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 825, New York, NY 10027
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"China Moves the G20 toward an International Investment Framework and Investment Facilitation", "China Moves the G20 on Investment", "The Rise of Self-judging Essential Security Interest Clauses in IIAs", "Can Host Countries have Legitimate Expectations?", "The Next Step in Governance: The Need for Global Micro-regulatory Frameworks", "How International Investment Agreements can Protect Free Media", "The Evolving International Investment Law and Policy Regime: Ways Forward", "China's Outward FDI and International Investment Law", and  "Policy Options for Promoting FDI in the LDCs" are available at https://papers.ssrn.com/sol3/results.cfm?RequestTimeout=50000000 and http://www.works.bepress.com/karl_sauvant/.

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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
No. 201  June 5, 2017

Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Matthew Schroth ([log in to unmask])
Challenges on the road toward a multilateral investment court*
Gabrielle Kaufmann-Kohler and Michele Potestà**
Growing criticism over investor-state arbitration has triggered demands for reforms of the existing framework from countries, international organizations and civil society groups. In the recently concluded EU-Canada Comprehensive Economic and Trade Agreement and EU-Vietnam Free Trade Agreement, the contracting parties replaced the ad hoc system of investment arbitration with standing bilateral bodies composed of first-instance and appellate tribunals. In a further move, in December 2016, the European Commission launched a public consultation on a “multilateral reform of investment dispute resolution.”[1] In addition, discussions are taking place on a global scale at the UN Commission on International Trade Law (UNCITRAL), where the reform of investor-state dispute settlement may be tabled as future work.[2] This Perspective addresses one reform option, the creation of a multilateral investment court, and reviews the main challenges that the establishment of such a court would have to master to be successful.

A crucial challenge lies in the composition of the new court. The appointment process must ensure the selection of impartial and independent decision-makers with expertise and experience in the field, through a transparent process unaffected by political considerations. How to achieve this? Some think that appointments made only by states entail the risk that “pro-state” individuals be selected; others consider that at least some states will view themselves as both potential respondents and home countries of prospective claimants and thus choose balanced personalities. Here one may ask whether investors also should be involved in the selection, for instance through consultations or in the context of establishing a panel from a roster of decision-makers. Whoever makes the initial selection, an advisory panel could screen candidates to ensure the quality of the persons and the transparency of the process, following the trend in modern international courts. Other issues are the term of office and its renewability, which are key to judicial independence. A longer term without renewal likely better protects judges from interference. Whatever the modalities, what ultimately matters is that the composition of the new body be perceived as legitimate by all stakeholders.

What law will govern the proceedings? Certainly, the treaty creating the court. Beyond, it will depend whether the proceedings remain arbitration-like or are exclusively court-like. If the former, proceedings could either be subject to a domestic lex arbitri or be completely delocalized, similarly to proceedings under the ICSID Convention. Whatever the choice, it will need to be articulated clearly to avoid uncertainties when it comes to national court interference, post-award remedies and enforcement. By contrast, if the new dispute-resolution body is deemed an international court subject only to public international law, the issue of the law governing the proceedings will be resolved insofar as national law will, by definition, play no role.

A further question is what controls there would be over the decisions of the court: Limited annulment to guarantee finality like for arbitral awards? Or a full-fledged appeal on law (and possibly facts) to ensure consistency of the jurisprudence (as the current system is criticized for its lack of consistency)? Or lighter alternative control mechanisms to reconcile finality and consistency?

Another challenge is ensuring the new system’s ultimate effectiveness, that is, the enforceability of its decisions. Presently, parties can rely on the enforcement rules contained in the ICSID and New York Conventions. Will the New York Convention be available for the enforcement of the court’s decisions? The answer depends again on the nature of the new dispute-resolution process. If it is considered arbitration, it will benefit from the New York Convention system. If not, the treaty creating the court will have to provide for an enforcement regime binding contracting states. Enforcement in non-contracting states will by contrast be uncertain; it will depend on national law as no international rules exist ensuring the enforcement of judgments of international courts.

Finally, how will disputes become subject to the jurisdiction of the new court? For disputes arising from new investment treaties, states will be able to refer to the court in that new treaty. But what about the 3,300+ existing investment treaties? Here, two options are available. Governments could renegotiate existing treaties. Alternatively, a multilateral convention, modelled on the Mauritius Convention on Transparency, could allow states to opt into the court regime for their existing treaties (or some of them). An opt-in convention would allow states to effect the envisaged modifications at once, releasing them from the potentially burdensome and long treaty-by-treaty renegotiations. An opt-in convention would also have the advantage of following the approach successfully tested in respect of transparency, although the treaty law challenges involved in a broader reform of the investor-state arbitration regime will be substantially more complex than the introduction of a transparency standard in investment treaties.

To master these challenges, a reform would be elaborated best in a forum such as UNCITRAL that is global; inclusive; state-run, yet open to other stakeholders; and has procedures in place for writing international instruments.
* The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author(s) do not reflect the opinions of CCSI or Columbia University or our partners and supporters.
** Gabrielle Kaufmann-Kohler (gabrielle.kaufmann-kohler@lk-k.com) is a Professor at the University of Geneva and Co-Director of the Center for International Dispute Settlement, Geneva, Switzerland; Michele Potestà ([log in to unmask]) is a Senior Researcher with the Center for International Dispute Settlement, Geneva, Switzerland, and a Senior Associate at Lévy Kaufmann-Kohler, Geneva, Switzerland. This Perspective is based on “Can the Mauritius Convention serve as a model for the reform of investor-state arbitration in connection with the introduction of a permanent investment tribunal or an appeal mechanism? Analysis and roadmap,” June 3, 2016, prepared by the authors on behalf of the Geneva Center for International Dispute Settlement (CIDS) for UNCITRAL (available at http://www.uncitral.org/pdf/english/CIDS_Research_Paper_Mauritius.pdf). The purpose of the report was to review reform options, analyze their strengths and weaknesses and provide a roadmap for reform for policy-makers. The authors are grateful to Mark Feldman, Michael Nolan and Cristoph Schreuer for their helpful peer reviews. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.
[1] See European Commission, “European Commission launches public consultation on a multilateral reform of investment dispute resolution,” December 21, 2016, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1610.
[2] See UNCITRAL, “Report of the Commission session on the work of its forty-ninth session (A/71/17),” paras. 187-195, http://www.uncitral.org/uncitral/en/commission/sessions/49th.html.

The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Gabrielle Kaufmann-Kohler and Michele Potestà, ‘Challenges on the road toward a multilateral investment court,’ Columbia FDI Perspectives, No. 201, June 5, 2017. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].

For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Matthew Schroth, [log in to unmask].
  • No. 200, Saurabh Garg, “The next phase of IIA reforms,” May 22, 2017.
  • No. 199, Miguel Pérez Ludeña, “United States corporate tax reform and global FDI flows,” May 8, 2017.
  • No. 198, Terutomo Ozawa, “How to handle the job-offshoring backlash?”, April 24, 2017.
All previous FDI Perspectives are available at http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/

Other relevant CCSI news and announcements
  • On June 13, 2017, CCSI, the World Bank and the Sustainable Development Solutions Network are hosting a brown bag lunch discussion at Columbia Law School about the changes, opportunities and challenges we are most likely to be facing over the coming years with respect to the governance of extractive industries. Join four leading practitioners (Kevin Ramnarine, Strategic Adviser/Former Minister of Energy, Trinidad and Tobago, Sonia Balcazar, Consultant Associate at Synergos Consulting Services; former Regional Development Planning Manager, Rio Tinto, Peru, Peter Cameron, Director of the Energy, Petroleum and Mineral Law and Policy Centre, University of Dundee, Scotland, UK, and Michael Stanley, Sector Lead, Oil, Gas & Mining, World Bank) in discussion about how they see the challenges and opportunities shape up, and in particular, how the World Bank’s EI SourceBook can serve as a tool to strengthen governance in the sector. For more information, and to register, please visit our website here.
  • On May 16, 2017The New Frontiers of Sovereign Investment was published by Columbia University Press. Edited by CCSI Fellow Malan Rietveld and CCSI Head of Extractive Industries Perrine Toledano, the volume combines the insights and experience of academic economists and practitioners from several sovereign wealth funds (SWF) to survey a diverse financial landscape and to establish the challenging topical questions facing a broad range of SWFs today: Should they serve both economic development and financial returns—and how? Will responsible investment will enhance long-term returns? How can fiscal rules for SWFs be improved to meet emerging economic challenges? The book considers these questions as they apply to both long-established and newer SWFs. Featuring contributions from sovereign wealth practitioners from Alberta’s AIMCo, the Nigerian Sovereign Investment Authority and the New Zealand Superannuation Fund, as well as analysis by scholars at the forefront of sovereign investment, this volume provides timely and much-needed information on these rapidly evolving institutions.
  • In April 2017, CCSI launched a series of short videos from the authors of Rethinking Investment Incentives: Trends and Policy Options (published by Columbia University Press in July 2016), summarizing the important messages from each chapter. New videos are posted weekly. The use of incentives to attract investment is connected to and impacts the most pressing challenges facing us today, including climate change, corruption, conditions/availability of employment, harmful competition, and inefficient public spending. How, when, where, and why governments use incentives to attract, keep and influence investment is therefore critically important to whether and how society benefits from investments and to other public policy decisions and trade-offs. It is increasingly apparent, however, that the use of incentives is not well understood—including by the policy makers who use them—which necessitates a closer look and, in many cases, a policy response.
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