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

OMAL | 4-Apr-2018
El Tribunal de Justicia de la Unión Europea ha dictaminado que la cláusula de arbitraje incluida en el tratado bilateral firmado entre Holanda y Eslovaquia no se ajusta al Derecho europeo.
RCF | 28-Mar-2018
La France et ses partenaires européens ont donné mandat à la Commission de mettre en place une cour conçue spécialement pour protéger les investisseurs étrangers.
Amis de la Terre | 22-Mar-2018
Dix raisons qui prouvent que la proposition de l’UE en faveur d’une Cour multilatérale d’investissement ne remédie pas aux graves lacunes de ce système.
European Council | 20-Mar-2018
The Council adopted the negotiating directives authorising the Commission to negotiate, on behalf of the EU, a convention establishing a multilateral court for the settlement of investment disputes.
Consejo Europeo | 20-Mar-2018
El Consejo ha adoptado las directrices de negociación por las que se autoriza a la Comisión a negociar, en nombre de la UE, un convenio constitutivo de un tribunal multilateral para la solución de diferencias en materia de inversiones.
Conseil européen | 20-Mar-2018
Le Conseil a adopté les directives de négociation autorisant la Commission à négocier, au nom de l’UE, une convention instituant un tribunal multilatéral chargé du règlement des différends en matière d’investissements.
Kluwer Arbitration Blog | 19-Mar-2018
Now that the CJEU decided that investment treaty arbitration based on intra-EU BITs is not compatible with EU law, the focus of attention must shift towards the domestic courts of the Member States as the guardians of protecting the rights of European investors.

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