I am delighted to pass along the news that Dini Sejko's excellent article, "Sovereign Investors as ICSID Claimants: Lessons from the Drafting Documents and the Case Law," has been published in the Vanderbilt Journal of Transnational Law, Vol. 56(3):853-903, 2023.The abstract lays out the principal arguments:
Abstract: The prominence of state-controlled entities (SCEs) in foreign direct investment (FDI) flows has created multilayer regulatory challenges. The nature of SCEs and geo-economic considerations related to their investments have exacerbated investment-related concerns and, since the global financial crisis and during the global pandemic, triggered legal reforms. Concurrently, SCEs have increasingly relied on international investment arbitration to solve their disputes.
This Article examines the role of the International Centre for Settlement of Investment Disputes (ICSID) in resolving cases brought by an increasing number of sovereign investors. The Article begins with a linguistic analysis of the ICSID Convention’s relevant provisions, which lack a definitive regulatory position, and then reviews historical and drafting documents showing the position of some states that participated in the negotiations. Part III uncovers new cases and further examines understudied ones, and introduces a holistic and systematic analytical study of the case law, drawing lessons from consistencies in the awards. In Part IV, the awards are grouped, focusing on salient issues deriving from the diverse factual and legal elements of the cases. Initially, Part IV focuses on the first ICSID case in which a state-owned enterprise acts as a claimant. The analysis continues with the first application of the Broches test, an examination of awards in which investors were operating for little or no profit, and a review of awards in which sovereign investors were treated as any other privately owned investor. Last, the Part reviews the particularities of Chinese SCEs in FDI flows and ends with an assessment of the role of sovereign wealth funds and related awards.
A comprehensive evaluation of the case law reveals that European SCEs have massively relied on the ICSID system, in contrast with Chinese SCEs that have made marginal use of it. Part V explains the relevance of the consistent approaches and argues that ICSID tribunals have established a jurisprudence constante in dealing with SCEs that confirms their access as claimants in investor-state disputes. Conversely, Part VI provides innovative approaches and instruments to assess the owner’s role in sovereign investors’ transactions and prevent distortions of the Centre’s jurisdiction. The last Part summarizes the research findings.
Indeed, Sejko considers an increasingly important aspect of international trade outside of the G7--the utility of markets based investment treaty dispute resolution mechanisms for resolving the disputes between states and enterprises that are owned or controlled by other states. That ought to be an important element in South-South trade and calls into question the usual narrative of the exploitative private enterprise taking advantage of developing states through investment treaty provisions and the resolution mechanisms operationalized through mechanisms like ICSID (see eg here). Yet Sejko finds that
The statistical analysis of the ICSID case law that underpins this Article demonstrates that sovereign investors have acted as claimants in ICSID since the very beginning of its operations, with one of the first cases having been lodged by AGIP, an Italian energy SOE. Nowadays, cases filed by SCEs account for around 3 percent of all ICSID arbitral decisions. Surprisingly, the majority of these ICSID awards are filed by European SCEs, while SCEs from developing countries represent only a minority. (Sejko, supra, p. 901).
Sejko does an excellent job of laying out both the trajectories of law and the challenges that are emerging as state controlled entities seek to operate in global markets. The analysis of the sometimes thin line between these enterprises as state instrumentalities (thus moving to a state to state model of dispute resolution) or as commercial vehicle owned by states, is particularly useful.
The article's introduction follows.
INTRODUCTION
The International Centre for Settlement of Investment Disputes (ICSID or the Centre) is a pivotal dispute-resolution institution for investment claims between foreign investors and recipient states.
Almost all significant economies are contracting members of the ICSID Convention (the Convention). 1 ICSID awards are binding, and their financial obligations are enforceable virtually worldwide. The Centre
has become an essential dispute-resolution venue. The use of investor-state arbitration to protect investors’ interests vis-à-vis public interests has triggered considerable debate, especially concerning
areas—such as public health and environmental protections—where the sovereign power to regulate clashes with the interest of investors.2
An area of notable debate is the use of investor-state arbitration, particularly ICSID, by investors linked to the government of the state of origin and, as such, allegedly acting under governmental influence
to pursue geopolitical and geo-economic objectives. Despite long privatization processes that took place around the globe at the end of the twentieth century, the state’s role in the economy has not been
eclipsed. Sovereign wealth funds (SWFs) and state-owned enterprises (SOEs) have established remarkable positions in FDI flows. State capitalism draws greater attention from academics and policy makers
because of the activism of actors and their legal and, more importantly, geopolitical implications. SOEs and SWFs are part of a larger taxonomic group called state-controlled entities (SCEs)—the vast panoply of entities with various structures and degrees of state control at the central or regional level. 3 SCEs can emerge from under multiple shadows cast by governmental umbrellas because control can be exercised in different forms, and it is worth emphasizing that SCEs are not unique to post-communist countries. SCEs can be ordinary companies established under private law; funds managed by the central banks created through special legislation, constitutional law, or even mentioned directly in the constitution of the state of origin; or public agencies. 4 Governments can effectively exercise control over SCEs with a concentrated equity shareholding below 50 percent or special voting rights in cases of diluted ownership. SCEs also include other business organizations controlled by SWFs or holding SOEs. SCEs headquartered in post-communist countries and operating under a state-capitalism paradigm have increasingly gone global, investing in a wide range of economic sectors. Their activism broadly raises issues in transnational regulatory fields as diverse as corporate law, international trade law, international investment law, competition law, and international taxation.5
SCEs, thanks to their substantial assets and long-term strategy, have demonstrated resilience during the COVID-19 pandemic while weathering market downturns and supporting local economies and
distressed sectors. Some SCEs and, in particular, sovereign funds play an important role in the development of high-end economic sectors, such as tech and bio and even blockchain and crypto.6 While SCEs, in general, are expected to play the same role as all multinational corporations and meet their environmental, social, and corporate governance goals, some SWFs are expected to lead and play a
significant role in supporting the green revolution and meeting the objectives of the Paris Agreement. 7
SCEs have brought disputes against the recipient country governments, highlighting the need for neutral dispute resolution venues, and ICSID has become the venue of choice. However, there are
significant issues related to their participation in ICSID investment arbitration.
The qualification of an SCE as an investor and a national of a contracting state, and its subsequent access to ICSID arbitration has generated considerable controversy. 8 The problem involves definitions
under international investment agreements (IIAs), 9 and the ICSID Convention. The ICSID Convention does not explicitly exclude SCEs from the scope of its jurisdiction ratione personae. Article 25 of the
ICSID Convention defines a potential claimant in any legal dispute arising directly from an investment as a national of another contracting state. 10 The ICSID Preamble describes the role of the
ICSID Convention as an instrument that supports private investment consistent with the need for international cooperation for economic development.
Significant scholarship identifies the success of the bilateral investment treaty regimes, with the contemporary emergence of the “Washington Consensus” and neoliberal market fundamentalism, 11
which relies on the state playing a minimal role in the economy, adding to the confusion. The World Bank (WB) Guidelines on the Treatment of Foreign Direct Investments confirmed that “the promotion of private
foreign investment is a common purpose of the International Bank for Reconstruction and Development, the International Finance Corporation and the Multilateral Investment Guarantee Agency.” 12
The WB Guidelines on the Treatment of Foreign Direct Investments reinforces the position that the WB system should serve the promotion of private investment. The statement is a soft law instrument and has
persuasive weight for WB institutions. However, its value should not be overstated; it is not a treaty provision, so it is not binding.
SCEs are often perceived as organs and under the control of their owners, 13 causing interpretative ambiguities and divergences when determining whether SCEs can act as claimants under the ICSID
Convention. On the one hand, the Preamble of the ICSID Convention, the WB Guidelines on the Treatment of Foreign Direct Investments, and the spirit of the Washington Consensus ensure a subliminal
primacy to private investment and investors. On the other hand, the text of ICSID Convention Article 25 does not exclude state-owned investors from the scope of the convention.
Analysis of the ICSID case law regarding locus standi for SCEs helps examine interpretative instruments that determine their right to act as claimants and assess the development of the jurisprudence.
In Part II, this Article reviews the ICSID Convention, the language of the Preamble, and the wording of Article 25 and examines the drafting documents. To contribute to the debate regarding the participation of
sovereign investors in ICSID investor-state arbitration, Part III provides a holistic, systematic, and thorough analysis of the ICSID case law involving SCEs acting as claimants. Part IV groups the awards,
focusing on salient issues of diverse factual and jurisdictional elements, such as the first case involving an SOE as a claimant, the use of the Broches test, the role of official development aid in FDI, the
levelled playing field among investors, the expansive role of Chinese SCEs in FDI, and the role of SWFs. Part V explains the creation of a jurisprudence constante, while Part VI explores instruments
advantageous to arbitrators to assess the owner’s role in sovereign investors’ transactions. The last Part concludes.
NOTES:
1. The Convention has 165 signatory countries and has entered into forcein 155
of them. See Database of ICSID Member States, ICISD, https://icsid.worldbank.org/abo
ut/member-states/database-of-member-states (last visited Feb. 16, 2023)
[https://perma.cc/4HVR-432Q] (archived Feb. 11, 2023).
2. See generally Philip Morris Asia Ltd. v. Austl., PCA Case Repository No.
2012-12 (Perm. Ct. Arb. 2017). See generally Jarrod Hepburn and Luke R. Nottage, Case
Note: Philip Morris Asia v Australia, The Journal of World Investment and Trade, Vol.
18, No. 2, pp. 307-319, 2017. More recently, several members of the European Union
have decided to withdraw from the Energy Charter Treaty, see Johannes Tropper,
Withdrawing from the Energy Charter Treaty: The End is (not) Near, Kluwer
Arbitration Blog, November 4,
2022, https://arbitrationblog.kluwerarbitration.com/2022/11/04/withdrawing-from-the-
energy-charter-treaty-the-end-is-not-near/.
3. The expressions “state-controlled entities” and “sovereign investors” are used
as synonyms.
4. See, e.g., R EP . S ING . C ONST . Aug. 9, 1965, F IFTH S CHEDULE , arts. 19(3), 22a,
22b, 22c, 22d, 37ie, 37if & 148i.
5. For an assessment of the interdisciplinary and multi-layered implications of
the investments of SWFs and SOEs, see generally JULIEN CHAISSE, JĘDRZEJ GÓRSKI &
DINI SEJKO , REGULATION OF STATE -CONTROLLED ENTERPRISES: AN INTERDISCIPLINARY AND COMPARATIVE EXAMINATION (2022). In particular, see Wu Yingying, The Latest Regulatory Regime of SOEs under International Trade Treaties, in R EGULATION OF
S TATE -CONTROLLED E TERPRISES : AN INTERDISCIPLINARY AND C OMPARATIVE
E XAMINATION , for a discussion of the evolution of treaty language in new FTAs and its
limits. But cf. Dini Sejko & Viet Hoang, Vietnam’s Reform of State-Owned Entities:
Domestic and External Drivers, in REGULATION OF S TATE -CONTROLLED ENTERPRISES : N INTERDISCIPLINARY AND COMPARATIVE EXAMINATION .
6. See Focus: Sovereign Investors and the Crypto Crisis, SOVEREIGN WEALTH
F UND (July 28, 2022), https://globalswf.com/news/focus-sovereign-investors-and-the-
crypto-crisis [https://perma.cc/CDX5-CZVY] (archived Feb. 11, 2023).
7. See generally I NT ’ L F. OF SOVEREIGN WEALTH FUNDS , I N F ULL F LOW :
SOVEREIGN WEALTH FUNDS MAINSTREAM CLIMATE CHANGE (2021).
8. See generally Claudia Annacker, Protection and Admission of Sovereign
Investment Under Investment Treaties, 10 C HINESE J. I NT ’ L L. 531 (2011); Mark
Feldman, The Standing of State-Owned Entities Under Investment Treaties, in
Y EARBOOK ON I NTERNATIONAL I NVESTMENT L AW & P OLICY 2010/2011 (Karl Sauvant ed.,
2012); Lauge N. Skovgaard Poulsen, Investment Treaties and the Globalisation of State
Capitalism: Opportunities and Constraints for Host States, in P ROSPECTS IN
I NTERNATIONAL I NVESTMENT L AW AND P OLICY (Roberto Echandi & Pierre Sauve eds.,
2013).
9. Several IIAs include SCEs in the scope of the definition of investor. See
generally Yuri Shima, The Policy Landscape for International Investment by
Government-controlled Investors: A Fact-Finding Survey, (OECD, Working Paper No.
2015/01, 2015); see also Mark McLaughlin, Defining a State-Owned Enterprise in
International Investment Agreements, 34(3) ICSID R EV . 595 (2019).
10. See ICSID Convention on the Settlement of Investment Disputes Between
States and Nationals of Other States art. 25(2)(b), Oct. 14, 1966, 575 U.N.T.S. 159
(stating that “(b) any juridical person which had the nationality of a Contracting State
other than the State party to the dispute on the date on which the parties consented to
submit such dispute to conciliation or arbitration and any juridical person which had the
nationality of the Contracting State party to the dispute on that date and which, because
of foreign control, the parties have agreed should be treated as a national of another
Contracting State for the purposes of this Convention.”) [hereinafter ICSID Convention].
11. See Kenneth J. Vandevelde, IIA Provisions, Properly Interpreted, are Fully
Consistent with a Robust Regulatory State, 216 COLUM . FDI PERSPS . 1, 1–3 (2018).
12. WORLD B ANK G RP ., LEGAL FRAMEWORK FOR THE TREATMENT OF FOREIGN
INVESTMENT , VOLUME II: REPORT TO THE DEVELOPMENT COMMITTEE AND GUIDELINES ON THE TREATMENT OF FOREIGN DIRECT INVESTMENT 35 (1992).
No comments:
Post a Comment