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

IISD | 12-Apr-2019
The proposed amendments signal an effort to improve the procedural rules governing ICSID arbitration, but fail to appropriately address many concerns expressed and fall short of promoting meaningful reform of investor–state dispute settlement (ISDS).
Le Monde | 10-Apr-2019
Seuls les Etats du pays dont dépend l’investisseur étranger devraient pouvoir saisir une justice spécialisée sur le sujet des investissements, si la loi nationale ou la décision des autorités publiques s’avère contraire à un accord international signé.
Stop ISDS | 9-Apr-2019
A permanent Multilateral Investment Court pushed by the European Union could make ISDS worse by scaling it up.
TNI | 8-Apr-2019
ISDS lawyers appear to hold administrative positions within the working group and are represented in large numbers in the advisory bodies that have been established for the working group.
AFTINET | 8-Apr-2019
Advocates of ISDS (industrialised countries and lawyers from the ‘arbitration industry’) dominate the running of the Working Group and its advisory bodies. Civil society is underrepresented.
The American Prospect | 5-Apr-2019
USMCA bears many resemblances to NAFTA, which has been cited as a driver of low-wage corporate outsourcing.
EJIL: Talk! | 4-Apr-2019
The principle that adjudicators must be independent and impartial is at the core of any adjudicatory mechanism. It plays an important role in Investor-State arbitration, where arbitrators typically sit for a short amount of time and are not career judges.
UNCITRAL | 3-Apr-2019
Nous souhaiterions exprimer notre préoccupation générale face au fait que les accords internationaux d’investissement (AII) et leur mécanisme de RDIE se sont souvent révélés incompatibles avec le droit international relatif aux droits de l’homme et la primauté du droit.
UNCITRAL | 3-Apr-2019
We wish to express our overarching concerns that international investment agreements and their ISDS mechanism have often proved to be incompatible with international human rights law and the rule of law.
UNCITRAL | 3-Apr-2019
Quisiéremos expresar nuestra preocupación principal de que los acuerdos internacionales de inversión y su mecanismo del ISDS han demostrado a menudo ser incompatibles con el derecho internacional de los derechos humanos y el estado de derecho.

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