Reformed ISDS

The investor-state dispute settlement (ISDS) mechanism has come under fire in the past few years. As a result of many controversial cases, civil society groups, international organisations, academics, lawyers and state officials have argued that the arbitration process has had a negative impact on public interest and is need of reform or should be scrapped altogether.

Therefore tweaked versions of the system have been proposed to avoid the most undesired “side effects” of standard ISDS rules. At least 45 countries and four regional blocs are revising or have recently revised their investment model agreements.

In 2012, South Africa, the government started to withdraw from its bilateral investment treaties and amended domestic legislation to make it compatible with BIT-like investor protections while incorporating exceptions where warranted by public interest considerations.

In 2014, Indonesia decided to terminate 67 bilateral investment treaties and has also been developing a new model BIT that supposedly reflects a more balanced approach between the country’s right to regulate and foreigner investor protection.

In 2015, the European Commission established a new ’Investment Court System’ to replace the current ISDS mechanism in its trade deals. The ICS has been incorporated in the EU deals with Canada (CETA) and Vietnam. It has also been proposed for the ongoing negotiations with Mexico, the Philippines and the US (TTIP). However many critics claim that this new system is largely window-dressing.

In December 2015, India released a revised model BIT which, for instance, requires investors to exhaust domestic remedies (Indian courts) before turning to international arbitration and leaves out “fair and equitable treatment” provisions.

In 2016, members of the Southern African Development Community (SADC) (Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland) amended the SADC Finance and Investment Protocol that included ISDS provisions. The amendments eliminate the ISDS mechanism (only state-to-state arbitration remains) and narrow the scope of investors’ rights, including exclusion of “fair and equitable treatment”, limitations to “national treatment” to allow for local preferences, obligation for investors to follow host state domestic law and exception from investment rules for policies enacted to comply with international treaties.

In South America, experts from the Union of South American Nations (UNASUR) have been developing an investment settlement centre, as an alternative to the World Bank’s ICSID.

February 2017

EJIL: Talk! | 15-Jun-2017
The investor-state arbitration landscape is shifting under our feet. The utility and legitimacy of traditional investor-state arbitration have come under fire, but states have not converged on a viable alternative.
The Hindu | 2-Jun-2017
‘IIA, which has a pro-investor bias, aims to protect only capital and not labour,’ said Saurabh Garg, the Joint Secretary in Indian Finance Ministry’s Department of Economic Affairs.
Campact | 1-Jun-2017
The proposed Multilateral Investment Court would give large corporations an exclusive justice system.
Kluwer Arbitration Blog | 16-May-2017
How far does the new Bolivian arbitration act go in its intent to keep State arbitration inside the country?
EJIL: Talk! | 16-May-2017
The treaty is an important attempt by two developing countries to move toward a new generation of BITs fully aligned with the evolution of international law.
EJIL: Talk! | 15-May-2017
While the debate on the treaty regulating business impact on human rights is likely to continue for a while longer, some recent developments in international investment law seem to be moving forward on international human rights law obligations for businesses
Lexology | 15-May-2017
While India and Indonesia may have withdrawn from existing BITs, this does not necessarily leave foreign investors without any protection.
Piensa Chile | 12-May-2017
El economista de Fundación Sol, Marco Kremerman, presentó “Libre Comercio”, otro cuento capitalista, en el Encuentro Ampliado: ¿Cómo enfrentarnos al libre comercio?.
Financial Times | 9-May-2017
The growing number of investor claims against sovereign host states has fuelled a backlash against bilateral investment treaties and free-trade agreements across the world.
Al-Ahram | 2-May-2017
Les pays africains envisagent la création d’une cour arbitrale africaine pour le règlement des litiges relatifs aux investissements. Cette solution parmi d’autres permettra d’assurer un meilleur équilibre entre la protection des investisseurs et la préservation des intérêts nationaux.

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