Nyligen presenterade EU-domstolens ansvariga generaladvokat Yves Bot sitt yttrande kring huruvida CETA-avtalets investeringsskydd är kompatibelt med EU-rätten. Och det är det, menar Bot, som inte ser någon risk för att EU:s rättsordning undermineras av avtalet. Generaladvokatens yttrande är inte bindande för domstolen men i de flesta fall väljer domarna att gå på samma linje. EU-domstolen fastställer dom i ärendet i år.

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Investment Dispute Systems – A lingering Trade Agreement question

Earlier this year, the Advocate General of the Court of Justice of the European Union (CJEU), Yves Bot, delivered his Opinion on whether the Investment Court System (ICS) in the Comprehensive Economic and Trade Agreement (CETA) is compatible with EU law. Stating clearly, that ICS is, in fact, compatible with EU law, this opinion may bring an end to Belgium’s concern raised following complications in its ratification process, which nearly halted CETA from coming into force. The matter is before the CJEU to deliver its opinion in due course.

Belgium’s concern, though broadly phrased in its request for an opinion by the CJEU on the compatibility, was not without merits and touched upon a long history of legal debate on dispute settlement systems within trade agreements.

For many years, the mechanism to settle investment disputes has been the Investor-State Dispute Settlement system (ISDS). In recent years, however, this system has been highly criticized for showing a lack of uniformity and transparency between the different outcomes of the investment arbitration, as well as lack of legitimacy and impartiality of arbitrators under this system. Indeed, one of the main contention points of the Transatlantic Trade and Investment Partnership (TTIP), was the ISDS system. In order to avoid such situations, more recent trade agreements with Canada, Vietnam, and Singapore, have removed ISDS as the dispute resolution system and instead introduced a new system, the Investment Court System.

In a recent statement, EU stated that it has deviated from the ISDS system altogether and further stated that “a new system – called the Investment Court System, with judges appointed by the two parties to the FTA and public oversight – is the EU’s agreed approach that it is pursuing from now on in its trade agreements. This is also the case with Japan. Anything less ambitious, including coming back to the old Investor-to-State Dispute Settlement, is not acceptable. For the EU ISDS is dead.”

However, the EU’s ambitions to move forward solely with ICS as its new investment dispute resolution system, is not willingly accepted by all with open arms. Japan, though agreeing with the EU to not reintroduce ISDS in the Japan EU Trade Agreement (JEEPA), is however, also not agreeing to take on EU’s proposal for ICS. Though discussions of the final investment dispute resolution are still ongoing, JEEPA has in face already entered into force since Jan. 31, 2019.

The world of trade agreements is thus in need of a new and reformed investor-state dispute resolution system.

A proposal for reform has in fact been made to the UN Commission on International Trade Law (UNCITRAL), which was positively received and has led UNCITRAL to commence their reform work on November 2017 through the establishment of the Working Group III. The Working Group III has gone through two of the three stages, of identifying the concerns around ISDS and considering whether reform of ISDS is desirable in the light of the identified concerns. The third stage of designing the reform will welcome proposals regarding the content of such reform by member states.

Amongst others, the EU has proposed, as a potential solution, a new system called the Multilateral Investment Court (MIC), which suggests the establishment of a permanent investment court, which would have exclusive jurisdiction to rule on investment claim. This court would include an appeal body as well as an appointment process whereby each contracting state provides a panel of candidates to this court. It furthermore, proposes an autonomous mechanism of enforcement, which would exclude any domestic review.

As this debate continues and trade agreements between countries continue to develop and come into force, concerns raised by Belgium in the CETA are simply the side effects of unclear investment dispute resolution systems. The request raised by Belgium highlights that the general public’s mistrust for investment arbitration is still present and thus demands to be addressed properly including all stakeholders. The arbitration community, aware of the importance of a positive understanding of arbitration by public and investors, aims now to improve it.

The ICC, already approached by UNCITRAL in November 2017, has been asked to mobilize the business community to engage and be represented at the the next Working Group III’s session in early April, in order to give the business and arbitration community’s view on the question.