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

South Centre | 21-Jun-2024
Governments are shifting from investor-state dispute mechanisms to treaties that encourage and ease investment.
The Conversation | 27-May-2024
Peu connu du grand public, le Traité sur la charte de l’énergie (TCE) protège les investissements étrangers dans le domaine de l’énergie des pays signataires… mais sans distinguer les fossiles des renouvelables.
EJIL:Talk! | 12-Apr-2024
A documentary film offers a powerful illustration of the ways in which ISDS can impact third parties, exacerbate inequalities, and reinforce power imbalances.
Business Standard | 9-Apr-2024
India’s Prime Minister’s Office (PMO) has asked the commerce ministry to examine the model text of the bilateral investment treaty and suggest modifications to further improve the ease of doing business.
IISD | 4-Apr-2024
La propuesta de una excepción surge como una medida específica de control de daños, para abordar el problema reconocido y urgente que supone ISDS para la acción climática.
IISD | 3-Apr-2024
La proposition d’exclusion apparaît comme une mesure ciblée pour limiter les dégâts et répondre au problème reconnu et urgent que l’ISDS pose à l’action climatique.
Linklaters | 27-Mar-2024
Although a universal and uniform framework regulating arbitrators’ conduct is useful, its impact may be limited due to limited implementation prospects and the absence of punitive measures.
Pressenza | 25-Mar-2024
Existen políticas de atracción de inversión extranjera exitosas que varios Estados receptores de grandes flujos de inversión extranjera han sabido elaborar, manteniendo una distancia prudente con el mecanismo establecido por el CIADI.
IISD | 12-Mar-2024
The proposal of a carveout emerges as a targeted damage control measure to address the recognized and urgent problem that ISDS poses to climate action.