Investor-state Dispute Settlement Mechanism Research Articles

Investor-State Dispute Settlement Mechanism and its Ramifications for Public Health: An Analysis

Investor-State Dispute Settlement Mechanism and its Ramifications for Public Health: An Analysis

A modernised ECT reflecting EU values and objectives: a multilateral framework promoting energy investment in a sustainable way?

In recent years, the Energy Charter Treaty has come under immense scrutiny and criticism for allegedly protecting the fossil fuel industry and undercutting sovereignty. As a key stakeholder in the modernisation process, the EU has been determined to reform the investment protection standards and the investor–state dispute settlement mechanism to include new provisions on sustainable development and climate change. However, after three years of protracted negotiations, the proposed reform of the Energy Charter Treaty needs to appropriately address the escalating global challenges regarding climate action and sustainable development. With member states such as Poland, Spain and the Netherlands announcing their intention to withdraw, the future of the Charter is hanging in the balance. This article focuses on the modernisation of the Energy Charter Treaty and whether the reformed Charter is fit for purpose, from an EU perspective, to address the impacts of climate change. In the absence of meeting core EU objectives and alignment with the Paris Agreement, this article questions whether the EU can deviate from the only multilateral framework in the energy sector to address the EU’s climate policy goals. The extent to which the Charter is capable of a new lease of life, moving from the ashes of the Cold War as an instrument facilitating investment protection to a green treaty promoting sustainable development and climate change, remains to be seen.

Evaluating the Legitimacy of the Investor-State Dispute Settlement Mechanism for the AfCFTA

Phase two of the negotiations on the African Continental Free Trade Area (AfCFTA) has begun. This phase includes negotiating the protocol on investment. The International Investment Regime (IIR) allows foreign investors to institute proceedings against states through Investor State Dispute Settlement (ISDS), which is criticised as undergoing a ‘legitimacy crisis’. This paper assesses the legitimacy of ISDS to evaluate whether it is a suitable mode of adjudicating international investment disputes in the AfCFTA. Accordingly, it sets out the criteria to be used in assessing legitimacy and further uses these criteria to appraise the legitimacy of ISDS, ultimately demonstrating that the present ISDS framework lacks sufficient legitimacy to be adopted as the mode of adjudicating international investment disputes in the AfCFTA. This is because of the perception that ISDS is unfair and biased due to its imperial and neo-colonial background and the excessive corporate power it grants to foreign investors. ISDS is also lacking in transparency and democratic values and conflicts with the AfCFTA’s objective of sustainable and inclusive socio-economic development. The paper advocates against the inclusion of ISDS in the AfCFTA protocol on investment and asserts that the challenge is in finding a mode of adjudication that is more equitable and inclusive than ISDS.

Provisions on frivolous claims in the European Union – Vietnam investment protection agreement – would they be benefits to Vietnam?

PurposeThis paper aims to examine two issues: whether provisions on frivolous claims in the European Union (EU)–Vietnam Investment Protection Agreement (EVIPA) would be Vietnam’s intrinsic demand, and to what extent, Vietnam may enjoy the benefits from these provisions.Design/methodology/approachThis paper combines both doctrinal legal analysis and policy research. It offers an in-depth case study of the provisions on frivolous claims in the EVIPA, compares them with those of other existing international investment agreements and arbitrations rules, examines how similar provisions in these instruments are interpreted in available practical international investment disputes, uncovers the Vietnam’s position through interviewing Vietnamese senior experts, who were members of the Vietnamese delegation negotiating the EVIPA, and through available collected data and then evaluates whether these provisions may be favourable to this country.FindingsWhile the new investor-state dispute settlement (ISDS) mechanism in the EVIPA can be viewed as explicit evidence of the EU’s achievement, it may also be Vietnam’s benefits to entertain new ISDS provisions on frivolous claims. They were drafted, based on the ISDS arbitration practice, states’ experience and actual situations in Vietnam. These novel provisions, among other things, serve as Vietnam’s prerequisites to consider whether to accept the new two-tier standing mechanism or not. The inclusion of such ISDS provisions in the EVIPA, therefore, is supposed to meet the Vietnam’s intrinsic demands for defending against unfounded frivolous cases.Originality/valueThis is the first time the EU concluded an investment treaty containing innovative ISDS provisions with a developing country. This paper therefore may help envisage Vietnam’s perspective during its negotiation of provisions on frivolous claims in the EVIPA and prove that the avails of these provisions to a frequent respondent State like Vietnam can be realised. The paper’s findings mean for research in investment law as well as for policymakers as far as the frivolous cases are concerned.

Article: European Union Law and Global Investment Regime: Unshell Proposal as a Next (Mis)step of the EU Against Investment Treaty Arbitration?

This article addresses a largely unchartered interdisciplinary research area of the global investment regime and European Union (EU) law with an emphasis on the prevention of international tax avoidance in the EU. It focuses on the intersections between newly proposed anti-tax avoidance legislation by the European Commission that is known as the Unshell Directive (UD) and international investment agreements (IIAs). In this article, the author sets a stage for the intersections by discussing the Court of Justice of the European Union (CJEU) case law and the commission’s actions aimed against the most powerful enforcement tool in the global investment regime, i.e., the investor-state dispute settlement (ISDS) mechanism, by attempting to render it illegal and ineffective within the EU. The corresponding reactions from the arbitral tribunals are also addressed. The discussion evolves to identify and analyse the interplay between the proposal of the UD (also the Unshell Proposal or UP) and the IIAs to reveal that the impact of the former on the latter is ambiguous by design in order to minimalize legal certainty vis-à-vis protection of foreign investment in the EU via shell entities. This constitutes a foundation for potential, seismic tensions between the UD and the global investment regime that are not beneficial for marketing and development of the EU internal (single) market and may thus weaken the EU’s global competitiveness in the area of foreign investments. international investment law, EU law, good faith, ISDS, tax avoidance, shell entities

Country Note: Retroactive Taxation, Investor-State Dispute Settlement, and India: Life Comes a Full Circle

After amending the Income Tax Act (IT Act) in 2012 to impose taxes retroactively on indirect transfers involving non-residents, India recently nullified this law. Towards the end of 2020, two investor-state dispute settlement (ISDS) tribunals under the India-Netherlands and India- United Kingdom bilateral investment treaties (BITs) found India’s retroactive tax in breach of India’s BIT obligations. These arbitral defeats incited India to eliminate the infamous 2012 retroactive amendment to the tax laws. This article documents and analyses the sordid saga of nine long years by explaining the origin, evolution, and culmination of India’s retroactive tax misadventure. Considering the increasing number of instances for which foreign investors use the ISDS mechanism to challenge the host state’s sovereign taxation measures as BIT breaches, the ISDS rulings against India, especially by the tribunal in Cairn Energy v. India, assumes significance. A more comprehensive reading of the tribunal’s reasoning in Cairn Energy v. India elucidates that, while taxation measures are indeed an integral part of the state’s sovereign right to regulate, it has to be exercised reasonably and proportionately when furthering a public purpose. The exploitation of the power to tax disproportionately may prove to be detrimental to the state. India, retroactive tax, ISDS, BIT, Vodafone, Cairn

An optimal investor-state dispute settlement mechanism

Many investment treaties include investor-state dispute settlement (ISDS) provisions which are supposed to protect a foreign investor against opportunistic behavior of a host country. This paper scrutinizes the optimal design of ISDS provisions that solve the holdup problem. It shows that an efficient investor protection mechanism requires an arbitrator as established in investment treaties. However, this arbitrator does neither have to learn nor to evaluate the circumstances of the dispute. Furthermore, any ISDS compensation from the government to the investor should not be based on reductions in investor profits but on the host country’s welfare effects.

Emerging Trends in Investor-State Dispute Settlement in New Free Trade Agreements

The Investor-State dispute settlement (ISDS) mechanism is going through a churning. Several countries, developed and developing, have started contesting the ISDS regime. This is reflected in the treaty practice of these countries. This article studies some of the recently signed free trade agreements (FTAs’) that contain an investment chapter to find out if there are broad discernible trends in the treaty practice of countries on ISDS reflected in these FTAs’. The article argues that there are three broad trends that one can decipher. First, some FTAs’ do not contain an ISDS provision. Second, some contain a limited ISDS provision. Third, the FTAs’ signed by the European Union shows a departure from the traditional ISDS mechanism toward an investor court system to settle international investment law disputes. These trends in FTAs’ on ISDS are part of the global practice that is not reposing the similar faith in ISDS as was the case in the last few decades. ISDS, FTAs’, investment treaties, RCEP, CPTPP, investor-State dispute settlement

Trade-Related Aspects of Intellectual Property Rights Waiver at the World Trade Organization: A BIT of a Challenge

To augment the global production and distribution of Covid-19 medical products such as vaccines, drugs, and other therapeutics, countries are negotiating temporarily waiving certain provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement at the World Trade Organization (WTO). Depending on the conditions that will govern the waiver, countries will amend their domestic intellectual property (IP) laws to effectively implement the waiver. While the waiver will provide immunity to IP-related regulatory measures from legal claims at the WTO, multinational pharmaceutical companies can use the investor-State dispute settlement (ISDS) mechanism under bilateral investment treaties (BITs) to challenge such IP-related regulatory measures. In case of such a challenge to IP-related regulatory measures, will the host State be able to defend these measures? The article answers this question by dividing the investment treaty practice into those BITs that contain carve-out for IP and those that don’t. The former set of treaties provides greater regulatory autonomy to implement the TRIPS waiver. However, given the fragmented and incoherent nature of the ISDS mechanism, the outcome will depend on arbitral discretion. TRIPS waiver, WTO, bilateral investment treaties, intellectual property, investor-state dispute settlement

Establishing an Appeal Mechanism for Investor-State Dispute Settlement: Challenges, Feasibility, and Options

There is a growing international consensus stating investor-state dispute settlement mechanism (ISDS), with international investment arbitration as the main means of dispute settlement, needs to be reformed, but the reform proposals have not yet been finalised. Among the many options, the option of establishing an appeal mechanism has generated extensive discussion. The permanent, independent and corrective nature of the appeals mechanism helps to address the lack of independence and impartiality of arbitrators under the ISDS mechanism, the inconsistency of arbitral awards, and the lack of control mechanisms. It also has benefit of improving the accuracy of awards. Under the current system of international investment treaties, establishing a multilateral appeal mechanism presents many challenges. However, the Mauritius Convention on Transparency, which uses multilateral instruments to amend bilateral treaties, provides evidence that establishing a multilateral appeal mechanism is feasible.

THE APPLICATION OF MEDIATION INTO ISDS: FROM THE PERSPECTIVE OF CHINA

A crucial change in the recent reform of international investment agreements and investment laws is the introduction of mediation into ISDS de novo. It is found that mediation in the international investment dispute settlement mechanism has preliminary treaty basis and has unique practical value and good application space. Under the background of the increasing acceptance of the Singapore Convention on Mediation, the foundation has been laid for the reconstruction and development of the international investment mediation mechanism. Facing the development trend of the application of investor-state dispute settlement mechanism, China should create external conditions, accelerate internal supporting, improve the practical basis, increase the treaty norms and participate in multilateral reform.

Protecting noncommunicable disease prevention policy in trade and investment agreements.

Preventing noncommunicable diseases is a global priority, for which the World Health Organization has recommended policies to reduce the consumption of tobacco products, alcohol and unhealthy foods. However, regulation has been strongly opposed by affected industries, who have invoked the provisions of legally binding trade and investment agreements. The aim of this analysis of the legal, economic and public health literature was to present a short primer on the relationship between noncommunicable disease prevention policy and trade and investment agreements to help public health policy-makers safeguard public health policies. The analysis identified opportunities for protecting, and even promoting, public health in trade and investment agreements, including: (i) ensuring exceptions for public health measures are included in agreements; (ii) committing to good regulatory practice that balances transparency and cooperation with the need for governments to limit the influence of vested interests; (iii) ensuring trade and investment agreement preambles acknowledge the importance of public health; (iv) excluding investor–state dispute settlement mechanisms from agreements; and (v) limiting the scope and definition of key provisions on investor protection to reduce the risk of investment disputes. This synthesis of the multidisciplinary literature also provides support for greater strategic and informed engagement between the health and trade policy sectors. In addition, ensuring a high level of health protection in trade and investment agreements requires cooperation between disciplines, engagement with experts in law, economics and public health policy, and fully transparent policy processes and governance structures.

ISDS Reform in the Context of China’s IIAs

Abstract The investor–state dispute settlement mechanism enables investors to seek remedies in the face of a violation of related international investment agreements, which are crucial to maintaining the standards of investor protection that have been consented to by the contracting parties. On the other hand, more and more problems in the system have been exposed as the number of investor–state dispute settlement cases has increased. These range from substantive issues, such as the treatment granted to investors, to procedural ones, such as cost management and related procedures. Debates on investor–state dispute settlement reform have led to various options for reshaping the relevant mechanisms. Amid the new trend of investment liberalization and facilitation, China is undergoing a new round of bilateral investment treaty revision and free trade agreement negotiation. How the investor–state dispute settlement process is to be framed boils down to how China assesses its own interest vis-à-vis its partners and how it prioritises its objectives in international investment agreement negotiation with its partners. It is submitted that China should take a calculated risk on the investor–state dispute settlement provisions in international investment agreements with adequate consideration of competing interests.

A TWAIL critique of intellectual property and related disputes in investor‐state dispute settlement

AbstractThis article analyses intellectual property (IP) disputes in investor‐state dispute settlement (ISDS) through the lenses of Third World approaches to international law (TWAIL) and how a reformist TWAIL approach might be used to address the concerns related to IP‐ISDS disputes. It has three objectives. First, to discuss TWAIL and its readings of IP. Using the TWAIL framework, the article illustrates TWAILers’ positions on the Agreement on Trade‐Related Aspects of Intellectual Property (TRIPS) are an ideologist project that aims to transplant IP norms to developing countries and the role of actors, particularly industrialist lobbying in the making of international IP norms. Despite such views, the compromise that was made in the form of TRIPS’ flexibilities being threatened by ISDS mechanisms. Thus, the second objective of this article is to demonstrate the implications that recent IP‐related ISDS disputes could potentially undermine the balance achieved through TRIPS. The last objective is to demonstrate how the Global South is regaining its sovereign regulatory control through a reformist approach.

The Status of Chinese State-owned Enterprises in International Investment Arbitration: Much Ado about Nothing?

Abstract Chinese State-owned enterprises (SOEs) play a key role not only in China’ domestic market, but also in implementing the Government of China (GOC)’s ambitious Belt and Road Initiative. Accordingly, Chinese SOEs have increasingly fallen back on investor-State investment arbitration to protect their investments in host States. A recurrent issue arising in arbitral proceedings concerns whether Chinese SOEs should be allowed access to investor-State dispute settlement mechanisms in view of the close links between Chinese SOEs and the GOC. This article sets forth two arguments. First, applying the relevant ILC Articles to Chinese SOEs, the article makes a legal argument that it is highly unlikely for a Chinese SOE to be denied standing as a qualified claimant in investor-State arbitration. Second, notwithstanding concerns about Chinese SOEs in the global investment landscape, the article makes a policy argument that the denial of Chinese SOEs’ standing before arbitral tribunals is not only unhelpful in addressing those concerns, but also undermines the rule of law in international investment.

ISDS mechanism under the EVFTA: Comparison with the CPTPP and Implications for Vietnam

International investment plays an indispensable part in the economic development of most countries in the world. Not only does it ensure huge and stable capital flows, but it also creates jobs and transfers advanced technology to host countries. Nevertheless, in that process, investment-related disputes are inevitable and it is impossible not to mention the Investor-State dispute because of the unequal status of the two disputing parties. As a consequence, the Investor-State Dispute Settlement (ISDS) mechanism was born to resolve this particular type of dispute as well as protect the interests of foreign investors, who are always considered to be the subordinate party. This article mainly aims to study the ISDS mechanism in the European Union - Vietnam Free Trade Agreement (EVFTA) in a comparative relationship with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The authors collect, summarize, compare and analyze data from trustworthy sources and conducts the in-depth interviews with the experienced experts in law, dispute settlement and international integration. The findings show that the ISDS mechanism is basically quite similar in EVFTA and CPTPP. However, there are still notable differences in these two new generation free trade agreements in terms of the scope of application, dispute settlement agency and suit procedures. In addition, the study also highlights the situation of widespread application of the mechanism worldwide in the period 1987-2020. Besides, the difficulties and challenges that Vietnam has to face in the context of ISDS-related disputes are expected to increase in the coming time are pointed out. From the analysis, a number of implications are proposed for the state and businesses with the desire to minimize the disputes or damage caused by the disputes.

Back to sovereignty? Policy space in investor-State dispute settlement

The paper examines how investor-State dispute settlement mechanisms -included in international investment agreements- are able to condition national policy space, even when foreign investors question measures regarding human rights, public health, or environmental protection. It also intends to identify and explain the new trends in international investment agreements that illustrate different ways out the investor-State dispute settlement labyrinth. In order to achieve the objectives, a qualitative documentary research was conducted, based on secondary sources. The new trends in international investment agreements cartography show the emergence of a new concept of sovereignty rooted in the defense of policy space -“regulatory sovereignty”.

Invoking Systemic Ideals or Systemic Rules? Jurisdiction in WTO and Investor-State Dispute Settlement

How do international economic adjudicators approach the question of systemic integration? Systemic integration could be a powerful tool in the defragmentation of the international legal order. Yet, it is a complex tool, coalescing between a legal rule of interpretation and normative ideal of a coherent international legal order. By undertaking an empirical and doctrinal review of the decisions of the World Trade Organization (WTO) and investor-state dispute settlement mechanisms, the paper illustrates both the underutilisation and inconsistent application of the principle within the reasoning of those adjudicators. The paper analyses how international economic law adjudicators attempt (or perhaps fail) to define the indeterminate legal authority of systemic integration. What is contributing to this methodological pluralism in the application of systemic integration? The paper investigates both the competing ‘law-applying’ or ‘law-making’ adjudicative functions and the limitations of tribunal jurisdiction as possible explanations for the competing perceptions of the role of systemic integration in international economic dispute resolution. The underutilisation and inconsistency of systemic integration in the WTO and investor-state dispute settlement mechanisms highlights the need to bridge the gap, both theoretically and doctrinally, in understanding how systemic ideals fit within legal rules.

Reforming Investor-state Dispute Settlement: The EU Multilateral Investment Court Perspective

Rapid changes to the global socio-political dynamics have led the emergence of new challenges to the investor-state dispute settlement (ISDS) mechanism. The imperfections of the existing ISDS system have shown a clear need for reforming this institution. Moreover, this is evidenced by the desire of a number of countries to create a multilateral investment court as proposed by the European Union. Will the new EU Multilateral Investment Court System be better than the current ISDS mechanisms? The Multilateral Investment Court System is the latest proposed measure in the context of multilateralism and the institutionalization of a decentralized international investment law regime. The success of the proposal will declare a new era for international investment law around the world. Still, the proposed reform of ISDS has both benefits and disadvantages. The main goal of this paper is to examine investor-state dispute settlement (ISDS) reform in the context of the EU Multilateral Investment Court by pointing out the shortcomings and rooms for improvement. In addition, this paper indicates that the MIC project has the greatest chance of support by majority of countries, as compared to other possible options for the proposed ISDS reform but at the same time, it has difficulties in achieving the goals of ISDS and fully realizing potential. The results of this research should help to proceed with smooth transition of the MIC to ISDS system and review issues for further discussion.

Investment Protection Under the EU–UK Trade and Cooperation Agreement: Limited but Predictable?

After ten months of intense negotiations, the EU-UK Trade and Cooperation Agreement (TCA) was concluded on 24 December 2020. The TCA runs to 1,246 pages and covers what may be the broadest range of issues ever to be addressed within an international trade agreement. However, the tca’s limited investment protection provisions have been met with perplexity and expressions of disappointment among commentators. In particular, the limited set of substantive investment protections and the absence of an investor-State dispute settlement (ISDS) mechanism have been viewed as something of a missed opportunity, particularly as the EU and the UK have agreed to more expansive investment chapters in recent trade agreements with third parties. Why did the UK and the EU ultimately limit the scope of investment protection and exclude ISDS under the TCA? This article examines this question by analysing the key features of the tca’s investment chapter and tracing the underlying investment policy dynamics, including the UK’s and the EU’s respective negotiating positions that led to the tca’s circumscribed investment chapter. This article also considers the significance and potential implications of the TCA for the UK’s and the EU’s respective investment policies going forward.