Category Archives: Trade agreement

NGO voices in ISDS

Conference table, microphones and office chairs close-up

Beginning in 2001, a number of different NGOs have been active in ISDS proceedings, most commonly in cases with public interest aspects. This includes cases referring to measures related to for example environmental protection and public health.

NGOs may apply to be “a friend of the court”, or commonly referred to as amicus curiae. This means that the organisation contributes with a written submission to assist the tribunal in the assessment of the claims.

Participation of NGOs was initially found only in ISDS cases brought under the North American Free Trade Agreement (NAFTA). The NAFTA parties have issued a joint statement which essentially says that the NAFTA does not prohibit submission of a non-party, in this case may include NGOs.

Methanex Corp v USA was the first case where the tribunal opened up for NGOs to make written submission, which included environmental organizations and research institutes. In addition, these NGOs also attended the hearing. It was followed by Glamis Gold v. USA, where the tribunal received written submission by, among others, a locally-based Quechan Indian Tribe, whose sacred sites and traditions were affected by the investor’s mining project.

Since then the ICSID Arbitration Rules have been amended to clarify that tribunals have the general authority to allow submissions by an organisation which is not a party in the dispute.

NGOs have participated not only in NAFTA cases. In Biwater Gauff v. Tanzania, the tribunal accepted written submission from NGOs with an expertise in human rights, environmental and good governance issues.

A recent development is the participation of international organization in ISDS proceeding, as shown in Phillip Morris v. Uruguay. In this case, not yet decided, the opinions of the World Health Organization (WHO) and the WHO Framework Convention on Tobacco Control Secretariat will also be heard, based on the ICSID Arbitration Rules.

In a recent development, the UNCITRAL Transparency Rules, in force as of 1 April 2014, provide that tribunal may allow submission from non-disputing parties for matters within the dispute. Read our previous post on this.

 

 

More environmental languages in IIAs

green leaves background in sunny dayInternational investment agreements (“IIAs”) have increasingly addressed environmental concerns related to investment activity.

Based on a survey conducted by the OECD, inclusion of environmental languages in IIAs is becoming more common. The sample in this survey consists of 1,623 international investment agreements, thus covering roughly half of the global investment treaty population.

The first treaty to include environmental language in the sample is the 1985 China – Singapore BIT. In 2008, 89% of newly concluded treaties includes such language. Further, as we have written before, sustainable development is at the heart of the newly-adopted IIAs in 2014 where most of these treaties include a sustainable development-oriented features.

The most common environmental language is a provision which preserves policy space for environmental regulation. For example, Hungary – Russia BIT provides that the agreement does not preclude the application of measures to protect the environment and public health. Another type is a provision which discourages state parties to lower their environmental standards to attract investments.

Some IIAs have referred to international environmental treaties. The Energy Charter Treaty in its preamble specifically recalls the United Nations Framework Convention on Climate Change. The preamble of the new Norwegian BIT draft also recognizes that international environmental treaties are to be interpreted in mutually supportive manner.

Overall, 30 of the 49 countries covered by the survey have included environmental language in at least one of their IIAs. Canada is the country with relatively highest tendencies to include such language (83% of its sample treaties), followed by New Zealand, Japan, the United States and Finland.

 

Case Summary No. 7

Blue chemical cans all over. Outdoors on chemical plant.We continue our series of case summaries with SD Myers v. Canada, a NAFTA dispute decided under the UNCITRAL arbitration rules. The summary is based on the facts as described in the three separate awards rendered by the arbitral tribunal between November 2000 and December 2002.

S.D. Myers, Inc. (“SDMI”) is a United States corporation that processes and disposes of polychlorinated biphenyl (“PCB”), an environmentally hazardous chemical compound used in electronics manufacturing. SDMI created a Canadian affiliate with the aim of soliciting orders for the destruction of Canadian PCBs at its U.S. facility. The U.S. had banned the import of PCB from Canada in 1980, but granted SDMI an exception in 1995. Promptly after SDMI had been granted permission from the U.S. government to import PCB waste from Canada, Canada issued an order prohibiting the export of PCB waste to the U.S. The prohibition was in effect for approximately 16 months.

SDMI filed claims against Canada under the UNCITRAL Rules in October 1998, alleging that Canada’s ban on the export of PCB waste had violated several provisions of Chapter 11 of NAFTA. SDMI claimed that it had suffered economic harm to its investment through interference with its operations, lost contracts and opportunities in Canada. Canada maintained that the ban had been motivated by environmental concerns.

In its first partial award, on liability only, the tribunal found for the investor with respect to its Article 1102 and 1105 claims, holding that Canada had violated NAFTA’s national treatment and minimum standard of treatment provisions. According to the tribunal, the evidence showed that Canada’s ban on PCB export was not driven by environmental concerns, as asserted by Canada, but intended primarily to protect the Canadian PCB disposal industry from U.S. competition. The investor’s claims regarding expropriation and performance requirements were dismissed. Canada challenged the award in its own federal court, on the grounds that the tribunal had exceeded its jurisdiction and that the award was against Canadian public policy. The court dismissed the challenge.

The tribunal issued two subsequent awards, on damages and costs, respectively. On damages, the tribunal reasoned that the investor may only be compensated for harm proximately caused by the breach of the specific NAFTA provision. According to this principle, indirect harm such as loss of opportunity or a damaged reputation are too remote to warrant compensation. The tribunal thus awarded SDMI damages of CAN$ 6 million, a fraction of the US$ 70 million claimed by the investor. 

UNCITRAL at the forefront of ISDS development

UNCITRAL_BloggThe international community is constantly working in a collaborative spirit to address areas for the continued development of the international legal order. An important UN-body for this purpose is the United Nations Commission on International Trade Law (UNCITRAL). And a recent and illustrative example of how states have constructively addressed new developments through the work of UNCITRAL is the Rules for Transparency in Treaty-based investor state arbitration.

The Transparency Rules were drafted in response to the calls for ISDS transparency, but it deserves pointing out that the UNCITRAL work on transparency took its beginning long before ISDS became a hot political issue in Europe. The UNCITRAL perspective is constructive and long-term.

At its most recent session in Vienna, the UNCITRAL Commission touched upon another topical issue for investor-state dispute resolution, when it discussed the matter of concurrent proceedings. This is an area the UNCITRAL has focused on over the past year, and in which the Commission expressed a continued interest for future work.

The recent UNCITRAL report on concurrent proceedings and possible future work is available here. It illustrates the joint responsibility felt by the international community, as represented by UNCITRAL, to safeguard common values under-pinning international arbitration, while addressing the future in view of recent development.

 

Case Summary No. 6

Image of blurred store for backgroundOur sixth example of an ISDS case is Franck Charles Arif v. Moldova, a case filed with the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C. The summary is based on the facts as described in the award rendered in April 2013.

The claimant, Mr. Franck Arif, a French national, was the sole owner of a company that had won a state tender to operate a series of duty-free stores at five locations along the Romanian border. The company had also secured the exclusive right to operate a duty-free store at the country’s main airport. In filing for arbitration, Mr. Arif argued that the success of his investments had been obstructed by a series of government delays, unnecessary inspections, and domestic judicial decisions that invalidated both the tender for the border-stores and the lease agreement for the airport store. Mr. Arif argued that the Moldovan state’s actions had violated several provisions of the bilateral investment treaty (BIT) between France and Moldova.

The arbitral tribunal rejected most of the claimant’s claims (e.g. expropriation, denial of justice, discrimination), but granted one of his claims based on the fair and equitable treatment standard set forth in the BIT. In short, the tribunal found that the state’s actions had frustrated the investor’s legitimate expectation of a secure legal framework in which to operate the airport store. For this breach, the investor was awarded USD 2.8 million in damages, significantly less than the USD 44 million he had requested. The tribunal also gave Moldova the option of further reducing the damages owed to Mr. Arif by offering restitution instead—in effect allowing him to re-open the store at issue.

Mr. Franck Arif also sued Moldova at the European Court of Human Rights in Strasbourg, on the grounds that the Moldovan government’s actions breached the European Convention on Human Rights. Disputes before European Court last many years; no verdict has yet been reached in the case filed by Mr. Arif.

Investment Treaty Forum in Stockholm

ITFSeminarThe Investment Treaty Forum was recently held for the first time in Stockholm.

The British Institute of International and Comparative Law, in cooperation with the SCC, Mannheimer Swartling and Uppsala University, organized Investment Treaty Forum in Stockholm on 12 June 2015.

The Investment Treaty Forum was founded in 2004 with the aim to provide a global centre for serious high level debate in the field of international law. The theme of the meeting – Europe as an Investment Treaty Actor – brought together speakers and participants from government, legal practitioners, academia, politicians and business. See the full program here.

The importance of investment treaty for European economic development was one of the topics discussed. Investment treaty contributes to predictability, stability and transparency in investment relation. It was further highlighted that investment treaty will benefit not only the industry, but also governments and consumers. Investment treaty has the potential to open up new market opportunities for European investors abroad and also to make Europe a more attractive place for investment. But there were also critical voices raised, questioning the need for investment protection.

The evolution of substantive terms of investment treaty was equally addressed. States retain full control of the regime, among others by issuing interpretation of the treaty and by introducing new provisions of investment protection. The former has been done by the state parties to the North American Free Trade Agreement and the latter by, among others, the European Commission.

The seminar ended with the well-anticipated discussion on the roles of the European Commission in investment law regime. In addition to its role as negotiator of future investment treaty, the Commission has also emerged as litigator and enforcer in the regime.

More pictures and presentation materials from the seminar will be published here shortly.

 Photo: Björn Leijon

 

 

 

The Evolution of BITs

CogwheelInternational investment regime, like any other field of international law, is not static. It continues to evolve and adapt to the present day needs and situation. States as the primary actors of the regime maintain full control in its evolution.

Historically, bilateral investment treaties (BITs) emerged as a response to the inadequacies of international law on protection of property of foreigners. Western states also sought to obtain better market access for their nationals to invest in developing states. See more explanation on the history of BITs here.

Germany is the first state to sign the first BIT, with Pakistan, in 1959. Other states quickly followed this effort: Switzerland in 1961, the Netherlands in 1963, Italy in 1964 and Sweden in 1965. BITs in this period were generally quite short – approximately five to six pages. These BITs focus on core protection such as the obligation to accord non-discriminatory and fair and equitable treatment to foreign investors.

Early on, BITs began providing for binding ISDS in the form of international arbitration. However, international arbitration has been used to resolve claims from foreign investors with respect to their property since the 18th century.

In recent years some states have begun adopting new model BITs which are more elaborate than older treaties. The most recent one is India, where its 2015 model BIT provides more detailed ISDS provisions, among others setting time limit of submitting a claim to ISDS and possibilities of counter-claims by a state against a foreign investor. And the Norway 2007 Model BIT provides for example that the unsuccessful party in ISDS shall bear the costs of arbitration.

The ISDS blog has previously discussed some ISDS reforms embodied in the Comprehensive Trade and Economic Agreement between the European Union and Canada (CETA) and the US 2012 Model BIT.

ISDS key figures and findings

worldisdsA report by Notre Europe Jacques Delors Institute, a think-tank working on European Union issues, summarizes important numbers related to bilateral investment treaties (BITs) and ISDS.

The report puts numbers into perspective – with some of its findings as follows:

  1. The number of BITs increased five-fold between the late 1980s and the end of 1990s.
  2. In parallel, the external stock of FDI demonstrates a ten-fold increase over 20 years with a growth from USD 2,400 billion in 1992 to USD 23,600 billion in 2012.
  3. There is now a total of 3,200 investment agreements worldwide, 93% of them provides an ISDS clause.
  4. Out of the 98 countries who have been a respondent in an ISDS proceeding, about three-quarters were developing countries or economy in transition. Less than one-third of claims were brought against developed countries.
  5. The average compensation claimed was USD 343.5 million, however the average amount awarded was USD 10.4 million.

The European Union member states have signed a total of 1,356 BITs with non-EU member states, in addition to around 190 BITs between themselves.

With regards to the EU – United States relationship, the report notes that nine member states have signed investment agreements with the U.S – all include ISDS as dispute resolution mechanism. These member states consist of Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia. There have been so far 9 known ISDS claims between the U.S and the EU, all submitted by US investors (4 against Poland, 3 against Romania, 1 against the Czech Republic and 1 against Estonia).

ISDS is included in the EU’s upcoming agreements, including free trade agreements with Canada and Singapore – the negotiations of which have been concluded. According to the report, ISDS is also mentioned in agreements currently negotiated between the EU and China, Myanmar, Morocco, Thailand and Vietnam.

UNCTAD 2014 ISDS Trends

UNCTAD have released an infographic with statistics about ISDS trends in 2014.

It presents the number of concluded, on-going and new cases cases during 2014. It also answers the following questions:

What was the outcome of the concluded cases? Which are the most frequent home-countries of claimant investors? How many claims were made against developing countries?

UNCTAD is the United Nations body responsible for dealing with development issues, particularly international trade and is governed by its 194 member States.

ISDS trends 2014_2_red2

Click image to enlarge and to download 

Seminar report: ISDS – A Way Forward

AndrinaSeminariumImage2red3BloggThe SCC, in cooperation with the Association of International Arbitration and Brussels Diplomatic Academy of Vrije Universiteit Brussels organized a seminar, ISDS: Away Forward in Brussels, on 27 May 2015. The speakers were arbitration practitioners from Sweden, Belgium and France, including SCC Legal Counsels and representatives from the International Bar Association Subcommittee on Investment Arbitration. Read the full programme here.

The historical background of ISDS was explained, and how the mechanism was established under the ICSID Convention as a response to inefficient diplomatic protection to foreign investors. The discussion continued with the currently-debated issue, ISDS and environmental protection. SCC presented research findings that the number of ISDS cases where investors brought a claim because of environmental regulation is small. The findings from these cases support a conclusion that arbitral tribunals have not questioned the power of government to regulate for environmental protection.

In addition, some procedural aspects of ISDS were addressed, particularly transparency and public participation. The speakers emphasized that this is in fact not a new development, as tribunals have supported transparency and public participation to an increasing extent in the past decade. A new procedural development of ISDS, emergency arbitrator, was also discussed.

A speaker reminded that when discussing reform of the system, public opinion should always be taken into account.  It is important to ensure that the democratic values are preserved. The International Bar Association (IBA) is working on a project to bring together opinions from different stakeholders in ISDS. The ambition is to address the criticisms surrounding ISDS and to propose improvements of the system, when needed.

IBA has also recently published a statement, addressing facts of ISDS.

The dynamic and forward-looking discussion from the participants were much appreciated. More discussions will follow ahead to preserve the rule of law and ISDS.