The issue of reforming the investor state dispute settlement mechanism (ISDS) has been at the forefront of international law discourse and public debate for many years now. ISDS provides a forum for foreign investors to challenge state action in arbitral tribunals that are not domestic in nature. While WTO dispute settlement is a state-to-state affair, ISDS opens up the State to private, investor challenge. The grounds on which an arbitration claim can be filed depend on the substantive provisions of an international investment agreement.
The debate surrounding ISDS can be categorized into three broad buckets:
1. Criticism of the rationale of ISDS itself as being inimical to interests of developing countries or capital importing states since it gives special privileges to foreign investors against the State
2. Questioning the nature of protection given under investment agreements – commonly referred to as substantive provisions – for example, fair and equitable treatment, the right to regulate, exceptions to protection, compensation quantification
3. Exploring the procedural aspects of ISDS and the need to make it more transparent – including arbitrator appointments and code of ethics
A recent piece in the Discourses of ISDS reform: a comparison of UNCITRAL Working Group III and ICSID processes in the Journal of International Economic Law explores the discussion around these aspects in two for a – ICSID and UNCITRAL WG III. Both fora have debated the issue for long but with differing perspectives. While the ICSID process is a more subdued version of the debate on ISDS with how to improve procedure and transparency in the process, the UNCITRAL discussion has veered on and off to the very substance of the issue – is ISDS required at all!
As the piece states, UNCITRAL provides this picture:
Overall, a closer look at the content of submissions provided to UNCITRAL WG III shows the emergence of narratives encompassing a broad range of criticisms. In addition to the concerns initially identified by UNCITRAL WG III, states and nonstate actors have engaged more directly with issues like the right to regulate and investor misconduct. The critical discourse analysis of UNCITRAL submissions also sheds light on the key role of nonstate actors—both public interest NGOs and organizations representing the interests of the arbitration community—voicing their opposition to reform proposals or even to ISDS as a means of settling investment disputes.
On the other side, ICSID has been a more sedate partner in addressing the reform question. The intent was made clear by ICSID
The ICSID Secretariat nevertheless mentioned that it wished to ‘explore how to simplify the dispute settlement procedure to make it increasingly cost and time effective, while continuing to ensure due process and equal treatment of the parties’.
Addressing procedural issues meant that the larger questions that UNCITRAL was discussing didn’t find a place here.
Despite clear opposition to specific proposed amendments, one defining feature of the submissions at ICSID is that they did not evince the same opposition to arbitration as a dispute settlement mechanism. The submissions also did not generally appear to demonstrate deeper criticism of the reform process itself. Echoing the nature of the ICSID reform process, when actors did engage with broader issues related to ISDS, they generally articulated their concerns by tying them to procedural matters.
The study of both the fora gives a comprehensive picture on how States, non-State actors, private actors view the ISDS system. Both substantive and procedural criticism is an important step to undertake reform by States – whether at the multilateral level or even in their bilateral investment regimes. International Investment law is characterized by multiplicity of models – from the Brazilian co-operation and facilitation framework to a high standard investment agreement in CP-TPP. How States navigate these varying narratives to suit national interest and policy choices is an interesting study. Capacity to comprehend the consequences of different models as well as the ability to take informed choices is the key to a future with or without ISDS.
