View this email in your browser


     *Columbia FDI Perspectives*

Perspectives on topical foreign direct investment issues
No. 145   April 13, 2015
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Adrian P. Torres ([log in to unmask])

*Toward arbitration between subnational units and foreign investors?*
Charles-Emmanuel Côté* <#14cbaa7d2a1daecf__edn1>

The ICSID Convention has envisaged arbitration between subnational units
and foreign investors since its inception in 1966: Article 25(1) allows a
contracting state to designate its constituent subdivisions that may
consent to arbitration by the International Centre for Settlement of
Investment Disputes (ICSID) with a national of another contracting state.
Their consent is conditioned by Article 25(3), requiring the approval of
the contracting state on a case-by-case basis, unless this condition is
waived. Because subnational units have extensive regulatory powers that can
even be exclusive and constitutionally entrenched, as in the case of
federated entities, the potential for investment disputes is not

Australia is so far the only federal state to have designated all of its
federated entities to ICSID. The other designations were made by the United
Kingdom for the Isle of Man, the Channel Islands and the British Overseas
Territories, and more recently by Indonesia for the Government of the
Regency of East Kutai. None of these subnational units were ever party to
ICSID arbitration.

The recent ratification of the ICSID Convention by Canada could, however,
trigger the emergence of arbitration between subnational units and foreign
investors. Claims are increasingly being brought under NAFTA Chapter 11
against measures adopted by Canadian provinces. After the amicable
settlement in *AbitibiBowater Inc.* v. *Canada*,[1]
<#14cbaa7d2a1daecf__edn2> Prime Minister Stephen Harper voiced his
discontent over the federal government having to pay for unlawful
provincial measures. If designation of Australian states was
inconsequential, designation of Canadian provinces could bring
international investment law into unchartered territory. There are good
indications that Ottawa would be open to designate willing provinces, such
as Quebec.

A few cases did involve undesignated subnational units, but they never
proceeded to the merits. The sole conclusion to be drawn from them is that
a clear designation to ICSID is vital for the arbitral tribunal to have
jurisdiction. In *Cable Television of Nevis, Ltd. *v.* St. Kitts and Nevis*,
[2] <#14cbaa7d2a1daecf__edn3> the claimant unsuccessfully attempted to
bring a complaint against the Federation of St. Kitts and Nevis on the
basis of an ICSID clause in the investment contract it had concluded with
the Island of Nevis.

Therefore, most of the legal issues involved in arbitration between
subnational units and foreign investors remain unexplored. This new type of
dispute raises a complex nexus of consents to arbitration and legal
obligations. First, the general rules of customary international law should
remain fully applicable regarding the responsibility of the state for the
acts of its subnational units. Designation of subnational units should not
be construed as alleviating the international responsibility of the
contracting state. Nor should it alter the consent of the contracting state
to ICSID arbitration. Instead, it should be a means of adding new parties
to ICSID arbitration.

Contract-based claims against subnational measures could now be opened to
ICSID arbitration in cases where a contracting state cannot be held
responsible in the absence of any treaty violation.[3]
<#14cbaa7d2a1daecf__edn4> But designation also raises the question of
whether ICSID arbitration would be opened to treaty-based claims directly
against subnational units. Could the consent of subnational units to
arbitration be derived from the treaty and their designation to ICSID?
Could subnational units consent to treaty-based arbitration? Could separate
claims be brought against a subnational unit and the contracting state to
which it belongs? Could they be both party to the same arbitration? Similar
questions were recently addressed in the new European Union (EU) regulation
allocating procedural and financial responsibilities between the EU and
member states in investment arbitration.[4] <#14cbaa7d2a1daecf__edn5>

Beyond these legal intricacies, arbitration between subnational units and
foreign investors raises policy issues going to the heart of the
international investment regime. On the one hand, it could be seen as a
step too far in the fragmentation of international investment law.
Contracting states would lose control of the settlement of investment
disputes, and of the application of their treaties and customary
international law. On the other hand, it would seem to be consistent with
ICSID’s overarching goal of depoliticizing investment disputes. It would
put the foreign investor and the author of the impugned measure
face-to-face. Damages and arbitration costs could be borne, at least in
part, by the losing subnational unit. It would ensure greater
accountability for subnational units regarding their breach of
international law, which in turn could entail better implementation of
investment treaties.


* <#14cbaa7d2a1daecf__ednref1> Charles-Emmanuel Côté (
[log in to unmask]) is Vice Dean and Associate Professor at
the Faculty of Law of Université Laval, Quebec City, Canada. The author is
grateful to Jurgen Kurtz, August Reinisch and Anthony VanDuzer for their
helpful peer-review comments. *The views expressed by the author of this *
*Perspective** do not necessarily reflect the opinions of Columbia
University or its partners and supporters. **Columbia FDI Perspectives**
(ISSN 2158-3579) is a peer-reviewed series.*

[1] <#14cbaa7d2a1daecf__ednref2> Consent Award (NAFTA Chap. 11 Trib. 2010),

[2] <#14cbaa7d2a1daecf__ednref3> ICSID Case No. ARB/95/2, Award, ¶¶ 2.22-2.
33 (Jan. 13, 1997), 13 ICSID Rev. 328 (1998). *See also Province of East
Kalimantan* v. *PT Kaltim Prima Coal*, ICSID Case No. ARB/07/3, Award on
Jurisdiction, ¶¶ 191-202 (December 28, 2009).

[3] <#14cbaa7d2a1daecf__ednref4> *See Salini Costruttori SpA *v. *Morocco*,
ICSID Case No. ARB/00/4, Decision on Jurisdiction, ¶¶ 60-62 (July 23,
2001), 6 ICSID Rep. 400 (2004).

[4] <#14cbaa7d2a1daecf__ednref5> “Regulation (EU) No 912/2014 of the
European Parliament and of the Council of 23 July 2014 establishing a
framework for managing financial responsibility linked to investor-to-state
dispute settlement tribunals established by international agreements to
which the European Union is party”, *Official Journal of the European Union*,
L 257, August 28, 2014, p. 121, available at

*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Charles-Emmanuel Côté, ‘Toward arbitration
between subnational units and foreign investors?,’ Columbia FDI
Perspectives, No. 145, April 13, 2015. Reprinted with permission from the
Columbia Center on Sustainable Investment (
<>).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at [log in to unmask]
<[log in to unmask]>.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Adrian Torres, [log in to unmask] or [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 144, Herfried Wöss, “Legitimacy in WTO law and investment
   arbitration: the role of the contracting parties,” March 30, 2015.
   - No. 143, Alvaro Cuervo-Cazurra and Ravi Ramamurti, “The escape
   motivation of emerging market multinational enterprises,” March 16, 2015.
   - No. 142, Louis Brennan, “The challenges for Chinese FDI in Europe,”
   March 2, 2015.

*All previous **FDI Perspectives** are available at
<>**. *

*Other relevant CCSI news and announcements:*

   - *On April 15, 2015*, The Minister of Finance of Norway, Siv Jensen,
   will talk about the management of the Norwegian sovereign wealth fund, with
   an emphasis on sustainable and ethical investing policies. The talk, with
   an introduction by Dean Gillian Lester, is sponsored by CCSI along
with the The
   Tamer Social Enterprise Program
    at Columbia Business School
   the Center on Global Economic Governance
   the School of International and Public Affairs
   The talk, followed by a Q&A, will be held in room 1501, International
   Affairs Building (School of International and Public Affairs), from
   10-11:30am. *Registration is free, but required.* *To register, please
   go here
   For more information, please visit our website
   - *On April 20, 2015, *CCSI and the Center on Global Economic Governance
   will co-sponsor “The EU Growth Challenge and the Investment Plan for
   Debora Revoltella, Chief Economist of the European Investment Bank, will
   present the need for an investment plan for Europe, focusing on
   competitiveness enhancing investments. Her analysis will focus on research
   within the European Investment Bank and how this research inspired the
   development of the EU Investment Plan – the Juncker Plan. The talk will be
   held at Columbia Law School, Jerome Greene Hall, Room 107, from
6-7:30pm. *Registration
   is free, but required. To register, please go* *here
   For more information, please visit our website
   - *On April 21, 2015, CCSI will host “*EU External Investment Policy:
   Review of the First Five Years and Future Prospects for T-TIP and Beyond
   Colin Brown, from the Directorate General for Trade of the European
   Commission, will discuss the EU’s experiences thus far, and also provide
   insights as to what may lie ahead. The talk will take place at Columbia Law
   School, Jerome Greene Annex, from 6:30-8:00pm. *Registration is free,
   but required. To register, please go* *here
   For more information, please visit our website
   - *On July 13-17, 2015, *CCSI will host its first Executive Training on
   Investment Arbitration for Government Officials
   Columbia University. Through an intensive week-long course, government
   officials involved in managing investment treaty disputes or negotiating
   investment treaties will increase their knowledge of crucial procedural and
   substantive aspects of investment law. Sessions will be taught by leading
   academics and practitioners and will be tailored to uniquely address issues
   relevant to governments. *For more information about the program,
   please download the 2015 Executive Training Brochure here
   application here
   The application deadline to be considered for admission is April 15, 2015.*

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946

*Copyright © 2015 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
[log in to unmask]

*Our mailing address is:*

Columbia Center on Sustainable Investment (CCSI)

Columbia Law School - Earth Institute, Columbia University

435 West 116th Street

New York, NY 10027

Add us to your address book

unsubscribe from this list
update subscription preferences

[image: Email Marketing Powered by MailChimp]


Not spam
Forget previous vote

AIB-L is brought to you by the Academy of International Business.
For information:
To post message: [log in to unmask]
For assistance:  [log in to unmask]
AIB-L is a moderated list.