The Bi-Annual Symposium on Salient Issues in International Arbitration

The bi-annual Symposium on Salient Issues in International Arbitration took place on November 14, 2019 at the Center on International Commercial Arbitration at the American University Washington College of Law under the theme International Arbitration in Times of Economic Nationalism.[1]

The Center on International Commercial Arbitration, which is directed by Professor Horacio Grigera Naón, offered a forum for debate and discussion about the tension between the global arbitral practice in international commercial and investment arbitration and the growing nationalist trends in many countries around the world. The Symposium had the institutional sponsorship from the German Arbitration Institute (DIS) in Bonn (Germany), the World Trade Institute (WTI) in Bern (Switzerland), the Sharjah International Commercial Arbitration Centre (United Arab Emirates), the School of Law of the Tsinghua University (China), the Externado University in Bogotá (Colombia), and the American Society of International Law (USA).

Twenty-seven practitioners and scholars from around the world met during the one-day Symposium. Summaries of nine of the conference papers are included in the current Special Issue of TDM. The papers were discussed in five separate panels, each directed by a very experienced arbitration practitioner or academic. The first panel on public policy was chaired by Jingzhou Mao, Managing Partner at Dechert LLP in Beijing; the second panel on a global comparison between policy trends in international commercial arbitration was chaired by Jane Y. Willems, Professor at Tsinghua University School of Law; the third panel on trends in the regulation of international commercial arbitration was chaired by Tarek Rchaid, an arbitration practitioner from the United Arab Emirates; the fourth panel on procedural innovations in investment arbitration was chaired by Arif H. Ali, Partner at Dechert LLP in Washington, D.C.; and the fifth panel on regional developments in international investment arbitration was chaired by Nigel Blackaby from Freshfields Bruckhaus Deringer LLP in Washington, D.C.

Economic Nationalism and International Arbitration

In current international legal practice a growing number of states claim the sovereign equality principle to justify actions ostensibly taken out of national interest and with disregard to the global implications of these actions. Examples such as Brexit, the denunciation of NAFTA and subsequent signing of USMCA, the denunciation or rejection to ratify multilateral agreements such as the ICSID Convention, the Paris Climate Agreement, and the Rome Statute of the International Criminal Court, demonstrate that states are increasingly skeptical about the benefits of international cooperation and the efficiency of international law. This reinvigorated nationalism shows its impact also on international arbitration, both in the field of international commercial and investment arbitration. One of the Symposium speakers noted that these trends remind us of the 1930s, when the term "economic nationalism" was coined and used in political economics literature.[2] Today, a growing number of states tend to follow a unilateral approach to the challenges of international law, so that this old doctrine of economic nationalism has regained traction.[3] Economic nationalism in countries that have a weak business community and that instead base their economic development on exports of natural resources is sometimes called "resource nationalism." [4] While the notion of economic nationalism may not describe with precision all the current legal trends in international arbitration, the expression at least serves as a powerful slogan. From this starting point, the various Symposium speakers had ample room to branch out and analyze the current trends in international arbitration.

In hindsight, the debate that took place in the Symposium was also prescient to the new wave of economic nationalism and protectionism that surged during the current crisis of the Covid-19.

Arbitration and the Building of Supranational Institutions

One of the topics on which the Symposium speakers showed most perplexity was the European Court of Justice's Achmea decision of March 2018. The decision stated that European Union (EU) Law precludes the application of intra-EU Bilateral Investment Treaties (BITs). Some feared that this is the end of the international investment regime as we know it. Following a EU's initiative, the UNCITRAL set up a Working Group to study alternatives and possible reforms to the international system of investment dispute settlement (ISDS).[5] Among the proposals discussed are permanent investment courts. During the Symposium the speakers questioned if permanent courts could effectively mitigate the fear for interferences from interested parties. Specially the governments would have enhanced leverage over arbitrators selected exclusively by them to form part of the rather limited lists among which the parties select their arbitrators in future disputes. One speaker also analyzed proposals from various international dispute resolution mechanisms and showed that states and civil society sometimes criticized features in one mechanism that they defend and consider useful in another.[6] The result is that many debates about the reform or amendment of international dispute resolution mechanisms lack credibility and authority, as many proposals are only self-serving.

Arbitration in Systems with Fragile Rule of Law

In Latin America the recent revelation of large-scale corruption schemes, such as the one spearheaded by the construction company Odebrecht, have had a strong impact on arbitration. The Latin American governments took the revelation of the corruption as an opportunity to suspend, terminate, or renegotiate many of their concession, license, purchase, and construction agreements with companies worldwide. This led to many arbitrations initiated by the companies that did not agree on the unilateral imposition of the new conditions. At the same time, the practice of domestic arbitration has suffered a strong backlash as a consequence of large-scale corruption involving domestic arbitrators that was widely tolerated or not prosecuted. The political turmoil around the Odebrecht case forced prosecutors to investigate and bring charges against arbitrators and parties involved in these corrupt practices.

However, the Odebrecht scandal was not the only reason for change in Latin America. Even before the outbreak of this scandal the Latin American governments showed their dissatisfaction with the existing regime of public works contracts. This dissatisfaction led to the introduction of public private partnership (PPP) agreements, by which the state holds a stronger bargaining and contractual position as in the previous generations of public works and service agreements. In a PPP agreement, the governments grant the private sector rights to provide and finance public infrastructure.[7] The Symposium speakers identified as the key concern of PPP agreements the issue of allocation of risks and benefits between the public and the private partner, which has to do particularly with the adequate fight against corruption.[8] As to dispute resolution, the PPPs provide seemingly contradictory arrangements. While they recognize the autonomy and Kompetenz-Kompetenz principles, they also include provisions by which the private parties renounce any treaty rights to bring investment claims.[9] As one author also notes, it is not clear how investment treaty arbitration practice will react to these exclusions of jurisdiction in future disputes involving PPPs.[10]

Arbitration and Resource Nationalism

Some authors pointed out that resource nationalism may has an impact on the practice of arbitration. For example, certain states in Africa, like Mozambique and the Democratic Republic of Congo are claiming control over their natural resources, especially in the mining sector.[11] Other states are considering amending their legislation to make it more difficult for foreign companies to own stakes in the mining and other nationally important sectors.[12] These states are embedded in a dilemma between the need to attract foreign direct investment, generate adequate conditions for economic development, and the need to protect their national economies. These developments have an adverse impact on the efficiency of arbitration, particularly investment arbitration.[13]

Arbitration and Political or Ideological Economic Nationalism

The Symposium offered also an opportunity for in-depth analysis of the United States-Mexico-Canada Agreement (USMCA), which the U.S. recently ratified last of the three member states and will enter into force on July 1^st, 2020. The USMCA was seen as a sign for the growing retreat of investment arbitration as the method of choice for states in investment disputes. During the Symposium, some authors identified parallelisms to the developments in Europe. At the same time, one of the panelists highlighted the challenges Canada faces in negotiating trade agreements that include investment chapters with much larger economies, such as the U.S., China, Europe, and Japan.[14] As a result, these agreements differ from each other in many important ways.[15] As to investment arbitration between the three North American states, one Symposium speaker highlighted that "ISDS is over between Canada and U.S." [16] He remarked, however, that the elimination of investment arbitration in the relations between Canada and the U.S. will most likely not affect actual investment flows between the two states.[17] As to the relations with Mexico, the USMCA has largely restricted the possibilities of using arbitration to settle investment disputes. However, it remains to be seen what impact that has in practice, [18] especially considering the investor-state arbitration is included in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to which Canada and Mexico are parties.

As to China, the Symposium speakers highlighted the state's commitment for arbitration and judicial settlement (through the international commercial courts, in particular the China International Commercial Court) on a parallel track, depending on the choice and preference of the parties. One of the speakers put the Chinese initiative of creating an international commercial court into perspective with the fact that also some European and other countries around the world have such institutions, and that they generally do not compete with, but rather support and complement arbitration.[19]

The speaker also noted that while the international commercial court may be a favored option for the Chinese government, one important obstacle for the attractiveness and efficiency of this system for the business community is the reduced international enforceability of the final decisions. While in international arbitration the 1958 New York Convention provides an attractive global framework for enforcement, the Chinese government has to create such a framework for the decisions of the international commercial court. So far, the speaker noted that there are bilateral arrangements with 34 countries, and that more will add to this list once the Hague Convention on Choice of Court Agreements enters into force.[20]

The Opportunities to Benefit from Other States' Backlash against Arbitration

While the Symposium generally discussed situations of states and supranational institutions experiencing an important backlash against arbitration, several authors also noticed that some states see arbitration as an opportunity to spur economic development and private entrepreneurship.

Such a more positive perception of international arbitration may explain that in some Middle Eastern states international arbitration appears to be developing robustly. At least this conclusion suggested the case study of the United Arab Emirates (UAE). The data shows high enforcement rates of foreign arbitral awards in Dubai.[21] The existence of free zone arbitration demonstrates the willingness of Abu Dhabi and Dubai to provide favorable regulatory environments for multiple types of business activities, including favorable rules for the settlement of commercial disputes.[22] However, it was noted that challenges persist for the coordination of procedures in case of parallel litigations and other situations that have effects across UAE internal boundaries.[23]

The discussion about the notion of public policy also led to identify situations where the states' domestic courts of justice imported concepts of international public policy from the leading arbitration jurisdictions, such as France. This was the case of Colombia.[24] The speakers also observed that in Africa some states also follow a more pro-arbitration stance.[25]

Closing Comments

These remarks are a selection of observations from the Symposium to illustrate that the evolution of international arbitration is a permanent dialectic between restricting forces-sometimes supported by broader nationalist movements on the political level- and international trends that advocate for the use of international arbitration as the lingua franca of dispute settlement.

For this reason, and to prevent further backlash against international arbitration, this dispute settlement mechanism should consistently be assessed critically. The contributions in this special edition of Transnational Dispute Management intend to contribute to the critical analysis of the salient features of international arbitration. The lessons learned from the balancing act between legitimate national concerns and investment protection will probably be useful for the challenges brought by the protectionist measures adopted against foreign investment as a result of the Covid-19 crisis.