INVESTOR-STATE ARBITRATION AND LOCAL COMMUNITY RIGHTS Abba Kolo CEPMLP, University of Dundee

WHY INCREASE IN INVESTOR-STATE ARBITRATION? - Increase BITs and Judicialisation of Investor-State Dispute Settlement (over 250 cases by end 2006). Is this an expression of rule of law and/or evidence that BITs work towards creating a favourable investment climate? -Shift in conflict from violation of traditional international law issues (e.g. nationalisation) to more subtle government conduct mostly arising from change in policy by host government e.g. (i) passing of environmental regulation that has adverse financial impact upon foreign investors (e.g. Methanex v. U.S.; S.D. Myers v. Canada; Glamis v. U.S.) (ii) Change in interpretation of tax law that adversely affect foreign investors (e.g. Occidental v. Ecuador; Feldman v. Mexico, Yukos v. Russia) (iii) Alleged breach of concession or commercial contract by host government (Autopista v. Venezuela; Biwater v. Tanzania; SGS v. Pakistan)

Concerns over Investor-State Arbitration Costs to governments and investors (e.g. France Telecom v. Lebanon – US$266m, CMS v. Argentina – US$133.2m, CME v. Czech Rep. - £350m compensation to claimants, Methanex v. U.S. – US$3.9m, Thunderbird v. Mexico – US$1.5m costs against the claimants) “Chilling” effect on beneficial regulation – e.g. Ethyl v. Canada (ban on importation and inter-provincial transportation of MMT was lifted following legal challenge); Elena v. Costa Rica (compensation paid for rescission of contract to build resort to protect threatened species – “where property is expropriated even for environmental purposes … a state’s obligation to pay compensation remains”); SPP v. Egypt - Clarification of certain substantive investment protection provisions (e.g. Fair and Equitable Treatment – FET & Regulatory Expropriation) in some BITs

Concerns over Investor-state Arbitration (cont’d) Confidential proceedings undermine legitimate policies favouring opennes - Tribunals have allowed amicus participation (e.g. Methanex, UPS v. Canada) - Provisions on Transparency, e.g. Art Chile-U.S. FTA requires certain legal documents be made public and open hearings, authorise Tribunal to consider amicus curiae submissions from any source - New ICSID Rules and Regulations authorised tribunals to consider and accept amicus submissions and to allow third parties to attend hearings without need to obtain consent of the parties. Art. 48 new ICSID Rules requires mandatory publication of legal excerpts - Art. 15 UNCITRAL authorised Tribunal to accept amicus submissions (Methanex; UPS), but Arts. 25 & 32 require consent of parties to open hearings and to publish awards - (Might increase burden on parties, circumscribe their discretion in reaching amicable settlement, credibility of the process – Biwater v. Tanzania)

Concerns over Investor-state Arbitration (cont’d) Lack of accountability of arbitrators Multiplicity of Proceedings and Inconsistency of awards (e.g. CME v. Czech Rep., Lauder v. Czech Rep.; SGS v. Pakistan, SGS v. Philippines) - use of roster to select and appoint arbitrators and possible use of appellate body to ensure consistency of similar cases - Consolidation of similar fact cases (e.g. Canfor Corp. v. U.S; Terminal Forest Products Ltd v. U.S.; Tembec Inc. et al v. U.S)

Other Improvement Measures Use more pre-arbitration means of Dispute Settlement and increasing the thresholds applied with regard to initiating an arbitral proceedings (e.g. greater recourse to conciliation and mediation or extended “cooling-off” period) Excluding certain substantive matters from investor-state dispute settlement (e.g. tax & national security issues) Enhancing capacity of domestic dispute settlement institutions to become more transparent, reliable and objective Multi-stakeholder dialogue and stakeholder monitoring committees - help identify local community concerns regarding investment projects thereby contribute in preventing disputes