At a New Delhi function marking the 50th anniversary of UNCITRAL, Cherie Blair QC gave a keynote speech on global standards for rules-based commerce. Here she has adapted her thoughts for our readers
As the core legal body of the UN for international trade, for five decades The United Nations Commission on International Trade Law (UNCITRAL) has focused on the modernization and harmonization of the rules of international business. Its considerable impact on international dispute resolution sees countries fashioning their arbitration legislation on its Model Law, and organizations globally relying on its rules and procedures to regulate their trading relationships and to settle disputes.
With the founding of the first regional office of UNCITRAL – the Regional Centre for Asia and the Pacific – in 2012, the region has seen a 47% increase in the number of states basing their arbitration legislation on the Model Law, from 15 to 22.
UNCITRAL was founded in 1966, a tumultuous year that also saw nine military coups d’état and four former British colonies gain independence. The world was divided between East and West, the Cold War raised the spectre of nuclear strikes and Vietnam served as a literal battleground between capitalism and communism. Trade with the Soviet Bloc was centrally controlled, with much of the region essentially closed off.
Acknowledging that national laws and national governments’ behaviours often hindered the flow of trade, UNCITRAL was given a mandate to reduce or remove such obstacles, unifying international trade. However, for this harmonizing experiment to succeed, it needed to navigate a divided world and forge a new understanding of how the world could work. The trend was positive as at this time nations were coming to terms with the fact that unbridled nationalism was inimical to the good functioning of states and the development of their people.
Nonetheless, the road from the supreme sovereignty of nations to a world where states give up some of their powers for the greater good was rocky. Reaction to UNCITRAL’s first programme of agreeing on a unified law on the international sale of goods, for example, was mixed. The then USSR criticized the fact that “only 28 states, of which only three are socialist and two developing states, participated in the 1964 Hague Conference”, and noted that the draft law did “not meet the requirements which the majority of states demand from international instruments of this kind”.
The draft law would eventually be agreed upon, as would dozens of others, irreversibly changing how business is conducted across borders. China’s ratification in 1986 of what became the Convention on Contracts for the International Sale of Goods coincided with large-scale Chinese reform and opening-up policies helping to provide a set of rules that ensured progress and rule-based trade. Today it is China’s and India’s growth and trade that drives the engine of the global economy.
At the same time, in the ’80s and ’90s, free trade agreements comprising BITs [bilateral investment treaties], MITs [multilateral investment treaties], NAFTA [North American Free Trade Agreement] and the Energy Charter Treaty introduced a method of dispute resolution called Investor State Dispute Settlement (ISDS), which gave foreign investors exceptional recourse against arbitrary state behaviour. Given the environment of interventionism particularly prevalent in developing economies, companies were offered such protection because it was understood that without it, the prospects for foreign investment in these regions was diminished.
Fifty years on from UNCITRAL’s founding, and the world is a different place. Formerly closed countries have increased their exposure to other nations, while systems and laws have rushed to keep pace. Complementing UNCITRAL, the expansion of the General Agreement on Tariffs and Trade leading to the formation of the World Trade Organization (WTO), the enlargement of ASEAN and the foundation of the European Economic Community leading to the EU exemplify this zeitgeist.
Today, the Soviet Union is no more and free trade is the victor over coercive collectivist and interventionist policies. Expropriation is no longer a regular state practice, and a consensus has emerged that the best way for a country to develop and advance is to participate in free trade. On the global scale, the benefits are manifest. Millions of people have been lifted out of poverty and standards of living have increased alongside improved security and prosperity.
However, on the national level, while the general principles underpinning international trade are broadly accepted and the positive results of lower prices and greater choice are welcomed, the unintended consequences of globalization have sparked a backlash. The decimation of traditional industries, the technological revolution and labour competition have all combined to create the current Era of Reaction.
Epitomized most starkly in the West by the 2016 presidential election in the US and the Brexit referendum in the UK, as well as Beppe Grillo of the Five Star Movement in Italy and Marine Le Pen of the National Front in France, the Era of Reaction is a modern phenomenon. The movement of populist parties from the fringe to the mainstream, and their increasingly credible competition to traditional political parties, correlates with a decline in voters’ trust in the establishment. Summing up this attitude, then UK justice secretary Michael Gove infamously remarked in 2016 that “this country has had enough of experts”.
India’s prime minister, Narenda Modi, long an advocate for reconfiguring the global institutions to better reflect the balance of nations, encapsulated this mood in an address in January 2017, noting: “Physical borders may be less relevant in this age of bits and bytes. But walls within nations, a sentiment against trade and migration, and rising parochial and protectionist attitudes across the globe are also a stark statistic. The result: globalization gains are at risk and economic gains are no longer easy to come by.”
The anti-globalization attitude is compounded when, in disputes between states and companies, tribunals constituted under ISDS mechanisms issue multimillion-dollar awards against states. Taxpayers are not shareholders, and it is no surprise that there is a sense of grievance amongst them when countries are compelled to write cheques to commercial counterparties rather than paying for hospitals, roads and schools.
Coupled with the risk of regulatory chill, and the unavoidable necessity to tackle climate change, it is clear that states need to be able to take measures that are aimed at protecting the environment or promoting policies for the benefit of their citizens without fear of being sued. If they are prevented from doing so, then international trade will truly lose the support of the people and, most concerning, its legitimacy.
As the governor of the Bank of England, Mark Carney, said in a speech to Liverpool John Moores University in December 2016: “The combination of open markets and technology means that returns in a globalized world amplifies the rewards of the superstar and the lucky. Now may be the time of the famous or fortunate, but what of the frustrated and frightened.”
The lesson to be learned from the Era of Reaction is that states must not shirk their responsibility to their citizens to help them understand and navigate the changed world that globalization has wrought. They must be frank about its negative consequences and must be successful in making the argument that the benefits ultimately outweigh the disadvantages. Furthermore, they must be pro-active in helping their citizens adjust to the new reality, including re-skilling those workers whose jobs have been displaced.
It has fallen to China’s president, Xi Jinping, to make the case for globalization. Referring always to “economic globalization”, Xi’s speech at the World Economic Forum in Davos in January 2017 declared: “We must remain committed to developing global free trade and investment, promote trade and investment liberalization and facilitation through opening-up and say no to protectionism. Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air. No one will emerge as a winner in a trade war.”
On the international front, the UN has taken great strides to ensure that globalization works for all, with UNCITRAL’s original mandate in 1966 setting the tone: “The Commission shall bear in mind the interests of all peoples, and particularly those of developing countries, in the extensive development of international trade.”
In 2000, the UN Global Compact was born, known as the world’s largest corporate sustainability initiative. This was followed in June 2011 when the UN’s Human Rights Council endorsed the Guiding Principles on Business and Human Rights drafted by renowned Professor John Ruggie. In 2015, the UN spearheaded the Sustainable Development Goals (SDG) initiative, which recognizes that decent work and economic growth (SDG No. 8) is a necessary component to reduce inequality (SDG No. 10).
Is the international arbitration community playing its full role in this movement? Just as states and companies seek to uphold UN principles in so many fields of life, are we reflecting this when it comes to the application of commercial law to investor-state arbitration?
Whether it involves the expansion of the pools from which arbitrators are drawn, the establishment of arbitration centres outside of the West – Asia’s increasingly high-profile presence in international arbitration is seen through the establishment of the Hong Kong International Arbitration Centre, the Singapore International Arbitration Centre and the China International Economic and Trade Arbitration Commission – or the introduction of more transparency during the arbitral proceedings, we must not fear change.
In the interest of fairness, there must be more attention given to how investment treaty cases can be communicated to those whom they affect, and the affected parties must be offered redress, including a means of introducing wider legal considerations such as cultural or environmental preservation into the tribunal’s deliberations. UNCITRAL’s adoption in 2014 of the Mauritius Convention (on transparency in treaty-based investor-state arbitration) and its plans to develop a code of ethics for arbitrators in investment arbitration are welcome initiatives in this direction.
ISDS should not operate in a protective bubble where the needs of international investors reign supreme regardless of the wider impact on the environmental, social and governance imperatives of the countries in which they operate as corporate citizens. Nor should recognition of the growing international standards and norms for business behaviour be excluded. We are already seeing how generous ISDS provisions are being replaced by alternatives like permanent investment courts.
Finally, we must consider how awards and the approach to compensation could be developed to ensure entire countries are not at risk of bankruptcy from adverse judgments. As former UN secretary general Kofi Annan once said: “If we cannot make globalization work for all, in the end it will work for no one.”
His successor, Ban Ki-moon, characterized the current era as the second age of globalization, or the “age of migration” (the first age being the movement of goods and capital). He argued that, “Migration can be an enormous force for good. If we follow the evidence, and begin a rational, forward-looking conversation about how to better manage our shared interests, we can together help to usher in the third stage of globalization – a long-awaited era where more people than ever before begin to share in the world’s prosperity.”
When international trade is sustainable, its health and longevity will be ensured. When states and companies work together to reduce inequality, international trade’s success will be guaranteed, not only in the Era of Reaction, but long into the future.
This article is an adaptation of a keynote speech given by Cherie Blair QC, chair of law firm Omnia Strategy, at an UNCITRAL conference in New Delhi in November 2016 entitled Celebrating UNCITRAL’s 50 Years – Global Standards for Rules-based Commerce. Blair and Claire Kerschensteiner, an associate at Omnia Strategy, adapted the speech specifically for our readers.