The UNCITRAL Working Group III Work Plan: Locking in a Broken System?
By Lisa Sachs, Lise Johnson, Brooke Guven, Jesse Coleman, and Ladan Mehranvar
May 4, 2021
This week is one that is make or break for the United Nations Commission on International Trade Law (UNCITRAL) Working Group III’s efforts to reform investor-state dispute settlement (ISDS). WGIII is discussing a draft work plan that identifies reform solutions the WGIII will advance, plots time allotted to each, and outlines the mode and pace of discussion. Will this plan enable the WGIII to achieve its ISDS reform objectives? If so, which reforms, and which objectives? Will all states’ priority topics make the cut, or only some? The outcomes from this week will be critical for the impact of UNCITRAL’s years of work.
Which ISDS concerns and reform solutions are going to make the cut?
In 2017, the UNCITRAL Commission gave its Working Group III “a broad mandate to work on the possible reform of investor-state dispute settlement.” (para 264). Over 100 states agreed, by consensus, that the system of ISDS raises myriad concerns meriting reform. These include concerns about the lack of coherence, consistency, predictability, and correctness of arbitral decisions; about arbitrators deciding the disputes; about the cost and duration of ISDS cases; and about the increasing use of third-party funding to finance and profit from ISDS claims.
Importantly, states also agreed by consensus that UNCITRAL’s work must address other reform options (including alternatives to ISDS to resolve investor-state disputes, exhaustion of local remedies, and counterclaims) and issues (including damages, impacts on non-parties, and regulatory chill). The concerns underlying these “cross-cutting issues” are widespread and profound, as is also evident in submissions to and commentary on UNCITRAL WGIII from a range of stakeholders (such as a group of UN Special Procedures Mandate Holders; over three hundred civil society organizations from around the world; and academics, e.g., see here, here, here, and here).
Despite this consensus, these cross-cutting issues have been left off the agenda in previous meetings and are similarly disregarded in the draft work plan (as noted by CCSI, IISD and IIED in our submission to the WGIII Chair and Secretariat on an earlier draft). And while these cross-cutting issues, whose earnest take-up might lead to a diminished role for ISDS in investment disputes, are sidelined, the draft work plan has WGIII prioritizing reforms that entrench what are essentially existing ISDS approaches.
This approach undermines the legitimacy, support for, and uptake of WGIII’s reform process. States that have worked to get the cross-cutting issues a formal place in the discussions may justifiably feel like their perspectives on reform solutions have and are being disregarded. Indeed, delegates from South Africa and the Secretariat of the African Continental Free Trade Area emphasized today, the first day of the two-day WGIII meeting, that states, including various African states, had gotten these issues formally on the agenda, but had yet to see when and how the issues would be given the attention they deserve. And the stakeholders whose calls for reforms led to the launch of this initiative in 2017 now see the process and outcomes locking in old, discredited ways of resolving disputes rather than a serious effort to interrogate and address identified problems.
A closer look at the proposed work plan
In the proposed work plan, certain cross-cutting issues are not allotted any time at all, including work on damages and efforts to address the negative impacts ISDS can have on the rights and interests of non-parties. These omissions from a UN-based process are particularly striking given the implications they have for sustainable development and the protection of human rights.
Other cross-cutting issues are mentioned, but are crammed in, and given no real chance of success. The draft work plan purports to squeeze a set of complex issues together into the umbrella topic of “ISDS procedural rules reform.” One important and open question is whether and to what extent a delivery mechanism – adjustments to “ISDS procedural rules” that may be optional for investors and amendable by disputing parties – will meaningfully affect practice under existing or future treaties given uncertainty about eventual uptake by states. But apart from the question of impact and effectiveness, the work on this umbrella topic seems unrealistic.
The apparent plan is to use 8 formal WGIII days and 13 “other meeting” days (i.e., informal sessions of uncertain duration, content, format, and participation) to discuss counterclaims, frivolous claims, multiple proceedings, shareholder reflective loss claims, security for costs, third-party funding, and treaty interpretation. Somehow (though inexplicably), those same 21 “days” could also be used to address “other procedural rules, for example, with respect to regulatory chill, exhaustion of local remedies, denial of benefits, consolidation, allocation of costs and so forth.” The draft plan commits no specific time or resources to any of these crucial topics.
To put the work plan’s vision into context, roughly a decade ago, UNCITRAL spent 6 weeks of formal WGII time working solely on the issue of transparency in arbitration rules. Now, it purports to cram a slew of major, diverse, and essential topics into a discussion of “ISDS procedural rules” reform that is to occupy 1.5 weeks of formal WGIII Sessions and a smattering of undefined “other meeting” time. Indeed, the work plan proposes to shift the majority of the work discussing, drafting, and crafting solutions outside of official Session time, but fails to meaningfully address the effects on participation. The informal meetings do not use the same modes of record-keeping and transparency, have uncertain implications for decision-making processes and outcomes, and lack the same guarantees of translation and interpretation. Moreover, while there have been some commitments of funding for translation, it does not appear that such translation of intersessional meetings will be for all languages or even all meetings. Rather, funders have the discretion to identify which issues and which languages they would like to support. While additional support to enable broad participation in the process is essential, the conditions or circumstances to which such support attaches raise serious questions about who is driving what outcomes.
The consequences of carrying on as planned
Developments over the past four years since UNCITRAL launched its ISDS reform project strengthen the case for serious and broad action. UNCTAD data indicates that investors have formally initiated over 250 new ISDS cases since 2017, representing roughly one quarter of all known treaty-based ISDS claims that have been filed. These claims – which are brought through the existing ISDS system that the WGIII has agreed is fundamentally flawed — challenge a wide range of measures, including action taken to address the climate crisis. Additionally, in those four years, tribunals in ISDS cases have awarded investors at least 23 billion USD.
Table 1 shows the value of awards against 10 respondent states as a percentage of GDP, and relative to funds needed for critical public expenditures.
Despite the stakes, which continue to mount, the work plan casts serious doubt that WGIII after all its time, effort, and expense, will produce serious or impactful outcomes. The work plan reveals an unwillingness to seriously and fully deal with concerns about how ISDS may negatively impact domestic law and institutions, chill or unduly raise or shift the cost of public interest regulation, or undermine the rights of non-parties. It is, at best, a missed opportunity and, at worst, a process that is all but set to lock in a system of dispute settlement that is fundamentally at odds with inclusive sustainable development. A number of stakeholders and states have consequently been disengaging from the process. To restore faith in WGIII’s efforts, what is needed this week is, at a minimum, a real commitment and plan to address the cross-cutting issues. These issues are relevant to investment disputes, whether investor-state or state-to-state, and whether before arbitral tribunals or any proposed investment court, and critical to meaningful results.