Book review: Cambridge International Law Journal, by Eirini Kikarea

Cambridge International Law Journal, Vol. 7 No. 2, pp. 354–359 Book review Fabio Morosini and Michelle Ratton Sanchez Badin (eds), Reconceptualizing International Investment Law from the Global South (Cambridge University Press, Cambridge 2017) 326 pp. Eirini Kikarea University of Cambridge, UK If international law reflects the ideas of the dominant contemporary forces, the culture and worldview of powerful actors, these undoubtedly belong to the developed states of the Global North.1 In international investment law, authors have widely criticised the lack of pluralism in the formulation of the international investment regime and the asymmetrical nature of the traditional model of international investment agreements (IIAs) to the benefit of capital-exporting states. It is now well known that, around the 1990s, the capital-exporting states of the North put pressure on the capital-importing states of the South to conclude bilateral investment treaties (BITs) and greatly influenced their substantive and procedural aspects. These agreements were concluded because capital-exporting states wanted to provide additional protection to their investors and because capital-importing states were convinced that they would be able to attract foreign investment to stimulate their economies, a belief which has recently been questioned by commentators. Many states now realise that investment treaties, in their traditional formulation, shrink their policy space and provide disproportionate protection to foreign investors. This realisation has given rise to a systemic legitimacy crisis and a ‘backlash’ against investment arbitration by many states. Discussions among both scholars and practitioners quickly turned to how the international investment regime might be best reformed. However, in the context of the new reform processes, the countries of the North are once again the protagonists and initiators of change. In their book, Reconceptualizing International Investment Law from the Global South, editors Fabio Morosini and Michelle Ratton Sanchez Badin consider the recent investment regulatory reforms taking place in six countries of the Global South: China, Chile, Australia, India, Brazil and South Africa. The book lies at the intersection of law and policy, focusing on the relationship between treaty-making, politics and economics. The authors’ aspirations are to contribute to current debates about the reform of the international investment regime by raising the voice of the often peripheral Southern states. They share the success stories of these six states as well as the challenges they faced when attempting to reform their investment framework. The result is a synthesis of empirical research on investment law reforms, contributed by legal scholars from across the globe. It is not the editors’ aim to change the current investment regime by advocating a ‘Southern approach’ to investment treaty-making; their goal is to foster pluralism in 1. B S Chimni, ‘Third World Approaches to International Law: A Manifesto’ (2006) 8 International Community Law Review 3, 15. © 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd The Lypiatts, 15 Lansdown Road, Cheltenham, Glos GL50 2JA, UK and The William Pratt House, 9 Dewey Court, Northampton MA 01060-3815, USA Book review 355 investment reform negotiations by drawing the North’s attention to the particularities of Southern states and to their recent regulatory initiatives. For this reason, the book at times becomes dense and fact-heavy, focused more on historical–political events and economic data, and less on how pluralism can be achieved in practice. Regarding terminology, the North–South divide is conceived broadly as the book contains a chapter on Australia which, despite being geographically situated in the South, is a developed country, as well as a chapter on China, a very advanced developing country. The authors avoid using ‘third-world’ terminology and generally prefer classifying states based on the ‘developed–developing’ countries dipole. The book is structured in three parts. In the introduction, which comprises the entirety of part one, the editors comprehensively outline the methodologies and aims of the project, as well as the book’s structure and context. Part two is divided into six chapters, each relating to a different country in the Global South. The last two chapters conclude the study. In the introduction, Morosini and Badin argue that the current legitimacy crisis of the international investment regime stems from a ‘broader attempt to transform the international economic order’,2 led primarily by Northern developed states aimed at promoting neoliberal policies. Wishing to identify the ‘founding pillars of an alternative economic order’,3 the editors explain their decision to focus their research on countries of the Global South, whose perspective on economic reform has been neglected by researchers and policy-makers to date. Yet Southern states do not suffer from a lack of ideas. At a general level, Southern states seek to reform existing investment agreements or craft new model treaties in order to increase their regulatory space. The editors argue that, although investment reforms in the South are neither uniform nor groundbreaking, one observes innovations in two main regulatory areas: dispute settlement and enlarged regulatory space through the modification of substantive standards of protection. The main features of the new model treaties are that they contain narrower definitions of investment/investor, definition or exclusion of substantive standards of protection – for instance, exclusion or reduced scope of fair and equitable treatment and most-favoured-nation obligations – and qualification of the free transfers clause. Regarding dispute settlement reform, some Southern countries have chosen to continue including investor-state dispute settlement (ISDS) in investment treaties. Others have proposed alternative dispute settlement methods, for instance state-to-state arbitration, domestic courts, exhaustion of local remedies, screening processes and mandatory negotiations. In the same chapter, the editors also present the broader theoretical background of their research by placing international investment law in the context of an economic order. They analyse the battle between the property rights of investors and sovereignty throughout history, argue that the Trans-Pacific Partnership (TPP) is a product and proxy of the neoliberal agenda because it prioritises the property rights of investors, and explore the reasons behind the recent investment policy shift in the South. After such a thorough introduction the reader is well positioned for the remaining chapters. In chapter two, Vivienne Bath focuses on China, one of the world’s greatest economic powers and an active participant in investment treaty regulation. Bath argues that China’s investment-treaty-making approach greatly reflects its policy to gradually open up its economy and develop outbound and inbound trade and investment flows. She proves that there is a strong link between, on the one hand, China’s domestic investment policy 2. Fabio Morosini and Michelle Ratton Sanchez Badin (eds), Reconceptualizing International Investment Law from the Global South (CUP, Cambridge 2017) 2. 3. Ibid. © 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd 356 Cambridge International Law Journal, Vol. 7 No. 2 and reform, and, on the other hand, its aggressive approach to outbound investment. To establish this point, Bath presents China’s investment-treaty-making strategies in relation to China’s economic policy from the 1980s until today. She makes a distinction between the periods before and after China’s accession to the World Trade Organization (WTO), rightly placing emphasis on the government’s policy shift, and presents comprehensive tables analysing the content of existing Chinese investment treaties. She observes that China has always been careful when drafting investment treaties and follows a flexible and open approach to negotiations based on its partners’ preferences. It follows a pre-establishment negative-list approach to foreign investment, and places emphasis on the existence of reciprocity of rights and obligations and the goal of common development. Bath also notes that China has not been an advocate of major reforms but has rather chosen to pursue its economic goals within the existing investment system. China prefers the traditional model of investment treaties and is generally in favour of the pro-Northern ISDS, in contrast to several other Southern states. In an attempt to further promote outbound investment, China has also supported a number of recent investment initiatives such as the conclusion of a new mega-regional agreement, the Regional Comprehensive Economic Partnership (RCEP) and is the initiator of the One Belt One Road (OBOR) infrastructure project. Overall, Bath convincingly argues that China’s investment treaty policy, although not ground-breaking, is more than suitable for furthering its outbound investment and liberalisation strategies. In chapter three, Rodrigo Polanco Lazo analyses the investment framework of Chile, a small emerging economy. Lazo argues that Chile has successfully developed a network of IIAs and Preferential Trade Agreements (PTAs) which has allowed it to interact with the world and has led to economic growth and the reduction of poverty. Chile follows many different investment law strategies, including unilateral, bilateral, regional and multilateral efforts. Lazo argues that Chile was an ‘early adopter’ of liberalisation policies in Latin America and that its policy shifts have not been influenced by movements or alignments with other countries of the region. Chile has achieved a coherent trade and investment policy by developing an ‘active network’ of agreements and by implementing unilateral measures, without being part of any regional integration scheme. Since the 1970s, Chile has been oscillating between ‘open’ and ‘closed’ regionalism, concluding Economic Complementation Agreements (ECAs) with Latin America states and comprehensive Preferential Trade Agreements (PTAs) with major trading partners. In the 1990s, Chile concluded numerous investment treaties with very broad provisions and, since 2003, it mostly concludes PTAs with investment chapters. Lazo observes that Chile’s investment treaties, like China’s, generally follow the mainstream model that is usually followed by developed states. Nevertheless, Chile’s investment chapters are good examples of legal innovation, containing novel provisions taking notice of the criticisms made to the ISDS system, enlarging policy space, and increasing control over investment claims. He also notes that there are no major differences between treaties concluded between Chile and developing or developed states, with the exception of market access on goods and trade in services, as well as provisions relating to sustainable developmental policies. Lazo highlights that the recent TPP negotiations may serve as an opportunity for Chile to initiate debates on investment law reforms. This chapter effectively shows how a small economy can utilise investment regulation to achieve economic goals without being part of a regional integration scheme. Chapter four by Vivienne Bath focuses on Australia, a state that, despite not being a Southern developing state, is nevertheless included in the book because it is a net recipient of great amounts of foreign direct investment (FDI) and because it is currently © 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd Book review 357 implementing major trade and investment reforms. These characteristics are not indicative of a developing state but signify the importance of taking Australia’s reforms into consideration. In this chapter, Bath considers Australia’s attempts to combine an open investment system with control over the admission of FDI and enlarged policy space. She evaluates in detail the two main features of Australia’s IIAs, namely the provisions relating to the admission of investments and ISDS provisions. In 2011, as a reaction to the well-known Philipp Morris v Australia case,4 involving claims against Australia’s tobacco plain packaging measures, the Australian government announced that it would no longer include ISDS in investment agreements. After the change of government in 2013, the country decided to adopt a case-by-case approach to ISDS and included strict screening processes and carve-outs in most free trade agreements (FTAs) for the protection of welfare interests. Bath presents Australia’s treaty-making practices since the 1980s in relation to its domestic policies in general and in several key areas – such as natural resources and ownership of land. After assessing Australia’s investment policy in detail, she concludes that Australia’s screening policy, which combines a positive approach to small, non-sensitive investments, with a flexible case-by-case review of large and sensitive investments, is potentially advantageous for smaller economies. However, she also points out the compromises made by the Australian government and the impact of this policy on the flexibility and consistency of Australia’s domestic strategy, which would potentially constitute a challenge for developing states in a similar position. Overall, this chapter serves as a useful guide for states dealing with large inflows of investment that wish to preserve regulatory space and control the admission of investments. Chapters five, six and seven are dedicated to India, Brazil and South Africa respectively, the great emerging economies of the South. In chapter five, James J. Nedumpara deals with India, a state that, like a ‘porcupine’, interacts economically with the world in a slow and defensive manner. India has concluded numerous investment agreements with capital-exporting states since the 1990s, in an attempt to open up its economy and attract foreign capital. After summarising past trade negotiations, Nedumpara shows that India has always been a tough negotiator and an advocate of enlarged policy space in international trade discussions, and has played a key role in ensuring flexibility in several trade-related areas, such as intellectual property and agriculture. However, as Nedumpara highlights, when the Indian government was concluding investment treaties in the 1990s, it appears that it did not seriously consider the investment treaties’ potential to restrict India’s right to regulate. Only after the investment arbitration case White Industries v India,5 which served as a ‘catalyst’ for a new debate on policy space, did the government realise the harmful effects of its undertakings. To reserve more policy space for India and to minimise its financial exposure to multi-million-dollar arbitration awards, the government devised a new model investment treaty in 2015. The new model treaty restricts recourse to ISDS – mainly by conditioning it to exhaustion of local remedies – and limits the scope of the substantive standards of protection, for instance through carve-outs and strict definitions of fair and equitable treatment standard (FET) and expropriation. Nedumpara analyses in detail several elements of 4. Philip Morris Asia Limited v The Commonwealth of Australia (Notice of Arbitration), PCA Case No 2012-12 (UNCITRAL, 21 November 2011) <https://www.italaw.com/sites/default/ files/case-documents/ita0665.pdf> accessed 4 July 2018. 5. White Industries Australia Limited v The Republic of India (Final Award) (UNCITRAL, 30 November 2011) <www.italaw.com/sites/default/files/case-documents/ita0906.pdf> accessed 4 July 2018. © 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd 358 Cambridge International Law Journal, Vol. 7 No. 2 the model BIT and effectively proves how India, through tight language and rewording of investment provisions, seeks to curtail the powers of future arbitral awards and set boundaries for future investment-treaty negotiations beyond which it would not overstep. The chapter offers valuable insights into the sudden change of investment policy by a developing state seeking to protect itself from future litigation and ensure more regulatory flexibility. Chapter six, by Badin and Morosini, deals with Brazil. In contrast to other developing states that were competing for capital in the 1990s, Brazil was not an active participant in the international investment regime until the first decade of the 2000s. In this chapter, the authors analyse, inter alia, the reasons underlying the change in Brazil’s investment policy and the pillars of the new 2015 model agreement. They argue that the lack of investment treaty framework did not hinder the receipt and maintenance of FDI by Brazil, which was, and still is, a successful FDI importer due to its large consumer market and reliable judicial system. Only recently did the government change its policy and conclude several investment treaties mainly in an attempt to protect the Brazilian investors who increasingly invest abroad. The Brazilian government has also created a new model treaty in 2015, the Agreement on Cooperation and Facilitation of Investments (ACFI), which deviates from the mainstream investment treaties. The model treaty does not include ISDS and several standards of treatment – such as FET – and contains a narrow definition of investment/investor. It includes an alternative dispute settlement system, which is focused on the prevention of disputes between the parties and combines mandatory negotiations and state-to-state dispute settlement; the chapter also includes a figure illustrating the ACFI dispute prevention system. The complaining party must first exhaust mediation through a single national office – the ‘ombudsperson’ – and a joint committee, consisting of government representatives of each party to the agreement, and then commence state-to-state arbitration. Generally, the authors evaluate the model treaty positively, arguing that it suits the particular characteristics of Brazil as an emerging economy and its constitutional limitations. The investment strategies presented in this chapter are extremely useful for those interested in successful investment policies deviating from standard Northern practices. In chapter seven, Malebakeng Agnes Forere focuses on South Africa. Forere assesses South Africa’s domestic investment framework and recent reform initiatives in comparison to existing BITs, and evaluates their potential effect on investment. Most South African BITs were signed with Western states after the establishment of democratic rule in 1994. Forere argues that, like India, the government of South Africa concluded investment treaties with asymmetric features that followed a ‘right-orientated’ investment policy, without seriously considering the negative repercussions of their invocation by foreign investors. Only after the investment arbitration case Foresti v South Africa6 did the government fully grasp the difficulties it would face when attempting to change its domestic policy. In particular, during the period of apartheid rule, black South Africans were deprived of land ownership without compensation. To remedy these unfair practices, the country adopted a series of measures in the post-apartheid era, which, among others, expropriated land belonging to foreign investors in order to return it to black South Africans. These measures gave rise to the aforementioned investment claim against the state. For this reason, in 2009, South Africa announced its intention to change its investment policy by issuing a position paper. Later, the 6. Piero Foresti, Laura de Carli and Others v The Republic of South Africa (Award) ICSID Case No ARB(AF)/07/01 (4 August 2010) <https://www.italaw.com/sites/default/files/casedocuments/ita0337.pdf> accessed 4 July 2018. © 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd Book review 359 government released a bill setting out the state’s intention not to renew the firstgeneration BITs and its objective of redressing the negative effects of the apartheid rule by restructuring investment regulation. In 2015, the government drafted a new model treaty with significantly reduced protection for foreign investors. In the model treaty, South Africa created an alternative dispute settlement mechanism, an amalgam of non-mandatory mediation, domestic courts and state-to-state arbitration, and modified the substantive protection standards. It restricted the scope of expropriation, linked it to domestic law – the South African Constitution – and changed the compensation provisions. Forere concludes that recent investment reforms serve as a shield for the South African government against endless litigation but not as a sword against investors as it also takes into consideration economic factors. This chapter provides an interesting and thorough analysis of investment reforms implemented by a developed state in need of policy space to redress historical, social and economic inequalities. In chapters eight and nine, Lang and Perrone, and Trubek respectively address the investment reforms of the Global South in a holistic manner. Chapter eight by Andrew Lang and Nicolás Perrone contains a synopsis of the previous chapters, focusing in addition on three more specific issues: standards of investment protection, dispute settlement and institutional architecture, and the role of China. In the authors’ pessimistic but arguably realistic view, ‘the window of opportunity for substantial reform is rapidly closing’,7 leaving open the question of whether Global South countries will make a concerted effort to further their initiatives. Finally, in Chapter nine, David Trubek concludes the study with an eye to the future. The author assesses the reform efforts of the Global South and highlights the challenges and obstacles that need to be overcome in order to effectively change the international investment regime. To conclude, this book is an invaluable toolkit in the hands of academics and practitioners in the field of international investment law. The editors and authors offer a mosaic of ideas based on Southern investment regulatory practices – a ‘laboratory for legal innovation’ – designed to foster plurality in international investment reform and, more broadly, to create a more balanced international economic order. I would highly recommend its use by policy-makers interested in investment reform. 7. Morosini and Badin (n 2) 291. © 2018 The Author Journal compilation © 2018 Edward Elgar Publishing Ltd