Reality check of ISDS mechanism
Investor State Dispute Settlement (ISDS) is the mechanism of settling investment disputes by ad hoc investment tribunals transpired between host states (states where investments are made by foreign investors) and investors. ISDS mechanism allows foreign investors to approach directly to the international tribunals to settle investment disputes without exhausting local remedies available in the host states.
Recently, ISDS has been facing massive backlash because of multiple solid reasons that put a huge question mark concerning the legitimacy of the system. Although till now 2932 bilateral investment agreements (BITs) and 387 treaties with investment provisions (TIPs) were signed, there is no global investment agreement and global investment court like WTO to negotiate and settle the investment disputes.
As a result, BITs permit foreign investors to access to the ad hoc arbitral tribunals e.g. ICSID, International Chamber of Commerce, London Court of International arbitration, Stockholm Chamber of Commerce, etc. to resolve the investment disputes if any arises between host states and foreign investors and is not resolved amicably by negotiation and consultation.
But recently many states, academics and civil society groups are opposing the BITs and TIPs based ISDS mechanism and arguing for ISDS reformation for the 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 to terminate the rest of the BITs out of the fears of the ISDS system. These countries allege current ISDS mechanism is inter alia biased towards foreign investors because of its very constitutive nature.
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.
Hence one Saipem V. Bangladesh settled against Bangladesh and the rest two Chevron V. Bangladesh and Niko V. Bangladesh are in progress to be settled in favour of foreign investors albeit the measures taken and regulatory powers applied by Bangladesh as a host state are the proper exercises of police powers for public purposes provided with one flaw of exercising improper jurisdiction of Bangladesh domestic courts.
ISDS mechanism is like a sinking boat and in a massive legitimacy crisis that is why many global north countries are shifting themselves from bilateral ad hoc ISDS mechanism and forming permanent regional multilateral investment courts with appeal mechanism 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). International investment law, one of the most important fragmented parts of general international law that regulate foreign direct investments among the countries of the world and settle investment disputes between host states and foreign investors through ISDS are 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 solutions of the existing ISDS mechanism and most importantly adopt global investment treaty and permanent global investment court if unanimously possible for the smooth advancement of foreign investment law.
Tarek Rahman is a legal researcher.