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

FFII | 23-Dec-2016
Due to inherent systemic issues with specialised and supranational courts, a multilateral investment court would create a high risk on expansive interpretations of investors’ rights.
The News | 16-Dec-2016
Pakistan favours the resolution of trade disputes through established multilateral settlement systems instead of ad-hoc tribunals, an official said.
Jakarta Post | 15-Dec-2016
The Indonesian government should stick to its policy of removing the investor-state dispute-settlement (ISDS) mechanism from its bilateral investment or trade treaties.
Bloomberg | 15-Dec-2016
The European Union and Canada will launch a proposal for a new global investment court system for settlements of disputes between states and foreign investors over discriminatory treatment.
Lexology | 7-Dec-2016
The conclusion of negotiations between India and Brazil culminating in a near-final treaty between the two nations.
Newstalk | 6-Dec-2016
Officials in Brussels have announced that they are close to securing a free trade agreement with Japan.
Jakarta Post | 1-Dec-2016
Indonesia will seek a win-win outcome for the Comprehensive Economic Partnership Agreement (CEPA) with the European Union, having exchanged views on a number of crucial sticking points ahead of the next round of negotiations in January.
Vieuws | 30-Nov-2016
The European Commission wants to give a strong push within the EU and around the globe for the establishment of a multilateral investment dispute settlement system.
Business Standard | 29-Nov-2016
The EU terms India’s move ’unilateral’, says lack of investor protection might stop European investments to India.
Hindustan Times | 24-Nov-2016
India will not renew an investment treaty with the Netherlands that will expire on November 30 as part of its plan to rework all similar pacts it signed with other countries.