UNCTAD Multi-Stakeholder Meeting Seeks Reform of Investment Treaties and Investment Dispute Settlement

More than 50 high-level representatives from governments, including ministers, as well as senior business representatives, international and civil society organizations convened in Geneva, Switzerland on October 16, 2014, to address the challenges arising from international investment agreements (IIAs) and to consider ways to reform the IIA regime.[1] The conference was held during the United Nations Conference on Trade and Development’s (UNCTAD) World Investment Forum 2014, which attracted over 3000 participants from 150 countries. The IIA conference took place against the backdrop of growing dissatisfaction with the complex system of over 3,000 IIAs and, more specifically, the public debate surrounding so-called mega-regional agreements such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.

Broad agreement on the need for reform

The conference was guided by three main questions: What are the key areas and pressing issues in IIAs and investment dispute settlement that need to be addressed? What are the key ways and means to address these issues? What types of mechanisms and platforms are needed to facilitate the reform?

The conference brought together a broad range of stakeholders and gave a voice to different interests within the investment and development community, helping to bridge divides between supporters and critics of the IIA regime. There was broad agreement on the need to improve global investment governance; however, many participants also emphasized that IIAs remain an important policy tool to help foster a stable and predictable business climate for the protection and attraction of FDI.

The view shared by many speakers was that the IIA regime and the related investment dispute settlement system required comprehensive reform, but that these changes should be introduced gradually. Starting from a number of pressing reform issues, the meeting identified concrete and workable solutions to address them. In so doing, the conference participants sketched out the contours of a roadmap for comprehensive reform of the IIA regime, and called upon UNCTAD to further refine the elements of the map together with governments, regional and inter-governmental organizations and other stakeholders.

Why a roadmap is needed was described, amongst others, by the Vice Chairman of the Egyptian General Authority for Investment, Ms. Wafaa Sobhy Ibrahim. She said “most countries acknowledge that their investment policies are in need of reform to alleviate concerns related to investment dispute settlement and public policymaking. What we miss is a framework to implement their efforts.” In this context, it was said that UNCTAD’s Investment Policy Framework for Sustainable Development[2] and the reform paths identified by UNCTAD[3] could serve as valuable starting points.

Many countries considered individual reform efforts to be useful, but also noted that these may not be sufficient in light of the need to address systemic challenges. Some country representatives emphasized that joint, coordinated or multilateral efforts can be more effective in bringing about needed reforms. It was suggested that UNCTAD, in cooperation with other stakeholders, including international and regional organizations, could provide a multilateral platform for engagement on investment policy issues. Ms. Yongjie Li, Director at the Ministry of Commerce of the People’s Republic of China, said that reforming treaties at the country level « cannot address all the challenges posed by its existing treaties » and that « potential systematic reform is more suitable to be discussed at the appropriate multilateral platform. »

Pressing reform issues—core treaty provisions and investment arbitration

Many participants emphasized that IIAs must not limit countries’ capacity to regulate investment for legitimate national development objectives. Indeed, there was broad consensus on the need for a more coherent and well-designed IIA regime that reflects sustainable development objectives, balances investors’ rights and obligations, corresponds to modern economic realities (such as the proliferation of global value chains) and offers a higher degree of predictability. In particular, provisions on definitions of investment and investor, fair and equitable treatment, most favoured nation treatment, indirect expropriation or the umbrella clause were mentioned as needing careful consideration.

With respect to investment dispute settlement, stakeholders’ suggestions for reform addressed, among others, transparency, frivolous claims, speculative investors, independence of arbitrators, and an appeals mechanism. There were also calls to omit investor-state dispute settlement from investment treaties altogether. Consideration was also given to alternatives to investor-state arbitration, and some participants stressed the importance of alternative dispute resolution, as well as requiring investors to exhaust local remedies as a pre-condition to accessing arbitration. The need to refine substantive legal obligations applied by tribunals was identified as a key, complementary area of reform. Several country delegates called for more technical assistance and capacity building in this regard.

The conference benefitted from the experience of Argentina, Canada, the Czech Republic, Egypt, Ecuador and Mexico, which are among the most frequent defendants in investor-state arbitrations. Mr. Germán A. Herrera Bartis, Director at Argentina’s Ministry of Foreign Affairs and Worship, highlighted the need for reform by referring to the « ambiguity of the concept of indirect expropriation, » through which « [v]irtually any changes in economic policies […] may be considered expropriation by a foreign investor and the subject of litigation in the field of ICSID. »

Concrete examples of IIA reform and alternative approaches

The participants also discussed the concrete steps countries can take when reforming their investment treaties, with some countries sharing their experiences in this respect. Mr. Saurabh Garg, Joint Secretary (Investment), Department of Economic Affairs, Ministry of Finance, India, put forward the view that « any new treaty must be subject to rigorous review, with a careful analysis of clauses such as definition of investment and investor, FET and MFN. »

At the same time, new approaches to international investment policy making were also discussed. Mr. Daniel Godinho, Secretary of Foreign Trade at Ministry of Development, Industry and Foreign Trade of Brazil, a country that has signed some BITs in the past but did not ratify them, drew attention to Brazil’s completion of a new model investment agreement as an « innovative alternative to traditional IIAs. » Brazil’s model, which it calls a Cooperation and Facilitation Investment Agreement, focusses on « the promotion of an attractive environment for investors while preserving space for public policies. » The model foresees the creation of focal points (ombudsmen, designed to serve as an important communication and support channels between investors and the host country and to improve investment conditions in the latter) and a joint committee composed of government representatives of both parties, which would be responsible for sharing opportunities for the expansion of mutual investment, monitoring the implementation of the Agreement, preventing disputes and solving possible disagreements in an amicable manner. Similarly, participants stressed the role of domestic laws and contracts for creating a favourable investment climate and attracting investment that promotes sustainable development.

Reform efforts in light of the continued relevance of IIAs

The countries represented at the conference included those that have been most active in signing IIAs, such as China, Egypt, France, Germany, Switzerland and the United States; each of these countries have concluded more than 100 bilateral investment treaties. Mr. Christian Etter, Head of Switzerland’s State Secretariat for Economic Affairs, Switzerland, stated that, in Switzerland’s view, that IIAs are a tool to attract FDI and « a proven instrument to promote sustainable development. » He added that « as with any instrument, they [IIAs] need continued examination and adjustment when required by circumstances. »

Private sector representatives emphasised the importance of high levels of investor protection in the current IIA regime, while recognizing the need for reform at the same time. In the opinion of Mr. Winand Quaedvlieg, Chair of the Investment Committee of the Business and Industry Advisory Committee to the OECD, « investment protection is an indispensable element of any investment regime […] and ISDS in its turn is a necessary element of investment protection. […] But a number of issues merit further examination, without at this stage prejudicing the outcome. »

Some speakers stressed that rather than leading to reduced levels of investor protection, reforms should lead to more balanced treaties that offer legal precision to the benefit of states and investors alike, while preserving policy space and reflecting investor responsibilities. “The future of the IIA regime is also important for the private sector: IIAs needs to function better for governments and investors alike,” stated Ms. Stormy-Annika Mildner from the Federation of German Industries.

Next steps

As a follow-up to the WIF IIA Conference, UNCTAD will convene an intergovernmental experts meeting from February 25-27, 2015, in Geneva, where experts will identify concrete strategies and measures that would contribute to the creation of a new generation of IIAs. Another IIA conference will be held at the next World Investment Forum in March 2016 in Lima, Peru, building on the success of this year’s Forum.

Authors: James Zhan is Director of UNCTAD’s Division on Investment and Enterprise and Chief Editor of the World Investment Report. Diana Rosert is Associate Legal Affairs Officer in UNCTAD’s Section on International Investment Agreements.

[1] The list of speakers and their statements are available at http://unctad-worldinvestmentforum.org/programme/sessions/reforming-the-international-investment-agreements-regime/

[2] Available at http://unctad.org/en/PublicationsLibrary/diaepcb2012d5_en.pdf

[3] Available at http://unctad.org/en/PublicationsLibrary/webdiaepcb2014d6_en.pdf