Rethinking the Role of ICSID in Investor-State Dispute Settlement in ASEAN Economic Community

Andika Putra, Intern Staff at ASEAN Studies Center UGM

The establishment of ASEAN Community aims to improve the welfare of all ASEAN member states to be able to compete in regional and global scope. Furthermore, higher levels of investment between ASEAN member states will increase the number of disputes arising between private investors and governments in South East Asia. To settle this issues, ASEAN Comprehensive Investment Agreement (ACIA) was signed by ASEAN Member on 2009, which regulated about the investment protection and investor-state dispute settlement mechanism. On the one hand, the parties may settle their dispute through Alternative Dispute Resolution. On the other hand, ACIA allow the investor to submit a claim to the courts of disputing Member State, or even submit their claim to the arbitration institution, such as International Centre for Settlement of Investment Dispute (ICSID), UNCITRAL Arbitration Rules, Regional Centre for Arbitration at Kuala Lumpur or any other regional center for arbitration in ASEAN that agreed by the disputing parties. This article will discuss about the role of ICSID in ASEAN Economic Community.

 

What is ICSID and why choose ICSID?

Arbitration under the International Centre for Settlement of Investment Disputes (ICSID), or the ICSID Additional Facility Rules (Additional Facility Rules) is a profitable choice for investors, since founded in 1965, ICSID has significant experience handling a dispute over investment. As of October 1, 2015, ICSID had registered 539 cases under the ICSID Convention and Additional Facility Rules. Forty-two (42) of these cases (8%) involved a State Party from the South & East Asia & the Pacific (SEAP) Region (Chart 1).

There are some advantages offer by the ICSID, the first is neutral and self-contained system, as detailed in Chapter 5 of ICSID Convention provides that the arbitration law of the places of arbitration, wherever it may be, has no impact whatsoever on the proceedings. Second, as in other international arbitration, ICSID hearing generally is private, however as a result of the 2006 ICSID amendment, it is possible for non-parties and NGO to observe the hearing process and publish the decision. Third, ICSID provides a transparent cost structure and keeps its administrative fees relatively low, and the last, it remains true that most of ICSID awards have been either successfully settled or voluntarily executed by the parties, this success may be due to ICSID being an organ of the world bank, and the perception that failure to respect and ICSID award would have indirect political consequences in terms of credibility with the world bank.

Chart 1: Geographic Distribution of All Cases Registered under the ICSID Convention and Additional Facility Rules (click on picture to enlarge)

The Role of ICSID in Investor-State Dispute Settlement in ASEAN

To resolve the dispute through ICSID, both of the host country and the investor’s country of origin are parties to the Washington Convention. However, Laos, Myanmar, Thailand and Vietnam did not ratify this convention. For the cases involving these countries, ICSID Additional Facility Rules is possible to be used by the parties. ACIA allows arbitration based on Additional Facility Rules when one of the host country or the country of origin of the investor is a member of the Washington Convention. However, if both of the disputing parties are not the parties in Washington Convention, they cannot submit their claim to the ICISD. For example, the dispute between the Governments of Myanmar and Thailand investors, will not be handled by the ICSID, because both of parties did not ratify the Washington Convention.

In conclusion, ASEAN as a regional organization in South East Asia was enacted ASEAN Comprehensive Investment Agreement, it is good momentum for the investor and ASEAN Member States to develop the South East Asia region, because ASEAN has provided the investment protection and dispute settlement mechanism. However, we have to optimize the role of ICSID as one of the remarkable institution, who have good reputation and good experience in investment dispute settlement. However, ICSID Arbitration is not the best option in every situation.  In fact, there are some ASEAN Member who has not ratify the Washington Convention yet, it will be the challenges in the future, because the role ICSID is very important in investment dispute settlement. Even, there are some other arbitration institution, in this case ICSID will be the alternative solution to settle the investment dispute in ASEAN. Therefore, the ratification of Washington Convention for the rest member of ASEAN will be good idea for the investment protection in ASEAN.