INTERNATIONAL ARBITRATION 1/3LY
SOVERE IGNT Y I S ONLY AFFECTED TO THE DEGREE AGREED BY THE S TATE OR SUPRANAT IONAL PART Y TO THE TRE AT Y, SO TO S AY SOVERE IGNT Y I S UNDER THRE AT I S INACCURATE .
ISDS A S A SHIELD OR SWORD – DOES IT MAT TER? In a recent article, entitled “Why support the TPPwhen it will let foreign corporations take our democracies to court?” the Guardian newspaper summarised the purpose of ISDS as follows: “Theywere originally created to protect businesses that invested in foreign jurisdictions where theremay not have been robust democracies and legal systems, so that investors would have international redress if there was a coup, a takeover of their investments or some other unforeseen negative impact on their business in the nature of sovereign risk. Over time, the reasonable shield offered by ISDS clauses has become a sword, used bymultinational corporations to extract profit andmarket advantage, against the legitimate interests and values of a nation, its government and people.” With respect to the author of the Guardian article, Melissa Parke, this statement is problematic inmany respects. Firstly, were ISDS clauses designed to be one directional? Can unforeseen negative impacts on investments only happen in “undemocratic” countries andwhat of an investor’s “legitimate interests” against developed states? The fact that over half of known investor-state cases last year were actually filed against developed states (mainly EUmember states) shows that investor grievances knowno borders. Whether used as a “shield” or a “sword” , the use of ISDS by investors arguably serves the same purpose; the protection of the investor’s investment rights as defined and subject to the limitations of the legal instrument agreed between states. Sovereignty is only affected to the degree agreed by the state or supranational party to the treaty, so to say sovereignty is under threat is inaccurate. Furthermore, the ISDS clauses in such treaties will replace the text of BITs which already exist between somemember states in any event. So, inmany cases, there is nothing newhere, just a refinement of what has gone before, with the aimof creating amore uniformplatformbetween the EU and third states, and to add greater clarity to hitherto uncertain terms contained in such treaties. THE INNOVATIONS IN CETA’S INVESTMENT PROTECTION CHAPTER The Guardian article goes on to claim that “The arbitration panels that decide the outcome of ISDS disputes aren’t independent: they’remade up of investment law experts, most of whomalso represent investor complainants. Panellists can be an advocate onemonth and an arbitrator the next. They are paid by the hour. Consequently, most cases take from three to five years. ISDS has no systemof precedents or appeals, so decisions can be inconsistent and unfettered”. It is unfortunate that a systembywhich investors have legitimately enforced their legal rights against abusive and discriminatory actions by host states has beenmischaracterised in this way. While perhaps not a perfect system, allegations of bias and/or deliberate feet dragging by arbitrators, who are often nominated by the parties to the arbitration themselves, are populist, simplistic andwide of themark. The fact that CETA, as themost recent example of ISDS provisions, clarifies certain substantive and procedural issues which have hitherto beenmatters left to tribunal discretion demonstrates that valid criticisms of the systemhave clearly been taken on board.
CETA introduces certain innovations to investment protectionwhile at the same time maintaining a state’s rights to regulate and pursue legitimate public policy objectives. So, for instance, it spells out that measures “to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations” . This would likely prevent the type of challenge by PhilipMorris which is demanding compensation fromAustralia for its decision to require pictures of lung-cancer victims to be displayed on cigarette packets. The preamble to CETA also points out that it is the responsibility of businesses to respect “internationally recognized standards of corporate social responsibility” . The key provisions of the investment protection chapter of CETA are set out below. QUALIF YING INVESTMENT AND INVESTOR • While “Investment” is broadly defined, “Investor” has the narrower formulation seen in certain BITs in that CETA does not protect “shelf” companies. To qualify as an investor, it is necessary to have “substantial business activities” in the territory of one of the Parties (Article X.3). • CETA does not allow investors to “import” and usemore favourable dispute settlement procedures provided for in other treaties (Article X.7–Most Favoured Nation). (The ability of investors to useMost Favoured Nation provisions in BITs to do just this has been the subject of numerous arbitral awards and academic articles). FAIR AND EQUITABLE TRE ATMENT (FET) IS REINED IN FET – currently themost commonly invoked protection in BITs – is a precisely defined standard in the CETA, reducing the discretion of arbitrators in the application of this standard. It will apply in one of five specified situations: • Denial of justice in criminal, civil or administrative proceedings; • Fundamental breach of due process, including a breach of transparency, in judicial and administrative proceedings; • Manifest arbitrariness; • Targeted discrimination onmanifestlywrongful grounds, such as gender, race or religious belief; and/or • Abusive treatment of investors, such as coercion, duress and harassment. Legitimate expectations of an investor are also limited to where a state partymakes a specific representation to the investor whichwas relied upon in deciding whether tomake or maintain the investment (Article X.9). CETA clarifies that “full protection and security” refers to the party’s obligations relating to physical security of investors (Article X.9). NATIONAL TRE ATMENT AND MOST FAVOURED NATION – NO IMPORT OF PROCEDURAL RIGHTS
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