Category Archives: EU

Just published: A response to the criticism against ISDS

European union flag against parliament in BrusselsThe European Federation for Investment Law and Arbitration (EFILA) recently published the paper “A response to the criticism against ISDS”, addressing 11 specific criticisms commonly voiced by ISDS opponents in the context of the TTIP negotiations.

EFILA is a Brussels-based think tank that brings together leading investment law and arbitration specialists, former judges and investor representatives from various EU member states. To read more about EFILA, go to www.efila.org.

SCC seminar on ISDS & TTIP at the European Parliament

isdsbloggbrysselThe Stockholm Chamber of Commerce took an initiative to organize a seminar on ISDS at the European Parliament on 5 May 2015. The aim was to discuss the importance of the mechanism in support of the global economy – with a special focus on the Transatlantic Trade and Investment Partnership (TTIP).

Participants came from the Members of the European Parliament offices, governments’ representatives including the European Commission and different NGOs. The panel consisted of experts from different backgrounds and was moderated by Andreas Hatzigeorgiou, Chief Economist at the Stockholm Chamber of Commerce.

ISDS comes in the form of international arbitration and it is therefore essential to understand how the mechanism has been used. Annette Magnusson, the Secretary General of the Arbitration Institute of Stockholm Chamber of Commerce explained that historically, arbitration served as a neutral dispute resolution venue in times of geopolitical crisis, among others during the fall of the Soviet and Iran-U.S crisis. Today, ISDS plays an even more important role. In recent years, investors in the renewable energy sector have used ISDS to enforce investment protections in IIAs. This demonstrates that ISDS has the potential to protect investment in sustainable development efforts.

Rikard Wikström, a partner at White & Case in Stockholm, explained that rule of law and legal principles underpin ISDS as a procedural mechanism. The disputing parties in ISDS have equal rights to present their case, arguments are made based on the law and due process should exist throughout the process.

ISDS reform is underway, among others by the adoption of international rules to enhance transparency in ISDS proceedings. Timothy Lemay, the Principal Legal Officer of the United Nations Commission on International Trade Law (UNCITRAL) explained how the UNCITRAL Transparency Rules work in practice. By the application of these rules, most documents in an ISDS proceeding will be made public, the public will be able to access the hearings through video-streaming and participate in the proceedings by submitting amicus curiae.

Turning to the question of ISDS in the TTIP, Christofer Fjellner, a Member of the European Parliament, emphasized that having investment protection in the TTIP is a matter of rule of law. It is a matter of ensuring that foreign property will not be expropriated without fair compensation and that investors are treated without discrimination. ISDS is just a mechanism to enforce this protection.

Finally, Freya Baetens, associate law professor of the Leiden University, conducted a cost-benefit analysis of including ISDS in the TTIP. She concluded that the TTIP may benefit from some improvements in the ISDS system, among others by invoking a loser-pays principle and ensuring that frivolous claims are dismissed at an early stage of the proceedings.

Above all, ISDS in the form of international arbitration is a well-established mechanism to resolve international disputes. It is governed by both international law and domestic law – which means that States maintain full control in the functioning of the system.

The European Commission Concept Paper on ISDS

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The European Commission has published a concept paper on proposals for a potential future ISDS-mechanism in the TTIP.

According to the paper, a new approach in the EU investment policy is needed, where “a major part of the challenge is to make sure any system for dispute settlement is fair and independent”.

It may be observed that the paper contains no clear elaboration on how the current system is unfair and not independent. In contrast, in our experience the current system in the vast majority of cases does represent the values of fairness and independence.

As a starting point, the paper asserts that the EU has achieved a certain level of ISDS reform as embodied in the EU free trade agreements with Canada and Singapore. The paper addresses “what should be further improved”.

Firstly, the paper proposes an exclusive roster of arbitrators pre-established by State parties of the investment agreement. Several arguments could be raised against such practice. It is impossible to foresee what future disputes under an agreement will look like and what specific expertise will be required. A pre-established roster may constitute an obstacle for the dispute to be resolved by the most suitable arbitrator.

Secondly, the paper proposes an appellate mechanism “to ensure correctness and predictability”. It deserves pointing out that the ICSID Convention or the provisions of New York Convention already serves this purpose. Under the ICSID system, an award can be annulled on procedural grounds, among others if the tribunal manifestly exceeded its powers.

If what is desired is to try the whole case again at the appeal stage, it will significantly increase the time and costs associated the dispute. An appeal mechanism in itself is no safeguard to enhance predictability – this is best achieved by well formulated substantive terms.

Finally, the paper foresees the creation of “a permanent multilateral system for investment disputes”. The Commission seems to ignore that such system is already in place through the Washington Convention and the ICSID system, which has been endorsed by more than 150 states.

The impression is that the reform proposals were made based on “perception”, or more precisely, misperception on the system. A stronger emphasis on empirical evidence would better serve a higher standard in the decision-making process ahead.

For more information, read the SCC’s remarks on the Concept Paper here.

The EU Commission’s consultation on ISDS

The EU Commission’s report on the consultation on ISDS in TTIP was recently published on 13 January 2015.

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC)  participated in the public consultation. Read the SCC:s response to the consultation here

It may be noted that the SCC has only commented on issues related to procedure within the framework of the consultation.

The SCC is an independent part of the Stockholm Chamber of Commerce and has developed into one of the world’s leading forums for dispute resolution. The SCC is also the second largest institution for the administration of ISDS disputes. Read more about the SCC here

The aim of the SCC is to continue to be involved in the discussion that has developed around ISDS and to contribute with facts about international arbitration in general and investment arbitration in particular.

Who is the investor?

The description of the investor in the ISDS debate has grown to almost mythical proportions. For an outside observer it would be easy to get the impression that the beneficiaries of investment treaty protection treaties – and the users of investor-state dispute settlement – are a narrow group of multinational companies, who use treaties to bully states. This assumption is simply not supported by the basic facts.

Investment protection treaties, be they bilateral or multilateral like the NAFTA or the TTIP that is now being negotiated, generally put no lower threshold on the size of investment to be protected. The treaties’ definitions of which types of investments are protected in practice presuppose some kind of risk-taking and long-term commitment in the host state but apart from that, definitions are wide and include a wide range of activities. As a matter of principle, investors small and big, get the same protection.

In reality, about one fourth of all ISDS claims have been brought by individuals or very small corporations, according to a comprehensive OECD study. This share of the caseload increases significantly if also medium-sized companies are included. Conversely, the same survey found that the very large multinational companies count for only 8% of the known cases.

Unlike the impression often painted in the debate, a minority of claims relate to public health or environmental protection. By way of example, one of the sectors with most ISDS claims launched in the last few years is the renewable energy sector, as many states have recently withdrawn different incentives for renewable energy investments. Some international investors claim that these measures violate the Energy Charter Treaty, which has led to over 20 arbitration cases.  Many of these solar and wind power companies are relatively small.

It also deserves pointing out that a large number of investment treaty claims have been launched by private persons (see cases listed at www.italaw.com).