MUNA NDULO: My name is Muna Ndulo. I'm a Professor of Law in the Law School, and also, the director for the Berger program. I would Like to welcome you to this lecture. The lecture is jointly organized by the United Center and the Berger International Studies Program. The event is, of course, sponsored by the Judith Reppy Institute for Peace and Conflict Studies. It is organized under the United Center Distinguished Speaker Series and the Berger International Speaker Series.
I would like, before I introduce the speaker, to thank Helga Mackison and Liz Brandish for organizing this event-- the two of them and the teams that they worked with. They did all the logistics to make this event a reality.
I'm delighted to have this opportunity to introduce to you Justice Yusuf. He's the Vice President of the International Court of Justice. He was elected to the court in 2008 and has been vice president of the court since 2015.
His previous positions include legal advisor and director of the International Standards and Legal Affairs over UNESCO, Legal Adviser, United Nations Industrial Development Organization, UNIDA. That's in Vienna. He's a member of the Institut de droit International. He's a member of the panel of arbitrators [INAUDIBLE], a member of the Advisory Council at the Hague Institute of Global Justice.
He's the Founding Chair of the African Institute of International Law. He's also the founder and general editor of the African Yearbook of International Law. He's the author of numerous publications on various aspects of international law. He holds a PhD in international law from the Graduate Institute of International studies in Geneva.
He will be speaking to us on the topic Balancing Rights and Obligations of States and investors-- The Challenge Facing these developing states. Please join me in welcoming Justice Yusuf.
ABDULQAWI YUSUF: Well, I thank Professor Ndulo. And I also want to thank the program. This is [INAUDIBLE] program at the center. Mario Einaudi and the program the Berger. International-- Studies Program, which is headed by Professor Ndulo for inviting me here.
I am very pleased to be here with you today. This is my first visit to Cornell University. I have always heard great things about Cornell. And I look forward to a tour of the campus tomorrow morning. I would like to know more about the university and about the law school.
But of course, the way you talk about the law, you talk about rights and obligations. And as far as investors and states are concerned, it is always interesting to look and to examine whether there is some sort of a balance between the private persons, mostly corporations, who invest in countries all over the world and the countries themselves as the state is concerned.
Of course, one does not feel worried or concerned when the relationship is a relationship between a developing country and an investor. A developing country can always defend its interests. It can ensure that there is a balance of rights and obligations with foreign investors. And of course, it can also make sure that whatever agreements or treaties govern its relations with foreign investors. That's such agreement is a balanced agreement.
But can one say the same thing about developing countries in general? Or can one say the same thing about LDCs and investors by LDCs? As you know, I mean the Least Developed Countries, which are considered as as a category, a class of countries by the United Nations.
I sometimes tend to speak too much. So I'm going to put my watch in front of me here so that I will not go beyond the time allotted to me.
Of course, foreign direct investment remains crucial for the development of developing countries. In the past 20 years, inflows to developing countries-- for example, in 2016 of FDI, totaled $656 billion in 2016, or 87% of the world's total flow of foreign investment to developing countries. Keep that in mind-- 87%.
To LDCs, to the Least Developed Countries the figure is much smaller. It's actually increasing from $5 billion US dollars in 2000 to $37.9 billion in 2016. $37.9 billion is a lot of money for LDCs. And for some of these LDCs, like Angola, Ethiopia, Mozambique, which received, in the case of Angola, $14.4 billion in 2016, Ethiopia at $3.2 billion, Mozambique $3.1 billion-- it is a lot of money. So foreign investment is of crucial importance. And these countries will do whatever it takes to attract such foreign direct investment to their countries.
And as far as the legal framework is concerned, for attracting foreign direct investment, these countries have to enter into investment agreements with other countries called capital exporting countries most of the time-- home countries of the foreign direct investor, the bilateral investment treaties. So on the one hand, they enter into bilateral investment treaties. And on the other hand, they must engage in the settlement of disputes, which may arise from such investments, and do that through arbitration. So a number of challenges are faced by those states with respect to these two legal instrumentalities-- BITs and arbitration. I will limit my talk today to those two sets of challenges, because each one of them raises a number of challenges for the developing countries, particularly LDCs.
Let us start with the challenges faced in the negotiation and conclusion of investment treaties. Investment treaties, especially the BITs-- the Bilateral Investment Treaties-- account for over 2,900 of the 3,300 investment agreements currently in force. Well, you would say, where does that balance go-- the 400? They are mostly chapters in trade agreements, so they are not self-standing BITs. They are agreements included in trade agreements, like NAFTA with which you must be acquainted.
And out of those 2,900 BITs, the developing countries, in general-- the global south, let's call it-- accounts for 2,503-- about 86% of the total. So as far as the FDI inflows are concerned, it is the 37% to the developing world. But as far as BITs are concerned, 87%. So there you see that most of the countries which actually enter into BITs with capital exporting countries are not the developed countries, but the developing countries, although most of the inflows, or foreign direct investment, flows between developing countries themselves.
And the BITs set out reciprocal rights and obligations of the parties, and establish mechanisms by which a dispute is related to investments are to be solved. Normally, this dispute resolution mechanisms are mechanisms which are outside the host states court system. So they are arbitratal tribunals.
And this is a departure from what you find in customary international law. In customary international law, you had the diplomatic protection for foreign investment, where before any state would act on behalf of the foreign investor in case there was a problem between the foreign investor and the hosted state. But here, it is the foreign investor-- the corporation itself-- which can actually take the hosted state before an international arbitration tribunal.
And that is something to which I will come back, because at the beginning, the mechanisms, or the system, will devise it due to a lack of trust of the court systems of developing countries, and at that time, of the socialist countries of Eastern Europe. So the capital exporting countries say, OK. We will encourage our corporations to go and invest in your countries. But in case there is a dispute between the state and the foreign corporation, we don't really trust your court system. We want our investors to be able to go to an international arbitral tribunal.
And the developing countries said, OK. We agree. Let's sign the agreement.
But what's happening today? Today, the capital exporting countries, the classical capital exporting countries find themselves before such arbitral tribunals. And they have started complaining about it.
How can a corporation sue a state? They seem to forget that starting from 1958, they were the ones who invented the system and asked the developing world, OK, you want to receive foreign investment, accept arbitral dispute settlement. So this is one of the areas in which the balance between rights and obligations is actually now affecting not only the developing countries, but also, the developed countries themselves.
But let me start with the conclusion and negotiation of the BITs. When you decided to conclude an international agreement, normally, you should actually have a strategy. What's the purpose of concluding such an agreement without benefits for my people? You must run a cost-benefit analysis.
Unfortunately, most developing countries never do that. They don't have a strategy. But of course, the capital exporting countries have a strategy. And that's why they are the ones who normally approach a developing country and ask the developing country to conclude a BIT.
Secondly, when you come to the negotiating table, each party normally-- if it is an international agreement, an international treaty-- should have some proposals to put on the table. But with BITs, it is a different picture. The developed countries, the capital-exporting countries, normally have what they call model BITs.
So countries like the United States-- Germany, which actually started the entire system of the BITs in the late 1950s-- the United Kingdom-- they all have modeled BITs, which evolve, as far as their terms are concerned and the standards that are included in such BIT. And they presented those model BITs to the developing countries. Most of the developing countries do not have model BITs.
This, of course, significantly skews the outcome of the negotiating process. Their resolve is that the terms of BITs, which are finally signed, are normally those in the model BITs of the capital exporting country with hardly any input from the developing states. Some scholars have challenged, of course, the contention that negotiators from developing countries lack the requisite knowledge to fruitfully engage in treaty negotiations. But if you don't have a model BIT, of course, you can always look at the model BIT of the other party and comment on it. But in order to be able to comment intelligently on it, you must know investment law very well.
And the developing countries do not always have highly skilled lawyers who are acquainted with investment law. It happens, however, that in certain cases, as have been, for example, in negotiations between the UK and several African and Caribbean countries, that the developing countries immediately ask that many changes are made, or be made, to the BIT which is submitted to them. And in a memorandum from the British Foreign Office, which recounted the pushback that some developing countries gave to the British Model BIT, It was stated-- and I quote, "We knew we were asking for much more than our companies had ever secured in the past. And we were seeking to write this into an agreement, which we hope will last 30 years. In the case of Commonwealth countries, we were seeking to persuade them to accept obligations on expropriation, for example, which we had not secured in the constitutions we had negotiated with them before they obtained independence. Really, this was never on."
And The UK government realized that it was actually asking too much. But of course, some governments and some developing country states go into such negotiations totally unprepared. There is a recent study on investements agreements, which quotes an official from a capital exporting country who said in the early '80s-- and I can, of course, refer to this, because I am from Somalia-- that they "had doubts," he said, "in 1981, as to whether their Somali counterparts had even read the model treaty in Mogadishu, which they signed."
And in the same study, a Pakistani official is quoted to have said, "We were soley proofreading, correcting punctuation, and correcting the English. But that was about it," clearly this was a BIT from a non- English-speaking country-- but still, a capital exporting country. So the Pakistanis felt that their English was better, and they were correcting the punctuation. But as far as subsistence is concerned, they did not change anything. And that is actually what matters.
Things have improved since the 1980s, because skills have been developed in many developing countries. But there are still profound disparities between developing countries and their advanced country counterparts. Things are changing because of a number of factors. And I will refer to two of them here.
One factor is in the case of Africa-- regional economic integration groupings. In the past decade, there have been attempts by certain regional groups in Africa to create model investment agreements which reflect the concerns of developing countries. One notable example is the South African Development Community model BIT of 2012. SADC has 15. This is called the acronym for the group SADC It has 15-member status, eight of which are listed developing countries.
And the SADC model BIT emphasizes that the purpose of investment promotion is to support the sustainable development of the hosted state by highlighting the obligations of investors, as well as of hosted states. Unlike many of the model BITs of the capital exporting countries, the SADC model BIT imposes obligations on investors to provide information about their investment to the host country, to conduct environmental and social impact assessment, to comply with minimum standards of human rights, environment, and labor, and to act in a transparent manner with regard to investments involved in the government.
A similar agreement has also been concluded by the CMESA, the Common Market for Eastern and Southern Africa. Unfortunately, neither of these model agreements are utilized today. They are on the books, but they are not used by the member states of these regional groups to negotiate BITs with developing states.
The Second factor is that the capital exporting countries themselves have realized that they can not leave certain values out of the BITs-- values which have become now global values at the international level-- for example, the protection of the environment, protection of human rights. So Canada, in 2013, revised its modeled BIT and concluded a BIT with Benin, which is a West-African country-- a BIT which explicitly recognizes the importance of health, safety, and environmental measures for the hosted state and investors alike. And Since 2013, Canada has concluded a further eight BITs with African states that include similar provisions.
The second factor in the challenges which actually come from developing countries in the model BITs is the nature of the standards, which are included in such BITs. As you all know, those are standard, such as fair and equitable treatment, full security and protection, the most-favored nation clause, and the so-called "umbrella clause". They are all the standards that have emerged from the practice of capital exporting countries.
As a result, they have been elaborated. They have been studied. They have been reflected on by experts in those countries who understand the significance and the scope of application of those standards better than anyone else. But for representatives of developing countries, when you offer them or you include in model BIT, let's say fair and equitable treatment, the meaning of those is standard is opaque to say the least.
Jeremy Bentham, a British philosopher, once observed that law is sometimes like a thick mist through which no plain man, not even a man of sense and learning who is not in the trade, can see neither through nor into it. Well, those standards are very often like a thick mist described by Bentham.
Most developing countries, and particularly the least developed countries, do not have trained investment lawyers or people who are skilled in the formulation of legal standards in BITs. The scope and reach of some of these standards and their implications for the host state can only be appreciated with a substantive knowledge of investment law jurisprudence. Yet, those states subscribe to such standards most often without having them defined in the agreement.
What do we mean by fair and equitable treatment? What do we mean by full security and protection? Let's define. What do you mean by an umbrella clause? Let's define. What are the implications for my country if I give you today in this agreement a most favored nation clause. Tomorrow, if I decide not to give the similar treatment to another country, is this going to have an effect on me? These are the kinds of questions that a lawyer should ask when negotiating such agreement. But are they asked by developing states? That is where I have the doubt, having had to deal with disputes between developing countries and foreign corporations in many instances in the past.
So there is scope for developing states to incorporate better defined, better elaborated standards in such BITs in the same way that the European countries, for example. Recently when they were negotiating with Canada, the Canada-European Union trade agreement insisted that instead offer an arbitral tribunal, there should be a court of justice which deals with investment disputes, and also insisted that the standard of fair and equitable treatment should be defined. When you define those standards, this enhances the predictability of the agreement by taking too much discretion away from the arbitral tribunals. Such increased predictability would in my view be highly beneficial for both parties, not only for the developing countries.
Now I come to the second set of challenges faced in developing countries. And this set of challenges arise from arbitration itself and the mechanisms which are included in the BITs for dispute settlement. Before coming to the interpretation of the treaty standards themselves, which is, of course, the main task of a tribunal called upon to settle a dispute, the main challenge faced by the developing states, and particularly the LGCs, concerns the composition of the arbitral tribunal itself. The composition of a tribunal is of unique significance, because the awards that are issued by such tribunals contribute to the development of investment law through incremental concretization of treaty standards.
These tribunals are the tribunals which tell you what fair and equitable treatment means in a specific and concrete case, what an umbrella clause implies and involves in a situation, in a specific situation, and what are the implications of an MFN clause. So most of the time, developing countries themselves do not appoint experienced arbitrators from their countries to this arbitral tribunals. As a result, prospectives from those countries are not brought to bear on the decision-making process, even though the arbitration is about the conduct of their authorities, their policies, or their legislation. So this is a challenge which arises from a lack of training, I would say, in the trade, as [INAUDIBLE] say.
Another issue which affects the developing countries with respect to arbitration is the venue of the arbitration. Many of the arbitral tribunals are held away from the developing countries with which they are concerned and far away from the shores of those countries. So in addition to paying for council, to paying for arbitrators, these states have to pay for a delegation to travel around the world to present its case, which creates a significant financial burden, particularly to the list of developed countries, which cannot often afford such an expenditure.
Selecting Paris or Washington as an arbitration venue may be very burdensome for developing countries. Because also, the center of gravity of the arbitration is not in Paris or in Washington, but it is in the country which is involved in the arbitration together with the foreign corporation. So the delocalization of arbitration creates problems for the transparency of the arbitral process.
The public in the host country, or in the host state, may not only know about the arbitration because they are not informed about an arbitral tribunal which may decide to give an award of $400 million, $600 million, $1 billion to a foreign corporation at the expense of their country, and about which, they don't know anything. And of course, this creates an asymmetrical situation. And it prevents public discussion about the underlying dispute and about the implications of the award of the arbitral tribunal for the country concerned.
There was an article, I think, last week, in The New York Times about an arbitration between an American company and the Canadian government. And the arbitral tribunal awarded a few hundred million dollars to the American company. And the people of the area in Canada, the people concerned, started complaining about that. And they said, first of all, the arbitral tribunal was held in Toronto, which is far away. So we did not even know about such an arbitral tribunal.
So imagine the man from Burkina Faso who hears about an arbitral tribunal between Burkina Faso and an American corporation which is held in Washington. And compare him to the Canadian, who is one of the provinces of Canada, but who still considers Toronto as a faraway place. So there is absolutely no comparison between the two.
So there would be many advantages and benefits for the developing countries if these arbitral tribunals could be held closer to their countries, at least closer. And there are now, for example, in the African continent, with which I am most familiar, arbitral centers, arbitration centers, in Nairobi, in Kigali, Rwanda, in Abidjan, Cote d'Ivoire, in Mauritius. And of course arbitral tribunals can be held in all those places.
The second challenge in this set of challenges on arbitration is defining the scope of the covered instrument. Arbitral tribunals are often asked to decide if the particular activity at issue is actually an investment that is covered by the relevant BIT. This is the gateway, in a way, to investment protection. The person must have invested in the country.
In some instances, what qualifies as an investment is defined under the treaty. But very often, in many treaties, there is just an illustrative list of what constitutes an investment. So it is for the arbitral tribunal itself to decide whether what has been brought before it is an investment or not.
Respondent states, particularly the developing states, frequently challenge the jurisdiction of an arbitral tribunal on the basis that the relevant activity is not a covered investment, and hence, does not fall within the scope of the treaty. In many instances, this will not cause too much of a problem. Investing in a long-term infrastructure project clearly is an investment in a country. But is, for example, a simple sales presence in a country sufficient to constitute an investment? Or has a sovereign bond holder made an investment in a state? These are the kinds of question which are more complicated to settle and to decide upon.
The definition of investment that has been most discussed in the literature on arbitral awards is a definition that was made by a tribunal in Salini versus Morocco, which defined an investment, A, as a contribution or transfer of funds, B, of a certain duration, C, made to generate profits or revenues, D, in which the claimant has participated and incurred risks, and E-- and this is the most important-- that has made a contribution to the economic development of the host state. This is the most controversial aspect of the definition. Do all investments have to make a contribution to the economic development of the host state?
Let me link this to another debate, because it is something which does not only concern arbitration, but concerns, actually, the reason why international treaties are concluded between status and the purpose of such treaties. Because you may have heard of a disagreement between HLA Hart and Lon Fuller-- they are both philosophers of law-- regarding the interpretation on the sign that says "No vehicles in the park." So Hart considered that there were some things that were unquestionably vehicles-- automobiles, for example. For Hart, the problem came when you went outside this core of the definition of a vehicle. Should bicycles, or roller skates, or toy automobiles be banned from the park? What about a statue of a car? Would it be a vehicle?
I am actually sympathetic to the viewpoint of Fuller. Because in many cases, I don't think that you can work out what qualifies as an investment, or as a vehicle in that example, without taking into account why the rules have been constructed. What is the purpose of the rules?
In his separate opinion in Abaclat, Professor Georges Abi-Saab, who is from Egypt, and who was one of the arbitrators, said that, in his view, the main object and purpose for elaborating the ICSID Convention itself, the international-- the Convention of the International Center-- established in the International Center for the Settlement of Investment Disputes, was true encourage the flow of investment into developing countries by making available an additional international procedural facility or guarantee that counterbalances the host state's regulatory authority over investment and economic activities in its territory.
But, he said, the exit was set up within the framework of the International Bank for Reconstruction and Development, the World Bank, which, since the post-war reconstruction ended, has been predominantly focused on the development of less-developed states. So in his view, the investments that contribute to the economic development of a country constitute the hard core of the definition of an investment. So viewed in light of this object and purpose, the fifth limb of the Salini test, seems sensible that it should contribute to the economic development of the host state.
Finally, there is the issue of the interpretation of the standards, the standard which I had already mentioned. These standards are incorporated in investment agreements, but they leave a great deal of latitude to the tribunal, as I said, to interpret and apply them to the facts of the case at hand. International investment jurisprudence has evolved, in the past four of five decades, in a more investor-friendly, as opposed to state-friendly, manner because of these arbitral tribunals. And that is why you find that many developing countries are becoming more and more reluctant to conclude BITs which include a dispute settlement provision establishing an arbitral tribunal.
Let me give you an example of this regulatory chill-- of the cause of this regulatory chill-- on the part of the developing countries. There are certain arbitral tribunals, like the tribunal in the case Occidental versus Ecuador, which said, and clearly stated, that the standard of fair and equitable treatment should be understood to encompass the obligation not to alter the legal and business environment in which the investment has been made. Now, you will ask yourself, well, we know a stabilization clause is-- of course stabilization clauses can exist even in a BIT. But they exist mostly in investment agreements between a corporation and a host state.
But if the fair and equitable treatment towards a stabilization clause, and therefore prevented the host country from changing its legal framework, shouldn't such a definition, or an understanding, of the clause, or of the standard, be included in the agreement instead of being spelled out in the award of an arbitral tribunal. And therefore, other arbitral tribunals had to reject this conclusion by some tribunals like Occidental versus Ecuador. And I can give you the example of the tribunal in Parkerings Company versus Lithuania, which is stated very clearly. And I quote, "Save for the existence of an agreement in the form of a stabilization clause or otherwise, there is nothing objectionable about an amendment brought to the regulatory framework existing at the time an investor made its investment."
So the principles guiding the interpretation of treaty standards have to be carefully weighed and defined. And this is what another tribunal in the case of Saluka versus Czech Republic said. "In the view of the tribunal," and I quote, "the protection of foreign investment is not the sole aim of the treaty, but rather a necessary element alongside the overall aim of encouraging foreign investment and extending and intensifying the parties' economic relations. That, in turn, calls for a balanced approach to the interpretation of the treaty's substantive provisions for the protection of investment since an interpretation which exaggerates the protection to be accorded to foreign investment may serve to dissuade host states from admitting foreign investment, and thus to undermine the overall aim of extending and intensifying the parties' mutual economic relations," end of quotation.
This is very important. Because if the arbitral tribunals actually overextend their hand and interpret the standards in a way which makes them totally unbalanced, then there will be a backlash. And therefore, it is in the interest of everyone that such an overreach should not occur. But can developing states make sure that such an overreach does not occur without having their own arbitrators participate in arbitral tribunals? Can they ensure that such an overreach will not occur unless they take more seriously the work of arbitral tribunals and the importance of interpreting the law by such tribunals?
You know that there is the project of the Transatlantic Trade Agreement. And as I said, the European countries were the ones who originally invented the settlement of investor-state disputes through arbitral tribunals. But when it came to this draft agreement between the European countries and the United States, on the one hand, and then, the other agreement, which has already been concluded, between Canada and the European countries, the European countries started to insist that they do not want arbitral tribunals to handle these matters anymore. They would like a permanent court to deal with investor-state disputes.
So the tide is turning in a way. And the developing countries could actually take advantage of that turn in tide. Because in the case of South Africa, for example, the South African government decided, a couple of years ago-- more than a couple of years ago-- to stop negotiating new BITs, because they felt that they were not getting a fair deal as far as the interpretation of the BITs, which they had already concluded were confirmed. Other developing countries have also put a regulatory chill as far as BITs are concerned, and have tried, even, to pull out and not to renew some BITs that had already been concluded in the past. And that is why I am advising-- and I have always advised-- against an overreach by arbitral tribunals.
But apart from that-- and I would like to conclude here-- what do the developing states need? They need capacity building. They need skills development. They need to have negotiators who can negotiate better terms and conditions with the capital-exporting countries. They need to have lawyers who can insist on defining a term when they do not understand it, and who can say, OK, maybe that is your understanding of that standard. But if you want us to agree on the inclusion of such a standard in a bilateral treaty, let's define it so that we agree on what it means for both of us.
They need people who can participate in the arbitral tribunals themselves, as arbitrators. And all of this, of course, requires training. And that's why I think where the emphasis has to be put is the training of people in order to make a better balance of rights and obligations as far as investors, and also the states, are concerned. You need a dedicated group of people in each country who are skilled enough, who are knowledgeable enough to protect the interests of that country in a bilateral treaty. That's the best way to obtain balanced rights and obligations. And I thank you very much.
SPEAKER 2: Thank you. [INAUDIBLE] will take some questions. Yes? [INAUDIBLE]. There she is.
AUDIENCE: Sorry. So in your opinion, is it better to have international arbitration tribunals or a permanent court?
SPEAKER 1: Sorry.
AUDIENCE: In your opinion, is it better to have international arbitration tribunals or some kind of permanent court, from the perspective of developing countries?
SPEAKER 1: Well, I don't think that there's anything wrong with having international arbitration tribunals if you make sure that they do not overreach. And I think that arbitral tribunals are realizing that an interpretative overreach is not in the interest of anybody. So I don't think that it is necessarily a solution to have a permanent court. I think that the arbitral tribunals are, most of the time, more flexible, and perhaps better suited to deal with those kind of issues-- but provided they do not overreach.
SPEAKER 2: [INAUDIBLE].
AUDIENCE: Yeah, thank you very much for that presentation. It was very interesting. As to the choice of the arbitrators, there's an aspect of investor-state arbitration that's always struck me as different from international-commercial arbitration, uniquely different. And that is my impression that arbitrators are chosen by the parties on the basis of how they're expected to come out on the dispute so that the state is inclined to choose an arbitrator known to be favorable to the state's position, and corporations choose arbitrators known to be favorable to corporations.
And therefore, it struck me that the key person is the chair, who these two have to agree on. If it's a nix at arbitration, if they don't agree, the president of the World Court makes that appointment. So I have several thoughts about this, and questions about this, which is, I would imagine that, over time, the chairs get to be seen as either pro-state or pro-corporations. If that's not true, how is it that they maintain a certain sense of neutrality, and we have just a small group of chairs at these tribunals? Or are we constantly rotating the new people where no one knows how they're likely to come out?
And I would imagine the kind of person chosen for a chair would be the kind of person one might choose for a permanent tribunal. And if that's true, and the person chosen for the chair would be more neutral than the other two arbitrators, maybe it would be better to have a fixed tribunal of a number of people, all of whom are chosen particularly for their neutrality. So that would argue in favor of permanent court, which is what, as you say, the Europeans seem to be arguing for. I wonder if you have any comment about those observations.
SPEAKER 1: Well, I'm not sure that you always have, on the one side, a pro-corporation arbitrator, and on the other side, a pro-state arbitrator. In my experience, the difference is not due to a bias, or personal bias or a subjective bias. It is actually due to where you come from.
If you are a public international lawyer, you know what a dispute between a state and an investor implies. If you are a commercial lawyer, you treat the state as another corporation. And therefore you don't see the state in the manner in which a public international lawyer would see a state.
So I think it-- for example, I am a member of an international court of justice. And although we come from different backgrounds, from different cultures, from different legal traditions, we all speak the same language, the language of public international law. And therefore we understand each other. And I don't think that anybody would say, oh, you know, some of these judges are biased in favor of those countries, the others are biased in favor of the others. I don't think anybody would ever argue that. Because they know that, in the final analysis, we apply the rules of international law, and we don't depart from those rules.
But when you have a mixture of people from different backgrounds as far as the law is concerned, with some people coming from a commercial law background and others coming from public law background, or public international law in particular, there are differences. And the role of the chairman also will depend on whether he is a public international lawyer or whether he is a commercial law-- a person with a commercial law background. And so I think it's always varies and changes.
And my own recommendation would be, as far as investor-state dispute settlement is concerned, we should have more public international lawyers. That is my own position. Because I think that you can not appreciate public policies by a government, and what these public policies imply for that state, without really being a public lawyer and a public international lawyer for that purpose as far as disputes with investors are concerned.
So I don't know who would be the judges in the courts to be established. If they are public international lawyers, then maybe-- maybe-- you may have a better situation in my view. If they are commercial lawyers, you know, then you will have a situation which is closer to the settlement of disputes between corporations rather than a situation which is similar to a host state-investor arbitration. So I think it all depends on where the-- from which legal background the arbitrator has come. That's my own explanation and take on the matter.
SPEAKER 2: Yes?
AUDIENCE: So my question borders on the issue of the arbitration panels and transparency regarding the arbitration. Now, one of the challenges that has been raised with regard to the arbitration panel is that when it involves the investor and the state, that non-state actors, or communities that have been impacted by the activities of these investors do not have access to the tribunals, to the investment-- to the arbitration tribunals. And of course, UNCITRAL-- the UNCITRAL Rules on Transparency-- as well as the ICSID, have done some things in that regard to allow for transparency. But everybody says it's not enough.
Now, [INAUDIBLE] of tort has said, since arbitration is known to be, you know, confidential by its design, is it possible to tweak this so that we do not have-- when it comes to investor-state arbitration, the default rule be not be confidentiality, but transparency, so that those communities directly impacted by the activities of-- or by any decision the arbitral tribunals would reach would be to contribute or participate in the resolution of disputes? I mean, what do you think about this proposition?
SPEAKER 1: Well, you know, I mean, confidentiality characterizes commercial arbitration. And therefore you can not publish, and you don't publish, generally, the awards rendered in commercial arbitrations. You just have some extracts published from the awards on commercial arbitration between corporations. But as far as investor-state arbitration is concerned, most of the awards are published. So they are not confidential-- except arbitration awards, most of them, you can find them one way or the other.
Sometimes if one of the parties does not want it to be published, it's leaked. And so you find it. You find the award. But most of the time, the parties actually accept that the award should be published, and it's published.
So the problem of transparency does not lie there. For example, I come from Africa. And for me, the problem of transparency lies elsewhere. For me, the problem of transparency lies in the fact that the people in an African country-- let's take Tanzania. Tanzania is involved in several investor-state arbitrations. Do people in Dar es Salaam know about those arbitrations? Do they know who represents, or who is appointed by their authorities to be the arbitrators? Do they know who are the council and the arguments that the council submit to the tribunal?
Most of them, both the council and the arbitrators, are foreigners. And so even what has transpired in that tribunal will not go back to Dar es Salaam. And the archives of that tribunal will not be available to researchers in Tanzania. For me, that is where the lack of transparency exists as far, at least, as African countries are concerned.
Because if you are a scholar, a legal scholar, and you are in an African country, and you want to study the arbitrations to which your state, your country was a party, whether they are interstate arbitrations or investor-state arbitrations, you will not find anything-- anything-- in your country. And that's why I have insisted, with the International Council for Commercial Arbitration, which is now actually ICCA, which is now the council for all kinds of arbitration, that they should create an archive, online archive, for all arbitrations involving African states so that African legal scholars can have access to the background of the arbitrations concerned in their respective countries, so that if you want to do some research, you know exactly what happened at arbitral tribunal, the submissions of the parties, the award, et cetera as far as possible.
And they are going to establish-- they have started work on that. And I hope that that will really make some of these arbitral transactions more transparent in the future.
SPEAKER 2: Yes?
AUDIENCE: I just wanted to ask how you think arbitral transactions can become more transparent, but you answered that question. So another question that I have is about national treatment provisions, which are considered a standard feature in, at least, BITs between China and various African countries. Some BITs, however, don't have a national treatment provision, but they incorporate a general non-discrimination principle. So my question is, what is the implication of the general knowledge from the nation principle-- or nondiscrimination clause-- that is not tied to the national treatment or NFN standard? And from the perspective of the host government, isn't something like this undesirable since discrimination is not exactly defined clearly anywhere? And could we interpret it in any way in the event in case a dispute arises?
SPEAKER 1: Well, I know that some developing countries, including China of course, which considers itself also a developing country up to now, prefer not to include a most-favored nation clause in their bilateral investment treaties. And the reason is quite simple. It is that, actually, it takes away from them the control over what kind of treatment they will extend to other countries in the future, or other corporations which invest in their own countries. And that treatment to which they-- the treatment to which they gave to one state will be automatically extended to all others.
But with respect to nondiscrimination or national treatment, I'm not aware, really, of many developing countries that object to it. Because I don't think that they have any problem with treating foreign investors in the same way as their nationals. Many developing countries, maybe, most of the time, treat the foreign investors better than their nationals. So if the treatment that is extended to the foreign investors is the same as the nationals, it's fine for them.
Nondiscrimination is a standard which is not used only in investment treaties, but it's used also in international trade, you know? And therefore, I think that it's not difficult for arbitral tribunals to define and to deal with the interpretation of a clause on nondiscrimination in a treaty. And I think that there have not been any exaggerations as far as nondiscrimination is concerned. Maybe one could sometimes say that, as far as the interpretation of what's arbitrary is concerned, the tribunal may have exaggerated. But as far as nondiscrimination is concerned, I don't think that too many countries are concerned about it.
SPEAKER 2: [INAUDIBLE].
AUDIENCE: Thank you for these fascinating remarks. I have two questions. One is about the makeup of the arbitral tribunals themselves and your proposal that more lawyers from less-developed countries serve on them. The other question is about the precedent-setting character of the decisions themselves. So it's my understanding that the organizations are not international public organizations of arbiters, but really, private organizations of lawyers who make themselves available to be chosen for the tribunals.
If that's so, then your proposal would be for lawyers from less-developed countries to train in this area, either commercial or public international law and then make themselves available to serve on those arbitration tribunals. I think that that's right. And the question about setting precedents-- what is the basis, in law, for these tribunals to be setting precedent? And this is now also a matter of the distinction you made between the commercial law background and the public international law background of the arbitrators themselves.
I would think the public international lawyers would think of what they're doing as setting precedent, but the commercial lawyers might not think so. They might think that every decision is independent. So I'd be interesting in your comments on that.
SPEAKER 1: To take the second question first, no, the awards of arbitral tribunals are not, by themselves, binding, a binding precedent. They are not. But of course, when parties appear before an arbitral tribunal, they will always use the interpretation by a previous tribunal. And they will ask the tribunal to accept that interpretation.
They will say, you know, in such and such a case, this is how the tribunal interpreted this standard, fair and equitable treatment. And it's not only that tribunal. There are so many other tribunals in the past which interpret it in the same way. So you should follow it. And unless, really, the tribunal has a clear reason to depart from it, the tribunal may find itself in a difficult situation in which it has to accept what the other tribunals-- although it's not binding on them as a precedent. It's not binding on them as a precedent.
So it is just to follow what the other tribunals have reasonably decided-- reasonably, I would say. Because if they find that their reasonable interpretation of the standard in certain circumstances was correct and reasonable, then of course, they may follow it.
With respect to the arbitrators themselves, no, there are no organizations as such. And I don't think that most of the arbitrators, either in commercial arbitration or investor-state arbitration, are appointed from organizations. They are not. But what I have told the international law firms in London a couple of years ago was that the developing countries, whenever they are confronted with a case of an investor-state arbitration, they want to retain the best counsel that they can find.
So for them, the best counsel is not to be found in their country. The best counsel is to be found in New York, or Paris, or Washington, or the international law firms in those big cities. And so they resort to those law firms.
And what happiness is that, then, they ask the law firms, when the country or the state is asked to appoint an arbitrator, who should we appoint. And in many cases-- and that's what I told the international law firms in London, they actually recommend their friends. And that is against the interest of the developing states. So it's become kind of a closed society in which counsel appoint friends whom they know as arbitrators. And the arbitrators do not come from the countries which are most directly concerned by the outcome of the arbitration.
And this is a situation which is not sustainable. Because sooner or later-- and that's what I told the international law firms in London-- these countries will realize that their interests are not served by the appointments made by their counsel in London, or Paris, or New York. And they will therefore abandon both the counsel and the arbitrators appointed by the counsel. So it is actually in the interests of the international law firms to appoint people who are more knowledgeable about the interests and the concerns of the developing countries, and therefore, people who are from those countries themselves so that they can convince the countries that your interests were not at all-- or your concerns were not ignored in the arbitral process, but were taken into account. Because we had an arbitrator from your region or your own country, you know? So that is what makes more sense to me than perpetuating the actual practice which exists at the international level.
SPEAKER 2: Maybe we should try to conclude our discussion.
SPEAKER 1: There is a gentleman there.
SPEAKER 2: Oh, sorry.
SPEAKER 1: One last question, let's take.
AUDIENCE: So this is a story which I find utterly plausible, but there are two kinds of arguments. One is an interest-driven argument, which you just made. And the other one is the argument you made before, we are all lawyers. And therefore, we see the world in the same terms.
SPEAKER 1: I didn't say that. You must have misunderstood.
AUDIENCE: What kind of law is penetrable by interest as opposed to what kind of law is not?
SPEAKER 1: All law is penetrable by interest.
AUDIENCE: If all law is penetrable by interest, there's a distinction between [INAUDIBLE]. And something in the national law is not as important as you make it to be in your argument.
SPEAKER 1: No, that's not what I said. That's why I told you that you did not understand what I said about public international law. Because what I said was not that public international law is actually more accommodating of the interests of states. No, public international law is made by states, you know, who are are also the subjects of public international law.
And what I said was that, as far as the International Court of Justice, for example, is concerned, we all speak the same language. Because we all apply the rules of public international law. And we are all public international lawyers. But that does not mean that we do not have different views as to the interpretation of the rules.
We have different views. And that's why you will always find, in all the judgments that are published by the International Court of Justice, separate opinions and dissenting opinion. And actually, those dissenting opinions gradually contribute to the development of the law in the future. Because at that moment, maybe the majority does not realize that this is the correct interpretation of the rules. But after a while, it's quite possible that that dissent becomes the correct interpretation of the rule.
So it is different from saying that international law better understands the interests of the states. What I meant to say was that the interpretation of international legal rules is more predictable. Because there are all kinds of judgments which have interpreted these rules in the past and which are there. And a state can, to a certain extent, rely on those interpretations. But that does not mean that it will always protect the interests of the state. No, it is for the state itself to protect its own interests.
And that is where I advocate that states, especially developing states, should try to protect their interest by appointing their own arbitrators. Because their own arbitrators are the one, perhaps, who better understand the circumstances in which certain policies were adopted by those countries. You know, if you are South Africa, and you want to introduce affirmative action because you want to empower the black people who have been oppressed for centuries in the country, who would better understand that affirmative action than a South African arbitrator? That's what I mean.
SPEAKER 2: Well said. So I think we should now conclude. And join me in thanking him.
We've received your request
You will be notified by email when the transcript and captions are available. The process may take up to 5 business days. Please contact email@example.com if you have any questions about this request.
Justice Abdulqawi Yusuf delivered a public lecture titled “Balancing Rights and Obligations of States and Investors: Challenges Facing LDCs,” on Monday, October 23 2017 in 186 Myron Taylor Hall.
Abdulqawi A. Yusuf is a Judge of the International Court of Justice, The Hague, The Netherlands and Vice-President of the Court since February 2015. He is a member of the Institut de Droit International, a member of the panel of arbitrators of ICSID, and a member of the Governing Board of ICCA. He is the founding Chairman of the African Institute of International Law (AIIL), Arusha, Tanzania, founder and General Editor of the African Yearbook of International Law. He is the author of numerous publications on various aspects of international law. He holds a Ph.D. in international Law, IUHEI, Geneva.