Investor-State Dispute Settlement under review; current challenges, lack of regulation in the EU-MERCOSUR agreement and basis for the EU-UK and UK-MERCOSUR FTAs

Rev. secr. Trib. perm. revis. Setiembre 2020, año 8, nº 16, p. 182-203. ISSN 2304-7887 (en línea) - ISSN 2307-5163 (impreso) DOI: 10.16890/rstpr.a8.n16.p182 artículo original Investor-State Dispute Settlement under review; current challenges, lack of regulation in the EU-MERCOSUR agreement and basis for the EU-UK and UK-MERCOSUR FTAs Solución de controversias Inversor – Estados bajo revisión; desafíos actuales, la falta de regulación en el Acuerdo UE - MERCOSUR y las bases para los acuerdos de libre comercio entre la UE y el Reino Unido y entre el Reino Unido y el MERCOSUR Santiago Theoduloz Duarte* Abstract: Investment treaties aim to protect the rights of foreign investors and provide legal certainty, generally including an Investor-state dispute settlement (ISDS) system. The increase of criticism towards ISDS -which reached its highest point during the EU-US TTIP negotiations- brought up different concerns. As a result, the Investment Court System (ICS) was developed and incorporated for the first time in the CETA between Canada and the EU, and then in other FreeTrade Agreements (FTA) signed by the EU. However, in the EU-MERCOSUR FTA there is no regulation of a dispute settlement mechanism between investors and States parties. Currently, the United Kingdom (UK) is leaving the EU and negotiations of a new deal with the EU are being developed. In the next stages, the UK will most likely reach different agreements with sovereign states and others commercial blocks. In this sense, there is a possibility that a future EU-UK and UK-MERCOSUR agreement will need to consider whether the ISDS or the ICS will be adopted. Also, MERCOSUR will need to analyse which system it will be willing to adopt in the future in case a dispute settlement between investors and States is adopted, and could even explore a system that includes aspects of both the ISDS and the ICS. * Universidad de La República Oriental del Uruguay, Uruguay. E-mail: Recibido: 31/05/2020. Aceptado: 21/07/2020. Artículo de acceso abierto. Licencia Creative Commons 4.0. 182 Investor-State Dispute Settlement under review. Santiago Theoduloz Duarte Resumen: Los tratados de inversión tienen por objeto proteger los derechos de los inversores extranjeros y proporcionar seguridad jurídica, incluyendo generalmente un sistema de solución de controversias entre inversores y Estados (ISDS). El aumento de las críticas al ISDS -que alcanzó su punto más alto durante las negociaciones del TTIP entre la UE y los Estados Unidos- trajo consigo diferentes críticas. Como resultado, el Sistema de Corte de Inversiones (ICS) se desarrolló e incorporó por primera vez en el CETA entre Canadá y la UE y luego en otros acuerdos de libre comercio (TLC) firmados por la UE. Sin embargo, en el Acuerdo UE-MERCOSUR no se regula un mecanismo de solución de controversias entre inversores y Estados partes. Actualmente, el Reino Unido está saliendo de la UE y se están llevando a cabo negociaciones de un nuevo acuerdo con la UE y en las próximas etapas el Reino Unido probablemente alcanzará diferentes acuerdos con otros Estados soberanos y bloques comerciales. En este sentido, existe la posibilidad de que en un futuro acuerdo entre el Reino Unido y la UE y entre el Reino Unido y el MERCOSUR se tenga que considerar si se adoptará el ISDS o el ICS. Asimismo, el MERCOSUR deberá considerar qué sistema estará dispuesto a adoptar en el futuro en caso de que se adopte un sistema de solución de controversias entre inversores y Estados en un tratado a firmarse, pudiéndose incluso explorar un sistema que incluya aspectos tanto del ISDS como del ICS. Keywords: Investment Court System (ISDS), Investment Law, Free-Trade Agreement, Multilateral Investment Court, MERCOSUR. Palabras clave: Sistema de Corte de Inversiones (ISDS), Ley de Inversiones, Tratado de Libre Comercio, Tribunal Multilateral de Inversiones, MERCOSUR. 1. INTRODUction The existence, negotiation and promotion of investment treaties is one of the most important developments of public international law in the last decades. They became a key part in the promotion of international investments and therefore in the international economy. The benefits that investment treaties provide are of upmost importance for every country and specially for the international business market. The legal certainty that investment treaties offers are the base of its importance, making host countries more attractive to them. In this scenario, one of the key elements of investment treaties is the inclusion of an Investor-State Dispute Settlement mechanism (ISDS). ISDS represents the core part of investment protection and are -or wereconsidered as one of the most essential elements of them. However, over the last decades the ISDS has been in the public eye, as it became one of the most discussed parts of investment treaties. Opponents to ISDS believe that countries are abandoning part of their jurisdiction when allowing an investment arbitral tribunal to judge 183 Rev. secr. Trib. perm. revis. Setiembre 2020, año 8, nº 16, p. 182-203. a sovereign State. In addition, the difference of treatment comparing to a national investor -who only has the right to access to a national court- is under discussion. As a result, different proposals on how to deal with the criticism against ISDS have been developed. In this sense, one of the most innovative and complex one is the Investment Court System (ICS). The ICS was first included in the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Vietnam FTA. The ICS as a new mechanism to resolve investment disputes, creates an international investment court system with an appellate mechanism with the idea of creating in the future a Multilateral Investment Court (MIC). This new paradigm brings a several number of questions, with no clear answers. Those questions relate to the possibility of showing how the ICS will be more beneficial than the ISDS, how the ICS will protect the jurisdictions of member States and mainly, how its inclusion will help to reach the same goals as with the use of ISDS. In this sense, the EU-MERCOSUR did not include any settlement dispute mechanism between private parties and States, an aspect that shows the different criteria of the parties involved in its negotiations. Notwithstanding, the EU idea of a MIC in the future will probable intend to include MERCOSUR and some aspects will need to be modified. The above-mentioned situation and the current negotiations of International Investment Agreements or “IIAs” must be addressed to deal with the current EU and United Kingdom (UK) negotiation after BREXIT. In this sense, in case that a treaty is reached, the way to resolve international disputes will need to be addressed and the model to follow will be a fundamental decision. In addition, -an essential element of our research- is the discussion on how this new system could be considered as a backwardness, taking in consideration that the creati (...truncated)