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 | 19-Nov-2019
In investor–state dispute settlement (ISDS), ironies do occasionally occur. Sometimes they’re bitter. Sometimes they’re carbon-intensive. Sometimes they’re radioactive.
Kluwer Arbitration Blog | 19-Nov-2019
Global investment governance needs to be redesigned for the 21st century, with people and the planet at the core.
EJIL: Talk! | 24-Oct-2019
In the end, states have the power to decide collectively what reforms to pursue, in what order and in what form. Individually, they will also have choice about which particular reform options to adopt.
EJIL: Talk! | 24-Oct-2019
This process is likely to end with a plural solution in which both models (ISDS and a permanent court), and possibly others, exist.
IISD | 14-Oct-2019
Varios Estados participantes en el proceso de la CNUDMI ya han adoptado alternativas viables a la ISDS.
IISD | 14-Oct-2019
Plusieurs États prenant part au processus de la CNUDCI ont d’ores et déjà adopté des alternatives viables au RDIE.
IISD | 14-Oct-2019
Several states participating in the UNCITRAL process have already adopted viable alternatives to ISDS.
European Commission | 14-Oct-2019
The European Commission today presented to the Council four proposals for specific rules putting in place the Investment Court System provisions in the EU-Canada trade deal.
Kluwer Arbitration Blog | 2-Oct-2019
Should AfCFTA member states opt for an ISDS mechanism, a reformed mechanism should be expected.
AFTINET | 1-Oct-2019
Their submissions conclude that the system is detrimental to public budgets, regulations in the public interest, democracy and the rule of law.

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