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

The Globe and Mail | 14-Sep-2017
The goal of Foreign Affairs Minister Chrystia Freeland is to revamp Chapter 11 so it more closely mirrors the investor-state dispute-resolution mechanism that forms part of the 2016 Canada-European Union trade deal.
European Commission | 14-Sep-2017
The inclusion of Investor-State Dispute Settlement (ISDS) in trade and investment agreements has become subject to increased public scrutiny and questioning.
EJIL: Talk! | 12-Sep-2017
The Protocol draws significantly on the Brazilian model investment agreement, which stands out for departing from the traditional design of Bilateral Investment Treaties, particularly by excluding the possibility of investor-State dispute settlement (ISDS).
CNCD-11.11.11 | 10-Sep-2017
« La saisine permettra de clarifier la légalité de la clause d’arbitrage qui concerne non seulement le CETA, mais également le JEFTA avec le Japon et le VEFTA avec le Vietnam » explique Michel Cermak, chargé de recherche au CNCD-11.11.11
Belga | 6-Sep-2017
La Belgique demandera l’avis de la Cours européenne sur la compatibilité du "Système juridictionnel des investissements" du CETA avec les traités européens
FOEE | 6-Sep-2017
Belgium has requested an opinion from the European Court of Justice on the ’Investment Court System’ included in the EU-Canada trade deal, to determine if the ICS is compatible with the European Treaties
Volterra Fietta | 26-Jul-2017
The data lead to the inexorable conclusion that the European Commission’s declaration that “investment treaty arbitration is dead” is wrong by a ratio of over 1:3,000.
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.

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