European Commission Directorate-General for Trade ***** ICSID s Response [July 7, 2014]

Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership Agreement (TTIP) European Commission Directorate-General for Trade ***** ICSID s Response [July 7, 2014] 1. RESPONDENT DETAILS 1.1 Type of Respondent I am answering this consultation on behalf of a company/organization. 1.1.1 My company's/organisation's name may be published alongside my contribution Yes. 1.1.2 Company/Organisation name ICSID (International Centre for Settlement of Investment Disputes). 1.1.3 Contact person Ms. Meg Kinnear, Secretary General. 1.1.4 Contact details ICSID 1818 H Street, NW MSN J2-200 Washington, D.C. 20433 USA T + 1 202-473-1534 F + 1 202-522-2615 ICSIDsecretariat@worldbank.org 1

1.1.5.5. What is your profile? Other. 1.1.5.6. If you replied "other", please specify The International Centre for Settlement of Investment Disputes (ICSID) is an international organization and one of the five entities that constitute the World Bank Group. It is the leading international arbitration institution devoted to providing facilities for the settlement of investor-state disputes. ICSID welcomes the Commission s initiative to consult on the TTIP investment chapter given recent discussion of international investment law and procedure, on-going treaty negotiations and developing case law. ICSID remains available to provide further information and for further consultation should this be of assistance. 1.1.6 In which country are the headquarters of your company/organisation located? Other 1.1.6.2 If you replied "other", please specify The ICSID Secretariat is located at the headquarters of the World Bank Group, in Washington, D.C. Hearings administered by ICSID may be held in any region of the world. In 2013, half of those hearings took place in Europe. 1.2 I agree for my contribution to be made public on the European Commission's website Yes. 1.3 What is your main area/sector of activity/interest? ICSID provides facilities for conciliation and arbitration of investment disputes. ICSID was established by an international treaty in 1966, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). Currently, there are 150 ICSID Contracting States, including the United States and all European Union member States but Poland. Membership in ICSID is free. Each member has one seat and one vote on the ICSID Administrative Council. The goal of ICSID is to promote investor confidence by offering an impartial, efficient and cost-effective dispute settlement mechanism where parties can be confident that they are on a level playing field. ICSID does not decide cases; it provides the institutional and procedural framework for independent conciliation commissions and arbitral tribunals constituted in each case to resolve the dispute. Most proceedings are governed by the ICSID Convention and rules adopted by the ICSID Administrative 2

Council: Administrative and Financial Regulations, Rules of Procedure for the Institution of Proceedings, Rules of Procedure for Conciliation Proceedings, and Rules of Procedure for Arbitration Proceedings (Arbitration Rules). The ICSID Administrative Council also adopted Additional Facility Rules (AF Rules) authorizing the ICSID Secretariat to administer proceedings that fall outside the scope of the ICSID Convention, such as when one of the parties is not a Contracting State or a national of a Contracting State, or when the dispute does not arise directly out of an investment. ICSID also administers arbitration proceedings governed by the UNCITRAL Arbitration Rules on an ad hoc basis, such as in the context of the North American Free Trade Agreement (NAFTA), other Free Trade Agreements and various Bilateral Investment Treaties (BITs). ICSID administers cases all around the world, and arbitrators and conciliators come from every region. It is the primary global facility for investor-state dispute settlement, having handled over 65% of all known cases. To date, ICSID has administered 473 investment cases under the ICSID Convention and the AF Rules, and has provided administrative services in a further 41 investment cases under the UNCITRAL Arbitration Rules. Currently, ICSID is administering 191 pending investment cases, of which 189 are arbitrations and 2 are conciliations. Cases are administered in English, French and Spanish by the ICSID Secretariat, which comprises 60 staff. The Secretariat is independent from the Administrative Council and administers cases in an impartial manner. 1.4 Are you registered in the EU s transparency register? No. 1.5 Have you already invested in the USA? No. 3

2. VIEWS ON THE PROPOSED TEXT TO BE USED AS THE BASIS FOR INVESTMENT NEGOTIATIONS WITH THE US A. Substantive investment protection provisions Question 1: Scope of the substantive investment protection provisions Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the objectives and approach taken in relation to the scope of the substantive investment protection provisions in TTIP? take a position on the wording of the substantive obligations undertaken by State Parties to treaties. Tribunals and commissions operating under the ICSID rules are charged with applying the treaty as written by the State Parties in the context of specific facts established by the parties to the proceeding through evidence and legal argument. Question 2: Non-discriminatory treatment for investors Taking into account the above explanations and the text provided in annex as a reference, what is your opinion of the EU approach to non discrimination in relation to the TTIP? Please explain. take a position on the wording of the substantive obligations undertaken by State Parties to treaties. Tribunals and commissions operating under the ICSID rules are charged with applying the treaty as written by the State Parties in the context of specific facts established by the parties to the proceeding through evidence and legal argument. Question 3: Fair and equitable treatment Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to fair and equitable treatment of investors and their investments in relation to the TTIP? take a position on the wording of the substantive obligations undertaken by State Parties to treaties. Tribunals and commissions operating under the ICSID rules are charged with applying the treaty as written by the State Parties in the context of specific facts established by the parties to the proceeding through evidence and legal argument. 4

Question 4: Expropriation Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to dealing with expropriation in relation to the TTIP? Please explain. take a position on the wording of the substantive obligations undertaken by State Parties to treaties. Tribunals and commissions operating under the ICSID rules are charged with applying the treaty as written by the State Parties in the context of specific facts established by the parties to the proceeding through evidence and legal argument. Question 5: Ensuring the right to regulate and investment protection Taking into account the above explanation and the text provided in annex as a reference, what is your opinion with regard to the way the right to regulate is dealt with in the EU's approach to TTIP? take a position on the wording of the substantive obligations undertaken by State Parties to treaties. Tribunals and commissions operating under the ICSID rules are charged with applying the treaty as written by the State Parties in the context of specific facts established by the parties to the proceeding through evidence and legal argument. B. Investor-to-State dispute settlement (ISDS) Question 6: Transparency in ISDS Taking into account the above explanation and the text provided in annex as a reference, please provide your views on whether this approach contributes to the objective of the EU to increase transparency and openness in the ISDS system for TTIP. Please indicate any additional suggestions you may have. ICSID shares the EU Commission s commitment to transparency. ICSID has always made information about cases available to the public. In addition, in 2006, ICSID members amended the rules to allow for open hearings and amicus participation. The Centre also played an active role in the promulgation of the UNCITRAL Rules on Transparency in Treaty-Based Investor- State Arbitration, which are incorporated into the CETA reference text. ICSID is able to apply these rules in any dispute with consent of the parties. Public Access to Case-Related Information and Documents: The following information is published by ICSID in each case and updated daily: case name, parties, economic sector, 5

registration date, tribunal constitution date, tribunal members, parties representatives, current status of the case, and all significant procedural steps. The source of consent to arbitrate or conciliate (treaty, contract or law) will be published on the Centre s updated website. ICSID also publishes decisions, awards, and party submissions on its website, as required by the parties. In cases governed by instruments such as the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) which require case documents to be made public, the ICSID website serves as a repository for these documents, and the Secretariat manages the logistics of publication. In cases under the ICSID rules in which the parties must consent to publication, the Centre s practice is to request the parties advance consent at the first procedural session. If a party does not agree to publication of the award, ICSID publishes excerpts of the legal reasoning of the award. In all cases, the Centre complies with applicable agreements or orders relating to confidentiality and ensures confidential business and governmental information is protected. In the Centre s experience, information technology has been fundamental to increasing the capacity to disseminate information. As a result of these practices, the ICSID website has become one of the world s primary sources of publicly available investment law. Open Hearings: The 2006 amendment to the ICSID rules clarified that a tribunal may allow other persons to attend or observe hearings unless either party objects. To date, ICSID has held several open hearings, usually in the context of NAFTA or CAFTA-DR. In practice, hearings are either broadcast through closed-circuit television to a separate room or streamed live through the ICSID website (on which the video remains available after the hearing). As technology continues to improve and investment treaties increasingly provide for open hearings, webcasts are likely to become more usual. Third-Party Submission: The 2006 revision of the ICSID rules introduced a provision that expressly allows tribunals to accept third-party submissions, after consultation with the parties. ICSID has also administered NAFTA and CAFTA-DR cases involving amicus submissions. In some cases, public invitations for amicus applications have been made through announcements on the ICSID website. Question 7: Multiple claims and relationship to domestic courts Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the effectiveness of this approach for balancing access to ISDS with possible recourse to domestic courts and for avoiding conflicts between domestic remedies and ISDS in relation to the TTIP. Please indicate any further steps that can be taken. Please provide comments on the usefulness of mediation as a means to settle disputes. Access to international arbitration: State Parties to a treaty have always had the right to require exhaustion of local remedies, while simultaneously preserving the potential to access 6

international dispute resolution. Access to a depoliticized international forum where parties can be confident that they are on a level playing field has proved essential to investment promotion and protection. This was the objective of the States drafting the ICSID Convention and remains the objective of the Centre. Double recovery: In practice, ISDS tribunals seek to avoid double recovery. The international law principle applied in assessing damages is to put the party harmed in the position it would have been, but for the breach ( status quo ante ). Damage assessments are usually the subject of extensive factual and expert evidence in an ISDS case. Some tribunals have suspended their proceedings if a related decision is pending. Article x-23 in the CETA complements the existing approach of tribunals in damage assessment. Mediation: The objective of the EU Commission and the CETA reference text (Article x-19) supporting mediation are positive initiatives. ICSID s experience is that 36% of all registered cases are settled or otherwise discontinued prior to an award (see ICSID Caseload-Statistics Issue 2014-1 at http://bit.ly/1kk5wfc, pp. 13-14). While disputes can be resolved at any stage of the process, the likelihood of a negotiated resolution is greatest before the dispute is formally commenced or in the early phases of the dispute. The utility of alternative dispute resolution mechanisms is enhanced by ensuring that they are flexible and can be shaped to the individual dispute. The mediators on the proposed EU list ideally should have expertise in alternative dispute resolution techniques, paired with expertise in international investment law and public international law. ICSID takes note of the role of the Secretary-General in appointing mediators from the list of Chairpersons (Article x-19 CETA). ICSID has experience in this role, having offered conciliation rules for investment disputes since 1966 and fact-finding rules since 1978. It has supported resort to mediation and other dispute settlement techniques and welcomes this opportunity to further support mediation in ISDS. Question 8: Arbitrator ethics, conduct and qualifications Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these procedures and in particular on the Code of Conduct and the requirements for the qualifications for arbitrators in relation to the TTIP agreement. Do they improve the existing system and can further improvements be envisaged? ICSID shares the EU Commission s objective of ensuring appointment of highly qualified, impartial and independent arbitrators, which is vital to the legitimacy of the system. Qualifications and List: The relevant proposals in the EU consultation and the CETA reference text are similar to the existing ICSID system. Article 14 of the ICSID Convention requires 7

arbitrators and conciliators to be persons of high moral character and recognized competence in law, commerce, industry or finance. ICSID advises member States that relevant considerations for nomination to the ICSID Arbitrator and Conciliator Panels include expertise in public international law, expertise in international investment law, the ability to preside over a complex arbitration/ conciliation, willingness to serve, availability to proceed in an expeditious manner, capacity to write and speak in the official languages of ICSID, and absence of conflict of interest. ICSID encourages member States to consider gender, age and regional diversity in ICSID Panel nominations to ensure a broad pool of capable candidates. Such considerations might be useful for the Committee compiling the list of arbitrators contemplated by EU treaties. The EU consultation and CETA Article x-25 propose a list of at least 15 persons. ICSID has a similar roster (Articles 12-16, ICSID Convention). Multiple case-specific factors are relevant to arbitrator appointments including the qualifications and nationality of the proposed arbitrator, absence of conflict of interest, the verbal and written language skills required by the case, and availability to proceed in an expeditious manner. The EU and its treaty partners might wish to consider developing a larger list to accommodate these needs. Article x-25 of the CETA text is helpful in this regard in that it anticipates the need for at least 15 arbitrators. CETA Article x-19 anticipates that ISDS mediators will be drawn from the list developed under Article x-25. The experience and qualifications of arbitrators and mediators may be different, and this would also militate in favor of a larger list that can include those with either arbitral or mediation expertise. Disclosure and Challenge: ICSID arbitrators file a written declaration concerning their independence and impartiality and disclosing circumstances, if any exist, that might cause their reliability for independent judgment to be questioned. The obligation to disclose continues throughout the proceeding. A party may propose disqualification of an arbitrator at any time before the close of proceedings in the ICSID process (ICSID Arbitration Rules 8-9; AF Arbitration Rules Article 15). Disqualification may be on the basis of absence of impartiality or independence, or if the arbitrator does not meet the nationality requirements of the Convention. In addition, if an arbitrator is incapacitated or unable to perform his duties, the procedure for disqualification applies mutatis mutandis. The EU consultation and reference text do not address disqualification for incapacity or inability to perform the functions of arbitrator. This might be an apt ground to include in the proposed text. In ICSID s experience, when faced with a challenge, a significant number of arbitrators choose to resign voluntarily so as not to delay the case. Such resignations should not be seen as admissions of the validity of the challenge; Article x-25(9) of CETA helpfully reflects this practice. Reversal of Decisions: The EU consultation indicates that a disputing party will be able to request reversal of an award if a breach of the Code of Conduct is found subsequent to 8

rendering the award. It is unclear how this would be implemented in practice. Currently, this situation would be encompassed by Article 52 of the ICSID Convention which contemplates annulment on the ground of corruption of a tribunal member. In non-icsid Convention cases, this arguably could be considered in a review under Article V(2)(b) of the New York Convention. It might be useful to consider how such a reversal would be achieved under the proposed EU treaty text. Question 9: Reducing the risk of frivolous and unfounded cases Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these mechanisms for the avoidance of frivolous or unfounded claims and the removal of incentives in relation to the TTIP agreement. Please also indicate any other means to limit frivolous or unfounded claims. ICSID notes the Commission s intention to introduce several instruments in the TTIP to facilitate early dismissal of frivolous cases. In this respect, the ICSID arbitration system contains several procedures to address frivolous or unfounded cases. First, before a case can commence, ICSID reviews each request for arbitration to ensure that it addresses a legal dispute arising directly out of an investment between an ICSID Contracting State and a national of another ICSID Contracting State and that the parties have consented in writing to bring the dispute to ICSID (Article 36, ICSID Convention). Second, in 2006 ICSID adopted an expedited procedure to address an objection that a claim is manifestly without legal merit (ICSID Arbitration Rule 41(5) and Article 45(6) of the AF Arbitration Rules). The procedure under the ICSID rules applies to objections to jurisdiction as well as objections on the merits. The provision for objections to claims manifestly without legal merit in Article x-29 of the reference CETA text is almost identical to the ICSID rules introduced in 2006. Since 2006, parties in 13 original arbitration proceedings and 2 annulment proceedings have sought to dismiss the claims on the basis of ICSID Arbitration Rule 41(5) and Article 45(6) of the AF Arbitration Rules. Of these, 2 proceedings were terminated with an award for lack of legal merit, 8 such objections were dismissed, 4 objections were upheld in part by the Tribunal or ad hoc Committee concerned, and 1 proceeding was discontinued before a decision on the objection was reached. Question 10: Allowing claims to proceed (filter) Some investment agreements include filter mechanisms whereby the Parties to the agreement (here the EU and the US) may intervene in ISDS cases where an investor seeks to challenge measures adopted pursuant to prudential rules for financial stability. In such cases the Parties may decide jointly that a claim should not proceed any further. Taking into account the above 9

explanation and the text provided in annex as a reference, what are your views on the use and scope of such filter mechanisms in the TTIP agreement? take a position on the substantive scope and coverage of the treaties negotiated by State Parties. Question 11: Guidance by the Parties (the EU and the US) on the interpretation of the agreement Taking into account the above explanation and the text provided in annex as a reference, please provide your views on this approach to ensure uniformity and predictability in the interpretation of the agreement to correct the balance? Are these elements desirable, and if so, do you consider them to be sufficient? take a position on the issue of State Parties guidance on the interpretation of the treaty. ICSID notes that a similar procedure exists under NAFTA. Question 12: Appellate Mechanism and consistency of rulings Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the creation of an appellate mechanism in TTIP as a means to ensure uniformity and predictability in the interpretation of the agreement. The EU Commission aims to establish an appellate mechanism in TTIP to increase legitimacy of the system and to ensure uniformity of interpretation. The United States Model BITs of 2004 and 2012 contemplate an appellate mechanism for review of awards rendered by ISDS tribunals, to be developed under other institutional arrangements (Articles 28.10). ICSID has also contemplated the potential for an international investment appellate mechanism. Indeed, in 2004-2005, ICSID proposed a possible appellate mechanism. In a Discussion Paper dated October 22, 2004 ( Possible Improvements of the Framework for ICSID Arbitration available at http://bit.ly/1vd05qc), ICSID suggested that efficiency, economy, coherence and consistency might best be served by developing a single appeal mechanism for international investment treaty arbitration. As a result, it proposed an appeal mechanism designed for use with ICSID, UNCITRAL and other rules available in investment treaties. ICSID consulted on this discussion paper with stakeholders and States, and sought comments from business, civil society groups, arbitration experts and institutions around the world. In a Working Paper of May 12, 2005 ( Suggested Changes to the ICSID Rules and Regulations available at http://bit.ly/1pmxrme), it concluded that there was general agreement that, if 10

international appellate procedures were to be introduced for investment treaty arbitrations, this might best be done through a single ICSID mechanism rather than by different mechanisms established under each treaty concerned. However, most entities consulted considered that it would be premature to attempt to establish such a mechanism at that time. Since 2005, the ICSID Secretariat has continued to monitor and study these issues to assist States. ICSID is available to continue discussions on this topic and to work with States, institutions and persons interested in addressing this topic. Among the issues to be considered would be: Whether an appellate mechanism should be specific to each treaty or common to various treaties, The organizational framework and financing of an appellate mechanism, Whether a standing body would be required to decide appeals, Qualifications of members of the appellate body and an appointment mechanism, The grounds for appeal and the standard of review, The procedural rules for an appeal (e.g.: time limits, documentation, and costs), The power of the appellate body with respect to the award on appeal (e.g.: stay of enforcement, remand, modifications), The relationship to other available control mechanisms (e.g.: ICSID annulment review, domestic court review, New York Convention 1958 review), Enforcement of the appellate body decisions, and The precedential value of decisions issued by the appellate body. C. General assessment What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US? Do you see other ways for the EU to improve the investment system? Are there any other issues related to the topics covered by the questionnaire that you would like to address? ICSID s statistics demonstrate that both EU member States and investors from EU member States have been involved in ISDS cases and have found them useful to address such disputes. This supports the initiative of the EU and its member States to maintain ISDS and to strengthen the system based on experience to date. Statistics regarding ICSID cases involving EU member States as respondents and claimants from EU member States as of April 2014 are available at http://bit.ly/1j1gzkq. These statistics show, inter alia, that: 11

12% of ICSID cases involved an EU member State, with 75% of these based on BITs and 25% based on the Energy Charter Treaty (ECT), 71% of cases against EU member States were initiated by investors from an EU member State, and 29% were commenced by investors from States outside the EU, Investor claims were upheld in 31% of cases against EU member States, but were dismissed on merits or jurisdictional grounds in 69% of such cases, 54% of ICSID cases involved an investor from an EU member State, Of the claims commenced by investors from an EU member State, 67% were based on BITs, 9% were based on the ECT, 16% were based on investment contracts and 8% were based on investment laws, and Investors from an EU member State succeeded in whole or in part in 48% of their cases at ICSID. 12