Research On Reform Pattern Of Investor-State Dispute Settlement Mechanism

The Investor-State dispute settlement(ISDS)mechanism is an important system for the peaceful settlement of international investment disputes within the framework of international investment agreements(IIAs).International arbitration is the main form of ISDS,supplemented by other settlement methods such as negotiation,mediation and exhaustion of local relief.ISDS procedures are usually conducted in accordance with the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States(the Washington Convention).The international center for the settlement of investment disputes(ICSID)is one of the world's leading international arbitration institutions for Investor-State disputes.Although ICSID has created a relatively neutral international investment arbitration service,its essence is still the product of the compromise between developed and developing countries.At present,the legitimacy and consistency problems of ICSID arbitration award have triggered the legitimacy crisis of ISDS mechanism.Therefore,the reform of ISDS mechanism has become a hot topic.The international community and national governments have different attitudes towards the ISDS mechanism,or support the reform,or resolutely abolish it,or wait and see.International institutions such as the United Nations Commission on International Trade Law(UNCITRAL),the conference on Trade and development(UNCTAD),the organization for economic cooperation and development(OECD),ICSID are discussing and demonstrating the reform of ISDS mechanism.In the reform practice of the new generation of IIAs,although the legitimacy of Investor-State arbitration has improved to some extent,the reform patterns adopted by various countries are quite different.How will the reform pattern of ISDS mechanism go in the future? How will China respond? In addition to the introduction and conclusion,this paper is divided into the following five chapters.Chapter ? expounds the status quo of reform of ISDS mechanism.Firstly,we elaborate the legal framework of the Investor-State dispute settlement.Then we analyze the reasons for the reform of ISDS mechanism.Finally,we discuss the reform process of ISDS.The current legal framework for ISDS mainly includes international investment agreements(IIAs),international investment arbitration rules,and relevant domestic legislation.Although there are structural and background differences between IIAs and national investment legal systems,certain characteristics are relatively consistent between them.ISDS mechanism is mainly characterized by the use of arbitration tribunals established in accordance with ICSID arbitration rules,UNCITRAL arbitration rules,permanent arbitration court(PCA)arbitration rules or other arbitration institutions to resolve Investor-State disputes.ISDS is mainly based on ICSID arbitration rules,UNCITRAL arbitration rules,PCA arbitration rules or arbitration rules of other arbitration institutions to settle disputes between investors and host countries.The dispute resolution provisions in bilateral investment agreements(BITs)and free trade agreements(FTAs)generally require arbitration as the preferred method of ISDS.With the development of international investment arbitration practice,the defects of ISDS mechanism are highlighted.For example,the lack of consistency and error correction mechanism of arbitration awards,the lack of independence and impartiality of arbitrators,the drawbacks in the selection of arbitration institutions and arbitrators,the high cost and time cost,and the lack of transparency in procedures have led to the legitimacy crisis of ISDS mechanism.Therefore,theoretic and practical fields are discussing the reform of ISDS mechanism.There are many reasons for the reform of the ISDS mechanism.The superficial reason is that countries are seeking ways to reform the ISDS mechanism.Countries such as the United States of America(USA),Germany and other European and American countries are trying to maintain their dominant position.But the fundamental reason lies in overcoming the inherent defects of investment arbitration arising from commercial arbitration to promote the fairness of investment dispute settlement,and maintaining the balance of interests between investors and host countries.Since 2012,the reform of IIAs has gone through three stages,and the reform-oriented provisions and elements in the IIAs after 2018 have changed compared with the IIAs before.In view of the legitimacy crisis of ISDS mechanism,the practical reform and theoretical discussion of IIAs are mainly focused on whether a permanent investment arbitration court should be established and the appeal mechanism should be stipulated,thus different factions and viewpoints such as reformists,reformists,revolutionaries and middlemen have emerged.Although there are some internal differences in each faction,this distinction generally reflects the current international situation in this round of ISDS mechanism reform.At present,there are three main reform patterns of ISDS mechanism,incremental reform represented by the United States of America,systemic reform represented by the European Union and paradigmatic reform represented by South Africa.Chapter ? discusses the incremental reform of the ISDS mechanism.Firstly,this paper expounds the origin and development of incremental reform and the main viewpoints of the reformers,then discusses the main content of the incremental reform pattern represented by USA,evaluates the progressive reform in the United States,and finally analyzes the impact and enlightenment of American incremental reform on China.Incremental reformers argue that criticism of the existing ISDS regime is overblown and that Investor-State arbitration is still the best choice.Therefore,they favor retaining the existing ISDS mechanism,but with modest reforms to address specific problems.For example,countries such as USA,Chile,Japan,and the Russian Federation have adopted Investor-State arbitration positions consistent with incremental reforms.USA progressive reform of the ISDS mechanism is reflected in the USA BIT model,BITs and other treaties with investment provisions(TIPs)signed by the United States.The main contents of the reform of ISDS clauses in the US BIT model relate to dispute settlement methods,preconditions for arbitration,arbitration appeal mechanism and transparency of dispute settlement.The investment chapter of the USA-led but withdrawn TPP is very similar to the investment chapter of the USA 2012 BIT mode,with slight changes.FTAs signed by the United States did not provide for an ISDS mechanism.Most provided for the ISDS mechanism,and improved the ISDS mechanism,added transparency and the rules of the Friends of the Court,and raised the possibility of establishing a bilateral appellate mechanism.For the first time,the North American Free Trade Agreement(NAFTA),signed and ratified by the United States,detailed the ISDS mechanism in the form of a special chapter,effectively addressing Investor-State disputes.It gives investors the power to make the final decision on the host government's claim for compensation,which is a controversial part.The US-Mexico-Canada Agreement(USMCA),which is based on NAFTA,has adopted a more limited ISDS mechanism than its predecessor,NAFTA.China and USA are conducting BIT negotiations.The differences in the level of rule of law and cultural traditions of the two countries,as well as the differences in concerns in the investment field and investment matters,determine that there must be disputes in the choice of investment dispute settlement methods between the two countries.It has always been the common goal of China and USA to seek common ground while reserving differences through negotiation,transformation of ideas,innovation of methods,adoption of legislative techniques such as treatment exception clauses and conflict clauses.China should consider the following points when conducting BIT negotiations with USA.First of all,as for the settlement of investment disputes,the IIAs signed by China and the United States all stipulate consultation,arbitration and other ways,which will eventually be adopted in the negotiation of ISDS terms.? Although the IIAs signed by China and USA have different provisions on the exhaustion of local remedies,it is more in China's own interests to stipulate the exhaustion of local remedies in consideration of China's status as a two-way investment power.In view of USA' attitude and position that excludes ICSID arbitration jurisdiction,therefore,the provision of exhaustion of local remedies may be a certain degree of exclusion from the position of USA,but it is possible to achieve.Secondly,regarding the preconditions of arbitration.Although the IIAs signed by China and USA are also different,for the scope of arbitration jurisdiction,China should maintain the consistency of the arbitratable matters arising from the investment agreement signed with China,which can be separated from USA BIT model,and it is objectively feasible to delete the investment contract disputes from the arbitratable matters.At the same time,in order to avoid the expansion of the interpretation of the arbitration tribunal,it should also be made clear that MFN clause is not applicable to the dispute settlement clause.Third,regarding the arbitration appeal mechanism and the transparency requirements of the procedure,China and USA may be involved in the BIT negotiations.China must carefully evaluate the risks caused by the establishment of an arbitration appeal mechanism and high transparency requirements,do a good job in the design of the rules of the appeal mechanism and the training of members of the appeal body,and improve the relevant domestic confidentiality laws and policies as soon as possible.Finally,in the face of the "poison pill" clause in the USMCA reflecting the blockade of China,China should more firmly maintain the global multilateral economic and trade system,maintain a clear mind and self-confidence in the face of the international economic,trade and political structure and situation,and use its own advantages,properly address the threat and suppression of USA unilateralism on China from the multilateral,regional and bilateral levels.Chapter ? discusses the systemic reform of ISDS mechanism.First,we expound the origin and development of the systemic reform and the main viewpoints of the reformers.Then,we discuss the main content of the systemic reform pattern represented by the EU,and evaluate the EU systemic reform.Finally,we focus on the analysis of the systemic reform pattern of the EU and its influence and enlightenment to China.Systemic reformers emphasized the benefits of retaining the right of investors to claim directly at the international level,but argue that Investor-State arbitration has seriously flawed mechanism.They support more obvious systemic reforms,such as replacing Investor-State arbitration with multilateral investment courts and appellate bodies.The systemic reformers represented by the European Union believe that the ISDS mechanism threatens the ability of sovereign states to achieve legitimate public policy objectives through legislation,and therefore proposes the establishment of ICS.For example,the Comprehensive Economic and Trade Agreement(CETA)signed between the European Union and Canada,the Transatlantic Trade and Investment Partnership Agreement(TTIP)investment protection and dispute settlement text proposal issued by the European Commission(hereinafter referred to as the TTIP recommendation text),and the Free Trade Agreement(EVFTA)and Investment Protection Agreement(EVIPA)signed by the EU and Vietnam,as well as the Investment Protection Agreement(EUSIPA)signed by the European Union and Singapore,all provide for the investment court system(ICS).The revised CETA in 2016 replaces the improved investment arbitration mechanism in the 2014 version with a new investment court mechanism.This is the latest attempt by the EU to judicialize the ISDS mechanism.In terms of rules of procedure,the court mechanism is used as a reference to establish an investment court mechanism including an appeals court.The investment court mechanism established by CETA is not a self-sufficient mechanism,but a hybrid of an investment arbitration mechanism and an investment court mechanism.The investment section of the TTIP recommendation text proposes to establish a quasi-judicial mechanism similar to the WTO dispute settlement mechanism.CETA,EFTFA,EVIPA and EUSIPA all incorporate mediation mechanisms.In addition,the investment chapter of the Economic Partnership Agreement(JEEPA)signed by the European Union and Japan aims to reduce discriminatory barriers to investment.It eliminates the fair and equitable treatment clauses and expropriation protection clauses that traditionally allow investors to claim full compensation due to policy changes,and its legal framework is more like a typical WTO framework.Although the EU systemic reform pattern has the advantages of strengthening the legitimacy and fairness of the awards,enhancing consistency of the awards,improving transparency and strengthening the right of national regulation,also has some defects,such as irrational rules for the design of the rules of the appeal court mechanism,unscientific judge selection mechanisms,insufficient transparency requirements,inadequate regulatory powers in the host country,imperfect multilateral dispute settlement provisions,inadequate inadequate application of laws,and inadequate enforcement mechanisms.The EU systematic reform model will have important impacts on the negotiation of China-EU bilateral investment agreement(hereinafter referred to as the China-EU BIT),the re-signing of BIT between China and EU member states,Chinese laws and policies,and Chinese domestic organizations and their overseas investors.Judging from the existing BITs practice between EU member states and China and the insistence of the EU and developing countries on investment treaty negotiations to be included in the ISDS mechanism,the EU is likely to put forward proposals for establishing ICS in the EU-China BIT negotiations.China may participate in the rulemaking of ICS and give careful consideration to the following aspects.Firstly,the convergence and application of appellate court mechanism and precedent system should be emphasized in China-EU BIT negotiations.Secondly,we should train Chinese judges in the investment court.Thirdly,we should carefully assess the risks of high transparency and improve China's State Secrets Act.Fourthly,the article of host country's regulation right should be made clear and the scope of judgment should be determined carefully.Fifthly,the specific system design should be made in advance for the multilateralization of the investment court mechanism,so as to eliminate the negative impact of ICS on China and its overseas investors,and make the future ISDS mechanism develop in line with China's interests.Chapter ? discusses the paradigmatic reform of ISDS mechanism.Firstly,we expound the origin and development of paradigmatic reform and the main viewpoints of its reformers.Then,we analyze the main content of the paradigmatic reform pattern represented by South Africa,and evaluate the paradigmatic reform in South Africa.Finally,we focus on the impact and enlightenment of the paradigmatic reform pattern of South Africa on China.Paradigmatic reformers believe that the irreversible flaws of the existing ISDS mechanism need to be completely replaced.They reject the utility of investors' making international claims against states,whether before arbitral tribunals or international courts.They embrace a variety of alternatives,such as domestic courts,ombudsmen,and state-to-state arbitration.India and South Africa insist on limited acceptance of investment arbitration,subject to exhaustion of local remedies.Now only South Africa has developed an approach,namely paradigmatic reform,to bring foreign investment disputes to South African law and courts in order to guarantee its government's ability to serve the goals of its people.The early South African investment agreements accepted investment arbitration to settle the disputes between investors and countries,but in the recent economic and trade agreements,there was almost no ISDS clause,and the reserved arbitration clause was mostly limited to the settlement of disputes between contracting states.After the first failure of treaty-based investment disputes,South Africa sought to replace investment treaties and Investor-State arbitration with domestic legislative protection and mediation and dispute settlement in domestic courts.The Promotion and Protection of Investment Bill of the Republic of South Africa,introduced in 2015,will be the sole basis for protecting foreign investment in South Africa.South African courts settle Investor-State disputes in accordance with South African law,similar to those in the case of Calvoism and those supported by the new free international economic order documents.The South African paradigmatic reform pattern has advantages for protecting its own investors and national interests,but it still has three different issues to address.Firstly,Will foreign investors still be able to rely on protections under international law when bringing domestic cases? Secondly,If so,will the South African Constitution,as a matter of domestic law,displace any relevant commitments under international law? Thirdly,is the new South African approach consistent with international law? The South African constitution and the promotion and protection of investment act of 2015 may be uncertain in the resolution of these possible disputes.China and South Africa are both BRICS countries,but their investment arbitration positions are different,mainly due to their different economic status and attitudes towards nationalism.China has entered the era of fully accepting the jurisdiction of international investment arbitration,while South Africa insists on limited acceptance of investment arbitration under the premise of exhaustion of local remedies.In order to promote economic development,China and South Africa have adopted many policies to attract foreign investment.However,they are located in different geographical regions and have different political,economic,cultural traditions and legal systems,which are not conducive to the mutual capital flow between the two countries and lead to challenges in the deep cooperation between them.In the event that China-South Africa BIT is in danger of being terminated or renewed,it might be wise for the two countries to agree on general principles of investor protection based on the principle of reciprocity.In light of China's treaty practice of exhaustion of local remedies and considering the potential of Chinese enterprises to invest in BRICS partner countries,it is advisable to deal with the new changes in terms of investment disputes in South Africa by means and time limit of exhaustion of local remedies.At the same time,reasonable limits should be considered on the maximum time limit for exhaustion of local remedies.Chapter ? discusses the reform trend of the ISDS mechanism.Firstly,we elaborate the reform of ISDS clauses in the latest IIAs,then analyze the trend of multilateralization of ISDS mechanism reform,and finally discuss China's response to the multilateralization of ISDS mechanism.Nowadays,the rapid flow of international capital,whether at the theoretical level or the practical level,or at the level of international legislation and domestic legislation,is discussing the reform of ISDS mechanism and its future development trend.The reform of ISDS clauses in the new IIAs signed in 2018 shows a trend of multilateralization,but it also faces risks and challenges,and countries should make corresponding policy choices.The discussion on the reform of the ISDS mechanism organized by the UNCITRAL Working Group III is mainly rom the aspect of procedure.Many countries and international intergovernmental organizations have submitted opinions on possible reforms of the ISDS mechanism,most of which support the multilateral reform.The majority of academic views also support the multilateral reform of ISDS mechanism.Therefore,the reform of ISDS mechanism is likely to adopt a multilateral pattern in the future.Due to the limited space,this article only makes suggestions on the process improvement under the trend of multilateralization of ISDS reform.That is,a holistic approach should be taken to improve the system from the following aspects: drafting the opt-in convention to improve the consistency and predictability of arbitral awards;enhancing the qualification requirements of arbitrators;establishing a reasonable arbitration organization and the selection mechanism of arbitrators;controlling the cost and time of ISDS case arbitration;introducing standards of procedural transparency and amicus curiae;clearly stipulating the third party's contribution and counterclaim in order,in order to solve the legitimacy crisis of ISDS mechanism.Under the trend of multilateral reform of ISDS mechanism,China is in a period of great strategic opportunity for the reform of international investment rules.We should adopt a semi-systemic reform pattern when negotiating ISDS terms with other countries and intergovernmental international organizations according to our national conditions.The reform pattern is feasible and necessary in China.The following general path can be taken to implement the pattern: taking sustainable development as the goal,adhering to the principle of interest balance between investors and host countries,setting up an open ISDS mechanism,and gradually promoting from bilateral to regional to multilateral,in order to better safeguard the interests of China and its investors.In short,international investment law is facing the alternation and innovation of the old and new IIAs.Many newly concluded IIAs focus on the reform of sustainable development,protect the rights and interests of investors while retaining the control of the host country,and strive to promote responsible investment and improve the investment dispute settlement mechanism.UNCITRAL is organizing states and inter-governmental international organizations to explore possible reform of the existing ISDS mechanism,and China is also actively participating in it.In order to promote economic and trade exchanges with other countries,China should follow the trend of international rules and continue to support multilateral rule governance.As a major country attracting foreign investment and outbound investment,China should strive for a voice in the formulation of international investment rules.