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

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.
EJIL: Talk! | 23-Sep-2019
South Africa makes clear that in its view, procedural reform is not enough. A wider agenda that includes substantive issues is needed.
Mondaq | 12-Sep-2019
The traditional mechanism of investment arbitration between the investor and the host State has been under attack for some time now from a range of actors and for a variety of reasons.
Climate Home News | 24-Jul-2019
Campaigners are urging reform of an obscure system that allows coal, oil and gas companies to sue governments if climate policies hit their profits.
Reuters | 29-May-2019
Multinational companies will increasingly file massive cases against host countries when climate change policies affect their profits, Nobel Prize-winning economist Joseph Stiglitz said.
Barbados Today | 6-May-2019
Caribbean States and investors are not only participating, but being harmed by the ills and abuses of the current system of ISDS.
Kluwer Arbitration Blog | 2-May-2019
The 37th session in New York was devoted to addressing and identifying some additional concerns and creating a workplan for carrying out phase three of the mandate—developing possible ISDS reform options.
EU Observer | 30-Apr-2019
But legality should not be our main concern here. There are much better approaches to international investment and we should be considering them.

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