Experts will meet in Geneva from 9-11 October 2017 to stock of the sustainable development-oriented reform of international investment agreements to date, based on policy instruments previously developed by UNCTAD, particularly the Investment Policy Framework for Sustainable Development.

The topic for the 2017 session of the Multi-year Expert Meeting on Investment, Innovation and Entrepreneurship for Productive Capacity-building and Sustainable Development, as approved at the thirty-first special session of the Trade and Development Board in May 2017, is “International investment policies and sustainable development”.

The Meeting will form a continuation of the pre-Nairobi, multi-year expert meetings on related issues. Its fifth session will take stock of the sustainable-development-oriented reform of the international investment agreement regime to date, as well as policy options for the next phase of the reform.

Main issues for the session

Based on policy instruments previously developed by UNCTAD, in particular the Investment Policy Framework for Sustainable Development, road map for reform of the international investment agreement regime and global action menu for investment facilitation, the meeting will take stock of sustainable-development-oriented reform of the regime, which manifests itself in new, more modern models and treaties (phase 1 of the reform).

The meeting will also consider phase 2 of the reform, the modernization of first-generation treaties. To that end, it will share best practices and lessons learned and discuss initiatives and policy tools, including 10 options proposed by UNCTAD for phase 2. The legislative mandate is provided by paragraphs 38 (l), 55 (q), 55 (r) and 55 (hh) of the Nairobi Maafikiano, as well as by paragraph 91 of the Addis Ababa Action Agenda.

To facilitate the discussions, the UNCTAD secretariat has prepared a background document entitled “Reform of the international investment agreement regime: Phase 2”. Experts will share experiences and best practices with regard to the implementation of UNCTAD policy tools related to international investment agreements.

The outcome of the Expert Meeting, the Chair's summary, will serve as an input to the policy deliberations of the ninth session of the Commission on Investment, Enterprise and Development that will be held from 20 to 24 November 2017.

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Reform of the international investment agreement regime: Phase 2

This note builds on policy instruments previously developed by UNCTAD, and addresses international investment policies and sustainable development, in accordance with the topic for the fifth session of the Multi-year Expert Meeting on Investment, Innovation and Entrepreneurship for Productive Capacity-building and Sustainable Development approved by the Trade and Development Board at its thirty-first special session. Specifically, the note builds on progress achieved in sustainable development-oriented IIA regime reform, and presents and analyses the outcomes and challenges of 10 policy options for modernizing the existing stock of treaties.

The next phase of reform

Sustainable development-oriented IIA regime reform has entered the mainstream of international investment policymaking. In the first phase of reform, countries built consensus on the need for reform, identified reform areas and approaches, reviewed their IIA networks, developed new model treaties and started to negotiate new, more modern IIAs. Most current new IIAs follow the UNCTAD road map for IIA regime reform, which delineates five action areas, or include clauses set out in the UNCTAD Investment Policy Framework for Sustainable Development (2012; updated in 2015).

Despite significant progress, much remains to be done. Comprehensive reform requires a two-pronged approach, to not only conclude new treaties but also modernize existing treaties. This is pressing for the following three reasons:

1. First-generation treaties abound. More than 2,500 IIAs (95 per cent of treaties in force) were concluded before 2010. Meanwhile, some 700 treaties have not yet entered into force.

2. First-generation treaties “bite”. Almost all of the current known investor-state dispute settlement cases are based on treaties concluded before 2010, most of which contain broad and vague formulations.

3. First-generation treaties perpetuate inconsistencies. Their continued existence creates overlaps and fragmentation in treaty relationships, as well as interaction challenges.

Phase 2 of reform: 10 options

There are at least 10 policy options available for countries that wish to change existing treaties to bring them into conformity with new policy objectives. The options are not mutually exclusive and can be used in a complementary manner. They differ in several respects, as they encompass actions that are more technical (such as interpreting or amending treaty provisions) or political (such as engaging multilaterally), that focus on procedure (such as amending or replacing treaties) or on substance (such as referencing international standards) and that imply continuous engagement with the IIA regime (such as amending or replacing treaties or engaging multilaterally) or a withdrawal (such as termination without replacement or withdrawal from multilateral treaties). They represent modalities for introducing change to the IIA regime, rather than designing treaty content.

The 10 options for reform actions and their outcomes are as follows:

1. Jointly interpreting treaty provisions. Clarifies the content of a treaty provision and narrows the scope of interpretive discretion of tribunals;

2. Amending treaty provisions. Modifies an existing treaty’s content by introducing new provisions or altering or removing existing provisions;

3. Replacing outdated treaties. Substitutes a first-generation treaty with a new treaty;

4. Consolidating the IIA network. Abrogates two or more first-generation bilateral investment treaties between parties and replaces them with a new, plurilateral IIA;

5. Managing relationships between coexisting treaties. Establishes rules that determine which of the coexisting IIAs applies in a given situation;

6. Referencing global standards. Fosters coherence and improves interaction between IIAs and other areas of international law and policymaking;

7. Engaging multilaterally. Establishes a common understanding or new rules among a multitude of countries, coupled with a mechanism that brings about change in one go;

8. Abandoning unratified first-generation treaties. Conveys a country’s intent not to become a party to a concluded but as yet unratified treaty;

9. Terminating existing first-generation treaties. Releases the parties from their obligations under a treaty;

10. Withdrawing from multilateral treaties. Releases withdrawing parties from the binding force of an instrument; similar in effect to termination, but leaves the treaty in force among the remaining parties that have not withdrawn.

Determining whether a reform option is right for a country in a particular situation requires a careful and facts-based cost-benefit analysis, while addressing broader challenges. Strategic challenges include producing a holistic and balanced result, rather than overshooting on reform and depriving the IIA regime of its purpose of protecting and promoting investment. Systemic challenges arise from gaps, overlaps and fragmentation that create coherence and consistency problems. Coordination challenges require prioritizing reform actions, finding the right treaty partners to implement them and ensuring coherence among reform efforts at different levels of policymaking. Capacity challenges make it difficult for developing countries, in particular the least developed countries, to address the deficiencies of first-generation IIAs.

Choices need to be made in identifying the best possible combination of the 10 policy options. The chosen combination of options should ultimately reflect a country’s international investment policy direction, in line with its national development strategy. Moreover, policymakers should consider the compound effect of options. Some combinations of options may result in a treaty regime largely deprived of its traditional investment protection rationale or may result in a complete exit from the IIA regime. Reform efforts, particularly those which are comprehensive, should harness the benefits that can be obtained from the rule of law and respond to investor expectations of predictability, stability and transparency in policymaking.

In choosing among reform options, policymakers should consider legal and practical challenges. Among the former, three areas are particularly pronounced, namely the most-favoured nation clause, the survival clause and the management of transitions between outdated and new treaties. Policymakers also need to keep in mind and plan for the many practical and political challenges that might arise.