Mala Sharma

Bilateral Investment Treaties (BITs) contain a controversial right, one that gives foreign investors a direct right to bring a claim against the host State without interference from their home State and without having to exhaust local remedies through the Investor State Dispute Settlement (ISDS) or the Investor – State Arbitration (ISA) system. The procedure of ISA is modelled on the lines of commercial arbitration thereby making it a party-only, confidential process wherein disputes are resolved by a private tribunal. But, given that ISA often involves questions of public law (including review of state measures) affecting public interests, this mechanism, once hailed by some as revolutionary for its capacity to de-politicise foreign investment disputes, has now come under serious attack. 

Over the years several States have experienced some unintended and accidental effects, and have begun taking measures to limit ISA.  Bolivia, Ecuador and Venezuela have denounced the ICSID Convention and given notices to terminate their investment treaties. Indonesia and India have substantively reviewed their investment treaty programme. South Africa has been generally disapproving of signing investment treaties. Australia and Germany are now dealing with ISA very cautiously. ISA in the context of trade and investment treaties such as TTIP, CETA and NAFTA has also created furore with civil society groups. The ISA system is therefore facing a backlash, an unprecedented legitimacy crisis. In light of this backlash, negotiations and discussions are ongoing under the auspices of Working Group III of the UNCITRAL to bring about changes to the ISA procedure, such as making the ISA process more transparent and inclusive, regulating arbitrators, introducing an appellate review mechanism for ISA awards.  ICSID, the premier arbitral institution administering ISA is also upgrading its rules. The EU is proposing radically transforming investor-state dispute settlement by instituting an international investment court instead of ISA.

Against this backdrop, drawing on insights from political science, history, sociology and law Mala's PhD research project aims to explore two primary overarching questions- firstly, how does the history and design of ISA inform the current legitimacy crisis faced by the system and secondly, how can it be reformed?