by Tetyana Makukha
Between 9-13 October 2023, the 46th Session of UNCITRAL Working Group III took place in Vienna, Austria. The EFILA attended the session in its capacity as an observer organisation. Three first days of the Session were fully devoted to discussing draft provisions on the establishment of an advisory centre on international investment law (“Provisions” and “Centre”, respectively). Overall, the delegations agreed that the Centre is necessary and that it should be created through an international legal instrument. Although in-depth debates covered most Provisions, the primary focus of the discussions revolved around the types of services that the Centre would offer and the eligibility criteria for those who could access them. Regardless of detailed discussions, there was no consensus reached yet on a number of critical issues.
The main objective of the Centre would be to provide technical assistance and capacity-building activities (Provision 6) as well as legal representation and advice (Provision 7) on international investment law and proceedings, referred to as “two key pillars” of the Centre’s activities.
The technical assistance would include advice on issues of dispute prevention and conflict management, training on possible dispute resolution means, exchange of information and sharing of best practices. The Centre’s assistance could also encompass legal representation, the preparation of documents related to disputes, and the identification of potential arbitrators. While one delegation proposed to exclude the legal representation from the Centre’s services altogether, others suggested that legal assistance should be a priority. Several of the Less Developed States felt that they would not be motivated to join if the Centre did not offer legal representation.
The Centre’s lawyers would act as lawyers for the State in question during an ISDS dispute, although a few delegations expressed concern about the Centre being the only counsel, particularly in its early stages. To address this concern, some delegations proposed focusing on a narrow range of legal services in the Provisions. In addition, several delegations repeatedly expressed the need to establish rules on conflicts of interest. The Centre was urged to consider geographical and gender diversity when providing services and it was suggested that the Centre could manage a list of law firms offering pro bono or reduced rate services.
Importantly, the Working Group’s Secretariat clarified that the Centre will not become the policy-issuing intergovernmental body interpreting provisions of international agreements. If a certain strategy or a treaty interpretation is adopted by the Centre’s lawyers in a dispute, they should not have a precedent or binding force. This is also in line with the proposition that any submission would be made not by the Centre, but by a State represented by the Centre in a dispute. To maintain this approach, and in some other respects throughout the discussions, references were made to the Advisory Centre on WTO Law (“ACWL”), an international organisation established to provide Less Developed States with legal advice on WTO law, support in WTO dispute settlement proceedings and training in WTO law.
The Secretariat also stressed that while the Centre would give independent advice, it would be necessarily partial to members in its work, due to the obligation to serve a member. Therefore, the principle of impartiality is not included in the Provisions.
It was evident that there is a distinct difference of opinion among delegations regarding which services should be prioritised. The Secretariat will engage in further work to suggest prioritisation within the Centre’s services. One option is that such prioritisation should be based on the availability of funding and the related costs of such services.
Centre’s structure and members
There was a general support for a simple two-tier structure of the Centre consisting of a Governing Board and a Secretariat headed by an Executive Director, where the Governing Board would be a conference of the members. Each member would appoint one representative to the Governing Board.
The current Provision 4 stipulates that members of the Centre include States and regional economic integration organisations (“REIOs”). The latter could become members of the Centre as some of them signed the treaties regulating investment protection and are already involved in ISDS cases. Moreover, pursuant to Provisions 6(3) and 7(3), the Executive Director of the Centre may allow a non-Member to take part in the technical activities of the Centre or to submit a request for legal assistance.
On the one hand, several State delegations demanded to restrict the capacity-building and legal assistance of the Centre to member States of the Centre, particularly focusing on the Less Developed States. According to them, no form of assistance should be granted either to non-member States or to investors. Such limitation would also be applicable to micro, small, and medium-sized enterprises (“MSMEs”). These delegations have raised concerns that offering legal and technical assistance to investors would effectively aid them in bringing claims against States. A few delegations even suggested that if MSMEs require assistance, they should seek it from third-party funders.
On the other hand, some observers and State delegations, including from Bahrain, Belgium, the UK, stressed the need for the access to justice for MSMEs. Therefore, according to these delegations, the MSMEs should be able to join the Centre’s activities. The MSMEs’ ability to access the Centre is based on the same rationale of access to justice as that of the Less Developed States. Furthermore, the Centre’s advice and education on dispute avoidance for MSMEs could also help States in preventing disputes. Providing support for MSMEs could also attract financial contributions to the Centre and promote a balanced approach reflecting the views of both respondent States and claimant investors. Moreover, one observer delegation went as far as expressly stating that the States would not benefit if an MSME with a potential ISDS claim went to a third-party funder, as the first advice provider, mainly because they do not offer services on dispute prevention.
The need for a clear and neutral categorisation of States for the purposes of the Centre emerged in the discussions, with various delegations referring to either the list in the UN Framework Convention on Climate Change, the OECD membership, or the WTO classification. Such categorisation will be used to define or prioritise the Centre’s users. Certain delegations suggested that the categorisation should consider that some Less Developed States may have greater experience and involvement in ISDS disputes compared to many Developed States. It was also proposed that the categorisation can be left unregulated and for the Centre’s Governing Board to decide.
A high number of delegations stressed that if non-members were to get access to the Centre’s services, clear prerequisite requirements should be set forth for this. Furthermore, the decision as to the non-members’ access to the Centre, if any, should be left to the Governing Body.
There was a general consensus in the room that the non-members providing the services, such as think-tanks or academic institutions, could participate in the Centre’s activities. Various organizations already are providing capacity building activities on ISDS issues and, thus, the Centre could benefit from these service providers. On this matter, the ICSID representative stated that there is a certain overlap with the ICSID’s current activities and the proposed activities of the Centre, especially in terms of technical assistance. Therefore, it was proposed that the Centre would need to coordinate its activities with other organisations. The UNCITRAL Secretariat added that current Provisions were drafted based on their own experience of engaging external parties in the capacity building and having useful discussions with observer organisations in the Working Group III.
In summary, there were differing opinions in the room regarding membership and participation in the Centre. Although exclusivity to Member States was suggested, the Centre can benefit and receive an added value from non-Members, especially service providers and competent external organisations.
Types of disputes
Another point of discussion was whether the Centre’s assistance should also cover State-to-State disputes, in addition to the investor-State disputes. The room was also divided on this issue. According to the delegation of the EU, State-to-State disputes should be included. In support of this proposition, the EU delegation referred to the ACWL model, where the beneficiaries may bring cases against the donors. Proponents of the State-to-State disputes inclusion have also stated that a situation when an investor is a State-owned company effectively resembles a State-to-State dispute.
Some other delegations, in contrast, were reluctant to open the door to State-to-State disputes, also referring to the Working Group’s III mandate limited to investor-State issues. The Secretariat confirmed that it was possible to include State-to-State disputes, if the delegations so agree, but creating specific regulations for such disputes may exceed the scope of the Working Group’s III mandate. While as a matter of principle, the Centre should resolve only ISDS cases, it was suggested not to exclude completely the possibility of the Centre to be involved in State-to-State disputes. For now, such cases remain outliers, but the Secretariat stressed that they seem to be the potential future of the investment disputes, and the Centre’s services should stay relevant in a long-term perspective.
Other issues and further steps
Among other important issues, some delegations expressed their views that confidentiality and handling information obtained by the Centre is of importance and that the Centre should maintain the confidentiality of information that it receives during rendering its services.
Furthermore, the delegations disagreed on the most appropriate means of funding the Centre. Some delegations from Less Developed States maintained that the Centre should be funded solely by its members on an annual basis to ensure its independence and the transparency of its financial operations, while others suggested that non-members entities should be allowed to provide funding. Specific rules on the acceptance of such contributions should be established to safeguard the independence of the Centre.
While references were made to the ACWL, simply following the ACWL’s approach did not generate a complete consensus on how to fund the Centre so that it can operate effectively and achieve its objectives. However, the delegations agreed that the Centre should not start operations until adequate funding exists. This demonstrates that it will be important to identify a sustainable funding model that will support the Centre’s operations before their start.
Furthermore, the delegations have not yet reached consensus on whether the Centre should be established as a separate institution or under another international organisation’s framework, potentially that of the UN. According to multiple delegations, the Centre as a stand-alone entity would retain independence, integrity, and legitimacy without any external interference. The Provisions could eventually be framed as a protocol to an overarching international treaty addressing the ISDS issues currently discussed before the Working Group III.
To sum up, no clear consensus was reached on several critical issues related to the proposed Advisory Centre. Indeed, the membership, scope of services and funding are crucial aspects of the proposed reform, and it is essential that stakeholders come to a consensus on them.
The work on the proposed Advisory Centre will continue at the next session of Working Group III in Vienna in January 2024. Fortunately, several delegations, including those from Belgium, China, and Japan, have suggested holding intersectional meetings in their respective States to discuss various reform issues. The Working Group III aims to present a final proposal on the Centre to the UNCITRAL Commission at its summer session in 2024.
If established, the Centre would serve as a valuable asset for States, particularly for those with fewer resources or less experience in investment treaty negotiations and dispute settlement. By offering a range of services, the Centre would help to promote the development of international investment law and the rule of law. It could potentially also contribute to less overall criticism of the ISDS system. The access of the MSMEs to the Centre would aid dispute prevention and potentially increase private sector investment in developing countries, as investors may be reassured by the existence of a competent venue for dispute avoidance and technical support. Finally, this presents the opportunity to achieve a significant milestone in the Working Group’s III reform process, but also requires massive collaborative efforts from the delegations.
Tetyana Makukha is a foreign associate of the international arbitration team at NautaDutilh, Amsterdam, and a general manager at EFILA. The opinions expressed in this blog are those of the author. ↑