Category Archives: UNCITRAL

Controversial Editorial in The Economist

The usually well-informed, pro-trade newspaper The Economist recently published an editorial that has been used by anti-globalization voices as a victorious proof that also “market friendly” voices question ISDS. This is not an accurate reading of the editorial, which, as the sub-heading states, argues that investment protection “is not the horror critics claim, but could be improved”. This is a relatively moderate – and arguably uncontroversial – approach that should not be understood as an attack on investment protection.

That being said, the text echoes many of the common misconceptions thrown around in the debate surrounding ISDS. The newspaper claims that the clauses defining the scope of ISDS are “insufficiently precise”. By claiming this, the Economist fails to make the crucial distinction between substance and procedure. The substantive protections can very well be said to be imprecise in some cases, which has indeed been done repeatedly and also led to more recent agreements including more detailed regulations of the scope of substantive protection. ISDS is, however, a whole other matter and only concerns the procedural tools to enforce the substantive clauses.

Furthermore, the newspaper criticises the confidential ISDS proceedings. This is indeed something that can be questioned in an investment dispute context. But the simple fact is that TTIP is likely to include the most transparent ISDS proceedings in history (as we discuss in Swedish here ) through the application of the UNICTRAL Rules on Transparency in Treaty-based Investor-State Arbitration.

Very few court systems in Europe, if any, can demonstrate the same level of transparency as the UNCITRAL Rules on Transparency, adopted in 2013 and in force as of 1 April this year. UN member states spent three years drafting these rules. They spent another year drafting a convention on the same topic, to expand the scope of the Rules on Transparency. Yet, in the public debate, it is as if none of these events ever took place.

The Economist also makes the populist mistake of using a few controversial cases as benchmarks for an entire procedural regime. But the very fact that a controversial case is brought does not mean that the procedural system as such is defect: neither in international law nor in domestic courts.

When national courts render decisions we do not approve of, perhaps in favor of parties we do not approve of, we do not say “Close the court!”.

We may say “change the law!”, or “that was a poorly drafted agreement”. We may even say that “the court got it wrong”, “the judge didn’t understand the case”. But we do not say that the court should be closed every time we disagree with one of its decisions. That would be an unacceptable principle in any system governed by the rule of law.

The real focus of discussion should be the substantive commitments by states. Once these commitments have been made, most sensible commentators find it reasonable that there should be a way to hold states accountable for them.

More than anything, the fact that even a normally moderate voice succumbs, at least in some aspects, to over-simplified rhetoric is a worrying sign that the entire discussion about ISDS has been tilted in a worrisome direction.

Ignoring the facts – again

The Swedish Trade Union Confederation (Sw. LO) is arguing that ISDS is “characterized by a lack of transparency, high costs, un-justified lawsuits and also carry the risk that human rights are violated.”

The arguments once again illustrate the careless treatment of facts in the ISDS-debate. This is what LO failed to mention.

ISDS is becoming more transparent than courts

In 2013, UNCITRAL adopted transparency rules for ISDS.  ISDS-proceedings under the new UNCITRAL Transparency Rules will be more transparent than proceedings in domestic court. For example; (i) information about the case will be promptly made available as soon as the case has been initiated; (ii) the public will as a general rule have access to all documents from the proceeding; (iii) non-disputing parties will be allowed to file submissions; (iv) hearings may be open to the public, including through video link.

Governments have also agreed to more transparency, even before the adoption of the UNCITRAL Transparency Rules. As a result, documents from ISDS proceedings can easily be accessed online now, including almost 300 ISDS decisions.

ISDS is not more costly than proceeding in domestic court

Any dispute can be costly, depending on the complexity of the case, and complex cases naturally will result in higher legal counsel fee. A study by the OECD has found that legal counsel fees and experts is the largest cost component in ISDS, estimated to average 82% of the total cost of a case.

Legal fees being the decisive factor, costs would not necessarily be lower in a public court proceeding. It is more likely that they run higher. This is so because litigation in domestic court can be subject to one or two stages of appeals. In such cases, counsel fees will triple. In contrast, international arbitration is a one instance procedure.

ISDS is not characterized by unjustified lawsuits

The statement that ISDS is characterized by un-justified lawsuits is completely unsubstantiated. There is not support for such statement from any of the institutions or organs involved in investor-state dispute settlement.

In a democratic society, any person who is of the opinion that its rights have been violated should be entitled to initiate a legal procedure to defend this right. This is an inherent element of rule of law.

It is for the arbitration tribunal to decide whether the claim bears merit, depending on the evidence presented, i.e. exactly the same as for litigation in domestic court.

The character of lawsuits does not define a system.  The quality of the awards does.

ISDS does not increase the risk of human rights violations

The protection of human rights is an important element of international law. It is defined for example by the European Convention of Human Rights, and alleged human rights violations are decided by the European Courts of Human Rights.

The European Court of Human Rights received 65,900 applications – in 2013 alone. As of 31 January 2013, there were a total 568 known ISDS cases – in the last 20 some years.

Risks of human rights violations are very high in some parts of the world, illustrated not least by the applications to the European Court of Human Rights in one year only. This is of course worrying.

The ISDS system however is designed to enforce rights in accordance with international law. These rights will in most cases include the protection against expropriation and non-discrimination, rights also protected under the European Convention of Human Rights.

Risks of human rights violations should always be mitigated. But removing the one mechanism which truly enforces treaty rights under international law is not the way forward.