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

Zone Bourse | 31-May-2016
La commissaire européenne pour le commerce a rencontré le ministre de l’économie du Mexique afin de marquer l’ouverture de nouvelles négociations sur les échanges et les investissements.
Politico | 31-May-2016
The EU and Mexico will kick off its first negotiation round for overhauling their bilateral trade agreement, talks that will include the EU’s new Investment Court System (ICS).
The Economic Times | 30-May-2016
India has written to 47 countries to nullify the existing bilateral investment agreements and ink fresh treaties that will make it mandatory for foreign investors to exhaust local judicial remedies before seeking arbitration.
IISD | 29-May-2016
Results from an IISD expert meeting held in Montreux, Switzerland, May 23–24, 2016.
Les Echos | 27-May-2016
Aucun des principes de cet ICS ne pourra trouver sa place au sein de la CPA tant il est impossible de remplacer les arbitres par des juges permanents, de leur interdire d’exercer des activités d’avocat...
The Hindu | 26-May-2016
The new bilateral investment treaty’s gratuitous focus on local courts and taxation may not please our partners.
El Diario | 23-May-2016
Estamos asistiendo a una lucha de poder, otra vez. El TTIP es un peligro para la democracia, los intereses de las corporaciones avasallan los derechos de la ciudadanía.
Politico | 23-May-2016
Philippine trade negotiators meet their DG Trade counterparts for a first round of trade talks, five months after they were announced, but nobody expects a cakewalk.
CIGI | 23-May-2016
Canada and the European Union released a revised Comprehensive Economic and Trade Agreement (CETA) in February 2016. The revisions focus on the controversial and deeply flawed process of investor-state dispute settlement (ISDS).
IISD | 18-May-2016
The objective of the Observatory is to become a forum for the objective settlement of investment disputes with transnational corporations.

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