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Insight: How the EU intends to fast-track its multilateral investment court plans

The EU Commission is preparing the ground for negotiations towards a multilateral investment court – MIC. Member states will be working on a negotiating mandate in the coming weeks and months. Nikos Lavranos explains that the Commission hopes to fast-track the process by taking the so-called ‘Mauritius approach’. 


On 13 September 2017, the day of European Commission President Jean-Claude Juncker’s ‘state of the union’ speech, the EU’s executive body released a draft text for a negotiation mandate that would authorize it to negotiate the creation of a multilateral investment court (MIC).


Even without such a mandate, however, the Commission has in past months been preparing the groundwork to kickstart the negotiations. Commission representatives have been involved in ‘roadshows’ at various international organizations, such as the United Nations Conference on Trade and Development, the World Trade Organization, the Organisation for Economic Co-operation and Development and – most importantly – the United Nations Commission on International Trade Law, or UNCITRAL.


Indeed, this past July, the UNCITRAL Commission approved a proposal for a mandate that was vigorously pushed by the European Commission, EU member states, Canada and Mauritius. The approved mandate for the UNCITRAL working group is very broad, asking it to:


  • identify and consider concerns regarding investor-state dispute settlement;
  • consider whether reforms are desirable in light of the identified concerns;
  • if the working group were to conclude that reform is desirable, to develop and recommend any relevant solutions.


While the mandate does not explicitly mention the MIC, this court is clearly the European Commission’s preferred solution. Moreover, it is no coincidence that the executive body selected UNCITRAL as the forum for negotiating the MIC. This is due to the positive experience the Commission had with the drafting of the UNCITRAL Transparency Rules for ISDS proceedings. These Transparency Rules entered into force in 2014, after a very short drafting period of only two years. The particular setup of the UNCITRAL Transparency Rules, which have been turned into the Mauritius Convention, apparently will serve as the model for creating the MIC.


The ‘Mauritius approach’


The main problem for negotiators of the UNCITRAL Transparency Rules was how to apply these rules effectively and immediately to the spaghetti bowl of more than 3,000 bilateral investment treaties (BITs). Because the UNCITRAL Transparency Rules are new, whereas most BITs are decades old, a mechanism had to be conceived to allow these rules to be applied to disputes also initiated under the old BITs without having to modify each of those treaties separately.


Creators of the MIC would have to grapple with the same challenge: how to remove the jurisdiction of the arbitral tribunals which would be set up on the basis of these 3,000 BITs without having to renegotiate each of them. This would be a monumental job for decades to come.

The solution that has been found is essentially an opt-in system with several options from which each contracting party to the Transparency Rules could choose.


The default option


The obvious default option is that the rules should apply to investor-state arbitration initiated under the UNCITRAL Arbitration Rules pursuant to BITs concluded on or after 1 April 2014, unless the parties to the BITs agreed otherwise. Accordingly, the UNCITRAL Transparency Rules will apply to any ISDS proceeding initiated under the UNCITRAL arbitration rules that is based on a BIT that is applicable as of 1 April 2014. In other words, these rules apply without modification of the text of the respective BITs. Obviously, the large majority of the 3,000 BITs were conclude before 2014.


The opt-in option


The innovative aspect of the ‘Mauritius approach’ concerns pre-2014 BITs, namely, the introduction of an opt-in option. This opt-in clause provides that for ISDS arbitrations initiated under the UNCITRAL Arbitration Rules in accordance with BITs concluded before 1 April 2014, the rules shall apply only when:


(a) The parties to an arbitration (the ‘disputing parties’) agree to their application in respect of that arbitration; or

(b) The parties to the treaty or, in the case of a multilateral treaty, the state of the claimant and the respondent state agreed after 1 April 2014 to their application.


Accordingly, there are additional ways the UNCITRAL rules can be made applicable without modifying the relevant BIT. The first option is that the investor/claimant and the respondent state both agree to apply the rules, irrespective of the fact that they are not referred to or included in the underlying BIT. The second option is that the home state of the investor/claimant and the respondent state both agree to apply the UNCITRAL rules, again regardless of whether the BIT provides for these rules.


This means that through a simple agreement between either the disputing parties or the contracting parties to the BIT, the UNCITRAL Transparency Rules can be applied to all disputes based on pre-2014 BITs. In other words, at one stroke with a pen, the scope of application of the UNCITRAL rules can be made universal and – even more importantly – with immediate effect and without having to go through the laborious process of treaty amendment and ratification.


In addition, the UNCITRAL Transparency Rules contain a rule of conflict giving them supremacy over any other applicable arbitration rules. This ensures that any deviating or conflicting rules in the 3,000 BITs can simply be overridden – again, without any formal modification of the BIT concerned.


The Mauritius approach is – at least on paper – a very innovative and efficient way to expand the scope of application of a new international treaty to potentially all countries in the world, while at the same time giving each government flexibility about the options it wants to choose.


The UNCITRAL Transparency Rules already apply to almost 20 post-2014 BITs. They would also apply to the Comprehensive Economic and Trade Agreement (CETA) between the European Union and Canada once the investment chapter enters into force.


Towards the MIC


Considering the above, it is understandable why the European Commission finds the Mauritius approach so attractive.


The UNCITRAL Working Group will begin its work at the end of November 2017 in Vienna, with a second meeting scheduled for April 2018 in New York. It will become clear after these two meetings how much appetite other states actually have, and thus how quickly a new Mauritius Convention establishing a permanent multilateral investment court could be adopted. In any case, the European Commission has already set out the path towards such a court.


Of course, it remains to be seen whether such a MIC will be considered an attractive and efficient dispute settlement tool for investors turned claimants.


More generally, it is also uncertain whether this approach will convince the European Parliament, many national parliaments and anti-ISDS groups that the old ISDS system will indeed be fully replaced by a new body that is – in their eyes – more credible.


Already some anti-ISDS non-governmental organizations already insist that the MIC legitimizes ISDS and thus should be opposed as vigorously as ISDS itself.


Ultimately, the Court of Justice of the EU will have the last word. Recently, Belgium requested an opinion from the court on whether – and if so, to what extent – the proposed bilateral investment court system that is to be included in CETA is compatible with EU law. If the court were to find it is not compatible, the European Commission would have to dump the idea of a MIC as well. This opinion will probably be issued in 12-18 months.


The court has already created a further complication regarding the Commission’s competence with its 15 February 2017 ruling on the EU-Singapore free trade agreement. Judges found that the competence for dispute settlement provisions in EU FTAs is mixed, which means that all member states also must sign and ratify such provisions. Obviously, this would also apply to any new Mauritius Convention establishing the MIC to make it applicable for all EU trade deals.


Nikos Lavranos is Guest Professor of International Investment Law, Free University, Brussels, and a regular contributor to Borderlex.




Opinions reflected in Borderlex columns are those of their authors alone.

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