We are experiencing tough times for international engagement. People around the world are concerned that global economic integration is taking place without sufficient democratic control. One area of particular concern in recent years has been international rules on protecting foreign investments, as well as the system to enforce those rules, known as investor-to-state dispute settlement.
Unlike for investment, international trade is governed by an underlying set of multilateral rules. These are negotiated and implemented under a permanent institution, the World Trade Organisation, and enforced through its highly effective dispute settlement system. However, there is no such system for international investment. There are no coherent multilateral rules on investment protection, nor any permanent structure to resolve investment disputes.
Instead, legal disputes between investors and states fall under one of the over 3200 international investment agreements currently in force. Disputes are brought to specialised arbitral tribunals which are set up on a case-by-case basis.
This fragmented system is the product of 40 years of organic growth as individual countries negotiated investment agreements with each other. In the majority of cases, the system has functioned quite well. However, there are potential loopholes that need to be addressed.
There is, for instance, no possibility to appeal errors of law or fact. There is also an increasing perception in the public debate in many countries that investment disputes have an impact on public policy, as they can lead to substantial payments of compensation by governments to investors. Critics argue that the system lacks legitimacy, accountability and transparency.
In response, the EU has formed a new approach to settling investment disputes that marks a break from the past. The new approach is modelled on other international courts. Disputes are first looked at by a tribunal of permanent judges. If either side believes there are errors, they can take the matter to an appeal tribunal. This would also allow case-law to develop, bringing more consistency and predictability over time.
The debate on reform has not been confined to the EU, however. There is a lively debate in many areas of the world on whether and how to rebalance the current system to address its shortcomings, and ensure effective protection of investments without limiting the right of states to regulate.
The global nature of the debate suggests a multilateral solution to the issues at hand may be best. That is why we are arguing for the start of talks aiming at the establishment of a multilateral investment court.
A system like this would respond to public concerns by offering strict guarantees of independence, transparency and legitimacy. It would bring much needed coherence to the global system of investment dispute settlement. And it would be more efficient than the current multitude of bilateral investment dispute resolution mechanisms.
It would be open to all countries, and able to examine disputes under both existing and future investment agreements. Its procedures could follow those of similar bodies, like the WTO's Dispute Settlement system and the International Court of Justice.
While this idea is just at its beginning - it has already generated significant interest. Today until Friday, the United Nations Conference on Trade and Development (UNCTAD) will be hosting its 14th Ministerial Conference in Nairobi, Kenya, in conjunction with the World Investment Forum. This offers an important opportunity to deepen the discussion, and shape these ideas together with other countries. We know this will be merely one step in a long process. But our economic interests as well as our responsibility to our citizens demands we take it.