What’s the value of investment treaties?

by Dr. Dominic Beckers-Schwarz, Lawyer, Paris

 

On 7 March 2017, one day after the OECD Global Forum on International Investment, over one hundred stakeholders from businesses, trade unions, academics and OECD member states gathered for the one-day “3rd OECD Annual Conference on Investment Treaties”. The conference addressed issues concerning “evaluating and enhancing outcomes of investment treaties”.

How to measure the societal costs and benefits of investment treaties?

Following the previous day’s call for a new globalization narrative, the OECD opened the first conference panel by addressing the need to measure the societal costs and benefits of investment treaties.

Academics first explained the challenges of measuring the effects of investment treaties. While it may be easy to measure the economic exchange between two states, such a quantification is limited to bilateral interactions and does not necessarily address the global cross-fertilization of today’s investment treaties. The panel expressed doubt regarding the possibility of measuring in figures the societal costs and benefits of, for example, investor-state dispute settlements (ISDS) and the political benefits of depoliticizing international investment disputes.

The panel turned to the, sometimes unwritten, fundamental goal of international investment treaties—depoliticizing investment disputes and enhancing international investment flows through clear, stable and enforceable investor rights—a sort of rule of law codification.

But international investments occur frequently, even where no international investment treaties exist. International investment agreements often are not part of national investment promotion programs. However, smaller states especially see the need to conclude investment treaties to enhance cross-border investment.

When an NGO representative asked whether ISDS could cause populist resistance, due to misuse of the system, panelists denied the possibility of potential abuse of ISDS through cherry-picking. Costs of investment arbitration procedures and anti-treaty-shopping clauses in international investment treaties would prevent misuse of the system.

In sum, academics and government officials from OECD and non-OECD countries agreed that the connection between international investment treaties and economic dynamics needs continuing assessment. Further work includes defining more standardized approaches to measuring the effects of investment treaties. The OECD could be an optimal organization to conduct a cost-benefit analysis.

In my view, that governments are seeking out careful analysis of the costs and benefits of the investment treaty approach together is a positive sign to continue and enhance global cooperation in responsible investment policy.

Joint government interpretation of investment treaties—achievements and obstacles

The second panel addressed the topic of governments jointly interpreting international investment treaties in situations where no treaty clause permits the governments to do so (unlike NAFTA).

In general, the panel viewed earlier interpretations as better and more authoritative, since the later an interpretation, the more it may look like a hidden amendment.

Some state representatives explained that joint interpretations are a good way to avoid costly, lasting and complicated renegotiations. Participants mentioned fair and equitable treatment (FET) as a good joint interpretation example. Joint interpretations within the boundaries of the Vienna Convention of the Law of the Treaties might, for example, clarify or adjust an international investment treaty’s broad standards. Evolving views on what international investment treaties should address and how they should function lead to the need for such interpretations.

Another approach to enhancing the certainty and predictability of international investment treaties is a joint interpretation of certain investment treaty standards at the time of the treaty’s conclusion. For example, several provisions of CETA are subject to a joint interpretative instrument in CETA’s annex, which the parties agreed on at the time of signature. Such an expression of the parties’ intent might ensure greater clarity. However, conference participants cautioned that such joint interpretations must be clearly worded, because bad drafting could inspire further confusion rather than clarifying treaty standards.

Discussion participants further agreed that the non-disputing party of a treaty should always be informed about interpretations made by the disputing parties. Some provisions, namely Art. 5 of the UNCITRAL Rules on Transparency in Treaty-based Investor State Arbitration, even enable the non-disputing party to intervene in interpretations, such as by attending the hearings.

Panel members also expressed their interest in working on a plurilateral basis when interpreting standard investment treaty clauses. They saw this as the only way to maintain a common understanding of what an investment treaty covers.

Two participant questions especially showed the need for further work on the topic: (1) How far can a joint interpretation go, and when does it turn into an amendment? (2) As of when is a joint interpretation valid: the moment of the conclusion of the treaty or the moment of the formation of the joint interpretation?

In my view, joint interpretation can be a useful method of clarifying the contracting parties’ intent. However, retrospective joint interpretations might lead to back-door amendments, exceeding the reasonable bounds of the treaty. Further work in this area might seek to establish a clearer understanding of the barrier between legitimate interpretation and unwanted amendment and the impact of such a delineation in the field of international investment law.

Enhancing investment treaty outcomes and addressing globalization concerns

Though shorter in time, the closing panel drew on the Global Forum’s emphasis on “better” globalization from the day before and linked it to the discussions of this conference. Among international organizations—represented in this panel by UNCTAD and OECD—government representatives and NGOs, there is broad consensus on the necessity of further international cooperation and the global exchange of goods and investments. But ideas of whether the system is sufficiently inclusive, or how to make it more inclusive, still differ. The question, how to access the exact societal costs and benefits of these treaties showed the need for further work.

The panel showed, that OECD and UNCTAD both do substantive work on the topic and continue to do so by especially by reviews, reports, analysis and statistics. Governments endorse that work, since it is an important basis for their politics. NGOs use it to point out what may be improved in their view. This OECD conference gave governments as well as NGOs an opportunity to exchange their views on what the problems are and how to tackle them.

In my view, the OECD’s work—especially on topics like inclusive growth and responsible investment—can help promoting a form of broadly beneficial globalization in the investment context and in general. Let’s not ask whether globalization is crumbling away; let’s work on a globalization which fits everyone’s needs.

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