ＵＮＣＴＡＤ『世界投資レポート World Invest Report ２０１３』和訳練習中
4. Investor-State arbitration: options for Reform
a. ISDS cases continue to grow
A record number of new ISDS cases were initiated in 2012.
In 2012, 58 new international investor-State claims were initiated.63 This constitutes the highest number of known ISDS claims ever filed in one year and confirms foreign investors' increased inclination to resort to investor-State arbitration (figure III.10). In 66 per cent of the new cases, respondents were developing or transition economies.
In 2012, foreign investors challenged a broad range of government measures, including changes to domestic regulatory frameworks (with respect to gas, nuclear energy, the marketing of gold, and currency regulations), as well as measures relating to revocation of licences (in the mining, telecommunications and tourism sectors). Investors also took action on the grounds of alleged breaches of investment contracts; alleged irregularities in public tenders; withdrawals of previously granted subsidies (in the solar energy sector); and direct expropriations of investments. By the end of 2012, the total number of known cases (concluded, pending or discontinued64) reached 514, and the total number of countries that have responded to one or more ISDS claims increased to 95. The majority of cases continued to accrue under the ICSID Convention and the ICSID Additional Facility Rules (314 cases) and the UNCITRAL Rules (131). Other arbitral venues have been used only rarely.
At least 42 arbitral decisions were issued in 2012,including decisions on objections to a tribunal's jurisdiction, on the merits of the dispute, on compensation and on applications for annulment of an arbitral award.
In 12 of the 17 public decisions addressing the merits of the dispute last year, investors' claims were accepted, at least in part.
Of all cases concluded by the end of 2012, 31 per cent ended in favour of the investor and another 27 per cent were settled.
By the end of 2012, the overall number of concluded cases reached 244. Of these, approximately 42 per cent were decided in favour of the State and 31 per cent in favour of the investor. Approximately 27 per cent were settled.65
Last year saw some notable developments, including:__ the highest monetary award in the history of ISDS ($1.77 billion) in Occidental v. Ecuador,66 a case that arose out of that country's unilateral termination of an oil contract; and __ the first treaty-based ISDS proceeding in which an arbitral tribunal affirmed its jurisdiction over a counterclaim that had been lodged by a respondent State against the investor.67
b. Mapping five paths for reform
The ISDS mechanism, designed to ensure fairness and neutrality, has in practice raised concerns about its systemic deficiencies.
In light of the increasing number of ISDS cases, the debate about the pros and cons of the ISDS mechanism has gained momentum, especially in those countries where ISDS is on the agenda of IIA negotiations or those that have faced controversial investor claims.
The ISDS mechanism was designed to depoliticize investment disputes and create a forum that would offer investors a fair hearing before an independent, neutral and qualified tribunal. It was seen as a mechanism for rendering final and enforceable decisions through a swift, cheap and flexible process, over which disputing parties would have considerable control.68 Given that investor complaints relate to the conduct of sovereign States, taking these disputes out of the domestic sphere of the State concerned provides aggrieved investors with an important guarantee that their claims will be adjudicated in an independent and impartial manner.
However, the actual functioning of ISDS under investment treaties has led to concerns about systemic deficiencies in the regime. These have been well documented in the literature and need only be summarized here:69
__ Legitimacy. It is questionable whether three individuals, appointed on an ad hoc basis, can be entrusted with assessing the validity of States' acts, particularly when they involve public policy issues. The pressures on public finances70 and potential disincentives for public interest regulation may pose obstacles to countries' sustainable development paths.
__ Transparency.71 Even though the transparency of the system has improved since the early 2000s, ISDS proceedings can still be kept fully confidential - if both disputing parties so wish - even in cases where the dispute involves matters of public interest.72
__ "Nationality planning". Investors may gain access to ISDS procedures using corporate structuring,
i.e. by channelling an investment through a company established in an intermediary country with the sole purpose of benefitting from an IIA concluded by that country with the host State.
＿ "国籍計画" 投資家は企業構造を利用してＩＳＤＳ手続を用いるかも知れない。
__ Consistency of arbitral decisions. Recurring episodes of inconsistent findings by arbitral tribunals have resulted in divergent legal interpretations of identical or similar treaty provisions as well as differences in the assessment of the merits of cases involving the same facts. Inconsistent interpretations have led to uncertainty about the meaning of key treaty obligations and lack of predictability as to how they will be read in future cases.73
__ Erroneous decisions. Substantive mistakes of arbitral tribunals, if they arise, cannot be corrected effectively through existing review mechanisms.
In particular, ICSID annulment committees, besides having limited review powers,74 are individually created for specific disputes and can also disagree among themselves.
__ Arbitrators' independence and impartiality. An increasing number of challenges to arbitrators may indicate that disputing parties perceive them as biased or predisposed. Particular concerns have arisen from a perceived tendency of each disputing party to appoint individuals sympathetic to their case. Arbitrators' interest in being re-appointed in future cases and their frequent "changing of hats" (serving as arbitrators in some cases and counsel in others) amplify these concerns.75
__ Financial stakes. The high cost of arbitrations can be a concern for both investors (especially small and medium-size enterprises), and States. From the State perspective, even if a government wins the case, the tribunal may refrain from ordering claimant investors to pay the respondents'costs, leaving the average $8 million spent on lawyers and arbitrators as a significant burden on public finances and preventing the use of those funds for other goals.76
These challenges have prompted a debate about the challenges and opportunities of ISDS. This discourse has been developing through relevant literature, academic/practitioner conferences and the advocacy work of civil society organizations. It has also been carried forward under the auspices of UNCTAD's Investment Commission and Expert Meetings, its multi-stakeholder World Investment Forum77 and a series of informal conversations it has organized,78 as well as the OECD's Freedom of-Investment Roundtables.79
Five broad paths for reform have emerged from these discussions:
1. Promoting alternative dispute resolution
2. Tailoring the existing system through individual IIAs
3. Limiting investors' access to ISDS
4. Introducing an appeals facility
5. Creating a standing international investment court
(i). Promotion of alternative dispute
Reform options range from
tailored modifications by
individual States to systemic
change that requires dialogue
and cooperation between
This approach advocates for increasing resort to so-called alternative methods of dispute resolution (ADR) and dispute prevention policies (DPPs), both of which have formed part of UNCTAD's technical assistance and advisory services on IIAs. ADR can be either enshrined in IIAs or implemented at the domestic level, without specific references in the IIA.
Compared with arbitration, non-binding ADR methods, such as conciliation and mediation,80
place less emphasis on legal rights and obligations. They involve a neutral third party whose main objective is not the strict application of the law but finding a solution that would be recognized as fair by the disputing parties. ADR methods can help to save time and money, find a mutually acceptable solution, prevent escalation of the dispute and preserve a workable relationship between the disputing parties. However, there is no guarantee that an ADR procedure will lead to resolution of the dispute; an unsuccessful procedure would simply increase the costs involved. Also, depending on the nature of a State act challenged by an investor (e.g.a law of general application), ADR may not always be acceptable to the government.
ombudsman can help
defuse disputes in
the early stages.
ADR could go hand in hand with the strengthening of dispute prevention and management policies at the national level. Such policies aim to create effective channels of communication and improve institutional arrangements between investors and respective agencies (e.g. investment aftercare services) and between different ministries dealing with investment issues. An investment ombudsman office or a specifically assigned agency that takes the lead should a conflict with an investor arise, can help resolve investment disputes early on, as well as assess the prospects of, and, if necessary, prepare for international arbitration.81
In terms of implementation, this approach is relatively straightforward, and much has already been implemented by some countries. Importantly, given that most ADR and DPP efforts are implemented at the national level, individual countries can also proceed without need for their treaty partners to agree. However, similar to some of the other options mentioned below, ADR and DPPs do not solve key ISDS-related challenges. The most they can do is to reduce the number of full-fledged legal disputes, which would render this reform path a complementary rather than stand-alone avenue for ISDS reform.
(ii). Tailoring the existing system
through individual IIAs
This option implies that the main features of the existing system would be preserved and that individual countries would apply "tailored modifications" by modifying selected aspects of the ISDS system in their new IIAs. A number of countries have already embarked on this course of action.82 Procedural innovations, many of which also appear in UNCTAD's IPFSD, have included:83
__ Setting time limits for bringing claims; e.g. three years from the events giving rise to the claim,in order to limit State exposure and prevent the resurrection of "old" claims;84
__ Increasing the contracting parties' role in
interpreting the treaty in order to avoid legal
interpretations that go beyond their original
intentions; e.g. through providing for binding
joint party interpretations, requiring tribunals to
refer certain issues for determination by treaty parties and facilitating interventions by the nondisputing contracting parties;85
__ Establishing a mechanism for consolidation of related claims, which can help to deal with the problem of related proceedings, contribute to the uniform application of the law, thereby increasing the coherence and consistency of awards, and help to reduce the cost of proceedings;86
__ Providing for more transparency in ISDS; e.g.
granting public access to documents and hearings, and allowing for the participation of
interested non-disputing parties such as civil society organizations;87
Reform options range from
tailored modifications by
individual States to systemic
change that requires dialogue
and cooperation between
ombudsman can help
defuse disputes in
the early stages.
__ Including a mechanism for an early discharge of frivolous (unmeritorious) claims in order to avoid waste of resources on full-length proceedings.88
To these, add changes in the wording of IIAs'substantive provisions - introduced by a number of countries - that seek to clarify the agreements'content and reach, thereby enhancing the certainty of the legal norms and reducing the margin of discretion of arbitrators.89
Tailored modifications can
be made to suit individual
countries' concerns, but they
also risk neglecting systemic
The approach whereby countries provide focused modifications through their IIAs allows for individually tailored solutions and numerous variations. For example, in their IIAs, specific countries may choose to address those issues and concerns that appear most relevant to them. At the same time, this option cannot address all ISDS-related concerns.
What is more, this approach would require comprehensive training and capacity-building to enhance awareness and understanding of ISDSrelated issues.90 Mechanisms that facilitate highquality legal assistance to developing countries at an affordable price can also play a role (box III.7).
Implementation of this "tailored modifications"option is fairly straightforward given that only two treaty parties (or several - in case of a plurilateral treaty) need to agree. However, the approach is limited in effectiveness: unless the new treaty is a renegotiation of an old one, the "modifications" are applied only to newly concluded IIAs while some 3,000 "old" ones remain intact. Moreover, one of the key advantages of this approach, namely, that countries can choose whether and which issues to address, is also one of its key disadvantages, as it turns this reform option into a piecemeal approach that stops short of offeringa comprehensive,integrated way forward.
(iii) Limiting investors' access to ISDS
Limiting investors' access to
ISDS can help to slow down
the proliferation of ISDS
proceedings, reduce States'
financial liabilities and save
This option narrows the range of situations in which investors may resort to ISDS. This could be done in three ways: (i) by reducing the subject-matter scope for ISDS claims, (ii) by restricting the range of investors who qualify to benefit from the treaty, and (iii) by introducing the requirement to exhaust local remedies before resorting to international arbitration. A far-reaching version of this approach would be to abandon ISDS as a means of dispute resolution altogether and return to State-State arbitration proceedings, as some recent treaties have done.91
Some countries have adopted policies of the first kind; e.g. by excluding certain types of claims from the scope of arbitral review.92 Historically, this approach was used to limit the jurisdiction of arbitral tribunals in a more pronounced way, such as allowing ISDS only with respect to expropriation disputes.93
To restrict the range of covered investors, one approach is to include additional requirements in the definition of "investor" and/or to use denialof-benefits provisions.94 Among other things, this approach can address concerns arising from "nationality planning" and "treaty shopping" by investors and ensure that they have a genuine link to the putative home State.
Requiring investors to exhaust local remedies, or alternatively, to demonstrate the manifest ineffectiveness or bias of domestic courts, would make ISDS an exceptional remedy of last resort.
Although in general international law, the duty to exhaust local remedies is a mandatory prerequisite for gaining access to international judicial forums,95
most IIAs dispense with this duty.96 Instead,they allow foreign investors to resort directly to international arbitration without first going through the domestic judicial system. Some see this as an important positive feature and argue that reinstating the requirement to exhaust domestic remedies could undermine the effectiveness of ISDS.
These options for limiting investor access to ISDS can help to slow down the proliferation of ISDS proceedings, reduce States' financial liabilities arising from ISDS awards and save resources.
Additional benefits may be derived from these options if they are combined with assistance to strengthen the rule of law and domestic legal and judicial systems. To some extent, however, this approach would be a return to the earlier system, in which investors could lodge claims only in the domestic courts of the host State, negotiate arbitration clauses in specific investor-State contracts or apply for diplomatic protection by their home State.
In terms of implementation - like the options described earlier - this alternative does not require coordinated action by a large number of countries and can be put in practice by parties to individual treaties. Implementation is straightforward for future IIAs; past treaties would require amendments, renegotiation or unilateral termination.97 Similar to the "tailored modification" option, however, this alternative results in a piecemeal approach towards reform.
(iv) Introducing an appeals facility98
Consistent and balanced
opinions from an
authoritative appeals body
would enhance the credibility
of the ISDS system.
An appeals facility implies a standing body with a competence to undertake a substantive review of awards rendered by arbitral tribunals. It has been proposed as a means to improve the consistency of case law, correct erroneous decisions of firstlevel tribunals and enhance the predictability of the law.99 This option has been contemplated by some countries.100 If the facility is constituted of permanent members appointed by States from a pool of the most reputable jurists, it has the potential to become an authoritative body capable of delivering consistent - and balanced - opinions,which could rectify some of the legitimacy concerns about the current ISDS regime.101
Authoritative pronouncements on points of law by an appeals facility would guide both the disputing parties (when assessing the strength of their respective cases) and arbitrators adjudicating disputes. Even if today's system of first-level tribunals remains intact, concerns would be alleviated through the effective supervision at the appellate level. In sum, an appeals facility would add order and direction to the existing decentralized,non-hierarchical and ad hoc regime.
At the same time, absolute consistency and certainty would not be achievable in a legal system that consists of about 3,000 legal texts; different outcomes may still be warranted by the language of specific applicable treaties. Also, the introduction of an appellate stage would further add to the time and cost of the proceedings, although that could be controlled by putting in place tight timelines, as has been done for the WTO Appellate Body.102
In terms of implementation, for the appeals option to be meaningful, it needs to be supported by a significant number of countries. In addition to an in-principle agreement, a number of important choices would need to be made: Would the facility be limited to the ICSID system or be expanded to other arbitration rules? Who would elect its members and how? How would it be financed?103
In sum, this reform option is likely to face significant, although not insurmountable, practical challenges.
(v) Creating a standing international
A standing international
investment court would be
an institutional public
good - but can it serve a
fragmented universe of
thousands of agreements?
This option implies the replacement of the current system of ad hoc arbitration tribunals with a standing international investment court. The latter would consist of judges appointed or elected by States on a permanent basis, e.g. for a fixed term. It could also have an appeals chamber.This approach rests on the theory that a private model of adjudication (i.e. arbitration) is inappropriate for matters that deal with public law.104 The latter requires objective guarantees of independence and impartiality of judges, which can be provided only by a security of tenure - to insulate the judge from outside interests such as an interest in repeat appointments and in maintaining the arbitration industry. Only a court with tenured judges, the argument goes, would establish a fair system widely regarded to be free of perceived bias.105
A standing investment court would be an institutional public good, serving the interests of investors, States and other stakeholders. The court would address most of the problems outlined above: it would go a long way to ensure the legitimacy and transparency of the system, and facilitate consistency and accuracy of decisions, and independence and impartiality of adjudicators.106
However, this solution would also be the most difficult to implement as it would require a complete overhaul of the current regime through the coordinated action of a large number of States.
Yet, the consensus would not need to be universal.
A standing investment court may well start as a plurilateral initiative, with an opt-in mechanism for those States that wish to join. Finally, it is questionable whether a new court would be fit for a fragmented regime that consists of a huge number of mostly bilateral IIAs. It has been argued that this option would work best in a system with a unified body of applicable law.107 Nonetheless, even if the current diversity of IIAs is preserved, a standing investment court would likely be much more consistent and coherent in its approach to the interpretation and application of treaty norms, compared with numerous ad hoc tribunals.Given the numerous challenges arising from the current ISDS regime, it is timely for States to assess the current system, weigh options for reform and then decide upon the most appropriate route.
Among the five options outlined here, some imply individual actions by governments and others require joint action by a significant number of countries. Most of the options would benefit from being accompanied by comprehensive training and capacity-building to enhance awareness and understanding of ISDS-related issues.108
Although the collective-action options would go further in addressing the problems, they would face more difficulties in implementation and require agreement between a larger number of States.
Collective efforts at the multilateral level can help develop a consensus on the preferred course of reform and ways to put it into action.
An important point to bear in mind is that ISDS is a system of application of the law. Therefore, improvements to the ISDS system should go hand in hand with progressive development of substantive international investment law.109
* * *
The national policy trends outlined in this chapter give mixed signals to foreign investors. Most countries continue to attract FDI, but ongoing macro economic, systemic and legal reforms, together with the effects of political elections in several countries, also created some regulatory uncertainty. Together with ongoing weakness and instability in the global economy, this uncertainty has constrained foreign investors' expansion plans. Overall, the world economy is in a transition phase, adjusting previous liberalization policies towards a more balanced approach that gives more weight to sustainable development and other public policy objectives. This is also reflected by policy developments at the international level, where newgeneration IIAs and opportunities for reform of the ISDS system are gaining ground.
48 This lack of clarity arises from the fact that the treaty's
reference to "the Parties" could be understood as covering
either all or any of the parties to the regional agreement. The
latter interpretation would also include BITs, hence resulting in
parallel application; the former interpretation would only include
agreements which all of the regional treaty parties have signed,
hence excluding bilateral agreements between some - but not
all - of the regional agreement's contracting parties.
49 The Central America-Mexico FTA (2011) replaces the FTAs
between Mexico and Costa Rica (1994), Mexico and El
Salvador, Guatemala and Honduras (2000), and Mexico and
50 Vienna Convention on the Law of Treaties (1969), http://untreaty.
51 The COMESA investment agreement, for example, states
in Article 32.3: "In the event of inconsistency between this
Agreement and such other agreements between Member
States mentioned in paragraph 2 of this Article, this
agreement shall prevail to the extent of the inconsistency,
except as otherwise provided in this Agreement." Article 2.3
of the ASEAN-Australia-New Zealand FTA enshrines a "soft"
approach to inconsistent obligations whereby "In the event
of any inconsistency between this Agreement and any other
agreement to which two or more Parties are party, such Parties
shall immediately consult with a view to finding a mutually
52 On various interpretative tools that can be used by States,
see UNCTAD, "Interpretation of IIAs: What States Can Do", IIA
Issues Note, No.3, December 2011.
53 "Notes of Interpretation of Certain NAFTA Chapter 11
Provisions", NAFTA Free Trade Commission, 31 July 2001.
Available at http://www.sice.oas.org/tpd/nafta/Commission/
54 As opposed to amendments, renegotiations are used when the
parties wish to make extensive modifications to the treaty.
55 Article 54(b) of the Vienna Convention on the Law of Treaties.
56 If not, and if needed, in addition to the rules set out in the treaty,
the rules of the Vienna Convention on the Law of Treaties apply.
57 These were BITs with Cuba, the Dominican Republic, El Salvador,
Guatemala, Honduras, Nicaragua, Paraguay, Romania and
Uruguay. Subsequently, on 9 March 2013, Ecuador announced
its intent to terminate all remaining IIAs and that the legislative
assembly would work on the requisite measures to that effect
from 15 May 2013 onward. See Declaration by the President
of Ecuador Rafael Correa, ENLACE Nro 312 desde Piquiucho
- Carchi, published 10 March 2013. Available at http://www.
youtube.com/watch?v=CkC5i4gW15E (at 2:37:00).
58 This section is limited to BITs and does not apply to "other
IIAs" as the latter raise a different set of issues. Importantly, an
investment chapter in a broad economic agreement such as an
FTA cannot be terminated separately, without terminating the
59 In accordance with general international law, a treaty may also
be terminated by consent of the contracting parties at any time,
regardless of whether the treaty has reached the end of its initial
fixed term (Article 54(b) of the Vienna Convention on the Law of
60 Publication by a spokesman of South Africa's Department
of Trade and Industry. Available at http://www.bdlive.co.za/
61 It is an open question whether the survival clause becomes
operative only in cases of unilateral treaty termination or also
applies in situations where the treaty is terminated by mutual
consent by the contracting parties. This may depend on the
wording of the specific clause and other interpretative factors.
62 This will not automatically solve the issue of those older treaties
that were not renegotiated; but it will gradually form a new basis
on which negotiators can build a more balanced network.
63 For more details, see UNCTAD, "Latest Developments in
Investor-State Dispute Settlement", IIA Issues Note, No. 1,
64 A case may be discontinued for reasons such as failure to pay
the required cost advances to the relevant arbitral institution.
65 A number of arbitral proceedings have been discontinued for
reasons other than settlement (e.g. due to the failure to pay
the required cost advances to the relevant arbitral institution).
The status of some other proceedings is unknown. Such cases
have not been counted as "concluded".
66 Occidental Petroleum Corporation and Occidental
Exploration and Production Company v. The Republic of
Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012.
67 Antoine Goetz & Others and S.A. Affinage des Metaux v.
Republic of Burundi, ICSID Case No. ARB/01/2, Award, 21
June 2012, paras. 267-287.
68 For a discussion of the key features of ISDS, see also, "Investor-
State Dispute Settlement - a Sequel", UNCTAD Series on
Issues in IIAs (forthcoming).
69 See Michael Waibel et al. (eds.), The Backlash against
Investment Arbitration: Perceptions and Reality (Kluwer Law
International, 2010); D. Gaukrodger and K. Gordon, "Investor-
State Dispute Settlement: A Scoping Paper for the Investment
Policy Community", OECD Working Papers on International
Investment, No. 2012/3; P. Eberhardt and C. Olivet, Profiting
from Injustice: How Law Firms, Arbitrators and Financiers are
Fuelling an Investment Arbitration Boom (Corporate Europe
Observatory and Transnational Institute, 2012), available at
70 Host countries have faced ISDS claims of up to $114 billion
(the aggregate amount of compensation sought by the three
claimants constituting the majority shareholders of the former
Yukos Oil Company in the ongoing arbitration proceedings
against the Russian Federation) and awards of up to $1.77
billion (Occidental Petroleum Corporation and Occidental
Exploration and Production Company v. The Republic of
Ecuador, ICSID Case No. ARB/06/11, Award, 5 October 2012).
71 UNCTAD, Transparency - A Sequel, Series on Issues in IIAs II.
(United Nations, New York and Geneva, 2012).
72 It is indicative that of the 85 cases under the UNCITRAL
Arbitration Rules administered by the Permanent Court of
Arbitration (PCA), only 18 were public (as of end-2012). Source:
Permanent Court of Arbitration International Bureau.
73 Sometimes, divergent outcomes can be explained by
differences in wording of a specific IIA applicable in a case;
however, often they represent differences in the views of
74 It is notable that even having identified "manifest errors of
law" in an arbitral award, an ICSID annulment committee may
find itself unable to annul the award or correct the mistake.
See CMS Gas Transmission Company v. The Republic of
Argentina, ICSID Case No. ARB/01/8, Decision of the ad hoc
Committee on the application for annulment, 25 September
2007. Article 52(1) of the Convention on the Settlement of
Investment Disputes Between States and Nationals of Other
States (ICSID Convention) enumerates the following grounds for
annulment: (a) improper constitution of the arbitral Tribunal; (b)
manifest excess of power by the arbitral Tribunal; (c) corruption
of a member of the arbitral Tribunal; (d) serious departure from
a fundamental rule of procedure; or (e) absence of a statement
of reasons in the arbitral award.
75 For further details, see Gaukrodger and Gordon (2012: 43-51).
76 Lawyers' fees (which may reach $1,000 per hour for partners in
large law firms) represent the biggest expenditure: on average,
they have been estimated to account for about 82 per cent of
the total costs of a case. D. Gaukrodger and K. Gordon, p. 19.
78 During 2010 and 2011, UNCTAD organized seven "Fireside"
talks - informal discussions among small groups of experts
about possible improvements to the ISDS system.
79 See e.g. OECD, "Government perspectives on investor-state
dispute settlement: a progress report", Freedom of Investment
Roundtable, 14 December 2012. Available at www.oecd.org/
80 Mediation is an informal and flexible procedure: a mediator's
role can vary from shaping a productive process of interaction
between the parties to effectively proposing and arranging a
workable settlement to the dispute. It is often referred to as
"assisted negotiations". Conciliation procedures follow formal
rules. At the end of the procedure, conciliators usually draw
up terms of an agreement that, in their view, represent a just
compromise to a dispute (non-binding to the parties involved).
Because of its higher level of formality, some call conciliation a
81 See further UNCTAD, Investor-State Disputes: Prevention
and Alternatives to Arbitration (United Nations, New York
and Geneva, 2010); UNCTAD, How to Prevent and Manage
Investor-State Disputes: Lessons from Peru, Best Practice in
Investment for Development Series (United Nations, New York
and Geneva, 2011).
82 In particular, Canada, Colombia, Mexico, the United States
and some others. Reportedly, the European Union is also
considering this approach. See N. Bernasconi-Osterwalder,
"Analysis of the European Commission's Draft Text on Investor-
State Dispute Settlement for EU Agreements", Investment
Treaty News, 19 July 2012. Available at http://www.iisd.org/
83 Policy options for individual ISDS elements are further analysed
in UNCTAD, Investor-State Dispute Settlement: A Sequel
84 See e.g. NAFTA Articles 1116(2) and 1117(2); see also Article
15(11) of the China-Japan-Republic of Korea investment
85 See UNCTAD, Interpretation of IIAs: What States Can Do,
IIA Issues Note, No.3, December 2011. Two issues merit
attention with respect to such authoritative interpretations.
First, the borderline between interpretation and amendment
can sometimes be blurred; second, if issued during an ongoing
proceeding, a joint party interpretation may raise due-process
86 See e.g. NAFTA Article 1126; see also Article 26 of the Canada-
87 See e.g. Article 28 of the Canada-China BIT; see also NAFTA
Article 1137(4) and Annex 1137.4.
88 See e.g. Article 41(5) ICSID Arbitration Rules (2006); Article 28
United States-Uruguay BIT.
89 UNCTAD, World Investment Report 2010. Available at http://
unctad.org/en/Docs/wir2010_en.pdf. See also UNCTAD's Pink
Series Sequels on Scope and Definition, MFN, Expropriation,
FET and Transparency. Available at http://investmentpolicyhub.
90 Such capacity-building activities are being carried out by among
others, UNCTAD (together with different partner organizations).
Latin American countries, for example, have benefited from
UNCTAD's advanced regional training courses on ISDS on an
annual basis since 2005.
91 Recent examples of IIAs without ISDS provisions are the
Japan-Philippines Economic Partnership Agreement (2006),
the Australia-United States FTA (2004) and the Australia-
Malaysia FTA (2011). In April 2011, the Australian Government
issued a trade policy statement announcing that it would stop
including ISDS clauses in its future IIAs as doing so imposes
significant constraints on Australia's ability to regulate public
policy matters: see Gillard Government Trade Policy Statement:
Trading Our Way to More Jobs and Prosperity, April 2011.
Available at www.dfat.gov.au/publications/trade/trading-ourway-
92 For example, claims relating to real estate (Cameroon-Turkey
BIT); claims concerning financial institutions (Canada-Jordan
BIT); claims relating to establishment and acquisition of
investments (Japan-Mexico FTA); claims concerning specific
treaty obligations such as national treatment and performance
requirements (Malaysia-Pakistan Closer Economic Partnership
Agreement); and claims arising out of measures to protect
national security interest (India-Malaysia Closer Economic
Cooperation Agreement). For further analysis, see UNCTAD,
Investor-State Dispute Settlement: Regulation and Procedures
(New York and Geneva, forthcoming).
93 For example, Chinese BITs concluded in the 1980s and early
1990s (e.g. Albania-China, 1993; Bulgaria-China, 1989)
provided investors access to international arbitration only with
respect to disputes relating to the amount of compensation
following an investment expropriation.
94 Denial of benefits clauses authorize States to deny treaty
protection to investors who do not have substantial business
activities in their alleged home State and who are owned and/
or controlled by nationals or entities of the denying State or of a
State who is not a party to the treaty.
95 Douglas, Z. (2009). The international law of investment claims.
Cambridge: Cambridge University Press.
96 Some IIAs require investors to pursue local remedies in the host
State for a certain period of time (e.g. Belgium/Luxembourg-
Botswana BIT and Argentina-Republic of Korea BIT). A small
number of agreements require the investor to exhaust the host
State's administrative remedies before submitting the dispute
to arbitration (e.g. China-Cote d'Ivoire BIT).
97 Termination of IIAs is complicated by "survival" clauses that
provide for the continued application of treaties, typically for 10
to 15 years after their termination.
98 In 2004, the ICSID Secretariat mooted the idea of an appeals
facility, but at that time the idea failed to garner sufficient State
support. See ISCID, "Possible Improvements of the Framework
for ICSID Arbitration", Discussion paper, 22 October 2004, Part
VI, and Annex "Possible Features of an ICSID Appeals Facility".
In the eight years that have passed since, the views of many
governments may have evolved.
99 For the relevant discussion, see e.g. C. Tams, "An Appealing
Option? A Debate about an ICSID Appellate Structure", Essays
in Transnational Economic Law, No.57, 2006.
100 Several IIAs concluded by the United States have addressed
the potential establishment of a standing body to hear appeals
from investor-State arbitrations. The Chile-United States FTA
was the first one to establish a "socket" in the agreement into
which an appellate mechanism could be inserted should one
be established under a separate multilateral agreement (Article
10.19(10)). The Dominican Republic-Central America-United
States FTA (CAFTA) (2004) went further, and required the
establishment of a negotiating group to develop an appellate
body or similar mechanism (Annex 10-F). Notwithstanding
these provisions, there has been no announcement of any
such negotiations and no text regarding the establishment of
any appellate body.
101 An alternative solution would be a system of preliminary
rulings, whereby tribunals in ongoing proceedings would
be enabled or required to refer unclear questions of law to
a certain central body. This option, even though it does not
grant a right of appeal, may help improve consistency in
arbitral decision making. See e.g. C. Schreuer, "Preliminary
Rulings in Investment Arbitration", in K. Sauvant (ed.), Appeals
Mechanism in International Investment Disputes (OUP, 2008).
102 At the WTO, the appeals procedure is limited to 90 days.
103 Other relevant questions include: Would the appeal be limited
to the points of law or also encompass questions of fact?
Would it have the power to correct decisions or only a right of
remand to the original tribunal? How to ensure the coverage of
earlier-concluded IIAs by the new appeals structure?
104 Because these cases "involve an adjudicative body having
the competence to determine, in response to a claim by an
individual, the legality of the use of sovereign authority, and to
award a remedy for unlawful State conduct." G. Van Harten, "A
Case for International Investment Court", Inaugural Conference
of the Society for International Economic Law, 16 July 2008,
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
106 A system where judges are assigned to the case, as opposed
to being appointed by the disputing parties, would also save
significant resources currently spent on researching arbitrator
107 Similarly to the European Court of Human Rights, which
adjudicates claims brought under the European Convention for
the Protection of Human Rights and Fundamental Freedoms.
108 Such capacity-building activities are being carried out by,
among others, UNCTAD (with different partner organizations).
Latin American countries, for example, have benefitted from
UNCTAD's advanced regional training courses on ISDS on
an annual basis since 2005: see http://unctad.org/en/Pages/
109 IPFSD, 2012.
a Decree No.86, China Securities Regulatory Commission, 11
b Press Notes No. 4, 5, 6, 7 and 8, Ministry of Commerce and
Industry, 20 September 2012, Circular No. 41, Reserve Bank of
India, 10 October 2012.
c Press release, Ministry of Finance, 21 December 2012.
d "New areas in Dubai where expats can own property", Khaleej
Times, 22 June 2012.
e Foreign Investment Law (Law No, 21/ 2012), Presidential Office,
2 November 2012. See www.president-office.gov.mm/en/hluttaw/
f Resolution No. 111-F/2012, Official Gazette, 28 December 2012.
g "Government adopted a decree on privatization of the fuel and
energy complex enterprises", Ukraine government portal, 19
a "Simplification of direct investment foreign exchange management
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of Foreign Exchange, 21 November 2012.
b Press release, Ministry of Economy, Industry and Commerce,
23 October 2012.
c "Emergency Economic Measures for the Revitalization of the
Japanese Economy", Cabinet Office, 11 January 2013.
d "President Asif Ali Zardari signs Special Economic Zones Bill
2012", Board of Investment, 10 September 2012.
e "Cabinet Approves Bill of National Investment for 2013", Ministry of
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a Resolucion Conjunta 620/2012 y 365/2012, Official Gazette, 23
b Regulation No. 14/8 / PBI/2012, Bank Indonesia, 13 July 2012.
c "Kazakh Law Sets State Control of New Oil Pipelines", Reuters
14 June 2012.
d Executive Order No.79-S-2012, Official Gazette, 16 July 2012.
a New Land Code (Law No. 2013-1), 14 January 2013.
b "Government nationalizes Electropaz, Elfeo and ensures job
security and salary workers", Official press release, 29 December
c "Morales Dispone Nacionalizacion del Paquete Accionario de
Sabsa", Official press release, 18 February 2013.
d Statement by the Prime Minister of Canada on foreign investment,
7 December 2012.
e Act T/9400/7 amending the Fundamental Law, 18 December
f Law 56 of 2012, Official Gazette No. 111, 14 May 2012.
a Bloomberg, "Deutsche Boerse-NYSE Takeover Vetoed by
European Commission", 1 February 2012. Available at www.
(accessed 30 April 2013).
b Reuters, "Singapore Exchange ends ASX bid after Australia rebuff",
8 April 2011. Available at www.reuters.com/article/2011/04/08/usasx-
sgx-idUSTRE7370LT20110408 (accessed 30 April 2013).
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Potash", 15 November 2010. Available at http://articles.
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Box III.7. Addressing ISDS-related challenges: initiatives from Latin America
On 22 April 2013 during a ministerial-level meeting held in Ecuador, seven Latin American countries (the Plurinational
State of Bolivia, Cuba, the Dominican Republic, Ecuador, Nicaragua, Saint Vincent and the Grenadines, and the
Bolivarian Republic of Venezuela) adopted a declaration on "Latin American States affected by transnational
interests".a In the declaration ministers agreed to establish an institutional framework to deal with challenges posed
by transnational companies, especially legal claims brought against governments under BITs. The declaration also
supports the creation of a regional arbitration centre to settle investment disputes and an international observatory
for cooperation on international investment litigation. To that effect, the Dominican Republic, Ecuador and the
Bolivarian Republic of Venezuela have agreed to produce a proposal to create such an observatory by July 2013.
This follows various earlier initiatives, undertaken by groups of countries in the region, that were aimed at helping
countries find an adequate response to the lack of capacity and resources on one hand, and the overall legitimacy
of the ISDS system on the other. As early as 2009, UNCTAD, together with the Academia de Centroamerica, the
Organization of American States and the Inter-American Development Bank, was invited to pursue the possibility of
establishing an Advisory Facility on International Investment Law and ISDS. This resulted in a series of meetings that
addressed technical issues, including what type of services such a facility should offer (e.g. capacity-building for IIA
negotiations and implementation, management or prevention of ISDS cases, provision of legal opinions, and legal
representation in ISDS cases), what its membership limits could be (open to all countries and organizations or only
a limited number of countries) and how it should be financed.
Note: Notes appear at the end of this chapter.
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