Investment Arbitration Reform and the Pacific Rim Consensus

Abstract

As UNCITRAL Working Group III discussions on investment arbitration reform continue, geography remains a relevant factor when analyzing investment treaty practice, although not along traditional North-South lines. Over the past several years, three distinct models of investment treaty practice have emerged, which can be identified by geographic region: (i) a European model (as reflected in recent European Union practice), (ii) a ‘regional South’ model (as reflected in recent practice by Brazil, India, and the Southern African Development Community), and (iii) a Pacific Rim model (as reflected in the CPTPP as well as recent treaty practice by the ASEAN States, the Pacific Alliance States, China and Korea). Of the three models, the Pacific Rim approach most closely resembles the extraordinarily active investment treaty practice that occurred in the 1990s and 2000s. The Pacific Rim model can be seen as retaining three fundamental elements from that earlier treaty practice: (i) the ability of disputing parties to select decision-makers, (ii) the imposition of treaty obligations on States but not investors, and (iii) the inclusion of a core set of substantive obligations. Recent treaty practice by ASEAN, the Pacific Alliance, China and Korea, together with the entry into force of the CPTPP, illustrate the resilience of the Pacific Rim model. This Pacific Rim consensus on investment treaty practice could be further confirmed by the conclusion and entry into force of an RCEP investment chapter that follows the Pacific Rim approach. The availability of investment chapters following the Pacific Rim model in two mega-regional FTAs (CPTPP and RCEP) would create significant opportunities for institutionalization in the Pacific Rim region, in particular through the potential development of a CPTPP appellate mechanism and an RCEP appellate mechanism. In addition, China's recent UNCITRAL submission illustrates how the Pacific Rim model can be preserved while considering, at the same time, significant levels of institutionalization within the investment arbitration regime. The compatibility of the Pacific Rim model with ambitious investment arbitration reform, together with the widespread acceptance of the model, confirm the importance of the Pacific Rim consensus for the future of the investment arbitration regime.