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  • Company/Organisation: International Chamber of Commerce
  • Location: France
  • Activity: Trade and Investment Policy/ Cross-border Dispute Resolution / International Arbitration and Mediation The fundamental mission of ICC is to promote trade and investment across frontiers and help business corporations meet the challenges and opportunities of globalization. Its conviction that trade is a powerful force for peace and prosperity dates from the organization’s origins early in the last century. ICC has three main activities: rules-setting, dispute resolution and policy. ICC also provides essential dispute resolution services, foremost among them the ICC International Court of Arbitration, the world’s leading arbitral institution. Another service is ICC Mediation administered through the ICC International Centre for ADR ICC enjoys a close working relationship with the United Nations and other intergovernmental organizations, including the World Trade Organization, the G20 and the G8.
  • Profile: Non-governmental organisation
  • Transparency register: Yes
  • Prior investment in the US: Yes

Contribution

A. Substantive investment protection provisions

Explanation of the issue

The scope of the agreement responds to a key question: What type of investments and investors should be protected? Our response is that investment protection should apply to those investments and to investors that have made an investment in accordance with the laws of the country where they have invested.

Approach in most investment agreements

Many international investment agreements have broad provisions defining “investor” and “investment”.

In most cases, the definition of “investment” is intentionally broad, as investment is generally a complex operation that may involve a wide range of assets, such as land, buildings, machinery, equipment, intellectual property rights, contracts, licences, shares, bonds, and various financial instruments. At the same time, most bilateral investment agreements refer to “investments made in accordance with applicable law”. This reference has worked well and has allowed ISDS tribunals to refuse to grant investment protection to investors who have not respected the law of the host state when making the investment (for example, by structuring the investment in such a way as to circumvent clear prohibitions in the law of the host state, or by procuring an investment fraudulently or through bribery).

In many investment agreements, the definition of “investor” simply refers to natural and juridical persons of the other Party to the agreement, without further refinement. This has allowed in some cases so–called “shell” or “mailbox” companies, owned or controlled by nationals or companies not intended to be protected by the agreement and having no real business activities in the country concerned, to make use of an investment agreement to launch claims before an ISDS tribunal.

The EU's objectives and approach

The EU wants to avoid abuse. This is achieved primarily by improving the definition of “investor”, thus eliminating so –called “shell” or “mailbox” companies owned by nationals of third countries from the scope: in order to qualify as a legitimate investor of a Party, a juridical person must have substantial business activities in the territory of that Party.

At the same time, the EU wants to rely on past treaty practice with a proven track record. The reference to “investments made in accordance with the applicable law” is one such example. Another is the clarification that protection is only granted in situations where investors have already committed substantial resources in the host state - and not when they are simply at the stage where they are planning to do so.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the objectives and approach taken in relation to the scope of the substantive investment protection provisions in TTIP?

ICC Guidelines for International Investment, International Chamber of Commerce (ICC), 2012, www.iccwbo.org I. INVESTMENT POLICIES 1. The Investor a. Should ensure, in consultation with the competent authorities, that the investment complies with the laws of the host and home country. b. Should be prepared to enter into discussions with the host government regarding the nature of the investment in appropriate cases where the government of the host country so wishes. c. In response to the interest shown by the public of the host country in its activities, should take steps to provide relevant information about the operations of the enterprise, subject to any exclusions necessary for competitive reasons. d. Should assess environmental impacts, in the host country and elsewhere, before starting a new activity or project and before decommissioning a facility or leaving a site. 2. The Government of the Investor’s Country a. Should recognize the contribution of inward and outward investment to the economic well-being of its economy and its citizens. b. In the formulation or modification of policies that affect foreign investments by its nationals, should take the fullest possible account of the need of investors for stability, transparency, non- discrimination, continuity, and growth in their operations as well as of the general interests of the host country. c. Should seek to enter into binding obligations under international law with other governments either on a bilateral or multilateral basis, in respect of the reciprocal treatment to be accorded to the property, rights, and interests of its nationals. d. Either nationally or through participation in an international investment insurance agency, should offer guarantee facilities against non-commercial risks encountered by the investor. e. Should examine the possibility of providing tools and technical assistance that may facilitate private investment of significance to the economic development of the host country. 3. The Government of the Host Country a. In the formulation and implementation of policies that affect foreign investments, should take the fullest possible account of the need of investors for stability, non-discrimination and transparency of its rules and regulations. b. Should make known to prospective investors its rules, regulations, policies, relevant official bodies, and general conditions that it wishes to apply to incoming direct private investment in a timely and transparent manner. c. Should make known the process it will apply to change any such rules, regulations, and policies. d. Understanding the right to accord special treatment to any enterprise or enterprises, whether domestic or foreign-owned, should not discriminate on the grounds of its foreign ownership in the treatment accorded to the enterprise in the interest of the national security when done consistently with its international treaty obligations. e. Should, in appropriate cases and where the foreign investor so wishes, be prepared to enter into contractual arrangements with the investor concerned. f. Should be prepared to enter into binding obligations under international law with other governments either on a bilateral or multilateral basis, in respect of the reciprocal treatment to be accorded to the property, rights, and interests of nationals of the other state or states and of appropriate dispute resolution mechanisms to enforce those rights

Explanation of the issue

Under the standards of non-discriminatory treatment of investors, a state Party to the agreement commits itself to treat foreign investors from the other Party in the same way in which it treats its own investors (national treatment), as well in the same way in which it treats investors from other countries (most-favoured nation treatment). This ensures a level playing field between foreign investors and local investors or investors from other countries. For instance, if a certain chemical substance were to be proven to be toxic to health, and the state took a decision that it should be prohibited, the state should not impose this prohibition only on foreign companies, while allowing domestic ones to continue to produce and sell that substance.

Non-discrimination obligations may apply after the foreign investor has made the investment in accordance with the applicable law (post-establishment), but they may also apply to the conditions of access of that investor to the market of the host country (pre-establishment).  

Approach in most existing investment agreements

The standards of national treatment and most-favoured nation (MFN) treatment are considered to be key provisions of investment agreements and therefore they have been consistently included in such agreements, although with some variation in substance.

Regarding national treatment, many investment agreements do not allow states to discriminate between a domestic and a foreign investor once the latter is already established in a Party’s territory. Other agreements, however, allow such discrimination to take place in a limited number of sectors.

Regarding MFN, most investment agreements do not clarify whether foreign investors are entitled to take advantage of procedural or substantive provisions contained in other past or future agreements concluded by the host country. Thus, investors may be able to claim that they are entitled to benefit from any provision of another agreement that they consider to be more favourable, which may even permit the application of an entirely new standard of protection that was not found in the original agreement. In practice, this is commonly referred to as "importation of standards".

The EU’s objectives and approach

The EU considers that, as a matter of principle, established investors should not be discriminated against after they have established in the territory of the host country, while at the same recognises that in certain rare cases and in some very specific sectors, discrimination against already established investors may need to be envisaged. The situation is different with regard to the right of establishment, where the Parties may choose whether or not to open certain markets or sectors, as they see fit.

On the "importation of standards" issue, the EU seeks to clarify that MFN does not allow procedural or substantive provisions to be imported from other agreements.

The EU also includes exceptions allowing the Parties to take measures relating to the protection of health, the environment, consumers, etc. Additional carve-outs would apply to the audio-visual sector and the granting of subsidies. These are typically included in EU FTAs and also apply to the non-discrimination obligations relating to investment. Such exceptions allow differences in treatment between investors and investments where necessary to achieve public policy objectives.

Link to reference text

Taking into account the above explanations and the text provided in annex as a reference, what is your opinion of the EU approach to non –discrimination in relation to the TTIP? Please explain.

ICC Guidelines for International Investment, International Chamber of Commerce (ICC), 2012, www.iccwbo.org II. OWNERSHIP AND MANAGEMENT 1. The Investor a. Should ensure that its investment complies with the host government’s laws and regulations pertaining to ownership and management of the enterprise. b. Where appropriate and compatible with the long-term economic interest of the enterprise, should consider opportunities for equity investment by local investors. c. Should encourage local participation in the management of the enterprise, promoting well-qualified nationals to posts of increasing responsibility and providing the training and experience that are a prerequisite for such promotion as a means to enhance the value of the undertaking. 2. The Government of the Investor’s Country Through appropriate means, should support financial, educational and other institutions, including those providing managerial training, thus preparing the ground for more local private participation in the financing and management of enterprises established in developing countries. 3. The Government of the Host Country a. Once the details of the implementation of an investment project have been accepted and the ownership and management structure of the enterprise has been established, should respect and uphold such arrangements. b. Should recognize that joint ventures are much more likely to be successful if they are entered into voluntarily and if the terms of the contracts are left to the free negotiation of the parties. There may be cases where investments that deserve high priority are only feasible on the basis of total foreign ownership. c. Should take appropriate measures to facilitate the purchase of equity in domestic and foreign-owned enterprises by local interests, principally by encouraging the creation or development of an effective capital market. d. Should rely on economic, fiscal, and commercial policy measures applying to all business operations, national and foreign, for the exercise of controls in the public interest rather than seek to do this through compulsory governmental participation in the equity or management of enterprises. e. Consistent with international treaty obligations, should liberalize and generally permit the delivery of services relating to investment by foreign service providers. f. Should respect well-established international rules and practices for the use of performance requirements relating to foreign investment, including those requiring local content, equity caps, technology transfer, domestic sales limitations, and the mandatory use of indigenous technology. g. Should not rely unnecessarily or unjustifiably on national security as a reason for imposing restrictions on foreign investment. h. Should encourage non-equity modes of production and development arising from contractual arrangements such as franchising, licensing, management, and outsourcing contracts. i. Should not discriminate in government procurement or in other government measures or actions in favour of state-owned or other domestic enterprises over foreign investors. j. Should have recourse to expropriation of property of a foreign investor only for a public purpose in accordance with due process and as a last resort.

Explanation of the issue

The obligation to grant foreign investors fair and equitable treatment (FET) is one of the key investment protection standards. It ensures that investors and investments are protected against treatment by the host country which, even if not expropriatory or discriminatory, is still unacceptable because it is arbitrary, unfair, abusive, etc. 

Approach in most investment agreements

The FET standard is present in most international investment agreements. However, in many cases the standard is not defined, and it is usually not limited or clarified. Inevitably, this has given arbitral tribunals significant room for interpretation, and the interpretations adopted by arbitral tribunals have varied from very narrow to very broad, leading to much controversy about the precise meaning of the standard. This lack of clarity has fueled a large number of ISDS claims by investors, some of which have raised concern with regard to the states' right to regulate. In particular, in some cases, the standard has been understood to encompass the protection of the legitimate expectations of investors in a very broad way, including the expectation of a stable general legislative framework.

Certain investment agreements have narrowed down the content of the FET standard by linking it to concepts that are considered to be part of customary international law, such as the minimum standard of treatment that countries must respect in relation to the treatment accorded to foreigners. However, this has also resulted in a wide range of differing arbitral tribunal decisions on what is or is not covered by customary international law, and has not brought the desired greater clarity to the definition of the standard. An issue sometimes linked to the FET standard is the respect by the host country of its legal obligations towards the foreign investors and their investments (sometimes referred to as an "umbrella clause"), e.g. when the host country has entered into a contract with the foreign investor. Investment agreements may have specific provisions to this effect, which have sometimes been interpreted broadly as implying that every breach of e.g. a contractual obligation could constitute a breach of the investment agreement.

EU objectives and approach

The main objective of the EU is to clarify the standard, in particular by incorporating key lessons learned from case-law. This would eliminate uncertainty for both states and investors.

Under this approach, a state could be held responsible for a breach of the fair and equitable treatment obligation only for breaches of a limited set of basic rights, namely: the denial of justice; the disregard of the fundamental principles of due process; manifest arbitrariness; targeted discrimination based on gender, race or religious belief; and abusive treatment, such as coercion, duress or harassment. This list may be extended only where the Parties (the EU and the US) specifically agree to add such elements to the content of the standard, for instance where there is evidence that new elements of the standard have emerged from international law.

The “legitimate expectations” of the investor may be taken into account in the interpretation of the standard. However, this is possible only where clear, specific representations have been made by a Party to the agreement in order to convince the investor to make or maintain the investment and upon which the investor relied, and that were subsequently not respected by that Party. The intention is to make it clear that an investor cannot legitimately expect that the general regulatory and legal regime will not change. Thus the EU intends to ensure that the standard is not understood to be a “stabilisation obligation”, in other words a guarantee that the legislation of the host state will not change in a way that might negatively affect investors. In line with the general objective of clarifying the content of the standard, the EU shall also strive, where necessary, to provide protection to foreign investors in situations in which the host state uses its sovereign powers to avoid contractual obligations towards foreign investors or their investments, without however covering ordinary contractual breaches like the non-payment of an invoice.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to fair and equitable treatment of investors and their investments in relation to the TTIP?

ICC Guidelines for International Investment, International Chamber of Commerce (ICC), 2012, www.iccwbo.org 1. The Investor a. Should respect the national laws, policies and regulations of the host country in the same way as would a good citizen of that country, and abide by legal commitments given to the government of the host country in connection with the investment. b. Should be willing to utilise the orderly dispute resolution mechanisms available to the investor for the peaceful resolution of any dispute with the government of the host country and should consider mediation, for example under the ICC Mediation Rules. 2. The Government of the Investor’s Country a. Should not seek to interfere with the legal order of the host country by extending the application of its national laws, directives and regulations to the investor’s operations in the host country. b. Should seek to enter into agreements with the host state for the protection of its investors’ rights. Such agreements should include appropriate mechanisms for to the resolution of disputes through binding dispute resolution mechanisms, in particular: - Equal access for foreign investors to adjudication before an independent judiciary in accordance with the rule of law, - The right for foreign investors to pursue international arbitration, for example under the ICC Rules of Arbitration, or other recognized investor-state dispute settlement mechanisms. Also consider mediation, for example under the ICC Mediation Rules. 3. The Government of the Host Country a. Should respect the recognized principles of international law, reflected in many international treaties regarding the treatment of foreign property and investment b. It should establish and enforce a body of laws and regulations that create an enabling environment for international and domestic investment, in particular: - Fair and equitable treatment of such investment. - The avoidance of arbitrary, unreasonable and discriminatory measures; - The observance of contractual and other undertakings given to the investor; and, - In the event of expropriation or nationalization the effective payment, without undue delay, of just compensation. c. Should provide for and give effect to the resolution of disputes through binding dispute resolution mechanisms, in particular: - Equal access for foreign investors to adjudication before an independent judiciary in accordance with the rule of law, - The right for foreign investors to pursue international arbitration, for example under the ICC Rules of Arbitration, or other recognized investor-state dispute settlement mechanisms. Also consider mediation, for example under the ICC Mediation Rules. d. Should provide in its national laws for suitable protection for minority share-holdings in those cases where appropriate provisions do not as yet exist. e. Should ensure the publication and transparency of all national laws, regulations, and administrative practices relating to foreign investment in a timely manner.

Explanation of the issue

The right to property is a human right, enshrined in the European Convention of Human Rights, in the European Charter of Fundamental Rights as well as in the legal tradition of EU Member States. This right is crucial to investors and investments. Indeed, the greatest risk that investors may incur in a foreign country is the risk of having their investment expropriated without compensation. This is why the guarantees against expropriation are placed at the core of any international investment agreement.

Direct expropriations, which entail the outright seizure of a property right, do not occur often nowadays and usually do not generate controversy in arbitral practice. However, arbitral tribunals are confronted with a much more difficult task when it comes to assessing whether a regulatory measure of a state, which does not entail the direct transfer of the property right, might be considered equivalent to expropriation (indirect expropriation).

Approach in most investment agreements

In investment agreements, expropriations are permitted if they are for a public purpose, non-discriminatory, resulting from the due process of law and are accompanied by prompt and effective compensation. This applies to both direct expropriation (such as nationalisation) and indirect expropriation (a measure having an effect equivalent to expropriation).

Indirect expropriation has been a source of concern in certain cases where regulatory measures taken for legitimate purposes have been subject to investor claims for compensation, on the grounds that such measures were equivalent to expropriation because of their significant negative impact on investment. Most investment agreements do not provide details or guidance in this respect, which has inevitably left arbitral tribunals with significant room for interpretation.

The EU's objectives and approach

The objective of the EU is to clarify the provisions on expropriation and to provide interpretative guidance with regard to indirect expropriation in order to avoid claims against legitimate public policy measures.  The EU wants to make it clear that non-discriminatory measures taken for legitimate public purposes, such as to protect health or the environment, cannot be considered equivalent to an expropriation, unless they are manifestly excessive in light of their purpose. The EU also wants to clarify that the simple fact that a measure has an impact on the economic value of the investment does not justify a claim that an indirect expropriation has occurred.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to dealing with expropriation in relation to the TTIP? Please explain.

No Comment

Explanation of the issue

In democratic societies, the right to regulate of states is subject to principles and rules contained in both domestic legislation and in international law. For instance, in the European Convention on Human Rights, the Contracting States commit themselves to guarantee a number of civil and political rights. In the EU, the Constitutions of the Member States, as well as EU law, ensure that the actions of the state cannot go against fundamental rights of the citizens. Hence, public regulation must be based on a legitimate purpose and be necessary in a democratic society.

Investment agreements reflect this perspective. Nevertheless, wherever such agreements contain provisions that appear to be very broad or ambiguous, there is always a risk that the arbitral tribunals interpret them in a manner which may be perceived as a threat to the state's right to regulate. In the end, the decisions of arbitral tribunals are only as good as the provisions that they have to interpret and apply.

 Approach in most investment agreements

Most agreements that are focused on investment protection are silent about how public policy issues, such as public health, environmental protection, consumer protection or prudential regulation, might interact with investment. Consequently, the relationship between the protection of investments and the right to regulate in such areas, as envisaged by the contracting Parties to such agreements is not clear and this creates uncertainty.

In more recent agreements, however, this concern is increasingly addressed through, on the one hand, clarification of the key investment protection provisions that have proved to be controversial in the past and, on the other hand, carefully drafted exceptions to certain commitments. In complex agreements such as free trade agreements with provisions on investment, or regional integration agreements, the inclusion of such safeguards is the usual practice.

The EU's objectives and approach

The objective of the EU is to achieve a solid balance between the protection of investors and the Parties' right to regulate.

First of all, the EU wants to make sure that the Parties' right to regulate is confirmed as a basic underlying principle. This is important, as arbitral tribunals will have to take this principle into account when assessing any dispute settlement case.

Secondly, the EU will introduce clear and innovative provisions with regard to investment protection standards that have raised concern in the past (for instance, the standard of fair and equitable treatment is defined based on a closed list of basic rights; the annex on expropriation clarifies that non-discriminatory measures for legitimate public policy objectives do not constitute indirect expropriation). These improvements will ensure that investment protection standards cannot be interpreted by arbitral tribunals in a way that is detrimental to the right to regulate.

Third, the EU will ensure that all the necessary safeguards and exceptions are in place. For instance, foreign investors should be able to establish in the EU only under the terms and conditions defined by the EU. A list of horizontal exceptions will apply to non-discrimination obligations, in relation to measures such as those taken in the field of environmental protection, consumer protection or health (see question 2 for details). Additional carve-outs would apply to the audiovisual sector and the granting of subsidies. Decisions on competition matters will not be subject to investor-to-state dispute settlement (ISDS). Furthermore, in line with other EU agreements, nothing in the agreement would prevent a Party from taking measures for prudential reasons, including measures for the protection of depositors or measures to ensure the integrity and stability of its financial system. In addition, EU agreements contain general exceptions applying in situations of crisis, such as in circumstances of serious difficulties for the operation of the exchange rate policy or monetary policy, balance of payments or external financial difficulties, or threat thereof.

In terms of the procedural aspects relating to ISDS, the objective of the EU is to build a system capable of adapting to the states' right to regulate. Wherever greater clarity and precision proves necessary in order to protect the right to regulate, the Parties will have the possibility to adopt interpretations of the investment protection provisions which will be binding on arbitral tribunals.  This will allow the Parties to oversee how the agreement is interpreted in practice and, where necessary, to influence the interpretation.

The procedural improvements proposed by the EU will also make it clear that an arbitral tribunal will not be able to order the repeal of a measure, but only compensation for the investor.

Furthermore, frivolous claims will be prevented and investors who bring claims unsuccessfully will pay the costs of the government concerned (see question 9).

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion with regard to the way the right to regulate is dealt with in the EU's approach to TTIP?

No Comment

B. Investor-to-State dispute settlement (ISDS)

Explanation of the issue

In most ISDS cases, no or little information is made available to the public, hearings are not open and third parties are not allowed to intervene in the proceedings. This makes it difficult for the public to know the basic facts and to evaluate the claims being brought by either side.

This lack of openness has given rise to concern and confusion with regard to the causes and potential outcomes of ISDS disputes. Transparency is essential to ensure the legitimacy and accountability of the system. It enables stakeholders interested in a dispute to be informed and contribute to the proceedings. It fosters accountability in arbitrators, as their decisions are open to scrutiny. It contributes to consistency and predictability as it helps create a body of cases and information that can be relied on by investors, stakeholders, states and ISDS tribunals.

Approach in most existing investment agreements

Under the rules that apply in most existing agreements, both the responding state and the investor need to agree to permit the publication of submissions. If either the investor or the responding state does not agree to publication, documents cannot be made public. As a result, most ISDS cases take place behind closed doors and no or a limited number of documents are made available to the public.

The EU’s objectives and approach 

The EU's aim is to ensure transparency and openness in the ISDS system under TTIP. The EU will include provisions to guarantee that hearings are open and that all documents are available to the public. In ISDS cases brought under TTIP, all documents will be publicly available (subject only to the protection of confidential information and business secrets) and hearings will be open to the public. Interested parties from civil society will be able to file submissions to make their views and arguments known to the ISDS tribunal. 

The EU took a leading role in establishing new United Nations rules on transparency[1] in ISDS. The objective of transparency will be achieved by incorporating these rules into TTIP.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, please provide your views on whether this approach contributes to the objective of the EU to increase transparency and openness in the ISDS system for TTIP. Please indicate any additional suggestions you may have.

The ICC welcomes the EU’s efforts to ensure the transparency and openness of the ISDS system under the TTIP. The ICC believes that ensuring transparency and openness is an important element of the acceptability of investor-State arbitration for States and for the civil society. This is particularly so in disputes involving the exercise of the State’s legislative and regulatory powers. The ICC is also mindful of the growing request for more transparency and openness in commercial arbitrations, in particular where a State or a State entity is a party. The ICC therefore welcomes the adoption of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, and is favourable to their incorporation into the TTIP, which would make them automatically applicable to arbitrations based on the TTIP. The ICC considers that the parties should be free to agree on the rules most suitable to regulate the transparency and openness of the arbitral proceedings in each particular case. In this respect, the ICC Rules of Arbitration (2012) are extremely flexible. Arbitration under the Rules is not confidential per se. While the work of the institution (i.e., the ICC International Court of Arbitration and its Secretariat) in administering the proceedings is confidential, neither the parties nor the arbitrators are under an obligation of confidentiality. Nothing in the Rules prevents the parties from agreeing that the submissions or the hearings be accessible to the public, or that the award or other decisions made by the arbitral tribunal be published. Although under the Rules neither the parties nor the arbitrators are under an obligation of confidentiality, arbitrators are empowered, under Article 22-3 of the Rules, to take any appropriate measure to protect trade secrets and confidential information. Likewise, nothing in the ICC Rules prevents the parties from agreeing that third parties may be heard as amici curiae, or in absence of such an agreement, that the Arbitral Tribunal will have the power to admit amici curiae submissions. In this regard, Article 25-3 of the Rules provide that the Arbitral Tribunal may decide to hear any person, which includes the parties to the arbitration, the States that are party to the treaty upon which the arbitration is based, or other third parties having a vested interest in the matters in dispute. Finally, although Article 11-4 of the Rules provides that the decisions of the Court as to the appointment, confirmation, challenge or replacement of an arbitrator shall not be communicated to the parties, the ICC Court of International Arbitration accepts to provide reasons for its challenge decisions if requested to do so by the parties when a State or a State entity is involved in the arbitration.

Explanation of the issue

Investors who consider that they have grounds to complain about action taken by the authorities (e.g. discrimination or lack of compensation after expropriation) often have different options. They may be able to go to domestic courts and seek redress there. They or any related companies may be able to go to other international tribunals under other international investment treaties.

It is often the case that protection offered in investment agreements cannot be invoked before domestic courts and the applicable legal rules are different. For example, discrimination in favour of local companies is not prohibited under US law but is prohibited in investment agreements. There are also concerns that, in some cases domestic courts may favour the local government over the foreign investor e.g. when assessing a claim for compensation for expropriation or may deny due process rights such as the effective possibility to appeal. Governments may have immunity from being sued. In addition, the remedies are often different. In some cases government measures can be reversed by domestic courts, for example if they are illegal or unconstitutional. ISDS tribunals cannot order governments to reverse measures.

These different possibilities raise important and complex issues. It is important to make sure that a government does not pay more than the correct compensation. It is also important to ensure consistency between rulings.

Approach in most existing investment agreements

Existing investment agreements generally do not regulate or address the relationship with domestic courts or other ISDS tribunals. Some agreements require that the investor choses between domestic courts and ISDS tribunals. This is often referred to as "fork in the road" clause.

The EU’s objectives and approach

As a matter of principle, the EU’s approach favours domestic courts. The EU aims to provide incentives for investors to pursue claims in domestic courts or to seek amicable solutions – such as mediation. The EU will suggest different instruments to do this. One is to prolong the relevant time limits if an investor goes to domestic courts or mediation on the same matter, so as not to discourage an investor from pursuing these avenues.  Another important element is to make sure that investors cannot bring claims on the same matter at the same time in front of an ISDS tribunal and domestic courts. The EU will also ensure that companies affiliated with the investor cannot bring claims in front of an ISDS tribunal and domestic courts on the same matter and at the same time. If there are other relevant or related cases, ISDS tribunals must take these into account. This is done to avoid any risk that the investor is over-compensated and helps to ensure consistency by excluding the possibility for parallel claims.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the effectiveness of this approach for balancing access to ISDS with possible recourse to domestic courts and for avoiding conflicts between domestic remedies and ISDS in relation to the TTIP. Please indicate any further steps that can be taken. Please provide comments on the usefulness of mediation as a means to settle disputes.

ICC welcomes the proposal by the EU to specifically include mediation among the options available to settle disputes arising out of the application of the TTIP. ICC agrees with the approach to enhance mediation as an alternative to arbitration will contribute generally to the acceptability of investment-treaty dispute resolution and constitute a significant improvement to the prevailing ISDS system. Mediation features prominently and effectively alongside arbitration in the dispute resolution services offered by the ICC. It is the ICC’s experience and policy to strengthen recourse to mediation as a credible alternative or complement to arbitration. ICC further welcomes the approach that is taken to propose mediation “at any time” and not to confine the offer of mediation to the limited time available to reach amicable settlement before an arbitration procedure can commence. The ICC Mediation Rules allows parallel proceedings of mediation and arbitration and it is a good practice that works effectively and is encouraged. Having said that, parties are particularly welcome to commence mediation during the ‘cooling- off’ period in order to settle or at least narrow down the dispute at the earliest stage. Within the ICC’s Dispute Resolution Services arbitration and mediation services are and should remain different and it is the ICC understands that good arbitrators are not necessarily good mediators and vice- versa. As an institution, the ICC does not certify and accredit mediators but applies strict criteria to the selection process. It is ICC’s experience that the support provided to the mediation process by an administering institution is essential to the success of the mediation. The parties to the mediation and the mediator will greatly benefit from the logistical and administrative support given by an institution. ICC has a strong expertise and experience in offering mediation services to parties and has recently enacted its revised ICC Mediation Rules which entered into force on 1 January 2014. ICC has administered numerous cases involving states and state entities. ICC’s experience does demonstrate that with the support of a neutral, experienced and well regarded institution guiding the parties through the process, settlements can be reached also in complex disputes involving States and state entities. ICC Mediation offers a flexible procedure aimed at achieving a negotiated settlement with the hold of a neutral facilitator. The Mediation Rules guide the parties through the main steps and essential features of mediation and the key issues that the parties need to agree upon to make recourse to mediation effective. It is also good practice to provide that the rules can at all times be modified by agreement between the parties. When the mediation process is administered by an institution, as is the case for ICC Mediation, it is also important for the administrating institution to ensure that changes introduced by the parties are consistent with the spirit of the Rules. Mediation can work alongside arbitration but also other adjudication procedures, in the same way as direct negotiation. In the context of disputes involving States, it is in fact advisable to propose mediation upfront as a means to deal with amicable settlement in order to ensure that such discussions and direct contacts follow a process that can at all times be referred to and foster accountability. Based on the ICC’s experience in offering mediation services worldwide, ICC has the following specific comments relevant in the context of the TTIP: 1) The ICC would suggest complementing the draft article on Mediation by a reference to a set of mediation rules to give guidance and options to parties while preserving the consensual and party-driven nature of mediation. There is little if no experience and expertise in conducting investment mediation procedures and in order to ensure an effective and fair settlement of the dispute through mediation, the parties will require a detailed roadmap to avoid derailing of the process, while maintaining flexibility. Reference could be made to the ICC Mediation Rules and to the administration of the mediation procedure by the ICC. The ICC suggests that the article on mediation clearly gives both parties the option to propose mediation and to resort to mediation by common agreement. It may be useful to send a clear signal that the State can also propose mediation. It will certainly create momentum and strengthen the preparedness of State parties to mediation, in addition to catering for the consensual character of mediation. The reference to agreement between the parties at any time is useful as well as it allows for mediation to be used while seeking amicable settlement but also alongside an arbitration with the appropriate waivers and confidentiality rules. 2) Another option is for the TTIP itself to include detailed mediation rules. As is the case with arbitration provisions that have become more detailed over time to strengthen predictability, the inclusion of detailed rules in an annex or a direct reference to existing rules may be considered as an additional element of credibility for the parties wanting to travel the mediation route. 3) Considerable effort has gone into developing awareness, preparation and capacity among the potential users of ICC Mediation. This is the key to success of mediation, particularly for mediation processes involving States or State agencies. ICC suggests that the Contracting Parties include reference and necessary means to a joint capacity-building program to implement and strengthen recourse to mediation that does not remain on paper but actually bears fruit. While realizing the challenge for the Contracting Parties in the TTIP, ICC reiterates its willingness and ability to make the ICC’s experience and expertise available to both Parties in order to make the best use of mediation as an option to settle investment disputes.

Explanation of the issue

There is concern that arbitrators on ISDS tribunals do not always act in an independent and impartial manner. Because the individuals in question may not only act as arbitrators, but also as lawyers for companies or governments, concerns have been expressed as to potential bias or conflicts of interest.

Some have also expressed concerns about the qualifications of arbitrators and that they may not have the necessary qualifications on matters of public interest or on matters that require a balancing between investment protection and e.g. environment, health or consumer protection.

Approach in existing investment agreements

  Most existing investment agreements do not address the issue of the conduct or behaviour of arbitrators. International rules on arbitration address the issue by allowing the responding government or the investor to challenge the choice of arbitrator because of concerns of suitability.

Most agreements allow the investor and the responding state to select arbitrators but do not establish rules on the qualifications or a list of approved, qualified arbitrators to draw from.

  The EU’s objective and approach

The EU aims to establish clear rules to ensure that arbitrators are independent and act ethically. The EU will introduce specific requirements in the TTIP on the ethical conduct of arbitrators, including a code of conduct. This code of conduct will be binding on arbitrators in ISDS tribunals set up under TTIP.  The code of conduct also establishes procedures to identify and deal with any conflicts of interest.  Failure to abide by these ethical rules will result in the removal of the arbitrator from the tribunal. For example, if a responding state considers that the arbitrator chosen by the investor does not have the necessary qualifications or that he has a conflict of interest, the responding state can challenge the appointment. If the arbitrator is in breach of the Code of Conduct, he/she will be removed from the tribunal. In case the ISDS tribunal has already rendered its award and a breach of the code of conduct is found, the responding state or the investor can request a reversal of that ISDS finding.

In the text provided as reference (the draft EU-Canada Agreement), the Parties (i.e. the EU and Canada) have agreed for the first time in an investment agreement to include rules on the conduct of arbitrators, and have included the possibility to improve them further if necessary. In the context of TTIP these would be directly included in the agreement.

As regards the qualifications of ISDS arbitrators, the EU aims to set down detailed requirements for the arbitrators who act in ISDS tribunals under TTIP. They must be independent and impartial, with expertise in international law and international investment law and, if possible, experience in international trade law and international dispute resolution. Among those best qualified and who have undertaken such tasks will be retired judges, who generally have experience in ruling on issues that touch upon both trade and investment and on societal and public policy issues. The EU also aims to set up a roster, i.e. a list of qualified individuals from which the Chairperson for the ISDS tribunal is drawn, if the investor or the responding state cannot otherwise agree to a Chairperson. The purpose of such a roster is to ensure that the EU and the US have agreed to and vetted the arbitrators to ensure their abilities and independence.  In this way the responding state chooses one arbitrator and has vetted the third arbitrator.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these procedures and in particular on the Code of Conduct and the requirements for the qualifications for arbitrators in relation to the TTIP agreement. Do they improve the existing system and can further improvements be envisaged?

The ICC welcomes the EU's proposal that parties to ISDS under the TTIP may appoint an arbitrator in three-member panels. As to sole/presiding arbitrators, the ICC considers that parties should be free to agree on any appointment procedure. The ICC welcomes the proposal that, unless otherwise agreed, presiding/sole arbitrators should be appointed by agreement between the parties, or, failing such agreement, by any institution administering the proceedings. The ICC welcomes the EU's proposal to include in the TTIP ethical rules and qualifications of arbitrators acting under the ISDS. Ethical rules, including rules on independence, impartiality, availability and other specific rules to be observed by arbitrators with respect to the conduct of the proceedings, should be kept separate from qualifications. Both ethical rules and qualifications should apply to all arbitrators, regardless of their being party-appointed or presiding/sole arbitrators. Upon acceptance of the appointment, arbitrators should be invited to confirm their independence, impartiality and availability and to disclose any circumstances that may affect their independence and impartiality in the eyes of the parties. The IBA Guidelines may be used as a reference in this respect. Under the ICC Rules, prospective arbitrators are required to confirm, in addition to their independence and impartiality, their availability to devote the time necessary to conduct the arbitration in accordance with the time limits in the Rules, and to state the number of cases in which they are involved either as arbitrators or as counsel. In the ICC’s experience, the introduction of this requirement proved to be an effective measure to avoid unnecessary delays. Additional rules of conduct may be included in a code of conduct that would be introduced in the TTIP and would be binding on all arbitrators. The qualifications required to act as an arbitrator in the ISDS should include those mentioned under Question 8 (expertise in international law and international investment law and, if possible, experience in international trade law and international dispute resolution). The ICC is of the opinion that retired judges would be eligible only to the extent they fulfil these requirements and that they should not be mentioned specifically. Indeed, in many jurisdictions, judges do not have the above mentioned expertise and experience. Under the ICC Rules, whenever a State or a State entity is involved in a case, the ICC Court is empowered to proceed to a direct appointment of arbitrators, i.e. without resorting to the proposal of one of the ICC national committees. This is particularly relevant in investor-State arbitrations, where, in proceeding to a direct appointment, the Court will ensure that the selected candidate has the above mentioned qualifications. Arbitrators who lack any of the above mentioned requirements (independence, impartiality, respect of the code of conduct and qualifications) may be challenged before the institution administering the proceedings in accordance with the procedure and within the time limits specified in the institution's rules. In light of the above mentioned rules, the ICC does not consider it appropriate to establish a roster from which arbitrators should be chosen. In the interest of the parties' freedom to select arbitrators and of choosing the most appropriate candidates for specific cases, it is in fact appropriate to leave open the possibility of appointing arbitrators regardless of their being included on a list. Moreover, the creation of a roster would raise additional and complex questions and problems with respect to the process for inclusion. In any event, any such list should not be exclusive and should not prevent the appointment of arbitrators not in the list.

Explanation of the issue

As in all legal systems, cases are brought that have little or no chance of succeeding (so-called “frivolous claims”). Despite eventually being rejected by the tribunals, such cases take up time and money for the responding state. There have been concerns that protracted and frequent litigation in ISDS could have an effect on the policy choices made by states. This is why it is important to ensure that there are mechanisms in place to weed out frivolous disputes as early as possible.

Another issue is the cost of ISDS proceedings. In many ISDS cases, even if the responding state is successful in defending its measures in front of the ISDS tribunal, it may have to pay substantial amounts to cover its own defence.

Approach in most existing investment agreements:

Under existing investment agreements, there are generally no rules dealing with frivolous claims. Some arbitration rules however do have provisions on frivolous claims. As a result, there is a risk that frivolous or clearly unfounded claims are allowed to proceed. Even though the investor would lose such claims, the long proceedings and the implied questions surrounding policy can be problematic.

The issue of who bears the cost is also not addressed in most existing investment agreements. Some international arbitration rules have provisions that address the issue of costs in very general terms. In practice, ISDS tribunals have often decided that the investor and responding state pay their own legal costs, regardless of who wins or loses.

The EU’s objectives and approach

The EU will introduce several instruments in TTIP to quickly dismiss frivolous claims.

ISDS tribunals will be required to dismiss claims that are obviously without legal merit or legally unfounded. For example, this would be cases where the investor is not established in the US or the EU, or cases where the ISDS tribunal can quickly establish that there is in fact no discrimination between domestic and foreign investors. This provides an early and effective filtering mechanism for frivolous claims thereby avoiding a lengthy litigation process.

To further discourage unfounded claims, the EU is proposing that the losing party should bear all costs of the proceedings. So if investors take a chance at bringing certain claims and fail, they have to pay the full financial costs of this attempt.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these mechanisms for the avoidance of frivolous or unfounded claims and the removal of incentives in relation to the TTIP agreement. Please also indicate any other means to limit frivolous or unfounded claims.

The EU is concerned that “protracted and frequent litigation in ISDS could have an effect on the policy choices made by States”. To address this, the EU proposes that TTIP require: (1) losing parties to bear all costs; and (2) tribunals to dismiss claims that are “obviously without legal merit or legally unfounded”. (1) The losing parties should bear all costs The ICC Rules use cost mechanisms to prevent “protracted and frequent litigation”, but without putting in place a black line rule that may not be appropriate in all cases. Under the ICC Rules, “costs” comprise arbitrators’ fees and expenses (and any institutional fees), on the one hand, and legal fees and other costs, on the other. Arbitrators’ fees are fixed exclusively by the ICC Court of Arbitration – separate fee arrangements between the arbitrators and parties are not permitted. When the ICC Court fixes fees, it does so on the basis of costs scales that form part of the ICC Rules. Those scales indicate the minimum and maximum fees payable, depending on the amount in dispute. This system creates two checks on costs. The first comes from the ICC Court, which will fix the arbitrators’ fees within the limits of the costs scales based on, among other things, the diligence and efficiency of the arbitrator and the rapidity of the proceedings. The second check, particularly relevant for Question 9, is that the ICC’s ad valorem system discourages parties from making frivolous or inflated claims because doing so necessarily leads to an increase in the amounts they must pay. In the ICC’s experience, the amounts paid towards arbitrators’ fees (and any institutional fees) are far outweighed by the amounts paid for lawyers’ fees and expenses. This being said, the ICC Rules provide a check on these costs, as well. The ICC Rules require arbitrators to determine what amount of the costs claimed shall be recoverable. The ICC Rules thus provide that the arbitrators must examine whether such legal and other costs are “reasonable”, before deciding “which of the parties shall bear them or in what proportion they should be borne by the parties”. To come to their decision, the ICC Rules expressly provide that the arbitrators may take into consideration “the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner”. This is a check against one party recovering costs attributable to, for example, bringing a frivolous claim. (2) TTIP requires tribunals to dismiss claims that are “obviously without legal merit or legally unfounded” to avoid “protracted and frequent litigation” The ICC notes that TTIP may follow the text developed in the EU-Canada agreement (CETA). In CETA, the EU proposes dealing with “claims manifestly without legal merit” or “claims unfounded as a matter of law” by “suspending the proceedings on the merits” and having the tribunal establish a schedule for dealing with objections raised on this basis. This procedure is akin to Rule 41(5) of the ICSID Arbitration Rules. The ICC Rules deal with this issue differently, on a jurisdictional basis. Article 6(3) of the ICC Rules provides that if a party “raises one of more pleas concerning the existence, validity or scope of the arbitration agreement”, the Secretary General of the ICC carries out an initial screening to identify those cases that can be directly referred to the arbitrators, and those that must be referred to the ICC Court for decision. For cases referred to the arbitrators, the arbitrators remain free to establish a procedure to deal with claims that may be “obviously without legal merit or legally unfounded”. For those cases sent to the ICC Court, Article 6(4) of the ICC Rules ensures that those cases shall only proceed “if and to the extent that the Court is prima facie satisfied that an arbitration agreement may exist”. Through the mechanism contained in Articles 6(3) and 6(4) of the ICC Rules, cases that do not meet the strict minimum – the existence of an arbitration agreement – are not allowed to proceed. In this connection, the ICC’s experience shows that the prima facie test has been applied more strictly vis-à-vis States and State entities. In all events, the ICC Rules allow initial objections to be dealt with quickly in a way that does not slow down the procedure.

Explanation of the issue

Recently, concerns have been expressed in relation to several ISDS claims brought by investors under existing investment agreements, relating to measures taken by states affecting the financial sector, notably those taken in times of crisis in order to protect consumers or to maintain the stability and integrity of the financial system.

To address these concerns, some investment agreements have introduced mechanisms which grant the regulators of the Parties to the agreement the possibility to intervene (through a so-called “filter” to ISDS) in particular ISDS cases that involve measures ostensibly taken for prudential reasons. The mechanism enables the Parties to decide whether a measure is indeed taken for prudential reasons, and thus if the impact on the investor concerned is justified. On this basis, the Parties may therefore agree that a claim should not proceed.

Approach in most existing investment agreements

The majority of existing investment agreements privilege the original intention of such agreements, which was to avoid the politicisation of disputes, and therefore do not contain provisions or mechanisms which allow the Parties the possibility to intervene under particular circumstances in ISDS cases.

The EU’s objectives and approach

The EU like many other states considers it important to protect the right to regulate in the financial sector and, more broadly, the overriding need to maintain the overall stability and integrity of the financial system, while also recognizing the speed needed for government action in case of financial crisis.

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Some investment agreements include filter mechanisms whereby the Parties to the agreement (here the EU and the US) may intervene in ISDS cases where an investor seeks to challenge measures adopted pursuant to prudential rules for financial stability. In such cases the Parties may decide jointly that a claim should not proceed any further. Taking into account the above explanation and the text provided in annex as a reference, what are your views on the use and scope of such filter mechanisms in the TTIP agreement?

The EU’s proposal under this question relates to the possibility for the US and EU to agree jointly that a particular claim in a particular case should not proceed because the measure in question was taken for “prudential reasons”. The EU’s objective in making this proposal is “to protect the right to regulate in the financial sector” and “maintain the overall stability and integrity of the financial system”. While the ICC understands the EU’s objectives, the ICC views this kind of a procedure as usurping the arbitral process. The tribunal is supposed to decide whether a measure breaches the host State’s treaty obligations, not the parties to the treaty. Furthermore, as the EU rightly notes, “[t]he majority of existing investment agreements privilege the original intention of such agreements, which was to avoid the politicization of disputes”. Introducing the proposed “filter” procedure in TTIP would be an enormous step backward for ISDS for this very reason. In order to maintain the integrity of the arbitral process and avoid the politicization of disputes, the ICC suggests that mechanisms other than the proposed “filter” be used in TTIP. For example, the EU and US could agree that the non-host State intervene as a party in the arbitration. This would give the EU and US the opportunity to present a joint position before the arbitrators regarding the measure in question. Another possibility would be for the non-host State to be able to present an amicus curiae brief.

Explanation of the Issue

When countries negotiate an agreement, they have a common understanding of what they want the agreement to mean. However, there is a risk that any tribunal, including ISDS tribunals interprets the agreement in a different way, upsetting the balance that the countries in question had achieved in negotiations – for example, between investment protection and the right to regulate. This is the case if the agreement leaves room for interpretation. It is therefore necessary to have mechanisms which will allow the Parties (the EU and the US) to clarify their intentions on how the agreement should be interpreted.

Approach in existing investment agreements

Most existing investment agreements do not permit the countries who signed the agreement in question to take part in proceedings nor to give directions to the ISDS tribunal on issues of interpretation.

The EU’s objectives and approach 

The EU will make it possible for the non-disputing Party (i.e. the EU or the US) to intervene in ISDS proceedings between an investor and the other Party. This means that in each case, the Parties can explain to the arbitrators and to the Appellate Body how they would want the relevant provisions to be interpreted.  Where both Parties agree on the interpretation, such interpretation is a very powerful statement, which ISDS tribunals would have to respect.

The EU would also provide for the Parties (i.e. the EU and the US) to adopt binding interpretations on issues of law, so as to correct or avoid interpretations by tribunals which might be considered to be against the common intentions of the EU and the US. Given the EU’s intention to give clarity and precision to the investment protection obligations of the agreement, the scope for undesirable interpretations by ISDS tribunals is very limited. However, this provision is an additional safety-valve for the Parties.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on this approach to ensure uniformity and predictability in the interpretation of the agreement to correct the balance? Are these elements desirable, and if so, do you consider them to be sufficient?

This question is better approached if it is split into two objectives: 1) to make it possible for the non-disputing Party to intervene in proceedings between an investor and the other Party in order to provide the non-disputing Party’s interpretation of the relevant provisions of the underlying TTIP; and 2) to provide for the Parties to adopt binding interpretations of the TTIP, so as to correct or avoid interpretations by tribunals which might be considered to be against the common intentions of the parties. Ad 1) Intervention of the Non-Disputing Party There is a general concern regarding the implications of non-dispute party submissions on due process, time delays and additional financial pressure. The ICC has a number of reservations regarding the proposed text of Article x-35 as text of reference for the following reasons: Para. 1 of Article x-35 of the CETA leaves to the Respondent the initiative to deliver to the non-disputing State party “within 30 days after receipt or promptly after any dispute concerning confidential or protected information has been resolved” a number of submissions made and documents filed in the arbitration, some of which are delivered on request of the non-disputing State Party. In the ICC’s view, there are three problems with this provision as drafted: i. it is not clear whether the provision refers to treaty interpretation at all as it is triggered after the resolution of a dispute concerning “confidential or protected information”, an altogether different issue; ii. it is unclear also why the process of consultation should be triggered by the Respondent, who, arguably, will have its record of the travaux and its own views regarding the interpretation of the Treaty and most likely will not need the interpretation of the other contracting party; and iii. sub-paragraph c) seems redundant as it could be easily merged into sub-paragraph b). ICC recommends not to use the first paragraph of the text of reference but to maintain paragraphs 2-4. It further recommends adding a provision along the lines of Article 5(2) of the UNCITRAL Rules on Transparency. Ad 2) Interpretation by the Parties The reference made to the text of Article x-27 suggests the creation for the TTIP of a Trade Committee modelled on the CETA example thereby following the practice established by the NAFTA and other free-trade agreements concluded by Canada or by the United States. The practice of investment tribunals shows that when interpretation of a treaty is provided by the State party to an on-going arbitration, it may ultimately not be assigned decisive weight by the relevant tribunal as it is likely to be perceived as being self-serving. The situation is arguably different when, as in the case of the Free Trade Commission’s (“FTC”) interpretation of the NAFTA and as would be the case of the TTIP, both contracting parties to the relevant agreement provide their interpretation of that agreement. Also, if the States parties to a treaty wish to amend that treaty they have the power to do so, but the question is whether this can be done retroactively with respect to an on-going investor-State arbitration. In any event, even when the contracting parties provide their interpretation of a treaty, tribunals will conduct their own interpretation on the basis of the relevant rules of treaty interpretation, i.e. Articles 31-33 of the Vienna Convention on the Law of Treaties (“VCLT”) and may eventually not accept the interpretation submitted by the contracting parties. In the light of the above, ICC supports this proposal with the caveat discussed above – i.e. that the interpretation in question truly represents an authentic interpretation provided by the contracting parties themselves.

Explanation of the issue

In existing investment agreements, the decision by an ISDS tribunal is final. There is no possibility for the responding state, for example, to appeal to a higher instance to challenge the level of compensation or other aspects of the ISDS decision except on very limited procedural grounds. There are concerns that this can lead to different or even contradictory interpretations of the provisions of international investment agreements. There have been calls by stakeholders for a mechanism to allow for appeal to increase legitimacy of the system and to ensure uniformity of interpretation.

  

Approach in most existing investment agreements

No existing international investment agreements provide for an appeal on legal issues. International arbitration rules allow for annulment of ISDS rulings under certain very restrictive conditions relating to procedural issues. 

The EU’s objectives and approach 

The EU aims to establish an appellate mechanism in TTIP so as to allow for review of ISDS rulings. It will help ensure consistency in the interpretation of TTIP and provide both the government and the investor with the opportunity to appeal against awards and to correct errors. This legal review is an additional check on the work of the arbitrators who have examined the case in the first place.

In agreements under negotiation by the EU, the possibility of creating an appellate mechanism in the future is envisaged. However, in TTIP the EU intends to go further and create a bilateral appellate mechanism immediately through the agreement.

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Question 12. Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the creation of an appellate mechanism in TTIP as a means to ensure uniformity and predictability in the interpretation of the agreement.

The EU’s proposal for an appellate mechanism into TTIP intends to respond to concerns relating to the inconsistency of awards rendered in investment treaty arbitration and criticism about the legitimacy of investor-State arbitration. It comes at a time of unprecedented increase in annulment and set-aside procedures in investment treaty arbitration, initiated by either party to an investment dispute. While a first wave of ICSID annulments and set-aside procedures has been reined in, a more recent surge is again challenging arbitral awards rendered in investment treaty arbitration. Such an appellate mechanism in TTIP would nevertheless introduce a major change in investment arbitration as it is currently designed and functioning. In so doing, the proposal furthers the risk of fragmentation of international investment law and may deepen the divide between older generation BITs and modern FTAs. The ICC is, therefore, not in favour of establishing an appellate mechanism. By way of background, the debate surrounding appellate mechanisms in arbitration is not new. It began around 2003 when the United States introduced an appellate mechanism as part of the negotiating mandate of its Free Trade Agreements (FTAs). A provision foreseeing the establishment of an appellate mechanism was subsequently added to all FTAs concluded by the United States. It should be noted, however, that the actual establishment of such a mechanism has not been a priority for the contracting parties to date, and any negotiations to this effect are still pending. The debate further takes place against the background of the international trading system and almost two decades of work by the WTO Appellate Body, which has generally received positive feedback from the States resorting to the Dispute Settlement Understanding of the WTO. Criticisms regarding the increase in costs, duration of the proceedings and the appointment of members of the Appellate Body have gradually receded and been replaced by emerging jurisprudence regarding the interpretation and application of the WTO treaties. It should, however, be noted that the WTO mechanism applies to State-State disputes, and that the remedies in place are not of the same nature under the WTO as in the context of investment treaty arbitration. The same goes for the mechanisms available for enforcing a final and binding award in the two contexts. With this background in mind, the ICC generally sees the introduction of an appeals system as undermining the fundamental basis of international arbitration – whether commercial or treaty-based – in that it removes the final and binding character of an award rendered to settle a dispute between parties. Furthermore, while the possibility of appeal may arguably address consistency concerns, it runs contrary to the EU’s stated goal of avoiding “protracted litigation” of investment disputes, as appeals necessarily drag out the length of arbitration procedure and thus increase costs. The ICC suggests that there is another way of ensuring greater consistency between awards that will not compromise the finality of arbitrators’ decisions. In ICC arbitrations, this is accomplished by the ICC International Court of Arbitration when it scrutinizes awards rendered by ICC tribunals. The EU has noted in its consultation that in seeking to establish an appellate mechanism, it wishes to put into place “an additional check on the work of the arbitrators”. “Scrutiny”, which is defined in Article 33 of the ICC Rules, serves this purpose. Article 33 provides that the ICC Court “may lay down modifications as to the form of the award and, without affecting the arbitral tribunal’s liberty of decision, may also draw its attention to points of substance”. In this connection, it is noted that the line is often not clear between form and substance, such that the ICC Court’s comments often provide the basis for tribunals to double check the general quality of their awards. What is more, the same Article provides that “[n]o award shall be rendered by the arbitral tribunal until it has been approved by the Court as to its form”. In so providing, the ICC Rules ensure that the ICC Court’s quality check occurs before the award is notified to the parties and/or made public. As indicated above, the ICC is not in favour of establishing an appellate mechanism. However, should the establishment of such a mechanism proceed; some additional comments can be made: • It is strongly suggested that the discussion of an appellate mechanism should not be carried out by the EU and the US in the context of the TTIP only and limited to this treaty without taking into account its effects on the system of international investment agreements as it applies to thousands of existing treaties. It is important that a global debate take place, preferably at ICSID or another forum with broad membership. The ICC would be pleased to support such inclusive debate and contribute its experience as an arbitration institution and the views of the ICC membership. • It is also suggested that the discussions focus on establishing a facility that could work for all treaties and for all parties, which would not require major reopening of existing treaties and conventions. This could be done by an initiative along the lines of the ICSID Additional Facility or a specific convention such as the one being discussed within UNCITRAL on transparency, to which treaty partners can then decide to opt in or opt out. Technical features, such as strict time limits, a precise scope for the appeal, the requirement of a bond to be placed by the requesting party, the selection of an appellate tribunal – whether standing or selected for each case from the roster of chair persons as contemplated by the draft EU-CETA text – are all good starting points. The challenges are important but there are ways and means to draft a functional appellate system that can serve as an example. • It is understood that the parties to TTIP benefit from significant experience in investment arbitration and can be considered like-minded, or at least as having a common interest for high standards of investment protection while preserving the right and the duty for the States to regulate for public purpose. It is suggested, however, that the design of a bilateral appellate mechanism in TTIP should not come at the expense of improvements to system of international arbitration agreements as a whole, and should not operate in isolation of investment treaty arbitration across treaties. Again, the risk of fragmentation of international investment law and deepening the divide between older generation BITs and modern FTAs is great. For ICC tribunals, tasked with interpreting disputes arising from BITs of different generations, the outcome of the TTIP negotiations are of significant interest and warrant careful consideration.

C. General assessment

General assessment
  • What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US?
  • Do you see other ways for the EU to improve the investment system?
  • Are there any other issues related to the topics covered by the questionnaire that you would like to address?

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