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       *Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 147   May 11, 2015
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Adrian P. Torres ([log in to unmask])
       *An appellate body for international investment disputes: How
appealing is it?*
Joachim Karl* <#14d43d6605b72f1a__edn1>

The debate about a reform of the international investment agreement (IIA)
regime is gaining momentum.[1] <#14d43d6605b72f1a__edn2> One suggestion
currently being discussed is the establishment of an appellate body for
investor-state dispute settlement (ISDS) cases, as a means to review first
instance awards, thereby enhancing the coherence and predictability of
jurisprudence and contributing to legal security.[2]
<#14d43d6605b72f1a__edn3> However, more discussion is needed on how such a
body could be set up, and to what extent it could achieve its purpose.

One option is to establish a standing appellate body as exists for trade
disputes under World Trade Organization (WTO) rules.[3]
<#14d43d6605b72f1a__edn4> The second is an ad hoc appellate body, following
the example of the International Centre for Settlement of Investment
Dispute (ICSID) regarding the annulment of arbitral awards. Either type of
appellate body would not only have the right to annul awards, but also to
amend them.

The first option implies the establishment of a new multilateral
institution or the opening up of the WTO dispute-settlement system to ISDS;
both ideas lack political support and are therefore unrealistic; however, a
permanent court could be an option at the bilateral or regional level.

The second option means that an appellate body would convene only as need
arises in relation to a specific dispute. Contrary to a standing appellate
body, members of an ad hoc appellate body would vary from case-to-case.[4]
<#14d43d6605b72f1a__edn5> While a hierarchical structure would be missing,
the supremacy of the appellate body could be secured through other means.[5]

Such a body could be set up multilaterally, e.g., by an amendment to the
existing ICSID Convention[6] <#14d43d6605b72f1a__edn7> or the UNCITRAL
Arbitration Rules, as suggested in a recent *Perspective*,[7]
<#14d43d6605b72f1a__edn8> or in bilateral or regional investment
agreements. While amending existing multilateral conventions would be
extremely difficult, the second alternative would be easier to realize,
especially with regard to future IIAs.

Matters look different with regard to the more than 3,200 existing IIAs. At
the all-time peak of IIA-making in the mid-1990s, approximately 200
treaties were negotiated per year. At that rate, it would take at least 16
years to incorporate an appellate body into all these treaties, but this
may still be an optimistic scenario given the high complexity of today's
IIA negotiations. In the end, an amendment to the ICSID Convention or the
UNCITRAL Arbitration Rules - if successful - may be more efficient. Without
embarking on one of these two reform paths, the introduction of an
appellate body in new IIAs would remain piecemeal.

Certainly, a serious shortcoming of an ad hoc appellate body - independent
of whether it is based on a bilateral, regional or multilateral treaty - is
its limited ability to promote coherence in treaty interpretation.[8]
<#14d43d6605b72f1a__edn9> Since none of these tribunals would have
supremacy over the others, there would be a considerable risk that
different ad hoc appellate bodies would decide the same legal issue
differently, thus perpetuating a common drawback in current arbitration
practice. This risk would exist both with regard to a consistent
interpretation of one and the same IIA, and in respect of similar IIA
provisions deriving from different treaties.

In conclusion, it appears that inclusion into future IIAs would be the
fastest way toward an appellate body in ISDS.[9] <#14d43d6605b72f1a__edn10>
An ad hoc tribunal could review decisions of the first instance and thereby
address a major concern of critics of the existing arbitration system.
However, for promoting the equally important objective of coherence and
predictability in international arbitration practice, it would need a
permanent appellate body with broad jurisdiction over the existing IIA

* <#14d43d6605b72f1a__ednref1> Joachim Karl ([log in to unmask]) is
Chief of the Policy Research Section in UNCTAD’s Division on Investment and
Enterprise, Geneva. The author is grateful to Ucheora Onwuamaegbu, Antonio
Parra and August Reinisch for their helpful peer reviews. *The views
expressed by the author of this Perspective are his personal opinion and 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] <#14d43d6605b72f1a__ednref2> UNCTAD, *World Investment Report 2014
UNCTAD, 2014), p. 126.
[2] <#14d43d6605b72f1a__ednref3> *See*, e.g., Christoph Schreuer, “Revising
the system of review for investment awards”, available at
*see also* Karl P. Sauvant, ed., *Appeals Mechanism in International
Investment Disputes* (Oxford: OUP, 2008).
[3] <#14d43d6605b72f1a__ednref4> The WTO Appellate Body can uphold, modify
or reverse the legal findings and conclusions of a panel; Appellate Body
Reports, once adopted by the Dispute Settlement Body, must be accepted by
the parties to a dispute.
[4] <#14d43d6605b72f1a__ednref5> However, the establishment of a roster of
arbitrators can reduce the number of potential arbitrators.
[5] <#14d43d6605b72f1a__ednref6> Such as a higher number of arbitrators
compared to the first instance or particularly stringent qualification
[6] <#14d43d6605b72f1a__ednref7> *See *ICSID, “Possible improvement of the
framework for ICSID arbitration”, Discussion Paper, Oct. 22, 2004,
available at
[7] <#14d43d6605b72f1a__ednref8> Anna Joubin-Bret, “Why we need a global
appellate mechanism for international investment law”, *Columbia FDI
Perspectives*, No. 146, April 27, 2015.
[8] <#14d43d6605b72f1a__ednref9> Irene M. Ten, “International arbitration
and the ends of appellate review”, *NYU Journal of International Law and
Politics*, vol. 44 (2012), pp. 1109-1204.
[9] <#14d43d6605b72f1a__ednref10> Alternatively, it has been suggested to
provide for preliminary rulings in pending investment arbitration cases. *See,
e.g.* Christoph Schreuer, “Preliminary rulings in investment
arbitration”, *Transnational
Dispute Management Journal*, vol. 3 (2008).
       *The material in this Perspective may be reprinted if accompanied by
the following acknowledgment: “Joachim Karl, ‘An appellate body for
international investment disputes: How appealing is it?,’ Columbia FDI
Perspectives, No. 147, May 11, 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. 146, Anna Joubin-Bret, “Why we need a global appellate mechanism
   for international investment law,” April 27, 2015.
   - No. 145, Charles-Emmanuel Côté, “Toward arbitration between
   subnational units and foreign investors?,” April 13, 2015.
   - No. 144, Herfried Wöss, “Legitimacy in WTO law and investment
   arbitration: the role of the contracting parties,” March 30, 2015.

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

*Other relevant CCSI news and announcements*

   - *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
   - *In April*, CCSI Director Lisa Sachs and Head of Investment Law and
   Policy Lise Johnson published "Eyes Wide Shut on ISDS
   in The Hill's Congress Blog. The article raises concerns about the
   inclusion of "investor-state dispute settlement" (ISDS) provisions in the
   international trade treaties being promoted by the Obama Administration
   such as T-TIP and TPP. Sachs and Johnson argue that the recent Bilcon case,
   decided by a NAFTA tribunal, provides an important example of the threat
   that ISDS poses to the development and application of law in a domestic,
   democratic system.

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