The Comprehensive Economic and Trade Agreement – implemented in an EU/Canada trade deal – introduces a bilateral Investment Court System and will transform it into a Multilateral Investment Tribunal. By Anna Jermak Introduction Given that foreign investments significantly contribute to a country’s economic prosperity, States have been trying to attract foreign investors by offering them a favourable investment environment. Through proliferating bilateral investment treaties (BITs) and treaties with investment protection – safeguarding foreign investors against unfair or discriminatory treatment by a host State – an international system governing the investor-State relationship was created. The Investor-State Dispute Settlement (ISDS) is at its heart a mechanism for foreign investors to sue a host State for breaches of their rights. Traditionally, the proceedings took the form of arbitration before ad hoc tribunals. However, due to the shortcomings of the ISDS system, the voices calling for its reform have been heard more and more loudly. The EU’s reform proposal – implemented in the Comprehensive Economic and Trade Agreement (CETA) – is so far the most promising one. It introduces a bilateral Investment Court System (ICS) and commits to ultimately transform it into a Multilateral Investment Tribunal. Why reform at all? The current ISDS system’s adaptability to international reality, and its implementation of global legitimacy standards, have been widely questioned for want of reliability, predictability, transparency, and consistency. The fact the arbitration proceedings do not constitute precedents for later proceedings to rely on, and their decentralisation – that is, the formation of arbitration tribunals ad hoc, separately for each dispute – make it close to impossible for decided cases and interpretations to be consistent. Such legal uncertainty inevitably leads to decreased trust from the parties in the institution of investment arbitration, as the majority’s ‘correct’ interpretation of law or facts is so uncertain. In conjunction with the colossal costs that arbitration proceedings entail, the parties may be overwhelmed by the risk. Economically weak countries pay the highest price for its unpredictability. Another factor that contributes to low levels of confidence in ISDS has been the absence of an appeal mechanism that would ensure coherent interpretation and application of the law. Widely present in national legal systems (appeal courts) as well as in WTO dispute settlement (the Appellate Body), the review mechanisms serve to not only allow for uniformity of court and tribunal decisions but also to reassure the parties that the decision held is legitimate and must be respected. Without the parties’ confidence, the ISDS is on the verge of collapsing. Lastly, the fact that disputing parties themselves appoint the arbitrators who resolve their conflict undermines confidence not just in the ISDS system but also in the arbitrators’ independence and impartiality. The parties are certainly inclined to nominate an arbitrator who they believe will decide in their favour. And although arbitrators are expected to followthe soft-law International Bar Association (IBA) Guidelines on Conflicts of Interest in International Arbitration which require their impartiality and independence, they may still be biased on a conscious or subconscious level. Thus, even a mere suspicion of an arbitrator’s bias is unsustainable – as Paulsson rightly noticed: an unfavourable decision is unlikely to be accepted as legitimate if it is perceived to be the product of arbitrariness or bias. Jan Paulsson, ‘Moral Hazard in International Dispute Resolution’ (2010) 25 ICSID Review – Foreign Investment Law Journal 340. How is CETA’s mechanism different? The enshrinement of the ICS in EU trade and investment treaties – such as the EU-Vietnam Free Trade Agreement, the EU-Singapore Free Trade Agreement, and CETA – appears to be the answer to these criticisms. Despite neither of the ICS provisions in these agreements being operative, the mere act of replacement of the ISDS system has aroused so much controversy that it led the Court of Justice of the EU to confirm CETA’s ICS’s compatibility with EU law. For the purpose of critiqueing the EU’s ICS proposals, the focus will here be on CETA’s investment provisions. CETA was signed in 2016, following eight years of negotiations. Its emphasis on the removal of trade barriers between the EU and Canada did not stop it from putting in place remarkable provisions on international investment protection and dispute settlement. Art. 8.27 of CETA establishes a permanent Tribunal for the resolution of investment claims. It is to be composed of fifteen highly qualified and (as stated in Art. 8.30) fully independent members coming from the EU, Canada, and third countries. Pursuant to Art. 8.28, an Appellate Tribunal, reviewing the first instance Tribunal’s awards, has come into existence. The language allowing it to “uphold, modify or reverse” an award resembles the wording referring to the Appellate Body’s competences in the WTO’s Dispute Settlement Understanding. Under Art. 8.29, the contracting parties pledge to pursue, in collaboration with other trading partners, the establishment of a multilateral investment tribunal and a separate appeal body. Upon their creation, the ICS (together with bilateral investment courts established pursuant to the EU’s other free trade agreements) will be replaced by the new single multilateral dispute-settlement mechanism. Any country willing to accept the rules underlying its functioning will be welcome to join it. Pros and cons This two-tier system is a move away from the traditional ISDS framework to permanent, transparent, impartial, and independent Tribunals inspired by the principles of public judicial systems in the EU and its Member States and Canada, as well as international courts such as the International Court of Justice and the European Court of Human Rights. Council of the EU, Joint Interpretative Instrument on the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and its MemberStates 27 October 2016, 13541/16. Indeed, the permanency of the investment Tribunal under the ICS stands in opposition to the ad hoc character of regular arbitration tribunals, providing more consistency and predictability and therefore a more stable investment dispute settlement system overall. The fact that the Tribunal’s members are designated in advance eliminates the danger of biases and conduces to trust. The requirements of absolute independence