Multilaterizing Investment Disputes: Should Africa Learn from History and Experience?

Written by Dr Akinwumi Ogunranti
Assistant Professor, Faculty of Law, University of Manitoba

The UNCITRAL Working Group III (WG III) is discussing procedural reforms in the investor-state dispute settlement system (ISDS). The ISDS framework is criticized on various grounds, including arbitrator bias, lack of transparency, and inconsistent arbitral decisions. One of the recent reform proposals before the WG III is the possibility of a multilateral investment court (MIC). This proposal is championed by European Union states and supported by Canada. This piece argues that replacing the ISDS with MIC perpetuates hegemony in international Investment Law (IIL) and poses inherent dangers for developing countries, especially those in Africa.

The MIC Proposal—A Hegemonic and Neocolonial Attempt

Historically, developing countries were at the receiving end of the imbalanced rights and obligations between host states and multinational corporations (MNCs). Arbitral awards running into billions of dollars were awarded against African countries for attempting to regulate their public space. However, the tides are changing as MNCs increasingly sue developed countries.

Realizing its powerlessness against MNCs and arbitrators in ISDS claims, the EU pronounced the ISDS “dead” and decided that ad-hoc tribunals should be replaced with the MIC, a standing body of permanently state-appointed judges. The MIC proposal seeks to replace the public-private nature of the ISDS with a public adjudicatory body similar to the WTO’s multilateral dispute settlement body. The WTO has a two-tier dispute system consisting of a trade panel and a standing appellate body. The EU proposes multilateralism in IIL based on its officials’ experience in the WTO. Therefore, the EU declared itself a leader in international investment law, tasked with leading a global reform agenda to multilateralize the ISDS.

However, in retrospection, the EU seeks to repeat the history of the ISDS in the 19th century when it, together with other developed countries, imposed the ISDS on developing countries. Developed countries sought to protect their economic interests by ensuring that their economic vehicles (MNCs’) property and propriety interests were protected in newly independent African states. Indeed, Third World Approach to International Law (TWAIL) scholars have criticized the foundations of ISDS for being hegemonic and colonial. The EU’s effort to demolish the ISDS because it no longer suits its economic interests continues the hegemony and neocolonialism in IIL. 

Beyond arguments on the hegemonic nature of the MIC proposal, I argue in the next section that African countries’ response to the proposal must be dictated by their experience in the WTO. This is because African countries have not fared well in the WTO’s multilateral system upon which the MIC is based.

Learning from the Past—Africa’s Experience in the WTO

Although some developed countries, including the US, oppose the WTO model because they prefer ad hoc ISDS tribunals, this piece argues that African countries must take the same position for a different reason. African countries must also reject the EU proposal because they have not fared well in the WTO multilateral system. It stands to reason that if the WG III adopts the WTO model, African countries will suffer the same fate as in the WTO. I classify African countries’ criticism of the WTO multilateralism into procedural, institutional, and political concerns.

  • Procedural Concerns

Developing countries cannot access the WTO due to the high cost of filing claims. In a 2021 study, academics, policymakers, and African government officials were asked about their perception of the cost and duration of filing claims at the WTO.  A participant remarked, “[p]ersonally, I feel that the delays in the resolution of WTO cases are one of the main factors that have restricted the participation of African nations in the WTO dispute settlement mechanism.”  Another participant noted, “[i]n some way the excess legal costs associated with the WTO proceedings are prohibitive to African countries.”  These views reiterate the converging scholarship on the insensitivity of the WTO rules to the barriers that impede African countries’ access to the system. It also indicates the danger of modeling the MIC along the WTO model.

  • Institutional Concerns

The WTO dispute system is criticized for fostering unequal participation and composition in the panels and Appellate Body. From 1999-2010, out of 706 panel positions, African countries only occupied 43, which is a low 6% representation.  As of 2006, only nine individuals from African countries have served as either panelists or AB members.  This contrasts with just one country—New Zealand—with 13 members serving on panels and one member in the AB.  As of 2020, only 3 individuals served on the AB.  The last appointment was in 2013. African countries will likely suffer the same fate if the MIC proposal succeeds.

  • Political Concerns

One of the problems of the WTO is its failure to account for the power disparity and asymmetry among disputing parties. Power disparity is most apparent in the negotiations leading to trade agreements and disputes. Due to their political powers, developed countries rarely comply with WTO decisions. This means African countries are at the mercy of developed countries even if cases are decided in their favour. Indeed, the WTO power play is further demonstrated through the current impasse in the WTO Appellate Body, where the US continues blocking AB members’ appointments.

Elizabeth Sidiropoulos aptly summarized African countries’ experience in the WTO’s multilateral system as follows: “multilateral rules are important for Africa, but the current [WTO] institutions and norms reflect the views of the most powerful, who can steer outcomes to their own political and economic advantage.”

Countering Hegemony—Response from African Countries

Based on the history of the ISDS and their experience in the WTO, African countries must resist the MIC proposal for two reasons. First, the EU seeks to perpetuate hegemony in IIL by imposing the MIC on other countries. This was aptly captured by a delegate from Bahrain during the Working Group’s deliberations as follows: “[t]he EU argues we do not want the existing [ISDS] system any longer. But who has granted the EU this natural leadership to tell the rest of the world what to do?” Adopting the MIC will entrench the colonial foundations of ISDS.

Second, African countries have not fared well in the WTO’s multilateralism, along which the MIC proposal is modeled. It stands to reason that African countries’ experience in the WTO will be the same for the MIC. If the EU is proposing the MIC based on its experience, African countries must also reject the MIC based on their experience.

Overall, learning from the history of the ISDS and their experience in the WTO, African countries must pursue a reform agenda that corrects IIL’s chequered history, not one that reinforces it.

This is a shorter version of an article that is forthcoming from the Dalhousie Law Journal.

The views and opinions expressed in the blogs are the views of their authors, and do not represent the views of the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.