Investor-state Dispute Settlement Claims Research Articles

Incomplete International Investment Agreements: Problems, Causes and Solutions

It was a tense negotiation. South Korea and Turkey had been bargaining over the conclusion of a free trade agreement (FTA) for four years when talks over the investment chapter hit a major roadblock in 2014. Korea pushed to insert a clause to limit performance requirements imposed on Korean investors. Turkey, in turn, opposed the clause to preserve policy space for a set of export subsidy programs it considered vital. A first compromise failed because the responsible Turkish ministry could not produce a list of specific subsidies to be carved out as non-conforming measures. The negotiators then had to get creative. They agreed to tinker with the scope of the treaty’s investor-State dispute settlement (ISDS) clause by exempting the enforcement of the exact subparagraphs that covered export subsidies from ISDS. It was a win–win. Turkey could be sure its subsidies would be shielded from ISDS claims and South Korea had succeeded in including a clause on performance requirements.2 The episode also underscored the pragmatism and creativity that negotiators routinely have to muster to prevent deadlock and conclude the most ambitious agreement possible.

International Investment Agreements and Investor-State Arbitration in Asia

States across Asia have long engaged in international investment treaty making, and to a lesser extent in investor-state dispute settlement (ISDS) proceedings. Engagement has intensified partly as bilateral investment treaties (BITs) proliferated especially from the 1990s, but also Asian states started to conclude more comprehensive bilateral and then regional free trade agreements (FTAs), including within and with the Association of Southeast Asian Nations (ASEAN). Some nations have been more cautious historically, and recent experiences with ISDS claims have led Indonesia and especially India to terminate many old BITs and press out in new directions. This paper details Asia’s trajectory towards becoming more of a “law maker” by focusing on multilateral initiatives (through soft and hard law), ASEAN and its key member states, China and the “Belt and Road” initiative, India, Japan and Korea, Australia and New Zealand.

Novel and Noteworthy Aspects of Australia’s Recent Investment Agreements and ISDS Policy: The CPTPP, Hong Kong, Indonesia and Mauritius Transparency Treaties

Investment treaties, and especially investor-state dispute settlement (ISDS) provisions, became a political hot potato from around 2011 when Philip Morris brought the first-ever ISDS claim against Australia under an old bilateral investment treaty (BIT) with Hong Kong. A Labor-Greens Government declared that it would no longer agree to ISDS provisions in future treaties, but when a centre-right Coalition Government regained power from 2013 it reverted to concluding treaties containing ISDS clauses on a case-by-case assessment. Australia therefore agreed to ISDS in FTAs with Korea and China, but not bilaterally with Japan. However ISDS-backed provisions apply between Australia and Japan since the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) can into force between them (and five other Asia-Pacific nations so far) from January 2019. Yet the Australian parliament engaged in robust debate about ratification of the CPTPP, with Labor Opposition (and Greens) parliamentarians continuing to voice concerns over ISDS provisions, despite the Philip Morris claim against Australia’s tobacco plain packaging having been rejected on jurisdictional grounds in 2015. This paper examines how (US-style) CPTPP drafting compares with two important recent investment agreements subsequently signed by Australia over 2019, namely with Indonesia as part of a wider free trade agreement (IA-CEPA), and with Hong Kong (AHKIA, alongside a bilateral FTA covering non-investment matters). AHKIA came into force from 17 January 2020, while IA-CEPA has been ratified by Australia but not yet by Indonesia. IA-CEPA adds a provision unique in the universe of over 3000 investment agreements world-wide, probably proposed by the Indonesian side: a compulsory mediation step prior to arbitration, if the host state requests mediation after the foreign investor initiates ISDS. The paper also highlights other features of both treaties that may help reduce delays and hence costs in ISDS. The paper summarises empirical data about delays and costs, as well as transparency around ISDS as another growing public concern, including some of our own empirical data provided as evidence to an Australian parliamentary inquiry into ratifying the CPTPP. We also examine the 2019 parliamentary inquiry that agreed with the submission that Australia should ratify the Mauritius (“UN ISDS”) Convention, thereby retrofitting extensive transparency provisions on pre-2014 treaties between Australia and other states that might also accede to that framework Convention. Even if Mauritius Convention ratifications proliferate, however, it will not retrofit extra transparency provisions to treaties concluded even after 1 April 2014 even among those states (say between Australia and Indonesia, where the investor chooses the ICSID Rules rather than UNCITRAL Rules option for arbitration). Accordingly, states ratifying the Mauritius Convention will still need to agree bilaterally to expand any still-limited transparency provisions in such post-2014 treaties, which is quite inefficient compared to a multilateral solution. Nonetheless, we conclude from these new developments that Australia is now better placed to play a more active role in guiding the future path of international investment treaty-making multilaterally and especially in the Asia-Pacific region.

The Rise of NAFTA 2.0: A Case Study in Effective ISDS Reform

From 1994 to 2020, the North American Free Trade Agreement (NAFTA) enabled a free trade zone in the region. Its early days were undoubtedly successful. NAFTA was credited with stimulating trade, economic growth, and cooperation among Canada, Mexico, and the US. Yet, NAFTA was not without controversy. Its Chapter 11 offered an Investor-State Dispute Settlement (ISDS) mechanism that American and Canadian trade negotiators anticipated would protect their investors from risks posed by Mexico’s legal system. They did not expect ISDS claims against their own governments, which they perceived as a threat to their sovereignty. NAFTA’s successor, the US–Mexico–Canada Agreement (USMCA) entered into force on 1 July 2020 and adopts a new approach to ISDS within its Chapter 14. As the existing ISDS system faces increasing criticism and scrutiny, much of the debate centres on whether the ISDS system remains fit for its purpose. This chapter examines the social, political, and experiential circumstances which led to the rise of USMCA. It concludes that USMCA is a practical example of effective ISDS reform. In sum, the story of USMCA demonstrates that evolution, and not death, is the answer to the modern ISDS debate.

Covid-19, India, and investor-State dispute settlement (ISDS): will India be able to defend its public health measures?

ABSTRACT The Coronavirus Disease 2019 (Covid-19) pandemic has forced States to adopt a number of regulatory responses, which, in turn, could negatively impact foreign investors. Thus, many apprehend that foreign investors might bring investor-State dispute settlement (ISDS) claims against States under different bilateral investment treaties. The Covid-19 pandemic has badly affected India, forcing India to adopt a national lockdown to slow down the spread of the disease. The lockdown ran for several weeks bringing a large range of economic activities to a grinding halt. In this context, this article argues that if ISDS claims are brought against India, India will be able to defend its Covid-19 regulatory measures under the treaty defences given as part of the non-precluded measures provision and as an exception to the expropriation provision. Further, India will also be able to rely on the police powers doctrine emanating from customary international law. Given the scale of the pandemic, the tribunals should grant substantial deference to India while adjudicating upon its Covid-19-related regulatory measures.

Mediating Japan-Korea Trade and Investment Tensions

This paper first describes the trade tensions between Korea and Japan that escalated from mid-2019. It assesses Korea’s prospects in a formal claim now brought before the World Trade Organization, noting difficulties with substantive law, but especially procedure given the general breakdown in the WTO’s usual two-tier inter-state dispute resolution process. The paper then outlines the possibility of Japan bringing claims under a 1965 Treaty that purported to settle claims resulting from Japan’s colonisation of Korea, or under bilateral or trilateral investment treaties, regarding Korean courts recently ordering Japanese companies to pay compensation to colonisation-era Korean labourers. Yet such claims also face procedural and/or substantive law difficulties. The paper further elaborates the possibility of affected Japanese companies instead or in parallel bringing investor-state dispute settlement claims against Korea, similarly alleging denial of justice in Korean court proceedings, under the two investment treaties. We conclude that these extra complications bolster the attraction of a formal mediation to bring both countries and the affected companies together in order to achieve an overall negotiated settlement.

Investor-State Dispute Settlement and Indonesian Reform Policy in Mining Downstream Sector

To date, Indonesia has been facing the seventh ISDS (Investor-State Dispute Settlement) lawsuit case in ICSID, the most number of ICSID cases a particular country has in ASEAN. In the meantime, Indonesia had to initiate reform in its minerals mining sector policy since the sector had provided little benefit in Indonesian sustainable economic development thus far–a policy reform which is potentially highly exposed to ISDS lawsuit case. Yet, the reform once issued has no turning back and thus it should move forward. Indonesian reform policy to support more its mining downstream by Minerba Act issuance is intended to benefit from its scarce, limited non-renewable minerals so as to support national development and maintain its long-term interest and economic sustainability. Undoubtfully, the policy reform will be beneficial for Indonesian economy sustainability and thus it should be protected from any potential ISDS claims in the future. This study seeks to address such real, critical current challenges arising from contingent ISDS claims towards Indonesia. This study adopts a descriptive analytical method, which combines literature review, authors’ shared expertise in this field, and results of interviews and discussions with several other experts in relevant fields. This study concludes that in addressing ISDS contingent problems threatening Indonesian current reform policy in mining downstream sector, Indonesia should focus the emphasis on the prevention endeavor, those are a review of BITs and IIAs containing ISDS provisions; improvement in investment dispute management; which are mainly supported by continuous bureaucracy reform, capacity building, and better coordination.

An Investment Court that Judges the Judges: A Case of Natural Selection?

Courts and arbitral tribunals have a dynamic and symbiotic relationship. In the field of commercial arbitration, we often perceive the court system to be the institution supporting the arbitral award and process. In the context of investment treaties enforced by investor-state dispute settlement (ISDS), courts have an added dimension. The courts (consisting of a judgment and the judicial process) can form the subject of review by an arbitral tribunal. So, if the international arbitral tribunal judges the fairness of the domestic courts of a state, and a domestic court in turn judges the appropriateness of the findings and process of an international arbitral tribunal, where does that leave the predictability and accountability of the ISDS system? The Chevron v Ecuador dispute provides an appropriate case study of this phenomenon, which has permeated from the local Ecuadorian courts to various international tribunals and courts of the United States, Canada, Brazil and Europe. Similarly, other ISDS claims have encroached (or come close to encroaching) on the task of judging courts of developed nations, such as the recent Eli Lilly v Canada case. Australia recently survived judgment of its legislature by an investment tribunal in the Philip Morris case, but are the judgments of Australia’s High Court now grounds for attack? The ISDS system has been the subject of criticism, with a particular focus on the inconsistency of tribunal determinations. The question thus arises, as to whether this ostensibly circular system of judging the judges promotes the rule of law. With case examples to offer context, this article evaluates whether a permanent international investment ‘court’, such as that proposed under the EU-Canada Comprehensive Economic and Trade Agreement (CETA), the EU-Vietnam Free Trade Agreement (FTA), and by the EU under the Transatlantic Trade and Investment Partnership (TTIP), contributes to consistency and the rule of law. In particular, this article identifies certain adequacies and inadequacies of that system in the context of an evolutionary institutional shift from the existing model based on private contract-based arbitration to that of a public ‘court’. Will this model result in an elevated standard of jurisprudence of international investment law, or just similar circular outcomes? The standard of review of this ‘court’ could just as equally promote a divergence, rather than a convergence, of international investment norms. Ultimately, any convergence between domestic and international legal norms is regulated by the reciprocal standard of deference and the willingness of states to consent to a particular investment treaty standard.

Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement

AbstractThe system of investor-state dispute settlement (ISDS) found in over 3,000 bilateral investment treaties and numerous regional trade agreements has been criticized for interfering with the rights of sovereign states to regulate investment in the public interest, for example, to protect the environment and public health. This article argues that while much of the public debate around ISDS has focused on a small number of cases that have arisen over the regulation of tobacco packaging, there is a far greater threat posed by the potential use of ISDS by the fossil fuel industry to stall action on climate change. It is hypothesized that fossil fuel corporations will emulate a tactic employed by the tobacco industry – that of using ISDS to induce cross-border regulatory chill: the delay in policy uptake in jurisdictions outside the jurisdiction in which the ISDS claim is brought. Importantly, fossil fuel corporations do not have to win any ISDS cases for this strategy to be effective; they only have to be willing to launch them. The article concludes with three options to reform trade and investment agreements to better align them with climate change mitigation efforts: (i) exclude ISDS provisions; (ii) prohibit fossil fuel industries from accessing ISDS; or (iii) carve out all government measures taken in pursuit of international obligations (for example, under the Paris Agreement on climate change) from challenge under ISDS.

Malaysia and Investor-State Dispute Settlement: Learning From Experience

Abstract Malaysia is an important destination for foreign direct investment and has signed more than 70 investment guarantee agreements. Most allow investor-state dispute settlement (ISDS) and Malaysia has been subject to three claims, including two fully argued cases: Philippe Gruslin and Malaysian Historical Salvor. Yet Malaysian companies have also utilised ISDS provisions: in MTD Equity Bhd v Chile, Telekom Malaysia v Ghana, and Ekran Berhad v China (the first-ever ISDS claim against China). These cases provide lessons for Malaysia in becoming better prepared to negotiate newer generations of investment treaties, and to defend further potential cases. Malaysia has not reacted negatively to investment treaties despite the cases filed against the country. In fact, in light of its evolving interests Malaysia has become more of a rule-maker in international investment law rather than a rule-taker. Malaysia thereby continues to liberalise its investment regime and provide better transparency – the best defence against claims.

International Investment Arbitration in Southeast Asia: Guest Editorial

The Association of Southeast Asian Nations (ASEAN) brings together over 600 million people in one of the world’s largest and fastest growing economic regions. Its ten member states have individually concluded many standalone bilateral investment treaties (BITs) and a growing number of bilateral and regional free trade agreements (FTAs), supplemented by intra-ASEAN and ‘ASEAN’ agreements. These aim to facilitate and protect burgeoning foreign direct investment (FDI) flows, which are outlined in Part 2 below, with large outflows recently from several member states. Part 3 outlines treaty-making trends, including considerable consistency in approach by many member states as well as some interesting innovations, against the backdrop of persistent problems of corruption and poor governance in most member states. Part 4 highlights the relative paucity of Investor-State Dispute Settlement (ISDS) claims against ASEAN member states, despite the large volumes of inbound FDI and growing ISDS-backed investment treaty commitments. There are only 28 known ISDS claims (including several where consent to ICSID arbitration was given by contract or licence rather than through treaties). Only one adverse award has been given (in 2009, against Thailand), but as of October 2016 it was still being contested and had not been paid. Meanwhile, investors based in Malaysia and Singapore have brought five ISDS claims. Part 5 concludes that this backdrop explains why member states (even recently Indonesia), and ASEAN as a whole, have not gone as far as eschewing treaty-based ISDS completely, as for example in parts of South America, South Africa and (only over 2011-13) Australia. It also summarises some key contributions to international investment law understandings that have emerged from the arbitral case law related to Southeast Asia. Overall, the subregion does indeed offer potential to take a leading role in influencing the future trajectory of international investment law world-wide.

Case Note: Philip Morris Asia v Australia

This case has been a flashpoint for recent debates over investor-state dispute settlement (ISDS). For Australia, subjected to its first ISDS claim, the case triggered extensive public discussion over whether to continue including ISDS clauses in future bilateral investment treaties (BITs) and investment chapters of free trade agreements (FTAs). More broadly, the case has been seen as epitomising all that is wrong with treaty-based ISDS: an unlikeable, pseudo-American multinational invoking a little-known treaty and an opaque arbitral procedure to claim billion-dollar damages arising from legislation enacted to protect public health. This distasteful image is likely to remain, especially in the public consciousness, despite the claim eventually being dismissed for treaty-shopping, and even though the award deserves to be analysed in broader context. Notably, the case is a rare successful invocation of abuse of right under general international law and even lowers the threshold for such an argument. The case may also encourage states to enhance their screening processes specifically to assess and manage litigation risks flowing from admitting a particular foreign investment.

The Past, Present and Future of International Investment Arbitration in Thailand

This paper offers the first detailed English-language analysis of international investment arbitration law and practice in Thailand. Part 1 briefly introduces burgeoning foreign direct investment (FDI) and investment treaties in the Asian region, followed by more recent emergence of significant investor-state dispute settlement (ISDS) claims. Part 2 sketches the expansion of inbound FDI into Thailand from the 1980s, and more recent outbound investment especially into neighbouring developing countries. This expansion prompted Thailand to enter into dozens of Bilateral Investment Treaties (BITs), including ISDS-backed protections especially from the mid-1990s, and Free Trade Agreements including investment chapters from 2004.Part 3 outlines the first two treaty-based claims filed against Thailand, especially the 2009 arbitration award in favour of Walter Bau due to a lack of ‘fair and equitable treatment’ related to a Don Muang airport tollway concession project. However, Part 3 also examines cases where the Thai government has been subject to arbitration claims under concessions or other contracts with foreign investors. Thailand’s policy response has focused on restricting the capacity of public authorities to agree to arbitration clauses in concession contracts (in 2004) and other public contracts (in 2009, partly liberalised in 2015). Thailand also revised its Model BIT to somewhat reduce parallel treaty-based protections for foreign investors, but only from 2013.Nonetheless, Thailand joins other countries in the region (like Vietnam, Korea and Australia) that have weathered high-profile ISDS claims, but have decided not to let old investment treaties expire (as in Indonesia). Instead, they are negotiating future treaties with provisions recalibrating the rights of foreign investors and host states. However, Thailand has maintained the comparatively unusual extra response of maintaining restrictions on public authorities agreeing to arbitration in investment contracts.