By Timothy Nsubuga – 30th Aug-5^th Sept 2010

The United Nations trade arm has published alternative methods that governments and international investors could use to resolve disputes that are currently dealt with through arbitration.

The document, “Disputes: Prevention and Alternatives to Arbitration”, was released by the United Nations Conference on Trade and Development.  It seeks to address problems that have arisen through the increased use of international investment agreements; most of which take the form of bilateral investment treaties.

These agreements are intended to smoothen the way for foreign investment into developing countries by providing legal protection to foreign investors.  But as the agreements become more complex, disagreements over their components and practical application have also increased; just as the current capital gains tax dispute between Heritage Oil and the government of Uganda has shown.

The UN argues that arbitration, the dominant dispute resolution mechanism in such agreements these days, focuses too much on the payment of compensation instead of focusing on maintaining good working relationships between investors and governments.

As a result, the UN study says, such disputes could potentially reduce the benefit of such agreements to developing countries.  It therefore suggested two possible alternatives to remedy the situation.  One alternative dispute resolution seeks to resolve disputes through negotiation or amicable settlement such as international conciliation or mediation.

The other is a dispute prevention policy that could to prevent conflicts between foreign investors and States from escalating into formal disputes.  Here, the UN suggests the establishment of inter-institutional “alert mechanisms” within States or by encouraging information-sharing among governments on investment regimes.

The need for such alternative dispute resolution mechanisms is not in doubt.  By the end of 2009, UNCTAD had counted a total of 357 such disputes; 202 [or 57%] of which had been initiated during the past five years.  The bilateral agreements themselves have grown from 1,881 a decade ago to 2,751 in 2009.

Critics of such alternatives however argue that they are generally non-binding and might be considered a waste of time and money if not conducted properly.  Secondly, the UN itself acknowledges that most parties to such disputes generally lack experience of working with such alternatives.  END.  If it’s Monday, it’s Uganda Correspondent.  Never miss out again.