Erasmus Institute for Public Knowledge
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 firstname.lastname@example.org and Dr. Federica Violi (email@example.com)
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
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.
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.
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.