Jan Wouters, Professor of International Law, Director of the Leuven Centre for Global Governance Studies, University of Leuven
We are living in interesting times for investment treaties, whether bilateral treaties or investment chapters in free trade agreements. Never before have they aroused such an interest from parliaments. People and politicians alike are concerned about their impact on international and domestic affairs. Their scope is expanding dramatically: just think of mega deals like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), and the rise of intra-regional investment agreements. Debates on investment agreements have intensified recently within the EU because of the European Commission’s newly-acquired exclusive powers in this arena.
While competition for foreign investment is fierce, current levels of investment, both foreign and domestic, remain (too) low in many jurisdictions. The increased importance of global value chains (GVCs) and ever more integrated trade and investment flows call for (a renewed consideration of) more coherence between trade and investment policies. Today, governments adopting a regulatory measure (e.g. Australia’s plain-packaging legislation for cigarettes) can face both WTO and investment treaty claims, often raising similar issues, but with sharply different adjudication mechanisms – ad hoc arbitration, WTO Dispute Settlement with a permanent Appellate Body – and diametrically opposed remedies – damages vs. non-pecuniary; and very high costs, especially in Investor-State Dispute Settlement
The growing debate requires attention from governments, in particular at the multilateral level. Increased coherence in the system would be beneficial to all countries, including those that have so far navigated it successfully. Governments currently may feel exposed to multiple claims, unlimited damages, and to uncertain or excessively broad interpretations of treaty obligations. If they consider that the treaties they are party to restrain them, rather than help them in attracting investment, they may drop out of the system altogether, instead of seeking reform. This would be unfortunate, because properly-designed treaties can play a constructive role in fostering investment.
Many treaties focus only on investor protection. In addition to being increasingly controversial, those provisions are too narrow for today’s needs, including ensuring sufficient productive investment, providing the infrastructure to support the development of GVCs and removing barriers to cross-border investment that hinder technology spill-overs. Good policies to support the liberalisation of investment are ever more needed. One also needs to consider ISDS carefully in order to respond to public concerns in many jurisdictions. Governments need to modernise, simplify and strive for coherence in investment treaty policy.
For all these reasons, we must revitalise the multilateral debate on investment treaties. A key role should be played in this respect by the G20, the OECD and other international organisations. All G20 governments have been invited to participate in the regular meetings of an OECD-hosted Roundtable that has focused on investment treaties since 2011. At the latest OECD conference on investment treaties in March of this year, major countries, including OECD members, China and India, expressed support for treaties but also for significant reform.
Where to start? We first need to find broad agreement on some core principles and some clearly-defined options for governments with differing interests. That could lead to more ambitious goals like discussions of a multilateral framework or model provisions in key areas. The G20 could give the lead by giving impetus, showing broad government interest, and commissioning work. Turkey has put investment at the centre of its G20 presidency. That is why the G20 and the OECD will be co-hosting a Global Forum on International Investment in connection with the G20 Trade Ministers meeting in Istanbul on 5 October. The trade and investment nexus, and investment treaties, will be key issues there. It is likely that China, in presiding the G20 next year, will similarly place particular emphasis on investment. This should be applauded.
Multilateral attention to improve investment treaties is long overdue. At the adjudicative level, the recent proposal by the European Commission to establish a permanent ‘Investment Court System’ in the context of the TTIP negotiations is an interesting starting point for further discussion. The system, according to the proposal, should be based broadly on the WTO’s Appellate Body, with strict qualifications and ethical requirements and permanent remuneration for its members. It remains to be seen whether the US will go along with the proposal. In any event, it may serve as the starting point for reform of the heavily criticised current system of investor-state arbitration.