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Last Updated: 9 November 2013
Resolving Investor-State Disputes: Australia’s Dilemma and Choices
Leon Trakman, University of New South
Wales
Citation
This paper is to be published in volume 15(1) Journal of World Investment and Trade (2014). This paper may also be referenced as [2013] UNSWLRS 64.
Abstract
This article examines
Australia’s controversial 2011 Trade Policy Statement in which the Federal
Government indicated that it
will no longer provide for investor-state
arbitration (ISA) in future bilateral and regional trade agreements (BRTAs),
choosing instead
to rely on alternatives to ISA. These are likely to vary from
encouraging investor-state parties to negotiate contracts that provide
mechanisms for dispute resolution to providing by treaty that domestic courts
resolve such disputes.. In analysing this policy shift,
the paper discusses the
nature of foreign direct investment (FDI) and its economic significance to host
and home states, as well
as to inbound and outbound foreign investors. Following
this analysis, the paper outlines the reasons behind Australia’s rejection
of ISA and evaluates its perceived advantages and disadvantages in contrast with
the reliance on domestic courts for the resolution
of investment disputes. The
paper expresses caution about a complete rejection of ISA and illustrates the
challenges of implementing
this Policy in light of the proposed Investment
Chapter of the Trans-Pacific Partnership Agreement (TPPA) and Australia’s
trade
interests in the wider Asia region. Instead, the article urges adoption of
a BIT policy, which would include various dispute avoiding
measures and provide
parties with access to either domestic courts or ISA in a manner that is
consistent with Australia’s national
interests and international good
practice.
INTRODUCTION
In its 2011 Trade Policy Statement, the Federal
Government stated that Australia would no longer agree to adopt ISA in its
future
bilateral and regional trade agreements. While the Trade Policy Statement
did not expressly limit investment disputes to domestic
courts, foreign
investment disputes will be inevitably decided by the domestic courts of law due
to the lack of viable dispute resolution
alternatives available to foreign
investors.
Although this policy shift was not entirely unexpected in
Australia, it raised a number of concerns in the international investment
community. One reason why the announcement has attracted such wide international
coverage is due to the fact that ISA remains the
preferred method of dispute
resolution in cases involving investment claims against foreign governments.
Furthermore, Australia is
the only developed state to categorically reject ISA
in its future BRTAs.
In order to evaluate the significance of this Policy,
several questions require further consideration. For example, what consequences
are likely to arise from this Policy? Will the Policy further the stated
objectives of the Federal Government? Do the benefits of
Australia rejecting ISA
outweigh its advantages? Are domestic courts the ideal institution for the
resolution of investment disputes?
Finally, if the disadvantages of ISA outweigh
its touted benefits, how might Australia modify its trade and investment
position and
adopt a more effective mechanism for resolving investment disputes?
These questions are subject of the present inquiry.
In developing this
analysis, the paper begins with a brief introduction of ISA and its enduring
appeal to the international community.
Part 2 of the paper provides a detailed
analysis of the 2011 Trade Policy Statement and Part 3 considers alternative
dispute resolution
options that will be available to investors in the absence of
ISA. Part 4 considers the reasoning behind the Trade Policy Statement
and
investigates whether domestic courts are the most suitable institutions to hear
investment complaints lodged against host states.
Part 5 examines whether
Australia’s rejection of ISA will achieve the policy goals advocated by
the Federal Government in 2011.
The paper argues that, while the concerns voiced
by the Federal Government in 2011 are valid and paramount to the sustainable
development
of Australia, a complete rejection of ISA might not best serve
Australia’s national interests. In response to this concern,
Part 7
proposes the adoption of a model Australian BIT to provide for a mixture of
dispute avoidance measures which include negotiations
and conciliation, in
addition to a choice between ISA and domestic courts, consistent with the Policy
Statement of the Federal Government
in 2011.
I. PREVALENCE OF INVESTOR-STATE ARBITRATION
Domestic and international investment markets are
becoming increasingly interdependent. A corollary to this development is that a
healthy flow of FDI into and out of investment markets directly impacts on
various economic sectors.[1] FDI is
also a key means of sustaining economic growth; while an increase in FDI share
ordinarily leads to “higher additional
growth in financially developed
economies.”[2] FDI has become
even more significant following the Global Financial Crisis of 2008 and the
perceived worldwide economic slowdown.
Competition is growing among states to
attract cross-border investment, including providing capital and infrastructure
investments
in order to promote the financial stability and liquidity of
international investments. Australia is a case in point: it has developed
a
competitive, economically efficient and technologically advanced resource
sector; it has also become a global supplier of agricultural
goods and raw
materials arising from inbound FDI flows. As a result, it has a material
interest in promoting sustainable and stable
FDI flows into and out of
Australia.
By its nature, FDI flows that involve cross-border investment may
lead to cross-border disputes. Historically, such disputes were
resolved either
through diplomatic intervention by which states would settle disputes on behalf
of their outbound investors, or through
the resolution of such dispute before
the domestic courts in the country in which the foreign investor
operated.[3] These avenues for
resolving investment disputes had a number of significant shortcomings. In
particular, they subjected investors
to backdoor state-to-state diplomacy, and
to the mercy of domestic courts in countries that had variable conceptions of
law and justice.
In order to promote a healthy flow of FDI and provide
investors with a viable and fair platform for dispute resolution, states have
developed and refined a specialized international dispute resolution process
known as investor-state arbitration. Under this system
a foreign investor is
able to lodge a claim against a host state to be resolved through a specialized
international investment tribunal.
This format for dispute resolution is now
widely utilized by states due to its perceived advantages; it is also
incorporated into
various bilateral and regional trade agreements worldwide,
including in the Asia region, which has traditionally resisted ISA due
to
various ideological and developmental
considerations.[4]
Compared to
other forms of dispute resolution, ISA has a number of advantages. For example,
ISA provided for by treaty can insulate
states from involvement in investment
disputes, since it provides investors with an alternative pathway to resolve
their grievances
against host states. More significantly, ISA obviates the need
to seek domestic law remedies which may be seen to be less impartial
than
international investment
arbitration.[5] ISA can also confer
substantive protections, such as most-favoured-nation (MFN) or national
treatment on foreign investors under
international investment law. In addition,
ISA can limit the nuanced impact of different domestic legal systems and
cultures on FDI,
such as the different influence of civil, common and customary
laws.[6] Furthermore, ISA can reduce
reliance on competing domestic rules of evidence and procedure, such as
adversarial evidentiary rules
in common law systems and inquisitorial methods of
adducing evidence in civil law
systems.[7] Finally, resort to ISA can
limit the perceived social and political costs associated with domestic
litigation, since it allows parties
to control public access to proceedings. Due
to these advantages, ISA serves as a “delocalized” process of
resolving
disputes between foreign investors and host states. Outbound investors
can rely on ISA, not only in response to states’ providing
for ISA in
their BITs and FTAs, but also in response to home state investors trying to
avoid the domestic courts and laws of particular
host states.
However,
despite its enduring popularity, in recent years a small number of states have
become critical of ISA and rejected it in
favour of alternative dispute
resolution models.[8] For example, in
response to negative perceptions of ISA, in 2007 the Philippines negotiated to
exclude investment arbitration from
its FTA with
Japan.[9] In that same year, Bolivia
withdrew from the forerunning investor-state arbitration centre, the
International Centre for Settlement
of Investment Disputes
(ICSID).[10] Ecuador followed in
2009 and Venezuela did so in
2012.[11] The Republic of Argentina
announced in 2012 that it will withdraw from the
ICSID;[12] while South Africa has
signalled that it will no longer include ISA in its future
BITs.[13] Curiously, Romania also
attempted to withdraw from the Swedish-Romanian BIT, only to be subjected to a
2013 ISA award that purported
to bind it “irrevocably” to
arbitration under that
BIT.[14]
In addition to the
limited number of states that have abandoned ISA, some have qualified how it
applies to them, foregoing its complete
rejection.[15] This was particularly
common during the first generation of BITs where states reserved extensive
regulatory powers and limited protections
that were accorded to investors. For
example, in acceding to the ICSID Convention in 1993, China adopted a number of
reservations. [16] It also
restricted the scope of ISA in its early Model BITs more stringently than first
generation BITs adopted by most other countries,
notably in the West.. In
particular, China did not grant ISA tribunals the jurisdiction to determine
whether an expropriation has
occurred, in addition to declining to provide
national treatment to foreign investors and restricting ISA to determining the
nature
and extent of compensation. China also stipulated that foreign investors
had to resort to domestic administrative review before referring
their cases to
ISA and imposed a waiting period of three to nine months in order to provide
parties with the opportunity to reach
a settlement. Only after having exhausted
local remedies and these waiting periods, could foreign investors initiate ISA
proceedings
against a host
state.[17]
While such
reservations are now less common, recently the US Model BIT has extended the
scope of a state’s right to engage in
regulatory
expropriation.[18] It has also
restricted the rights of foreign investors under standards of fair and equitable
treatment, minimum standard of justice
and national treatment and provided for a
subjective national security test by which state parties to BITs define their
own national
interests, as distinct from being based on objective
criteria.[19] In addition, the U.S.
Model BIT reserves the rights of state parties to impose governmental measures
to protect public health, environmental
safety and related public
interests.[20]
A commonly cited
reason why states have become more critical of ISA is due to the conviction that
ISA will produce a “regulatory
chill”, meaning that the threat of an
ISA claim by a foreign investor will discourage states from engaging in public
interest
regulation.[21] ISA also
fell out of favour in Latin America in particular as left-leaning Governments
there emphasized national self-reliance over
foreign investment protections. A
further concern among some developing countries, not limited to Latin America,
is that ISA awards
will favour investors from developed states over developing
countries and that various ISA conventions such as the ICSID, will perpetuate
those
disadvantages.[22]
Notwithstanding
these criticisms, states have not withdrawn from ISA en masse. Statistics
on the over 3,000 BITs negotiated to date demonstrate that the vast majority of
BITs provide for ISA, and the rate of
adoption has increased dramatically in
recent years.[23] Developed
countries invariably have opted for ISA in concluding BITs and FTAs (with the
noticeable exception of the Australia–United
States FTA that refers
investor-state disputes to domestic
courts).[24] China is an
illustrative example of ISA’s lasting appeal. As a developing country,
China was initially cautious about adopting
ISA and sought to limit recourse to
it. However, in recent years China has expanded the scope of ISA, particularly
in its bilateral
agreement with Canada and its trilateral agreement with Japan
and Korea.[25] In addition to
signing a myriad of BITs, China as a growing capital exporter, has also extended
investor protections to protect its
growing outbound investors from the
regulatory defences of host states
[26] Thus, despite the recent
criticism of ISA, it is still the preferred mechanism for resolving FDI related
disputes. In fact, at the
time of writing, Australia is the only developed
country in the world to completely reject ISA in its future BRTAs.
II. THE 2011 AUSTRALIA POLICY STATEMENT
In its Trade Policy Statement released in April 2011,
the Australian Government declared that it will no longer agree to the adoption
of international investment arbitration in its bilateral and regional trade
agreements.[27] Specifically, the
Policy Statement provides that Australia will no longer negotiate treaty
protections “that confer greater
legal rights on foreign businesses than
those available to domestic businesses” or rights that would
“constrain the ability
of the Australian Government to make laws on
social, environmental and economic matters in circumstances where those laws do
not
discriminate between domestic and foreign
businesses.”[28]
Australia’s
Policy Statement does not rely on the rhetoric of Ecuador, Bolivia and Venezuela
that challenge the ICSID as a creature
of the World Bank and as a supplicant of
the United States.[29] Rather, a
central consideration of the Australian Government is to impede foreign
investors from invoking ISA to challenge Australian
sovereignty over public
safety, health and the
environment.[30] Given that
Australia is a resource rich country, it has a justiciable concern that foreign
investors not invoke ISA to challenge
state action directed at containing
environmental damage in the mining, and oil and gas exploration - areas in which
foreign entities
are often significant
investors.[31] Accordingly, a
rationale behind the Government’s Policy Statement is that, by avoiding
ISA in its BRTAs, it is more likely
to design sustainable measures to preserve
its public interests and avoid succumbing to the “regulatory chill”
arising
from having to defend itself against costly and intrusive ISA
claims.[32] These concerns are
illustrated in part by Philip Morris’s ISA claim against Australia under
the Hong Kong-Australia Free Trade
Agreement over Australia’s decision to
require the plain packaging of cigarettes on public health
grounds,[33] and Ukraine’s
more recent WTO challenge against Australia over this
issue.[34] Australia’s further
concern is that foreign drug companies may invoke ISA to contest restrictions on
foreign manufactured drugs
under Australia’s Pharmaceutical Benefits
Scheme (PBS), which restricts public access to some pharmaceuticals, while
subsidizing
others selectively.[35]
Finally, Australia is also concerned about foreign investors securing
controlling interests in the Australian media, and core domestic
markets such as
the stock market.[36]
The
Government’s announcement reflects a conviction that domestic courts and
not investment tribunals are appropriate bodies
to resolve investment disputes
between host states and foreign investors, although it does not explicitly
identify domestic courts
as the alternative to
ISA.[37] The inference is that a
domestic court can protect the rights of foreign investors, while preventing
them from receiving investment
benefits beyond those provided to domestic
investors. The Policy statement may also encourage investor-state parties to
negotiate
contracts in which they provide for dispute resolution mechanisms.
The basis for such contracts is twofold. Firstly, Australia
is a net capital
importer in which capital inflows are largely directed at resource extraction.
Secondly, the companies in those
resource sectors possess sufficiently
bargaining power to protect their interests without having to rely on dedicated
treaty guarantees..
In addition to rejecting ISA in its future FTAs, the
Trade Policy Statement proposed that outbound Australian investors should
protect
their own interests if they wish to submit disputes to the domestic
courts of Australia’s investment partners. The Policy Statement
provided
that “if Australian businesses are concerned about sovereign risk in
Australian trading partner countries, they will
need to make their own
assessments about whether to commit to investing in those
countries.”[38] This suggests
that Australia will not intervene diplomatically on behalf of such outbound
investors. It also means that the government
may intend that large scale
investors, such as in the resource extraction industry, negotiate contracts that
address risks of investor-state
conflict, without them having to rely on either
government intervention or treaty provisions.
A greater risk arising from the
Australia Policy is that it may force outbound investors that lack the
bargaining power to negotiate
investor-state contracts, to rely on foreign
domestic courts. While reliance on domestic courts may not be in issue in
countries
with well-developed legal systems, the Government’ does not
distinguish between countries that do or do not subscribe to the
“rule of
law” as conceived by Australia. Rather, the Policy Statement adopts an
all-encompassing position in rejecting
ISA in its future BRTAs. Ergo, it does
not stipulate that outbound investors resort to the courts of some host state to
resolve investor-state
dispute under some BRTAs, while adopting ISA in relation
to other states under other BRTAs. In summary, Australia’s position
in
favour of domestic litigation applies to all future BITs and FTAs that it may
negotiate, regardless of the destination of Australian
outbound investors and
without differentiating between so called “rule of law” and other
jurisdictions.[39]
Despite its
controversial nature, Australia’s official position against ISA has some
support. In formulating its Trade Policy
Statement, The Government relied
significantly on a 2010 report issued by the Australian Productivity Commission
(APC), a public
commission charged by the Federal Treasurer with the specific
task of advising on future trade policy directions. The APC attributed
significant costs and limited benefits of including ISA in its
BRTAs.[40] It contended that
“current processes for assessing and prioritising BRTAs lack transparency
and tend to oversell the likely
benefits.”[41] The Report
added tersely: “At a minimum, the economic value of Australia’s
preferential BRTAs has been
oversold.”[42] As a result,
the APC recommended that Australia should cease using ISA to resolve disputes in
its BRTAs.
More recently, a group of influential judges, lawyers and
academics from predominantly British Commonwealth jurisdictions supported
Australia’s decision and took a very critical position on the proposed
investment chapter of the Transpacific Partnership Agreement
that provides for
ISA.[43] In particular, they
objected to the MFN provision that would enable investors “to avoid the
deliberate decision of [TPPA negotiating
Governments] that require investors to
pursue remedies in the domestic courts of the host nation...” They further
criticised
the chapter, citing dissatisfaction with the rotating roles of
arbitrators and advocates “in a manner that would be unethical
for
judges” They also expressed concern about the exclusion of
“non-investor litigants and other affected parties”
from
participating in ISA proceedings as being contrary to basic principles of
“transparency, consistency and due
process”.[44]
It must be
noted that, whether the 2011 Trade Policy Statement is an effective means of
resolving investor-state disputes globally
or a toothless tiger, the Australian
Government has demonstrated a serious intention to implement it. This is
evidence in the absence
of ISA in Australia’s FTA with Malaysia, concluded
in May 2012, and in the more recent amendment to the investment protocol
in the
Australia New Zealand Closer Economic Trade Relations Agreement
(ANZC).[45] Thus, despite the
controversial nature of the proposed Policy, it appears that the Labour
Government was determined to proceed with
its repudiation of ISA, something from
which the recently appointed Liberal Government has not retreated.
III. DISPUTE RESOLUTION OPTIONS IN THE ABSENCE OF ISA
The first step in analysing the consequences of
Australia’s rejection of ISA is to examine alternative dispute resolution
platforms
available to foreign investors in the absence of ISA. After all,
Australia’s Trade Policy Statement does not expressly assign
domestic
courts to deciding investor claims against states. This raises the prospect of
inbound and outbound investors considering
other dispute resolution options,
which are analysed below.
As one of its options, Australia may negotiate for
resort to diplomatic channels to resolve investor-state disputes. The purpose
would
be to enable foreign investors to request diplomatic assistance from their
home states in resolving investor-state disputes. As was
noted in Part 1 of this
paper, interstate diplomacy is not a novel method of resolving investment
disputes and was commonly utilized
in decades
past.[46] However, this method of
dispute resolution is far less widespread today, given that governments are
increasingly reluctant to intervene,
given the costs of state action, the
potential damage to foreign relations and the lack of economic and political
leverage of many
outbound investors to mobilise their home states to intervene
on their behalf.
As a further alternative, parties could be required to
undertake formal negotiations and conciliation prior to a foreign investor
initiating a domestic court case. However, negotiations often serve more as
mandatory waiting periods, delaying investors from filing
ISA claims, rather
than as effective means of resolving an investor-state dispute. Thus, such
dispute ameliorating options could
be costly, dilatory and also ineffective.
They could compound rather than reduce the scope of disputes subsequently heard
by domestic
courts or ISA tribunals.
As yet another alternative, Australia
could rely on individual private investors to enter into contracts with foreign
states providing
for international commercial arbitration on a case by case
basis. This option could be contained in an investor-state agreement,
conceivably preserved by an umbrella clause in a treaty. While this approach
gives Australia maximum flexibility in managing its
relations with foreign
investors, it has two major limitations. First, these contracts may be
one-sided, favouring the host state,
or a powerful investor. This is especially
so when small and middle-sized investors from developing home states proceed
against developed
states, and when developing states defend against claims from
better resourced foreign investors. Secondly, insofar as such investor-state
contracts include choice of jurisdiction and choice of law clauses, these
clauses are likely to refer disputes to domestic legal
systems and their courts
for resolution. The result may be resort to the domestic courts and laws of the
‘host’ state
if the dominant contracting party is the
‘host’ state; or to the courts and laws of the ‘home’ or
a third-party
state if the foreign investor is the dominant party.
In
summary, while options such as diplomatic intervention, political risk insurance
and investor-state contracts remain available
to foreign investors, they are
often difficult for investors to access and utilize. Furthermore, investors may
not have sufficient
knowledge and financial resources to evaluate their legal
options in resolving disputes with host states. Thus, in the absence of
ISA,
foreign investors will most likely rely on domestic litigation to resolve their
disputes with ‘host’ states, foregoing
other available methods of
dispute resolution.
IV. INCOMPATIBILITY OF ISA WITH PUBLIC INTEREST LITIGATION
In assessing the viability of the current Policy
on ISA, it is important to examine whether domestic courts are a more
appropriate
institution to hear investment disputes than specialized ISA
tribunals appointed under the ICSID Convention or guided by the UNCITRAL
Rules.
This inquiry becomes particularly relevant, given that domestic courts are the
most likely means of resolving investment disputes
lodged against states, should
ISA be rejected.
A. SUPPORT FOR DOMESTIC COURTS
An arguable benefit of relying on domestic courts to
decide investor-state disputes is that domestic courts have a better
understanding
of domestic law, including important public policy considerations
than ISA tribunals. Furthermore, domestic proceedings are ordinarily
open to the
public; they provide for third-party submissions on matters concerning the
public interest; and verdicts are often reached
by juries. This judicial system
is often regarded as a key arm of government in a democracy; judges are
appointed by the government,
or in limited cases, are democratically elected. In
addition, judgments are usually published and freely available to ordinary
citizens.
Finally, to ensure that the process remains fair, the losing party is
provided with a right to appeal a decision to a higher court.
As a result,
domestic courts are viewed as being most qualified to reach informed decisions,
to take account of the legitimate interests
of litigants, and to consider
important public policy considerations involved in the issue.
When the
quality of justice is measured against these criteria, ISA appears to be
inadequate. ISA proceedings are generally confidential;
third-party
interventions in ISA proceedings are often restricted; and awards are sometimes
unpublished, or published only in
part.[47] While ISA parties
generally have the option to modify ISA proceedings including opening them to
the public, such decisions require
the explicit consent of both sides, which is
difficult to achieve by investor-state parties already engaged in a dispute.
Given that
ISA disputes are decided by commercially trained international
arbitrators who often lack adequate appreciation of domestic conditions,
ISA has
the potential to produce over-extensive awards in favour of foreign investors at
the expense of ‘host’ states.
Illustrating the risks of ISA awards
bankrupting a foreign investor is the frequently cited Loewen case in
which an ISA tribunal upheld a punitive damage jury determination against a
Canadian funeral home, under Chapter 11 of the
North American Free Trade
Agreement, leading to the insolvency of the funeral
home.[48]
Due to these
characteristics of ISA, it is often criticized for leading to a
‘chill’ in domestic public interest legislation
such as relate to
public health, safety and environmental
protection.[49] This concern is
reinforced by the fact that grounds for annulling an ISA award, such as under
the ICSID Convention, are limited to
procedural issues and challenges to the
impartiality of arbitrators, or on grounds of conflicts of interest. Due to the
specificity
of the grounds for
annulment,[50] ISA decisions are
rarely set aside and awards are usually considered to be final and binding upon
the parties.
B. ANALYSIS OF DEFICIENCIES IN ISA
While concerns with ISA are justifiable, it is
important to emphasize that many of these criticisms apply to domestic legal
systems.
For example, although ISA proceedings are resource intensive and can
lead to unreasonable awards based on domestic public policy,
litigation in
domestic courts can be equally costly and may deliver devastating blows to
foreign investors, including allegedly excessive
damage awards. This is
illustrated, somewhat ironically, by the ISA tribunal in the Loewen case
which upheld a punitive damage jury award reached in a domestic U.S.
court.[51]
Similarly, even though
ISA awards are sometimes difficult to challenge, ISA annulment proceedings are
not necessarily under-inclusive
because they are limited to procedural matters.
Asserting that appeals from domestic courts are wider in scope than annulment
proceedings
also ignores the extent to which domestic judicial systems diverge
over the grounds for allowing an appeal.
In addition, prioritizing domestic
courts over ISA on grounds that ISA tribunals diverge in applying standards of
treatment, such
as “fair and equitable” treatment to foreign
investors, ignores the extent to which domestic courts apply a diverse range
of
domestic rules of evidence and procedure to resolve disputes including against
states.[52] Domestic courts also
domesticate conceptions of public policy
differently.[53]
Beyond these
criticisms, it is also difficult to argue that ISA is inherently incompatible
with public interest litigation. In fact,
there are a number of structural and
functional benefits of ISA over domestic courts that make it a more appropriate
forum for the
resolution of investor-state disputes. For example, while a small
number of ISA arbitrators are repeatedly appointed from a list
of panellists
nominated by member states, it is difficult to infer that domestic litigation is
preferable on grounds that domestic
judges are appointed by nation
states.[54] On the contrary, ISA
arbitrators may be more experienced than domestic court judges, since the
majority of the cases they hear are
related to investment matters. In addition,
ISA arbitrators are selected by the disputing parties, whereas domestic court
judges
are assigned randomly. Thus, a decision reached by arbitrators who are
chosen by the parties including by the foreign investor may
be viewed as more
legitimate than a decision reached by a judge who was appointed by the state
party to the investor-state dispute.
With regard to the choice of the
applicable law, even though domestic laws may be attractive to states facing
claims from foreign
investors, reliance on disparate domestic laws and
procedures may actually impede the resolution of FDI disputes. In contrast,
international
treaty law provides ISA tribunals with more consistent principles,
standards and rules than the laws of a plethora of domestic legal
systems.[55] Furthermore, ISA
tribunals are likely to have a firmer grasp of principles of investment law and
public international law.[56] They
are also likely to apply a more uniform system of international investment laws
and procedures than domestic laws and procedures
that diverge across different
legal systems. In fact, over the thirty years of ICSID and UNCITRAL
decision-making, ISA jurisprudence
has acquired a sophisticated degree of
coherence.[57] This is a significant
accomplishment since ISA decisions are ad hoc and bind only the direct
parties to the dispute, and even though ISA tribunals often diverge in applying
international investment
laws, such as the state defence of
“necessity” to specific ISA
disputes.[58]
Noteworthy, too,
are the institutional foundations of ISA. In particular, investor-state
arbitration is administered by established
international institutions, such as
the ISCID, to which the vast majority of states are signatory parties. The rules
of institutions
such as those under the ISCID are derived from the collective
action of signatory states and are interpreted and applied by ISA tribunals
appointed by the disputing parties. Thus, ISA tribunals are subject to
institutional rules and international oversight, such as under
the ICSID
Convention and the UNCITRAL Rules.
It must be noted that ISA awards are
ordinarily enforceable domestically. As a formal matter, states that are
signatories to ISA conventions
such as the ICSID Convention ordinarily enforce
ISA awards in accordance with their duties as
signatories.[59] As a functional
matter, domestic states, through their judicial systems, are also more likely to
enforce ISA awards in order to avoid
being seen as discouraging foreign direct
investment through the non-enforcement of ISA awards that favour foreign
investors. In
contrast, the decisions of domestic judges are ordinarily more
difficult to enforce in foreign jurisdictions than ISA awards, given
the limited
endorsement of the Hague Convention on the Recognition and Enforcement of
Foreign Judgements and the Draft Hague Principles
on Choice of
Law,[60] compared to the plethora of
state signatories to the ICSID
Convention.[61]
Finally, concern
over the lack of transparency of some ISA proceedings is more controversial,
since the confidentiality of ISA proceedings
and awards historically were
determined by disputing investor-state parties. An important reason why ISA is
attractive to foreign
investors, and sometimes state parties, is because it was
traditionally closed to the public. This avoided media coverage often associated
with the publicised decisions of domestic courts of law. However in recent
years, the nature of ISA has changed to provide greater
public awareness of and
participation in ISA proceedings. ISA tribunals have repeatedly opened hearings
to the public, with the support
of the investor-state parties, given sensitivity
about the need for transparency in redressing public-private disputes on matters
of public interest. Consequently, there is now far greater public access to ISA
proceedings and records than there was a decade
ago.[62] For example, the ICSID now
provides for third-party intervener status in ISA proceedings and for the
publication of ISA
awards.[63]
Furthermore,
regardless of whether ISA proceedings remain closed or open to the public,
disputing parties are generally allowed to
issue statement on their positions to
the public, provided that these statements do not disclose information marked in
proceedings
as “confidential”. Those statements may be sufficient to
keep the public informed and focused on issues of national significance.
Furthermore, these public releases may also provide incentives for both
disputing parties to open ISA proceedings to the public in
order to offset the
impact of a statement by one disputing party in the absence of a public record.
Thus, while ISA has a number
of drawbacks, it is not inherently incompatible
with public interest litigation.
C. UNIFYING DOMESTIC AND INTERNATIONAL INVESTMENT LAWS?
Under a perfected monist legal system the idealised
result is a uniform body of investment laws, operating both domestically and
internationally,
to regulate investor-state dispute. That perfection includes
the harmonization of pre-existing differences among domestic and international
investment laws, obfuscating inconsistencies and contradictions between
them.[64] However, realism suggests
that such a perfected monist world is unlikely to materialize in practice. State
sovereignty is simply
too resilient to succumb to a unifying international
jurisprudence, leading to the present dualism between domestic and international
investment law. [65] If a blend of
legal monism and dualism is to evolve, the result is likely to be a patchwork
quilt of marginally to substantially
different legal
systems;[66] or even to an
un-cohesive ‘spaghetti bowl”, of disparate domestic and
international investment laws and
procedures.[67] As a result, some
priority is necessary between domestic and international investment law and
between ISA tribunals and domestic
courts in order to promote greater certainty
and predictability in investor-state dispute resolution.
D. RECONCILING THE NORMATIVE VALUE OF ISA AGAINST DOMESTIC COURTS
As this paper has demonstrated, both ISA and
domestic courts have advantages and drawbacks. Both mechanisms for resolving
investor-state
disputes will have their supporters. At times, foreign investors
will prefer the intimate setting of an arbitral tribunal and at
other times,
they will opt for the expediency of domestic courts due to their confidence in
the local legal system.
Furthermore, whether ISA is more efficient or fairer
than domestic litigation will depend on the normative values and risks that are
ascribed to each. For example, if normative priority is given to legal
coherence, the risk of ISA tribunals and domestic courts adopting
narrow literal
methods of treaty interpretation in order to arrive at coherent results by
coherent means, apply to both. Similarly,
the risk of domestic courts and ISA
tribunals adopting purposive methods of interpretation will hinge on the purpose
each ascribes
to an applicable investment law. Both, domestic courts and ISA
tribunals may construe treaties liberally but ascribe different purposes
to
those treaties. Domestic courts may highlight the need to protect domestic
public policy values. On the other hand, ISA tribunals
may highlight the need to
protect the commercial interests of foreign investors.
If normative priority
is given to investment expertise, ISA arbitrators are likely to have a greater
comprehension of investment law
than most domestic
judges.[68] If emphasis is given to
the transparency of legal procedures, ISA will once again prevail over the
choice of domestic courts in jurisdictions
that have low corruption transparency
indexes and rule of law scores.[69]
In issue is not only that domestic courts and ISA tribunals are likely to accord
priority to different normative values. Domestic
courts and ISA tribunals are
also likely to differentiate among those values from one case to another. If
priority is given to the
binding force of precedents, as common lawyer conceive
of it, ISA arbitrators who subscribe to precedent are also likely to treat
past
ISA awards as binding on them.
[70]
As a result, it is difficult
to conclude that domestic courts and ISA tribunals are likely to subscribe to
one or another normative
preference. Even the presupposition that ISA tribunals
are more likely to prioritise the commercial interests of foreign investors
while domestic courts are more likely to prioritise the public policy concerns
of the ‘host’ state is not self-evident.
Indeed, an examination of
ISA panels demonstrates a growing balance between commercially trained and
public international
lawyers.[71]
The result is that
it is easier to draw broad quantitative than qualitative distinctions between
the normative proclivities of domestic
courts and ISA tribunals. As a
quantitative measure, ISA jurisprudence is likely to be more consistent in scope
of application than
a multiplicity of different domestic laws applied by local
courts to govern foreign investment in light of localised laws and
procedures.[72] However, if one
takes into account qualitative measures, the extent of that consistency will
depend on the value priorities that
are ascribed to domestic courts and ISA
tribunals in discrete cases.
In summary, it is difficult to reach a
definitive conclusion about the perceived virtues or pitfalls of
Australia’s rejection
of ISA in its 2011 Trade Policy Statement without
examining the wider political and economic context in which that Policy is
applied.
V. Will Rejecting ISA Promote Australia’s Public Interests?
One method of evaluating the merits of the 2010
Policy Statement is by analysing whether the Government’s rejection of ISA
is
likely to accomplish its intended goals. Specifically, one must examine
whether rejection of ISA will reduce the risk of ISA claims
brought against
Australia and alleviate regulatory ‘chill’. Furthermore, it is
important to inquire whether the Policy
will promote economic, political and
legal benefits that will outweigh the costs associated with its
implementation.
As was previously noted, Australia’s primary reasoning
behind the rejection of ISA lies in the desire of the Government to limit
incursion of foreign companies on Australia’s sovereign right to manage
sectors of the economy that are of national importance.
Due to the resource
intensive nature of such sectors and the size of the foreign entities involved
in these markets, it is likely
that Australia will be unable to inhibit foreign
investors from lodging ISA claims against it, even if it repudiates ISA in its
entirety.
More specifically, so long as Australia’s 22 existing BITs
and FTAs provide for ISA, influential investors, often backed by
their
Governments, will have an incentive to shift their places of residence or
incorporation to foreign states in order to mount
ISA actions against Australia
and avoid the local courts. Philip Morris case against Australia is an
illustrative example: in order
to avoid Australian courts, the company shifted
its operations from Australia to Hong Kong and filed a claim against Australia
under
the Hong Kong-Australia Free Trade
Agreement,[73] thus bypassing
Australia’s domestic courts. Should Philip Morris lose its ISA claim
against Australia on the jurisdictional
ground that Hong Kong constitutes a mere
forum of convenience, other inbound investors may be discouraged from forum
shopping for
ISA. However, ISA tribunals do not generally refuse to hear claims
submitted to them.[74] Thus, it is
likely that foreign investors will rely on forum shopping in mounting their
challenges against Australia.
Furthermore, such investor claims against
Australia are likely to lead to a regulatory ‘chill’, not only in
Australia,
but in other states contemplating such action. The underlying concern
is for such states to avoid being exposed to the risks of spiraling
ISA claims
brought by claimants with significant experience in lodging ISA claims and
sufficiently deep pockets to sustain them.
As an illustration of recurrent
claims on comparable grounds is Philip Morris early ISA claim against Uruguay
under the Switzerland-Uruguay
Free Trade
Agreement.[75] It is likely, should
other states enact plain packaging legislation before Philip Morris’ ISA
claim against Australia is determined,
Philip Morris and/or other international
tobacco companies will lodge claims against those other states as well.
While
Australia intends to limit investor-state litigation, it still wishes to
maintain its attractiveness as a destination for FDI
to promote national
development and collect various regulatory taxes. However, it is unlikely that
rejecting ISA will be conducive
to this mandate. As was noted above, foreign
investors are likely to relocate their investments to foreign entities or
intermediary
states, such as the Netherlands Antilles and
Mauritius[76] in order to gain
greater ISA protections. A consequence of such development is that Australia
could lose taxes and related revenues
to those jurisdictions in which outbound
investors relocate,[77] in addition
to dampening the overall attractiveness of Australia as an inbound investment
destination.
In summary, it is doubtful that the rejection of ISA will
achieve the regulatory goals of initiated by Australia’s 2011 Policy
Statement. Should Australia persist in rejecting ISA and require that domestic
courts resolve investor-state disputes in its future
BITs and FTAs, it may
increase, rather than reduce, its exposure to investor claims arising before
domestic courts or ISA. Should
other states replicate Australia’s reliance
on domestic courts to resolve investor-state disputes, either through BITs or
FTAs
with Australia, or more expansively through their own BIT programs,
investor-state claims will mushroom in multiple domestic judicial
systems and
will have to resolved through disparate judicial procedures and domestic laws,
creating further confusion in the global
investment regulatory regime.
VI. GEOPOLITICAL CHALLENGES IN IMPLEMENTING THE POLICY
As was demonstrated in the previous sections of this
paper, it is difficult to argue that domestic courts are the most appropriate
institution to decide FDI related disputes lodged against host states. It is
also questionable whether the Australian Government
will be able to achieve its
stated goals by repudiating ISA. In addition to these issues, there are two
additional barriers to implementing
ISA that will require the Government to
re-evaluate the Policy Statement in light of Australia’s trading and
investment environment.
These challenges are illustrated by Australia’s
ongoing negotiations over the Trans Pacific Partnership Agreement (TPPA) and
the
state of Australia’s geopolitical neighbourhood. Australia’s new
Policy is also being tested in its current negotiations
with China, Japan and
South Korea, countries that may well insist on including ISA in any ensuing
investment treaty.
A. TRANS-PACIFIC PARTNERSHIP NEGOTIATIONS AND ISA
Implementing the 2011 Trade Policy Statement will be
particularly challenging in the context of Australia’s ongoing TPPA
negotiations.
The contest between Australia’s 2011 Policy Statement
favouring domestic courts over ISA and TPPA member countries favouring
ISA is
apparent.[78] Officially Australia
is negotiating the TPPA with the intent to seek exemption from ISA. In support
of Australia’s exemption
is the recognition that reservations and
exceptions to the TPPA that are part and parcel of this multilateral negotiating
process.
Furthermore, negotiating parties have announced their rejection of a
one-size-fits-all TPPA due to their unique domestic
circumstances.[79] Thus, on the
surface, Australia’s request to be exempted from ISA is justifiable
according to this negotiating platform. However,
the costs of such a negotiating
platform may ultimately outweigh its anticipated
benefits.[80]
First, the extent
of reservations and exemptions granted to participating countries is likely to
depend on the perceived benefit of
uniformity among the TPPA membership at
large, weighed against the cost of exempting another TPPA party from specific
aspects of
the Agreement, such as from intellectual property, export compliance
requirements and in the case of Australia, ISA. Granting Australia
an exemption
from ISA could also lead to a slippery slope of exceptions, with other parties
following suit through country-specific
reservations. The potential result is a
two, or a multi-tier, system of dispute resolution that could undermine the
stature of the
TPPA as the umbrella agreement.
Furthermore, if Australia is
to secure an exemption from ISA under the TPPA, its courts are likely to decide
ISA cases inconsistently
with the TPPA, unless the substance of the TPPA is
incorporated directly and fully into Australian law. This is due in part to
Australia’s
dualist tradition of according primacy to domestic law over
international law, unless the latter is expressly incorporated into domestic
law. Thus, the likely outcome, if Australia concludes side-agreements with other
states that subscribe to a blend of legal monism
and dualism domestically, is
the accentuation of inconsistencies both between domestic and international
investment law and among
domestic legal systems of TPPA member
states.[81]
For many observers,
the TPPA signifies an attempt to revive the Doha Round of trade negotiations and
promote greater harmonization
of various standards that were created in the
spaghetti bowl of BRTAs. Investment is one of these disparate areas. While a WTO
style
investment agreement is currently beyond reach, the TPPA has a chance to
create greater harmony among various investment treaties
and improve the dispute
resolution process by including key states in the decision-making process. By
rejecting ISA in the TPPA,
Australia risks isolating itself from other
negotiating parties who want to maintain ISA in treaties with their most
significant
trade and investment partners and may also lose its voice in the
negotiating process over the future investment regime.
B. ISA and Australia’s neighbours
Australia is fortunate to have developed a
sophisticated legal system that emphasizes the separation of powers and rule of
law. Unfortunately,
many of Australia’s neighbours are developing nations
that do not possess comparable legal
systems.[82] Despite the lack of
solid regulatory frameworks in the region, Asia is becoming increasingly
appealing to Australian investors and
it is reasonable to argue that the region
will become essential to Australia’s future economic
development.
Statistics on Australia’s outward investment flows
illustrate economic importance of the region to Australia. According to 2011
Federal Government Statistics, Australia’s combined investment in Asia
stood at AUD 150 billion, making up 13% of its total
FDI.[83] While this number does not
appear to be significant, the rate of investment into the Asia region has
doubled since 2001.[84] When one
examines Australia’s trade in goods, the statistics are much more
staggering: two-third of Australian trade flows
into the Asian
region.[85] Similarly, investment
from Asia into Australia has grown to AUD 300 billion in 2011, which is double
from what it was 10 years
earlier.[8] Although different
inferences may be drawn from this data, it is clear that Asia is of immense
importance to the economic wellbeing
of Australia and is likely to become the
primary channel for its future trade flows.
China is a particularly
noteworthy example. It is a major investor in Australia and is heavily involved
in the local natural resources
industry. While Australia’s investment in
China still lags behind other states in the region, in 2010 the country’s
FDI
directed to China reached AUD 17
billion.[86] Although China only
invested some AUD 19 billion in Australia, this rate is three times higher to
what it was in 2007.[87] To put it
in perspective, China’s FDI into Australia is growing exponentially and
has made a major contribution to Australia’s
recent high economic growth,
commonly referred to as the natural resources boom. Considering China’s
demand for natural resources,
it is unlikely that this trend will be reversed in
the near future.
While the region has immense economic opportunities,
investment in Asia is not without risks. According to the 2012 Transparency
International
Corruption Perceptions Index, the majority of countries in Asia
scored between 10 and 50 points, out of possible
100.[88] Other studies conducted by
the World Justice Project provide similarly troubling
assessment.[89] World Bank’s
Ease of Doing Business rankings of East Asia and the Pacific paint an even
bleaker picture: only four countries
in the region managed to score in the top
20, with other key regional economic partners of Australia falling behind by a
significant
margin.[90] While the
methodology of these rankings is not without
controversy,[91] these surveys
portray a similar story - Asia is still lagging behind the rest of the world in
terms of its legal institutions and
protections accorded to individuals.
In
the absence of ISA, Australia’s outbound investors located in Asia may
have difficulties seeking relief against host states.
While some investors may
move their businesses to intermediary states to avoid the courts of partner
states, many smaller Australian
investors lack such mobility and will have to
resolve their disputes in the local courts of their host
states.[92] Thus, one of the
practical challenges that Australia faces in its determination to retire ISA
lies in Australia’s regional
economic interests.
Of further importance,
while that many states in Asia do not have a strong rule of law tradition as is
understood by Australia, these
countries place greater emphasis on ISA in their
trade relations with other states. China is an illustrative example of this
development;
according to unconfirmed reports, Australia is under pressure from
China to include access to ISA in the current free trade agreement
under
negotiations.[93] China’s
position on the matter is understandable. Realizing some ‘rule of
law’ limitations in its domestic legal
system, China wants to make sure
that it remains an attractive FDI destination. Furthermore, Chinese investors
have made a number
of high profile investments in Australia and it is reasonable
to surmise that China lacks confidence in the impartiality of Australian
courts,
especially in sensitive matters concerning public health and the environment
which are closely related to investment in natural
resources.
China may also
want to reserve other dispute resolution options, beyond both ISA and domestic
courts, including diplomatic state-to-state
measures. As an illustration, China
initiated diplomatic measures in response to Australia’s exclusion of the
Chinese Company,
Huawei, from Australia’s broadband program on
Australia’s allegation that Huawei had engaged in
cyber-espionage.[94] Highlighting
the significance of such diplomatic measures is the sequel by which the U.S. and
EU blacklisted Huawei and to U.K. to
reconsider its extensive investment
relationships with Huawei.[95]
Whatever the legal significance of reliance on ISA or domestic courts, providing
for diplomatic measures is a necessary component
in BIT reform, not only as a
dispute avoidance option, but also in relation to dispute resolution.
In
summary, while foreign investors from Asia might feel comfortable relying on
Australian courts for the resolution of disputes,
Australian investors located
in Asia may be in vulnerable position due to the developmental nature of the
region and a lack of sophisticated
regulatory regimes. Furthermore, looking at
the issue of ISA from interstate perspective, many states in the region are
interested
to negotiate BRTAs with Australia and accelerate their economic
integration. Due to the relatively protectionist nature of their
economies[96] negotiations between
these states and Australia are likely to be protracted, as illustrated by the
failure of Australia to conclude
an FTA with China and Korea. Australia’s
seemingly inflexible stance on ISA may further aggravate these negotiations,
since
many of these states view ISA not just as a means to an end but as a wider
symbolic commitment to the protection of FDI. Thus, rejecting
ISA will prove to
be a complex undertaking in light of a need to protect Australian investors
located in Asia and Australia’s
long term trade interests in the
region.
VII. PROPOSALS FOR A MODIFIED ISA
This paper has demonstrated that ISA is not
inherently incompatible with public interest litigation. Furthermore, rejection
of ISA
may create a number of challenges for the Federal Government and hurt the
long-term economic interests of Australia. Thus, in rejecting
ISA, a key issue
for Australia will be to weigh the ‘national interest’ benefits
underlying the 2011 Policy Statement
against the benefits of utilizing
ISA.
What are Australia’s options in designing ISA regulatory regime
that will meet the expectations of the Government and avoid
the pitfalls
identified in this paper? The options examined below may be identified across a
spectrum, ranging with a rejection of
ISA on the one end and its reinstatement
on the other. In the middle, are a variety of ISA configurations that
contracting states
can negotiate.
As one of its options, Australia may forego
its rejection of ISA. An economic driver to it doing so is to secure treaty
concessions
from negotiating partner states with whom Australia values
investment relationships, such as to gain access to profitable U.S. markets
under the TPPA, or to Chinese markets under a China-Australia trade and
investment agreement.[97] However,
it appears that the Australian Government is determined to proceed with its
repudiation of ISA, at least in the foreseeable
future. Due to the political
climate surrounding the issue and a number of legitimate concerns voiced by the
Government, a wholesale
re-adoption of ISA may not be viable. On the other hand,
upholding the status quo and maintaining its rejection of ISA may come at
a high
cost and could undermine Australia’s national interests.
Alternatively,
Australia could reaffirm ISA on a country-by-country basis, according to the
nature of trade and investment relationships,
perceived rule of law standards in
its partner states and the quality of protections accorded to foreign investors.
However, employing
this approach could damage relations between Australia and
the states it deems to lack ‘rule of law’ traditions. Additionally,
as was demonstrated in Part 3 of the paper, such contract-based approach to
dispute resolution is cumbersome, resource intensive
and one-sided since it
ordinarily favours the stronger negotiating parties.
A more advantageous
approach available to Australia is to modify its Policy Statement to provide for
a multi-tiered, qualified access
to ISA, embodied in an Australian BIT policy,
as distinct from a Model BIT, that serves as a flexible template for subsequent
FTAs
and BITs. After all, since ISA is a party driven process of dispute
resolution, treaty signatories are free to design arbitration
rules to apply
during formal dispute resolution proceedings. Among the available modifications
to ISA, parties may: set limits on
the standing of foreign investors to bring
ISA claims; require public notice of ISA complaints; provide for public
participation
in ISA proceedings, and require publication of ISA awards.
Australia may also design its ISA treaties in a manner that would provide
for
interim measures, and create budgetary limits on the cost of ISA in order to
avoid cost overruns.
In addition to modification of the procedural rules
regulating ISA, Australia may provide for the stay of ISA proceedings to allow
for investor-state settlement. Such multi-tiered dispute resolution may include
negotiations between states, including possible resort
to the International
Court of Justice, should such negotiations fail. Australia could also develop
model clauses for incorporation
into its BITS that encourage dispute prevention
and avoidance, such as by requiring investor-state parties to undertake
negotiations
and/or mediation prior to resorting to either domestic litigation
or ISA. Moreover, to ensure that ISA proceedings do not produce
absurd or unjust
decisions that go against legitimate regulatory goals of the Government,
Australia could model its future BITs
to provide for bilateral challenge
committees to hear challenges to ISA
decisions.[98]
The approach is
advantageous as it will allow the Australian Government to achieve its
regulatory goals, in addition to avoiding the
challenges associated with a
complete rejection of ISA. For example, one of the broader benefits of a Model
BIT or template BIT clauses
is a greater commitment to transparency, not only
for foreign states and their foreign investors, but also for Australian
investors
abroad. Even if Australia rejected a Model BIT as too rigidifying, it
could still develop and publicise its BIT policy, including
its preferred BIT
clauses. This BIT policy could serve as a signal to both states and investors
that Australia has a balanced position
on BITs, including support for stable
trade and investment relations which it shares with other states and impacted
investors.
Furthermore, Australia’s adoption and publication of a BIT
policy that makes provision for public interest defenses to foreign
investor
claims may help it to protect its predominately resource-based economy from
foreign investor incursions. This BIT policy
and illustrative clauses could
include inducements for foreign investment in the domestic Australian economy,
such as by adopting
a market based definition of ‘investment’ and by
adopting an investor-sensitive conception of a ‘direct or indirect
expropriation’.
This multidimensional dispute resolution option may
further encourage dispute parties to evaluate their dispute resolution options
in light of costs, duration and effectiveness of the different options. It can
also help home and host states, as well as disputing
investor-state parties to
identify their differences and to find common positions. Thus, when given a wide
menu of dispute resolution
options that do not lock them into a particular
option, affected parties may opt for negotiations, mediation and, where
appropriate,
diplomatic intervention by a ‘home’ state on behalf of
an outbound investor from a ‘host’ partner state.
In doing so, they
can avoid protracted litigation, which is costly to all parties involved in a
dispute.[99]
On a more
macroeconomic level, such a proposed BIT policy will encourage economic
integration between Australia and its key economic
allies. The fact that China
has adopted a similar multi-faceted process for the resolution of investor-state
disputes could help
both sides to reach a consensus on a trade and investment
treaty, which continues to be elusive at the time of writing. It is reasonable
to anticipate that negotiations with other Asian allies will also eventuate.
Furthermore, it will make it easier for Australia to
engage in the TPP
negotiations where the majority of members prefer ISA based format for the
resolution of investor-state disputes.
In considering substantive provisions
that might be included in an Australian BIT policy or program, the paper makes
12 recommendations.
These recommendations attempt to accommodate international
“good practice” in support of ISA, while reflecting
Australia’s
desire to provide for a greater involvement of domestic courts
in the resolution of FDI related disputes. The purpose of the proposed
BIT
policy would be to identify Australia’s preferred position in negotiating
BITs, including the scope for variation in meeting
specific domestic and/or
foreign party requirements, not unlike, but with more flexibility than, the U.S.
Model BIT. It would also
assist Australian negotiators in framing BIT
provisions; and provide domestic courts and ISA tribunals with a template in
negotiating
specific treaties. In addition, it would enable Australia to
negotiate dispute avoidance provisions in concluding BITs with other
states.
These 12 recommendations are outlined below:
While this paper encourages
Australia to adopt a BIT policy, the BIT should be neither inflexible nor
mechanically applied to all of its ensuing treaties. Some states like the U.S.
utilize a Model BIT as a
dominant template in negotiating BITS with partner
states. Other states, like China, vary from their Model BIT some extensively in
negotiating individual BITs, especially most recently. The suggestion is that
Australia should take a middle course in utilizing
BIT policy that includes
preferred BIT clauses, given its status as a middle power and the likelihood
that it will conclude negotiations
with different kinds of BIT partners in the
immediate future. Thus, Australia’s BIT policy need not be drafted as a
manifesto
upon which Australia’s national identity is inextricable
determined.
Furthermore, these recommendations are sustainable only if they
are subject to ongoing scrutiny and refinement. In particular, the
proposed BIT
policy would be monitored on an ongoing basis in light of its adoption in
particular BITS, and its interpretation by
domestic courts and ISA tribunals, to
ensure that it is properly adopted and implemented.
CONCLUSION
Notwithstanding the Government’s apparent
resolve to implement the 2011 Policy Statement, it is uncertain whether the
Policy
will survive as Australia’s long term approach to the resolution of
investor-state disputes. For example, Australia has not
stated that it will seek
to withdraw from existing BITs and FTAs that provide for ISA and some of its
existing BITs may not have
ready mechanisms for displacing
ISA.[104] Even though Australia
may unilaterally withdraw from ISA, such action would carry serious political
implications and could tarnish
its reputation. Furthermore, with the recent
Federal elections, the new Liberal Government may retreat from Australia’s
2011
Trade Policy Statement adopted by the recently defeated Labour Government,
leading to Australia reverting back to the widely accepted
reliance on
ISA.
Assuming the Government intends to proceed with its rejection of ISA,
this paper has suggested a further analysis of the economic,
political and legal
implications associated with its rejection. The assertion is not that ISA is
necessarily more efficient or fairer
than a resort to domestic courts to resolve
investor-state disputes. The claim is rather that macro-economic and social
arguments
favouring the localisation of investment disputes before domestic
courts, on balance, are less optimal than the risks to Australia’s
outbound investors whose investor-state disputes are heard by domestic courts in
jurisdictions that score low on the corruption transparency
and rule of law
indices.[105] The potential
problem is that, in erecting barriers to inbound investors who threaten to
attack “home” state values,
institutions and processes, such
barriers may fail to protect outbound investors who are left to fend for
themselves in hostile foreign
legal environments.
The paper argues that ISA
has some systematic eco-political and legal advantages over investor-state
disputes before domestic courts.
This does not infer that ISA decisions are
necessarily coherent in nature, such as in the standards of treatment accorded
to foreign
investors. Nevertheless, these limitations in ISA do not constitute a
material bar in resorting to ISA. However difficult it may
be to identify
cohesive principles arising out of ad hoc and sometimes unpublished
arbitration awards, it is arguable that a sustainable body of international
investment jurisprudence has
evolved.[106] While ISA does not
lead to judicial precedent as common lawyers conceive of it, it is likely to be
more stable than a plethora of
different local laws and procedures that domestic
courts apply to foreign investment.
The paper does not assert that Australia
is oblivious to countervailing risks of its investors abroad being treated
“unfairly”
by foreign courts. What is contended is that a
state-orchestrated movement away from ISA towards domestic courts to resolve
international
investment disputes may have materially negative economic, social
and legal consequences for Australia and its outbound investors.
The exodus of
investors to so-called ‘investor-friendly’ intermediary states is
one consequence which the 2011 Policy
Statement can have on international
investor practice.
If ISA is to prevail while also responding to
Australia’s public policy and economic concerns, ISA provisions in BITs
and FTAs
should protect essential national security and other public interests.
It should also provide sufficient investor protections to
attract foreign
investors to Australia. Finding a finely tuned balance between public interests
and the commercial needs of foreign
investors is likely to be elusive, whether
or not Australia subscribes to ISA. However, that impediment ought not to
discourage Australia
from considering that balance in light of a constantly
changing international investment landscape.
[1] See generally Leon
Trakman and Nick Ranieri (eds.), Regionalism in International Investment Law
(Oxford University Press 2013) 1,
24.
[2] Laura Alfaro, Areendam
Chanda, Sebnem Kalemli-Ozean and Selin Sayek, ‘Does Foreign Direct
Investment Promote Growth? Exploring
the Role of Financial Markets on
Linkages’ (2010) 91:2 J. Dev. Econ.
242.
[3] See Andreas F.
Lowenfeld, ‘Diplomatic Intervention in Investment Disputes’ (1967)
61 Proceedings of the American Society of International Law at Its Annual
Meeting (1921-1969) 96,
96-107.
[4] See Luke Nottage
and J. Romesh Weeramantry, ‘Investment Arbitration in Asia: Five
Perspectives on Law and Practice’ (2012)
28:1 Arb. Int. 19.
[5] See Jurgen Kurtz,
‘Australia’s Rejection of Investor–State Arbitration:
Causation, Omission and Implication’
(2012) 27:1 ICSID Rev. 65;
Leon Trakman, ‘Investor State Arbitration or Local Courts: Will Australia
Set a New Trend?’ (2012) 46:1 JWT
83.
[6] On the significance of
legal cultures, including regionally, in international investment law, see
Colin B. Picker, ’International Investment Law: Some Legal Cultural
Insights’ in Trakman and Ranieri, supra note 1, p. 120.
[7] See Leon E. Trakman,
‘Legal Traditions and International Commercial Arbitration’ (2006)
17 Am. Rev. Int. Arb. 1, 119–120, 126–128.
[8] For a general overview of this
trend see M. Waibel (ed.), The Backlash Against Investment
Arbitration: Perceptions and Reality (Kluwer Law International
2010).
[9] See Ministry of
Foreign Affairs of Japan, Japan-Philippines Economic Partnership
Agreement <www.mofa.go.jp/policy/economy/fta/philippines.html>
(September 2006). See generally Shotaro Hamamoto and Luke Nottage,
‘Foreign Investment In and Out of Japan: Economic Backdrop, Domestic Law,
and International
Treaty-Based Investor-State Dispute Resolution’ (2011) 5
TDM.
[10] On
Bolivia’s denunciation and withdrawal from the ICSID, see ICSID
News Release, Bolivia Submits a Notice under Article 71 of the ICSID
Convention
<icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=NewsReleases&pageName=Announcement3>.
[11]
On Ecuador’s withdrawal from the ICSID, see ICSID News Release,
Ecuador Submits a Notice under Article 71 of the ICSID Convention
<icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=NewsReleases&pageName=Announcement20>;
Karsten Nowrot, International Investment Law and the Republic of Ecuador:
From Arbitral Bilateralism to Judicial Regionalism, 5
<papers.ssrn.com/sol3/papers.cfm?abstract_id=1620424>.
[12]
On Argentina’s proposed withdrawal from the ISCID, see
Nicolas
Boeglin, ICSID and Latin America: Criticisms, Withdrawals and Regional
Alternatives <cadtm.org/ICSID-and-Latin-America-criticisms> (4 July
2013).
[13] For commentary on these events, as well as investment arbitration in Latin America, see Argentina to Withdraw from the ICSID <http://www.presstv.com/detail/2013/01/24/285299/argentina-to-withdraw-from-icsid/> (24 Jan 2013); Sergey Ripinski, Investment Treaty News: Venezuela Withdrawal from ICSID: What It Does and Does Not Achieve <www.iisd.org/itn/2012/04/13/venezuelas-withdrawal-from-icsid-what-it-does-and-does-not-achieve/> (13 April 2012); Luke Eric Peterson, South Africa Pushes Phase-out of Early Bilateral Investment Treaties After at Least Two Separate Brushes with Investor-State Arbitration <www.iareporter.com/articles/20120924_1>. See generally Scott Appleton, Latin American Arbitration: The Story Behind the Headlines <www.ibanet.org/Article/Detail.aspx?ArticleUid=78296258-3B37-4608-A5EE-3C92D5D0B979>.
[14] See Micula v. Republic of Romania, ICSID Case No. ARB/05/20. The investor claim against Romania was brought under the Sweden–Romania BIT. It dealt with the cancellation and withdrawal of a favourable customs and tax regime by Romania relating to a food production enterprise. See also Micula v Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction, 5 April 2013.
[15] On the EU’s proposal
to restrict investment treaties being concluded by individual EU members,
see European Commission, Proposal for a Regulation of the European
Parliament and of the Council: Establishing a Framework for Managing
Financial Responsibility Linked to Investor-State Dispute Settlement Tribunals
Established by
International Agreements to which the European Union is Party
<trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149567.pdf>. See
also Nathalie Bernasconi-Osterwalder, Analysis of the European
Commission’s Draft Text on Investor-State Dispute Settlement for EU
Agreements
<www.iisd.org/itn/2012/07/19/analysis-of-the-european-commissions-draft-text-on-investor-state-dispute-settlement-for-eu-agreements/>.
[16]
See International Centre for Settlement of Investment Disputes, ICSID
Convention, Regulations and Rules, pp. 95–96
<http://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf>
.
On the recognition and enforcement of international commercial arbitration
awards, see Margrete Stevens, ‘The ICSID Convention and the Origins
of Investment Treaty Arbitration’ in Albert Van Den Berg (ed),
50 Years of the New York Convention (Kluwer Law International 2009);
[17] On China’s evolving
BIT policies, see Leon Trakman, ‘China and Foreign Direct
Investment’ (2013) 2 CJCL (forthcoming); Leon Trakman, China and
Foreign Direct Investment: Looking Ahead <papers.ssrn.com/sol3/papers.cfm?abstract_id=2244634> (2
April 2013); Yang Shu-Dong, ‘Investor Arbitration and China: Investor or
Host State?’ (2011) 2 Opinio Juris
in Comparatione Paper No. 6, 1 <papers.ssrn.com/sol3/papers.cfm?abstract_id=1973744>.
[18] Office of the United States
Trade Representative, The United States Model Bilateral Investment Treaty
(2012) <www.ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf>.
See also Kenneth J. Vandevelde, ‘Model Bilateral Investment
Treaties: The Way Forward’ (2011) 18 Sw. J. L. & Trade Americas
307. Contrast U.S. Department of State, American Model Bilateral
Investment Treaty (2004) <www.state.gov/documents/organization/117601.pdf>.
On Canada’s Model Investment Treaty, see Andrew Newcombe,
Canada’s New Model Foreign Investment Protection Agreement (August
2004)
<http://ita.law.uvic.ca/documents/CanadianFIPA.pdf>
.
[19]
Ibid. On the “self-judging’ nature of ‘national
security’ under the 2012 US Model BIT, in contradistinction to
the 2004 US
Model BIT, see Lise Johnson, ‘The 2012 US Model BIT: and What the
Changes (or Lack Thereof) Suggest for Future Bilateral Investment
Treaties’,
Political Risk Insurance Newsletter, November 2012,
1–4
<www.vcc.columbia.edu/files/vale/content/Political_Risk_Insurance_Newsletter_-_The_2012_US_Model_BIT_-_Nov_2012.pdf>.
[20] It should be noted that
even before the US adopted its 2012 Model BIT, it has begun to limit the scope
of ISA in its FTAs For example,
the 2009 US–Peru Free Trade Agreement
subjected foreign investors to significant regulation by the host state.
See Peru Trade Promotion Agreement, US–Peru, signed 12 April
2006 (entered into force 1 Feb 2009) art 10.21; Free Trade Agreement,
US–Colombia, signed 22 November 2006 (entered into force 15 May 2012) art
10.21; Free Trade Agreement, Korea–US, signed 30 June 2007
(approved by Congress, 12 October 2011) art 11.21.
[21] See Kyla Tienhaara,
‘Regulatory Chill and the Threat of Arbitration: A View from Political
Science’, in C. Brown and K. Miles
(eds.), Evolution in Investment
Treaty Law and Arbitration (Cambridge University Press 2012)
606–628.
[22] These
concerns are not entirely novel. They were reflected in the Calvo Doctrine
enunciated decades ago by the Argentine Republic.
That doctrine stipulated that
domestic authorities, not limited to local courts, should resolve disputes,
including matters arising
over FDI that had previously been submitted to
international tribunals. See generally Wenhua Shan, ‘From
“North-South Divide” to “Private-Public Debate”: Revival
of the Calvo Doctrine and
the Changing Landscape in International Investment
Law’ (2007) 27 Nw. J. Int’l L. & Bus. 631; Bernardo
Cremades, ‘Resurgence of the Calvo Doctrine in Latin America’ (2006)
7 BLI 53.
[23] On the
UNCTAD’s “country specific list of bilateral investment
treaties”, including links to each treaty, see UNCTAD,
Country-Specific Lists of Bilateral Investment Treaties
<unctad.org/en/Pages/DIAE/International%20Investment%20Agreements%20%28IIA%29/Country-specific-Lists-of-BITs.aspx>.
[24]
That Treaty provided for investors of either partner state to have access to the
domestic courts of the other, based on the rationale
that the courts in both
countries adhered to a “rule of law” tradition. See Trakman,
supra note 27, pp. 79–81; Peter Drahos and David Henry, ‘The
Free Trade Agreement between Australia and the United States’
(2004)
Brit. Med. J. 1271. See generally William S Dodge,
‘Investor-State Dispute Settlement between Developed Countries:
Reflections on the Australia-United States
Free Trade Agreement’ (2006) 39
Vand. J. Transnat’l L. 1 (commenting on the exhaustion of local
remedies); Thomas Westcott, Foreign Investment Issues in the Australia-United
States Free Trade Agreement
<archive.treasury.gov.au/documents/958/PDF/06_Foreign_investment_policy_AUSFTA.pdf>.
[25]
China has over 130 BITs, becoming the state with the second largest number of
BITS signed, after Germany that has signed the most
BITs. For an overview of
China’s BITS, see generally China FTA Network, FTA News Release
<fta.mofcom.gov.cn/english/index.shtml>.
[26]
On China’s shifting position in regard to investment arbitration, see
generally Vivienne Bath and Luke Nottage (eds.), Foreign Investment and
Dispute Resolution Law and Practice in Asia (Routledge 2011); Nils Eliasson,
‘China’s Investment Treaties: A Procedural Perspective’, pp.
90–111.
[27] Craig Emerson,
Gillard Government Trade Policy Statement: Trading Our Way to More Jobs and
Prosperity
<www.dfat.gov.au/publications/trade/trading-our-way-to-more-jobs-and-prosperity.html#investor-state>
(hereafter “Policy”).
For a comment on the Australian
Government’s Policy announced on 12 April 2011, see Luke Peterson,
Australia Rejects ISA Provision in Trade Agreements:
<donttradeourlivesaway.wordpress.com/2011/04/19/australia-rejects-investor-state-arbitration-provision-in-trade-agreements/>;
see generally Leon E Trakman, ‘Foreign Direct Investment: Hazard or
Opportunity?’ (2010) 41 Geo. Wash. Int’l L. Rev.
1.
[28] See Policy,
supra note 28, pp.
1–2.
[29] See Leon E
Trakman, ‘The ICSID in Perspective’ in Trakman and Ranieri,
supra note 1, p. 253(discussing these withdrawals from the ICSID); Markus
Burgstaller and Charles B. Rosenberg, ‘Challenging International
Arbitral
Awards: To ICSID or not to ICSID?’ (2011) 27 Arb. Int. 91;
R. Zachary Torres-Fowler, ‘Undermining
ICSID: How The Global Antibribery Regime Impairs Investor-State
Arbitration’ (2012) 52:4 Va. J. Int’l L.
995; Antonios Tzanakopoulos, ‘Denunciation of the ICSID Convention
under the General International Law of Treaties’ in
Rainer Hofmann and
Christian J. Tams (eds.), International Investment Law and General
International Law: From Clinical Isolation to Systematic Integration? (Nomos
Publishing 2011); Michael Waibel, Asha Kaushal, Kro-Hwa Chung and Claire
Balchin, The Backlash against Investment Arbitration (Kluwer Law
International 2010); Tor Krever, ‘The Legal Turn in Late Development
Theory: The Rule of Law and the World Bank’s
Development Model’
(2011) 52 Harv. Int’l L. J. 287; Ignacio A Vincentelli, ‘The
Uncertain Future of ICSID in Latin America’ (2010) 16 Law & Bus.
Rev. Am. 409; United Nations Conference on Trade and Development (UNCTAD),
Denunciation of the ICSID Convention and BITS: Impact on Investor-State
Claims <unctad.org/en/Docs/webdiaeia20106_en.pdf>; Appleton,
supra note 13. See also ICSID, Venezuela Submits a Notice under
Article 71 of the ICSID Convention, Washington DC <icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=Announcements&pageName=Announcement100>.
[30] See Luke Nottage,
‘Investor-State Arbitration Policy and Practice after Philip Morris
Asia v Australia’, in Trakman and Ranieri, supra note
1.
[31] Tienhaara, supra
note 21, pp. 606–628.
[32]
Ibid.
[33] See
generally Nottage, in Trakman and Ranieri, supra note 1, pp.
452–474; Andrew D. Mitchell and Sebastian M. Wurzberger, ‘Boxed in?
Australia’s Plain Tobacco Packaging
Initiative and International
Investment Law’ (2011) 27 Arb. Int. 623
<ssrn.com/abstract=1896125>; Tania Voon and Andrew Mitchell,
‘Implications of WTO Law for Plain Packaging of Tobacco
Products’ in
Andrew Mitchell, Tania Voon and Jonathan Liberman (eds.), Public Health and
Plain Packaging of Cigarettes: Legal Issues
<ssrn.com/abstract=1874593>. On Philip Morris: ongoing action against
Australia under the Australia-Hong Kong Free Trade Agreement,
see Phillip
Morris International, News Release: Philip Morris Asia Initiates Legal Action
Against the Australian Government Over Plain Packaging
<www.pmi.com/eng/media_center/press_releases/pages/PM_Asia_plain_packaging.aspx>.
On Philip Morris: unsuccessful litigation against the Prime Minister of
Australia, see Philip Morris Limited v Prime Minister [2011] AATA 556. On
the earlier claim brought against the Republic of Uruguay under the
Switzerland-Uruguay BIT, see FTR Holdings S.A. (Switzerland) v. Oriental
Republic of Uruguay, ICSID Case No ARB/10/7, Request for Arbitration, 19
February 2010: <www.smoke-free.ca/eng_home/2010/PMIvsUruguay/PMI-Uruguay%20complaint0001.pdf>.
FTR Holding S.A. is a subsidiary of Philip Morris International Inc (PMI).
PMI’s Operation’s Center is in
Switzerland.
[34] See
Dispute Settlement DS434, Australia — Certain Measures Concerning
Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products
and
Packaging
<www.wto.org/english/tratop_e/dispu_e/cases_e/ds434_e.htm>.
See generally T. Voon and A. Mitchell, ‘TDM Special Issue on Legal
Issues in Tobacco Control’ (2012) 5 TDM
<www.transnational-dispute-management.com/journal-browse-issues-toc.asp?key=43>.
[35] On the PBS, see
Australian Government: Department of Health and Ageing, Pharmaceutical
Benefits Scheme: PBS News Updates
<www.pbs.gov.au/>.
[36]
See Leon E. Trakman, ‘National Good No Issue in ASX Deal’,
The Australian, 2 November 2010 <
www.theaustralian.com.au/business/national-good-no-issue-in-asx-deal/story-e6frg8zx-1225946362212>.
[37]
See Trakman, supra note 30, pp. 48–53; Westcott,
supra note 25.
[38]
Ibid.
[39] On
Australia’s Policy Statement generally, see Trakman, supra
note 5. See Leon Trakman, ‘Foreign Direct Investment: An Australian
Perspective’ (2010) 13 ITBL 31,
48–53.
[40] See
Australian Productivity Commission, Bilateral and Regionals Trade Agreements:
Final Report, pp. 1, 271–272
<http://www.pc.gov.au/projects/study/trade-agreements>
.
[41] Australian Productivity
Commission, Research Report, p. xiv (on file by
author).
[42] Ibid.
xxii.
[43] See TPP Legal,
An Open Letter from Lawyers to the Negotiators of the Trans-Pacific
Partnership Urging the Rejection of Investor-State Dispute Settlement
<tpplegal.wordpress.com/open-letter/>.
[44]
Ibid.
[45] For the full
text of the ANZCERTA, see
<www.dfat.gov.au/fta/anzcerta/>.
[46]
See Nottage and Weeramantry, supra note
4.
[47] See Trakman,
‘The ICSID in Perspective’ in Trakman and Ranieri, supra note
1, p. 253.
[48] On the Loewen
case, see e.g., Charles Brower and Lee Steven, ‘NAFTA Chapter 11:
Who then should Judge? Developing the International Rule of Law under NAFTA
Chapter 11’ (2001) 2 Chi. J. Int’l L. 193, 193-195;
Jack J. Coe Jr, ‘Domestic Court Control of Investment Awards: Necessary
Evil or Achilles Heel within NAFTA and
the Proposed FTAA’ (2002) 19
J. Int’l Arb. 185; David A. Gantz, ‘An Appellate Mechanism
for Review of Arbitral Decisions in Investor-State Disputes: Prospects and
Challenges’
(2006) 39 Vand. J. Transnat’l L. 39. But
see William S. Dodge, ‘Case Report: Waste Management, Inc v
Mexico’ (2001) 95 AJIL 186 (presenting the case for modelling
Chapter 11 on the WTO appellate process). See also Gary R. Saxonhouse,
‘Dispute Settlement
at the WTO and the Dole Commission: USTR Resources and
Success’ in Robert M. Stern (ed.), Issues and Options for U.S.-Japan
Trade Policies (University of Michigan Press 2002)
363.
[49] See e.g.,
Kyla Tienhaara, ‘Regulatory Chill and the Threat of Arbitration: A View
from Political Science’ in Chester Brown and
Kate Miles (eds.),
Evolution in Investment Treaty Law and Arbitration (Cambridge University
Press 2011).
[50] See
Bernardo M. Cremades Román, B. Cremades y Asociados, The Use of
Preliminary Objections in ICSID Annulment Proceedings
<kluwerarbitrationblog.com/blog/2013/09/04/the-use-of-preliminary-objections-in-icsid-annulment-proceedings-2/>.
[51]
On the Loewen case, see Brower and Steven, supra note
55.
[52] For a debate on this
issue, see Leon E. Trakman and M. Sornarajah, ‘A Polemic: The Case
For and Against Investment Liberalization’ in Trakman and Ranieri,
supra note 1, Appendix p.
499.
[53] On such issues, see
generally Foreign Investment Review Board, Current International
Investment Issues - OECD Investment
Committee
<www.firb.gov.au/content/international_investment/current_issues.asp?NavID=60>.
[54]
See Leon E. Trakman, ‘A Plural Account of the Transnational Law
Merchant’ (2011) 2:3 TLT 309,
335.
[55] On this public-private
tension, see Alex Mills, ‘The Public-Private Dualities of
International Investment Law and Arbitration’, in Chester Brown and Kate
Miles (eds.), Evolution in International Investment Treaty Law and
Arbitration (Cambridge University Press 2011); Catherine A Rogers,
‘International Arbitration’s Public Realm’, in
Contemporary Issues in International Arbitration and Mediation: The Fordham
Papers (Martius Nihoff Publishers 2010).
[56] See e.g.,
Susan Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration:
Privatizing Public International Law through Inconsistent
Decisions’
(2004-5) 73 Fordham L. R. 1521, 1543–44; G. A. Alvarez and
W. W. Park, ‘The New Face of Investment Arbitration: NAFTA Chapter
11’ (2003) 28
Yale J. Int’l L.
365.
[57] On the variability
of international investment treaty law, see Stephan W. Schill, The
Multilateralization of International Investment Law (Cambridge University
Press 2009) 363; Cf. M. Sornarajah, ‘The Case Against an
International Investment Regime”’ in Trakman and Ranieri, supra
note 1, p. 475.
[58] On
allegedly inconsistent ICSID decisions in a series of investment claims against
Argentina, commencing with the CMS, Enron and Sempra cases,
see CMS Gas Transmission Co v. The Argentine Republic, ICSID Case
No ARB/01/8, Award, 12 May 2005; Enron Creditors Recovery Corporation and
Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No ARB/01/3, Award,
22 May 2007; Sempra Energy International v. The Argentine Republic, ICSID
Case No ARB/02/16, Award, 28 September 2007. See further August Reinisch,
‘Necessity in International Investment Arbitration – An Unnecessary
Split of Opinions in Recent ICSID
Cases? Comments on CMS v. Argentina and
LG&E v. Argentina’ (2007) 8 JWIT 191; Stephan W. Schill,
‘International Investment Law and the Host State’s Power to Handle
Economic Crises: Comment on
the ICSID Decision in LG&E v.
Argentina’ (2007) 24 J. Int’l Arb. 265; Michael Waibel,
‘Two Worlds of Necessity in ICSID Arbitration: CMS and LG&E’
(2007) 20 Leiden J. Int’l L. 637. See C. Peinhardt & T.
Allee, ’Devil in the Details? The Investment Effects of Dispute Settlement
Variation in BITs’,
in Karl Sauvant (ed.), Yearbook on International
Investment Law & Policy 2010-2011 (Oxford University Press 2011)
833–854.
[59] See
Kenneth Vandevelde, ‘A Brief History of International Investment
Agreements’ (2005) 12 UC Davis J. Int’l & Pol’y.
157, 172. See also UNCTAD, World Investment Report 2010, xxv
<www.unctad.org/en/docs/wir2010_en.pdf>.
[60]
On the draft Hague Principles on Choice of Law, see Hague Conference on Private
International Law, Draft Hague Principles on the Choice of Law in
International Contracts
<www.hcch.net/upload/wop/contracts2012principles_e.pdf>. See also
Hague Convention on the Recognition and Enforcement of Foreign
Judgments in Civil and Commercial Matters
<www.hcch.net/index_en.php?act=conventions.text&cid=78>. See
also Stevens, supra note 16. On the list of state and other
signatories of the ISCID Convention, see ICSID, List of Contracting States
and Other Signatories of the Convention
<icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=Contractingstates&ReqFrom=Main>.
See also Hague Conference on Private International Law, The Hague
Convention of 30 June 2005 on Choice of Court Agreements
<www.hcch.net/upload/conventions/txt37en.pdf>.
[61]
On the ICSID membership, see ICISD
<icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=Contractingstates&ReqFrom=Main>.
[62]
See e.g., Aurélia Antonietti, ‘The 2006 Amendments of the
ICSID Rules and Regulations and the Additional Facility Rules’
(2006) 21
ICSID Rev. — Foreign Invest. L. J. 427; Edward Baldwin, Mark Kantor
and Michael Nolan, ‘Limits to Enforcement of ICSID Awards’ (2006) 23
J. Int’l Arb.
1.
[63] On this amendment to
the ICSID Rules, see Antonietti, supra note 63. See also
Statement by the OECD Investment Committee, Transparency and Third-party
Participation in Investor-State Dispute Settlement
<www.oecd.org/daf/inv/investment-policy/34786913.pdf>.
[64]
For a comparative analysis of dualism and monism in international law, see
Brindusa Marian, ‘The Dualist and Monist Theories: International
Law’s Comprehension of these Theories’ (2007) 28-29
The Juridical
Current Journal
<revcurentjur.ro/arhiva/attachments_200712/recjurid071_22F.pdf>.
[65]
On a dualist conception of international law, see e.g., Hans
Kelsen, Principles of International Law (2nd ed., Holt
Rinehart & Winston 1966) 551–552.
[66] On the tension arising from
this patchwork quilt of BITs and ISA awards, particularly in relation to
developed and developing states
and their investors, see Leon E. Trakman
and M. Sornarajah, ’International or National Investment Law? A
Polemic’ in Trakman and Ranieri, supra note 1, Appendix p.
499.
[67] On “swimming in
the spaghetti bowl” to describe the economic effect of multiple
“free” trade agreements,
see Jagdish Bhagwati, Free Trade
Today (Yale University Press
2002).
[68] On the expertise of
investor-state arbitrators, among various other factors in support of ISA,
see generally Christopher Dugan, Don Wallace Jr. and Noah Rubins,
Investor-State Arbitration (Oxford University Press 2008); Peter
Muchlinski, Federico Ortino and Christoph Schreuer (eds.), Oxford Handbook of
International Investment Law (Oxford University Press 2008); Campbell
McLachlan, Lawrence Shore and Matthew Weiniger, International Investment
Arbitration: Substantive Principles (Oxford University Press
2008).
[69] On Transparency
International’s Corruption Perceptions Index 2012, see Transparency
International, Corruption Perceptions Index 2012
<www.transparency.org/cpi2012/results>. On doubts about the reliability of
such indexes, see Theresa Thompson and Shah Anwar Transparency
International’s Corruption Perceptions Index: Whose Perceptions Are They
Anyway? <siteresources.worldbank.org/INTWBIGOVANTCOR/Resources/TransparencyInternationalCorruptionIndex.pdf>.
[70] See e.g.,
Christoph Schreuer and Rudolf Dolzer, Principles of International Investment
Law (Oxford University Press 2008)
357.
[71] On the ICSID Panels of
Arbitrators and Conciliations, see ICSID, Search ICSID Panels:
<icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDataRH&reqFrom=Main&actionVal=PanelStates&range=A~B~C~D~E>.
[72]
On the development of international investment norms around conceptions of
efficiency, see Foreign Investment Review Board, supra note 54.
[73] On proceedings in Philip
Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL PCA Case No.
2012-12
<www.italaw.com/cases/851>.
[74]
On the ICSID Caseload Statistics, see:
<icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=CaseLoadStatistics>.
[75]
See Philip Morris Brands Sàrl, Philip Morris Products S.A. and
Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7
<www.italaw.com/cases/460>.
[76] On the tax and related
protection accorded to foreign investors in tax havens such as the Netherlands
Antilles, see
<http://www.escapeartist.com/Special_Reports/What_Is_A_Tax_Haven/>
-
.
[77] On such intermediary
states, see UNCTAD, World Investment Report 2012
<unctad.org/en/PublicationsLibrary/wir2012_embargoed_en.pdf>.
[78]
See Meredith K. Lewis, ‘The Trans-Pacific Partnership: New Paradigm
or Wolf in Sheep’s Clothing?’ (2011) 34 B. C. Int’l &
Comp. L. Rev 27, 34; Patricia Ranald, ‘The Trans-Pacific Partnership
Agreement: Contradictions in Australia and in the Asia Pacific Region’
(2011) 22:1 Econ. Lab. Relat. Rev. 81
<search.informit.com.au/documentSummary;dn=013448300672307;res=IELBUS>. On
the US negotiating position generally, see David Gantz, Trans-Pacific
Partnership Negotiations: Progress, But No End in Sight
<kluwerarbitrationblog.com/blog/2012/06/22/trans-pacific-partnership-negotiations-progress-but-no-end-in-sight/>.
[79] State-by-state negotiations
notwithstanding, each “round” of TPPA negotiations includes all
participating countries.
The 18th Round of TPP Negotiations will take place in
Kota Kinabalu, Malaysia on July 15-24, 2013.
[80] For arguments in support of
Australia opting out of Investor-State arbitration, see e.g., Kyla
Tienhaara, Submission to the Department of Foreign Affairs and Trade:
Investor-State Dispute Settlement in the Trans-Pacific Partnership Agreement
<www.dfat.gov.au/fta/tpp/subs/tpp_sub_tienhaara_100519.pdf>.
[81]
See Leon Trakman, ‘International Investment Law and the
Transpacific Partnership Agreement’, in Tania Voon (ed.), The
Transpacific Partnership Agreement (2013, forthcoming).
[82] On the prospect of foreign
investors resorting to intermediary states to bring claims against host states,
see supra note
77.
[83] See Business
Council of Australia, Assessing Australia’s Trade and Investment with
Asia
<www.bca.com.au/DisplayFile.aspx?FileID=789>.
[84]
Ibid.
[85] See
Australian Government Department of Foreign Affairs and Trade,
Australia’s Trade in Goods and Services 2012
<www.dfat.gov.au/publications/tgs/>.
91 See
Australian Government, Australia in the Asian Century Foreign Direct
Investment Fact Sheet. Oct 2012
<asiancentury.dpmc.gov.au/sites/default/files/fact-sheets/20.-Foreign-investment-in-Australia.pdf>.
[86]
See Australian Government, Australia in the Asian Century Australian
Investment Abroad Fact Sheet. Oct 201
<asiancentury.dpmc.gov.au/sites/default/files/fact-sheets/19.-Australian-investment-abroad.pdf>.
[87]
See supra note
91.
[88] See Transparency
International, 2012 Corruption Perception Index Results
<http://cpi.transparency.org/cpi2012/results/> (20 Sept
2013).
[89] See The
World Justice Project, 2012-2013 Rule of Law Index Scores and Rankings
<http://worldjusticeproject.org/rule-of-law-index-data> (20
Sept 2013).
[90] See The
World Bank, Ease of Doing Business 2012 Rankings
<http://www.doingbusiness.org/rankings> (20 Sept
2013).
[91] See
e.g., Theresa Thompson & Anwar Shah “Transparency
International’s Corruption Perceptions Index: Whose Perceptions Are
They
Anyway?” World Bank Discussion Draft
2005.
[92] Investors may base
these decisions on various grounds, including but not limited to corruption
transparency and rule of law indices.
See supra notes 69 and 89.
[93] See Rick Wallace,
‘Free-trade Push May Open Door to China’, The Australian, 18
July 2013
<www.theaustralian.com.au/national-affairs/foreign-affairs/free-trade-push-may-open-door-to-china/story-fn59nm2j-1226681027576>.
[94]
Mike Hibberd, ‘Huawei Blocked from Australia NBN Bid’,
telecoms.com, 26 March 2012
<www.telecoms.com/41633/huawei-blocked-from-australian-nbn-bid/>.
[95]
See e.g., Jill Stark, ‘US Follows Australia in Naming Huawei
as a Possible Security Threat’, Sydney Morning Herald, 9 October
2012
<www.smh.com.au/it-pro/security-it/us-follows-australia-in-naming-huawei-as-a-possible-security-threat-20121008-277ad.html>;
Christopher Joye, ‘Hauwei Spies for China, Says ex-CIA Chief’,
Financial Review, 19 July 2013
<www.afr.com/p/national/huawei_spies_for_china_says_ex_cia_QoPS9JWsvg6bMYqmPbtqLK>.
[96]
On the topic, see generally, Christopher Dent, ‘Free Trade
Agreements in the Asia Pacific a Decade On: Evaluating the Past, Looking to the
Future’
(2009) 10:2 Int. Relat. Asia Pac.
201.
[97] On the TPPA, see
supra Part VI (A) and note 79; on the extent of inbound investment from
and outbound to China, see supra Part VI
(B).
[98] On such a challenge
process, see UNCTAD IIA: Issues Note, Reform of Investor-State Dispute
Settlement: In Search of a Roadmap, 4
<unctad.org/en/PublicationsLibrary/webdiaepcb2013d4_en.pdf > (26 June
2013).
[99] See
supra Part III.
[100]
See Klaus Peter Berger, Private Dispute Resolution in International
Business: Negotiation, Mediation, Arbitration (Kluwer Law International
2006) vol II: Handbook, pp.
74–78.
[101] See UNCTAD,
Investor–State Disputes: Prevention and Alternatives to Arbitration
<www.unctad.org/en/docs/diaeia200911_en.pdf>.
International investment claims and decisions are available at
<www.investmentclaims.com>.
[102] International Centre for
Settlement of Investment Disputes, ICSID Convention, Regulations and
Rules April 2006, Rule 37 at 117:
<https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/CRR_English-final.pdf>.
See also, Leon E Trakman, ‘The ICSID under Siege’ (2012)
45(3) Cornell Int’l L J 603 at 663-65; Antonietti, supra
note 63 at 427; Baldwin, Kantor & Nolan, supra note 63 at
1(discussing “tactics” that may be employed in attempts to
“delay” or “avoid” compliance
with ICSID Awards).
[103] UNCITRAL,
UNCITRAL Arbitration Rules
<www.uncitral.org/uncitral/uncitral_texts/arbitration/2010Arbitration_rules.html>.
[104] This is subject to the
provision in a BIT for a state to withdraw its consent as signatory to a
BIT.
[105] See
Transparency International, supra note 73.
[106] See Franck, supra note 57, pp. 1521, 1543–1544.
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