One option for improving the existing regime of ISDS, and helping it work better for sustainable development outcomes, is ensuring transparency in proceedings. A significant step toward this goal is incorporating in the agreement the UNCITRAL Rules on Transparency in Treaty-based Investor–State Arbitration (UNICTRAL Transparency Rules) throughout the arbitral proceedings. This can be done in such a way that the provisions apply to all ISDS proceedings, even if conducted under rules other than UNCITRAL (e.g., International Centre for Settlement of Investment Disputes [ICSID]).
Another option is including provisions on the possibility of introducing an appellate mechanism. Such provisions have appeared in several agreements but had not been implemented in any until the conclusion of the FTA between the EU and Vietnam [EU-Vietnam FTA, Chapter 8, Section 3, article 13].34
Another possibility is strengthening the role of the treaty parties when disputes arise between investors and states in sensitive areas. Certain types of defence in an arbitration (e.g., invoking an exception for prudential measures) may trigger the need for a decision by the parties, or by a state-to-state tribunal, on whether the defence is valid. The investor–state arbitration can only continue if they decide that it is not. A similar approach could be taken with respect to challenges to environmental measures.
Finally, the parties could give host states the right to initiate a counterclaim against the investor, giving the state some ability to address the complaining investor’s non-compliance with domestic law (or with the treaty, if it includes investor obligations). For example, in a challenge by the investor against the host state, the state could counterclaim in case of environmental damage caused by the investor.
Option 1:Ensure transparency in ISDS proceedings
This ensures consistency with states’ obligations to act transparently, and citizens’ access to information and right to participation, including in environmental matters.
Examples
“The UNCITRAL Transparency Rules, as modified by this Chapter, shall apply in connection with proceedings under this Section.” (CETA, Article 8.36, para. 1)
Note that these provisions can be incorporated so that they apply to all ISDS proceedings, even if conducted under rules other than UNCITRAL (e.g., ICSID).
How Commonly Used
Option 2:Include explicit provisions on a possible appellate mechanism, or intent to negotiate an appellate mechanism
An appellate mechanism could improve predictability and accountability, consistency, and coherence in investor–state jurisprudence.
Examples
“A permanent Appeal Tribunal is hereby established to hear appeals from the awards issued by the Tribunal …” (EU-Vietnam FTA, Chapter 8, Section 3, article 13)
How Commonly Used
Examples
“If a separate, multilateral agreement enters into force between the Parties that establishes an appellate body for purposes of reviewing awards rendered by tribunals constituted pursuant to international trade or investment arrangements to hear investment disputes, the Parties shall strive to reach an agreement that would have such appellate body review awards rendered under [Dispute Settlement Provisions] in arbitrations commenced after the multilateral agreement enters into force between the Parties.” (Peru-US FTA, Article 10.20.10)
(Note: a stronger approach would be to delete “strive to”)
How Commonly Used
Option 3:Strengthen State–State processes in relation to ISDS, particularly in sensitive or technical policy areas
Allows the parties, rather than arbitrators, to decide whether certain measures meet the test of the exceptions they intended to create.
Examples
“Where an investor submits a claim to arbitration under this Article, and the disputing Contracting Party invokes (the general exception related to prudential measures), the investor-State tribunal … may not decide whether and to what extent (the general exception related to prudential measures) is a valid defence to the claim of the investor. It shall seek a report in writing from the Contracting Parties on this issue. The investor-State tribunal may not proceed pending receipt of such a report or of a decision of a State-State arbitral tribunal, should such a State-State arbitral tribunal be established.” (Canada-China BIT, Article 20.2(a))
How Commonly Used
Examples
“Where a respondent asserts as a defence that the measure alleged to be a breach is within the scope of an entry set out in … its Schedule of Non-Conforming Measures in Annex [X], the tribunal shall, on request of the respondent, request the interpretation of the Parties on the issue. The Parties shall submit in writing any joint decision declaring their interpretation to the tribunal within 90 days of delivery of the tribunal’s request.
A joint decision issued under paragraph 1 [above] by the Parties, acting through the Committee on Investment, shall be binding on the tribunal, and any decision or award issued by the tribunal must be consistent with that joint decision. If the Parties fail to issue such a decision within 90 days, the tribunal shall decide the issue. In such a case, the tribunal shall draw no inference from the fact that the Parties fail to issue such a decision.
A joint decision issued under paragraph 1 [above] by the Parties shall also be binding on the tribunal of any dispute subsequent to the date of the joint decision to the extent applicable and not modified by another joint decision issued pursuant to paragraph 1 subsequent to the first said joint decision.” (Australia – China FTA, Article 9.19)
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Examples
“The Commission [joint high-level public body established in previous paragraph] may:
- adopt interpretive decisions concerning this Agreement, which shall be binding on dispute settlement panels established under Article [X] (Establishment of a Panel) and on Tribunals established under Section [X] of Chapter [X] (Investor-State Dispute Settlement). … ” (Canada – Korea FTA, Article 20.1(3))
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Option 4:Give the host state the right to initiate a counterclaim against the investor
This would allow host states to address investors’ noncompliance with domestic law or with the treaty.
Examples
“When the claimant submits a claim pursuant to [Investment chapter provisions], the respondent may make a counterclaim in connection with the factual and legal basis of the claim or rely on a claim for the purpose of a set off against the claimant.” (TPP Article 9.18(2))
How Commonly Used
Examples
“A Host State may initiate a counterclaim against the Investor before any tribunal established pursuant to this Agreement for damages or other relief resulting from an alleged breach of the Agreement.” (SADC Model BIT, Article 10.2)
How Commonly Used
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For reference to the establishment of an appeals mechanism, see CETA [Article 8.28]; Peru–United States Trade Promotion Agreement [Article 10.20.10]; and the EU–Singapore Free Trade Agreement [Article 9.30(1)(c)].