Mexico and the European Union have agreed to update the EU-Mexico Free Trade Agreement, which aims to improve, among other things, the settlement of investment disputes. These new covenants concern Chapter 10 of the agreement.
Two fundamental proposed amendments to Chapter 10 of the EU-Mexico Trade Agreement are:
- the introduction of the possibility to appeal decisions of arbitration panels. This amendment would transform arbitration proceedings into two-stage proceedings.
- the requirement that arbitration panels be composed of arbitrators of both parties and different countries. This would result in a permanent court of arbitration whose purpose would be to resolve investment disputes.
Two-stage arbitration
According to theorists, two-stage arbitration provides more certainty to the parties involved since the resolutions issued have been thoroughly analysed. However, two-stage arbitration might threaten two guiding principles of arbitration – namely:
- procedural speed; and
- trust in an arbitration panel.
If an arbitration has two stages, the procedure will be slower and the award will take longer to be issued. This is problematic as one of the reasons why parties request arbitration is because they wish to resolve their dispute faster than they would if they commenced judicial proceedings.
Arbitration panel composition
Parties that request arbitration also want their disputes to be resolved by qualified experts who use their knowledge to decide the case. The parties obviously trust the reputation, autonomy, impartiality and independence of the arbitration court, and the fact that an arbitrator's or arbitration court's decisions may be evaluated by a higher instance threatens the idea of trust in a single-stage arbitration.
Some theorists consider the idea of a permanent court of arbitration to be an attack against the rights of all parties involved in an arbitration if the arbitration panel is ordered to appoint one of the arbitrators. A remarkable feature of arbitration, compared with judicial proceedings, is that each party involved may appoint their arbitrators and the designated arbitrators will, in turn, appoint the arbitration court's chair. This principle is widely used in arbitration procedures in order to achieve a balanced, fair and independent arbitration court.
The abovementioned amendments to the EU-Mexico Trade Agreement move away from the original idea and legal standing of international commercial arbitration towards the idea of an international court.
However, this begs the question of whether altering international commercial arbitration to provide more certainty to the parties involved is convenient.
The amendment to the dispute settlement mechanism applied to investment matters may be more aligned with EU interests, as investment arbitration has been under continuous scrutiny and the way in which disputes are settled in the investment field has been challenged.
Nonetheless, these amendments evidently alter the legal status of international commercial arbitration since they disrupt guiding principles such as:
- arbitration procedure speed;
- the parties' right to elect their arbitrators; and
- trust in an arbitrator or an independent, fair and renowned arbitration court which is fully able to settle disputes.
Arguably, amendments which are based on the legal status of international commercial arbitration are advantageous because they yield more benefits for this form of alternative dispute resolution.
In other words, the arbitration community should seek amendments that benefit, encourage and respect the legal standing of international commercial arbitration and, where possible, avoid amendments which would alter it.
