglect the non-economic interests. While legitimacy remains the common aim, the framing is different. Legitimacy can be achieved through a vision based on justice or utility. If the former, justification for action (the investment) is derived from an ideal (justice) to be realized through an economic program (investment) effected through and by the rule of law (development and inclusion of non-economic factors). If the latter, justification for action (the investment) is derived from the merely pursuit of a utility (economic profit) effected through and by economic rules (protection of investments and investors).
When using the expression ‘justification for action’ in the context of investments, I rely on Forst’s conception of the ‘right to justification’.18 According to his theory, members of societies plagued by multiple types of domination have a legitimate claim on the various dominators for ‘the resources necessary to establish a minimally justified democratic order’.19 Beyond that, at the maximal level he defends a dialogic analogue of Rawls’s Difference Principle: the transnational basic structure must be such that it survives ‘the (qualified) veto right of the worst off’.20 The basis of this qualified veto right is the same as the basis for domestic and international justice, and corresponds to the foundation of morality as such – namely, the right to justification. According to this right to justification, all actions affecting others in morally relevant ways, all claims of justice against others, and all laws and norms need to be justifiable
A plausible explanation of investment arbitration resistance to a justice justification finds indirect confirmation also in the work of St John concerning the rise of investment arbitration. According to her findings, investment arbitration was a ‘strange idea on the [World] Bank’s part’, and the insertion of isds clauses was not deliberately sought or imposed from investors.22 Specifically, investment arbitration was a framework created by international officers to kick off a gradual institutional development that eventually culminated in investment arbitration and established a pro-isds constituency along the way.23 The success of investment arbitration can be explained by the fact that institutions persist. Even when they generate consequences that are unintended or unreasonable (from a justice perspective) as it happened with investment arbitration, actors will pursue transformative institutional changes rather than abandoning it. The current efforts to reform investor-state dispute settlement undertaken by the European Union, uncitral and unctad constitute to a large extent a confirmation of this persistence. All official reform processes aim to correct some systemic disfunctions without dismantling investment arbitration or radically altering its inner fibre, or at least this appears not to be the direction these reform processes are taking anytime soon.
Despite these limitations, it is possible to investigate whether traces of justice as the right to justification are detectable in the current efforts of reform. By investigating the extent to which these efforts are addressing the call to factor non-economic needs in the process, it would be possible to understand whether the investment system persists orbiting around non-economic needs or whether it is moving closer, albeit slowly, to more reasonable ‘justice choices’ to address the central problems with the process and institutional
The remaining of this section will thus develop in the following three stages. First, it investigates justice as openness. In democratic adjudicative processes, powers like those of arbitrators reviewing matters of public interest and issuing compensation from public funds need to be exercised publicly to ensure accountability and fairness. Second, it considers justice as a procedure. Unlike other adjudicative systems, investment arbitration lacks institutional safeguards of judicial independence and procedural fairness. To this end, institutionalization and judicialization are advanced, especially by the European Commission, as remedies to enduring systemic malaise. Third, justice is conceived as a remedy to failures and social injustice. The investment arbitration system is rather asymmetric given that access is permitted to the claimant investor and the respondent government, but other parties, whose rights or interests may be affected by the decision-making, have no standing in the process.
2.1 Justice as Openness
In democratic adjudicative processes, powers like those of arbitrators reviewing matters of public interest and issuing compensation from public funds need to be exercised publicly to ensure accountability and fairness. With great powers come great responsibilities; secrecy is fundamentally misplaced in investment treaty arbitration where arbitrators regularly review decisions of legislatures, governments, and courts on matters of public interest and where they award compensation from public funds.24 Investment arbitration allows
The lack of openness is a long-standing concern, and transparency has often been depicted as its appropriate remedy. Albeit a general principle of transparency does not exist in international law, domestic systems do recognize its legal value. Transparency operates as a vehicle through which tribunals could inform the public about both how arbitrations are decided, and enable government to elucidate their impacts on domestic level. The release of documents to the public domain provides for a channel through which government and the public might interact, and potentially intervene – e.g. through amicus curiae submission.
In this context, it is reasonable to expect commitment towards transparency and openness from both the UN and the EU. In principle, all three systems here considered advocate for access to documents, public hearings, and for granting forms of participation to third parties. The Commission’s approach is the most assertive in this regard. The EU ipas introduced full, mandatory transparency of the arbitration process. This is the default option, to be attained either via the uncitral Rules on Transparency or through supplementary provisions. This means that all documents (submissions by the disputing parties, decisions of the tribunal) will be made publicly available, all hearings will be open to the public, and interested parties (ngos, trade unions) will be able to make submissions.25
uncitral’s approach is remarkable on many fronts, although there exist some limitations, mostly of practical nature. Starting in 2009, the uncitral wg ii worked for more than four years on the elaboration of new standards favouring greater transparency in investment arbitration. Eventually, the process culminated in July 2013 with the adoption of the Rules on transparency in treaty-based investor-State arbitration.26 The 2013 Rules consist of a
Perhaps surprising to many, unctad took a soft stance towards the improvement of transparency in investment arbitration, delivering at times some helpful statements but, on the whole, falling short of commitments. Transparency is firstly advocated for investors (in both 2012 and 2015 reform plans): ‘investment policies should be […] embedded in an institutional framework based on the rule of law that adheres to high standards of public governance and ensures predictable, efficient and transparent procedures for investors’.34 It is conceded, however, that ‘transparency of isds claims could enable broader and informed public debate as well as a more adequate representation of stakeholder interests, prevent non-transparent deals and stimulate balanced and well-reasoned arbitral decisions.’ Greater transparency can be attained by, for example, granting public access to arbitration documents (including settlement agreements) and arbitral hearings and allowing the participation of interested non-disputing parties such as civil society organizations.35 As Van Harten argued, these were helpful statements by unctad but they fell short of a clear commitment to openness in investment treaty arbitration.36 Transparency remains a precondition for attracting investments, even though unctad recognizes its potential contribution ‘to facilitate dialogue between public and private sector stakeholders, including companies, organized labour and non-governmental organizations (ngos).’37 On this point, it is interesting to note that unctad insists (in 2012, 2015 and then again in 2018) on the fact that the reform process itself ‘should be a transparent multistakeholder engagement, allowing all stakeholders to voice their opinion and to propose contributions’.38 On the whole unctad’s engagement tends to remain at a superficial level, albeit it recognised the potential of transparency at treaty-making level. It attempts to take some steps to address the lack of openness, in a manner that delivers more positive results at policymaking level – i.e. renders the reform process more transparent and open to inputs from all involved stakeholders – than at investment arbitration level.
2.2
Unlike other adjudicative systems, investment arbitration provides for a peculiar form of adjudication that lacks the institutional safeguards of judicial independence and procedural fairness. As such, it ‘holds little additional value in the presence of well-established and well-functioning domestic legal systems’.39 This type of critique is frequently derived from one of the historically distinctive features of arbitration: the disputants’ power to select their own adjudicators. Claimants and respondents, in fact, have the power to constitute arbitral tribunals by appointing one member of the tribunal each in case of a three-adjudicator tribunal, or to jointly appoint one sole arbitrator. As it has often been argued, the problem with party’s right to appoint arbitration is that it leans close to an ad hoc ‘private’ dispute resolution system and does not offer the same guarantees of independence and impartiality as a state court. The lack (whether real or perceived) of the institutional safeguards of independence and impartiality, which are otherwise present in the adjudicative functions, renders investment arbitration an anomaly and unavoidably instil the suspect of inappropriate bias in the system.
Situation[s] in which one day you are presenting an expert opinion on a particular point, the next day you are acting as counsel on the same point of investment law, and the day after you are sitting as an arbitrator in a case which raises that very point, [and this] undoubtedly give[s] rise to difficulties, however much personal integrity the individuals display.41
Among the points of convergence between the work carried out by the Commission and uncitral there are a code of conduct for arbitrators, the establishment of a structured and permanent judicial process with tenured adjudicators, and a new system of appointment. The Commission’s short-to-medium term proposal to move from arbitration is the investment court system (ics), which now features in a number of international investment agreements – notably, in the Comprehensive Economic and Trade Agreement (ceta) with Canada (2017), the EU-Singapore Investment Protection Agreement (2018) and the EU-Vietnam Investment Protection Agreement (2018) and, in principle, in the agreement with Mexico.42 The ics is a two-tier system that comprises a first instance tribunal and an appellate tribunal, both of which are composed of permanent adjudicators appointed by a Joint Committee of representatives from the EU and its treaty partners. The ics still combines elements typical of investment arbitration as we have known it so far, especially as far as enforcement is concerned, with some significant adjustments such as (but not limited to) the standing status of the tribunal, the imposition of a code of conduct on its members, the members’ tenured position, their fixed remuneration and their appointment, which is no longer at the discretion of the litigating parties (i.e. the investor and the host state).
The proposals advanced by the uncitral wg iii in the context of the isds reform process are complementary to the ics, especially as far as the permanent character of the adjudication system and selection process of adjudicators are concerned. There is agreement around the idea of electing tribunal members through an intergovernmental body voting from a list of nominated candidates and to ensure diversity of legal expertise, gender, regional representation, and language. There is flexibility in the establishment of the tribunal depending on geographical representation, following any variation in the number of participating States, as well as in caseload.44 There is room for accommodating part-time employments, although wg iii is firm on the need to adopt a rule ‘regarding parallel activities that would be prohibited’.45
On this last point and still within the uncitral process of reform, a development worth mentioning is the drafting of a code of conduct in isds, an idea that was explored by uncitral wg iii following on Algeria’s input.46 After preparing some background work and collecting Member States’ comments, delegates at wgiii’s 38th session (October 2019) suggested that the Secretariats icsid and uncitral cooperate in preparing model provisions for a code of conduct for adjudicators.47 This joint effort led to the release of a first version
The Code consists of 12 articles, which provide definitions (art.1), explain the applicability of the Code (art.2) along with more substantive obligations for adjudicators (art. 4–9), pre-appointment interviews and fees (art.10 and art. 11). The Code is concluded with a provision addressing the fundamental issue of its enforcement (art. 12). The Code constitutes a remarkable attempt to enhance confidence in the independence and impartiality of isds adjudicators. As stressed in Art.3, the Code attempt to enhance even the appearance itself of confidence: ‘the obligation not to: […t]ake any action that creates the appearance of a lack of independence or impartiality’.48 As the commentary explains, an arbitrator must remain vigilant and be proactive in ensuring that he or she does not instil an impression of bias and should make continued efforts to not create a perception of bias. The Code marks an interesting turning point in tackling the concern of double hatting of arbitrators and the risk it poses to their independence and impartiality. Despite the positive impact this type of reform might generate on perceptions, it is an exercise in discipline that remains focused on an individual level, hence the importance of appearances, and largely continue to ignore ‘the foundational role of safeguards of adjudicative independence in domestic courts, international courts, and some other systems of arbitration’.49
unctad epitomises this aspect of individuality of the reform processes even more vividly. It does not appear particularly concerned about the conflict of interests (WiR 2015), although it does embrace the creation of a roster from which to appoint adjudicators. unctad acknowledges that the institutional set-up of the investment arbitration system generates a more perceivable sense of illegitimacy, albeit impartiality and independence are not mentioned in this context. Its reform-action menus refer to the need of selecting independent arbitrators,50 and ensuring that adjudicators are fully independent, impartial, free from conflicts of interest and ‘affordable’ to the parties. This need could be
An appellate body with permanent judges, appointed by States from a pool of eminent jurists, would allow the appeals facility to become an authority capable of delivering consistent – and balanced – opinions, which would rectify some of the legitimacy concerns about the current isds regime.52
The attempt is probably to engage in a critical analysis of the existing reform proposals; unctad appears somehow persuaded that the tenured character of adjudicators would be congenial to mitigate some concerns levelled against investment arbitration. The element of addressing the lack of independence and impartiality as institutional safeguards, however, is almost entirely dismissed. What seems to transpire from unctad is that ‘ad hoc mechanisms would be easier to realize and involve lower costs’,53 whereas ‘an appellate body with the authority to issue rulings with the force of precedents [and therefore a mic or potentially any permanent tribunals] could place new limitations on the sovereignty of contracting parties through the establishment of an independent body of jurisprudence’.54 It is interesting that the establishment of an independent body of jurisprudence is perceived as a threat (limitations) to the sovereign powers of the contracting parties. unctad sees little value of systemic coherence and predictability that an appeal facility might bring. Rather, it assumes that the inherent power of precedent possessed by an appellate tribunal would amount to more constraints on litigants than those deriving from ad hoc decision issued by arbitral tribunals.
2.3
One of the main problems with investment arbitration is the imbalanced allocation of rights and responsibilities not only between investors and states, but also among investors, states, and other affected third parties. As things stand, investment agreements give full rights for standing to foreign investors (claimants) and governments (respondents) but leave out third parties, despite the effects an investment may have on them. Examples of ‘third parties’ could be Indigenous communities in whose land arrives ‘a corporation from a faraway place to pursue an investment’;55 or domestic investors in competition with foreign competitors. None of those who fall under the ‘third party’ category is entitled to full standing in the investment adjudication even though their rights or interests could be affected by the investment and are likely to be even more affected by a decision of an arbitral tribunal.
Regardless of the extent to which three (or one) selected individuals, ‘drawn from lists of academics and international lawyers almost unknown outside their highly specialized field’,56 undertake the assessment of domestic policy choices, the expansion of the rights of private persons vis-à-vis the regulatory capacity of governments remains undeniable. Albeit it is not accurate to describe investment arbitration as the forum where ‘investors always win’,57 it is surely true that there are certain features, peculiar to the investment arbitration system only, that aggravate the imbalance between public and private sensitivities.58 What states have found particularly disturbing, especially when they are due to comply with awards that placed enormous strain on public finances, is the need to provide justifications to their citizens. Governments found themselves in the uncomfortable position of justifying to their citizens not only that arbitrators were considered more suitable than the domestic legal system to solve investment disputes59 but also, and perhaps more challengingly, that the decisions they deliver were fair.
As things stand, market failures and social injustices have been treated separately, with the former being taken into account and the latter being largely overlooked. The point I would like to investigate in the remainder of this section is whether the reform processes have attempted to address the problem as a compound one, so accounting for both market failure and social injustices.
One proposal around which all the three players converge is the possibility for third parties to submit amicus curiae briefs, which have the potential to raise public interests that go beyond the host state, and which can include the perspective of other stakeholders. Their contribution, however, remain somewhat limited in addressing the problem of injustice. As the Latin words indicate, amicus curiae is a ‘friend of the court,’ and is not a party to the proceeding. Arbitral tribunals have often allowed amici participation only on the conditions of a manifest interest within the scope of the dispute and on the
A party may initiate a counterclaim against the Investor or Investment for a breach of the obligations [corruption, disclosure, taxation, compliance with host state law] before a tribunal established under this Article and seek as a remedy suitable declaratory relief, enforcement action or monetary compensation.
When applying the above fair and equitable treatment obligation, a Tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation, and upon which the investor relied in deciding to make or maintain the covered investment, but that the Party subsequently frustrated.
This provision signals a radical shift from the traditional drafting of fet. The change from the usual perspective is enshrined in the term ‘may’. Even in the case of the frustration of legitimate expectations (by the host state to the detriment of the investor), the tribunal is not necessarily bound to consider this as a violation of the treatment of investors’ provisions. Differently put, even in the presence of a market failure, the tribunal can take the negative impact on the investment into consideration, but this ‘giving thought to’ is not binding. What seems important to retain for present purposes is that the breadth of a tribunal’s discretion is considerably limited. The change of perspective lies in the fact that the tribunal is no longer bound to take the legitimate expectations’ component into consideration, or at least not exclusively, nor should investors expect the tribunal to do so. The agreement provides for a right to regulate provision to safeguard state’s regulatory autonomy, but no reference is found in case of potentially negative consequences on third parties.65
Another proposal worth mentioning is the creation of an advisory centre for the prevention, avoidance, and management of investment disputes, as well as for the collection and promotion of best practices. As articulated in its 43rd session, the wg iii identified a list of possible services that an advisory centre
unctad’s line of action remains somehow less consistent if compared to uncitral and the European Commission approaches. unctad does recognize that most iias are asymmetrical in that they set out obligations only for States and not for investors. Among possible reform options, it insists on the need to strengthen adr as a dispute prevention mechanism, for example by making it a compulsory step before the commencement of investment arbitration.
Taking stock of a global trend advocating for rebalancing, unctad identifies two broad sets of options: raising the obligations to comply with domestic laws to the international level and designing corporate social responsibility (csr) clauses.67 For example, it reports that some recent iias contain provisions to foster responsible investment by requiring investors to comply with environmental assessment screening procedures prior to establishment of the investment and to conduct social impact assessments of potential investments and to maintain an environmental management system and meet international certification standards.68 In a similar vein, there are some iias which set
All reform processes recognize that the investment arbitration is characterized by problems of symmetry, or rather of lack of, but none of them has framed the narrative in terms of market failures and social injustices as two sides of the same coin. Some reforms seem to point towards more rebalancing but, as they stand, none of them intends to engage into a systemic restructuring.
3 From Justice towards Remaining the Same
In this chapter I discussed whether appropriate steps have been taken to reform the system in a more justice-oriented fashion. Although the future does not have to be bleak, the path is fraught with uncertainties. Much of what the reforms in international investment agreements since 2004 have tried to achieve is greater protection for a state that finds itself caught between a potential financial obligation to an investor and a public policy obligation to its citizens. While the path towards the expansion of state’s regulatory autonomy has potential, it is insufficient to address problems like social injustices.
In some instances, the reform processes took stock of the developments occurred in the last twenty years and remain limited merely to codifying the existing practice of arbitral tribunals rather than truly call for radical reforms. The changes introduced by global reform processes are laudable, especially when they have rendered investment arbitration more open and impartial; but they are inadequate when it comes to addressing the structural problems long affecting the investment regime. The elephant in the room is, in fact, the asymmetry of the investment system, which assigns only rights to investors and only obligations to states and that, as a consequence, generates social injustices.
Interesting novelties are sometimes advances by single states, albeit not unreservedly. The reform proposals are attempting, quite successfully, to limit investors’ rights and accord greater protection to states in international investment disputes; but they only do so by shifting the interpretative power of arbitrators from one flexible wording to another within a given bit, thus
Acknowledgements
I am most grateful to Ernst Ulrich Petersmann and Armin Steinbach for their very helpful comments and exchanges. All opinions and errors remain mine.
Visiting Max Weber Fellow at the European University Institute. Maria.marceddu@kcl.ac.uk.
The terms ‘investment arbitration’ or ‘investor-state arbitration’ will be used interchangeably in this contribution.
Muthucumaraswamy Sornarajah, Resistance and Change in the International Law on Foreign Investment (cup 2015).
Bolivia, Ecuador, and Venezuela withdrew from the icsid convention in 2007, 2009, and 2012 respectively. In 2014, Indonesia announced its intention to terminate its bits. South Africa has begun a similar programme of termination: it terminated its bit with Belgium-Luxembourg in 2012 and issued cancellation notices for its bits with Germany and Switzerland.
unctad, World Investment Report 2015 – Reforming the International Investment Regime: An Action Menu (2015), 125 available at
United Nations Commission on International Trade Law Rules on Transparency in Treaty-based Investor-State Arbitration and Arbitration Rules (as revised in 2010, with new article 1, paragraph 4, as adopted 16 December 2013), UN gaor Sixty-Eighth Session Agenda item 79, UN Doc. A/68/462 (2013) art. 1(2).
unctad, Investment Policy Framework for Sustainable Development (ipfsd) (2012) available at
David Schneiderman, Resisting Economic Globalization (Palgrave 2013) 36–39.
Andrew Lang, World Trade Law After Neoliberalism (oup 2011).
See Schneiderman (n 7) at 50 commenting on the Argentinian cases cms, L&G, Enron, Suez: ‘equal treatment with citizens is tolerated only so long as treatment does not fall below certain minimum level, at which point investors are to be granted priority in the wake of financial collapse of the state’.
Lang (n 8).
A case in point is Biwater Gauff (Tanzania) v Tanzania (Award, 24 July 2008) arb/05/22. See also the disputes emerged against Spain (but also Czech Republic, Italy) in the renewable energy context.
Lang (n 8) 1–7.
Schneiderman (n 7) 51.
Jurgën Kurtz, ‘ngos, the Internet and International Economic Policy Making: The Failure of the oecd Multilateral Agreement on Investment’ (2002) 3 Melbourne Journal of International Law 213, 223.
Andreas Kulick (ed), Reassertion of Control over the Investment Treaty Regime (cup 2016).
Laurence Helfer and Anne-Marie Slaughter, ‘Why States Create International Tribunals: A Response to Professors Posner and Yoo’ (2005) 93 California Law Review 899.
Gus van Harten, ‘The European Commission and unctad Reform Agendas: Do They Ensure Independence, Openness, and Fairness in Investor–State Arbitration?’, in Steffen Hindelang, and Markus Krajewski (eds), Shifting Paradigms in International Investment Law: More Balanced, Less Isolated, Increasingly Diversified (oup 2016) 129.
Rainer Forst, The Right to Justification (Columbia University Press 2011).
ibid, 263.
ibid, 265.
On the point see also Chapter 3, where Armin Steinbach argues with reference to constitutional economics that mutual agreeability of constitutional arrangements for all members of society implies positing ‘consumer sovereignty’ and ‘citizen sovereignty’.
‘There was almost no demand from investors for this type of arbitration’. Taylor St John, The Rise of Investor-State Arbitration (oup 2018) 3.
ibid, 13.
Gus Van Harten, ‘Investment Treaty Arbitration, Procedural Fairness, and the Rule of Law’ in Stephan Schill (ed), International Investment Law and Comparative Public Law (oup 2010); Gus Van Harten, Investment Treaty Arbitration and Public Law (oup 2007) 159–75.
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) 2.
uncitral, ‘Report of the United Nations Commission on International Trade Law Forty-sixth session (8–26 July 2013)’ UN gaor Sixty-Eighth Session Supplement No. 17, UN Doc. A/68/17 (uncitral Rules on Transparency), para iii.A.
uncitral, ‘Report of Working Group ii (Arbitration and Conciliation) on the work of its fifty-third session (Vienna, 4–8 October 2010)’ UN Doc. a/cn.9/712.
Stephan Schill, ‘Editorial: Five Times Transparency in International Investment Law’ (2014) 15 The Journal of World Investment & Trade, 363.
Claudia Reith, ‘The New uncitral Rules on Transparency 2014: Significant Breakthrough or a Regime Full of Empty Formula?’ (2015) 4 Yearbook on International Arbitration, 127.
uncitral Rules on Transparency (n 26).
ibid art. 1(2)(a) and (b). See also uncitral, ‘Report of Working Group ii (Arbitration and Conciliation) on the work of its fifty-eighth session (New York, 4–8 February 2013)’ UN Doc. a/cn.9/765, para 17.
uncitral, ‘Report of the United Nations Commission on International Trade Law Forty-seventh session (7–18 July 2014)’ UN gaor Sixty-Ninth Session Supplement No. 17 UN Doc. A/69/17, para 106.
unga Res 69/116 (18 December 2014) UN Doc. a/res/69/116.
WiR 2015 (n 4) 129.
ipfsd 2012 (n 6), unctad’s Reform Package fort he International Investment Regime 2018 (Reform Package 2018).
Van Harten (n 17) 137–8.
ipfsd 2012 (n 6) 12.
WiR 2015 (n 4) 165–168.
ibid.
Some scholars have even called for a ‘moral hazard’ associated with party-appointed arbitrators. See in this sense: Charles N Brower and Charles B Rosenberg, ‘The Death of the Two-Headed Nightingale: Why the Paulsson–van Den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded’ (2013) 29 Arbitration International 7.
James Crawford, ‘Keynote Address: International Protection of Foreign Direct Investments: Between Clinical Isolation and Systematic Integration’ in Rainer Hofmann and Christian J Tams (eds), International Investment Law and General International Law: From Clinical Isolation to Systemic Integration? (1st edn, Nomos Verlagsgesellschaft 2011) 21.
European Union–Canada Comprehensive Economic and Trade Agreement (ceta) (signed 30 October 2016, entered into force 21 September 2017 provisionally); Free Trade Agreement between the European Union and the Republic of Singapore (entered into force 21 November 2019), Investment Protection Agreement, Framework Agreement on Partnership and Cooperation between the European Union and the Republic of Singapore (signed 19 October 2018, not yet entered into force); Free Trade Agreement between the European Union and the Republic of Vietnam (entered into force 1 August 2020), Investment Protection Agreement between the European Union and the Republic of Vietnam (signed 30 June 2019, not yet entered into force); New EU-Mexico Agreement in principle (as of 21 April 2018).
uncitral Working Group iii, ‘Possible reform of investor State dispute settlement (isds): Submission from the European Union Union and its Member States’ (24 January 2019) UN Doc a/cn.9/wg.iii/wp.15.
uncitral Working Group iii, ‘Possible reform of investor-State dispute settlement (isds) Standing multilateral mechanism: Selection and appointment of isds tribunal members and related matters’, Note by the Secretariat (8 December 2021) UN Doc a/cn.9/wg.iii/wp.213, para 18.
ibid, para 21.
uncitral Working Group iii, ‘Settlement of Commercial Disputes: Possible Future Work on Ethics in International Arbitration’, Note by the Secretariat’ (29 April 2016), UN Doc a/cn.9/808; uncitral Working Group iii, ‘Possible Future Work in the Field of Dispute Settlement: Ethics in International Arbitration’ Note by the Secretariat (13 April 2017),UN Doc a/cn.9/916.
uncitral, Report of Working Group iii (Investor-State Dispute Settlement Reform) on the work of its 38th session (Vienna, 14–18 October 2019) UN Doc a/cn.9/1004.
uncitral Working Group iii, ‘Draft code of conduct for arbitrators in international investment dispute resolution and commentary’, Note by the Secretariat (April 2023), UN Doc a/cn.9/1148 (for discussion purposes only).
Gus Van Harten (n 17) 131–132.
WiR 2015 (n 4) 128.
ibid, 148; Reform Package 2018 (n 35) 50.
Reform Package 2018 (n 35), 53.
ibid.
WiR 2015 (n 4) 148.
Bear Creek v Peru, arb/14/21 (Dissenting opinion of Prof. P. Sands, 30 November 2017) para 7.
Anthony Depalma, ‘Nafta’s Powerful Little Secret; Obscure Tribunals Settle Disputes, but Go Too Far, Critics Say’ The New York Times (11 March 2001).
‘Developments and Reform of Investor‑state Dispute Settlement – Q&A with Meg Kinnear’, available at:
Specifically, as Wells has argued, the problem has been in the lack of symmetry in isds, ‘with protection for investors but not for host governments’: Louis Wells, ‘Backlash to Investment Arbitration: Three Causes’ in Michael Waibel, Asha Kaushal, Kyo-Hwa Liz Chung and Claire Balchin (eds), The Backlash Against Investment Arbitration: Perceptions and Reality (Kluwer Law International 2010).
Protests against isds have been organised in Canada, France, Germany, United Kingdom, as well as in the United States and Canada.
Encavis and Others v Italy, arb/20/39 (Procedural Order N.2, 21 May 2022) para 41.
uncitral Working Group iii, ‘Possible reform of investor-State dispute settlement (isds) Multiple proceedings and counterclaims’, Note by the Secretariat (22 January 2020) UN Doc. a/cn.9/wg.iii/wp.193, para 37.
ibid, para 32.
ibid, para 34.
ibid, para 44.
In ceta, third parties are mentioned in the context of intellectual property regulation (art. 20.32) and in the chapter on Trade and Labour as part of collaborative activities (art. 23.7).
uncitral Working Group, ‘Possible reform of investor-State dispute settlement (isds) – Advisory Centre’, Note by the Secretariat (3 December 2021) UN Doc. a/cn.9/wg.iii/wp.212, para 19.
Reform Package 2018 (n 35) 65–8.
Reciprocal Investment Promotion and Protection Agreement Between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria (signed on 3 December 2016), art. 8.
ibid, art 20.
Tomasi di Lampedusa, The Leopard (1958).
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