Transparency in International Trade and Investment Dispute Settlement

Junji Nakagawa

• Publisher: Routledge
• Year: 2012
• Print ISBN: 9780415528733
• eBook ISBN: 9781135130541
• Edition: 1
• Topic: Economia
• Subtopic: Teoria economica

An increasing number of international trade disputes are settled through the WTO dispute settlement (DS) procedure. In parallel, an increasing number of international investment disputes are settled through investor-host state arbitration procedure. What does "transparency" mean in the context of international trade and investment dispute settlement? Why is enhanced transparency demanded? To what extent and in what manner should these dispute settlement procedures be transparent? The book addresses these issues of securing transparency in international trade and investment dispute settlement.

Transparency in international trade and investment dispute settlement drew attention of international economic law scholars in the late 1990s, but most literature discusses the transparency in trade DS and investment DS separately. The book deals with the issue in a comprehensive and coherent manner, combining the analyses of the issue in both DS procedures and comparing the pros and cons to enhanced transparency in them. The main argument of the book is, first, that transparency in these procedures should be enhanced so that they may be accountable to a wider range of stakeholders, but, secondly, that the extent and the manner of transparency might differ in these two procedures, reflecting their structural and functional differences.

The book will appeal to both scholars and students interested in international economic law and international relations, as well as lawyers and government officials who deal with international trade and investment regulation.

1 Introduction

Transparency in international trade and investment dispute settlement

Junji Nakagawa and Daniel Magraw

An increasing number of international trade disputes are settled through the World Trade Organization (WTO) dispute settlement procedure.¹ Also, disputes between foreign investors and host states are increasingly being submitted to international arbitration.² Although these dispute settlement processes differ in the characteristics of the parties (the former being state to state, and the latter being private investor to state) and their applicable laws, they share the same function of judging the lawfulness of a wide range of domestic regulations and measures of states under international law. When the disputed domestic regulations and measures have some bearing on non-trade/investment issues such as environment and public health, settlement of such disputes can have serious economic and social impacts on the disputing state parties. Thus, more and more stakeholders are speaking out for enhanced transparency in these dispute settlement procedures (cf. Knahr 2007).

What does “transparency” mean in the context of international trade and investment dispute settlement? Why is enhanced transparency strongly asserted? Conversely, why is transparency strongly resisted by some? To what extent and in what manner should these dispute settlement procedures be transparent, and why is it so? This book aims at analyzing the theoretical and practical issues of securing transparency in these dispute settlement procedures.

Call for transparency in the WTO dispute settlement procedure

The issue of transparency in international trade dispute settlement first drew worldwide attention in the late 1990s, when the WTO dispute settlement procedure took up the case concerning the US trade restriction of shrimps to protect sea turtles (cf. Mavroidis 2002). The panel received amicus curiae briefs from two environmental non-governmental organizations (NGOs), but it declined to take them into consideration.³ It reasoned that while a panel had the authority to seek information from any source under Article 13.1 of the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU),⁴ it had not sought information from the NGOs that submitted the briefs.⁵ However, the panel suggested that if any of the party wished to put forward the briefs as part of their own submissions, they were free to do so.⁶ In response, the United States designated part of one of the briefs submitted as an annex to its submission.

The WTO Appellate Body reversed the reasoning of the panel, stating that a panel had the discretionary authority either to accept and consider or to reject information and advice submitted to it, whether requested by a panel or not (emphasis in the original).⁷ The Appellate Body further expanded the possibility of accepting non-solicited amicus curiae briefs in its Report in United States – Lead and Bismuth II, stating that the Appellate Body had the legal authority under the DSU to accept and consider amicus curiae briefs in an appeal when it found it pertinent and useful to do so.⁸

In EC – Asbestos, the Appellate Body, in anticipation of a large number of amicus curiae submissions on appeal, proposed an additional procedure to deal with such submissions in this appeal only, which provided that “(a)ny person, whether natural or legal, other than a party or a third party to this dispute, wishing to file a written brief with the Appellate Body, must apply for leave to file such a brief from the Appellate Body by noon on Thursday, 16 November 2000.”⁹ However, this initiative was opposed by a number of WTO Members. Egypt, on behalf of the Informal Group of Developing Countries, requested a special meeting of the General Council to discuss this additional procedure. The special meeting was held on 22 November 2000, and many developing countries raised voices against the Appellate Body’s accepting unsolicited amicus curiae briefs.¹⁰ Uruguay, for instance, stated that the practical effect of the additional procedure had been to grant individuals and institutions outside of the WTO a right that Members themselves did not possess.¹¹ Egypt argued that, if the procedure was implemented, a severe harm and a grave imbalance would be done to the rights of Members vis-à-vis external parties or individuals who were not even contractually committed to the obligations of the WTO system.¹² On the other hand, the United States asserted that the Appellate Body had the authority under Rule 16(1) of its Working Procedures¹³ to adopt the additional procedure regarding the acceptance and consideration of amicus curiae briefs in that case. The United States added that the Appellate Body had adopted the additional procedures to manage the issue of accepting unsolicited amicus curiae briefs in appeal in a fair, legal and orderly manner, taking into account the interests of members of civil society in having their views considered, the interests of the parties and third parties in being able to review and respond to any amicus submissions, and the interests of all in resolving the dispute.¹⁴ In its Report, the Appellate Body noted that it had received 11 applications for leave to file an amicus curiae brief, but each application was denied without further explanation.¹⁵

WTO Members have been discussing enhanced transparency in WTO dispute settlement procedures in the review negotiations of the DSU since 1997. Acceptance of unsolicited amicus curiae briefs has been one of the major issues. Some Members argue for a general prohibition on unsolicited briefs, which they argue would be in line with the intergovernmental nature of the WTO dispute settlement procedure. For others, regulating the timing of amicus curiae briefs, their length and the procedures to address the admissibility and contents of the briefs would ensure that appropriate guarantees are in place to manage such briefs.¹⁶

Opening panel and Appellate Body hearings to the public has been another important issue in the review negotiations of the DSU. A number of Members, including the US, Canada and EU, have called for enhanced transparency through opening panel and Appellate Body hearings to the public, and suggested that such openness could contribute to greater public confidence in the WTO dispute settlement procedure.¹⁷ Other Members have expressed concern in relation to the preservation of the intergovernmental character of the WTO dispute settlement procedure, the protection of confidential information, as well as practical modalities and potential budgetary implications.¹⁸ Some panels have recently opened their hearings to public viewing upon the request of the parties,¹⁹ principally through the use of closed-circuit television.²⁰

What were the major reasons for the recent call for enhanced transparency in the WTO dispute settlement procedure? One of the major reasons was the subject matter of some dispute cases that drew wide attention of the public. US – Shrimps, EC – Asbestos and EC – Hormones were prime examples, as they dealt with environmental protection (protection of endangered species) and/or protection of human life or health. These cases were widely publicized, and many NGOs expressed concerns about the allegedly pro-trade bias of the WTO law and the WTO dispute settlement procedure. They succeeded in persuading some WTO Members to call for enhanced transparency in the WTO dispute settlement procedure to ensure that the procedure would strike a balance between trade interests and broader public interest such as environmental protection and protection of human life or health.

On the other hand, many WTO Members, including most developing Members and some developed Members, expressed concern that enhanced transparency might erode the intergovernmental character of the WTO dispute settlement procedure.²¹ Though it is not necessarily clear what they meant by the term intergovernmental character, it is safe to assume that it implies that the WTO dispute settlement procedure, in spite of its judicialized characteristics, still takes on a character of government-to-government, or diplomatic, settlement of disputes, where confidentiality and flexibility are needed.²² It has also been asserted that strictly confidential information, mainly business information, should be protected in the WTO dispute settlement procedure and that this cannot be accomplished with increased transparency.²³

A call for transparency in investor—state arbitration

In the late 1990s, transparency also became an issue in the practice of investor– state arbitration under the North American Free Trade Agreement (NAFTA) Chapter Eleven, with respect to the public access to arbitral awards and other documents (cf. Van Harten 2007: 162-163; also see Knahr and Reinisch 2007). While Article 1137.4 of the NAFTA provides a rule in favor of public access to arbitral awards when Canada or the United States is the party,²⁴ it leaves open the possibility that other documents may not be open to the public without the consent of both the host state and the investor. Applicable arbitration rules appeared to support a presumption in favor of confidentiality. For instance, Article 32(5) of the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules provided that the award may be made public only with the consent of both parties. Applying this rule, the tribunal in S.D. Myers, Inc. v. Government of Canada declined to publish documents without the consent of the disputing parties.²⁵ The NAFTA member states, however, intervened in 2001 in favor of enhanced transparency by announcing that they would publish all documents submitted to, or issued by, NAFTA Chapter Eleven arbitral tribunals.²⁶

A NAFTA tribunal went further by accepting amicus curiae briefs from NGOs. The tribunal in Methanex Corporation v. United States of America found that it had the power to accept amicus curiae briefs from NGOs under the UNCITRAL Arbitration Rules.²⁷ The tribunal based its decision on Article 15(1) of the UNCITRAL Arbitration Rules, which grants to the tribunal a broad discretion as to the conduct of arbitration.²⁸ It pointed out two additional reasons for accepting amicus curiae briefs. First, there was a public interest in the arbitration that arose from its subject matter.²⁹ Second, there was a broader argument, as suggested by the respondent (the United States) and Canada, that the Chapter Eleven arbitral process could benefit from being perceived as more open and transparent, or conversely be harmed if seen as unduly secretive.³⁰ On the other hand, the tribunal declined the NGO’s request to attend hearings and to receive copies of all submissions and materials without the consent of the parties.³¹

The NAFTA member states later clarified the rules and procedures for the acceptance of written submissions by non-disputing parties.³² Although this clarification seemed to imply the NAFTA member states’ unwillingness to open the Chapter Eleven arbitral hearings to the public, the Methanex tribunal opened its hearing to the public in June 2004,³³ and the NAFTA member states’ Joint Statement of 16 July 2004 welcomed the fact that Mexico had joined the United States and Canada in their support of open hearings in the Chapter Eleven arbitral procedure.³⁴

These developments under the NAFTA Chapter Eleven arbitration seemed to have stimulated other forums for investor–state arbitration to take steps for enhanced transparency. For instance, the tribunal in the Suez-Vivendi case, the first International Centre for Settlement of Investment Disputes (ICSID) tribunal to deal with amicus curiae submissions, admitted that it had the power to accept amicus curiae briefs. Based on Article 44 of the ICSID Convention,³⁵ which is similar to Article 15(1) of the UNCITRAL Arbitration Rules, the tribunal stated that “like the Methanex tribunal, the Tribunal in the present case finds that acceptance of amicus sub missions is a procedural question that does not affect a disputing party’s substantive rights since the parties’ rights remain the same both before and after the sub mission.”³⁶ Subsequent to this case, the ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of contributors
• Acknowledgements
• List of abbreviations
• 1 Introduction
• 2 The Ordre Public dimensions of confidentiality and transparency in international arbitration
• 3 Transparency and the role of domestic process
• 4 Why should there be public knowledge and understanding of East Asia's regional trade disputes?
• 5 Webcasting
• 6 Transparency of investment awards
• 7 International investment activities
• Index