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

Business Today | 11-Feb-2016
The revised model text for bilateral investment treaties has addressed many concerns, but to avoid litigations, India must renegotiate existing treaties on the basis of the new norms.
DRB | 3-Feb-2016
The German Magistrates Association rejects the proposal of the European Commission to establish an investment court within the framework of the Transatlantic Trade and Investment Partnership.
Lexology | 21-Jan-2016
India’s new model BIT text follows the trend of divergent approaches to investment treaty-making by focusing on a more defensive-minded strategy than in its prior treaties.
Tele Sur | 21-Jan-2016
Experts from UNASUR met in the Uruguayan capital Montevideo in order to finalize and sign agreements regarding the proposed center for investigation of international settlement dispute cases.
IA Reporter | 6-Jan-2016
Following the release in April of 2015 of a draft model investment treaty, the government of India unveiled a final version of its proposed negotiating text.
CADTM | 30-Dec-2015
Les accords internationaux d’investissement sont un puissant instrument de domination et de spoliation de la richesse des États.
IPS | 30-Dec-2015
American mining corporation Newmont escaped the domestic processing requirement from Indonesia’s 2009 Mining Law. It achieved this by using a clause in a Dutch investment treaty.
EurActiv | 19-Oct-2015
EU Parliament adopts robust mechanism needed for Paris climate talks. Are European national leaders ready to act?
S2B | 7-Oct-2015
Why the Commission’s proposal for an “Investment Court System” still fails to address the key problems of foreign investors’ privileges
Indonesia for Global Justice | 9-Sep-2015
The Government plan to reassess the 64 Bilateral Investment Treaties (BITs) that have been signed by Indonesia immediately.

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