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International Investment and ADR

International Investment and ADR. A Collaboration between Washington & Lee University School of Law and the United Nations Conference on Trade and Development (UNCTAD). Mariana Hernandez Crespo G. Associate Professor of Law and Executive Director UST International ADR Research Network

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International Investment and ADR

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  1. International Investment and ADR A Collaboration between Washington & Lee University School of Law and the United Nations Conference on Trade and Development (UNCTAD)

  2. Mariana Hernandez Crespo G. Associate Professor of Law and Executive Director UST International ADR Research Network University of St. Thomas Minneapolis, MN

  3. The Path Ahead for Bilateral Investment Treaties (BITs): Satisfying Investor-State Interests through Participatory Dispute and Conflict Management Systems • A Historical Perspective: The Development of Conflict Management [or Lack of] in International Investment • A Paradigm Shift: From Protecting Investor’s Positions to Satisfying Investor-State Interests • The Path Ahead: Maximizing Joint Gains through Participatory Dispute and Conflict Management Systems

  4. I. A Historical Perspective: The Development of Conflict Management [or Lack of] in International Investment

  5. The Background Issue: The Need to Protect Foreign Investment • Historically, foreign investment disputes were resolved either by force, diplomacy, or through the host government’s legal system, where the investor had minimal rights. • Bilateral Investment Treaties (BITs) appeared in the 1960s. Arbitration clauses quickly became standard. • Use of BITs surged in the last two decades, which also increased the number of host- government vs. investor disputes arising under the treaties.

  6. The Background Issue: The Need to Protect Foreign Investment

  7. II. A Paradigm Shift: From Protecting Investor’s Positions to Satisfying Investor-State Interests

  8. II. A Paradigm Shift: From Protecting Investor’s Positions to Satisfying Investor-State Interests

  9. III. The Path Ahead: Maximizing Joint Gains through Participatory Dispute and Conflict Management Systems

  10. 1. The Limits of the Arbitration Award:Resolving Disputes and Leaving Conflict Unaddressed, Cycling into More Disputes • Arbitration as an adjudicatory process: • Resolves disputes in terms of prevailing rights. • This nearly always guarantees dissatisfaction for at least one of the parties. • Nonetheless, BIT disputes are currently resolved mainly through arbitration. • Yet the increasing number of disputes suggests that: • while particular cases are being adjudicated and resolved, • the underlying conflicts remain unaddressed, • cycling into more disputes.

  11. 2. The Present Issue: How to Close the GapBetween the BITs and the Arbitration Awards

  12. 2. The Present Issue: How to Close the Gap Between the BITs and the Arbitration Awards BITs _____________________________Arbitration Awards Goal: Investor-State Sustainable Business Relationship through Maximization of Joint Gains

  13. 3. Overarching Goal: Investor-State Sustainable Business Relationship through Maximization of Joint Gains “Ironically, as negotiations become increasingly global and virtual, it may be the development of all-fashioned relationships that will be found to matter most of all.”   - Nancy Welsh Perceptions of Fairness, The Negotiator’s Fieldbook

  14. 3. Overarching Goal: Investor-State Sustainable Business Relationship through Maximization of Joint Gains

  15. 1. Consulting Mechanisms, Implementation Clause and Committees of Investment: Promoting Trust through Dynamic Communication and Cultural Understanding A. Consulting Mechanisms: “Alternative Approach for Improving Investor–State Relations” - Noriyuki Mita (Japan) B. Implementation Clause and Committees of Investment: “Implementation and Management of Investment Treaty Obligations and Management of Investment Disputes ” - José Antonio Rivas (Colombia)

  16. 2. Dispute System Design (DSD): Ensuring Parties’ Self-Determination in Resolving Specific Disputes in Investors-State Relationships “Diagnosis for Appropriateness of Mediation in Investment Disputes” - Lawrence Boulle (Australia/ South Africa) “Challenges Facing Investment Disputes: Reconsidering Dispute resolution in International Investment Agreements” - Susan D. Franck (USA)

  17. Multi-door Forum (MDF):An Effective Architectural Dispute System Design Professor Frank Sander of Harvard Law School, in a forthcoming piece, explores the potential of his original concept (the multi-door courthouse) so as to enhance the self-determination in dispute system design. Brazilian policy makers took the concept and replaced the word “courthouse” with “forum,” in order to adapt it to their context. A Multi-Door Forum: • Opens up the spectrum of options for dispute resolution and offers a variety of options for the selection of the forum, according to the specific context, needs, and interests of each of the parties involved in a particular dispute. • This form of dispute system design, such as the multi-door courthouse, potentially emphasizes the party’s right of self-determination. • The enhancement of self-determination can increase the level of party satisfaction, and therefore the sustainability of the agreement, in this case the BIT.

  18. 3. Conflict Management System: Promoting Participatory Decision-Making to Foster Investor-State Relationships “Creating Options for the Future: The Importance of Incorporating Conflict Management System Design Principles Early, Often and Across the Board” Cathy Costantino (USA)

  19. Consensus- Building Process (CBP):An Effective Architectural Conflict Management System Design Method for Public Participation The Nature of the Actors: State (Public) and Investor (Private) • Given the public nature of one of the actors, in order to ensure full participation of the different stakeholders that the state represents with a delegated power, the consensus-building method designed by Professor Lawrence Susskind, MIT-Harvard, could prove to be an effective architectural conflict management design method. • To achieve public participation is critical to include representatives of all stakeholders. • Effective participation requires basic ADR and cross-culture communication training for all. • The consensus-building approach of Larry Susskind is not about achieving unanimity, but crafting an agreement that addresses all interests.

  20. Consensus- Building Process (CBP):An Effective Architectural Conflict Management System Design Method for Public Participation A Ladder of Citizen Participation(Sherry Arnstein) • Consensus-Building Essential Features: • The CBP needs to be lead by third party experts in order to maximize joint gain for all stakeholders. • Each group of stakeholders decides who will represent them. Even unorganized groups should be represented. • The CBP is an informal process that supplements the formal legal structure and must be linked to it. (Forthcoming “Emerging Practices and the Incomplete Legal Framework for • Citizen andStakeholder Voice”, Lisa B. Binghamarguing for legal reform) • The results of the CBP are “nearly self-enforcing agreements” because at the core is the fact that any agreement must be better than no agreement. • - “Breaking Robert’s Rules” by Susskind and Cruikshank, 2006.

  21. Consensus- Building Process (CBP):An Effective Architectural Conflict Management System Design Method for Public Participation The Five Steps of the Consensus-Building Process: • Convening • Assigning roles and responsibilities • Facilitating group problem solving • Reaching agreement • Holding people to their commitments - “Breaking Robert’s Rules” by Susskind and Cruikshank, 2006.

  22. Consensus- Building Process (CBP):An Effective Architectural Conflict Management System Design Method for Public Participation • The Consensus-Building Process can ensure that in the state-investor relationship the representation of the state’s interests is full and accurate. • Therefore, CBP can help to ensure that the “Six Critical Components of Conflict Management System Design” are met with regard to the public side of the equation. • Participation: Ensure representatives of all stakeholders are included and develop ADR and cross-culture capacity in order to prevent unanimity, instead crafting agreements that addresses all stakeholders’ interests.

  23. Consensus- Building Process (CBP):An Effective Architectural Conflict Management System Design Method for Public Participation • Fluidity: CBP ensures agreements that identify mechanisms for dispute resolution and addressing change. • Sustainability: The success of CBP rests on whether having an agreement proves to be better for all stakeholders than under no agreement at all (“nearly self-enforcing agreement”). • Suitability: CBP assures that the appropriate method for the specific disputes are selected by the stakeholders through the DR clause. • Permeability: CBP guarantees that it is permeable because stakeholders have the decision-making power, rather than being imposed from outside. • Accountability: CBP promotes accountability through the ratification and monitoring processes.

  24. Framework for Sustainable Implementation: Knowledge Building as an Overarching Principle Challenges for Knowledge Building: • Broadening the Perspective • Capitalizing on Failure • Incentives for an Effective Learning Model - “Teaching Smart People How to Learn”; Chris Argyris, Harvard Business Review, 1991

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