Rethinking investor state dispute settlement mechanisms

Investor State dispute settlement (ISDS) is the mechanism of settling investment disputes transpired between host States (States where investments are made by foreign investors) and investors by ad hoc investment tribunals. ISDS mechanism allows foreign investors to approach international tribunals directly without exhausting local remedies available in the host States. Recently, ISDS has been facing massive backlash because of multiple reasons raising a pertinent question regarding the legitimacy of the system.

Although 2932 bilateral investment agreements (BITs) and 387 treaties with investment provisions (TIPs) have been signed till now, there is no global investment agreement and global investment court for negotiation and settlement of investment disputes. As a result, BITs permit foreign investors to access the ad hoc arbitral tribunals e.g. International Centre for the Settlement of Investment Disputes (ICSID), International Chamber of Commerce, London Court of International arbitration, Stockholm Chamber of Commerce, etc. for disputes which cannot be resolved amicably by negotiation and consultation.

However, many States, academicians and civil society groups oppose the BIT and TIP based ISDS mechanism and argue for ISDS reformation. They have raised concerns about the lack of transparency, impartiality and independence of arbitrators; predictability and consistency of interpretation; high fees of arbitrations and absence of appeal mechanisms in the existing ISDS system. Countries like South Africa, India, Indonesia, Venezuela, Bolivia, Ecuador have already terminated many BITs and announced the termination of the rest of the BITs. These countries allege that the current ISDS mechanism is biased towards foreign investors because of its very constitutive nature.

The three investment cases namely Saipem v Bangladesh, Chevron v Bangladesh, and Niko v Bangladesh that were brought against Bangladesh to the International Centre for Settlement of Investment Disputes (ICSID) by foreign investors largely curved the regulatory powers of Bangladesh for public purposes. The Saipem v Bangladesh case which was settled against Bangladesh and the other two are in progress to be settled in favour of foreign investors despite the regulatory powers applied by Bangladesh as a host State.

ISDS mechanism is like a sinking boat and in a massive legitimacy crisis. As a result, many global north countries are shifting from bilateral ad hoc ISDS mechanism and forming permanent regional multilateral investment courts with appeal mechanisms under the European Union (EU)–Canada Comprehensive Economic and Trade Agreement (CETA), the EU–US Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) etc.

International investment law is in existential crisis due to the absence of global investment treaty and standing global investment court. So, all the countries of the world should sit together to find out the plausible solution to its shortcomings and work towards adopting a global investment treaty and permanent global investment court for the smooth advancement of foreign investment law.

The writer is a student of LLM in International Investment Law, South Asian University, New Delhi, India.