*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 219  February 12, 2018
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Matthew Schroth ([log in to unmask])
*The **EU investment court: challenges on the path ahead*
* <#m_-3144224185272030895__edn1>
Julien Chaisse and Matteo Vaccaro-Incisa** <#m_-3144224185272030895__edn2>

In September 2015, due to a specific political climate within EU
institutions and member states, the EU Commission formulated a proposal to
establish an investment court system (ICS) to be adopted in the
Transatlantic Trade and Investment Partnership. The ICS was subsequently
included in the agreements with Canada and Vietnam and has been tabled in
the negotiations with Singapore and Japan. This *Perspective* addresses
this bilateral ICS proposal and weighs it against the recent decision of
the UN Commission on International Trade Law (UNCITRAL) to address
investor-state dispute-settlement (ISDS) reform.

Firstly, in May 2017, the EU Court of Justice confirmed that any EU
international investment agreements (IIAs) featuring ISDS fall outside the
EU exclusive competence, thus requiring ratification by each member state.
The Court’s opinion, which went against the position maintained by the
Commission, complicates the emergence of a unified EU investment policy,
including the ICS, delaying indefinitely the entry into force of those IIAs
already (or about-to-be) concluded. Unable to rely on an operational ICS to
buttress its proposal with other partners, the Commission appears poised
since July 2017 to drop investment protection from trade deals altogether,
from ongoing negotiations (Japan)[1] <#m_-3144224185272030895__edn3> to new
draft mandates (Australia, New Zealand).

Secondly, recent IIAs introduced substantive limitations and clarifications
aimed at shielding the exercise of state regulatory powers from qualifying
as breaching foreign investors’ rights (e.g., rephrasing of clauses,
explanatory/interpretive annexes, addition/expansion/refinement of
exclusions, exceptions). This is evident too with regard to international
arbitration, with roadblocks to its access strengthened and the
interpretive freedom of arbitrators constrained. This conservative trend
(seen also in the investment treaty practice of, for example, the
Association of South East Asian Nations, China and the US) constitutes a
proper response to real (or overstated) pitfalls of international
arbitration. In light of the focus of IIAs on compensation (as opposed to
compliance), the EU concerns over the appropriateness of arbitration as a
means to deal with public policy aspects and the ethics of arbitrators
(conflict of interest, double hatting, etc.) seem disproportionate.

Thirdly, keeping in mind that the EU is presently—if, perhaps, only
formally—negotiating IIAs with the US and China, and that their cooperation
is essential for the global reach of any ISDS reform, it appears that the
ICS proposal is unsuited to their current stances on ISDS. The US is
reportedly uninterested. China, besides currently emulating several US
policy choices, is keen to protect its key investors abroad through the
International Centre for Settlement of Investment Disputes and
international economic institutions (where China has recently become a
major contributor) tied to it. Moreover, China may hardly be interested in
institutionalizing a (semi-)permanent neutral international forum that
would facilitate foreign investors’ claims against it.

Fourthly, the ICS proposal seems ill-timed, because it dismisses the
international community’s present stance *vis-à-vis* the creation of
additional supranational adjudicatory bodies, especially by unilateral
Western initiative (let alone in a perceived Western-based and/or driven
international legal order). Indeed, several countries are expressing
concerns about the legitimacy and/or cost of the existing mechanisms.
Beside the failure of the mid-1990s OECD-backed Multilateral Agreement on
Investment, current major examples are the South China Sea UN Convention on
the Law of the Sea (UNCLOS) arbitration; the uneasy relationship between
Russia and the European Court of Human Rights (and UNCLOS); and the
relationship between several African countries and the International
Criminal Court. On costs, the WTO Appellate Body’s repeated—and
unfruitful—calls for an increase of its modest budget stand out.

Fifthly, despite the EU attracting the world’s highest FDI inflows and
stock, there are relatively few claims against its members (mostly, anyway,
arising out of intra-EU investment disputes) and, especially, damages
awarded–against its member states.[2] <#m_-3144224185272030895__edn4> The
Commission’s insistence on finding a procedural alternative to
international arbitration seems an overreaction to domestic political
shifts within EU members and vocal criticism from interest groups,
including NGOs.

To conclude, the bilateral ICS initiative seems overly focused on EU
interests and concerns, and thus is counterproductive to the goal of global
ISDS reform. Multilateral discussions in UNCITRAL may facilitate,
conversely, consensus on shared and far-reaching reforms, but they are
unthinkable without the participation of new geopolitical heavyweights like
India and Brazil. There, building on more than two decades of experience
with investment arbitration, and benefitting from recent contributions of
renowned experts,[3] <#m_-3144224185272030895__edn5> questions other than
bilateral or multilateral courts may be dealt with (like sustainability,
investment facilitation, investor obligations, arbitrators’ ethic). Steps
forward are possible, as the recent adoption of the Guiding Principles for
Global Investment Policymaking by the G20 demonstrates,[4]
<#m_-3144224185272030895__edn6> considering that current Western concerns
over the sovereign exercise of “regulatory powers” are close enough to
those on “sovereignty” long expressed by many other governments.

* <#m_-3144224185272030895__ednref1> *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. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_-3144224185272030895__ednref2> Julien Chaisse (
[log in to unmask]) is Professor, Faculty of Law, Chinese
University of Hong Kong; Matteo Vaccaro-Incisa ([log in to unmask])
is Assistant Professor, IESEG School of Management, Paris. The authors are
grateful to George Bermann, Mark Feldman and an anonymous reviewer for
their helpful peer reviews.
[1] <#m_-3144224185272030895__ednref3> *See, e.g.*, “Katainen suggests
dropping investment from trade deals,” *Euractiv*, July 11, 2017,
[2] <#m_-3144224185272030895__ednref4> To deal with intra-EU investment
disputes, the Commission announced plans for a “mediation system.”
[3] <#m_-3144224185272030895__ednref5> *See, e.g.*, Gabrielle
Kaufmann-Kohler and Michele Potestà, “Challenges on the road toward a
multilateral investment court,” *Columbia FDI Perspectives*, No 201, June
5, 2017.
[4] <#m_-3144224185272030895__ednref6> Karl P. Sauvant, “China moves the
G20 on international investment”, *Columbia FDI Perspectives*, No. 190,
January 2, 2017.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Julien Chaisse and Matteo Vaccaro-Incisa, ‘The
EU investment court: challenges on the path ahead,’ Columbia FDI
Perspectives, No. 219, February 12, 2018. 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,
Matthew Schroth, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 218, Guillaume Beaumier and Richard Ouellet, “Europe’s new
   investment policy faces an uncertain future,” Columbia FDI Perspectives,
   January 29, 2018.
   - No. 217, Mouhamadou Madana Kane, “The Pan-African Investment Code: a
   good first step, but more is needed,” January 15, 2018.
   - No. 216, Kenneth J. Vandevelde, “IIA provisions, properly interpreted,
   are fully consistent with a robust regulatory state,” January 1, 2018.

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

*Other relevant CCSI news and announcements*

   - CCSI has released its 2016-2017 Annual Report. *The full report is
   available here
   - CCSI is accepting applications for our three upcoming executive
   trainings: on Extractive Industries and Sustainable Development
   (June 4-15, 2018), Sustainable Investments in Agriculture
   (June 19-29, 2018), and Investment Treaties and Arbitration for
   Government Officials
   (July 30-August 9, 2018). Each program is designed to equip participants
   with the necessary skills, analytical tools, and frameworks to address
   relevant challenges and opportunities, and to encourage a rich dialogue
   about best practices from around the globe. *More information about each
   training, including brochures and applications, is available at the links
   - In January 2018, The *Yearbook on International Investment Law and
   released*.* The *Yearbook* monitors current developments in
   international investment law and policy, focusing (in Part One) on trends
   in foreign direct investment (FDI), international investment agreements,
   and investment disputes. Part Two, then, looks at central issues in the
   contemporary discussions on international investment law and policy. This
   volume includes a chapter by CCSI's Lisa Sachs, Lise Johnson and Jesse
   Coleman, with CCSI Fellow Kanika Gupta. *For more information, please
   see 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 © 2018 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
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