The EU Policy on Investment Dispute Settlement: The Investment Court System Adinda Sinnaeve – DG Trade, EU Commission

Overview Background and Context of the EU Policy Modernisation of ISDS The Investment Court System ('ICS') Towards a Multilateral Investment Court

I. Background and Context Investment (including dispute settlement) became an EU competence only with the Lisbon Treaty (Dec. 2009) Since then, the EU gradually developed its own investment policy (see 2010 ´Towards a Comprehensive European international investment policy´ http://trade.ec.europa.eu/doclib/docs/2011/may/tradoc_147884.pdf) EU MS had concluded a number of BITs with third countries Those BITs should be gradually replaced by EU agreements

I. Background and Context The broader ISDS controversy Started for the EU in the context of the TTIP negotiations Global criticism spread around some controversial cases (Philip Morris) EU response Public consultation 2014: almost 150 000 replies Concept Paper May 2015: setting out new approach both on substance and procedure New approach: first implemented in the EU proposal for TTIP end 2015 Since then standard EU policy for all negotiations (FTA or investment agreements): completed (CETA, Vietnam), ongoing (e.g. Indonesia, China, Japan) or upcoming (Australia, New Zealand)

Problems of the traditional regime of ISDS Traditional ISDS: only short reference to ad hoc tribunals or existing arbitration rules, confidential, parties chose arbitrators, large discretion, … Problems: Lack of transparency Lack of strict rules on arbitrators' ethics and conflicts of interest Multiple claims Abusive claims Lack of coherence and predictability No appeal mechanism Consequences of the problems: Growing criticism from the public on legitimacy Questioning of ISDS as such (need, cost-benefit, …)

Solutions: reformed ISDS/ICS (1) How to address those problems? EU proposed reforms to address weaknesses of ISDS: Full transparency: UNCITRAL Transparency rules (all docs published, hearings open, amicus curiae submissions) Prohibition of parallel cases before other courts/panels and through ISDS at the same time Ethics: Mandatory code of conduct for arbitrators Preventing "treaty-shopping": anti-circumvention provision (e.g. Philip Morris situations) Possibility for the Parties' to adopt binding interpretations

Solutions: reformed ISDS/ICS (2) Preventing abusive claims: Provisions for early dismissal of frivolous claims Claims based on an investment made through corruption are inadmissible 'loser pays' principle Relation with domestic courts: e.g. Prohibition of parallel claims ´No U-turn´: claimants can first go to domestic courts and then ISDS/ICS but no return to domestic courts Encouragement of alternative dispute settlement: mediation

Solutions: reformed ISDS/ICS (3) These improvements could be made within the framework of ISDS They were necessary but not sufficient Some fundamental problems could not be addressed within ISDS: independence and impartiality (legitimacy problem of ad hoc tribunals, perceived bias, built-in conflicts of interest, see e.g. increasing number of challenges to arbitrators) lack of consistency and predictability in interpretation A reform of arbitration itself, with institutional safeguards, was necessary to restore confidence in the system How? bring arbitration tribunals closer to a classical court: ICS

From a modernised ISDS to the ICS ICS is a hybrid system: elements of arbitration, but also of a court Main objectives of the ICS: Adjudicators: fully ensure independence and impartiality, as in a Court Awards: ensure consistency; ensure correctness through appeal mechanism How? Replace ad hoc arbitration panels by: a standing body independent judges, appointed by Contracting Parties subject to strict rules on ethics (e.g. judges cannot be ISDS counsel) and conflicts of interest Random allocation of cases Appeal mechanism

What is the difference? (1) Classical ISDS system Investment Court System Ad hoc system: Constituted ad hoc for each case Disputing parties select their arbitrators for each case Confidential proceedings and findings Permanent Court: Standing Tribunal/Appeal Tribunal Contracting Parties appoint judges Cases are allocated at random Full Transparency Arbitrators Chosen by the disputing parties No detailed qualification requirements, often lawyers Arbitrators' fees are negotiated, often confidential, paid by disputing parties Ethics: only general reference; control by other arbitrators Arbitrators can act as ISDS lawyers Judges Chosen by governments Expertise in public international law (ICJ), judges/academics,… Judges receive regular retainer fees paid by governments (can turn into salaries) Ethics: strengthened rules + binding Code of Conduct – control by Court Judges cannot be ISDS counsel or party-appointed experts Possibility to become full-time Court

What is the difference? (2) ISDS system Investment Court System No Appeal possibility No proper jurisprudence of cases Very limited possibility of annulment (severe procedural error or corruption) Annulment proceedings (if available) are very long (2y) Annulment costs borne by the disputing parties  can be as costly as original ISDS proceedings No possibility of remand Appeal possibility Appellate Tribunal to operate like WTO Appellate Body consistency Also possibility of appeal for error of law and manifest error in the appreciation of facts Strict time limits for appeal process (6m-max. 9 m) Appeal costs (Appeal Tribunal + Secretariat fees) are borne by the Contracting Parties Remand possible

Not a revolution but a reform A claim may be submitted under already established arbitration rules e.g. ICSID Convention, UNCITRAL Arbitration Rules An award will be enforced either under the ICSID Convention (a final award is an award under Article 53 ICSID) or under the New York Convention ('arbitral award' also includes those by permanent arbitral bodies, see Article 1(2) NY Convention)  the ICS is designed to fit into the current enforcement mechanisms

Longer term… The optimal solution in the longer term is a Multilateral Court that can be used for existing or future Treaties. Why? 1) Problems with ISDS and public criticism are global: e.g.: lack of legitimacy, risks of conflicts of interest; inconsistency; legal uncertainty and lack of predictability; no possibility to correct an award through appeal 2) Multilateral solution is more efficient: Instead of renegotiating more than 3000 treaties it is more efficient to agree on a multilateral framework that can apply to new and existing treaties This allows the creation of a body of consistent case-law at global level Efficiency gains will have an impact on the costs

Longer term… How? Transit provisions from ICS to Multilateral Investment Court are already foreseen in EU agreements (seamless transition) Idea is an opt-in system like for the Mauritius Convention on Transparency Allows application to new and existing agreements (no renegotiation) EU-Canada started initiative to explore the creation of a multilateral investment Court (e.g. Dec 2016 intergovernmental technical meeting at expert level in Geneva. Participation from almost 170 delegates from over 60 countries and 8 international organisations) Internal EU process: impact assessment (http://ec.europa.eu/smart- regulation/roadmaps/docs/2016_trade_024_court_on_investment_en.pdf)

Longer term… Open issues: Institutional set-up: stand-alone body or integrated in an existing organisation? (UN-UNCITRAL is considered; July 2017 meeting) Pros and cons? Features of the negotiating process? First instance and appeal? Appointment and selection of adjudicators? Qualification requirements for adjudicators? Mechanisms to ensure independence and neutrality? Mechanisms to ensure enforcement? Costs and cost allocation? (see e.g. WTO Appellate Body ca 7 million USD / year; International Tribunal for the Law of the Sea ca 10 million USD / year)