Asia’s Changing International Investment Regime: Sustainability, Regionalization and Arbitration – Book Review (Part III)

[Parts I and II of this book are reviewed in earlier postings.]
Asia’s Changing International Investment Regime: Sustainability, Regionalization and Arbitration, Julien Chaisse, Tomoko Ishikawa and Sufian Jusoh (eds),
Springer, 2017, xii + 260pp, ISBN 978-981-10-588, 120 Euros
Reviewed by: Luke Nottage and Ana Ubilava

Part III of this book focuses squarely on arbitration, particularly ISDS. The last chapter by Bjorklund and Druzin intriguingly argues that the preference of investors to file ISDS arbitration cases through the International Centre for the Settlement of Investment Disputes (ICSID) is due primarily to “network effects”. This occurs, as with a language becoming widely used, “where the implicit value of a product or service increases as the number of other agents using the product or services grows, which in turn draws more users” (p 245). They arise to favour ICSID, which continues to administer the large majority of ISDS cases, by creating a “general impression of legitimacy”, “predictability and familiarity regarding the rules and procedures of the institution”, and “the general quality and scope of arbitral service” (pp 246-7). Other institutions struggle to compete due to a lack of critical mass. But the authors suggest that such a “lock-in” may be subject to “disruptive events” (p 249), notably the EU’s push for an investment court alternative to ISDS. ICSID anyway faces challenges from the Permanent Court of Arbitration’s growing caseload (administering mainly ad hoc ISDS), and the ambitions of SIAC as well as a reinvigorated Kuala Lumpur Regional Centre for Arbitration (renamed in 2018 the Asian International Arbitration Centre). But their bottom line is that “ICSID’s consistent strength and its network-effect-reinforced position of dominance will be hard to unseat” (p 258).
The EU’s new approach is also mentioned in the chapter on “The Future of Investor-State Arbitration”, written by Donde and Chaisse and opening Part III, along with one of its core features – an “appeals mechanism” that could be developed for ISDS through future treaties. They also sketch some other “recent developments” generally and in the region, in the context of some recent public concerns about ISDS as cases have grown due to more FDI, treaties and arbitration claims. These are control of treaty interpretation through inter-state decisions, possible counterclaims by host state, more transparency in ISDS, and even perhaps reversion to inter-state dispute settlement (although the example of Australia and Malaysia omitting ISDS in their 2012 FTA needs to be understood in the context of ISDS-backed protections under the 2009 Australia-New Zealand-ASEAN FTA, as well as under the TPPA if it comes into force).
Donde and Chaisse suggest that “contradictory conclusions” have been reached about investment arbitration trends in Asia. They suggest that Nottage and Weeramantry (writing in 2012) predicted that “there would be few Asia-centric claims possibly because of ‘institutional barriers’, including costs and a paucity of experienced counsel and arbitrators, rather than any specific ‘cultural aversion’” to arbitration (p 214). In fact the latter two authors had argued that such barriers, disproportionately impacting on potential ISDS parties in East and South Asia, were the best explanation historically for the very low levels of ISDS cases filed involving such parties relative to the very large FDI flows and stocks in and increasingly out of that sub-region. The implication was that more cases would ensue if barriers could be brought down. This seems to have happened in recent years, with somewhat more availability of arbitrators from the region (although still many “repeat players”) and international law firms competing more vigorously to provide cost-effective ISDS services to both Asian host states and investors. There means no tension with the views of other studies cited (published by Joongi Kim in 2012, and Chaisse in 2015) noting some uptick in ISDS claims involving Asian parties, and predicting more over future years.
It is also important to be clear about what is meant by “Asia” in this context. Donde and Chaisse cite generally to UNCTAD’s online Investment Dispute Settlement Navigator when stating that “21% of all investment disputes involve Asian parties” (p 210). But it is possible that they included Central Asia, with very different economies to those in East and even South Asia (analysed earlier by Nottage and Weeramantry). Perhaps also they included Pacific Rim countries, notably the US – whose investors have brought the most claims (although not on a per capita basis) – so they meant “Asia-Pacific parties” rather than Asian parties.
It also not obvious which countries are covered in the chapter by Ferracane entitled “Investor-State Dispute Settlement (ISDS) Cases in the Asia-Pacific Region – The Record”. She notes for example that “investors from Asia-Pacific countries have started only 4% of all ISDS cases … 24 cases out of the 696 ISDS [sic] recorded by the end of 2015 … significantly less than proportional to the share of the Asia-Pacific regional FDI stock” (p 231, emphasis added). Annex tables later indicate that these countries, which have also not experienced many inbound ISDS claims (except India recently), include Central Asia (notably for example Kazhakstan) and Australia (as an western Pacific Rim country) as well as South and East Asia, but not countries in the Americas (along the eastern Pacific Rim). (Other chapters in the book, by contrast, generally seem to refer to the “Asia-Pacific” to include the entire Pacific Rim and South Asia.)
As well as Ferracane noting that such “Asia-Pacific” ISDS cases have slowly increased off a very low base, tracking for example outbound FDI stock growth, she discusses:
• the sectoral distribution of claims (finding 66% relating to the services sector);
• outcomes (below-global-average proportions of cases won by Asia-Pacific host states, but above-average proportions when Asia-Pacific investors pursued cases); and
• awards (Asia-Pacific investors prevailing have received on average 39% of the amounts claimed).
Ferracane’s dataset appears to be the UNCTAD Navigator as of May 2016, limited to treaty-based claims (rather than for example claims where consent to ISDS arbitration through ICSID was given by host states under individually-negotiated contracts with foreign investors).
[… The manuscript version of this Book Review compares some further interesting trends and questions from Ana Ubilava’s more up-to-date and detailed analysis of known ISDS cases, developed for her PhD thesis research …]
Overall, therefore, this book provides much food for thought and useful information as well as analysis of trends in FDI, regional investment treaties, and treaty-based dispute settlement, in “Asia” – in a very broad sense. It is definitely worth a closer read.
Some of the information seems to date back to early 2016 or even before, perhaps reflecting the fact that the book is based on the first “Asia FDI Forum” conference hosted by the Chinese University of Hong Kong, in late 2015. But investment treaty law and practice is anyway a rapidly evolving field. There are also a few gaps in coverage, such as the wider treaty practice of Korea, Australia and New Zealand that may punch above their weight in ongoing regionalization. It would also have been useful to dig down into the national laws on FDI regulation, and international arbitration generally, especially in Southeast Asian countries that have displayed historical ambivalence towards foreign investors. Perhaps through a concluding chapter, the editors could have added further and more explicit connections among the different chapters, as this review has tried to do. They could have elaborated on broader themes such as whether Asian state generally are, or may increasingly become, rule-makers rather than rule-takers in international investment law.
However, at least some of these lines of further inquiry would require another book. Fortunately, readers can now turn to a complementary 21-chapter volume on International Investment Treaties and Arbitration Across Asia. It is also co-edited by Chaisse, but this time with Nottage, and was published by Brill in January 2018. It covers cross-border investment trends, national FDI regulation and arbitration laws, investment treaty practice, and treaty- as well as sometimes contract-based dispute resolution issues, assessing the 16 RCEP negotiating states as potential investment law rule-makers.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.