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.

In 2017 states from around the world began to debate at UNCITRAL (United Nations Commission on International Trade Law) about the possible reform of the ISDS system in a way that would address legitimacy concerns and rebalance the system. As part of these discussions, the EU proposed the creation of a Multilateral Investment Court (MIC), which was slammed by civil society groups, as the MIC would “enshrine, expand, and entrench the current system of corporate privilege in future trade deals.”

Photo: Attac / CC BY-SA 2.0

March 2021

Seneweb | 24-Jun-2025
l’État cherche à rééquilibrer ses partenariats économiques, notamment dans les secteurs extractifs et stratégiques, les limites juridiques imposées par les traités d’investissement deviennent de plus en plus visibles.
Herbert Smith Freehills Kramer | 20-Jun-2025
The treaty is a prime illustration of India’s post-2016 BIT policy in action and follows India’s Model BIT closely.
The Economic Times | 6-Jun-2025
The BIT has calibrated the Investor-State Dispute Settlement mechanism with mandatory exhaustion of local remedies, thereby, providing investors alternate dispute resolution mechanism.
Global Development Policy Center | 28-May-2025
To accomplish the removal of ISDS efficiently, G7 countries, or some subset of them, could lead the development of a plurilateral agreement to alter all IIAs amongst the parties that sign up to it.
IISD | 27-May-2025
Mientras que los tratados de inversión enfrentan una mayor resistencia en todos los frentes, se reitera el llamado a priorizar los arbitrajes basados en contratos conforme a las cláusulas de arbitraje de los acuerdos de inversión negociados entre inversores extranjeros y Estados receptores.
IISD | 27-May-2025
Alors que les traités d’investissement se heurtent à une résistance croissante de toutes parts, les appels à donner la priorité aux arbitrages fondés sur des contrats sont relancés.
IISD | 27-May-2025
As investment treaties face increased resistance from all quarters, there have been renewed calls to prioritize contract-based arbitrations pursuant to arbitration clauses in investment agreements negotiated between foreign investors and host states.
TNI | 26-Mar-2025
Despite criticism of the free trade agreement with the United States, Colombian President Gustavo Petro opted to reassess a series of clauses on investments and arbitration, instead of requesting a complete renegotiation.
América Economía | 17-Jan-2025
The new interpretative note on the investment chapter of the FTA seeks to avoid legal abuses and protect the sovereignty of both countries without affecting incentives for foreign investment.