Second Annual Forum of Developing Country Investment Negotiators 2-4 November 2008 Marrakech Investor-State Arbitration Khalil Hamdani South Centre Background source: World Investment Report 2008

2 Investor-State arbitration cases rise with the increase in IIAs More agreements… 2,608 BITs in 2007 among 179 countries … more cases 288 disputes 73 countries of which 45 are developing

3 Investor-State arbitration → → 90% initiated by developed country TNCs. → 78% allege violation of BITs provisions. → 62% at ICSID and 28% in UNCITRAL. → 39% in services sector. 31% manufacturing; 24% primary. → 46% settled, of with: 34% for State; 32% for investor; and 34% amicable. → proceedings clarify BITs provisions, provide guidance in treaty formulation.

4Issues  International arbitration lacks accountability and transparency of juridical systems.  Available only to foreign investors, putting domestic investors at disadvantage.  International arbitration may rule on public policy issues, and infringe on national policy space and right to regulate.  Balancing “investment protection” and “the public interest”.

5Issues  Arbitration awards can involve huge sums, ranging from $50 million to $200+ million.  Potential impact on coutry’s reputation as investment location.  High costs involved in conducting procedures, ranging from $500,000 to $1,000,000 per case.  Complexity may overwhelm technical capability of developing countries to handle investment disputes that they face.

6 Arbitration avoidance Retreat or…  Renegotiate BITs, replace broad provisions with specific provisions and exceptions.  Strengthen traditional dispute resolution methods, like mediation and conciliation.  Negotiate international treaties, like climate change.

New features Improve procedures, simplify, clarify: Greater predictability, control, efficiency Greater predictability, control, efficiency Avoid frivolous claims, choose one forum Avoid frivolous claims, choose one forum Consistent awards Consistent awards Clarify substantive issues Clarify substantive issues Promote transparency Promote transparency 7

IIA website For more information go to the U.N. International Investment Arrangements website: 8