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What Does the Future Look Like for International Investment Treaties?

28th June 2017

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The investor-state arbitration landscape is shifting under our feet. The utility and legitimacy of traditional investor-state arbitration have come under fire, but states have not converged on a viable alternative. In simplified terms, three main camps are developing, which I call the “loyalist,” “reformist,” and “revolutionary” camps. The vast majority of states, however, are yet to take a public position on whether and, if so, how to reform investor-state dispute settlement. These “undecided” states are not a homogenous group, nor are they necessarily passive. Many states within this group are actively watching these developments and debating the various reform proposals.

One of the big strategic questions for the investment treaty system in the next few years will be whether the loyalists, reformists or revolutionaries will be able to attract a critical number of the undecideds to their cause in order to create a reasonable measure of convergence on a particular approach. The alternative is that the undecideds will split among the existing camps and/or develop their own distinct or hybrid positions. Another question is whether any members of the existing camps will shift their alliances. It is unclear how this will ultimately play out. What is clear, however, is that the tide appears to be turning against the traditional model of investor-state arbitration as it has few – if any – real supporters among states.

Evolution, Change and Shifting Alliances The investment treaty system is a dynamic field and the question of institutional reform is going to be a key concern in coming years. There are a number of important negotiations to watch, including the potential re-enlivening of the Trans-Pacific Partnership (which adopts a loyalist approach) and the Regional Comprehensive Economic Agreement (which is yet to publicly announce an approach). Various developments in South America are also lending support to the revolutionary approach, including in Ecuador and with the Mercosur states.

Hovering above all of this analysis is the question of what will happen with the United States. The United States has been a loyalist of the system, partly because it has benefited greatly from the bilateral approach. Its investors have been able to push for strong, investor-friendly interpretations of investment agreements against a variety of other states. At the same time, the United States has been able to successfully defend every case brought against it and has pushed to develop a relatively more sovereignty-protective approach under NAFTA, which is the treaty under which it has generally been sued. Yet what the US position (or positions) will be under President Trump remains anyone’s guess.

The preferences of some states may also depend on the actions of other states. For instance, the loyalists may prefer to stick with investor-state arbitration, but if these states see a large number of states being at risk of defecting to the revolutionary camp, they are more likely to embrace modest reform proposals to keep these potential defectors within the tent. If so, we might see intermediate positions develop between the more minimalist reforms of the loyalists and the more maximalist reforms of the EU and Canada. Options would include: having states play a role in selecting initial panels of arbitrators from which the disputing parties could select; and developing an appellate mechanism without an investment court. The same could happen between the poles of reform and revolution with, for instance, the introduction of exhaustion of local remedies coupled with an investment court or appellate body.

What is unlikely to happen, however, is that many (or any) states will shift their position from being loyalist, reformist or revolutionary back toward embracing the traditional model of investor-state arbitration. Change is coming; it is just a question of what change will occur and when and how it will transpire. In this regard, it is noteworthy that reform of investor-state dispute settlement is on UNCITRAL’s agenda as a possible future work stream, to be considered at the Vienna session in July 2017. Perhaps states will be able to agree on the need to discuss such reforms in a multilateral forum, even if they remain unable to agree (at least for now) on what reform or reforms might need to be adopted.

You can read the article in full here on the blog of the European Journal of International Law, EJIL: Talk!

Updated:  10 August 2017/Responsible Officer:  Director, RegNet/Page Contact:  Director, RegNet