Investment Arbitration under Mega-Regional Free Trade Agreements: A 21st Century Model

16 Pages Posted: 20 Jul 2016 Last revised: 10 Oct 2016

Mark Feldman

Peking University School of Transnational Law

Date Written: July 20, 2016

Abstract

Investment obligations and investor-State arbitration provisions normally have been negotiated under BITs; in recent years, however, and with increasing frequency, such provisions have been negotiated in the larger context of FTAs. For investment provisions, the movement from BITs to FTAs recently has taken an additional, significant step: the negotiation of such provisions in the even larger context of mega-regional FTAs.

This shift in context — from BITs to FTAs, and now from FTAs to mega-regional FTAs — will significantly affect the content and operation of investment provisions. Indeed, investment arbitration under mega-regional FTAs likely will be distinctive in several important respects. This chapter addresses five distinctive characteristics of investment arbitration under mega-regional FTAs.

First, a significant number of claims likely will require tribunals to address distinctions between trade and investment activities. Such claims would arise in the context of international production networks, which mega-regional FTAs are intended to encourage and support. By clarifying the outer limits of “investor” activities, tribunals constituted under mega-regional FTAs could build upon the groundbreaking guidance provided by the TPP, which limits damages under the investment chapter to those incurred by a claimant in its “capacity” as an investor.

Second, mega-regional FTAs could provide particularly good opportunities for the development of effective appellate mechanisms. Appellate tribunals tied to individual mega-regional FTAs could have a systemic impact on the international investment law regime (given the active investment arbitration practice likely to develop under each treaty); at the same time, such tribunals - each of which would oversee the interpretation of only one treaty - could avoid the temptation to understate the significance of textual distinctions across treaties (which can arise from a perceived need to achieve greater consistency in the case law).

Third, mega-regional FTAs likely will increase the availability of investment liberalization commitments. By offering compelling trade benefits (in particular, enhanced access to regional and global value chains), mega-regional FTAs could encourage developing States to agree to robust investment commitments that otherwise would be difficult to secure.

Fourth, mega-regional FTAs can encourage investment liberalization in another respect: by relying on existing momentum for trade liberalization to create momentum for investment liberalization (particularly when combining the negotiation of reserved sectors that apply both to trade and investment commitments).

Fifth, mega-regional FTAs that include a large number of signatories could give rise to coordination challenges. Such coordination challenges could weaken the effectiveness of joint interpretation mechanisms — a form of control mechanism on which States can rely to limit the independence of tribunals constituted under a particular treaty. In response to the risk of coordination challenges, policymakers should consider a wide range of alternative control mechanism options, including soft law options, which recently have been used effectively by the NAFTA Parties (when developing non-binding “Statements” on arbitral procedure) and UNCITRAL (when developing transparency rules that apply largely on a voluntary, opt-in basis).

With the conclusion of the TPP, and likely conclusion of an RCEP agreement, these distinctive characteristics of investment arbitration under mega-regional FTAs ultimately could be seen, more generally, as characteristics of 21st century investment arbitration.

Keywords: TPP, RCEP, TTIP, BITs, FTAs, Mega-Regional FTAs, Investment Treaties, Investment Arbitration, Investor-State Arbitration

JEL Classification: K33

Suggested Citation

Feldman, Mark, Investment Arbitration under Mega-Regional Free Trade Agreements: A 21st Century Model (July 20, 2016). Peking University School of Transnational Law Research Paper No. 16-10. Available at SSRN: https://ssrn.com/abstract=2811693

Mark Feldman (Contact Author)

Peking University School of Transnational Law ( email )

China

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