Originally from The American Review of International Arbitration (ARIA)

PREVIEW PAGE

 I.  INTRODUCTION

The Investment Court System (ICS) has been presented by the EU Authorities in the context of the CETA  negotiations as their “new approach on investment protection and investment dispute settlement,”  constituting a “clear break from the current ISDS system” , which suffered from “a fundamental and widespread lack of trust.” 

Despite these tantalizing promises, political adoption of this new investor-state dispute settlement (ISDS) mechanism has been tumultuous, to say the least. On October 16, 2016, the Belgian President of the Walloon Region  announced that “Belgium will not sign the CETA.”  This announcement created a political earthquake at the European level, particularly with regard to the fact that the Europe–Canada summit to endorse the signing of CETA was scheduled less than two weeks later.

To justify his refusal to sign the CETA, the then President of the Walloon Region Paul Magnette, invoked two criticisms well-known to ISDS insiders, the risk of a regulatory chill and the lack of legitimacy of the arbitral tribunals:

 The heart of this confrontation revolves around the question of the capacity of States to regulate [...] Confronted with a multinational that reproaches the [State] for having lost the profits it expected by modifying its legislation, a State could be dragged before a private or semi-private arbitral tribunal and ordered to compensate [the multinational].

The ICS criticized by the Walloon President for not creating “a real Court offering the highest jurisdictional guarantees and […] the highest conditions of impartiality,”  had been presented by the EU authorities as their solution to solve the “lack of trust” in the existing ISDS system.  The situation was therefore somewhat paradoxical: the ICS, which had been heralded as a solution to the classic problems of the ISDS,  was being criticized for precisely the same reasons as its predecessors.

That paradox will be the angle of study of this paper. We propose to analyze the CETA through the prism of the traditional ISDS criticisms to determine whether the ICS provides a (more or less) satisfactory answer to these criticisms. To set the stage for our analysis, we will briefly start by identifying multiple legal sources needed to fully understand the ICS in CETA. Then we will propose to apply to the ICS each of the five major criticisms of traditional ISDS, namely the lack of legitimacy and guarantees of independence and impartiality of the arbitrators (III.A), the risk of a “regulatory chill” (III.B), the lack of consistency and foreseeability of the awards (III.C), the interpretative liberty of arbitrators to develop a system biased in favor of the investors (III.D), and the high costs of the arbitration proceedings (III.E). On the ground of this confrontation between traditional criticisms and the ICS  we conclude that the ICS proposed in CETA introduces innovative mechanisms that address many criticisms of traditional ISDS systems. However, it calls for continued scrutiny to confirm whether these innovations effectively mitigate the aforementioned issues.