“Can the WTO Appellate Body Serve as a Model for the TTIP’s appellate

mechanism in the ISDS?”

Vasilka SANCIN, PhD, Vice-Dean, Assistant Professor of International Law and Director of the Institute for International Law and International Relations at the Faculty of Law, University of Ljubljana

The Investor-State Dispute Settlement (ISDS)

The ISDS provides an opportunity for investors to file claims against States hosting their investments for alleged breaches of investment protection rules, mostly without the need to exhaust the domestic remedies first.

the ISDS mechanism was by the end of 2014 actively practiced with around 3200 international investment agreements (IIAs) – 1400 European agreements!

over 600 disputes to date

Concerns/Challenges of the ISDS

ethics,

independence,

competence,

impartiality ,

conflict of interest,

selection of arbitrators,

problems of transparency,

no possibility to challenge the award at the appeals level.

ISDS Practiceclaims of investors going up to $114 billion – could be frivolous and unfounded

awards up to $50 billion - in 2014 this was the largest amount awarded so far during the ISDS system

(Yukos Oil Company v. Russia: Hulley Enterprises Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 226; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227; Veteran Petroleum Limited v. The Russian Federation, PCA Case No. AA 228)

Transatlantic Trade and Investment Partnership (TTIP)

US - EU negotiationsIn 2014 the EU concluded the negotiations of the first two free trade agreements that include investment protection and ISDS, with Canada (CETA) and Singapore (EU Singapore FTA).

Particular concerns of the TTIP’s ISDS:i) the protection of the right to regulate;ii) the establishment and functioning of arbitral tribunals:

requiring that arbitrators are from a pre-vetted list, appointed jointly by the EU and the USsetting the qualifications requirements to become an arbitrator at the same level as those of judges.

iii) the review of ISDS decisions through an appellate mechanismiv) the relationship between domestic judicial systems and ISDS.

establishment of a permanent multilateral Investment Court?

Cecilia Malmstrom, EU Commissioner for Trade (speech to the EP, 6 May 2015)

3 reasons justifying the ISDS in the TTIP:

1. The US does not always respect its international commitments. It has the most WTO cases against it of any WTO member.

2. State-to-state dispute settlement is used when problems are serious enough to have a systemic impact and not for solving the vast majority of routine investment disputes, on licenses and so on that are often brought by medium sized companies. Research from the OECD has shown that only 8% of cases are brought by large multinationals.

3. Excluding ISDS from TTIP means missing the best chance to reform the system for a generation. 1400 IIA agreements of EU MS exist and will not disappear. TTIP represents a chance to start reform. The world's two biggest economies don't negotiate a comprehensive free trade agreement every day.

Challenges for the TTIP Appellate mechanism

Goal: creation of an appellate mechanism to ensure consistency and increase the legitimacy of the system by subjecting awards to review.

independent judges ≠ arbitrators (selection process?)

Mid-term objective: a multilateral rather than a bilateral approach to avoid a multitude of appeal jurisdictions

Defining relationship between decisions of tribunals, the appellate mechanism and the existing court systems of the US, EU and Member States - TTIP’s arbitral awards will have implications for the EU law and domestic legislations of the TTIP’s parties and will thus generate appeals to relevant judicial bodies

Challenges for the TTIP Appellate mechanism

ensuring correctness and predictability,

responses to the legitimacy concerns as regards the current ISDS system:

the design of an appellate mechanism, and in particular:

how its members are designated, the qualifications which they are required to hold,the form of their remuneration, time limits may be imposed to ensure that an appellate mechanism does not lead to delays in proceedings (expediency)

CETA and EU Singapore FTA: rendez-vous clauses (i.e. a clause that commits the Parties to the agreement to look at setting up an appellate mechanism in the future).

The current EC proposala bilateral appellate mechanism for ISDS as a point of departure towards permanent (multilateral) court

The EU should lay out its role, its set-up and practical operation.

The appellate mechanism would:1. review awards as regards errors of law and

manifest errors in the assessment of facts (this would include an incorrect factual treatment of domestic law as interpreted by domestic courts),

2. ensure consistency in the interpretation of TTIP and3. increase legitimacy both on substance and through

institutional design by strengthening independence, impartiality and predictability.

WTO Appellate Body as a model?

EC: The bilateral appellate mechanism could be modelled largely on the institutional set-up of the WTO Appellate Body, with some adaptations both to make it specific for ISDS, and in light of experience in the WTO.

There could be 7 permanent members (2 from each Party, 3 non- nationals) whose qualifications could be broadly similar to those of the WTO Appellate Body and/or the International Court of Justice.

There would inevitably be certain costs associated with the establishment of the body including a possible secretariat to help the appellate members in their work.

The US has included a reference to the possible creation of an appellate mechanism in its agreements since 2002.

WTO AB vs. TTIP AB

Purpose: WTO –symmetrical relationship (State-State) v. IIAs –asymmetrical relationship (investor-State)

Jurisdicton ratione materiae

Secretariat/costs

Qualifications of arbitrators

Selection

Composition of appellate panels

Number of disputes

Thank your for your attention!

QUESTIONS

&

ANSWERS

Contact: vasilka.sancin@pf.uni-lj.si