University of Warwick – GLOBE Seminar – 24 October 2017 Prof. Dr. Stephan W. Schill The Future of the Investment Treaty Regime: Legitimacy Challenges and Options for Reform University of Warwick – GLOBE Seminar – 24 October 2017

Overview The Investment Treaty Regime as a Mechanism of Global Governance The Legitimacy Crisis: A Constitutional Law Challenge Investment Law Reform: Normative Framework and Policy Options Outlook and Discussion Future of the Investment Treaty Regime

FDI Flows (Global)

FDI Stock (Chile) Source: UNCTAD, Country Fact Sheet 2015 Future of the Investment Treaty Regime

FDI Stock (Netherlands) Source: UNCTAD, Country Fact Sheet 2015 Future of the Investment Treaty Regime

The Commitment Problem

Resolving the Commitment Problem Objectives Stable Legal Framework Neutral Dispute Settlement Possible Instruments Investor-State Contracts Domestic Law Investment Insurance International Law Future of the Investment Treaty Regime

Bilateral Investment Treaties

Pre-Establishment IIAs Future of the Investment Treaty Regime

Content and Structure of BITs/IIAs Preamble Object and Purpose, Parties’ Intentions Definitions Investor, Investment Substantive Standards Admission, Expropriation, FET, FPS, MFN, National Treatment, Umbrella Clause, Capital Transfer Dispute Settlement State-to-State, Investor-State Future of the Investment Treaty Regime

Investment Treaty Arbitrations

Respondents Claimants

Remedies and Enforcement Art. 53(1) ICSID Convention “The award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention.” Art. 54(1) ICSID Convention “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court of that State.” Future of the Investment Treaty Regime

ICSID Membership © 2014 by ICSID Future of the Investment Treaty Regime

Arbitrators Sergio Puig, Social Capital in the Arbitration Market (2014) 25 EJIL 387, 412 Future of the Investment Treaty Regime

Outcome of Cases Future of the Investment Treaty Regime

Administrative Law Disputes Germany                Future of the Investment Treaty Regime

Constitutional Law Disputes Germany                Future of the Investment Treaty Regime

Tribunals as Law-Makers “Each Contracting State shall … accord investments by investors of the other Contracting State fair and equitable treatment … under this Treaty. German Model BIT (2009), Art. 2(2) “Taken together, the S.D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety – as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process.” Waste Management v. Mexico, Award, 30 April 2004 Future of the Investment Treaty Regime

Crisis of Legitimacy

Crisis of Legitimacy Future of the Investment Treaty Regime

Challenges Limitation to Foreigners Inconsistent Decisions Arbitral Procedure Legitimation and Control of Arbitrators Policy Space Challenges “Privatization” of Justice

Shift in Ordering Paradigm Constitution Legislation Case Law Future of the Investment Treaty Regime

Involvement of Constitutional Courts Future of the Investment Treaty Regime

UNCTAD’s Road Map for IIA Reform

The Spaghetti Bowl of IIAs Laura Paez, ‘Bilateral Investment Treaties and Regional Investment Regulation in Africa’ (2017) 18 JWIT 379, 385

Regional Integration in Africa Laura Paez, ‘Bilateral Investment Treaties and Regional Investment Regulation in Africa’ (2017) 18 JWIT 379, 390

Main Actors in Investment Law Reform

Normative Framework for Reform Comparative Constitutional Law Rule of Law, Democracy, Human Rights Art 21 TEU International Constitutional Law UN Constitutional Law: Art 55 UN Charter With a view to the creation of conditions of stability and well-being which are necessary for peaceful and friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, the United Nations shall promote: a. higher standards of living, full employment, and conditions of economic and social progress and development; b. solutions of international economic, social, health, and related problems; and international cultural and educational cooperation; and c. universal respect for, and observance of, human rights and fundamental freedoms …. Sustainable Development Future of the Investment Treaty Regime

Concrete Options for Reform Disengaging from the Investment Treaty Regime Reforming Substantive Law: The Role of Policy Space Reforming Dispute Settlement: Arbitration v. Further Institutionalization Lots of Unfinished Business… Future of the Investment Treaty Regime

Disengaging from the Investment Treaty Regime Strengthening Domestic Democracy and the Rule of Law Cosmopolitan Democracy and Access to International Justice? Effective Reform Approach? Smart Integration of Domestic and International Recourses Future of the Investment Treaty Regime

Reforming Substantive Law Ensuring Policy Space (right to regulate) Decreasing Ambiguities Enhancing Responsible Investment Carve-Outs, Exceptions, Special Regimes Recalibrated Standards of Treatment Future of the Investment Treaty Regime

Reforming Dispute Settlement Reforming Procedure (transparency, third-party participation, decreasing costs) Ensuring Independence (conflicts of interests) Arbitration, Appellate Mechanism, Permanent Court Legislative Counterweight (treaty organs) Future of the Investment Treaty Regime

Unfinished Business Investor Obligations Compliance Mechanisms for Affected Third Parties Domestic Investors Dispute Prevention Non-Adversarial Dispute Resolution Financial Assistance (SMEs and LDCs) Future of the Investment Treaty Regime

Who Will Lead?