Rapporteur: Cameron Boone, Georgia State University College of Law, Atlanta, Georgia

Monday, 23 October 2017- 1:00 pm

Keynote Address: Rt Hon.Lord Peter Goldsmith QC, Co-Managing Partner and Chair of European and Asian Litigation at Debevoise & Plimpton LLP in London

Rapporteur: Cameron Boone, Georgia State University College of Law, Atlanta, Georgia

Lord Goldsmith addressed the phenomenon of globalism by (1) defining it, (2) focusing on why it seems to be currently receding, and, finally (3) addressing how changes in globalism may affect international dispute resolution.

What is globalism?

Globalism is a philosophy and a phenomenon that emerged after World War II in which the international community increased integration among nations, particularly at the economic level, to replace rivalry and the taking up of arms with trade and peace. The Bretton Woods Conference held in New Hampshire in July 1944 included 44 allied nations who met with economists John Maynard Keynes and Harry Dexter White to create open markets that would revive international trade. Formal and informal structures evolved from this conference, namely The World Bank, The Integrational Monetary Fund and The International Bank for Reconstruction and Development.

Globalism expanded in 1948 with the implementation of General Agreement on Tariffs and Trade (“GATT”). Central concepts of the movement included reducing the power of the nation-state while increasing global cooperation, enabling rapid post-war reconstruction among war-torn countries and fostering economic development by increasing global free trade and open markets and reducing regulatory trade blocs and economic spheres of influence. GATT created an international dispute settlement system that evolved over the next 50 years, expanding from the original 23 countries to 123 countries at the Uruguay Round in 1986. This led to the development of the World Trade Organization in 1995. The Dispute Settlement Understanding embodies rules for dispute settlement in the WTO and is one of the most active settlement mechanisms in the world.

Globalism led to the development of multilateral treaties like NAFTA (1994). Bilateral investment treaties flourished, removing trade restrictions while protecting investments from overseas and providing enforcement mechanisms to ensure that treaty commitments are observed. Globalism has enabled investment treaty arbitration to be the key means of international dispute resolution in the field of investments. International commercial arbitration has evolved into the leading form of final dispute resolution for private parties in conflict.

Why is globalism now said to be receding?

Lord Goldsmith stated his belief that globalism is not driving world growth today as it did the last half of last century. He cited research by Hufbauer and Jung in the article “Why Has Trade Stopped Growing?”, performed at the Peterson Institute for International Economics from 2016, that suggests that ratios of world trade to output have been flat since 2008. Global Trade Alert indicated that world trade stagnated between January 2015 and March 2016, despite the growing world economy. The stock of cross-border assets peaked at 57% in 2007, decreasing to 36% in 2015. Globally, inflows of foreign direct investment have decreased.

Some criticism of globalism has evolved from perceptions that it adds to structural changes in the makeup and distribution of economic activity, that it has caused rapid change in the social and demographic structure of many western societies, and that it is responsible for an increase of income inequity. In the 1990s, Western media was using the term “anti-globalisation” for movements that challenged the supposed benefits of globalism. Globalism was criticized for perceived negative effects that free trade policies had on developing countries, such as policies blamed for the abundance of sweat shops in East and Southern Asia. While free trade slowed regional inequalities and allowed lagging industrialized nations to catch up with richer ones for over 40 years, this process stalled in the 1990s. Between 1990 and 2010, income gaps between U.S. states have been closing at less than half of the rate of the previous century, and recent figures suggest that the convergence rate is close to zero or even in reverse. Cities and regions that thrived under globalism (like California in the computing and technology fields and New York in the financial arena) get richer, while poor areas lose out and get poorer.

Worsening inequality in recent years seems to be arousing popular dissatisfaction with “the Establishment,” politicians and business people who have traditionally “won” due to open markets. Mainstream parties whose traditional positions have supported the globalist movement have lost ground to “populist” parties, many with anti-globalism in their policies. In America, Donald Trump ran his “America First” campaign, a deliberate retreat from globalism and return to economic nationalism. In the United Kingdom, Brexit is perceived by some as a stark popular rejection of the globalism. While Emmanuel Macron won the race for France’s presidency, he was head of a new party, not a member of the old “established” parties. Similarly, the “Alternatif fur Deutschland” in Germany, the “Law and Justice” party in Poland, the “Justice and Development” party in Turkey, “Fidesz” in Hungary, the “Party for Freedom” in the Netherlands, the “Freedom Party” in Austria, “UnidosPodemos” in Spain, “Sweden Democrats” in Sweden and the “Golden Dawn” in Greece have seen increases in support of elections that reject one or more values of globalism.

As a result, new and existing free trade agreements have changed. For example, the Trans-Pacific Partnership (TPP), a trade agreement between 12 countries around the Pacific that went through 19 rounds of negotiations since 2008, was agreed upon and signed on February 4, 2016. President Trump on January 23, 2017, withdrew the US from the agreement. The Trump administration is unwilling to proceed with negotiations for the Transatlantic Trade and Investment Partnership (TTIP) that was close to being agreed upon by the EU. However, a number of European Citizen Initiatives also oppose the TTIP.

Five years after negotiations began, signing and ratifying the Comprehensive Economic and Trade Agreement (CETA) between Canada, the EU and its Member States has been delayed. Existing free trade agreements like the North American Free Trade Agreement (NAFTA), in force since 1994, is being “renegotiated” by the Trump administration, possibly to reach a revised set of terms, one change being the insistence by the US that the revised NAFTA be subject to reconsideration and renewal every five years. A second example of change to an existing agreement involves the UK’s decision to leave the European Union: Brexit. Many view the vote to leave as a rejection of the internationalist and integrational philosophy on which it was founded. Another form of anti-globalizing sentiment is current campaigns against bilateral investment treaties and, in particular, the dispute resolution mechanisms that they establish. Investor-State Arbitration or “Investor-State Dispute Settlement (“ISDS”) has come under attack for being an undemocratic secret court system that hides the activities of big business and prevents proper, transparent industry regulation.

Lord Goldsmith stated he does not believe that this is an end of globalism for several reasons. The movement away from globalism in the US and Europe does not equate to an overall global trend. Most of the world’s developing and fast-growing economies like China and India are pursuing free trade. The trend within the US and Europe against globalism is often exaggerated. While the Trump Administration has withdrawn from TTIP, the President is reportedly receptive to resuming talks on it. The same seems true regarding the Trump Administration and NAFTA. Likewise, Brexit will allow the UK to seek out and to establish its own free trade deals, possibly considering a new trade bloc with the US, Canada and others, or possibly joining NAFTA. Finally, Lord Goldsmith encouraged caution, especially in light of the media when evaluating globalism today. Nationalism remains a minority position.

How does a decline in globalism affect international dispute resolution?

Lord Goldsmith stated his belief the impact will vary depending upon the form of dispute considered. Beginning with State-State dispute resolution, he thinks the most change will be observed here. State to state disputes include any disputes that are referred for resolution under the rules of the WTO or under NAFTA, including disputes as to the interpretation or application of bilateral investment treaties. If Nationalist movements evoke changes in treaties, State-State dispute resolution may be conducted differently. The number of disputes requiring resolution may increase, for example, the recent story about punitive tariffs imposed by the US on Canadian aircraft manufacturer Bombardier after a complaint from US manufacturer Boeing about Bombardier’s trade practices.

Secondly, regarding ISDS, Lord Goldsmith stated he does not believe that a movement away from globalism will bring about less investor-state arbitration and a return to the previous methods of resolving disputes, such as domestic court proceedings or diplomatic efforts between the host country and the home country of the investor. He reasoned that companies determine where to invest based upon the existence of effective and independent investor-state resolution. A study conducted for Hogan Lovells LLP indicated that 20% of senior business managers said that they would not consider investing overseas without the protection of an investment treaty of some form; and a further 60% said that the existence of such protection was a “very important” condition. A Netherlands Bureau for Economic policy study showed that “ratified BITs increase on average bilateral FDI stocks by 35% compared to those of country pairs without a treaty.” The countries that put into effect the most effective investor-state resolution mechanisms likely will receive more investment. Lord Goldsmith stated that as protectionist policies increase alongside an increase in resource nationalism, the need for investment protections will grow stronger. ISDS will likely change shape. The transparency of its existing investment arbitration procedures has an impact on government policy. How may the current system evolve to counter the growing political and social mistrust toward BITs and ISDS? The TTP stuck with a traditional investor-state arbitration model while including these mandatory features: a) express provisions guaranteeing the transparency of proceedings and allowing interest groups to file amicus curiae briefs, b) an express right for the state to regulate markets to protect public welfare and carve outs providing that certain areas of public policy be excluded from potential ISDS challenge, and c) procedural safeguards such as time limits for filing claims.

TTIP proposed the creation of a permanent investment court with a panel of 15 permanent judges to sit in divisions of three to hear each case brought by an investor against a State. TTIP also proposed an appeal court consisting of six appellate judges to sit in divisions of three. It is proposed to establish a permanent dispute settlement tribunal in the final form of CETA. The EU is proposing the establishment of a permanent multilateral investment court to hear disputes over investments between investors and states that have accepted its jurisdiction over their bilateral investment treaties. This is clearly a move away from the old-style system of ISDS and is responding to criticisms of ISDS like “double-hatting.” Lord Goldsmith predicted a movement away from the investment-state arbitration model, while he is unclear what the new model will look like. They may be replaced by investment courts but this also presents several issues, such as rules as to the appointment process for judges.

Lord Goldsmith noted that international trade and, along with it, disputes will continue between private parties. What forum will the parties prefer in resolving these disputes? While one may argue that not much will change, the answer depends on the changes that a shift away from globalism will bring to a country. Typically, parties look for a stable legal system and the ability to enforce a judgement from that legal system all over the world. Enforcement of court judgments is recognized in a number of treaties, and none of these treaties seem to have given way to the anti-globalist movement. As an example of wide-spread enforcement, even despite Brexit, there are several mechanisms for the enforcement of judgements between the UK and other EU countries, such as pre-existing treaties or new treaties to be implemented. As such, parties’ decisions to choose a specific court may be unaffected by nationalist concerns. However, perception is key, such that nationalist policies may actually convince parties to choose the arguably safer route of international commercial arbitration.

Lord Goldsmith lastly raised the question of whether international arbitration will be the same as it is today and notes that this is uncertain. Looking to a study by the Chartered Institute of Arbitrators, which lists factors that make for a successful seat for arbitration, such as rights under local law to representation and the quality of the local judiciary, Lord Goldsmith concluded that most of these factors would not be affected by a general shift away from globalism. However, recent years have shown an increasing number of international arbitration disputes seated outside the West, as other countries develop their own centers and become competitive with European seats in light of “a new wave of protectionism in the developed economies.”[1] Lord Goldsmith concluded by posing questions for reflection, such as what changes will occur in the future.

[1] “Own Arbitration tool must for BRICS”, The Hindu (27 August 2016).