Enhancing the procedural legitimacy of investor-state arbitration through transparency and amicus curiae participation.

• Author: VanDuzer, J. Anthony

Investor-state arbitration under NAFTA and the other investment treaties to which Canada is a party has been controversial. There are concerns that investor-state arbitration allows investors to challenge laws of general application intended to achieve important public-policy objectives though a process that is lacking in transparency and democratic accountability. This critique of investor-state arbitration is diminishing in potency, however, as arbitral tribunals have recognized the need for greater openness in promoting the legitimacy of the process and have adopted practices intended to achieve that goal. For example, tribunals have ordered open hearings and permitted amicus curiae participation. While all three NAFTA party states have strongly endorsed these practices, they have failed to amend NAFTA to guarantee them. Developments outside of NAFTA indicate that the move toward transparency is part of a larger trend, the strength of which may indicate that the recent changes in practice will be enduring. However, in the absence of comprehensive and predictable rules, concerns about the legitimacy of the NAFTA process are likely to remain.

L'arbitrage investisseur-Etat dans le cadre de l'ALENA et des autres traites d'investissement dont le Canada est signataire a fait l'objet de maintes controverses. Certains craignent que l'arbitrage investisseur-Etat ne permette aux investisseurs de contester des lois d'application generale, comportant d'importants objectifs de politique publique, par le biais d'un processus qui manque de la transparence democratique. Cette critique perd cependant de sa force depuis que les tribunaux arbitraux ont reconnu la necessite d'une plus grande ouverture en vue de promouvoir la legitimite du processus et qu'ils ont, par consequent, adopte certaines pratiques afin de realiser cet objectif. Par exemple, les tribunaux ont ordonne la tenue de proces publics et ont permis la participation d'amici curiae. Quoique chacun des trois Etats signataires de l'ALENA ait vivement appuye ces pratiques, aucun amendement n'a ete fait pour en assurer leur permanence. Les developpements externes a l'ALENA suggerent que cette ouverture a la transparence s'inscrit dans une tendance plus large, dont l'ampleur pourrait etre indicative de l'endurance probable des changements dans les pratiques. Neanmoins, en l'absence continue de regles exhaustives et previsibles, les preoccupations quant a la legitimite du processus de l'ALENA pour le reglement des differends risquent de persister.

Introduction I. Overview of Investor-State Arbitration A. A Brief History of Bilateral Investment Treaties B. Statistics on Investor-State Claims II. The Nature of Legitimacy Concerns Regarding NAFTA Chapter 11 III. Rules on Transparency in Investor-State Arbitrations A. The NAFTA Rules 1. Introduction 2. FTC Interpretive Note on Transparency 3. NAFTA Practice 4. Gaps in NAFTA Transparency Rules a. Disclosure Prior to Commencement of the Arbitration b. Disclosure of Arbitration Claire c. Disclosure After Commencement of Arbitration B. Recent Improvements in Transparency Rules IV. Rules on the Participation of Amici Curiae in Investor-State Arbitrations A. Introduction B. NAFTA Practice C. Recent Improvements in Amicus Curiae Rules Conclusions Introduction

When Canada became a party to the North American Free Trade Agreement in 1992, it adopted investor-state arbitration as part of its foreign investment policy. (1) Investor-state arbitration is provided for in Chapter 11 of NAFTA and in nineteen bilateral foreign investment protection agreements entered into by Canada that follow the NAFTA model. (2) Investor-state arbitration provisions in a treaty permit a private investor from a state that is a party to the treaty to seek compensation for injuries that the investor suffers as a result of measures of another party state that are not consistent with the substantive obligations in the treaty. While investor-state arbitration procedures are not new, increasingly they are being used to challenge government measures, especially under NAFTA. The burgeoning case law under NAFTA is redefining the standards of protection for investors. (3)

Investor-state arbitration has been controversial, (4) especially in Canada. (5) While concerns about the investor-state process are multiple and varied, (6) one of the most frequently heard complaints is that investor-state arbitration is not transparent. (7) Investor-state arbitration involves challenges to government measures, sometimes measures of general application intended to promote or achieve important public policy goals such as environmental protection. To the extent that issues of public policy are, in effect, being resolved in investor-state arbitration, it is argued that a high level of public access to the dispute settlement process is necessary to ensure public acceptance of the result and the democratic accountability of the process. (8) NAFTA and other investor-state procedures, however, are based on private commercial-arbitration models, which typically operate free from public scrutiny.

In light of recent events, a critique of investor-state arbitration based on a lack of transparency is becoming harder to sustain. NAFTA Chapter 11 tribunals rendering decisions in individual cases have shown themselves to be responsive to concerns about transparency. Beginning in the late 1990s, tribunals in NAFTA cases have developed a set of procedural practices that significantly contribute to the openness of the investor-state process under Chapter 11. For example, NAFTA tribunals have ordered hearings to be open to the public in three cases. (9) Three NAFTA tribunals have even recognized that it is appropriate to permit the participation of public interest groups as amici curiae in some cases. (10) Amicus participation may contribute to decisions that are more likely to be informed by, and responsive to, a wide range of interests. Non-governmental organizations may provide additional information or perspectives that neither of the parties can bring to the dispute. Both these procedural innovations as well as other transparency practices developed in NAFTA cases have now been endorsed in statements of the three NAFTA party states sitting as the Free Trade Commission. (11)

With respect to enhancing legitimacy, the practices of NAFTA tribunals regarding transparency and amicus participation, and their acceptance by the Free Trade Commission, are encouraging. (12) Unfortunately, the NAFTA regime remains incomplete. Neither NAFTA tribunal decisions nor the statements of the Free Trade Commission create comprehensive obligations that are binding on future tribunals. (13) To date, Canada, the United States, and Mexico have not amended NAFTA to guarantee the ad hoc transparency protections and amicus curiae procedures adopted in NAFTA cases.

Nevertheless, the trend toward improved transparency and openness to amicus participation is clear. There is increasingly compelling evidence in the NAFTA context and in other investor-state forums that transparency and the possibility of amicus participation are accepted by states and arbitrators as essential to the ongoing legitimacy of investor-state dispute settlement. Protections like those adopted on an ad hoc basis in NAFTA Chapter 11 cases have been incorporated as mandatory provisions in the new model bilateral investment treaties ("BITs") that Canada and the United States use as the basis for their negotiations with other countries. (14) Treaties following these models will include these new norms for investor-state procedures.

Some of the practices in NAFTA cases are beginning to be adopted by investor-state tribunals applying other investment treaties. More importantly, in April 2006, the International Centre for the Settlement of Investment Disputes ("ICSID") amended its rules to facilitate greater transparency and to expressly authorize tribunals to allow participation by amici curiae. (15) These rules apply to a large proportion of investor-state disputes worldwide, including some under NAFTA Chapter 11. Consequently, while more could be done to put transparency and amicus curiae participation in investor-state arbitration under NAFTA and other existing treaties on firmer legal ground, the potency of legitimacy critiques of investor-state arbitration based on the lack of transparency and openness to amicus participation is diminishing. (16)

This paper examines the essential nature of concerns about the legitimacy of the NAFTA Chapter 11 process based on a lack of transparency and openness to third-party participation. It then surveys the evolving practices related to transparency and amicus curiae participation in investor-state arbitration under NAFTA Chapter 11 with a view to assessing the progress to date and identifying what remains to be done. In order to provide some context for this analysis, the paper will begin with a brief introduction to the process of investor-state arbitration.

1. Overview of Investor-State Arbitration

   A. A Brief History of Bilateral Investment Treaties

   Beginning in the 1990s, foreign direct investment, especially in developing countries, began to increase significantly. (17) Many developing countries were turning away from reliance on the state as the sole engine of development and becoming more interested in attracting private foreign investment. (18) These states became more willing to consider committing to a set of international rules safeguarding foreign investors. (19) At the same rime, investors from developed countries were attracted by investment opportunities in developing countries but were concerned about being subject to arbitrary and discriminatory treatment by developing-country governments, including expropriation. (20) This community of interest has been the basis for a proliferation of BITs incorporating standards of behaviour for host states and investor-state dispute settlement...