Keywords

1 Introduction

One unusual aspect of international investment dispute settlement that has developed since its early days and has gained increasing momentum in recent years is that certain international investment agreements (IIAs) allow states that are parties to a treaty, but are not parties to a specific dispute under that treaty, to intervene in the dispute on a limited basis in order to make submissions on matters of treaty interpretation.Footnote 1 For example, Article 1128 of the North American Free Trade Agreement (NAFTA) permits its non-disputing treaty parties (NDTPs) to file submissions in ongoing cases regarding their interpretations of NAFTA.Footnote 2 This feature was probably employed due to the nature of investor-state dispute settlement (ISDS), in which treaty partners do not appear as opposing parties in a given dispute; instead, only one party to a treaty is typically a respondent in a dispute.

The submissions made by NDTPs are distinct from amicus curiae submissions, in that NDTP submissions are only available to treaty parties that are not party to the dispute-at-hand, and almost always only on matters of treaty interpretation.Footnote 3 NDTPs are also distinct from intervening parties, whose scope of participation in the dispute is much broader. Many modern IIAs recognise these distinctions by, e.g. having separate provisions governing the participation of NDTPs and non-disputing parties (NDPs)—e.g. civil society—more generally.Footnote 4 As will also be discussed below, such distinction can further be seen in the situation that has arisen with respect to the participation in investor-state disputes of the European Union (EU), a regional economic union that only obtained treaty-making power in relation to foreign direct investment with the Lisbon Treaty’s entry into force in 2009,Footnote 5 and which is not a party to many of its member states’ treaties, meaning that it is an NDP as opposed to an NDTP in disputes arising under such treaties. The EU has had difficulty successfully petitioning to participate in ongoing disputes involving its member states, which may be contributing not only to the EU’s current attempt post-AchmeaFootnote 6 to enforce the termination of its member states’ intra-EU treaties and create a standing international investment court with an appeals mechanism, but also its current treaty practice in concluding new IIAs, which contain NDTP mechanisms.Footnote 7

The increasing value that states seem to be placing on the availability of NDTP submission mechanisms is evident in part by the many recently-concluded treaties that contain similar provisions to NAFTA Article 1128—for example, slightly over one third of the known IIAs concluded in 2018 contained such mechanisms.Footnote 8 This trend does not come as a complete surprise: since the explosion of investment disputes in the 1990s/2000s, states have frequently resorted to their ability to submit NDTP submissions, above all in the NAFTA context, in which NAFTA Article 1128 submissions have been made by the NDTPs in at least 33 known-NAFTA cases.Footnote 9

However, as will also be discussed further below, while arbitral tribunals frequently cite NDTP submissions, they also have appeared reluctant to afford much interpretive weight to the agreements reached by the parties in their submissions, although a few tribunals have.Footnote 10 In the NAFTA context, which will be the main focus of this chapter, such reluctance on the part of tribunals eventually resulted in the NAFTA parties taking the next step and issuing binding interpretive statements (which are permitted under NAFTA),Footnote 11 in order to attempt to force the recognition of their agreements. Such reluctance on the part of tribunals, it is argued herein, may be contributing to the current backlash against ISDS by states and other stakeholders in the investment law regime.

This chapter addresses certain aspects of NDTP participation—especially submissions—in international investment law. Section 2 provides the background of NDTP mechanisms, as well as issues that have arisen with respect to them, especially in the NAFTA context. Section 3 examines the possible connection between failing to give due regard to the interpretive positions offered by treaty parties and the current backlash against ISDS. Finally, Sect. 4 analyses trends in a sample of recently-concluded IIAs and other related initiatives with respect to NDTP submissions.Footnote 12

From a methodological perspective, it is important to note that the IIA data analysed in this chapter to identify, e.g., trends in IIA treaty-making, does not purport to be a comprehensive examination of every known IIA. Rather, analysis was carried out in two steps: the first being the identification of a base group of IIAs (via the UNCTAD IIA Mapping Project and other sources)Footnote 13 that are known to contain the provisions whose prevalence in IIAs is analysed herein; and second, once the base group of IIAs was identified by reference to the sources indicated, this base group was expanded upon by comprehensively examining the treaties of specific states whose treaties the author hypothesised might contain the analysed provisions (obviously for purposes of this chapter, the NAFTA parties’ IIAs were all examined, for example). It is therefore possible that the underlying data upon which the discussion in this chapter is based on the available resources and/or skewed in favour of the informed fishing expedition undertaken by the author: this notwithstanding, it is argued that the available data supports the trends identified herein.

2 NDTP Submissions: Inception and Issues in NAFTA Chapter Eleven Disputes

When NAFTA came into force in 1994, it could probably be considered to have been the most comprehensive and sophisticated free trade agreement (FTA) that had ever been concluded: not only were FTAs relatively uncommon at that time, since international trade was governed almost exclusively by the multilateral General Agreement on Tariffs and Trade (GATT), but in addition, while subsequently it became common for countries to include investment chapters or provisions in their trade agreements, NAFTA was one of the first to do so. Further, NAFTA’s investment chapter, Chapter Eleven, was much more detailed than the typical bilateral investment treaty (BIT) that was being concluded in hordes in the 1990s (the typical BIT at that time had between eleven and thirteen provisions, while NAFTA had thirty-nine).

One of NAFTA’s innovative features is that it is the first-known IIA to introduce an NDTP provision, i.e. Article 1128, which provides that “[o]n written notice to the disputing parties, a [NAFTA] Party may make submissions to a Tribunal on a question of interpretation of this agreement.” In practice, since the first disputes brought under NAFTA, the NAFTA parties have frequently exercised their right to file submissions on matters of treaty interpretation in ongoing disputes (to date, non-disputing NAFTA parties have filed NDTP submissions in at least 33 NAFTA cases),Footnote 14 which led to novel and controversial situations in international investment law.

For example, in several early NAFTA disputes, it was debated whether NAFTA’s fair and equitable treatment (FET) provision (NAFTA Article 1105) was subsumed by the customary international law (CIL) minimum standard of treatment (MST) or whether it was a stand-alone obligation. The three NAFTA parties (Canada, Mexico and the United States) argued in multiple cases (e.g. in Mondev v. United States,Footnote 15Loewen v. United States,Footnote 16Methanex v. United StatesFootnote 17 and Pope & Talbot v. CanadaFootnote 18) that their pleadings (herein referred to as “state party pleadings” or “SPPs”), including their NDTP submissions, established an agreement on the interpretation of NAFTA under Article 31(3)(a) of the Vienna Convention on the Law of Treaties (VCLT).Footnote 19

Pope & Talbot played a starring role in this debate; therein, the respondent state, Canada, argued that all three NAFTA parties agreed in their SPPs—Canada in its memorials, and Mexico and the United States in their NAFTA Article 1128 NDTP submissions—that NAFTA Article 1105 reflected the CIL FET standard.Footnote 20 However, in an interim award, while the tribunal noted the parties’ agreement on the interpretation of NAFTA Article 1105 in their pleadings, it ultimately dismissed such agreement because of, inter alia, concerns that the interpretation did not reflect the parties’ true intentions at the time NAFTA was drafted.Footnote 21 Approximately three months later, while not only Pope & Talbot but also several cases on the matter remained pending, the NAFTA parties issued a binding joint interpretive statement, the 31 July 2001 Free Trade Commission (FTC) “Notes of Interpretation of Certain Chapter 11 Provisions” (FTC Notes), linking FET to CIL. As a result, the Loewen, Mondev and Methanex tribunals found that they did not have to determine the status of the parties’ interpretive agreements in their submissions; rather they applied the FTC Notes.Footnote 22

However, the saga did not end there: the Pope & Talbot tribunal, which still had to issue its final Award, refused to apply the freshly-issued FTC Notes, determining instead that even though interpretations issued by the FTC are binding, tribunals have the power to determine whether an alleged interpretation is actually an interpretation or rather a disguised amendment.Footnote 23 Perhaps on no other occasion in the history of NAFTA Chapter Eleven has the outcry from the legal community been more vocal, particularly since the FTC Notes affected ongoing arbitrations, raising issues of, inter alia, circumvention of due process and retroactivity.Footnote 24

Furthermore, other arbitral tribunals found ways to sidestep the FTC Notes, even if they recognised that they were binding per the terms of NAFTA. For example, in the Merrill & Ring Forestry v. Canada case, which was initiated in 2006, the issue again arose concerning the meaning of the FET standard in relation to CIL. While the Merrill & Ring tribunal accepted that the 2001 FTC Notes were binding according to NAFTA’s provisions, the tribunal noted that the interpretations in the FTC Notes may not reflect the current state of CIL, the “evolutionary nature” of which the tribunal was “mindful of” and “which provides scope for the interpretation of [NAFTA’s FET article], even in the light of the FTC Commission’s 2001 interpretation.”Footnote 25

The respondent, Canada, argued that if an evolutionary interpretation of FET was appropriate at all, such evolution must have occurred subsequent to the issuance of the FTC Notes, and that no such subsequent evolution of the standard had taken place. The tribunal disagreed, effectively sidestepping the contents of the FTC Notes,Footnote 26 and proceeded to re-analyse the CIL standard that the FTC Notes tied to FETFootnote 27 (which the tribunal even noted that Canada had adhered to as the relevant standard in its SPPs in other NAFTA disputesFootnote 28), before instead concluding that there was a specialised FET standard in business, trade and investment.Footnote 29

The FTC Notes and their raison d’être were not only influential in NAFTA disputes, but have also been taken into consideration in other ISDS cases. For example, in a separate opinion in one ISDS case, arbitrator Pedro Nikken relied on the FTC Notes as an indication as to why the majority’s “disguised recourse to evolutionary interpretation” was inappropriate,Footnote 30 since the NAFTA parties issued the FTC Notes precisely “as a reaction to” ISDS tribunals’ interpretations that the NAFTA parties considered to be incorrect and “which went beyond what those States had considered the extent of their obligations under the [NAFTA].”Footnote 31

As will be discussed below, the NAFTA parties’ experience with respect to NDTP submissions and whether the parties’ interpretive agreements are binding on tribunals have had a significant effect both on their treaty practice, as well as the practice of third states. It is also clear that states were not satisfied with the lack of deference that tribunals seemed to give the interpretations put forth in NDTP submissions, and in some instances, have adopted policies designed to strengthen their control in the interpretive process or to change the system altogether.

3 NDTP and ISDS Backlash

Failures such as those described above to give due regard to the interpretive value of NDTP submissions may, in conjunction with other factors, be contributing to the current “backlash” against ISDS. In general, such backlash has been ongoing for the last several years and has manifested itself in a variety of ways, including: (1) states disengaging entirely from the ISDS regime, i.e. by terminating their IIAs or by leaving important multilateral conventions, such as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention); (2) states renegotiating the terms of their existing IIAs, for instance to provide for restricted access to ISDS or fewer substantive obligations; and (3) states or regional economic unions, such as the EU, calling for a shift from ad hoc tribunals in favour of the creation of a permanent investment law court.Footnote 32

There are at least two discernible impacts—both of which fall under the second category of backlash identified above, i.e. changes to the content of IIA terms—that the NAFTA experience arguably has had on investment treaty making and policy, both at the NAFTA level and more broadly:Footnote 33 (1) the increased inclusion of NDTP provisions in treaties, often now as a matter of right, and (2) the specification in provisions on governing law that not only are the treaty interpretations offered by the treaty parties binding on tribunals, but that decisions that the tribunals take must be consistent with such interpretations.Footnote 34

In the NAFTA context, such backlash is visibly reflected in the text of the renegotiated NAFTA (renamed the United States–Mexico–Canada Agreement (USMCA)).Footnote 35 The USMCA has vastly reduced ISDS provisions, only granting access to ISDS for investors in certain circumstances.Footnote 36 However, despite this greatly reduced access to ISDS, and with respect to the first impact identified above, it is noteworthy that the NAFTA/USMCA parties not only preserved, but strengthened, NDTP participation provisions (USMCA adopts the nomenclature “Non-Disputing Annex Parties”), by granting the parties, e.g., the ability to attend hearings and make oral and written submissions on a matter of interpretation, indicating the value that the parties assign to the possibility of making such submissions.Footnote 37

With respect to the second impact, and almost certainly as a response to the FTC Notes/Pope & Talbot situation, the USMCA provides in Article 14.D.9(2) that “a decision of the Commission on the interpretation of a provision on this Agreement under Article 30.2 (Functions of the Commission) shall be binding on a tribunal, and any decision or award issued by a tribunal must be consistent with that decision.”Footnote 38 In contrast, NAFTA provided that “[a]n interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal established under this Section.”Footnote 39

Canada, one of the NAFTA/USMCA parties, has gone even further in its 2016 treaty with the EU, the Canada-EU Comprehensive Economic and Trade Agreement (CETA). CETA contains new-generation NDTP provisions permitting, amongst other forms of NDTP participation, a provision allowing NDTPs to file submissions on interpretation and to attend hearings.Footnote 40 In addition, the CETA goes a step further, providing that on appeal, the appellate tribunal may modify or reverse a tribunal’s award based on “errors in the application or interpretation of applicable law,”Footnote 41 which includes interpretations made by the treaty parties.Footnote 42

The other CETA party, the EU, is leading one of the most aggressive campaigns to change the status quo of ISDS, principally via its attempts to eliminate ad hoc ISDS tribunals in favour of variations of standing international investment courts with appellate mechanisms (one such example is contained in the CETA), as well as through its dogged efforts to attempt to eradicate intra-EU member state IIAs. The EU member states are party to hundreds of treaties, both between themselves and with other states, and some are among the most active in ISDS disputes both historically and recently.Footnote 43 It is known that the EU has attempted to intervene in several ISDS casesFootnote 44—and has been denied participation on several such occasions for various reasons, including its unwillingness to contribute to the arbitration costsFootnote 45—and it is likely that it has attempted to intervene in many more disputes than can be identified publicly.Footnote 46 To this end, the EU’s recent treaty practice seems to prioritise ensuring that it may participate as an NDTP in future disputes; three of its IIAs contain provisions allowing for NDTP submissions (and the EU-Mexico agreement is reported to contemplate such),Footnote 47 in addition to other provisions aimed at ensuring participation and safeguarding the treaty parties’ ability to exert some form of interpretive regulation over arbitral tribunals.

It is notable that even while attempting to reform the IIA landscape amid the current backlash to ISDS, the EU in its treaties and the NAFTA parties in the USMCA retain NDTP provisions: in the latter case this is all the more striking given the limited scope of permissible ISDS disputes. This is reflective of a general trend that can be observed concerning the increasing inclusion of provisions ensuring and strengthening the participation of NDTPs in IIAs, which could be considered both part of the backlash and more generally part of IIA reform as countries update older-generation BITs that contained very few provisions to more comprehensive and detailed IIAs.

4 NDTP Submission Trends in International Investment Law

Turning back to NAFTA, the trends and backlash described above are reflected not only in the USMCA text, but also, to varying degrees, in the IIA practice of the individual NAFTA parties, which individually could be said to be on a sliding scale of conservative to progressive with respect to IIA liberalisation and innovation, with the United States falling on the conservative, protectionist end of the scale and Canada sitting on the other (although this has not always historically been the case).Footnote 48

Starting at the conservative end of the spectrum, since 2008, the United States has stopped signing FTAs and BITs, and rather concludes Trade and Investment Framework Agreements (TIFAs), which establish basic institutional frameworks aimed at investment promotion and cooperation that contain no substantive obligations—it has concluded at least 13 such agreements since 2013.Footnote 49 This notwithstanding, the 2012 US Model BIT contains provisions providing for NDTP participation and NDTP binding interpretations,Footnote 50 and the United States had been involved in the negotiation of several so-called “mega-regional” agreements, such as the Trans-Pacific Partnership (TPP), which likewise has a NDTP provision.Footnote 51 (However, the United States withdrew from the TPP in 2017, causing the remaining Parties to enact the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which retains the NDTP submission provision.)Footnote 52 Of course, some of the FTAs to which the United States is party contain NDTP provisions, such as USMCA, showing the value that the US continues to place on the ability to make NDTP submissions.

In the middle of the spectrum of the NAFTA countries lies Mexico, which despite being a frequent ISDS respondent state, has concluded at least 22 BITs and 10 FTAs since 2000, as well as drafted its 2008 Model Investment Promotion and Protection Agreement.Footnote 53 Like Canada, it is a signatory to the CPTPP, which provides for NDTP participation. At least 10 of the IIAs to which Mexico is a party contain a provision allowing for NDTP submissions, and Mexico concluded the second known treaty providing for such.Footnote 54 Furthermore, the EU and Mexican Investment Protection Agreement, the draft of which contains a provision on NDTP submissions,Footnote 55 is reportedly even more progressive than the CETA.Footnote 56

On the other side of the spectrum, all of Canada’s recent treaties except for one have contained NDTP provisions,Footnote 57 possibly based on its NAFTA Article 1128 experience.Footnote 58 Canada did not sign any BITs between 1999 and 2005; in 2006, it began concluding them again—to date, at least 44 (approximately half of its 44 IIAs post-2006). Subsequent to NAFTA until 1999, it entered into several bilateral and regional “cooperation agreements” (which do not contain substantive obligations; rather they state the parties’ intentions to cooperate to liberalise and promote FDI, and establish a joint committee). Starting in 2001, Canada concluded several bilateral and regional FTAs, including the CETA in 2016, which establishes a joint body with the power to issue binding interpretations and an NDTP provision.

Canada’s approach could be considered reflective of a broader trend that can be generally discerned from the text of many recent IIAs, i.e. a growing number of treaties containing increasingly sophisticated NDTP provisions, which has been identified as one of the likely impacts of the NAFTA experience in the previous section (although arguably in conjunction with other factors as well). For instance, in addition to the increase of specific provisions addressing NDTPs as a separate category of submissions from amicus curiae and establishing joint bodies with mandates to issue binding interpretations of treaty provisions,Footnote 59 a rising number of IIAs and related instruments provide for NDTP submissions by right (i.e., such submissions must be allowed by tribunals) on matters of treaty interpretation. Globally, there are at least 82 IIAs that contain explicit NDTP provisions, not to mention treaties that incorporate the 2014 Rules on Transparency in Treaty-based Investor-State Dispute Settlement of the United Nations Commission on International Trade Law (UNCITRAL) (which provides for NDTP submissions):Footnote 60 notably, only five of the 82 known IIAs containing NDTP provisions—including NAFTA—were concluded prior to 2003, and all of those five were concluded by at least one NAFTA party; 2003 also appears to be the first year that non-NAFTA parties concluded a treaty with a NDTP provision.Footnote 61 Since then it has been off to the races, as is evident from Fig. 1: 55 of the 82 known treaties identified in the data analysis for this chapter that permit NDTP submission provisions were concluded since 2010, demonstrating the massive uptick in the conclusion of such treaties in recent years.Footnote 62

Fig. 1
A bar graph for the number of I I As with N D S P from 1992 to 2019. The highest value is in 2014 at 11.

Number of IIAs with NDSP provisions by year (Source: UNCTAD IIA Navigator)

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This trend shows no sign of slowing down: approximately one-third of the treaties concluded in 2018 contained an NDTP submission provision.Footnote 63 As evident from Fig. 2, nearly 60% of the sample IIAs containing NDTP provisions have been concluded post-2010.

Fig. 2
A graph for I I As with N D S P for 1992 to 2009 and 2010 to the present.

IIAs with NDSP pre- and post-2010 (Source: UNCTAD IIA Navigator)

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This is all the more noteworthy considering that the conclusion of IIAs has declined since 2010, as visible in Fig. 3, making the high occurrence of NDTP provisions in the 2018 treaties all the more significant.

Fig. 3
A graph of the annual number of I I As versus year. The values are plotted for B I Ts and T I Ps. A circle is labelled as the number of I I As in force 2658.

Number of IIAs signed, 1980–2018 (Source: UNCTAD 2019 WIR Figure 111.7, p. 99; UNCTAD, IIA Navigator)

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The above trend could potentially be traced to the timeline of the very high-profile disputes surrounding the NDTP submission and FTC Notes controversy described above: the issue of the status of the states’ SPPs was discussed in several cases leading up to the 2001 issuance of the FTC Notes, and the binding nature of the FTC Notes continued to be debated by tribunals in decisions issued from between 2001 and 2010.Footnote 64 The subsequent reaction vis-à-vis increased inclusion of NDTP submissions in IIAs by not only the NAFTA parties but also other states was probably affected by this ongoing debate. The above trends are also being seen at the institutional and multilateral level: for example, the 2018 proposed ICSID arbitration rule revisions contain such a provision for the first timeFootnote 65 and the 2014 United Nations Convention on Transparency in Treaty-based Investor-State Arbitration contains a provision on NDTPs.Footnote 66 States have very important and often primary roles in shaping the direction of such rules and conventions.Footnote 67

Turning to the second trend that is arguably also linked to the NAFTA experience, i.e. the coupling of provisions providing for binding interpretations and consistent decisions, similar trends to the NDTP provisions can be identified from the available data. NAFTA was the first known-IIA to contain a provision that the parties’ interpretations are binding on a tribunal. Subsequent to NAFTA, approximately 14 IIAs that were concluded between 1994 and 2002 contained such provisions, all of which were BITs concluded by a NAFTA party (predominantly Mexico) and a third party. In 2002, the Pope & Talbot final Award was rendered. In 2003, for the first time, two US IIAs contained the requirement that tribunals’ decisions must be consistent with the treaty parties’ binding interpretations.Footnote 68 In the sample of IIAs containing NDTP provisions concluded between 2003 and 2009, approximately 27 provided either for binding interpretations alone (16) or binding interpretations coupled with consistent decisions (11). Of these 11 providing also for consistent decisions, over half were concluded by a NAFTA party (namely Canada or the US). However, a handful of South American countriesFootnote 69 started including them in their treaties during this period, and both were also provided for in the 2009 Comprehensive Investment Agreement of the Association of Southeast Asian Nations (ASEAN), demonstrating that non-NAFTA parties were beginning to pick up this IIA practice. In 2010 the Merrill & Ring decision was handed down; from 2010 onward, the inclusion of such provisions in IIAs took off.

All in all, and as can be seen in Fig. 4, since the “binding interpretation” provision was first expanded upon to specify that tribunals’ decisions needed to be consistent therewith in 2003, at least 38 treaties have been concluded that provide for both, and although the NAFTA parties—especially Canada—have continued to include them in their recent treaties, many of the most recent IIAs have been concluded by non-NAFTA parties, including the EU.Footnote 70

Fig. 4
A double bar graph for I I As with binding interpretation alone and consistent decisions. The year mapped is from 1992 to 2019 and consistent decisions appear from 2003.

IIAs with provisions on binding interpretations and consistent decisions (Source: UNCTAD IIA Navigator)

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The trends observable in recent IIAs indicate that states wish to strengthen their ability to participate in disputes, especially on matters of treaty interpretation, and to further ensure that tribunals take due account of such interpretations, as reflected in the numerous treaties concluded subsequent to this period that contain NDTP submissions and/or provisions providing for binding interpretations/consistent decisions.

5 Conclusions

The above tends to demonstrate that the lack of deference afforded by tribunals to the interpretations of states given during disputes—or even to the treaty parties’ binding interpretations, such as the FTC Notes—may be contributing to the current backlash against the ISDS system, which has taken many forms. It is also evident that IIA reform is occurring within the context of this backlash, possibly as a reaction to the prior stances taken by some tribunals concerning NDTP submissions, often with the states’ intent being to enhance their ability to participate as NDTPs in disputes concerning treaties to which they are parties and to ensure that the decisions taken by tribunals are consistent with the treaty interpretations that states provide. Thus, even as some countries “disengage” from ISDS or modify their IIA and investment policy practice, states (and regional economic unions) appear to highly value the ability to submit NDTP submissions in on-going disputes, as is evident from recent IIAs and similar trends in the international investment regime (such as the proposed amendments to the ICSID Arbitration Rules), which shows no sign of slowing down anytime soon.