One of the fundamental critiques of the traditional investor-state dispute settlement (ISDS) system has been that ISDS is based on a model of commercial arbitration and not on a public court model.[1] The European Commission recently accepted the general notion of this critique and proposed a new system for the Transatlantic Trade and Investment Partnership (TTIP) in 2015, which has also been incorporated into the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. In its 2015 trade policy, “Trade for All: Towards a more responsible trade and investment policy,” the European Commission promised that “EU bilateral agreements will begin the transformation of the old investor-state dispute settlement into a public Investment Court System composed of a Tribunal of first instance and an Appeal Tribunal operating like traditional courts.”[2] But will the proposed investment court system in fact operate “like traditional courts”?

Many critics say no, and point to the status of the tribunal members. Are they now judges or still arbitrators? The German Association of Judges and State Prosecutors (Deutscher Richterbund) recently stated that the investment court system is not an international court but a permanent arbitration tribunal.[3] The Achilles heel of a reformed investment protection system seems to be the tenure of the tribunal members and, in particular, the method of their payment.

CETA provides for a combination of a monthly retainer fee determined by the CETA Joint Committee (the European Commission proposes €2,000 per month for members of the tribunal of first instance and €7,000 for members of the appeals tribunal) and per diems for days on which the tribunal members actually work on a case, on the basis of Regulation 14(1) of the Administrative and Financial Regulations of the International Centre for Settlement of Investment Disputes (ICSID) Convention, currently US$3,000 per day. This payment mix includes elements of a permanent court system, as well as arbitration proceedings. Some critics have gone as far as concluding that this system creates incentives for the tribunal members to attract cases. While this may be a bit far-fetched, it is remarkable that the European Commission and the CETA parties stopped short of creating a permanently appointed tribunal, duly paid by the parties to the agreement.

In fact, the CETA parties seem to have been aware of the problem, since they included an optional clause to transform the investment tribunal system. Article 8.27, para 15, CETA states: “The CETA Joint Committee may, by decision, transform the retainer fee and other fees and expenses into a regular salary, and decide applicable modalities and conditions.” The respective provision in the European Commission’s proposal for an investment chapter in the TTIP clearly indicates the consequences of such a transformation: “In such an event, the Members of the Appeal Tribunal shall serve on a full-time basis and the … Committee shall fix their remuneration and related organisational matters. In that event, the Members shall not be permitted to engage in any occupation, whether gainful or not, unless exemption is exceptionally granted by the President of the Appeal Tribunal.” The parties to the agreement therefore retain the possibility of opting for two key elements of judicial independence: full-time employment as judges, with clear exclusivity and payment on a regular basis, regardless of the actual case load.

Why did the CETA parties not go all the way? Arguably, this would have overstretched the boundaries of the “legal scrubbing” process. Most observers were already surprised that the scrubbing exercise allowed for a redrafting of the investment chapter. Yet, a permanent court could have been difficult to agree on without formally reopening the negotiations. Is this a case of too little, too late?

While it is indeed too late to change CETA to include a permanent court, since the ratification process will start soon and textual amendments will no longer be possible, the European Commission could be bolder in the TTIP negotiations and propose a permanent court model from the beginning. Furthermore, during ratification proceedings, national parliaments could call upon the CETA parties to adopt a decision pursuant to Article 8.27, para 15, immediately after CETA’s entry into force. This would then send a clear signal to the TTIP negotiation process that the TTIP should not situate the investment court system somewhere between an arbitration tribunal and a permanent court. Instead, the agreement should create a permanent court with full-time judges and regular salaries paid for by the parties. This could be the first step toward establishing a multinational permanent court for investor-state dispute settlement.

Markus Krajewski teaches public and international law at the University of Erlangen-Nürnberg. His research focuses on international economic law, human rights and EU external relations. He regularly advises international governmental and non-governmental organizations on international investment law. In 2015, he drafted a model bilateral investment treaty for the German Ministry of Economics and Technology, which included a bilateral investment court.


[1] Gus van Harten, Investment Treaty Arbitration and Public Law (Oxford, UK: Oxford University Press, 2007).

[2] European Commission, Trade for All: Towards a more responsible trade and investment policy (Luxembourg: Publications Office of the European Union, 2015), at 21, online: <http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf>.

[3] Deutscher Richterbund, Stellungnahme zur Errichtung eines Investitionsgerichts für TTIP, 2016, online: <www.drb.de/fileadmin/docs/Stellungnahmen/2016/DRB_160201_Stn_Nr_04_Europaeisches_Investitionsgericht.pdf>.

Why did the CETA parties not go all the way? Is this a case of too little, too late?
Thematics
CIGI’s International Law Research Program invited commentary by noted experts in the field about the promise and peril of CETA’s new investment tribunal and whether this development will enhance or hinder global rule of law. In this series, these experts opine on the tribunal’s potential impact on the often criticized system of ISA: whether it is a significant reform, a superficial adjustment or a retrenchment. Readers will have to draw their own conclusions as to whether this is a cosmic or cosmetic reform of the system of ISA.