In response to various concerns about the need for reform in investor-state dispute settlements (ISDS), the United Nations (UN) Commission on International Trade Law (UNCITRAL) in 2017 entrusted Working Group III with a mandate to work on possible reform.
Among the proposals set forth by Working Group III is the creation of an Advisory Centre to assist states, particularly those in developing and least developed regions, "in preventing and handling investment disputes".
Status of the Advisory Centre proposal
During the 47th and 48th sessions, Working Group III deliberated on the establishment of the Advisory Centre and presented a draft statute comprising 16 articles and 5 annexes. This document was prepared with the input of 70 states and 40 international organisations and UNCITRAL is expected to vote on whether or not to adopt the draft statute in July 2024.
A pivotal decision yet to be determined is whether the Advisory Centre will operate as part of the UN system, adhering to its organisational hierarchy, or operate as a fully independent entity, akin to the Advisory Centre for the World Trade Organization (WTO).
The forthcoming vote in the July 2024 UNCITRAL session might resolve this issue.
The objectives, membership and governance of the Advisory Centre
Article 2 of the draft statutes delineates two primary objectives: (i) to provide training, support and assistance with regard to international investment dispute resolution; and (ii) to enhance the capacity of state and regional economic integration organisations to prevent and handle international investment disputes.
Article 3 clarifies that the Advisory Centre will operate in a manner that is "effective, affordable, accessible and financially sustainable" and "shall be independent and free from undue external influence, including from its donors".
Notably, article 4 specifies that membership in the Advisory Centre would be exclusive to states and regional economic integration organisations, marking a departure from the initial notion of including small and medium-sized enterprises – a decision that appears justifiable, especially in light of potential conflicts of interest.
Article 5 provides the structure of the Advisory Centre, which would consist of a governing committee, composed of one representative of each of the members, an executive committee composed of six members who would report to the governing committee, and a secretariat headed by an executive director.
Services of the centre
Article 6 outlines the technical assistance the Advisory Centre will extend to its members, encompassing advisory services on dispute prevention, tailored training programmes on dispute prevention and resolution, seminars and conferences, all functioning as a forum for exchange of information and best practices, among others.
A more controversial service is set out in article 7, which addresses the legal representation and advice objective of the Advisory Centre, including: (i) providing legal support and advice with regard to specific disputes; (ii) providing a preliminary assessment of the case and the appropriate means to resolve the dispute; (iii) assisting in selection of mediators, arbitrators and experts; (iv) giving support in the preparation of statements, pleadings and evidence; and (v) representing the member states in hearings.
As a result, the Advisory Centre would likely need to adopt a position on international law standards, and on treaty interpretation which some fear could create controversies and influence the arbitral tribunal. The statute also provides that the centre could offer its services to non-members after considering the "resources implication".
Funding and financial structure
The centre's funding model is envisaged to comprise contributions from members, service fees and voluntary contributions. A proposed budget and financing framework, resembling that of the WTO Advisory Centre, outlines varying contribution levels based on member states' development status and is based on the comments of several delegations in Working Group III.
The draft statute distinguishes among least developed countries (annex I), developing countries (annex II) and developed countries and other countries (annex III). States can make either an annual contribution or a minimum one-time contribution for a five-year period.
Members listed in annex I can make a minimum annual contribution of $50,000 or a minimum one-time contribution of $250,000. Members listed in annex II can make a minimum annual contribution of $250,000 or a minimum one-time contribution of $1.25m. Members listed in annex III can make a minimum annual contribution of $500,000 or a minimum one-time contribution of $2.25m.
The funding sample would still potentially create a burden on least developed countries that have faced very few or no investment disputes to make annual contributions of $50,000. In addition, if the centre were to provide legal support, prepare drafts and actively participate on behalf of developed countries, it would raise the issue of whether the centre would be fulfilling its mandate based on its original underlying vision (i.e., to help countries that are resource constrained).
Funding by voluntary contributions would be accepted, provided that the receipt of any such contributions is consistent with the objectives of the Advisory Centre, does not create any conflict of interest, is duly reported and does not impede the centre's independent operation.
Pending issues and conclusion
The draft statute is silent on some other questions like whether the Advisory Centre could act as a non-disputing party in investment disputes, if it could work together with third-party funders on specific disputes, or if it would provide services in state-to-state disputes.
As Working Group III navigates the complexities of establishing the Advisory Centre for Investment Disputes, critical deliberations lie ahead. Clarifying its operational framework, funding mechanisms, location and service provisions will be paramount to realising its intended objectives.
In its latest session, Working Group III made a recommendation to the UN Commission that an informal state-led process be initiated to address these pending issues, so that Working Group III may focus on advancing ISDS reform efforts effectively.
Originally Published by Financier Worldwide Magazine
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