Daniel Allen

Japanese Investor-State Dispute
Settlement in a Post-TPP Asia
Daniel Allen

Associate（Current：Senior Associate）, Freshfields Bruckhaus Deringer

Ⅰinvestors to bring claims against States onBackgroundboth sides of the Pacific. The effect on
J a p a n e s e i nve s t o r s w o u l d h a ve b e e n

The world of investor-State disputeparticularly marked, as the TPPA would havesettlement（ISDS）is in flux, particularly inprovided direct investment protection alongAsia. The traditional model of ISDS thatsome of Japan’s most active investmentblossomed over the past two decades—apaths, including between Japan and theframework matrix of largely bilateral

United States.

investment treaties providing nebulous but

The likely fate of the TPPA resonates withpowerful substantive protections towhat may be a broader shift in views

investors, who enjoy an entitlement toworldwide as to the proper role of ISDS, asenforce the terms of the treaties throughwell as to what form it should take. Backlash

direction arbitration with host States—hasagainst ISDS has found expression in various

1corners. This backlash has come in three

come under criticism.

The recent election of Donald Trump tomain forms. First, some States, such as

the presidency of the United States ofIndonesia and South Africa, have begun

America has complicated matters. Of

gradual programs to extricate themselves

particular relevance to the future of ISDS infrom their existing investment treaty

Asia（and Japan, in particular）is that thecommitments 3 —it remains to be seen what,

outcome of the US election likely has

if anything, will come to replace them.

b r o u g h t t o a n e n d t h e Tr a n s - Pa c i f i cS e c o n d , s o m e S t a t e s h a ve a d o p t e d a2Partnership Agreement（TPPA）. The TPPA

prospective approach, seeking to be more

would have instituted sweeping changes toselective about entering into future treaties,

the ISDS landscape in Asia, including byand being more attuned to the risks of future

creating a variety of new avenues forpotential claims when negotiating the12

3

Claire Balchin, Liz Kyo-Hwa Chung, Asha Kaushal and Michael Waibel（eds）,The Backlash against Investment Arbitration:
Perceptions and Reality（2010）.
Peter Baker, Trump Abandons Trans-Pacific Partnership, Obama’s Signature Trade Deal, The New Tork Times, January 23,
2017 available at https://www.nytimes.com/2017/01/23/us/politics/tpp-trump-trade-nafta.html?_r=0.
Leon E. Trakman and Kunal Sharma, Indonesia’s Termination of the Netherlands-Indonesia BIT: Broader Implications inthe Asia-Pacific?, Kluwer Arbitration Blog, August 21, 2014 available at http://kluwerarbitrationblog.com/2014/08/21/
indonesias-termination-of-the-netherlands-indonesia-bit-broader-implications-in-the-asia-pacific/.

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1．Japanese Investor-State Dispute Settlement in a Post-TPP Asia

substantive terms of new treaties. 4 One

protection within the treaty itself. But, theexample of this approach is India, which has

overall look and feel of ISDS under Japan’s

released several versions of a model bilateral

new treaties would be familiar to seasoned

investment treaty, which, even in its revised

practitioners.

form, directly seeks to address and correct

Although sweeping in its scope, the TPPA

perceived failures in the substant ivetoo would have been in that mold: despite

p r o t e c t ions pr ovided by the exi s t i ng

some departures from tradition, the core

5Finally, a third

procedural and substantive features ofapproach, favored primarily by the European

traditional ISDS would have been present inUnion in negotiating new treaties to replace

proceedings under the TPPA. If the TPPA

,6

had not been stymied by the U.S. election, it

has been to explore more fundamental

is likely enough that, under the auspices ofchanges to the prevailing ISDS model.

the TPPA, ISDS throughout the Asia-Pacificgeneration of treaties.

the bilateral treaties of its member States

To date, Japan has not taken any of theseregion would have continued to adhere to

three approaches, or indeed to have changed

the traditional model, even as the rest of theits position vis-a-vis new treaties. Japanworld might have begun to move in acontinues to pursue a program ofdifferent direction.

negotiating and executing new investment
7

But, with the TPPA now off the table, it

treaties, and, so far, the wave of treaties

has become possible that a different modelthat Japan recently has entered into have

may rise to prominence in Asia after all.

followed the traditional model, with little

This article examines the core features ofsubstantive deviation. That is not to say thatthe main alternative model that has been

all of Japan’s new investment treaties haveproposed—the so-called “Investment Courts

been substantively identical—far from it.

model”—by looking at two proposed treaties

The Japan-Iran BIT（signed 2016）, forthat would implement a version of it, andexample, focuses to an unusual extent on thethen concludes with a brief discussion ofrole of contractual investment agreements

whether such a model would be appropriate

between investor and State, andor desirable for Japan.

deemphasizes substantive standards of
45672Jonathan T. Stoel, Tomoko Ishikawa and Michael Jacobson, Japan’s Ambitious International Investment Agreement Policy– Laying the Groundwork for Future Disputes?（2015）12 ⑴ Transnational Dispute Management, p. 10.
Gordon Blanke, India’s revised Model BIT: Every bit worth it!, Kluwer Arbitration Blog, March 20, 2016 available at http://kluwerarbitrationblog.com/2016/03/20/indias-revised-model-bit-every-bit-worth-it/.
Anne-Karin Grill and Sebastian Lukic, The End of Intra-EU BITs: Fait Accompli or Another Way Out?, Kluwer Arbitration
Blog, November 16, 2016 available at http://kluwerarbitrationblog.com/2016/11/16/the-end-of-intra-eu-bits-faitaccompli-or-another-way-out/; Crina Baltag, Green Light for Romania to Terminate its Intra-EU Bilateral Investment
Treaties, Kluwer Arbitration Blog, March 14, 2017 available at http://kluwerarbitrationblog.com/2017/03/14/greenlight-for-romania-to-terminate-its-intra-eu-bilateral-investment-treaties/.
Jonathan T. Stoel, Tomoko Ishikawa and Michael Jacobson, Japan’s Ambitious International Investment Agreement Policy– Laying the Groundwork for Future Disputes?（2015）12 ⑴ Transnational Dispute Management, pp 1-3.

国際商取引学会年報 2017vol.19Daniel Allen

Ⅱ “Investment Courts”

have enforced geographical diversity,with one third of its members hailingfrom the EU, one third from the United

One of the primary entrants in the field ofStates, and one third from neither area.

alternative ISDS proposals is theThe State parties to the TTIP appoint

Tr a n s a t l a n t i c Tr a d e a n d I n v e s t m e n tpanel members, and the TTIP proposal

P a r t n e r s h i p （T T I P ）, a contemplated

sets out ethical rules applicable to panelarrangement between the United States andmembers.

the European Union. While the proposal is• The establishment of an appellate

on hold, and remains subject to change, themechanism. Traditional ISDS does notcore ISDS features that have come to lightinclude any appeal mechanism otherare already worth discussing.

than, in the case of institutional rules

The TTIP proposal implements a version

such as those of ICSID, annulmentof ISDS that was designed to address certainpro c edu res .

criticisms that have been raised against theproceedings cannot review the merits of“traditional” model of ISDS that has grown

an award in any way, the appellateorganically out of the matrix of bilateral andprocedure set out in the TTIP proposal

multilateral investment treaties negotiatedallows room for the appellate tribunal

on an ad hoc basis between and among

to disagree with the merits of the lower

various State parties during the past half-tribunal’s award（albeit with a highcentury. The signature feature of thisstandard of review）.

W h erea s a nnu l m ent

proposal is a departure from unfettered• The inclusion of transparency rules

party-appointment of arbitrators in favor ofwithin the treaty itself. One of the mosta system that would create, in effect, aprevalent criticisms of traditional ISDS

permanent court of potential arbitrators—

is that although the cases involve issues

for that reason, this proposal might be calledof importance to the public, the public

the “Investment Courts” model.

is not always able to get access toThe key procedural departures that theinformation about the proceedings.

TTIP model makes from traditional ISDS are:Unlike most investment treaties, the• The restriction of parties’discretion to

TTIP proposal would subject arbitral

appoint arbitrators to selection from aproceedings conducted pursuant to its

predetermined list. Under the TTIP

text to transparency rules.

proposal, instead of having the power toTogether, these changes signify a moveappoint any person as an arbitrator,

toward contracting States aiming to control

parties must choose their arbitrators

the procedural features of ISDS throughfrom a predetermined panel of 15

treaty language rather than leaving

eligible appointees. This panel is toprocedural matters to arbitral rulesets like

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1．Japanese Investor-State Dispute Settlement in a Post-TPP Asia

the UNCITRAL or ICSID rules. The emphasisfound in the TTIP proposal may be the EU’s

on transparency and procedural constraints

preferred model going forward. It appears

on decision-making suggest attention to thelikely that future EU investment agreements

potential political importance and sensitivity

will contain more detailed provisionsof investor-State disputes.

relating to arbitral procedures.

The TTIP model has sparked considerable

The EU-Vietnam FTA adopts a similar

controversy. Most controversial of all has

approach. Each of the key procedural

been the likelihood that its implementation

features from the TTIP proposal listed above

would limit parties’ discretion to select（arbitrator choice restriction, appellate

8This new feature of the TTIP

mechanisms, and transparency）can bemodel would have a particularly noticeablefound in the EU-Vietnam FTA as well, ineffect on investors, as the pools of potential

substantially the same form. Where the two

arbitrators would have been limited in thetreaties differ on these points is at thefirst instance to candidates pre-selected bymargins—for instance, instead of a

the State parties to the treaty.

15-member panel as set out in the TTIP

arbitrators.

ⅢThe EU-Vietnam FTA: avariation on a theme

proposal, the EU-Vietnam FTA calls for anine-member panel.
All of the key procedural features of theTTIP proposal on ISDS can be found in theOn 1 February 2016, the EuropeanEU-Vietnam FTA. But, in some instances, theCommission released to the public the text

EU-Vietnam FTA goes into further detailof the proposed free trade agreement

than the TTIP proposal in prescribing

between the European Union and thearbitral procedures. Future EU investment

Socialist Republic of Vietnam.

9What thisrelease revealed was that the model oftreaties likely will reflect further variationsin these and similar provisions.

investor-State dispute settlement（ISDS）to• Third party funding. While both thebe implemented in the EU-Vietnam FTA will

TTIP proposal and the EU-Vietnam FTA

be similar to the innovative but controversial

include procedures requiring disclosure

model that has been proposed for the TTIP.

with respect to an investor’s use of third

The similarity between the TTIP proposal

party funding, the EU-Vietnam FTA goes

and the EU-Vietnam FTA with respect toslightly further in Article 11, requiring

ISDS procedures suggests that, at least in

the tribunal to take the presence ofbroad strokes, the Investment Courts model

third party funding into account when894Louise Woods, Fit for purpose? The EU’s Investment Court System, Kluwer Arbitration Blog, March 23, 2016 available at
http://kluwerarbitrationblog.com/2016/03/23/to-be-decided/
European Commission, EU-Vietnam Free Trade Agreement: Agreed text as of January 2016, February 1, 2016 available at
http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437

国際商取引学会年報 2017vol.19Daniel Allen

assessing requests for security for costs,

trigger letter notifying the dispute.

and expressly tying the funded party’s

The EU-Vietnam FTA can be seen as acompliance with the disclosure

further step along the path forged by therequirements to the allocation of theTTIP proposal. The key features of the TTIP

costs of the arbitration.

proposal are present, but, in general, the EU-• Ethics.

T h e E U - Vi e t n a m F TA’ sVietnam FTA goes slightly further, including

provisions regarding arbitrator ethics

additional procedural restrictions that apply

mirror those found in the TTIP proposal,

principally to investors instead of States.

e x c e p t t h a t t h e E U - V i e t n a m F TAAs in the TTIP proposal, there is a strong

additionally includes a procedure for

e m p h a s i s i n t h e E U - Vi e t n a m F TA o n

removal of an arbitrator from the nine-

controlling the procedural features of ISDS

member panel where there has been aproceedings through treaty text, as opposed

breach of the treaty’s ethics provisions.

to arbitral rulesets.

• Applicable law. Both include provisions
on applicable law and the role ofⅣdomestic law in cases brought underNew models from theJapanese perspective

the treaty, but the EU-Vietnam FTA’s
treatment of this issue diverges on theWe turn then to the question of whether

details. In particular, the EU-Vietnam

the features of this new model might be

FTA expressly provides that the tribunal

appropriate for Japan. To reiterate, atwill not have jurisdiction to determine

present, there has been no indication thatthe legality of a challenged measure as

Japan might pursue this model, either in its

a matter of the domestic law of the Stateown bilateral treaties or in a future EU-Japan

party to the proceedings.

F TA .

• Consultations.

While there are

We might therefore begin by

wondering why that would be.

similarit ies w ith respect to claim

It is clear enough that the Investment

initiation procedures, one key difference

Courts model is driven by State（or public）

between the two is that the consultation

concern that ISDS cedes too much power toprocess, optional under the proposed

claimant investors—that procedural features

TTIP process, has been made aof the traditional ISDS model make it too

mandatory precondition for bringing aeasy for investors to win, or to bring claims

claim under the EU-Vietnam FTA.

without fear of public backlash. Leaving

Potential claimants under the EU-aside whether that fear is borne out in

Vietnam FTA are required to submit apractice, the Investment Courts model

request for consultations, and only after

focuses on changing procedural features ofa subsequent 90-day period has elapsed

ISDS to reclaim some of that power for

may the claimant proceed to send aStates. Thus, the investment courts model

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1．Japanese Investor-State Dispute Settlement in a Post-TPP Asia

g ives States g reater control over themight have, the traditional model is not incomposition of the arbitral tribunals thatneed of such a drastic procedural overhaul.

will be deciding cases, and also provides

The introduction of investment courts andadditional procedural tools to States to makeappellate procedures would come with thethe bringing of claims more difficult andpotential for increased costs to States ascostly.

well, with benefits that would be far from

However, the experience of ISDS in Japan

immediate or obvious.

has been a bit different from the experience

But that does not mean that Japan hasof many other parts of the world. Althoughnothing to learn from the TTIP and EU-

many western States have now had toVietnam FTA proposals. One innovation thatgrapple with investor claims, to date, there

may be of particular interest to Japan is thehave been no known ISDS claims brought

integration of a consultations process

10Foreign direct investment（which, as noted above, the EU-Vietnam FTA

i n t o J a p a n i s l o w, a n d t h e J a p a n e s eproposal would make mandatory）.

government is stable and sophisticated,

Historically, treaty-based requirements that

11

investors negotiate in good faith with theAnd, on the other hand, Japanese outward

host State have not been given rigid effect,

investment is high, w ith Japan being

w i th tri b u na l s rou t i nel y f i ndi ng th a t

particularly reliant on resources fromtechnical noncompliance with a waiting

beyond its borders, and overseas investment

period（particularly when negotiations

against Japan.

making the risk of a claim unusually low.

12Thus, it is natural thatwould have been futile）should not render aJapanese treaty negotiators would beclaim inadmissible. Formalizing consultation

focused on securing treaties that would berequirements could be a way for Japan to

useful to Japanese investors abroad, anddeter less meritorious claims against it, while

relatively less concerned with providing

not significantly hurting its own outward

overly generous protection to foreign

investors; in practice, Japanese investors

investors in Japan.

may often prefer to negotiate an amicablein general.

These factors may help to explain why thes o l u t i o n i n a ny e ve n t ,13so a formal

Investment Courts idea has not shown up inconsultations requirement might indeed be a

any Japanese treaties thus far. Of course,boon to them.

another possibility is that, whatever flaws it
101112136

Jonathan T. Stoel, Tomoko Ishikawa and Michael Jacobson, Japan’s Ambitious International Investment Agreement Policy– Laying the Groundwork for Future Disputes?（2015）12 ⑴ Transnational Dispute Management, pp. 2, 11.
Jonathan T. Stoel, Tomoko Ishikawa and Michael Jacobson, Japan’s Ambitious International Investment Agreement Policy– Laying the Groundwork for Future Disputes?（2015）12 ⑴ Transnational Dispute Management, p. 11.
Jonathan T. Stoel, Tomoko Ishikawa and Michael Jacobson, Japan’s Ambitious International Investment Agreement Policy– Laying the Groundwork for Future Disputes?（2015）12 ⑴ Transnational Dispute Management.
Jonathan T. Stoel, Tomoko Ishikawa and Michael Jacobson, Japan’s Ambitious International Investment Agreement Policy– Laying the Groundwork for Future Disputes?（2015）12 ⑴ Transnational Dispute Management, pp 18-19.

国際商取引学会年報 2017vol.19Daniel Allen

Conclusion
With the TPPA on hold, or perhaps gone,
the future of ISDS in Asia has become
somewhat less certain than before. It is
unlikely that the vacuum created by thecurrent setbacks to the TPPA will persist:
something （or perhaps many smallerthings）
will take the TPPA’s place. Japan will
be in a strong position to influence theshape of ISDS in the Asia for the future, andshould carefully consider whether to hew tothe traditional model, adopt features of thenew models that have been considered, orforge ahead with something altogether
different.

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