What’s the news?

• The recently concluded G-20 Declaration, among its many commitments, reiterated the need to pursue reform of the World Trade Organization (WTO).

Central idea

• Reforming international dispute settlement mechanisms is imperative for global trade and investment stability. The G-20 Declaration emphasizes WTO reform by 2024, yet uncertainties persist in the dispute resolution process, given ongoing US opposition.

WTO’s Dispute Settlement System: A Crisis Since 2019

• The WTO’s dispute settlement system, known for its two-tier panel cum appellate body structure, has been in turmoil since 2019 when the United States blocked the appointment of appellate body members.
• Despite being hailed as the crown jewel of the WTO, this system is currently hamstrung, jeopardizing its ability to issue coherent and predictable rulings.
• The G-20’s commitment to improving this system is commendable, but uncertainties persist, especially due to the U.S.’s reluctance towards an appellate review process.

What is Investor-State Dispute Settlement (ISDS)?

• ISDS is a mechanism used to resolve disputes between foreign investors and host countries’ governments in the context of international investment agreements.
• It is a ubiquitous component of bilateral investment treaties (BITs).
• The ISDS today is the principal means to settle international investment law disputes.
• As of January 1, 2023, 1,257 ISDS cases have been initiated. India has had a chequered history with ISDS, with five adverse awards: four in favor and several pending claims.

The Role of Appellate Review in International Trade Law

• An appellate review process is essential at the international level, just as it is in national courts. It acts as a crucial check on the interpretation and application of the law, ensuring consistency.
• The absence of such a mechanism can lead to inconsistencies and incoherent decisions, as seen in international investment law through ISDS.

UNCITRAL’s Working Group III

• Discussions are ongoing at the United Nations Commission on International Trade Law (UNCITRAL) regarding ISDS reforms and the creation of an appellate review mechanism.
• Key issues include the form of the mechanism, review standards, timeframes, and decision effects. These discussions hold the promise of addressing the current deficiencies in ISDS.

Benefits of an appellate review mechanism

• Error Correction: Appellate review corrects legal mistakes in WTO and ISDS decisions, ensuring the accurate application of rules.
• Consistency and Confidence: It maintains a uniform interpretation of trade and investment laws, promoting stability and predictability. A functional appellate body boosts trust in the WTO, encouraging nations to resolve trade disputes peacefully.
• Harmonization and Stability: ISDS appellate review aligns diverse treaty interpretations, reducing legal disparities. It also fosters investor-state predictability, attracts investments, and promotes economic growth.
• Reducing Uncertainty: Appellate review clarifies investment treaty rights and obligations, reducing ambiguity.
• Credibility: Its presence enhances ISDS credibility, making it more appealing for states and investors.
• Rule-Based Order: Supporting appellate review aligns with India’s aim for a rule-based global system, fostering international cooperation.

India’s Position on Appellate Review Mechanisms

• Support for Appellate Review in ISDS:

• Although India has not officially articulated its stance, there is a presumption that India is supportive of the idea of an appellate review mechanism in ISDS.
• This presumption is based on the presence of Article 29 in India’s model Bilateral Investment Treaty (BIT), which appears to endorse the concept of appellate review.

• Alignment with India’s interests:

• India is concerned about the inconsistency and incoherence that currently characterize the ISDS system.
• Supporting an appellate review mechanism is seen as a means to address these concerns and promote greater stability and predictability in international investment law.

• Relevance to Ongoing Negotiations:

• India will likely need to take a formal position on this issue during ongoing investment treaty negotiations with the European Union (EU).
• The EU is advocating for the establishment of an appellate review mechanism for investment disputes, and India’s stance will be crucial in shaping the outcome of these negotiations.

• Quest for a Rule-Based Global Order:

• India’s broader objective is to establish a rule-based global order in international trade and investment. Supporting an appellate review mechanism, both in ISDS and within the World Trade Organization (WTO), is seen as a way to achieve this goal.
• Moreover, India should also advocate for the restoration of the WTO appellate body to ensure a fully functioning dispute settlement system at the WTO.

Conclusion

• The G-20’s commitment to revitalizing the WTO’s dispute settlement system and the ongoing discussions on establishing an appellate review mechanism in ISDS are steps in the right direction. India, as a proponent of a rule-based global order, should actively support these reforms to ensure greater confidence among states and investors in international trade and investment law.

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