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

EJIL: Talk! | 18-Feb-2020
As observers of the UNCITRAL process, we watch the debates with great interest, writing about the emergence of different camps, giving perspectives on how the process fits within broader geopolitical developments, and offering potential models for moving forward.
| 31-Jan-2020
We civil society organizations and trade unions from the African continent express our concerns about the proposal presented by the European Union to establish a multilateral investment court and support further reaching reforms of ISDS.
IELP | 27-Jan-2020
The UNCITRAL Working Group III turned squarely to designing permanent institutions: a standing appellate mechanism and a multilateral investment court (MIC).
The Globalist | 27-Jan-2020
The US government used to be the chief proponent of strong investor protection clauses in international trade deals. No longer. What happened?
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.

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