Mark Feldman

The Role of Pacific Rim FTAs in the Harmonisation of International Investment Law: Towards a Free Trade Area of the Asia-Pacific

The fragmented international investment law regime—which is composed of thousands of treaties—is harmonizing in two fundamental respects. First, in the near future, five agreements could govern a very substantial share of global investment: a U.S.-China bilateral investment treaty (“BIT”), an EU-China BIT, and three “mega-regional” free trade agreements (“FTAs”): the Transatlantic Trade and Investment Partnership (“TTIP”), the Trans-Pacific Partnership (“TPP”), and the Regional Comprehensive Economic Partnership (“RCEP”).

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

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. With the conclusion of the TPP, and likely conclusion of an RCEP agreement, those five characteristics ultimately could be seen, more generally, as characteristics of 21st century investment arbitration.

Distinguishing Investors from Exporters Under Investment Treaties

Multinational corporations, when engaging in global operations, often act as both investors and exporters. Such intertwined investment and export operations can significantly complicate the application of investment treaty protections, which generally are intended to apply to investors, but not to exporters. When attempting to distinguish investor and exporter activities, tribunals constituted under the investment chapter of the NAFTA have considered three kinds of limitations on recovery: (i) a causation limitation, (ii) a territorial limitation, and (iii) a capacity limitation. Of these three alternatives, the capacity limitation has the greatest potential to serve as an adaptable, effective criterion for ensuring full treaty protections for foreign investment while safeguarding against the exploitation of NAFTAs investment chapter by exporters. When determining whether a claimant has acted in its capacity as an investor, a tribunal should be guided by the nature of a claimants global business. The capacity limitation can be applied not only in NAFTA Chapter Eleven cases, but also more generally in disputes under other investment treaties, so long as textual support for the limitation exists under the applicable treaty. Thus, the capacity limitation can serve as a widely-available and effective resource for tribunals facing challenging questions concerning the proper application of investment treaty protections to integrated investment and export operations of multinational corporations.

The Pacific Rim as a platform for international investment law harmonization

Over the past decade, the investment treaty practice of Japan, the Republic of Korea and China, and of the NAFTA, Pacific Alliance and ASEAN member countries, has substantially converged. That convergence is reflected in the recently completed TransPacific Partnership (TPP) agreement and the new Pacific Alliance investment chapter. Several current initiatives look set to build momentum, including a Regional Comprehensive Economic Partnership (RCEP) agreement (which negotiating countries aim to complete in 2016) and a United States (US)-China bilateral investment treaty (BIT). In 2014, Asia-Pacific Economic Cooperation (APEC) leaders identified the TPP and RCEP as “possible pathways” toward a Free Trade Area of the Asia-Pacific (FTAAP). In November 2015, President Xi called on APEC leaders to “accelerate the realization” of a FTAAP.

Joint Interpretations Under a Divided TPP Investment Chapter

Two aspects of a TPP investment chapter would be particularly noteworthy. First, a large number of States would participate in an investment chapter that likely would include joint interpretation mechanisms. Second, one of those States, Australia, likely would not participate in the dispute settlement section of that investment chapter. Those two distinctive features give rise to two corresponding challenges with respect to the proper operation of joint interpretation mechanisms under a TPP investment chapter. First, how to ensure that such a large number of States are able to coordinate effectively when developing joint interpretations. Second, how to ensure the proper operation of TPP joint interpretation mechanisms, given that key provisions concerning such mechanisms would likely be included within the dispute settlement section that one of the TPP negotiating States had declined to join. Given those challenges, this chapter makes two recommendations. First, for the issuance of joint interpretations, a TPP investment chapter should not require participation by senior political representatives of each Party, which would allow coordination to occur primarily at the staff level. Second, assuming that Australia does not join the dispute settlement section of a TPP investment chapter, the TPP negotiating States should express their shared understanding — whether in the text of the treaty or in some other source — with respect to the proper operation of TPP joint interpretation mechanisms. That shared understanding should address the following points: (i) whether, and under what circumstances, Australia can participate in joint interpretations of TPP provisions, (ii) whether joint interpretations are binding on TPP investment chapter tribunals, and (iii) whether investment chapter tribunals have authority to request joint interpretations from the TPP Parties of annex reservations or exceptions. The establishment of an investor-State dispute settlement mechanism within a trade agreement that would reach economies representing nearly 40 percent of global GDP would be a highly significant development for international investment arbitration. The economic significance of a TPP agreement heightens the importance of ensuring the proper operation of a TPP investment chapter. Given a few distinctive aspects of the TPP negotiations, securing effective joint interpretation mechanisms under a TPP investment chapter will present a particular challenge, but one that can be addressed through careful drafting and the clear articulation of shared understandings.

The standing of state-controlled entities under the ICSID Convention: Two key considerations

Two factors support consideration of not only the nature, but also the purpose, of a state-controlled claimants activities when determining whether the claimant meets ICSID Article 25(1) requirements. First, the ICSID Convention was intended to apply to private, but not public, foreign investment. Second, the ICSID Convention was intended to respond to a procedural gap that existed between state-to-state disputes and disputes between private entities.