Committee on Investment Protection

To provide the Applicants with the best possible and most relevant experience, the Model WTO has decided to adapt this years topic. By narrowing the topic to Trade & Investment: the framework of a potential Investment Facilitation Agreement, the Model WTO intends to create an even more relevant experience for its Participants as this topic has become even more relevant in recent weeks. We apologise for any inconveniences due to the delayed publication.

Committee on Investment Protection

The Committee on Investment Protection shall discuss a range of different issues, such as the conceptual differences of Investment Protection to Investment Facilitation, direct and indirect expropriation as well as a potential dispute settlement system by the WTO. 

Direct and Indirect Expropriation

Within the topic of Investment Protection, expropriation is a central component. Expropriation refers to “property-specific or enterprise-specific takings where the property rights remain with the State or are transferred by the State to other economic operators” (UNCTAD, 2012a, p. 5-6). This can occur lawfully under international law, if the following conditions are fulfilled: “(a) Property has to be taken for a public purpose, (b) on a non-discriminatory basis, (c) in accordance with due process of law, (d) accompanied by compensation” (UNCTAD, 2012a, p. 1).

Direct expropriation, although not as widely occurring today, is the physical seizure or transfer of title of a property usually to the benefit of the state. For direct expropriation to take place, there must be open intent to take away the ownership of a person or entities title or direct property. Indirect expropriation, on the other hand, is more widely in use these days, which is the complete or almost complete “deprivation of an investment,” however without the formality of a transfer of title or the direct seizure of property. (UNCTAD, 2012a, p. 5-7).

The Committee shall discuss and define the scope of direct and indirect expropriation, that is what measures constitute indirect expropriation, exceptions of indirect expropriation.

WTO Dispute Settlement System

The Committee on Investment Protection shall also discuss a possible State-to-State Dispute-Settlement System (SSDS) within the scope of the WTO disputes settlement procedures.

SSDS, which can occur when government actions influence cross-border economic undertakings (UNCTAD, 2003, p.3), has in recent years taken a less important role compared to ISDS. With cases, mainly being filed in response to ISDS claims, SSDS may provide an alternative to ISDS (Bernasconi-Osterwalder, 2014, p.1). Within the WTO, SSDS is possible as part of Dispute Settlement System which offers an equitable, fast, mutually accepted and effective settlement (“A unique contribution”, 2018).

Therefore, the Committee shall discuss if SSDS is possible within the scope of the WTO, in particular within its prevalent system under the Dispute Settlement Understanding. The Committee shall determine if the dispute settlement mechanism offered by the WTO is appropriate for investment protection disputes. Further, the Committee shall discuss what must be adjusted within the Dispute Settlement System to make this a viable dispute settlement mechanism for Investment Facilitation. Finally, the Committee shall bring all of these points of discussion together, if possibly as a separate agreement.

Note on ISDS:

Investor-State Dispute Settlement (ISDS) has been criticized for several reasons. Whilst ISDS is seen as a cheap, fast and flexible method for investors to pull states into arbitration, it is sometimes described as leading to an imbalance of rights and obligations between investors and the host states (Baruti, 2017, p. 500). Further, it is criticized for limiting states in their policy making, as governments become hesitant to introduce a policy that may open them up to financial claims or other suits (Witkowska, 2017, p. 28). Additionally, it is criticized for being non-transparent, illegitimate and lacking accountability (Baruti, 2017, p. 501). As a result of these arbitration methods, many states have wished for reform and have even begun to terminate, reform or renegotiate Bilateral Investment Treaties (BITs) (Martins, 2017).

 

Author of the Committees 2018:
Marisa Menzel (marisa.menzel@model-wto.org)
Model WTO Head of Simulation Design

Disclaimer

This year’s Model WTO focuses on trade and investment, and notably investment facilitation.  The Model WTO organizers are fully cognizant that the ‘Joint Ministerial Statement on Investment Facilitation for Development‘ – co-sponsored by 70 WTO Members at the WTO’s Eleventh Ministerial Conference held in Buenos Aires in December 2017 (document WT/MIN(17)/59) – explicitly specifies that the “structured discussions with the aim of developing a multilateral framework on investment facilitation” […] “shall not address market access, investment protection, and investor-State Dispute Settlement” (emphasis added).[1]

This is why the 2018 Model WTO focuses on investment facilitation. Nevertheless, it was considered interesting for participating students – merely for educational purposes – to consider also investment promotion and market access (in Committee 5), as well as investment protection (Committee 6).  It is hoped that this will lead to a better understanding of the scope of investment facilitation and how it differs from these other areas.

We thank you for your understanding.