A House of Commons committee has been heavily critical of the government's investment policy after Brexit, but is the committee advocating radical change where none is needed? We examine its recommendations and the controversies that lie behind them.
This summer the House of Commons International Trade Committee published a report on the UK's investment policy that was heavily critical of the UK government. Since a no-deal Brexit could occur in the next few months, and would presumably involve no transition period, the Report comes at a pivotal moment for the UK, particularly given press reports that investment into the UK has been slowing since the Brexit referendum in 2016. The investment policy that the UK government forges now could not only shape the UK's relationship with its international trading partners; it could also define the country's trajectory as a source and destination of overseas investment for years to come.
In fact, the main criticism made in the report is not that the government's investment policy is misconceived, but that it is largely non-existent. The Committee claims that the government has not yet set out even "basic lines of policy" on post-Brexit international investment agreements. It urges the government to clarify as soon as possible where it stands on investment protection standards and dispute resolution mechanisms for investors, and to evaluate in particular the specific alternatives to conventional investor-state dispute settlement (ISDS) protections and other provisions that might be included in investment agreements to counterbalance what some perceive as excessive investor rights.
Wave of criticism
In putting forward these arguments, the Committee is riding a wave of criticism of ISDS that has been voiced by a number of special interest groups and some countries in recent years.
ISDS provisions are designed to encourage investment by protecting investors against excesses of state power in host countries and allow investors to raise disputes in a neutral forum on their own behalf against host states in cases of alleged violation of protection provisions. These are found in a range of investment agreements including bilateral investment treaties (BITs) and free trade agreements (FTAs). Investment protection provisions in these and other agreements can encompass far-reaching standards of protection, notably the obligation to treat foreign investors fairly and equitably, including in relation to their legitimate expectations (the 'fair and equitable treatment' standard) as well as the prohibition of nationalisation or expropriation of an investment without full, lawful and prompt compensation.
Somewhat surprisingly, these protections have been the subject of considerable criticism, particularly from countries gripped by the politics of nationalism and populism in the context of the proposed EU-USA Transatlantic Trade and Investment Partnership (TTIP) and the EU-Canada Comprehensive Economic and Trade Agreement (CETA), which is technically not fully in force yet, although many parts of it apply already on a provisional basis. The main concerns that are habitually expressed relate to the human rights issues raised by investor protections, as well as the feeling that they compromise the rule of law and can impinge on a state's 'right to regulate'.
In addition to airing these general concerns, the Committee's report voices a number of specific criticisms that have been levelled against the arbitration process that is at the heart of ISDS. These include the perceived high costs of arbitration proceedings, lack of transparency and efficiency of these proceedings, lack of consistency of arbitrators' rulings, and wide discretion given to a tribunal in interpreting specific standards of investment protection described above.
These specific concerns are also articulated by the EU, reflecting perhaps its centrist ambitions. These have resulted in a shift in EU policy on investment protection, which is now moving away from the conventional ISDS and towards a new Investment Court System (ICS) involving a permanent court staffed by professional adjudicators to hear cases at first instance and a permanent appeal tribunal to review contested decisions, leaving the critical question of who appoints the adjudicators to states as opposed to investors. This raises real concerns around the lack of independence and partiality of adjudicators, as well as the lack of party autonomy generally.
An arrangement of this type has been included in CETA, for example, as well as the EU-Vietnam Free Trade Agreement. Discussions are also ongoing within the EU Commission and UNCITRAL Working Group III, tasked with looking into the reform of ISDS, concerning the creation of a Multilateral Investment Court which would serve as a permanent body to replace existing bilateral mechanisms.
Alternative approaches to investment protection considered by the Committee include requiring investors to exhaust all legal avenues in local courts before they are allowed take a case to arbitration. This approach has already been taken, for example, in Brazil's model Cooperation and Facilitation Investment Agreement, which includes no provisions for ISDS but instead seeks to avoid disputes arising in the first place by amicable means of dispute settlement, such as cooperation, negotiation and mediation.
The Committee also discussed the possibility of counterbalancing investor rights with new obligations. These might include corporate governance and environmental protection standards, as well as the facilitation of counterclaims by states against investors in respect of investment disputes. At present, ISDS arbitrations are necessarily a one-sided affair. Other counterbalancing measures considered include introducing 'general exceptions' or 'carve outs', for instance in respect of issues of public welfare.
Continuity and opportunity
Although a no-deal or hard Brexit would cause considerable disruption and presents the UK with fundamental policy choices, the Committee's report also acknowledges elements of continuity. In particular, the UK is a party in its own right to a number of investment agreements which will continue to work in the same way as before. These include CETA and both extra-EU and intra-EU BITs. The latter have become the subject of some controversy recently following moves by the EU Commission and Member States to terminate them following a Court of Justice ruling that they were contrary to EU law. 
Brexit could present the UK with a wide range of options when designing future investment agreements and the dispute resolution mechanisms contained within them. The question is: which ones will be chosen, and more particularly, will key choices be made early enough to minimise disruption and make the most of the opportunities that Brexit presents? If the UK wants to both enhance investor confidence and boost investment, notwithstanding the uncertainty accompanying a no-deal Brexit, it would be well advised to leave existing arrangements well alone. It can, however, only do so with confidence if it is resolved to uphold those protections in a post-Brexit economy, but perhaps that resolve provides the answer to the Committee's criticisms. We shall see.
 Slowakische Republik v Achmea BV, C-284/16 (2018)