Caribbean Trade Law and Development

Category: sustainable development

  • Trans-Pacific Partnership Agreement in Review Part I: The Investment Chapter

    Alicia Nicholls

    The Trans-Pacific Partnership Agreement is the largest regional free trade deal concluded to date, creating a free trade area which encompasses 12 Pacific-rim countries and which accounts for 40% of global GDP. The TPP in its preamble speaks of the goal to establish a comprehensive regional agreement that promotes economic integration to liberalise trade and investment, bring economic growth and social benefits, among other things. However, like NAFTA over two decades ago, the TPP Agreement has been mired in controversy from its embryonic stages, with opinion sharply divided on whether it truly advances global trade or whether it sets the clock back on development issues such as labour rights and the environment. This article attempts a sober look at some of the main provisions of the investment chapter of the TPP and is the first in a series of articles which will examine some of the key aspects of the Agreement.

    Framers of International Investment Agreements (IIAs) have to play a delicate balancing act between protecting the rights of investors while at the same time preserving the right of host states to regulate in the public interest and in the interest of fulfilling policy objectives.

    The TPP’s investment chapter shares many striking but unsurprising similarities with the US Model Bilateral Investment Treaty (BIT) 2012. It includes a long list of definitions followed by substantive provisions detailing investor rights and finally a separate section on procedural provisions providing for Investor-State Dispute Settlement (ISDS).

    Definition of “investment”

    The definition of “investment”  in the TPP Agreement is broad akin to that in the US Model BIT 2012. It defines an investment as “every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk”. It outlines some of the forms which an investment for the purposes of the Agreement may take. The definition of “investor” is standard and does not merit much discussion for present purposes.

    Treatment

    The TPP includes national treatment and Most Favoured Nation treatment clauses, which are standard clauses in nearly all IIAs. The National treatment provision (Article 9.4) provides that parties are to accord to investors of another Party and their covered investments treatment no less favourable than that they accord in like circumstances, to their own investors and their investors’ own investments with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. It establishes pre-establishment rights, which is typical of US BITs and US-modelled IIAs.

    In recent years the inclusion of the Most Favoured Nation clause in IIAs has been controversial as it allows for treaty shopping. Investors who are claimants in disputes have sought to rely on these clauses to benefit from more favourable treatment provided by the respondent state in treaties with third parties. In Maffezini v Spain, a precedent was established where an investor was able to benefit from more favourable dispute settlement provisions in a treaty which the respondent state had entered into with a third party state. As a result, a few IIAs have opted to omit MFN clauses.

    One of the criticisms which have been levelled at the TPP is that the MFN clause potentially negates any progress made on rebalancing the rights of investors with states’ rights to regulate by allowing investors to cherry pick from provisions in older and more investor-friendly agreements.

    To their credit, the drafters of the TPP have sought to build in several safeguards. Firstly, at section 9.5(3) a carve-out is made exempting procedural provisions such as those in Section B (ISDS) from applicability of the MFN clause. Secondly, it uses the qualifier term “in like circumstances”, although a broad interpretation by an arbitration tribunal may still be possible.

    Minimum Standard of Treatment

    The minimum standard of treatment provided for under the TPP is similar to those found in bilateral investment treaties (BITs) and IIAs in general. Per Article 9.6, each Party must accord to covered investments treatment in accordance with applicable customary international law principles, including fair and equitable treatment and full protection and security.

    The FET provision in many BITs has been the cause of headache for many states due to its vagueness. This has made it open to interpretation by tribunals which have tended to expand the scope of FET to encompass rights beyond customary international law standards. The proliferation of FET cases brought by investors under NAFTA’s ISDS prompted the NAFTA Commission to release an interpretative note which declared definitively that fair and equitable standard of treatment was no more than the minimum standard of treatment afforded to aliens under customary international law. This language was also included in the US and Canada model BITs.

    The TPP drafters sought to mitigate this in several ways. Article 9.6(2) clearly states that the concepts of “fair and equitable treatment” and “full protection and security” do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. For greater certainty, the framers go further to define what they mean by “FET” and “full protection and security”.

    The framers also go to lengths to define what does not constitute a breach. Article 9.6(3) states that determination of a breach of another Article does not establish a breach of Article 9.6. Furthermore, neither the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations nor that a subsidy or grant has not been issued, renewed or maintained, or has been modified or reduced, by a Party, do not constitute breaches of this Article, even if there is loss or damage to the covered investment as a result.

    Expropriation and Compensation

    One of the most pervasive threats posed to foreign investors in a foreign country is direct or indirect expropriation of their investment by the host state without compensation being paid. Similar to standard BITs, the TPP provides that state parties may take measures which directly or indirectly expropriate a covered investment but only in the circumstances outlined under Article 9.7(1) and with compensation.

    Performance Requirements

    In its preamble, the framers of the TPP talk about recognising the differences in the levels of development and diversity of economies of member states. However, how has this been borne out in the provisions? Performance requirements have been typically used by countries to ensure that investors add value to the local economy. These include requirements on the investor to buy local goods and services, set levels of exports of goods and services, technology transfer and domestic content requirements. The TRIMS Agreement prohibits trade-related performance requirements. However, it has been common practice for US-based FTAs to include prohibitions against all performance requirements. The TPP follows this approach. Four of the twelve parties to the TPP are developing countries.  This therefore will have an effect on those developing countries members of the Agreement as their ability to ensure investors make a contribution to their economies through the use of non-trade related performance requirements will be compromised.

    Free Transfer

    One of the basic assurances investors look for is the ability to move their assets, such as repatriated profits, freely and without delay into and out of the host country. A standard provision in BITs, Article 9.8 of the TPP protects this right and is subject to the exceptions in 9.8(4). Of concern is that no exception is included for where the host state is encountering exceptional economic or financial challenges, such as currency and balance of payments difficulties. The omission of an exception for financial and economic difficulties is typical of US treaty practice but some treaties such as some UK BITs allow a carve-out for this. Such a provision would be particularly useful for developing countries which are generally more vulnerable to balance of payments difficulties.

    Special Formalities and Information Requirements

    Article 9.13 of the TPP provides carve-outs from National Treatment and MFN for special formalities and information requirements. It includes a carve-out from the National Treatment provision, allowing a Party to adopt and maintain measures which prescribes special formalities in connection with a covered investment, such as residency requirements for registration and requirements that a covered investment be legally constituted under the laws or regulations of the Party, provided that these formalities do not materially impair the protections afforded by the Party to investors of another Party and covered investments under the Chapter.

    It also makes a carve-out from the National Treatment and MFN provisions allowing a Party to require an investor of another Party or its covered investment to provide information concerning that investment solely for informational or statistical purposes. However, such information is to be kept confidential from any disclosure which would prejudice the competitive position of the investor or the covered investment.

    Carve-outs for Regulatory Objectives

    Investment Agreements are a balancing act between the rights of investors and the rights of host states to regulate in the public interest and in the interest of fulfilling policy objectives. Article 9.15 attempts to make a carve-out by providing that nothing in the Agreement should be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives. However, what happens if the measure in question is not consistent with this Chapter. The inclusion of the phrase “otherwise consistent with this Chapter” is a loophole which potentially negates the efficacy of this carve-out.

    Corporate Social Responsibility

    The provision on CSR in Article 9.16 is rather weak; it is drafted in best endeavour language and is not enforceable. It simply reaffirms the importance of each Party to encourage enterprises operating in its territory or subject to its jurisdiction to voluntarily incorporate internationally recognised CSR principles into their internal policies. A stronger CSR provision would have been ideal here, particularly a requirement that investors comply with all applicable laws in the host State, comply with international labour standards and adopt environmentally sustainable practices.

    ISDS

    The most disdain for the TPP’s investment chapter has been targeted at the ISDS provisions. ISDS systems allow an investor to bring a claim directly against the host state. A feature of investment law, they are an innovation in public international law as there is no requirement for the exhaustion of local remedies and the investor can bring the claim directly without having to go through its state of nationality.

    Critics argue that ISDS provisions only serve to give investors the ability to sue host States for introducing public policy legislation deemed to hurt their investment. The truth is that the majority of BITs have ISDS provisions. In this regard the TPP is neither unique nor more onerous. ISDS systems are more efficient, while the use of an arbitration tribunal instead of the local courts ensures that decisions are rendered fairly and free of political bias.

    That withstanding, the ISDS has many well-documented flaws. ISDS cases are a costly exercise and have been a painful experience for those States which have found themselves on the wrong end of an arbitral award. However, UNCTAD data shows that of the 356 known cases concluded, 37 percent were won by the State, 25% by the investor and 28% were settled. Therefore, it is not an automatic case that the investor wins.

    The TPP provides several options of arbitral forum and includes several provisions which attempt to address some of the criticisms made about the ISDS. There is the requirement that the parties to the dispute attempt to resolve the dispute through consultation and negotiation. Claims cannot be made after more than three years and six months have elapsed from the date on which the claimant first acquired, or should have first acquired, knowledge of the breach alleged.

    Lack of transparency has been one of the biggest criticisms leveled at the ISDS system as many arbitral proceedings and awards are not made public. Article 9.23 which deals with transparency in arbitral proceedings, provides that certain documents are to be made public “promptly”. What constitutes “prompt” is not defined and will likely depend on the circumstances. The tribunal is to conduct hearings in public, a marked departure from what is provided in most IIAs. However, Article 9.23(3) makes exceptions for protected information and information that may be withheld under the articles on security exceptions and disclosure of information. The TPP’s ISDS allows for the consolidation of claims arising out of the same set of events or circumstances.

    In determining whether to make an award to the prevailing disputing party of reasonable costs and attorney’s fees incurred in submitting or opposing the objection.is warranted, the TPP provides that the tribunal is to consider whether either the claimant’s claim or the respondent’s objection was frivolous, and is to provide the disputing parties a reasonable opportunity to comment. If the tribunal determines such claims to be frivolous, the tribunal may award to the respondent reasonable costs and attorney’s fees.

    My verdict on the Investment Chapter

    The investment provisions in the TPP are generally no more generous to investors than those found in most standard BITs, including the US Model BIT 2012. Indeed, in several cases the TPP’s framers have attempted to close some of the loopholes which have been so troublesome in older BITs, such as with the FET clause. There are some weaknesses and grey areas in the Agreement. The biggest concern is the MFN clause which if a liberal interpretation by an arbitral tribunal is given may ultimately undo a lot of the improvements made in the TPP by allowing investors to rely on more favourable provisions in other agreements concluded by the host state. While there are some exceptions and additions, the influence of the US model BIT 2012 on the language and content of the TPP’s Investment Chapter is quite strong. The TPP also falls into the same trap many IIAs do in that strong investor protections are not matched by strong obligations on the investor to adhere to local laws, follow environmentally sustainable practices or labour standards. Perhaps the framers missed a chance here to advance investment treaty practice on this. While the TPP is not as development-friendly as one would wish, its investor protections are generally no more generous than most traditional BITs. However, the real test will be in the Treaty’s operation once it comes into force.

    More articles in this TPP article series are available here.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can read more of her commentaries and follow her on Twitter @LicyLaw.

  • Access to Justice as a Linchpin of the SDGs: The Sustainable Development Implications of Barbados’ Judicial Backlog

    Alicia Nicholls

    Access to justice has been recognised as a linchpin of the sustainable development goals (SDGs) which define the post-2015 global development agenda. Much ink has been spilt on Barbados’ crippling judicial backlog but very little has been said about the implications of this status quo for meeting sustainable development goals. Access to justice, recognised in SDG 16, is both an end and prerequisite for sustainable development as it is the means by which rights and development gains are enforced and protected. As a barrier to the access to justice, Barbados’ clogged court system has not only implications for the achievement of SDG 16 but can also undermine achievement of other sustainable development goals.

    Barbados has a well-deserved and internationally renowned reputation as a constitutional democracy with strong institutions, respect for the rule of law and a high level of human development which far exceeds that of many fellow small island developing states. The endemic judicial malaise has been the subject of increasing concern and critique. The latest admonishment comes from the Caribbean Court of Justice, the country’s final court of appeal, in its judgment in Walsh v Ward et al, a dispute which originated in 1998. In what has become all too familiar, the CCJ at paragraphs 68 to 70 of the judgment criticised the length of time the case took and the hardships this delay has imposed on the litigants. The Court also noted that its frequent need to comment on Barbados’ excessive delays reveals that this is a “systemic problem”. On these points, there can be no disagreement.

    The Nature of the Problem

    In 2013 it was reported that there were over 3,000 cases awaiting trial and that there were 362 cases which were still undecided, some dating back to 1993. A plethora of reasons are usually posited for Barbados ’ backlog including late court starts and short court sessions, frequent adjournments, delays in judges’ delivery of written judgments, trial scheduling issues, misplaced files and/or incorrect filing of documents, lack of client/witness cooperation and the heavy workload of magistrates and judges. There is also no fixed time period for disposal of matters. In its 2008 judgment in Reid v Reid, the CCJ suggested “as a general rule no judgment should be outstanding for more than six months and unless a case is one of unusual difficulty or complexity, judgment should normally be delivered within three months at most”. There is no evidence that this suggestion has been adhered to.  These problems are further exacerbated by an increasingly litigious Barbadian society. In the above-mentioned report, it was estimated that between 1,700 and 2,000 new cases are filed each year.

    The Sustainable Development Impact

    Although there has been much criticism of Barbados’ judicial backlog, very little has been said about the sustainable development implications. Sustainable development, as defined in the Brundtland Report ‘Our Common Future’, is “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. Sustainable development depends on a tapestry of interconnected development issues, including poverty reduction, health and education and climate change. This diversity of issues is reflected in the 17 UN member agreed Sustainable Development Goals which succeeded the Millennium Development Goals (MDGs).

    Access to justice was not explicitly part of the MDGs but has been recognised by UN Member States in the post 2015 development agenda as both an end and an enabler of sustainable development. Specifically, Goal 16 of the Sustainable Development Goals (SDGs) is to “Promote Peaceful and Inclusive Societies For Sustainable Development, Provide Access to Justice for All and Build Effective, Accountable and Inclusive Institutions At All Levels”.

    Access to justice speaks to the populace’s ability to access and obtain redress through the institutions of justice in a manner that is fair, expeditious and equitable. It is fundamental to maintaining the rule of law and allows for the enforcement of rights, non- discrimination and accountability of decision makers. Judicial delays caused by a large judicial backlog limit the access to justice by ordinary citizens. Marginalised groups in society, such as the poor, elderly, disabled, children and victims of domestic violence and sexual abuse are disproportionately affected by judicial delays as they endure significant economic, social and mental hardship or in the case of the elderly, sometimes die before their matter has been satisfactorily settled. Each backlogged case therefore represents at least one victim for whom justice has been delayed and whose rights have not been protected.

    Judicial delays also deny accused persons, who often have to wait on remand for years before their case is heard, their constitutional and human right to a fair trial in a reasonable time. According to Prison Studies, about 40% of Barbados’ prison population consists of persons awaiting trial. A large prison population puts a strain on the public purse, resources which could be better used for social development programmes.

    Access to justice is also undermined where there is no public confidence in the system. If public utterances are anything to go by, the Barbadian public appears less than satisfied with the current state of the judicial system. Persons who do not have the confidence in the judicial system are more likely to take matters into their own hands.

    The current backlog not only threatens the access to justice for citizens but can hurt economic activity and thereby undermine economic development (SDG 8). Expeditious case processing and resolution are important in a commercial context where time is money. Economic and reputational costs associated with lengthy delays in the settlement of matters are problematic not just for big firms, but are even more costly for small and medium sized businesses which may lack the revenues to stay in business while awaiting a decision. Any investor seeking to do business or invest in a country wants to be assured that it has prompt access to the local courts in order to enforce contractual rights and that it will not waste resources or possibly go out of business due to inordinately long waiting times. In the Doing Business Report 2016 Barbados currently ranks poorly (164 out of 189 countries) on the efficiency of the judicial system at resolving commercial contracts before the courts. These are indicators which investors consider and have implications for Barbados’ attractiveness as a place to invest.

    What is being done?

    There have been numerous attempts over the years to unclog the judicial backlog problem with very limited success. Among the initiatives have been the new Civil Procedure Rules, the requirement of case management conferences, the creation of special purpose courts, the on-going removal from the computer system of “dead” cases, the addition of three more judges and the Chief Justice’s practice direction on backlog reduction. There are also more recent on-going regional initiatives like IMPACT Justice and the JURIST project which seek to address the justice system as a whole, including facilitating much needed digital access to all the Laws of Barbados and court decisions.

    But are the steps far enough? Alternative dispute resolution has been proposed as a possible solution, a suggestion supported by this Author in an article in 2012. The pre-action protocols provide that parties  to a dispute must engage in “genuine and reasonable negotiations with a view to settling the claim economically and without Court proceedings”. The Court Annexed Mediation Pilot project has been unrolled in the High Court and some of the magistrates courts. However, Barbados still has no Mediation Act or a mediation board. The solutions so far have not been enough to deal with the scale of the problem. Therein lies a critical issue; what is the scale of the problem?

    Official judicial data is woefully lacking on critical indicators such as time to resolution of cases before each court, the size, age and composition of the backlog in each court, the number of outstanding judgments, the average time each judge takes to render a judgment, and average stay on remand. In an effort to allow for comparative measurement of progress for countries, the UN will be developing global indicators during the next year to facilitate data gathering for each goal and target. Countries are expected to formulate their own indicators based on their own unique circumstances. Data on these indicators would provide local authorities with a comprehensive understanding of the scale, nature and causes of the backlog problem which would assist in the formulation of performance goals and the type of interventions needed. Without this any changes would simply be cosmetic.

    Additionally, we the Barbadian public have heard of many judicial reform initiatives but very little on what they have achieved thus far. Progress reports on the impact of these reform initiatives should be published to help restore public confidence in the system.

    An efficient and effective judicial system is essential for upholding the rule of law, safeguarding rights and ensuring the smooth functioning of democratic processes, all of which are needed for sustainable development. The long shadow of Barbados’ case backlog creates pressures on the courts, delays the process of justice and redress, particularly to the disadvantaged, and erodes public confidence in the system. Delays in the settlement of commercial cases can hamper business activity, potentially undermining economic development. Targeted interventions based on a data-supported understanding of the nature and causes of the problem are needed, while public reporting on gains made should inspire public confidence that change is on its way.

    Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. The Author wishes to thank everyone who provided insight for this article but any errors or omissions are solely those of the Author’s.