Simpl-icsid-y

Obamacare has too many moving parts. Too big to fail rules are too complex to implement. Global trade talks have become a multi-level game where no one knows if deals serve their interests.

What all these diverse policy areas have in common (besides the not-unconnected influence of business interests in each) is that ambitious reforms take shapes that are so mangled and compromised that they undermine political support, if not administrative workability.

This insight might have useful lessons for international investment law.

For instance, in response to criticisms that investment treaties are too weighted towards business interests, governments (including the US‘) have added in more and more clauses and annexes to make the obligations more bounded and (arguably) more precise, so that arbitrators and judges can more clearly enforce the will of the government signatories.

But some recent developments suggest that more clauses do not necessarily equal more balance towards government respondents. For instance, Argentina required investors to litigate for 18 months in Argentine courts before launching an investor-state case. Despite this relatively clear additional requirement, neither investment arbitrators nor US Supreme Court justices have found fit to give it much weight.

What if, instead of making investment treaties more complex, we make them simpler? After all, behavioral scientists have shown that simpler rules are often easier to follow.

Right now, investment treaty arbitration is making few people happy. Investors take years to launch and litigate them, and, best case scenario, they get payment – usually far less than what they asked for. Governments are certainly not happy: even having one of the cases brings their reputation into question, not to mention considerable financial resources to defend themselves and pay out.

So, and I am just spitballing here, instead of a 42-page, 13,975-word Model Bilateral Investment Treaty (as the US currently uses), how about the following roughly 250 words (or about 10 tweets):

  • “When an investor has a problem with a government action or policy, it has a right to ask a panel of independent arbitrators to help mediate the dispute.
  • The arbitrators will present information to both parties about mutually advantageous current and potential benefits of their partnership.
  • If mediation fails after three months, the panel of arbitrators will issue an award within three months recommending the government to engage in supervised bilateral negotiations, compensation or policy changes, or recommending that investors drop their complaint and return to normal relations with the host government. Arbitrators must adjust these recommendations to take into account governments’ obligations to regulate without excessive transaction costs above any normal domestic legal procedure.
  • Either the government or investor can appeal the arbitrators’ recommendation to a standing body of international civil servant arbitrators, with mixed expertise in commercial, administrative and international law. (The arbitrators in this standing body will serve for ten year terms and be selected by a vote of not less than three-fourths of the government signatories to the Washington Convention.)
  • If the appellate body finds that the lower panel’s award does not comport with the requirements herein, it may modify the award, or issue a new one that does within three months.
  • Governments will implement these final recommendations within three months to the satisfaction of the lower panel (and if relevant, the appellate body of arbitrators), or the panel will issue a cash award to the investor redeemable under the procedures of the Convention.”

The nice thing about this for the investors is that it allows them to bring up a dispute over ANYTHING, not just the kinds of problems that are covered by the (admittedly already malleable) standards like fair and equitable treatment. The nice thing about this for governments is that any recommendation from the arbitrators requires a recommendation that MUST be adjusted to take into account their policy prerogatives, or can be appealed to a group of appellate arbitrators controlled by states. But, again, another nice thing for investors is that they will get something within a year, even if that something is just finality and a recommendation to play nice with the host government. (Contrast this with 2-10 years under the current investment treaty system, before you end up with a cash award you can take to courts.)

I’ve got a feeling this type of reform would never happen – not least because of the logistical difficulty of supplanting thousands of bilateral treaties. Investors and governments would probably complain also about the lack of certainty of what are their rights in such an open-ended system.

But, I would argue that lack of certainty is already present, with the highly malleable codes of conduct that are on the books now. If anything, this proposal would empower investors to more aggressively define and pursue the rights they feel they have. Moreover, the back-end of government control allows states to supervise the system to make sure it is working in their interest. States that feel the appellate arbitrators aren’t hearing their views can mobilize 25 percent plus one of their fellow states to block a nomination. More power on both sides, subject to various checks, might just raise the incentives to avoid inefficient litigation.

There are probably other reasons why this is a bad idea, but the recent super-complex policy schemes we’ve seen batted about Washington have certainly whet my appetite for simpler rules.

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