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

Lexology | 13-Jul-2017
A number of the provisions of the new legislation are inconsistent with the protections afforded to qualifying investors under agreements such as bilateral investment treaties.
Kluwer Arbitration Blog | 12-Jul-2017
The ACFI model focuses on dispute prevention and bilateral governance, limiting arbitration to the State-to-State level.
European Commission | 12-Jul-2017
The United Nations has agreed to initiate work on possible multilateral reform of investment dispute settlement including the possible establishment of a multilateral investment court.
Business Standard | 12-Jul-2017
The JIN includes the definition of investor and investment, exclusion of taxation measures, Fair and Equitable Treatment (FET), National Treatment (NT) and Most Favoured Nation (MFN) treatment, expropriation, essential security interests and settlement of disputes between an investor and a contracting party,
Politico | 10-Jul-2017
Some of the world’s largest economies will push for a radical overhaul of the framework through which massive international corporations can sue governments.
Madhyam | 3-Jul-2017
Governments at the Centre and in the States must urgently invest in building their own capacity to handle the new generation of international investment arbitration.
The Hindu | 29-Jun-2017
Talks deadlocked on investor dispute settlement.
IISD | 28-Jun-2017
Le Brésil n’a jamais approuvé un traité bilatéral d’investissement, ni signé la Convention du CIRDI. Malgré cela le pays a continué de recevoir d’importants flux d’investissement étranger direct.
IISD | 28-Jun-2017
Brazil has never approved any BITs nor did it sign the ICSID Convention but it continued to receive significant amounts of foreign direct investment (FDI), consolidating its position as one of the world’s top recipients of FDI
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.

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