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Why We Need a "Comprehensive and Inclusive" Investment-Related Dispute Settlement Mechanism

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By Joe Zhang, June 14, 2017

Transnational companies and other investors have been challenging a wide range of policy measures—including public health and environmental as well as measures involving significant impacts on local communities—by suing states using investment treaties and investor–state contracts.

With public policy issues at stake, and in light of the fact that states are often made to pay multimillion-dollar awards, public awareness and opposition against investor–state arbitration has significantly increased in recent years.

As a response, efforts have been made to address some of the concerns with the existing investment arbitration regime. However, the focus has been primarily on procedural aspects, such as the lack of transparency of the proceedings and arbitrators’ independence, impartiality and accountability. Meanwhile, some of the more systemic issues in the existing system have remained largely unaddressed:

  • Limiting legal remedies to only one group of economic actors: the foreign investor
  • Limited opportunity for intervention by other stakeholders
  • Circumvention of domestic judicial processes
  • Negative impact on states’ policy space and their rights to regulate

Taking a step back to broaden the discussions, IISD examined the question:

“If investment-related dispute settlement mechanisms at the international level were to be built anew, what should they look like?”

A process involving a wide range of experts with different backgrounds, including investment arbitrators and human rights lawyers, identified as the main challenge the imbalance in the rights and obligations of different stakeholders and their access to remedies. An alternative mechanism or court on investment would need to address this imbalance and be more inclusive and comprehensive.  

The rebalancing of rights and obligations will depend on the applicable substantive rights and obligations. However, any new procedural framework must be designed to support their implementation. Accordingly, the mechanism should accommodate a range of investment-related rights and obligations set out in treaties, contracts, and standards and should be flexible enough to serve as a dispute settlement mechanism adapted to international instruments as they develop and evolve.

A new mechanism should also not be limited to formal and binding adjudication, but should include so-called accountability mechanisms (e.g., modelled on the Accountability Office of the International Finance Corporation or the World Bank Inspection Panel), as well as provide for multi-party mediation. It should be a mechanism where various parties can access justice, including states and affected communities, apart from the traditional economic actors.

Ultimately, the access to remedies would depend on the scope of substantive rights and obligations so negotiated or set out in other legal instruments, including but not be limited to investment treaties or chapters.

IISD Law Advisor Joe Zhang presented this argument at a side event held in conjunction with the 35th Session of the Human Rights Council on June 14, 2017.

Further Reading: 

IISD Investment Program. (2017, July). United Nations Commission on International Trade Law (UNCITRAL), Fiftieth Session, Vienna, July 3-21, 2017: Submission by IISD regarding the reform of investment-related dispute settlement. Geneva: IISD

IISD Investment Program. (2017, March). Reply to the European Commission’s Public consultation on a multilateral reform of investment dispute resolution. Geneva: IISD. 

Brauch, M. D. (2017, January). Exhaustion of local remedies in international investment law. Geneva: IISD. 

International Institute for Sustainable Development (IISD). (2016). Investment-related dispute settlement: Towards an inclusive multilateral approach. Geneva: IISD. 

Bernasconi-Osterwalder, N. (2015, May). Rethinking investment-related dispute settlement. Investment Treaty News, 6(2), 6–8. 

Bernasconi-Osterwalder, N. (2014, October). State–state dispute settlement in investment treaties. Geneva: IISD. 

Rosert, D. (2014, July). The stakes are high: A review of the financial costs of investment treaty arbitration. Geneva: IISD. 

International Institute for Sustainable Development (IISD). (2014). Investment-related dispute settlement: Reflections on a new beginning. Geneva: IISD