Challenges To The Credibility Of The Investor-State Arbitration System (2015)

IntroductionInvestor-state dispute settlement (ISDS) has been put through the ringer in recent public comment as a system that threatens domestic sovereignty by empowering foreign corporations to bypass domestic court systems and weakens the rule of law.1 One such foreign corporation is Philip Morris Asia Limited (Philip Morris Asia), which brought a claim against Australia in 2012 for compensation based on the state's cigarette packaging legislation.2 The case, along with Philip Morris's similar case against Uruguay, created global controversy over states' ability to regulate in the public interest.3 Some critics argued that the cases created a chilling effect on other states that were considering similar tobacco regulation.4 On December 17, 2015, Australia defeated the multibillion dollar claim when the arbitral tribunal declined jurisdiction over the matter. In response to the tribunal's award, Philip Morris International Inc.'s (Philip Morris) general counsel appeared to respond to the controversy: case has never been about a government's undeniable authority to regulate in the public interest.5 Nevertheless, the vocal critics of the Philip Morris cases are among many who question whether the ISDS system interferes with democratic regulatory authority.This Article will describe how the Philip Morris case falls within criticism against the ISDS system over the past decade. Next, the Article will compare similar ideas voiced in the current public debate about the negotiations of the Trans Pacific Partnership and Transatlantic Trade and Investment Partnership. Finally, this Article will assert that the ISDS system will survive in the face of criticism as states begin to reform their ISDS systems.II. ISDS CriticismA. Philip Morris Asia v. AustraliaThe Tobacco Plain Packaging Act 2011 became law in Australia on December 1, 2011.6 Among other requirements, the law mandated certain health warnings and limited branding on cigarette packages.7 On June 27, 2011, Philip Morris Asia filed a Notice of Claim against Australia pursuant to the Hong Kong-Australia Bilateral Investment Treaty (1993) (Hong Kong-Australia BIT).8 This claim was the first ISDS dispute that was brought against Australia.9 Philip Morris Asia argued that Australia's tobacco plain packaging measure constituted an expropriation of its Australian investments in breach of the BIT.10 Philip Morris Asia further argued that Australia's tobacco plain packaging measure was in breach of its commitment under Article 2(2) of the Hong Kong-Australia BIT, which required fair and equitable treatment to Philip Morris Asia's investments. Finally, Philip Morris Asia asserted that tobacco plain packaging constitutes an unreasonable and discriminatory measure and that Philip Morris Asia's investments have been deprived of full protection and security in breach of Article 2(2) of the Hong Kong-Australia BIT.12The arbitration was conducted under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules 2010. The tribunal hearing the case was composed of three arbitrators: Australia appointed Professor Don McRae of the University of Ottawa as an arbitrator; Philip Morris Asia appointed Professor Gabrielle KaufmannKohler as an arbitrator; and the Secretary-General of the Permanent Court of Arbitration appointed Professor Dr. Karl-Heinz Bockstiegel as the presiding arbitrator.13 Over the course of four years, Australia and Philip Morris submitted full statements of claims and defense.14 On December 17, 2015, the tribunal declined jurisdiction over Philip Morris's claims.15 On May 16, 2016, the Permanent Court of Arbitration published a redacted version of the award in the Case Repository of the Permanent Court of Arbitration.16Before its arbitral positions were vindicated in this first investor-state case against it, Australia had distanced itself from ISDS. In fact, Australia categorically rejected the inclusion of ISDS provisions in a bilateral investment treaty (BIT). …