Investment norm setting clarity - a long way to go

Another blogpost on the chaos in investment treaty norm setting is highlighted in this CCSI piece by Federico Ortino. He alludes to the fact that substantive treaty protections in investment treaties have been very broadly interpreted by arbitral tribunals leading to a backlash by States to re-define the scope and content of these obligations.

The situation is bleak to arrive at a consensus on this since treaty negotiators are taking diametrically opposite views - from strengthening investor protection to rescinding treaties. The lack of multilateral fora or a comprehensive agenda is adding to the chaos.

Thus, when it comes to a core aspect of the investment treaty system, investment protection, policy-makers find themselves between a rock and a hard place: investment tribunals’ shortcomings as described above, on one side, and the politically arduous multilateral mountain to climb, on the other side. Something will have to give.

Thus, when it comes to the core of reform - the substantive provisions - there is a spaghetti effect with various bilateral and regional initiatives muddying the waters. Some would argue that this is essential considering that there is no one size fits all solution or approach.

What I found interesting in the piece was a reference to "Stabilisation clauses" that also restrict change in regulatory regimes too. Reference to the Italy Mozambique BIT and the provision that restricts regulatory change is here.

Whenever, after the date when the investment has been made, a modification should take place in laws, regulations, acts or measures of economic policies governing directly or indirectly the investment, the same treatment shall apply upon request of the investor that was applicable to it at the moment when the investment was agreed upon to be carried out.

In today's reform oriented treaties and modelas, such clauses are actually unthinkable or atleast will be modified to the extent of the need for legitimate regulatory power. That itself indicates how far we have come in investment norm setting.

The trend of varied approaches is likely to contnue in 2021 as indicated in this piece:

As we move into 2021 and States continue to review their BITs, we are likely to see new alterations and alternatives to the traditional ISDS model. However, there is no panacea to the issues surrounding foreign investment. As Esmé Shirlow notes, reforms “to one procedure may produce unintended consequences for others.” Accordingly, while arbitral institutions continue to discuss their role in facilitating international investment agreements, there will still be a need for a comprehensive approach that leverages “the strengths of different dispute settlement techniques whilst minimising their weaknesses”.

Thus, we will see more of experimentation and less of uniformalisation. Perhaps, that is the way forward. 

 

 

ISDS cases, appeals and some complexity

 The latest news on investment arbitration is the Cairns ISDS verdict against India. News of it here, here and here.

I had blogged about a similar case of Vodafone here. Now there is news about an appeal against the Vodafone Arbitral award.

Can an ISDS arbitration award be appealed against? is it an appeal on jurisdiction or a de novo review? Where does the provision to appeal against an arbitration award exist? In the investment treaty or elsewhere? The WTO has (or had till now) an appellate review mechains. However, ISDS cases do not have an appellate mechanism. The EU proposal to set up an Appellate mechanism is a movement in that direction.

So, then should the Vodafone arbitration award be appealed against. 

Two contrary views have surfaced:

Yes, we should: Promod Nair and Shivani Singal have argued that India should appeal against the ISDS arbitral award in Singapore:

The seat of the Vodafone arbitration was Singapore and any challenge to the award will have to be brought before the courts of Singapore. Unlike other jurisdictions (such as Switzerland which accord a wide margin of deference to the decisions of investment tribunals), the courts of Singapore have not hesitated to set aside BIT awards in cases where an investment tribunal has exceeded its jurisdiction.

        ...

India has an opportunity to challenge the Vodafone award in Singapore, which it should avail of. The time period for challenging an award is 90 days from the date of receipt of the award. The scope of consent to arbitration (including whether India has ceded jurisdiction to an ISDS tribunal to decide tax disputes arising out of the exercise of sovereign legislative power) is an important issue that needs to be finally settled - not least because it could have multi-billion dollar implications for India in respect of other cases involving challenges to India’s taxation measures by foreign investors.

At least two other investment arbitrations – commenced by Cairn and Vedanta respectively – where final awards are presently awaited, arise out of the same taxation measure that was held to be in breach of India’s obligation to accord FET protection under the India-Netherlands BIT in the Vodafone arbitration.

A favourable decision from the courts of Singapore in the Vodafone case could serve as a useful persuasive precedent for such other cases, and also uphold the government’s position that it has not ceded jurisdiction to ISDS tribunals to decide issues that go to the very core of legitimate exercise of legislative power by a sovereign State. 

No, we shouldn't: Hiroo Advani and Tariq Khan have argued that India should not appeal for the following reasons:

In our view, India should not challenge the Award in view of fact that the Supreme Court had already decided the issue way back in 2012. Further, there are very thin chances of succeeding in the Appeal against the PCA Award considering the fact that Singapore has not entertained similar challenges in the past.

The appeal has two aspects: procedural (jurisdiction) issues and substantive. The substantive issues could re-open the entire gamut of issues related to sovereign powers to tax and the limits of state power vis a vis fair and equitable treatment. I am not sure if ta policy , retrospectivity and the extent of FET can be re-adjudicated in Singapore?

I am just curious to know if all the substantive aspects that have been argued in the arbitral award can be re-submitted before the Court in Singapore? Or will it be restricted to issues of public policy and jurisdiction? Will it be a de novo appeal? A piece on Singapore COurts and arbitral awards is interesting here. Does the India-Netherland BIT provide for an appeal? Is the basis of the appeal the UNCITRAL Model Law on Commercial arbitration? Can the BIT terms be re-interpreted by the SIpgapore Court?

This dispute just shows how complex and winding ISDS cases can be. From the domestic courts in India to an ISDS tribunal to a SIngapore Court now.

A lawyers paradise indeed.

WTO and trade rules - some thoughts

 On the crisis of the WTO and future of world trade, some notes:

Pascal Lamy, the former DG of the WTO, has this to say in this video talk on what holds for future world trade, including the need for the big tech companies to pay adequate taxes. The Economist has an interesting piece on the contrasting style of the US and EU on how they approach big tech, anti-trust and regulation. While the US relies on existing rules and litigation, the EU is going ahead with new regulatory interfaces.

Farah Stockman has called it a mid-life crisis for the WTO comparing the WTO to a drunk in a bar waiting to be picked up, in this opinion in the the New York Times!

Jared Bernstein and Lori Wallach list out the priorities of the WTO in this undated piece. What should those new rules be? WIll there be agreement to take up the new road for new rules? Amongst their priorities is new rules for currency manipulation at the WTO.

The fact that our current crop of trade negotiators tells us that the inclusion of actionable rules against currency manipulation is impossible should be taken not at face value, but as a clear sign that the present negotiating system is broken. If the current “highway crew” is unable to build a road that facilitates this critical change, we need a new crew. The International Monetary Fund’s definition of currency manipulation, accepted by countries worldwide, provides important elements of a blueprint for this critical measure.

An interesting point on the process of trade negotiation and transparency is made by the above authors:

Rather than tinkering with the advisory system’s composition, we should eliminate it entirely. If proposed U.S. texts and draft texts from negotiations are made publicly available, the main official advantage of the committee system – access to that information – would disappear. Absent the committee structure, U.S. positions on trade deals can be formulated the way other U.S. federal regulation are: through the on-the-record public process established under the Administrative Procedure Act to formulate positions, obtain comment on draft texts throughout negotiations, and seek comment on proposed final texts. 

We must also enact strict conflict of interest rules such that those representing an industry with an interest in negotiations are barred from serving as negotiators for at least five years after leaving their companies. Likewise, public officials should be barred from representing an industry with an interest in negotiations for a similar time period after serving as a negotiator.

Trade negotiation and stakeholder engagement leaves a lot to be desired across the globe. How we structure it and what emanates as trade priorities will determine the type of trade rules we have. 

Of lows and highs - ISDS and RCEP

 I have discussed the debate over Investor State Dispute Settlement (ISDS) in many blogposts. The tension between state regulatory power and investor rights has captured the imagnation of treaty negotiators. The results have led to oscillation from rejecting ISDS to making a modified ISDS framework with greater balance.

Now that RCEP is the talk of the town, an analysis of the dispute settlement provisions in RCEP in this post in Kluwer Arbitration Blog once again shows how ISDS is not universally acceptable. The RCEP investment chapter has rejected the ISDS for now and has settled for the traditional, more non-controversial State to State dispute settlement.

This, nonetheless, does not mean that investors are left without any recourse for breaches of RCEP Investment Chapter by a host state. Although the RCEP Investment Chapter does not specify any DSM, an all-purpose state-to-state DSM is provided under Chapter 19 (Dispute Settlement) (the RCEP DSM). This means that if a Party to RCEP commits any breach of the obligations under the RCEP Investment Chapter, the relevant investors could request their home state to espouse their claims by way of diplomatic protection, and subsequently the home state may bring a claim against the host state under Article 19.3(1) of RCEP. Article 17.11 of RCEP, however, carves out a major area of protection by providing that the RCEP DSM is not applicable to disputes relating to pre-establishment rights, namely those disputes relating to admission or approval of foreign investment during the screening process applied by the Parties.

Well, as the blogpost suggested - is this the lowest common denominator as far as investment dispute settlement is concerned? It depends on what one considers "low" and "high" in norm setting in investment treaty making! For some, the ISDS is the new low point. 

Currency undervaluation back in business!

The IELP blog has a recent discussion on currency undervauation issues being brought in countervailable duty investigations by the US against Vietnam tyre exports to the US.

The US Department of Commerce Report is here. The relevant part of the currency undervaluation analysis is here:

In determining whether there is undervaluation, we will normally “take into account the gap between the country’s real effective exchange rate (REER) and the real effective exchange rate that achieves an external balance over the medium term that reflects appropriate policies (equilibrium REER).”159 Pursuant to 19 CFR 351.528(a)(2), we normally will make an affirmative finding of undervaluation only if there has been government action on the exchange rate that contributes to that undervaluation. Next, pursuant to 19 CFR 351.528(b)(1), after making an affirmative finding of undervaluation, we will determine the existence of a benefit after examining the difference between the “nominal, bilateral United States dollar rate consistent with the equilibrium REER,” and the “actual nominal, bilateral United States dollar rate during the relevant time period, taking into account any information regarding the impact of government action on the exchange rate.” Consistent with 19 CFR 351.528(c), we requested that “the Secretary of the Treasury provide its evaluation and conclusion as to the determinations” under 19 CFR 351.528(a) and (b)(1).

 In its August 24, 2020 response to our request,160 Treasury reported that the VND was undervalued during 2019, because there was a gap between Vietnam’s REER and its equilibrium REER.161 Treasury also reported its finding that “on a bilateral basis, {it} assesses that the Government of Vietnam’s actions on the exchange rate had the effect of undervaluing the dong vis-à-vis the U.S. dollar by 4.7%.”162 Based on this evidence, we preliminarily determine that Vietnam’s currency vis-à-vis the U.S. dollar was undervalued during the period of investigation by 4.7 percent. 

The Report relied on Treasury inputs which have a detailed explanation of the methodology for determining undervaluation is here.

This CSIS piece explains the whole issue and the implications it may have. A critique of the move to use currency undervaluation in subsidy investigations is found here.

Added to this is the semi-annual report of the US Treasury on currency undervaluation.The last one published in January 2020 is here.

Someone had said currency undervaluation and trade are remotely connected. Time to reconsider it's entry into the world of global trade rules. If currency undervaluation rules is one way, CVD investigations are surely the other way it is going to set policy makers thinking.

Some weekend webinars on trade and investment

In the times of Covid, two interesting webinars in trade and investment worth watching.

The first one, is on what should India's trade policy strategy be focused on? Should it be inward or export oriented? Should it be import substitution based or export orietnted? More protectionism, a la the major world economies or should it still repose its faith in globalisation.

Arvind Subramanian feels India should not abandon its hitherto export oriented strategy. What implication does this have for engaging in world trade rules? Would it change India's strategy in engaging in multilateral negotiation and mega-regionals like RCEP?

Dr.Harsha Vardhan Singh makes a distinction between border measures as against domestic regulation. He speaks about the experience of Asian economies in protectionism, connecting to global value chains, establishing lead firms and providing protectionist incentives like tariffs. lack of effective implementation of getting good value chains into the country compounds the problem.

On the investment front, it was about investment treaty reform and the Carribean region. CCSI had this seminar on investment treaty reform. Chantal Ononaiwu explained Caricom's position on investment treaty reform. The impact of ISDS cases on small states was an important point.

Some weekend reading (oops, webinar) work!