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Member States and civil society call for reform of investor state dispute settlement

06 November 2014

​Investor State Dispute Settlement provisions in investment agreements weigh too heavily in favour of investors, hears World Investment Forum.

Reform of laws and procedures for Investor State Dispute Settlement (ISDS), a common provision of international investment agreements, emerged as a key issue at the World Investment Forum.

Many member States and civil society representatives argued that current agreements protect investors at the expense of states and citizens, Two sessions, one led by civil society and the other led by UNCTAD, looked at reforming the International Investment Agreements regime. The civil society session was organised by Third World Network, Our World Is Not For Sale and Public Citizen.

Civil society experts highlighted features of Bilateral Investment Treaties and International Investment Agreements that open host countries to the risk of law suits and make it more difficult for hosts to invest in sustainable development. For example, agreements can include an obligation for states to protect the investor's profits, loosely defined. "Future profits, permits, concessions, market share, intellectual property rights can all be protected," said Sanya Reid Smith, legal adviser at Third World Network.

If a firm believes a state has not protected its profits, it can bring a case against it through Investor State Dispute Settlement (ISDS) procedures. A tobacco company is notable for having brought cases against two countries for introducing anti-smoking legislation, including plain packaging, which the firm claims has devalued its trademarks and investments in both countries. The company was pursuing one of the countries, which has a GDP of $55 billion, for $2 billion, which would be a "huge economic cost" noted Alberto Villareal of Friends of the Earth.

Other problematic features of ISDS include cases being judged by arbitrators that have direct links to the claimant firms and the absence of any right of appeal for states. Melinda St. Louis of Public Citizen said that when an investor wins a case, the state pays the firm's legal costs, but when a government wins a case it has so far had to pay its own legal costs, about $8 million per case.

Several cases were presented of multinational firms bringing claims against states in industries such as water, medicine patents and mining. One country is facing an investor state claim from a bank, after it changed the terms of its sovereign bonds to comply with IMF bailout conditions. An oil company has an ongoing case against a host nation to evade fines applied by its domestic court for polluting the rainforest.

At the conference on Reforming the International Investment Agreements Regime many member States, both developed and developing, called for alternatives to current ISDS laws and procedures. Areas for reform included: tighter definition of legal concepts; mechanisms to close down frivolous claims; a code of conduct for arbitrators; an appellate body for tribunals; and introducing a multilateral procedure for dispute settlement. UNCTAD is a knowledge repository on International Investment Agreements and could be a platform for countries to share their experiences of withdrawing or renegotiating them.

Among large developing economies, South Africa has decided not to renew its Bilateral Investment treaties on the basis that they are not compatible with its constitutional obligations to regulate in the public interest. These include regulations and laws to advance previously disadvantaged people said Mustaqeem De Gama, Director in South Africa's Department of Trade and Industry. Brazil has not ratified any Bilateral Investment Treaties, on the basis that they restrict the government's ability to regulate industries. However the country was the world's fifth largest recipient of FDI in 2013, with inflows of $64 billion according to the 2014 World Investment report.