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

Kluwer Arbitration Blog | 25-Apr-2022
The 2019 Moroccan Model BIT is a good example of the growing body of ‘new generation’ Model BITs fuelling the ISDS reform conversation.
IISD | 1-Apr-2022
L’initiative vise à « examiner la manière dont les traités d’investissement futurs pourraient contribuer à répondre à ces défis et comment gérer les accords existants de manière pragmatique ».
IISD | 1-Apr-2022
The initiative is aimed at exploring “how the investment treaties of tomorrow could help address these challenges and how to deal with existing agreements in a pragmatic way.”
IISD | 1-Apr-2022
Le GTIII de la CNUDCI se réunira de nouveau du 5 au 16 septembre 2022, lors de sa 43e session formelle.
IISD | 1-Apr-2022
UNCITRAL WGIII will reconvene from September 5 to 16, 2022, at its 43rd formal session.
| 28-Mar-2022
The question is whether states wish to cede a significant portion of their sovereignty to ISDS tribunals, giving them the authority to decide which state measures taken in the public interest are legitimate.
Global Justice Now | 2-Mar-2022
It is perfectly possible to withdraw from trade deals containing corporate courts, as former South African trade minister Rob Davies explains.
The Wire | 18-Jan-2022
A recent report by the Standing Committee on External Affairs shows how there are two missing pieces to the puzzle.

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