unctad.org | REPORT SAYS WAVE OF ARBITRATION CASES IMPACTED INTERNATIONAL INVESTMENT RULEMAKING
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REPORT SAYS WAVE OF ARBITRATION CASES IMPACTED INTERNATIONAL INVESTMENT RULEMAKING

UNCTAD/PRESS/PR/2008/002
09 January 2008

Trend in new agreements is towards more precise definitions, more transparency in effort to avoid disputes


As a result of the growing number of investor-State arbitration cases, many recently concluded international investment agreements (IIAs) -- bilateral and regional treaties aimed at promoting foreign investment by establishing stable legal rules -- have more precise definitions and other measures intended to avoid disputes, a new UNCTAD report says.

The report, Investor-State Dispute Settlement and Impact on Investment Rulemaking, now available, says the experience of a number of countries with investor-State dispute settlement has influenced their approach to formulating IIA provisions. Growing numbers of disputes in recent years have landed before arbitration panels, and observing how previous IIAs were interpreted and applied by arbitration tribunals, governments have come up with new language addressing the problems that arose in the context of the disputes. For example, the definition of "investment" has been made more precise in a number of recent IIAs. And several provisions dealing with the concept of "standards of protection," such as the "fair and equitable treatment standard" and the concept of indirect expropriation, have been redrafted and clarified.

Overall, the transparency of investment agreements has been improved and redefined in recent IIAs, the report says. And it has been made clear that investment protection and the liberalization of investment regimes must not be pursued at the expense of other key public policy objectives.

Dispute-settlement procedures have been reviewed and modernized as well. The report says these adjustments aim at better transparency in dispute settlement, increased public participation in the process, and the possibility of consolidating claims so that settlement is faster and more efficient.

Although case law is evolving rapidly, making it hard to infer trends, the UNCTAD study suggests that two important lessons have emerged from the last decade. First, the increase in investment disputes has called into question the desirability of negotiating IIAs with extremely broad and imprecise provisions delegating to arbitration tribunals the task of identifying the meanings of disputed provisions. Second, when negotiating an IIA, a country should pay attention not only to the wording of the agreement, but also to the interaction between the IIA and the arbitration convention(s) referred to in the pact. Since individual arbitration conventions often differ substantially from each other, the choice of one particular arbitration forum may have a significant impact on the outcome of subsequent investment disputes.

The new standards in recent IIAs may inadvertently create a different sort of confusion. Most countries that are parties to the "new-style" IIAs are also still parties to numerous "old" IIAs containing provisions using the same broad and imprecise language that has triggered investment disputes in the past, the report notes. As a result, there is a risk of incoherence, especially for developing countries trying to understand and apply differing agreements with differing rules. Such countries often lack bargaining power in international investment rule-making, and they may find it challenging to conduct negotiations on the basis of divergent styles of IIAs, especially with more experienced negotiating partners.

One positive development of the trend, on the other hand, is that the growing legal sophistication of investment dispute resolution points to a further strengthening of the rule of law at the international level. This serves the interests of all parties - investors, developed countries and developing countries.

The increased number of IIA arbitration cases in recent years may also motivate developing host countries to improve administrative practices and laws so as to avoid future disputes, the report says. This would further strengthen the predictability and stability of the legal frameworks that IIAs are supposed to produce in the first place.

UNCTAD, Investor-State Dispute Settlement and Impact on Investment Rulemaking (New York and Geneva: United Nations), United Nations publication, Sales No. E.07.II.D.10.




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