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

CIEL | 23-Sep-2022
What recent case law and treaty reforms may mean for the future of investment arbitration in the energy sector.
UNCTAD | 7-Sep-2022
Reforms are essential to ensure investment treaties and associated investor-state disputes don’t hinder countries’ efforts to tackle climate change.
Columbia | 6-Sep-2022
Existing international investment agreements providing for investor–state dispute settlement fail to advance climate goals and can effectively hinder states’ climate action.
Lexology | 1-Sep-2022
In recent years, in certain investment arbitration proceedings, States have brought counterclaims alleging that foreign investors had failed to comply with corporate social responsibility principles. In all but two cases, these counterclaims have been unsuccessful.
JDSupra | 22-Jul-2022
The model BIT aims to balance two objectives: the attraction of foreign direct investment to African states and the promotion of sustainable development.
OpinioJuris | 21-Jul-2022
Unsatisfyingly, ISDS permits international investment law to exist in a vacuum that enables those tasked with adjudicating disputes to turn a blind eye to international humanitarian law norms.
Lexology | 16-Jun-2022
As investor-state arbitration continues its growth as one of the most dynamic and controversial features of international investment law, developing countries must learn lessons from the decisions of arbitral tribunals on old-generation treaties.
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.

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