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Question 1 – In a historic perspective, what would you define as the key milestones in the evolution of Investor-to-State Dispute Settlement, and how has ICSID in particular adapted to the growing number and scope of cases brought before its panels?
In terms of ICSID cases, I would single out three as milestones in the overall evolution of investor-State arbitration.
The first, registered in 1984, inaugurated the shift to “arbitration without privity” (a phrase coined by Jan Paulsson), based on a broad offer of consent to arbitration by the government concerned, potentially benefiting numerous investors, rather than an arbitration clause in a pre-existing contract with a single investor, as in almost all ICSID cases up until then. This initial “arbitration without privity” was SPP v. Egypt. It involved the cancellation of a project to build a tourism complex near the Pyramids at Giza.
The offer of consent in the SPP case was set forth in the provisions of an investment promotion law of Egypt. Starting in the late 1960s, States had also been including such far-reaching provisions in bilateral investment treaties (BITs), an approach suggested at the time by ICSID itself.
The earliest case initiated under BIT provisions of this kind was AAPL v. Sri Lanka. That case, my second milestone, was brought to ICSID in 1987. It concerned the destruction of an aquaculture operation in fighting between government and rebel forces in Sri Lanka. AAPL v. Sri Lanka was only the twenty-third case registered in ICSID’s history. In the years since, there have been vast increases in foreign investment flows accompanied by a proliferation of BITs. These developments have been mirrored in the ICSID caseload, which now totals well over 500 cases, about two-thirds of them brought to the Centre under BIT provisions.
A smaller though still substantial proportion of the present ICSID caseload consists of cases brought to the Centre under the similar provisions of multilateral trade and investment treaties. The first case of this type to come to ICSID was Metalclad v. Mexico. It was launched in 1997 pursuant to the investor-State arbitration provisions of the North American Free Trade Agreement (NAFTA). The case concerned a hazardous waste disposal facility that was prevented from operating by actions, including a permit denial, of local officials. I would identify Metalclad v. Mexico as the third milestone, not merely because it was ICSID’s first NAFTA case, but because of the controversy it aroused. Media and NGO critics in particular saw the case as confirming fears that investor-State arbitral tribunals, working without transparency under investment treaties, might undermine or inhibit the exercise by governments of their authority to regulate in the public interest. Although the criticisms were at times overstated, they helped to set in motion a process of reform of the system that is still unfolding today.
In the meantime, ICSID has well met the challenges of its greatly expanded caseload by the election of a full-time Secretary-General, the recruitment of additional talented staff and improvements of its case management procedures and technology.
Question 2 – Do you think the ISDS system is presently at a “turning point” of its evolution and why? How do you explain that this mechanism has now become a concern for public opinion and the subject of such heated debate in a number of industrialized and emerging countries ?
I do think that the investor-State dispute settlement system may be at a “turning point.” Most of the cases are ICSID arbitration cases which, as I indicated earlier, are brought to the Centre under the ISDS provisions of investment treaties. Overwhelmingly, such treaties have been concluded with or between countries with emerging economies. Few cover investment flows between advanced economies. In part because of this, the great majority of the cases have involved emerging economy States as respondents (this is so even after taking into account the recent spate of cases initiated under the Energy Charter Treaty against Western European countries). If the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership Agreements are concluded with ICSID and other arbitration provisions for the resolution of investment disputes, they may well represent a “turning point” in greatly enlarging the scope for ISDS cases between investors from advanced economy countries and governments of other such countries.
This also appears to have fuelled the debate over the ISDS system, in particular in connection with the TTIP. The well-functioning courts of many of the countries involved may seem to critics preferable for the resolution of these kinds of cases. It is worth recalling that a similar “turning point” was being approached in the mid-1990s with the negotiation of a Multilateral Agreement on Investment at the OECD but that the effort was abandoned after some of the same concerns were raised about that project.
Since then, however, many improvements have been made to the ISDS system. ICSID especially has proven itself responsive to concerns (notably by amendments of its rules in 2006) and able readily to adapt to new treaty structures (such as those of free trade agreements providing for enhanced openness of the ISDS process).
Question 3 – As part of the current TTIP negotiations, European Trade Commissioner Cecilia Malmström has recently made public her proposals for a new Investment Court System that would gradually replace the current ISDS mechanism in EU investment agreements. What is your assessment of these proposals, and how do you see their impact on the present and future role of ICSID?
ICSID appears to occupy an important place in the draft Commission text to which you refer, insofar as the text envisages that claims may be submitted to the Centre under the ICSID Convention (or ICSID Additional Facility Rules). It is unclear, however, how that would fit with other parts of the text providing for claims to be heard by standing tribunals at first instance and appellate levels. This obviously is very different from the ICSID Convention system of composing a separate tribunal for each dispute and exempting its award from any appeal.
A decade ago, ICSID suggested to its membership the possibility of establishing special rules for the appeal of awards that could be incorporated into future investment treaties by interested States. It was foreseen that the investment treaties concerned might also modify the ICSID Convention to the extent required, as between the parties to the treaties. General treaty law rules, as reflected in Article 41 of the Vienna Convention on the Law of Treaties, allow for such inter se modifications of a multilateral treaty so long (among other conditions) as they are compatible with the execution of its overall object and purpose. A similar approach might have been envisaged for the introduction of the system outlined in the Commission’s draft text. But doubts remain as to whether this would be workable (even the comparatively modest suggestion of ICSID a decade ago was not fully explored before being shelved for lack of support from member countries).
An altogether different alternative would be to have a “stand alone” dispute settlement mechanism not linked to the ICSID Convention but administered by the ICSID Secretariat. Such a mechanism would, though, not benefit from the award enforcement provisions of the ICSID Convention.