Comment by: Joost Pauwelyn, Professor of International Law at the Graduate Institute of International and Development Studies (IHEID) in Geneva, Switzerland, Co-Director of the Center’s Institute for Trade and Economic Integration (CTEI), and Visiting Professor at Georgetown Law Center in Washington, DC.
This comment and response series features three short pieces by international law professors commenting on the recent BJIL article, The Merging of International Trade and Investment Law by Sergio Puig, and a response by the author. The article discusses the merging of international trade and investment law as resulting from the dynamics of the treaty-making process and the strategies employed by litigation parties at the time of the enforcement of treaty rules.
Professor Sergio Puig provides an excellent overview and analysis of what makes international trade and investment law “merge” these days. He usefully distinguishes between (i) “upstream law production” (e.g. the fact that recent free trade agreements also include an investment chapter, such as the Trans-Pacific Partnership [TPP] or Transatlantic Trade and Investment Partnership [TTIP]) and (ii) “downstream law production” (e.g. the fact that litigants go forum shopping between the regimes and that tribunals may cross-refer).
One core point he makes, though, is rather negative, hinting at or implying some sort of abuse of legal process, stating repeatedly that this “merging,” especially of the “downstream” type, tends to be “used to destabilize governments’ regulatory activity, to shape the interpretation of rules outside an ordinary process, or to re-litigate issues settled in one regime through the venue of another.”
I can see the potential for this, especially under older treaties, but what is probably more striking is that it has only very rarely materialized. And even where it has materialized, it is hard to consider it abuse. To the extent it has occurred, it is now increasingly policed in modern trade and investment treaties which (i) more explicitly regulate overlap of both substantive rules and procedures as well as (ii) increasingly reserve the policy space of states both ex ante and through various types of ex post controls of tribunals.
Article X.23 of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), for example, provides that in the event claims are brought by an investor under CETA investor-state arbitration and another international agreement (e.g. the World Trade Organization [WTO] or another Free Trade Agreement [FTA] or Bilateral Investment Treaty [BIT]) and there is “a potential for overlapping compensation” or “the other international claim could have a significant impact on the resolution of the claim brought” under CETA, then the CETA investor-state tribunal “shall […] stay its proceedings or otherwise ensure that proceedings pursuant to another international agreement are taken into account in its decision, order or award.”
Another major recent trend in investment treaties is one of state parties to those treaties seeking more control and substantive oversight over investor-state arbitration, for example, by means of more carefully worded treaty provisions or annexes in response to, or copying from, past tribunal awards; ex post interpretation mechanisms or treaty-based joint commissions allowing the parties to clarify their intentions; gatekeeping or denial of benefits provisions that give some control or input to states before or during investor-state proceedings (e.g. on taxation issues, treaty reservations, or exceptions); allowing non-state parties (be it home states or third states) to submit briefs in investor-state proceedings; or, finally, instigating state-to-state arbitration so as to affect prior, parallel, or future investor-state disputes.
Sergio is also rather harsh on regional trade agreements (RTAs) such as TPP or TTIP, stating: “RTAs are by nature exclusionary, leaving countries outside their purview. RTAs lead to trade and regulatory divergence, resulting in the segmentation of markets and different rules across regions. Further, they increase jurisdictional conflicts between the bodies in charge of the interpretation of rules.”
It all depends on, of course, what counterfactual you choose. If it is centralized, multilateral WTO rules, then TPP/TTIP are smaller clubs, a centrifugal force. But if one compares to national markets or even traditional bilateral free trade agreements, TPP and TTIP are huge, a powerful centripetal force. Moreover, looking inside modern, deep RTAs, it is, indeed, striking to see how many of their provisions are not exclusionary but have a most-favored-nation (MFN) effect. Because of the diversity of preferences between nations and people, it is increasingly unlikely, even undesirable, for many regulatory issues to be agreed upon amongst the now 160 WTO members. If so, TPP and TTIP are a way forward and not a step backwards. Issues of overlap remain but they are unavoidable and need to be worked out.
That said, Sergio asks a crucial question in the face of the “merging” we are witnessing: “Should the enforcement of trade and investment law be lumped together, within a single system?” Indeed, does it continue to make sense to give private standing in investment but not in trade; to offer compliance (and not damages) in trade, compared to damages (and not compliance) in investment? To have a system of unilaterally, party-appointed arbitrators in investment; to have mutually agreed upon or institutionally, roster-appointed panelists in trade?
Sergio continues to see “important reasons for maintaining public enforcement in trade and private enforcement in investment” as “public enforcement in trade allows States to filter the excessive uses of trade adjudication and assess which actions are in the public interest.” Yet, given the public interest nature of many investment disputes today, the same “filter” could be called for in respect to investment. Conversely, as noted earlier, there are many ways of ex ante and ex post control by states that could operate as a “filter” (and in investor-state arbitration, this is increasingly the case) but still within a system of private standing. So trade could also be subject to private enforcement but with those ex ante and ex post filters built-in, the same way that investment could be exclusively subject to public enforcement for needing a “filter.” In sum, there must be something more to justify the core differences in enforcement between trade and investment (for example, CETA, Article X:17 has ISDS for investment protection but not for investment access or entry; in other words, distinctions could be made between types of claims within trade or within investment; contract claims v. treaty claims). After all, private enforcement, with private actors covering the cost of litigation and pushing for law compliance, as compared to states or public authorities remaining inactive for all sorts of diplomatic, political reasons, also has proven its advantages. The U.S. False Claims Act, as described by Carrington, aimed at stopping defrauding of the government, is a good example in which public enforcement was seen as ineffective since the late 18th century. Through the False Claims Act, private citizens can initiate lawsuits and pursue claims in the name of the United States against any person or firm defrauding their government and, if successful, the act gives the citizen a part of the awarded damages. Compliance, enforcement, rule of law, and good governance goals of trade and investment regimes may be better served with some element of private enforcement, albeit controlled by a public, state filter. Private enforcement is not uniformly socially bad, the same way that public enforcement is not uniformly socially optimal.