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Resolution 2151 (2017)
Human rights compatibility of investor-State arbitration in international investment protection agreements
1. The Parliamentary
Assembly notes that investor-State dispute settlement (ISDS) clauses
in international investment agreements or bilateral investment treaties
allow foreign investors to sue host States before private arbitration
panels set up by the parties whenever a dispute on the application
of an international investment agreement arises. It stresses that
ISDS has serious implications for human rights, the rule of law,
democracy and national sovereignty, which the proposed Investment
Court System (ICS) is intended to address:
1.1. ISDS/ICS raises issues regarding fair trial, transparency,
equal access to a tribunal, prohibition of discrimination and legal
certainty under Articles 6 and 14 of the European Convention on
Human Rights (ETS No. 5, “the Convention”) and its Protocol No. 12
(ETS No. 177);
1.2. the threat of litigation before non-State dispute settlement
mechanisms could discourage governments from taking necessary regulatory
measures to uphold the rights of their citizens against foreign
multinational companies, for example by strengthening the protection
of the environment and social rights (“regulatory chill”);
1.3. democracy and national sovereignty are called into question
when States are prevented by agreements concluded by previous governments
from adapting their legislation and practice to changes in the factual
situation or in political priorities.
2. The right to the protection of property (Article 1 of Protocol
No. 1 to the Convention, ETS No. 9) also applies to foreigners,
including legal persons. Foreign investors can therefore not be
denied legal protection on the pretext that they can take into account
the risk of expropriation and other political risks in their investment and
pricing decisions or that they merely exploit the host States.
3. The Assembly considers that effective protection of foreign
investments encourages long-term, sustainable investments which
promote economic growth and create jobs. This requires reliable,
efficient and neutral dispute resolution mechanisms. The lack of
effective legal protection for investments encourages short-term
profit maximisation and informal self-protection strategies, including
bribery and other forms of interference in the political process
in the host countries. However, foreign investors in the European
Union are already protected in three ways – by the European Court
of Human Rights (the Court), European law and domestic law in European
Union member States.
4. It recognises that small and medium-sized businesses needing
to defend themselves against discriminatory treatment by host States
are at a disadvantage as they do not have a large company’s political clout
in order to secure bilateral diplomatic protection by their home
States.
5. The Assembly notes that:
5.1. European
States have concluded thousands of international investment agreements/bilateral investment
treaties with ISDS clauses with third countries and with each other;
5.2. investment arbitration tribunals usually consist of one
arbitrator selected by each party to the dispute and a third agreed
on by the first two. Arbitrators are often drawn from business circles
or specialist law offices. The parties’ submissions and the final
rulings often remain confidential, which reduces the predictability
of outcomes. The parties do not normally have the right of appeal;
the tribunals can be inconsistent in their verdicts and may not
respect the doctrine of precedent;
5.3. arbitration proceedings following the rules developed
by the World Bank’s International Centre for the Settlement of Investment
Disputes (ICSID), the United Nations Commission on International Trade
Law (UNCITRAL) and the International Chamber of Commerce (ICC) have
undergone a number of reforms aimed at, in particular, increasing
transparency and the possibilities for third-party intervention.
There are a number of competing arbitration systems that have not
yet had the benefit of transparent iterative evolution similar to
that of the delivery of justice in public law in mature democracies;
5.4. national courts dealing with investment disputes have
been accused of bias against foreign investors, being generally
reluctant to implement international agreements or too slow and
inefficient for the purposes of international business transactions.
6. The Assembly further notes that:
6.1. the ICS proposed by the European Commission is intended
to correct the flaws of traditional ISDS mechanisms without entrusting
the protection of foreign investors exclusively to the courts of
host States. It would consist of a permanent first-instance court
and appeals court staffed by judges appointed by participating States.
The proposed ICS would follow transparent procedures, allow third-party interventions
by representatives of civil society as a matter of right and be
subjected to binding interpretations of the underlying agreement
laid down by the States Parties;
6.2. proponents of ISDS fear that the future ICS will be too
much under the influence of States and their interests, to the detriment
of investors. Opponents of ISDS are dissatisfied with the fact that
the proposed ICS would still grant foreign investors, as opposed
to domestic ones, privileged access to a legal remedy outside the
institutional framework of the host State.
7. In view of the above, the Assembly considers that replacing
ISDS clauses by a permanent, multilateral ICS would be a reasonable
compromise between the status quo, consisting of multiple ISDS mechanisms,
and the full renationalisation of investment protection. It would
eliminate the most important drawbacks of the existing ISDS mechanisms
whilst ensuring that foreign investments, especially those by small
and medium-sized companies, continue to enjoy adequate legal protection
at the international level.
8. Investment protection is often included in bilateral trade
and investment agreements. States can terminate the agreement if
it no longer corresponds to their political objectives. In such
a case, existing investments continue to benefit from protection
for a transitional period, which should be limited to a reasonable time
frame. European Union member States are effectively prevented from
exercising this option as such agreements are now concluded by the
European Union. The Assembly considers that ways and means should be
explored to enable European Union member States to choose whether
or not to participate in investment protection agreements, for example
by including investment protection rules in an optional protocol.
9. Members of the Assembly disagree on the need for an ICS between
developed countries, but agree that, if an ICS were established,
it would have to be in accordance with the European Convention on
Human Rights and meet certain conditions, in particular to:
9.1. ensure that legal proceedings
concerning investment continue to follow fair and transparent procedures,
in line with Article 6 of the European Convention on Human Rights.
In particular, the procedures should ensure that both sides of the
dispute and any third parties having a legitimate interest are heard,
that the parties’ submissions and the findings of the court are
made public and that the judges are impartial and independent;
9.2. apply the international investment agreement underlying
each dispute in such a way as to avoid undue interference with the
States’ right to regulate. States should remain free to regulate
economic activity in order to protect the environment, public health
and safety and human rights, including social rights and freedoms
of association, expression and information, as well as the right
to privacy, without discrimination between domestic or foreign companies;
9.3. duly take into account the States’ obligations deriving
from the Convention, in particular as regards the case law of the
European Court of Human Rights on the distinction between the deprivation of
possessions and the control of the use of property (Article 1 of
Protocol No. 1 to the Convention);
9.4. interpret typical features of such international investment
agreements, including “fair and equal treatment” and “stabilisation”
clauses and the protection of “legitimate expectations”, in such
a way that the State’s right to regulate is not undercut; the interpretation
of such clauses should encourage the use by prospective investors
and States negotiating investment agreements of due diligence tools
such as environmental and human rights impact assessments.
10. The Assembly calls on the member States of the Council of
Europe to:
10.1. take an active part
in the creation of an ICS and ensure that the above human rights
and rule of law considerations are fully taken into account and
that the final judgments of the ICS are promptly and fully implemented
at national level;
10.2. improve, if need be, their national courts’ efficiency
and actual and perceived impartiality in such a way as to encourage
foreign investors to make use of them more frequently;
10.3. ensure that in existing ISDS cases, filings of notices,
briefs, decisions and settlements are always public and available
in an online repository;
10.4. lay down strict criteria on the domiciliation of foreign
investors to determine their eligibility for ISDS or ICS remedies,
in order to prevent “treaty shopping”;
10.5. make ICS mechanisms an optional protocol from which exit
is possible for individual States with a one-year notice period
and a fixed term of protection for existing investments;
10.6. ensure that, under an ICS, companies can only sue for
actual damages incurred;
10.7. review all ISDS clauses in international investment agreements
that they have entered into, assess their appropriateness and bring
them into line with the best practices foreseen for the future ICS;
10.8. ensure that ICS and ISDS mechanisms are (re)constructed
in a way that obliges them to implement the European Convention
on Human Rights and the rulings of the European Court of Human Rights.