Tag Archives: Article

Empirical research does not support perceived bias of ISDS awards

Isdsbiased

A recent academic article by Susan D. Franck, Professor of Law of Washington and Lee School of Law analysed the issue of whether or not ISDS could be said to favour host states from either the developed or the developing world. To this end, all ISDS awards that are publicly available as of 1 January 2012 were analysed.

At the outset, it is noted that ISDS is intended to provide investors with a real forum for non-politicized rule of law adjudication.

The main conclusion of the empirical research is that States’ relative success in ISDS appears to operate independently of development status. This, according to the author, suggests that other factors, such as the host state’s level of democracy and domestic political infrastructure may have more influence in the outcomes of ISDS.

Therefore, purely based on outcomes of the cases, available data does not show that ISDS favours host states from the developed world.

The article also carefully puts numbers into perspective. States won in equal or greater proportions than investors. Even when investors won in ISDS, the tendency is that they recovered less than USD 20 million in compensation on average. Overall, investors roughly obtained only 30% of the amount claimed.

Putting these numbers in mind, it should be difficult, if at all possible, to conclude that ISDS is either pro-investor, or pro-state. As in any well-functioning legal system, the reality of ISDS is more balanced than this and does not lend itself to simplified descriptions of who the system favours, or not.

ISDS reform is already happening

Governments of both sides of the Atlantic have made significant policy revisions of ISDS mechanism over the past few years, as concluded in this recent article.

A decade ago, the U.S introduced transparency and third-party participation in ISDS as provided in its 2004 Model BIT. The current US BIT model, the 2012 model, contains these provisions as well. The 2012 model further provides an opportunity for the investors to discuss the effects of change of regulations with the host government, which may prevent the initiation of ISDS by investors. This model serves as the template for US’ position in the negotiation of future investment agreements.

The European Union has also introduced new elements to the ISDS regime, most notably in the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”). The ISDS provision under this agreement contains among others:

  1. Prohibition of parallel proceedings in domestic court or other international tribunals;
  2. Introduction of a fast-track system for rejecting frivolous claims; and
  3. Full transparency in ISDS proceedings.

In addition, the CETA is the first trade and investment agreement which contains a binding code of conduct for arbitrators. The code of conduct obliges arbitrators to continuously disclose any possible conflict of interest as well as to maintain their independency and impartiality. This code of conduct is also included in the draft free trade agreement between the EU and Singapore.

The negotiations of the CETA have been completed and the text will now undergo a legal review followed translation into all official languages of the EU. The agreement will, at the later stage, need to be approved by the Council and the European Parliament.