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

Lexology | 3-Sep-2020
The Australian Federal Government has announced it is reviewing the bilateral investment treaties (BITs) to which Australia is a party.
South Centre | 11-Aug-2020
COVID-19 can increase liability for countries under international investment treaties. Developing countries face imminent challenges under such treaties.
Leadership | 10-Aug-2020
Nigeria is undertaking series of reforms of the country’s bilateral investment treaties to attract responsible, inclusive, balanced and sustainable investments.
Tralac | 8-Jul-2020
With the growing concern over the traditional ISDS system, it is highly unlikely that the AfCFTA will include an ISDS mechanism giving investors access to go to international arbitration under conventional international tribunals.
African Law Blog | 8-Jul-2020
African states need to take a unified and proactive approach to investor-state dispute settlement (ISDS), in order to make a system that is fairer to Africa and more consistent.
Financial Express Bangladesh | 7-Jul-2020
Amidst the global risk of ISDS claims, it is incumbent to shed light on Bangladesh’s BIT structure and its feasibility to confront ISDS claims in the backdrop of Covid-19 regulatory space.
Maroc Diplomatique | 6-Jul-2020
L’arbitrage international doit bonnement et simplement modérer ses pouvoirs aux fins de garantir les droits et l’autonomie des personnes et éviter les entorses qui seraient de nature à porter atteinte à la substance même des droits et des libertés.
IISD | 1-Jul-2020
In the face of the increasing number of claims brought by investors against host states on the basis of BITs and the exorbitant amounts awarded to investors, Morocco has undertaken a review of its model BIT using a flexible and rational approach.
IISD | 1-Jul-2020
Face au nombre croissant de recours présentés par des investisseurs contre des pays d’accueil au titre de traités bilatéraux d’investissement, le Maroc a entrepris de réviser son modèle de TBI au moyen d’une approche souple et rationnelle.
IISD | 1-Jul-2020
Frente a un creciente número de demandas entabladas por inversores contra Estados receptores en virtud de TBI y exorbitantes sumas otorgadas a los inversores por tribunales arbitrales, Marruecos ha emprendido la revisión de su modelo de TBI.

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