AFTINET | 1 February 2024
International Chamber of Commerce former arbitrator says ISDS has “lost battle of public opinion” and “legitimacy”
In a lecture earlier this month Alexis Mourre, the former president of one of the Investor-State Dispute Settlement (ISDS) arbitration systems, run by the International Chamber of Commerce (ICC) said that defenders of ISDS had been “defeated” by civil society movements and “lost the battle of public opinion," and, "to a large extent, the battle of legitimacy."
ISDS is a mechanism in some trade agreements and in some investment contracts. It enables foreign investors to sue governments for millions and even billions of dollars of compensation if they can argue that a change in domestic law or policy has reduced the value of their investment, even if the change is in the public interest.
Mourre’s statement, admitting that the powerful civil society movement against ISDS is winning the battle, is significant because the ICC, as a global organisation representing business, is one of the main supporters of ISDS in trade agreements.
The ICC also runs an arbitration service which mainly deals with commercial contract disputes between companies and only arbitrates on a minority of investor-state disputes in trade agreements. Most ISDS disputes in trade agreements are referred to arbitration panels run by the United Nations (UNCITRAL) and the World Bank (ICSID).
Governments are responding to the movements described by Mourre by refusing to include ISDS in new trade agreements and are terminating existing agreements with ISDS. In July 2023 the EU Commission proposed a coordinated withdrawal of all EU states from the Energy Charter Treaty because its ISDS provisions are being used by fossil fuel companies to claim compensation for government action to reduce carbon emissions. There has been a recent significant trend towards the termination of trade and investment agreements that contain ISDS provisions.
Mourre contends, however, that ISDS is the “best possible” system for international investors. To maintain the system, he proposes that business should shift away from ISDS in state-to state trade and investment agreements, and instead move to ISDS in contracts between individual investors and states.
Contractual-ISDS is currently estimated to make up around 10% of ISDS cases (based on the ICSID’s court caseload). Such a move could be in the interests of the ICC, since it would expand their arbitration business. Mourre argues that individual investor-state contracts might give states more bargaining power to protect the public interest, but developing country governments entering in contracts with powerful, multinational companies are still in a vulnerable bargaining position. For example, a UK court recently found, after a 6 year long process, that engineering company P&ID bribed Nigerian officials and Nigeria’s legal team to obtain a contract, with the possible intention of suing Nigeria for US$11 billion.
Civil society maintained its call for governments not to include ISDS in trade agreements and to urgently review and remove ISDS provisions in existing agreements. Read AFTINET’s latest ISDS briefing here.