This commentary focuses on the differences between the European Commission proposal for an investment court system submitted to the United States in the context of negotiating the Transatlantic Trade and Investment Partnership (TTIP) on November 15, 2015, and the provisions concerning the first instance tribunal and appellate tribunal in the Canada-EU text of the Comprehensive Economic and Trade Agreement (CETA) released on February 29, 2016.
Negotiating parties to CETA were able to address some of the issues that came to light following the release of the European Commission proposal (going back to September 2015 as an internal EU document). This shows a capacity to adapt, and responsiveness to the needs and will of specific negotiating parties.
However, the speed and late stage at which the changes were made to CETA (i.e., during the “legal scrubbing” phase) did not offer much time for in-depth analysis of the interactions between agreements or of the systemic impact of the changes. The lack of agreement on the precise design and functioning of the appellate tribunal, and the absence of a code of conduct for tribunal members, serve as evidence of this fact.
Five improvements — some more fundamental than others, but all useful — are identified here.
The CETA text does not adopt the TTIP proposal’s terminology of “judges” and “court.” Presumably, the European Commission’s use of these terms was partly a response to the European Parliament’s call last July to replace traditional investor-state dispute settlement (ISDS) with a new system that was more court-like (that is, involving independent professional judges appointed by public authorities); and more generally a response to the critics of ISDS (including some EU member states where TTIP and CETA are concerned).
However, an analysis of the texts demonstrates that apart from the nomination and tenure of tribunal members, the process adopted is still very much in the nature of arbitration. This is confirmed by the reliance on the New York Convention and the International Centre for Settlement of Investment Disputes (ICSID) Convention for the enforcement of awards. The absence of the terms “court” and “judges” to describe the system and its decision makers confirms that there is nothing inherently problematic with an arbitration model and may avoid problems related to the enforcement of awards.
Nomination of Tribunal Members
CETA now provides that parties, when appointing members to the tribunal, may propose five individuals of any nationality, as opposed to five of their nationals. This reflects the needs of smaller countries (see also the EU-Vietnam Free Trade Agreement [FTA], January 16 text). It may also pave the way to a more “a-national” system for the resolution of investment disputes, which would be required for multilateralization to occur.
Decisions on Conflicts
On the matter of conflicts of interest, CETA now provides that the president of the International Court of Justice will render decisions, as opposed to the president of the tribunal of first instance or appeal tribunal, as proposed for the TTIP. Recourse to an independent third-party is a welcome improvement, as the current system in ISDS of having co-arbitrators decide on the fate of a fellow member of the tribunal has rightly come under criticism.
In the TTIP proposal, it has yet to be decided whether ICSID or Permanent Court of Arbitration (PCA) staff would serve as ad hoc secretariats for the investment court proceedings. In CETA, ICSID was chosen, and rightly so, as the PCA cannot administer cases under the ICSID Convention. While a combination of both could have been used, the choice of ICSID may support the development of specialized expertise under similar agreements in the future.
Timeliness of Awards
The TTIP proposal provides that an award shall be rendered within 18 months of the submission of the claim (and if this cannot be done, a decision including the reasons for delay has to be issued). For appeals, as a general rule, it shall be done within 180 days, and never more than 270 days. While timeliness is a worthy goal, it has to be remembered that unlike World Trade Organization cases, investor-state arbitration cases often involve significant document discovery. There are also limits on the capacity of respondent states to defend many cases at once. CETA has rightly loosened this provision, by putting the onus for timeliness on the tribunal but also on the disputing parties, and providing that the award be issued within 24 months (if not, the tribunal shall provide reasons to the disputing parties). No deadlines have been provided yet for appeals.
The changes made demonstrate that the parties to CETA were able to adapt and correct some weaknesses of the TTIP proposal. It should be mentioned that some other provisions that differ from the TTIP proposal, however, are not as clear as they could be, or may have impacts that were not sufficiently considered. One such example is that CETA allows for set-aside requests in domestic courts and annulment proceedings under the ICSID Convention to take place until the decision on the functioning of the Appellate Tribunal has been made by the Joint Committee. While it is wise in practice to plan for delay or lack of action, the provision opens the door to different types of review proceedings to occur in parallel for the first few years of the new mechanism being in place.
Finally, while incremental change is good, the multiplication of agreements, so far exemplified by the EU-Vietnam FTA and CETA, poses challenges if they differ from one another in more or less important ways. When the ultimate goal is a truly multilateral investment dispute resolution system, the more entrenched the differences, the harder that goal will be to achieve.