The number and diversity of parties with interests in the future of international investment protection has never been greater – a result of tremendous growth in cross-border investment and rapid economic development in many parts of the world. At the same time, many stakeholders, including states and NGOs, have argued that the existing framework of investment treaties is in need of reform. Some have alleged, among other criticisms, that existing treaties limit the policy freedom of states to regulate in the interests of public health and environmental protection. In this context, on 16 October 2014 in Geneva, the United Nations Conference on Trade and Development (UNCTAD) convened a conference on the future of international investment agreements (IIAs), including in particular bilateral and multilateral investment treaties, and investor-state dispute settlement (ISDS).

UNCTAD has been working for several years to identify concrete mechanisms and proposals for reform of the system. We previously covered this initiative here. In July of this year UNCTAD also published an Issues Note that identified four potential paths of action and a recommended way forward for the reform of the existing IIA regime. The October conference built upon UNCTAD’s work, and followed the release of UNCTAD’s comprehensive 2014 World Investment Report.

The delegates at the October conference focused on three questions:

  • What are the key areas and pressing issues in IIAs and investment dispute settlement that need to be addressed?
  • What are the key ways and means to address these issues?
  • What types of mechanisms and platforms are needed to facilitate the reform?

During the conference an online survey was conducted on a number of relevant questions. Encouragingly, 74% of the respondents agreed that IIAs are an “important and relevant policy tool”, and 69% think that IIAs “can contribute to sustainable development“. However, the respondents also voiced the dissatisfaction with the current system that UNCTAD is working to address. For example, 92% agreed that “the IIA system as it exists today (including the content of the majority of treaties) needs reform“. The issues most often noted as in need of reform include the preservation of policy space for host states (77%) and inclusion of provisions to reflect investor responsibilities (72%).

The UNCTAD Secretariat reported that the conference delegates called upon UNCTAD to facilitate a multilateral platform where states – the “masters of their treaties” – may engage on investment policy issues in order to build consensus. The report included these summary remarks on the areas of shared understanding reached at the conference:

  • IIAs remain relevant in a changing world;
  • the IIA regime and ISDS system need to be reformed in a comprehensive and gradual way, taking into account the interests of a wide range of stakeholders;
  • a multilateral approach to reform may be require to achieve comprehensive reform, especially in the light of the constraints that countries face acting individually; and
  • UNCTAD should work with other stakeholders to develop a concrete roadmap for reforms to make IIAs more supportive of sustainable development.

The call for a multilateral approach to reforming international investment policy is significant, particularly in the light of the increasing number of (concluded and proposed) regional and multilateral trade and investment agreements. For example, the TTIP (USA-EU), Trans-Pacific Partnership (several Asia/Pacific states, including the USA), and CETA (Canada-EU) would cover large parts of the world.

Negotiations on these and other international agreements bearing on investment policy are on-going, and existing ISDS mechanisms have proven to be highly controversial. Lending an EU voice to the debate about the future of IIAs and ISDS, when discussing the CETA on 10 November 2014 European Trade Commissioner Cecilia Malmström stated, “[i]f we had an international court to deal with ISDS that would be ideal, but we are not there yet.” It remains to be seen whether reform initiatives will develop in the direction of more incremental changes, or such comprehensive reforms as the creation of a standing international investment court or appellate body. It is correct to note, though, that the latter could only be achieved in the sort of multilateral context which UNCTAD has been called-upon to facilitate.

UNCTAD will convene another conference in Geneva in February 2015 to continue the debate.

For further information, please contact Matthew  Weiniger QC, Partner, Tim Hughes, Associate, or your usual Herbert Smith Freehills contact.

Matthew Weiniger QC
Matthew Weiniger QC
+44 20 7466 2364
Timothy Hughes
Timothy Hughes
+852 21014117