Backlash Against ISDS

A Case for a Sustainable Development Approach to Investment Arbitration for Developing Countries

Abstract

Over the years, Investor-State Dispute Settlement (ISDS) has spurred a lot of controversies on its legitimacy and integrity. The criticisms mainly stem from the obscuring effect of ISDS on legitimate government regulation and the adventurist manner in which arbitral tribunals interpret substantive rights favouring foreign investors. This, in turn, has resulted in a backlash by States which is illustrated through various forms ranging from withdrawal from traditional Bilateral Investment Treaties (BITs), the development of new era BITs, to extremities of eliminating ISDS all-together. Although there are plausible reforms that have been adopted, the system is still a work in progress. Mechanisms must be incorporated to strike a balance between promotion and protection of investment and the sovereign right of the State to regulate investment in the public interest. Innovation and the adoption of regulatory tools that meet individual States developmental needs will play a focal role in attaining a comprehensive International Investment Agreements (IIAs) reform. This paper argues that a paradigm shift from the competing interests of States and investors to a sustainable development approach will achieve a necessary balance in ISDS taking into account the interests of all stakeholders involved in investment arbitration.