Open Letter on the Asymmetry of ISDS

Erasmus Institute for Public Knowledge

Open Letter on the Asymmetry of ISDS

The Investor-State Dispute Settlement (ISDS) system, as codified by International Investment Agreements, has been criticized for its asymmetric structure, whereby the public interest of states and communities potentially affected by investment activities remains subordinate to the private interests of investors. Academics, including from Erasmus University and EIPK, have released an open letter calling on states to start taking seriously this well documented problem and include it in the reform agenda led by the UNCITRAL Working Group III.

The letter is made public on February 13, 2019 and remains open for signatures by academics until March 10. You can join the letter by sending an email with your name and affiliation to Prof. Alessandra Arcuri arcuri@law.eur.nl and Dr. Federica Violi (violi@law.eur.nl)

 

 

  • 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.

More information

Signatories

1. Antonella Angelini, Human Rights Institute, Columbia Law School

2. Antony Anghie, National University of Singapore and University of Utah

3. Laurens Ankersmit, Department of Public International and European Law, University of Amsterdam

4. Alessandra Arcuri, Erasmus School of Law, Erasmus University Rotterdam

5. Alessandra Asteriti, Competition and Regulation Institute, School of Law Leuphana

University

6. Marija Bartl, Department of Private Law, University of Amsterdam

7. Christian Bellak, Vienna University of Ecomics and Business

8. Nadia Bernaz, Wageningen University

9. Martin Björklund, Swedish School of Social Science, The Erik Castrén Institute of

Helsinki

10. Jonathan Bonnitcha, the University of New South Wales Sydney

11. Tomer Broude, Faculty of Law, Hebrew University of Jerusalem

12. Claudiu Paul Buglea, International Arbitration Research Centre, University of Bucharest

13. Leïla Choukroune, School of Business and Law, University of Portsmouth

14. Marjorie Cohen, Simon Fraser University

15. Julia Dehm, School of Law, La Trobe University Australia

16. Sara Dehm, Faculty of Law, University of Technology Sydney

17. Nicolas De Sadeleer, University of St. Louis Brussels

18. Antoine Duval, Asser Institute

19. Daria Davitti, Faculty of Law, Lund University

20. Luis Eslava, Kent Law School, University of Kent

21. Isabel Feichtner, Faculty of Law, Julius-Maximilians-University Würzburg

22. Tom Flynn, School of Law, University of Essex

23. Kevin Gallagher, Frederick S. Pardee School of Global Studies, Boston University

24. Juan Garcia Blesa, International Graduate School, Fern Universität Hagen/Westphalia

25. Frank J. Garcia, Boston College Law School

26. Paul Gilbert, Department of International Development, University of Sussex

27. Edward Guntrip, University of Sussex

28. Yogi Hale Hendlin, Erasmus School of Philosophy, Erasmus University Rotterdam

29. Robert Howse, New York University School of Law

30. Jean Ho Qing Ying, School of Law, National University of Singapore

31. Jane Kelsey, Faculty of Law, The University of Auckland

32. Markus Krajewski, Friedrich-Alexander Universität Erlangen - Nürnberg

33. Nico Krisch, the Graduate Institute Geneva

34. Malcolm Langford, Faculty of Law, University of Oslo

35. Emmanuel Laryea, Faculty of Law, Monash University

36. Jessica Lawrence, Department of Legal Studies, Central European University

37. Sean Morris, Faculty of Law, University of Helsinki

38. Marta Morvillo, Amsterdam Centre for European Law and Governance, University of

Amsterdam

39. Laura Murguía-Goebel, Faculty of Law, Julius-Maximilians-University Würzburg

40. Andria Naudé Fourie, Erasmus School of Law, Erasmus University Rotterdam

41. Sundhya Pahuja, Institute for International Law and Humanities, University of

Melbourne

42. Lorenzo Pellegrini, International Institute of Social Studies, Erasmus University

Rotterdam

43. Gustavo Prieto, Department of Law, University of Turin

44. Robi Rado, Melbourne Law School, the University of Melbourne

45. Nikolas M. Rajkovic, Tilburg Law School, Tilburg University

46. Patricia Ranald, Department of Political Economy, University of Sydney

47. Margot E. Salomon, Law Department, London School of Economics and Political

Science

48. Stefano Saluzzo, University of Piemonte Orientale

49. Mavluda Sattorova, University of Liverpool

50. Harm Schepel, Brussels School of International Studies, University of Kent

51. Kim Lane Scheppele, Princeton University

52. David Schneiderman, University of Toronto

53. Craig Scott, Osgoode Hall Law School

54. Prabhakar Singh, Centre for International Legal Studies, Jindal Global University

55. Muthucumaraswamy Sornarajah, Faculty of Law, National University of Singapore

56. Kyla Tienhaara, School of Environmental Studies and Department of Global

Development Studies, Queen's University

57. Ntina Tzouvala, ARC Laureate Fellow, Melbourne Law School

58. Anne Van Aaken, University of Hamburg

59. Gus Van Harten, Osgoode Hall Law School

60. Tara Van Ho, University of Essex School of Law

61. Irene Van Staveren, International Institute of Social Studies, Erasmus University

Rotterdam

62. Ingo Venzke, Faculty of Law, University of Amsterdam

63. Federica Violi, Erasmus School of Law, Erasmus University Rotterdam

64. Aleksandra Vonica, Abstract Institute Romania

65. Anil Yilmaz Vastardis, School of Law and Human Rights Centre, University of Essex