This memorandum provides guidance on the type of dispute settlement mechanism that best serves the interests of the Pacific Island Countries (“PICs”) in the PACER Plus negotiations. This mechanism must be efficient, cost-effective, and inspire confidence in potential investors. We are cognizant of the need for a dispute settlement mechanism that does not involve binding procedures that could result in burdensome monetary damages imposed on the PICs. Accordingly, we recommend focusing on dispute prevention. Specifically we suggest providing for a dispute prevention mechanism (DPM) in the PACER Plus treaty text to encourage the resolution of investor grievances before formal dispute settlement procedures become inevitable. We also recommend obligatory negotiations at the outset. Though not mandatory, mediation should be strongly encouraged in the text, and be pursuant to a specific procedure outlined in the Investment Chapter. The PICs may consider retaining domestic courts as a binding dispute settlement procedure available at the option of the investor, but such a provision should be tailored to reflect the differing legal capacity levels of the PACER Plus parties.
This memorandum considers possible investor-state dispute settlement mechanisms for the PICs, with a special focus on dispute prevention and mediation. Specifically, in Part II, we outline our understanding of the current draft text and highlight areas requiring attention. Part III explores broadly the rationale, benefits and shortcomings of a mechanism focusing on dispute prevention and mediation. In Part IV, we provide our recommendation for an investor-state dispute settlement mechanism for PACER Plus in the form of two options. Finally, in Part V, we suggest treaty text for dispute prevention and mediation, which includes our assessment of the mediation text from Dr. Martin Roy. This Part also offers draft text for two possible soft law mechanisms, which might appeal to the investors as an additional means of incentivizing conflict resolution.
II. Current Draft Text
In the current Dispute Settlement Chapter, there is an integrated state-to-state mechanism for the resolution of disputes arising under the PACER Plus Agreement. The mechanism is integrated in that its provisions apply to both trade and investment disputes. The PICs proposed an additional procedure for investor-state disputes, contained in Article 22 of the Investment Chapter. According to our understanding, the procedure includes two steps: 1. non-binding negotiation, mediation, conciliation and fact-finding with a six month cooling-off period, followed by 2. recourse to the courts or administrative tribunals of the host state.
As written, the PACER Plus Agreement seems to offer no additional recourse for aggrieved investors outside of voluntary non-binding procedures or the use of domestic courts applying domestic law – both of which are available to investors whether or not this treaty exists. We interpret the mediation provision as voluntary because PICs proposed Article 22(2) provides a list of non-binding dispute resolution procedures that a Party “shall, to the extent possible” pursue. In theory, a Party could attempt negotiations to satisfy this provision without ever resorting to mediation. We interpret PICs proposed Article 22(3), the domestic courts provision, as providing no novel rights to investors because the text does not clarify whether domestic courts are empowered to directly enforce treaty rights.