UNASUR Arbitration Centre: The Present Situation and the Principal Characteristics of Ecuador’s Proposal

Five years ago, some Latin American countries started a critical movement against the International Centre for Settlement of Investment Disputes (ICSID), the World Bank institution for arbitrating disputes between foreign investors and host states. They perceived that ICSID arbitration proceedings had become problematic due to a lack of transparency and a failure to address the broader needs of society. Concerns also related to the lack of precedent, which has led to inconsistent decisions among tribunals on central questions of international investment law. Thus, in an effort to limit and/or exclude the jurisdiction of ICSID1,  a group of Latin American countries led by Ecuador have called for an alternate arbitration centre under the rubric of the Union of South American Nations (UNASUR)

UNASUR, whose constitutive treaty entered into force on 11 March 2011, is the first regional organization to comprise most South American countries. Brazil, which ratified the UNASUR treaty in July 2011,2 is the most successful country in Latin America at attracting flows of FDI. Notably, Brazil is not a signatory to the ICSID Convention nor has it ratified any bilateral investment treaties. Thus, the inclusion of Brazil into UNASUR and the political willingness of all the UNASUR member countries to create a regional arbitration centre within UNASUR represent an important development in the international arbitration law.

To understand the wariness that some Latin American countries have taken towards ICSID, and the drive to establish a regional alternative, it is relevant to consider that 9 of the 12 UNASUR countries faced 111 cases before ICSID, which represent 31% of the total ICSID caseload.

The following article presents the state-of-play of UNASUR, and outlines the most salient features of Ecuador’s proposal to constitute a UNASUR arbitration centre.

The present situation of UNASUR and the proposal to constitute its arbitration centre

On 23 May 2008, the Constitutive Treaty of UNASUR” 4 was signed by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela. This furthered the goal of greater economic integration in South America.

In June 2009, at the Thirty-ninth Session of the General Assembly of the Organization of American States, Ecuador’s Foreign Minister, Fander Falconí, proposed that UNASUR create an arbitration centre as an alternative to ICSID.6 In December 2010 in Guyana, the foreign ministers of the UNASUR member countries unanimously decided that Ecuador should chair the working group of the proposed arbitration centre’s dispute settlement system. At the same meeting, Ecuador submitted a proposal for a set of rules for the centre. The UNASUR Commission of the Dispute Settlement System is currently fine-tuning the proposal, before it is be submitted to the UNASUR member countries for their consideration. 9

The most important features of Ecuador´s proposal

The Ecuadorian proposal for a UNASUR system of dispute resolution is contained in three documents: 1. A set of proposed rules for an arbitration centre; 2. A code of conduct for UNASUR arbitrators and mediators and; 3. A proposed counselling centre for settling investment disputes. In this article only the operating rules of UNASUR arbitration centre are explained.

The proposed rules allow for state-to-state and investor-state dispute settlement when provided for in a contractual provisions or an international instrument. The jurisdiction of the centre precludes disputes concerning health, taxation, and energy, among others, unless expressly stated otherwise in the relevant treaty or contract. Moreover, in no circumstances shall an arbitral tribunal have jurisdiction to resolve disputes concerning the legitimacy of the internal laws (nor their economic effects) of the UNASUR member countries.[1] Although the jurisdiction of the proposed UNASUR arbitration centre is not only confined to investment disputes, the stipulation mentioned above considerably reduces some matters that are connected with investment and commerce. Furthermore, member countries can demand, as a precondition to arbitration, the exhaustion of domestic judicial and administrative remedies. This precondition might force the injured party to wait years to access UNASUR arbitration. Thus, it would be necessary to state a reasonable limit of time for the conclusion of the domestic proceedings to give certainty and security to the disputing parties.

Ecuador’s proposed rules have a number of interesting characteristics, such as:

  1. The parties must endeavour to resolve any dispute by consultations (with a maximum duration of 6 months from the date of filing the request, unless the parties agree to continue with them) and/or meditation prior to arbitration (without specific limit of duration).
  2. The process of electing and challenging arbitrators responds to the criticisms made against ICSID in these areas. Under ICSID rules, the President of the World Bank is in charge of appointing an arbitrator should a party fail to elect its own, and to designate the presiding arbitrator if there is no agreement by the parties.This rule has been criticized by some Latin American countries on the grounds that it compromises the impartiality of the proceedings and could generate conflicts of interests. By contrast, in the UNASUR proceedings, the UNASUR Directorate General shall designate the arbitrators by sortition, in a situation where a party does not select its own, or the parties do not agree on a presiding arbitrator. With regards to a challenge to an arbitrator, ICSID provides that an arbitrator shall disclose any interest, relation or issue that may affect his or her independence in the proceedings. The proposed UNASUR arbitration rules go a step further by adding an examination of the likelihood of an arbitrator having a state of mind or prejudgment that favours one side in the dispute.
  3. In order to avoid inconsistent decisions and awards, the arbitral tribunal shall consolidate two or more proceedings in which a common question of fact or law on the same measure or decision is discussed. Moreover, the proposed rules establish an appeal mechanism to permit the revision of questions of law with a system of precedent by an appellate tribunal. This is intended to provide consistent and coherent jurisprudence, creating predictability for investors and states, which is currently missing from ICSID proceedings.
  4. In relation to transparency, the rules state that all arbitration proceedings should be made public (this includes documents, records, evidence, hearings and awards) except for those relating to defense and security of states and in special cases which the parties may determine by mutual agreement. This proposed regulation is consistent with the NAFTA arbitration rules.
  5. The proposed rules specify that the only basis for denying recognition and enforcement of the award would be when, in accordance with the host state’s constitution or its laws, the subject of the dispute is not arbitrable or it is contrary to public policy. This rule is similar to the 1958 New York Convention and most other international arbitration rules. It differs, however, from the ICSID rules, where States are prevented from invoking public policy against the enforcement of the ICSID award (Article 53 of ICSID Convention). Although this is a typical feature that distinguishes ICSID arbitration from other arbitration centres, it should be noted that this does not mean that investors can obtain enforcement of the award automatically under the ICSID system, as there is an obstacle reserved in the immunity rules. Under Article 55 of the ICSID Convention, after an investor obtains an award against a state, the investor must initiate a formal process of enforcement which is dependent on the domestic legislation of the country where the enforcement takes place.
  6. The UNASUR arbitration centre will have different stages of implementation. Initially it will be reserved for countries that are part of UNASUR. A second stage will open the centre’s services to Central America and Caribbean countries, and in the final stage it will be open to any country wishing to use it. This gradual process of implementation will facilitate a steady development of the centre.

It is important to note that Ecuador’s proposal improves the transparency and consistency of decisions by the establishment of an appeal mechanism with a system of precedent. It addresses most of the concerns raised over ICSID by Latin American countries. It is also notable for the influence of the WTO’s dispute settlement system regarding the consultation stage, appellate tribunal and award compliance.

Chance of success

As Martín Doe Rodríguez, Counsellor of the Permanent Court of Arbitration at The Hague, mentions, Ecuador´s proposal has every chance of success because there is a common political will to establish an arbitration centre by UNASUR member countries.10

However, ensuring in practice the independence and impartiality of the arbitrators as well as their high academic and professional qualifications will be essential to the success of the proposed centre. Moreover it will be important to relax the limitations on the arbitration centre’s scope of jurisdiction and state a reasonable limit of time for the requirement to exhaust domestic judicial remedies

Author__________________________________

Silvia Karina Fiezzoni, has a Ph.D in International Law from Dalian Maritime University. She is a professor of postgraduate studies at Buenos Aires University, School of Law in Argentina and a visiting professor of the National Institute of High Studies (IAEN) in Ecuador. This article draws from a longer paper entitled “The Challenge of UNASUR Member Countries to Replace ICSID Arbitration”, published in the Beijing Law Review, 2011, 2, 134-144.

Notes

1. Marry H. Mourra, Concluding Note, In: M. H. Mourra, Ed., Latin American Investment Treaty Arbitration. The Controversies and Conflicts, Kluwer Law International BV, 1st Edition, The Netherlands, 2008, p. 196.

2. Ministério das Relações Exteriores, Brasil ratificó creación de UNASUR, 16 July 2011.

http://www.itamaraty.gov.br/sala-de-imprensa/selecao-diaria-de-noticias/midia-internacional/italia/agencia-ansa/2011/07/16/brasil-ratifico-creacion-de-unasur

4. UNASUR, Tratado Constitutivo de la Unión de las Naciones Suramericanas. http://www.pptunasur.com/downloads/tratado-constitutivo-UNASUR.pdf

5. ICSID Lawyers, Union of South American Nation – UNASUR. .http://www.icsidlawyers.com/UNASURArbitration

6. Katia F. Gómez, Latin America and ICSID: David versus Goliath?, Research Paper, University of Zaragoza, Zaragoza, 2010, pp. 40-41.

http://aragosaurus.academia.edu/katiafachgomez/Papers/858321/Latin_America_and_ICSID_David_versus_Goliath

7.  El ciudadano.gov.ec., Sistema de Solución de Controversias inicia su proceso, 3 December 2011. http://www.elciudadano.gov.ec/index.php?option=com_content&view=article&id=19256:sistema-de-solucion-de-controversias-inicia-su-proceso&catid=1:actualidad&Itemid=42

8.  El Universo, Ecuador nombra representante para negociar centro de arbitraje de UNASUR, 17 January 2011.http://www.eluniverso.com/2011/01/17/1/1355/ecuador-nombra-representante-negociar-centro-arbitraje-unasur.html

9. Noticiero Legal, Comision de UNASUR Centro de Arbitraje Regional, 20 June 2011.

http://www.noticierolegal.com/index.php?option=com_content&view=article&id=8180:comision-de-unasur-alista-centro-de-arbitraje-regional&catid=35:unasur&Itemid=38

10.  Andina, Expertos aseguran que corte de arbitraje desde la UNASUR es viable, 6 October 2011. http://www.andina.com.pe/Espanol/noticia-expertos-aseguran-corte-arbitraje-desde-unasur-es-viable-380915.aspx

 

 


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