By Cristian Gallorini[1]
The 48th session of the UNCITRAL Working Group III (Investor State Arbitration) took place in New York from 1 to 5 April 2024. The discussion focused on the draft statute of an advisory centre on international investment dispute resolution (A/CN.9/WG.III/WP.238), and the draft statute of a standing mechanism for the resolution of international investment disputes (A/CN.9/WG.III/WP.239). While a generally positive spirit guided the revision of the draft statute of an advisory centre, significant work remains to be done on the draft statute on a standing mechanism. Disagreements also persist on the draft guidelines on prevention and mitigation of international investment disputes.
Without the ambition of being exhaustive on the complex negotiations that took place during the 48th session, and with no intention to touch upon any of their political implications, this blog post aims to inform on the outcome of the 48th session of UNCITRAL WORKING GROUP III (“WGIII”) and provide brief comments on the latest developments on the Investor-State dispute settlement (ISDS) reform.
Draft statute of an advisory centre on international investment dispute resolution
Consensus was reached on the draft statute of an advisory centre. In the 48th session, the WGIII completed the revision of the draft statute and tasked the Secretariat with making changes in accordance with the WGIII’s decisions and deliberations. A final draft of the statute is expected to be presented for finalisation and adoption in principle by the Commission at its fifty-seventh session in 2024.
The proposal to establish an advisory centre (“Centre”) dates back to 2019 (A/CN.9/1004, paras. 28 and 50). The goal was to create a Centre to complement the overall ISDS reform (A/CN.9/1124, para. 42), help compile and share information on best practices with regard to Alternative Dispute Resolutions (A/CN.9/1044 para. 34), and address concerns expressed by the delegates on transparency of ISDS, cost of ISDS proceeding, correctness and consistency of decisions as well as access to justice (A/CN.9/1004 para. 28). Beneficiaries of this Centre were, and still are, only those states that will join the project (“Member State”), divided in three categories or Annexes. By classifying the Member States in three categories the draft statute of an advisory centre aims to delineate those Member States that will be “primary beneficiaries” of the Centre and those that “could be expected to contribute financially to the Centre while also benefiting from its services” (A/CN.9/WG.III/XLVIII/CRP.1/Add.3, para. 11 (unpublished)). Although it is clear that the Member States listed in Annex I “should be based on the list of least developed countries adopted by the United Nations General Assembly”, objective criteria for the classification of the Member States in Annex II and III have not been determined yet. (A/CN.9/WG.III/XLVIII/CRP.1/Add.3, para. 12 (unpublished)).
As noted by Tetyana Makukha, in her previous blog post, the Centre is intended to support Member States on issues pertaining to dispute prevention and mitigation (Article 6), as well as legal support and advice in ISDS proceedings, including legal advice, assistance in the selection of mediators and arbitrators, and help with drafting briefs, pleadings, and collecting evidence (Article 7). Yet those services are limited to investor-state arbitration and are unlikely to extend to State-to-State dispute settlement (A/CN.9/WG.III/WP.238, para. 10; previously discussed in A/CN.9/1161, paras. 73 and 111; A/CN.9/1160, paras. 26–28, 64 and 73). Furthermore, the Centre will consist of a Governing Committee, an Executive Committee, and a Secretariat headed by an Executive Director. These governing bodies – the structure and voting powers of which were clarified during this 48th session – will ensure the functioning, independence, and effectiveness of the Centre (Article 5). The Centre will have full international legal capacity (Article 9), although it is yet unclear whether and how it will be established within the UN system (most likely with extra budgetary resources).
Indeed, a few decisions remain to be made on the operationalization of the Centre. These include “(i) ways to establish the Centre within the United Nations system based entirely on extrabudgetary resources; (ii) criteria to determine the location of the headquarters and regional offices; (iii) anticipated budget based on the workload and ensuring sustainable operation; (iv) amount of contributions by Members and methods of payment; (v) objective criteria to classify potential Members in Annexes I to III; and (vi) thresholds for the entry into force” (A/CN.9/WG.III/XLVIII/CRP.1/Add.3 para. 18 (unpublished)). Although some of these decisions, such as determining the location of the headquarters, may be purely political and will be resolved as such, others, such as establishing the Centre with extra-budgetary resources, could become real barriers to its implementation.
Draft guidelines on prevention and mitigation of international investment disputes
A less fortunate fate has befallen the draft guidelines on prevention and mitigation of international investment disputes (“Draft Guidelines”). The Draft Guidelines is a compilation of (best) “strategies and measures” for states to “avoid, prevent and mitigate investment disputes involving foreign investors” (A/CN.9/WG.III/WP.235, para. 4). They are intended “to guide States that wish to set up and implement a coherent and effective dispute prevention and mitigation system” and increase retention of foreign direct investments (A/CN.9/WG.III/WP.235, para. 6).
During the 48th session, delegates determined that the Draft Guidelines were not yet ready for adoption and asked the Secretariat to provide a different draft. Some delegates highlighted the importance of this project in the wider context of the ISDS reform. Yet many expressed concerns that the Draft Guidelines could have a prescriptive nature and theoretically impose additional legal standards (and liabilities) on host states. As a result, the delegations requested the Secretariat to provide a revised draft that emphasises the non-prescriptive nature of the guidelines. In sum, the delegates aim to create a piece of soft law, that is a mere collection of practices of what the states have done in this field. In support of this, the delegates were invited to share their practices of dispute prevention with the Secretariat for inclusion in the new draft. To strengthen the non-prescriptive value of the Draft Guidelines, the Secretariat has proposed that the guidelines may take the form of a “toolkit” – within the UN framework – that could be published by the Secretariat and updated by the Centre upon its establishment).
Draft statute of a standing mechanism for the resolution of international investment disputes.
There is a long way ahead before a consensus can be reached on the draft statute of a standing mechanism for the resolution of international investment disputes. Major differences remain among the delegates regarding both the structure of the draft statute and the functioning of the standing mechanism.
During the 48th session, the delegations discussed the overall structure of the draft statute of a standing mechanism and appellate mechanism and began considering the draft provisions within the context of a first-tier standing mechanism (A/CN.9/WG.III/WP.239). Although some delegates have made reservations on the possibility of becoming a part of any such mechanism – which might eventually reduce the scale of the entire ISDS reform – the 48th session addressed primarily Section C of the draft statute. Section C includes the topics of jurisdiction, request for dispute resolution, assignment and structure of panels, and the competence of the tribunal.
It is premature to provide a detailed commentary on the tenor of the discussion around Section C, as much of the discussion is still in its preliminary stages. A few general comments on the standing mechanism could still be made. It seems like several delegates, and Regional Economic Integration Organizations (REIO), have welcomed the draft statute as a good starting point, and stressed that the standing mechanism therein is not arbitration and should take the form of a multilateral court in the strict sense, with pre-established panels, and chambers. Yet differing views exist on the composition and selection of the adjudicators, and whether the standing mechanism would consist of fixed members or there would be rotation of the members.
One preliminary comment is worth making here. Should the proposal of a multilateral court, with pre-established and fixed adjudicators pass, it would materialise a specific policy of moving ISDS away from arbitration. It would determine a certain judicialization of ISDS, similar to what the EU has proposed in its investment court system (ICS), for example, in the EU-Canada Comprehensive Economic and Trade Agreement (CETA), and the EU-Chile Association Agreement. Furthermore, the presence of pre-determined, permanent, and randomly assigned panels would disrupt the existing party-driven selection of adjudicators typical of the current ISDS system. For the investors, this would have the consequence of preventing them to co-determine the choice of the adjudicators, and it might hinder the possibility of picking those adjudicators with the best sector-specific skills for the resolution of a specific dispute. Yet, pre-determined, and more permanent panels, may have the added value of enhancing transparency and diversity in the selection of the adjudicators, as well as their independence and impartiality. It might also increase predictability and stability of the law, should the panels be required to rely on their own precedents (or precedents set by other panels) in the fashion of the stare decisis principle of common law jurisdictions, which is something so far not foreseen by the draft statute. These are only some of the topics the WGIII will need to resolve in future sessions, as some resolution of this ISDS reform is expected by the year 2026.
The revision of the Draft statute of a standing mechanism will continue in the next meetings of the WGIII. The next session and intersessional meetings will tentatively be held as follows.
- 23-27 September 2024 (Vienna)
- 24 and 25 October 2024 (Intersessional Meeting in China).
- 20–24 January 2025 (Vienna).
- Early March 2025 (Intersessional Meeting in the Republic of Korea)
- 7–11 April 2025 (New York)
Cristian Gallorini is a New York attorney at Barakat + Bossa, PLLC. ↑