THE EU-SINGAPORE FTA: ‘BOUNDED
RATIONALITY’ OR GOOD TREATY
DRAFTING?
AST/PROF. MAHDEV MOHAN
Bangkok, 18 July 2016
SUMMARY
FDI & ISA
Paulson’s View
“while most developing countries
competed for capital when adopting
(most) BITs, they were not as rational as
often assumed”.
- Lauge N. Skovgaard Poulsen
(Bounded Rationality and the
Diffusion of Investment Treaties)
My Hypothesis

In my view, the EUSFTA is a carefully drafted, next generation instrument
that seeks to:




enshrine a high degree of deference to the State parties regulatory
space,
set limits on the nature and scope of disputes that can arise
thereunder,
reject traditional stalwarts such as the MFN Clause, and
instead of a standing investment tribunal and appeal mechanism, as
proposed by the EU-Canada and EU-Vietnam FTAs, welcome homegrown innovations, such as the Singapore International Commercial
Court.
The Devil is in the [Footnotes]

The EUSFTA is replete with numerous footnotes. This differs from older IIAs
entered into by Singapore, which have little or no footnotes. Further, these
footnotes do not merely refer to straightforward references, such as sources
of international law. Rather, the footnotes in the EUSFTA seek to obviate
disputes over meaning and interpretation – and frequently begin with the
phrase "for greater certainty”, the preserve of commercial contract
lawyers. The footnotes serve as explanatory statements, which further
clarify the parties’ intent. This use of citation may be due, in part, to the EU
being a party to the agreement. Some similarly worded footnotes are
found in CETA. Yet, citation is absent from the EU-VFTA. It is also found and
used in a similar fashion in the 2010 Singapore-Costa Rica Free Trade
Agreement.
Why an EU-Singapore FTA?
Singapore (and Indonesia?) as the Bellwether
FTAs & ASEAN
EU is 3rd largest global trading
partner

The EU is currently Singapore’s
third largest global trading
partner and accounts for 10
percent of Singapore’s total
trade.
Singapore is EU’s largest trading
partner in ASEAN

Singapore, in turn, is the EU’s largest trading
partner in ASEAN, accounting for one third of the
EU’s trade with the region, and roughly two-thirds
of investments between the two regions. In 2015,
total EU imports from Singapore hit S$28.3 billion
while the EU exported S$44.4 billion worth of
goods to Singapore, according to statistics from the
EC.
Cont.

Carefully considered instrument for which negotiations began
in 2009, and which needs now to be formally approved by the
European Commission and then agreed upon by the Council of
Ministers and ratified by the European Parliament. An opinion
of the European Court of Justice will clarify the EU’s
competence to sign and ratify the free trade agreement with
Singapore before the approval procedure of the FTA is
agreed.
PM: Singapore is the ‘bellwether’

"For the EU, it's a signal that you are open for
business, ..you do want to continue to deepen and
strengthen the links which you have with the Far
East, with a rapidly growing part of the world. And
Singapore is the bellwether. If you can do one with
Singapore, I think that will encourage other deals to
come in, including the ASEAN-EU deal.”
 Prime
Minister Lee Hsien Loong
ISA Claim (1) - Government-linked
Contract ISAs

Established in 1974, Temasek Holdings is an Asia investment
company and sovereign wealth fund headquartered in Singapore. It
manages a diversified global portfolio of over US$170 billion,
principally in Singapore, Asia and the OECD economies. Its
investments cover: telecommunications and media, financial services,
property, transportation, energy and resources, infrastructure,
engineering and technology, as well as pharmaceuticals and
biosciences.
Shin Corp & iTV Concession (2006)

A contract-based arbitration was considered, but
the matter was (presumably) addressed through
diplomatic channels.
ISA Claim 2 (2004) - Cemex Asia Holdings Ltd v. Indonesia(ICSID
Case No. ARB/04/3)



Under 1987 ASEAN treaty.
Singaporean subsidiary’s minority share in a State owned
Indonesian cement maker. Claim arose out of the non-execution
of Singaporean claimant’s contractual option to buy a majority
shareholding in the Indonesian state-owned entity due to
alleged local opposition by workers.
Mexican Cemex is the world’s largest cement manufacturer.
Apparently settled.
1. No longer purely to Court Investment
Past - UK-Singapore BIT (1975)
Preamble



The Government of the U.K and the Government of the Republic of
Singapore;
Desiring to create favourable conditions for greater economic cooperation between them and in particular for investments by
nationals and companies of one State in the territory of the other
State
Recognising that the encouragement and reciprocal protection under
international agreement of such investments will be conducive to
the stimulation of individual business initiative and will increase
prosperity in both States
Now - Regulatory Autonomy & Responsible
Business
Preamble
DETERMINED to strengthen their economic, trade, and investment
relations in accordance with the objective of sustainable
development, in its economic, social and environmental
dimensions, and to promote trade and investment in a manner
mindful of high levels of environmental and labour protection and
relevant internationally-recognised standards and agreements to
which they are Parties
Autonomy & Exceptions (2)
Article 9.3 – National treatment Exceptions
“…a Party may adopt or enforce measures that accord to
covered investors and investments of the other Party less
favourable treatment than that accorded to its own investors
…where the measures are:
Autonomy & Exceptions (3)
(a) necessary to protect public security, public morals or to
maintain public order;
(b) necessary to protect human, animal or plant life or health;
(c) relating to the conservation of exhaustible natural resources if
such measures are applied in conjunction with restrictions on
domestic investors or investments;
(d) necessary for the protection of national treasures of artistic,
historic or archaeological value …
Autonomy & Indirect Expropriation (4)
Annex 9-A(2) – Indirect expropriation
For greater certainty, except in the rare circumstance where the impact of a
measure or series of measures is so severe in light of its purpose that it
appears manifestly excessive, a non-discriminatory measure or series of
measures by a Party that are designed and applied to protect legitimate
public policy objectives such as public health, safety and the environment,
do not constitute indirect expropriation.

Rejects a line of awards that have found indirect expropriation even where the measures
may have been designed to protect certain public interests, such as environmental
conservation (e.g. Santa Elena award)
2. No MFN Clause
No MFN Clause (after White
Industries)

No most-favored nation (“MFN”) clause in the
EUSFTA. This step is in stark contrast to the EUVietnam FTA and the EU-Canada CETA, both of
which contain MFN clauses. Singapore appears to
be drawing inspiration from the Indian Model BIT
discussions.
(contrast with) TPP: MFN Clause
Annex 9.5(3): MFN Clause cannot be a basis for dispute
resolution (carve out)
1. Each Party shall accord to investors of another Party treatment no
less favourable than that it accords, in like circumstances, to investors
of any other Party or of any non-Party with respect to the establishment,
acquisition, expansion, management, conduct, operation, and sale or
other disposition of investments in its territory.
…
3. For greater certainty, the treatment referred to in this Article does not
encompass international dispute resolution procedures or mechanisms,
such as those included in Section B (Investor-State Dispute
Settlement).
3. Scope & Procedure of ISDS
A. Genuine Investor
Substantive Business Operations
“Union juridical person” or “Singapore juridical person” means a juridical
person set up in accordance with the law of a Member State of the Union or
Singapore, respectively, and having its registered office, central administration
or principal place of business in the territory of the Union or Singapore,
respectively. Should the juridical person have only its registered office or
central administration in the territory of the Union or of Singapore,
respectively, it shall not be considered as a Union juridical person or a
Singapore juridical person, respectively, unless it engages in substantive
business operations in the territory of the Union or of Singapore,
respectively.
Genuine Investor (2)
Decline Jurisdiction

Article 9.17(6) - a tribunal shall decline jurisdiction where the dispute had
arisen, or was very likely to arise, at the time when the claimant acquired
ownership or control of the investment subject to the dispute, and the tribunal
determines based on the facts that the claimant has acquired ownership
or control of the investment for the main purpose of submitting the claim
to arbitration under this Section. This is without prejudice to other
jurisdictional objections which could be entertained by the tribunal.

UK-Singapore BIT – no such requirement of substantive business, although protection is
subject to approval in writing (article 12)
Genuine Investment (3)
Definition of investment – Article 9.1
 Article 9.1 - “investment” means every kind of asset which has
the characteristics of an investment, including such
characteristics as the commitment of capital or other resources,
the expectation of gain or profit, the assumption of risk for a
certain duration.

[Incorporates the Salini requirements and is in accordance with arbitral
case law].
Genuine Claim (4) – Strict
Compliance
Admissibility
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
Timelines:

3 years from breach; 1 year if pursuing local remedies which have since been exhausted

3 months consultations phase, followed by notice of intent to submit a claim

Claim can only be filed 3 months after notice of intent

Any breach of timelines goes to admissibility (Tribunal to weigh reasonableness of party’s
conduct)
Article 9.17(3) provides a procedural ground upon which the State may delay or strike out an
investor’s request for ISA. “tribunal shall decline jurisdiction where the claimant fails to respect
any of the requirements or declarations referred to in paragraphs 1 and 2”. This means the
tribunal has no discretion to determine whether non-conformity to any of the requirements were
minor.
Genuine Claim (5) – Manifestly w/o legal
merit Art 9.21
1. The respondent may, either no later than thirty days after the constitution of a
tribunal pursuant to Article 9.18 (Constitution of the Tribunal) and in any event before
the first session of the tribunal, file an objection that a claim is manifestly without legal
merit.
2. The respondent shall specify as precisely as possible the basis for the objection.
3. The tribunal, after giving the disputing parties an opportunity to present their
observations on the objection, shall, at its first session or promptly thereafter, issue a
decision or award on the objection.
4. This procedure and any decision of the tribunal shall be without prejudice to the
right of a respondent to object, pursuant to Article 9.21 (Claims Unfounded as a
Matter of Law) or in the course of the proceeding, to the legal merits of a claim and
without prejudice to the tribunal’s authority to address other objections as a preliminary
C. Interpretation & Certainty
Rules of interpretation
Article 9.19(2) – Expressly states that FTA shall be interpreted in accordance
with VCLT and other principles of international law.

Article 9.19(3) – Also provides for binding interpretation as adopted by the
Trade Committee “where serious concerns arise as regards issues of
interpretation which may affect matters relating to this chapter”.


See also articles 15.21 and 15.22 of the US-Singapore FTA
Cont.’ (2)


Article 9.6 matches other IIAs in adopting the Hull Standard
requiring prompt, adequate and effective compensation. The
EUSFTA, however, goes a step further in defining what constitutes
adequate compensation as “fair market value”. Should thus be read
together with World Bank Guidelines on the Treatment of Foreign
Direct Investment.
It states at Article 9.6(4), that “[a]ny measure of expropriation or
valuation shall, at the request of the covered investors affected, be
reviewed by a judicial or other independent authority of the Party
taking the measure.”
Trade Committee


Article 17.1 of the EUSFTA establishes a Trade Committee comprising of
representatives from both parties. Essentially the Trade Committee is tasked
with overseeing the smooth implementation of the FTA, considering
amendments and issuing binding decisions. The decisions of the Trade
Committee then become binding on the Parties as well as any subsequent
ISA.
Importantly, interpretations adopted by the Trade Committee are binding
on the tribunal deciding a claim pursuant to Article 9.16. While the usage
of the word “adopted” indicates that the Trade Committee’s decisions will
not have a retroactive element, the extent of the Trade Committee’s powers
is yet to be fully explored.
No Standing Tribunal; Possible
Appeal Mechanism

Article 9.30 – ‘Socket provision’ hints at the
possible creation of an appeal mechanism,
depending on the views of the Trade
Committee.
4. Dispute Resolution in Singapore
SICC as the ‘Standing Panel’?

Alongside commercial judges from Singapore, the SICC’s panel
of judges features twelve eminent international judges hailing
from various jurisdictions, each possessing commercial
expertise, and representing a good mix of both the civil and
common law traditions. Does a permanent investment court too
closely overlap with the purpose of the SICC in dealing with,
inter alia, parties that have has no substantial connection with
Singapore?
A. Arbitration in Singapore – SIAC (2016
Rules Delocalise)
ISA in SIAC

The draft IA Rules aim to provide an alternative,
bespoke set of procedures to the SIAC Arbitration
Rules. They address issues which have been the
focus of much discussion within the international
arbitration community, including, in particular, the
provisions on early dismissal of claims,
confidentiality, submissions by non-disputing parties
and disclosure of third party funding arrangements.
Cont.

The draft IA Rules were produced in consultation
with the SIAC Court of Arbitration Rules Revision
Executive Committee, working closely with the Court
sub-committee on investment arbitration. The
Committee is composed of leading practitioners
from all over the world, and is chaired by the
President of the SIAC Court of Arbitration, Mr Gary
Born.
B. Arbitration in Singapore - ICC

In 2015, over 6% of all new ICC cases named
Singapore as the seat of arbitration upholding the
city's ranking as the number one seat of ICC
Arbitration in Asia. As a reputed seat of arbitration
for Singaporean and foreign parties alike,
Singapore ranked the 4th most preferred seat of
arbitration in the world.
5. Transparency & Independence
Transparency & Independence
The FTA adopts full transparency in ISDS disputes: all
documents (submissions by the parties, decisions of the
tribunal, expert reports, etc.) will be publicly available
on a website administered by the United Nations and
financed by the EU. All hearings will be open to the
public.

Cont. (2)
Article 9.18 - Constitution
Tribunal to be appointed in the usual way, except where if it is not constituted
within 90 days, the Tribunal will be drawn from:


A list of five individuals proposed by each Party to serve as members (not as chair / sole)

A list proposed by each party of individuals who are not nationals of either party, and
Trade Committee will thereafter identify five individuals who may act as chair / sole.
Annex9-F of the FTA includes a binding code of conduct for arbitrators. The code sets
out strict disclosure obligations, rules for the prevention of conflicts of interests, as well as
rules regarding the conduct of arbitrators during and beyond ISDS proceedings. In case
an arbitrator is found not to comply with the code, he/she will be replaced. That decision
is taken by the Secretary General of ICSID, and not by the fellow arbitrators (Article
9.18(10)).

th
6
Singapore at
Committee,
14/10/13 (R. Lee, Counsellor)

‘The work on these UNCITRAL Rules on Transparency in Treaty-based
Investor-State Arbitration Rules was extremely difficult. InvestorState arbitrations are not commercial arbitrations. They are
governed by Public International Law and not the national law
chosen by the parties. Singapore supports transparency in InvestorState arbitration. Transparency is one means of ensuring the
integrity of such arbitrations, which has of late been subject to
criticism. However, Singapore shares the concerns of various
states over instituting processes which would facilitate
interventions by non-governmental organisations in InvestorState arbitrations’.
Singapore at 6th Committee, 19/10/15 (N.
Morris, Counsellor)

The Transparency Rules, which provide a framework for
publication of information regarding investment arbitrations,
were approved at the Commission’s 46th Session. In the
context of the Transparency Rules, Singapore has consistently
supported the publication of all awards and decisions of an
arbitral tribunal. Access to awards and decisions will
enable States and investors to better understand the rules
which govern the investment landscape and to make more
informed decisions. We have also consistently supported
having a neutral online repository.
Thank you