EU submits paper and work plan to UNCITRAL Working Group III advocating systemic reform as the only answer to concerns about investor-state dispute resolution

In advance of the next meeting of UNCITRAL Working Group III (WG III) in April 2019, the European Union and its Member States have made a submission on “Establishing a standing mechanism for the settlement of international investment disputes” (the Submission), as well as a possible work plan for achieving this aim.  As described in our blog post here, WG III has identified a number of concerns in relation to the resolution of investor-state disputes by ad hoc tribunals. In the Report of the 36th Session, WG III encouraged governments to submit proposals as to how the concerns about ISDS identified in the 36th Session should be addressed by way of reform.

The Submission advocates systemic structural change, proposing a two tier “standing mechanism” as “the only available option that effectively responds to all the concerns identified in the working Group” and “the only option that captures the intertwined nature of those concerns“.  The features of the “standing mechanism” proposed in the Submission are unsurprising given the previously published views of the EU’s institutions, in particular the European Commission (the Commission). The rhetoric in the Submission differs from the previous articulations coming out of the EU institutions which refer overtly to an “investment court system“. However, the Commission’s news page makes clear that the “standing mechanism” described in the Submission is a “multilateral investment court“. In addition, whilst the Submission makes reference to “adjudicators” rather than judges, the characteristics of the “adjudicators” are those described in the EU’s previous papers on this topic (see here).

The Commission has historically been the flag-bearer for the EU’s reform of ISDS. In the Submission however, it is emphasised that the proposal represents the views of the EU “and its Member States“.  This proposition may be tested if the proposed standing mechanism ultimately finds support: further to CJEU Opinion 2/15 on the European Union–Singapore Free Trade Agreement (FTA) on May 16, 2017, the instrument establishing a standing mechanism will need to be ratified by each of the Member States.

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Update on the future of ISDS: UNCITRAL Working Group III decides three areas for reform, indicating change is likely in 2019

The United Nations Commission on International Trade Law (“UNCITRAL“) has been considering the possible reform of investor-state dispute settlement (“ISDS“). UNCITRAL Working Group III (“WGIII“) has been given a broad mandate to identify concerns regarding ISDS procedure, consider whether reform is desirable, and, if so, develop relevant solutions to be recommended to the main UNCITRAL body (see our previous blog post here and article (issue 5, page 38) here). While WGIII enjoys broad discretion in discharging its mandate, any solutions devised will take into account the ongoing work of relevant international organisations, and each State may decide the extent to which it chooses to adopt the proposed solutions.

In the recent 36th session of WGIII, it was agreed that reform was desirable in at least three areas: (i) inconsistency and incorrectness of arbitral rulings; (ii) concerns about arbitrators and decision-makers; and (iii) the cost and duration of ISDS. However, the precise type of reform remains to be decided. Some States (and the EU) are advocating systemic reform while others propose a more nuanced approach, fixing perceived problems within the framework of the existing system.

Whilst WGIII’s mandate is limited to the procedural aspects of ISDS, changes to the way in which investor-state disputes are resolved may affect the value investors place on the substantive protections in investment treaties as a way of mitigating risks connected with foreign investment. Continue reading