Erasmus Institute for Public Knowledge

AN OPEN LETTER TO THE CHAIR OF UNCITRAL WORKING GROUP III AND TO

ALL PARTICIPATING STATES CONCERNING THE REFORM OF THE INVESTORSTATE

DISPUTE SETTLEMENT: ADDRESSING THE ASYMMETRY OF ISDS

The international investment regime is subject to widespread criticism by civil society and by political

and institutional actors as well as academics. Objections have mostly focused on the Investor-State

Dispute Settlement (ISDS) mechanism. To address these critiques and consider reform, UNCITRAL

has established Working Group III (WG III). In the work of WG III, a number of concerns have

been raised, including transparency, consistency, costs and duration of the arbitration procedures, and

ethics and impartiality of arbitrators. These issues seem likely to shape any multilateral reform agenda.

While the identified concerns may be considered important, one of the paramount deficiencies of

ISDS remains largely unaddressed by WG III. In its broadest terms, this issue arises from the

asymmetric structure of the ISDS, whereby 1) the public interest of states and communities

potentially affected by investment activities (e.g. protection of human rights and environment)

remains subordinate to the private interests of investors and 2) investors remain largely

unaccountable under international law for any misconduct. Legal and socio-legal scholars, as well as

researchers in public interest institutions, have painstakingly documented the characteristics and at

times disturbing consequences of this asymmetry.

Ongoing developments addressing ISDS shortcomings

In this regard, we note some developments at the level of arbitration procedure and practice and in

treaty law making that respond to this asymmetry. We refer especially to four trends: 1) the enhanced

admissibility of states’ counterclaims in ISDS, as clarified by arbitration tribunals and in revised

arbitration rules (e.g. Burlington Resources v Republic of Ecuador); 2) the recognition of human rights

obligations of investors as part of the applicable law to investment disputes, as clarified by arbitration

tribunals (e.g. Urbaser v Argentina); 3) the inclusion of specific obligations for investors in International

Investment Agreements (IIAs) based on new treaty texts (e.g. Morocco-Nigeria BIT; India-Belarus

BIT; the Pan-African Investment Code), which could potentially be invoked in ISDS; and 4) the

complete eradication of ISDS, and the subsequent return to either purely domestic and/or alternative

state-to-state dispute settlement, possibly complemented by an Ombudsperson (e.g. Brazil

Cooperation and Facilitation Investment Agreement).1

Existing reform proposals to reconfigure the asymmetry in ISDS

A number of proposals for systemic reform of ISDS have been articulated by various actors. For

example, UNCTAD has formulated a series of policy tools for states to redesign ISDS,2 and a group

of academic scholars has drafted a Model Treaty on Sustainable Investment for Climate Change

Mitigation and Adaptation.3 In a similar vein, a number of proposals have been submitted to the UN 

Business and Human Rights Forum in response to a call for crowd-drafting of human rightscompatible

investment treaties.4 Some of the recurring proposals include:

1. Host states’ right to invoke counterclaims in investment arbitration: IIAs should

explicitly state the right of host States to commence counterclaims. Investors’ consent to

counterclaims would be deemed to have been given upon admission of the investment to the

host state.

2. Direct claims of states and investment-affected communities: Host states and

communities that are negatively affected by an investment activity should have the right to

initiate a dispute before an arbitral tribunal. Investors’ consent would likewise be deemed to

have been given upon admission of the investment in the host state.5

3. Integration of relevant decisions and reports of grievance mechanisms into arbitration

proceedings: a number of public bodies such as Ombudspersons and OECD National

Contact Points already are (or could be) entrusted with the task of receiving complaints from

investment-affected communities. Arbitration tribunals should explicitly refer to pertinent

conclusions of such bodies when giving reasons in awards.

4. Exhaustion of domestic legal remedies: In all cases, exhaustion of reasonably available

domestic remedies within a reasonable amount of time should be an a priori mandatory

requirement for all investment disputes to be heard before an arbitral tribunal.

Although we may have different visions of the extent to which the current system can be cured of its

defects, we all concur that, at a minimum, these proposals should be seriously considered within

UNCITRAL Working Group III. With this open letter, we call on States and the UNCITRAL

Working Group III to include the asymmetry in ISDS as one of the concerns to be addressed

in the current UNCITRAL reform efforts. We also call on them to facilitate and consolidate

the discussion of the patterns identified for addressing and correcting asymmetry and to

engage seriously with the proposals mentioned above. By doing so, states and UNCITRAL WG

III would show commitment to shaping the international economic order so that it protects the

common interest of all instead of a narrow and particular group of interests.

Footnotes

1 In this context, some have also proposed a multilateral mechanism to either terminate existing BITs or withdraw consent to ISDS, available at https://uncitral.un.org/sites/uncitral.un.org/files/mediadocuments/uncitral/en/uncitral_recs_and_justification_final.pdf.

2 See for example, UNCTAD Policy Tools available at: https://unctad.org/en/PublicationsLibrary/diaepcb2017d8_en.pdf.

3 http://stockholmtreatylab.org/wp-content/uploads/2018/07/Treaty-on-Sustainable-Investment-for-Climate-ChangeMitigation-and-Adaptation-1.pdf

4 The submitted proposals are available at the UN Forum Website: https://www.ohchr.org/EN/Issues/Business/Pages/IIAs.aspx.

5 For a proposal articulating specific provisions in relation to the basis for direct claims and counterclaims of states and affected communities see Arcuri, Montanaro, Violi (2018) Proposal for a Human Rights-Compatible International Investment Agreement: Arbitration for All, available at https://www.ohchr.org/EN/Issues/Business/Pages/IIAs.aspx. See also Model Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation, note 3.