Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration

Journal of International Economic Law, 2016, 19, 761–786 doi: 10.1093/jiel/jgw072 Advance Access Publication Date: 19 December 2016 Article August Reinisch* ABSTRACT Both the November 2015 EU Commission proposal for Investment Protection and Resolution of Investment Disputes in the EU-US Transatlantic Trade and Investment Partnership (TTIP) as well as the revised February 2016 version of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) contain an investment court system (ICS) which is a two-tier mechanism for investor-State dispute settlement (ISDS), combining elements of traditional investor-State arbitration (ISA) with judicial features. The resulting hybrid form of dispute settlement should be regarded as a permissible inter se modification of the ICSID Convention. Nevertheless, this will not ensure that the non-modifying ICSID Contracting Parties have to recognize and enforce ICS awards as ICSID awards pursuant to the specific rules of the ICSID Convention. Rather, they should be regarded as enforceable awards under the New York Convention. This latter result will ensure that the outcome of ICS dispute settlement will be enforceable not only in the respective Contracting Parties of TTIP and CETA, but also in other States parties to the New York Convention. I. I NT RO D UCTI ON The European Union (EU) has recently included elements of an investment court system (ICS) in three enlarged free trade agreements (FTAs). Both the text of the EU– Vietnam FTA of January 20161 and the (non-binding) Commission proposal for Investment Protection and Resolution of Investment Disputes in the EU–US Transatlantic Trade and Investment Partnership (TTIP)2 contain a two-tier * Professor, International and European Law, University of Vienna. E-mail: . He is grateful for valuable comments on an earlier draft by Ursula Kriebaum, Joost Pauwelyn, and Stephan Wittich. 1 EU–Vietnam Free Trade Agreement: Agreed text as of January 2016, published on 1 February 2016, available at http://trade.ec.europa.eu/doclib/press/index.cfm?id¼1437; http://trade.ec.europa.eu/doclib/ docs/2016/february/tradoc_154210.pdf. 2 EU’s proposal for Investment Protection and Resolution of Investment Disputes of 12 November 2015 (TTIP), available at http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955.pdf (visited 30 September 2016). C The Author 2016. Published by Oxford University Press. All rights reserved. V  761 Will the EU’s Proposal Concerning an Investment Court System for CETA and TTIP Lead to Enforceable Awards?—The Limits of Modifying the ICSID Convention and the Nature of Investment Arbitration 762  EU’s Proposal Concerning an Investment Court System I I . A N O U T L IN E OF TH E EN V IS A G E D I C S While the initial 2011 negotiation mandate from the EU’s Council of Trade Ministers to the Commission concerning CETA and other FTAs called for traditional ISA,5 the increased public criticism,6 or what some have called ‘backlash’ against investment arbitration,7 fuelled considerations to create a permanent court instead of ad hoc arbitration.8 3 The revised text of the CETA has been made public on 29 February 2016, available at http://trade.ec. europa.eu/doclib/docs/2016/february/tradoc_154329.pdf (visited 30 September 2016). 4 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, signed on 18 March 1965, entered into force 14 October 1966, 575 UNTS 160. 5 See, e.g. the leaked Council Negotiating Directives (Canada, India, and Singapore), 12 September 2011; available at http://www.bilaterals.org/spip.php?article20272&lang¼en (visited 30 September 2016), (‘Enforcement: the agreement shall aim to provide for an effective investor-to-state-dispute settlement mechanism. State-to-state dispute settlement will be included, but will not interfere with the right of investors to have recourse to the investor-to-state dispute settlement mechanism. It should provide for investors a wide range of arbitration fora as currently available under the Member States’ bilateral investment agreements (BIT’s).’). 6 See, e.g. G. van Harten, Investment Treaty Arbitration and Public Law (Oxford, OUP 2007); St. Schill, ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’, 24(5) Journal of International Arbitration 469 (2007); N. Hachez and J. Wouters, ‘International Investment Dispute Settlement in the 21st Century: Does the Preservation of the Public Interest Require an Alternative to the Arbitral Model?’, Leuven Centre for Global Governance Studies Working Paper No. 81, available at http://ssrn.com/abstract¼2009327 and http://dx.doi.org/10.2139/ssrn.2009327; M. Kumm, ‘An Empire of Capital? Transatlantic Investment Protection as the Institutionalization of Unjustified Privilege’, 4(3) ESIL Reflections (2015); see also the European ‘Stop TTIP’ initative, available at https://stop-ttip.org/; see for US opposition: Open letter by the Alliance for Justice, March 2015, to Majority Leader McConnell, Minority Leader Reid, Speaker Boehner, Minority Leader Pelosi, and Ambassador Froman, at 1, available at http://www.afj.org/wp-content/uploads/2015/03/ISDS-Letter-3.11.pdf (visited 30 September 2016). 7 M. Waibel et al. (eds.), The Backlash Against Investment Arbitration: Perceptions and Reality (Alphen aan den Rijn, Kluwer Law International 2010). 8 See the overview by A. Reinisch, The European Union and Investor-State Dispute Settlement: From Investor-State Arbitration to a Permanent Investment Court, In: Centre for International Governance Innovation (CIGI), Investor-State Arbitration Series, Paper No. 2 – March 2016, available at https://www. cigionline.org/publications/european-union-and-investor-state-dispute-settlement-investor-state-arbitra tion-permane. mechanism for investor–state dispute settlement (ISDS), combining elements of traditional investor–state arbitration (ISA) with judicial features. Also the revised February 2016 version of the Canada–EU Comprehensive Economic and Trade Agreement (CETA)3 contains features of an investment court-like dispute settlement institution. These proposed changes raise the general question whether such ISDS can still be regarded as ISA or has already migrated into the field of judicial dispute settlement, with the practically highly important effect that its outcomes may have to be considered judgments and not arbitral awards. They also raise the more specific question whether ISDS provided for under these agreements can be viewed as arbitration under the ICSID Convention.4 If that were not the case, it would seem necessary to inquire whether the proposed changes to ICSID arbitration can be made by either amending the Convention or whether they can be regarded as permissible modifications between some ICSID Contracting States. The latter issue specifically raises the question what effect that would have on the other ICSID Contracting Parties. These questions will be addressed (...truncated)