*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment**
 Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 645, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
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* Formerly the Vale Columbia Center on Sustainable international Investment.

“The negotiations of the United Nations Code of Conduct on
Transnational Corporations: Experience and lessons learned” and K. P.
Sauvant and F. Ortino, *Improving the International Investment Law and
Policy Regime: Options for the Future are* available at

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> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看:
>        *Columbia FDI Perspectives*
> Perspectives on topical foreign direct investment issues
> No. 149   June 8, 2015
> Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
> Managing Editor: Adrian P. Torres ([log in to unmask])
>        *When is investor-state dispute settlement appropriate to resolve
> investment disputes? An idea for a rule-of-law ratings mechanism*
> <>
> by
> John P. Gaffney*
> Differences exist within the international community regarding the
> appropriate means of resolving investment disputes, with stakeholders
> divided over whether such disputes should be resolved by national courts or
> investor-state dispute settlement (ISDS) (especially by developed countries
> in the context of the Transatlantic Trade and Investment Partnership). This
> *Perspective* considers whether there is a role for the creation of a
> rule-of-law ratings mechanism – involving the issuance of ratings by a
> designated agency on the degree of respect for the rule of law by domestic
> courts in a given country or region – in mediating this division, and
> resolving which dispute-settlement model should be preferred.
> The concept of sovereign rating offers a comparable framework for a
> rule-of-law ratings mechanism. Sovereign rating involves an opinion issued
> by a credit rating agency (e.g., Standard & Poor’s, Moody’s) on the
> creditworthiness of a country, and presented according to a ranking system.
> These ratings are not uncontroversial, of course, and international
> regulators are taking steps to reform them. Nonetheless, the sovereign
> ratings mechanism will remain part of the international economic
> superstructure.
> Why would a similar mechanism be desirable for rule-of-law issues? It is
> suggested that such a mechanism could help determine when it is appropriate
> to have investment disputes with a given state resolved by ISDS rather than
> the domestic courts of that state, where the rating indicates that there is
> a substantial risk that the rule of law would not be upheld in relation to
> such a dispute by the domestic courts of the host country.
> While credit rating agencies derive their authority solely from the
> confidence that lenders have in their ratings, a rule-of-law ratings
> mechanism would require agreement of all the parties to an international
> investment agreement (IIA). Future IIAs would therefore need to specify
> alternative investment-dispute mechanisms - comprising both domestic and
> international dispute-settlement mechanisms - and provide that the choice
> of appropriate mechanism would be determined according to the rule-of-law
> ratings system suggested in this *Perspective*.
> In addition to playing a central role in determining whether ISDS is
> appropriate to resolve investment disputes for a given state, the
> rule-of-law rating could also serve to incentivize the development of
> domestic legal systems to a standard whereby investors could be assured
> that investment disputes would be resolved in accordance with the rule of
> law. Stakeholders could hardly complain if investors are entitled to invoke
> ISDS in circumstances in which the host country’s domestic courts are
> unlikely to respect the rule of law in accordance with international
> ratings by an independent agency.
> Such a rating agency is not without precedent. The European Union (EU)
> Justice Scoreboard, for example, is an information tool published by the
> European Commission, which aims to assist the EU and member states to
> achieve more effective justice by providing objective, reliable and
> comparable data on the quality, independence and efficiency of justice
> systems in all member states.
> The foregoing proposal presupposes that ISDS meets a minimum threshold
> whereby investors and states alike can be assured that disputes will be
> settled in accordance with the rule of law. Undoubtedly, the ISDS system
> suffers from flaws. Hence, the development of a rule-of-law rating would
> have to proceed hand-in-hand with ongoing reforms of the ISDS.
> There would be a number of key issues to be considered in the
> establishment of such a mechanism, including:
> ·         How would the objective, consistent and reliable criteria on
> which to base the rule-of-law rating be defined?
> ·         How would the threshold level, beyond which ISDS would no longer
> be appropriate to resolve investment disputes, be determined?
> ·         How would a ratings mechanism be incorporated into existing or,
> more likely, future IIAs, to govern the choice of dispute-settlement
> mechanism?
> ·         Who would act as the relevant ratings agency? Would it be
> appropriate for a World Bank or United Nations agency to serve in such a
> capacity?
> ·         How would a rule-of-law rating interact with claims based on
> denial of justice by the domestic legal system of the host country?
> ·         What should happen in the case of profound political change
> (e.g., military coup, illegal invasion)? Should the rule-of-law rating be
> suspended for a defined preliminary period (so as to favor ISDS)?
> Whatever the answers to these questions might be, a rule-of-law ratings
> mechanism could help mediate the current controversy over whether
> investment treaty disputes should be resolved by national courts or ISDS.
> Developed countries, whose court systems satisfied the rule-of-law ratings
> mechanism, would avoid being subjected to arbitration. At the same time,
> their investors would be entitled to pursue ISDS in developing countries
> (that failed to satisfy the same criteria), which would be incentivized to
> develop their domestic courts in a manner that respects the rule of law.
> Finally, the process of formulating appropriate criteria for a rule-of-law
> ratings system could in itself make an enormous contribution to the rule of
> law.
> _________________________
> * John P. Gaffney is a Senior Associate at Al Tamimi & Company (United
> Arab Emirates). The author is grateful to Andrea Bjorklund, Alejandro M.
> Garro and O. Thomas Johnson for their helpful peer reviews. *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.*       *The
> material in this Perspective may be reprinted if accompanied by the
> following acknowledgment: “John P. Gaffney, ‘When is investor-state dispute
> settlement appropriate to resolve investment disputes? An idea for a
> rule-of-law ratings mechanism,’ **Columbia FDI Perspectives, No. 149,
> June 8, 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, Alex Weaver, [log in to unmask]
> *Most recent Columbia FDI Perspectives*
> <>
>    - No. 148, In Hyeock Lee, Shige Makino and Eunsuk Hong, “Outward FDI
>    does not necessarily cost domestic employment of MNEs at home: Evidence
>    from Japanese MNEs,” May 25, 2015.
>    - No. 147, Joachim Karl, “An appellate body for international
>    investment disputes: How appealing is it?,” May 11, 2015.
>    - No. 146, Anna Joubin-Bret, “Why we need a global appellate mechanism
>    for international investment law,” April 27, 2015.
> *All previous FDI Perspectives are available at **
> <>**. *
> *Other relevant CCSI news and announcements*
>    - *On June 8, 2015*, CCSI and The Institute for Economic Research
>    (IIEc) of the National Autonomous University of Mexico (UNAM) released the
>    results of their sixth survey of Mexican multinationals. The survey,
>    conducted during 2014, is part of a long-term study of the rapid global
>    expansion of multinational enterprises (MNEs) from emerging markets. The
>    present report, “*Changing Characteristics of Large Mexican
>    Multinationals during Legal Reforms
>    <>*,”
>    focuses on 2013 data.
>    - *On July 13-17, 2015, *CCSI will host its first Executive Training
>    on Investment Arbitration for Government Officials
>    <> at
>    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
>    <> and
>    application here
>    <>.*
>    - *On June 15, 2015*, CCSI and the Global Economic
>    Governance Programme at Oxford University will launch a new online forum on
>    New Thinking on Investment Treaties, a series of short presentations by
>    academics, practitioners, and civil society on key topics in international
>    investment law. *All presentations will be posted at noon EST* *here
>    <>.
>    Please subscribe to the channel and visit our website for updates*. *For
>    more information and for the schedule of speakers, please visit our
>    website *here
>    <>
>    .
>         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.*
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