CSOs Demand a Complete Overhaul of the ISDS System

By CSOs | Letter | October 30, 2018

More than 300 civil society groups and trade unions from 73 countries – including Madhyam – have urged governments participating in United Nations meetings in Vienna this week to completely overhaul the controversial Investor-State Dispute Settlement (ISDS) system contained within many international trade and investment agreements. Released on October 30, their public letter is addressed to member governments attending meetings of the UN Commission on International Trade Law (UNCITRAL), which provides one set of rules under which many ISDS cases are litigated. After years of public outcry against ISDS, UNCITRAL has decided to convene a working group to engage in a discussion about the need to reform ISDS. But the signatories of today’s letter fear that those who wish to save the ISDS regime are aiming to hijack the UNCITRAL reform discussion to maintain the status quo or promote half-measures around the margins that do not address ISDS’s fundamental flaws.

The signatory organisations demand that “instead of focusing on procedural tweaks on the margins of the ISDS system, governments in UNCITRAL should put their efforts into discussing how to move away from the current investment treaty system altogether. Thus, a more constructive focus for UNCITRAL would be to concentrate on the structural problems of the investment treaty regime and to facilitate a discussion on termination or wholesale replacement of existing agreements.”

Following is the full text of the letter.

Dear UNCITRAL Member States:

As representatives of civil society organizations across the globe, we reiterate our unequivocal opposition to the investor-state dispute settlement (ISDS) regime and the far-reaching rights for foreign investors enshrined in trade and investment treaties. ISDS and the investment treaty regime empower one class of interests – multinational corporations and investors – to sue governments outside of domestic court systems for unlimited amounts of compensation, including for the loss of expected future profits. A vast array of domestic laws, court rulings, regulations, and other government actions are subject to such attack, including non-discriminatory policies enacted in order to promote public welfare.

In recent years, this once-obscure feature of the international trade and investment regime has drawn increasing criticism: A growing chorus of government officials from across the political spectrum, small businesses, academics, jurists, civil society organizations and trade unions around the world have publicly proclaimed opposition to ISDS and urged governments to exit from the regime. As the number of ISDS cases filed each year has exploded, and corporations have won billions in attacks on a stunning array of policies that promote the general welfare, some governments have begun to terminate treaties that include ISDS and reject new trade and investment agreements that grant foreign investors excessive rights and access to ISDS.

In the context of this deserved global backlash against ISDS, the United Nations Commission on International Trade Law (UNCITRAL) – a UN body that has historically dealt with international commercial issues and is heavily dominated by the arbitration industry – launched Working Group III to “identify and consider concerns regarding ISDS; consider whether reform was desirable in light of any identified concerns; and, if the Working Group were to conclude that reform was desirable, develop any relevant solutions to be recommended to the Commission.” We commend the UNCITRAL member governments for recognizing that the current ISDS regime is politically and economically untenable.

After two meetings of the UNCITRAL Working Group III process, however, it has become clear that the scope of the discussion falls far short of addressing the fundamental flaws of an international investment regime that empowers one already-powerful class of society – foreign investors – to challenge public interest laws outside domestic courts. While we agree with many of the criticisms raised by governments in the UNCITRAL discussions related to the existing ISDS system’s procedural flaws – including the high costs to governments and lack of transparency of the proceedings, the lack of coherence of awards, the inability to review the merits of even manifestly flawed awards, the highly problematic appointment process, the lack of ethical requirements of arbitrators, and the perverse effects of third-party funding of arbitration – these represent only a small subset of the many flaws and dangers of ISDS and the investment treaty regime.

Unless this regime is considered in its entirety, including whether it achieves its purported aims, and unless the far-reaching substantive corporate rights in the underlying treaties are eliminated, the UNCITRAL Working Group III process will not result in any meaningful change.

We specifically reject attempts by the European Union to push a “multilateral investment court” project as a “solution” in the UNCITRAL Working Group III process. This EU proposal would not only fail to address most of the fundamental flaws of ISDS and the current investment treaty regime, but seems designed to keep many of ISDS’s most damaging features (and flaws) intact. The EU’s proposed procedural changes would not limit the extraordinary substantive rights granted solely to foreign investors that extend beyond relevant domestic laws.

And, most fundamentally, the EU proposal would continue to allow foreign investors to challenge nondiscriminatory policies, including those that safeguard health, preserve the environment, and promote labour standards, outside countries’ domestic courts. Such a “multilateral investment court” would effectively lock in the investment treaty regime at a time when governments are wisely considering withdrawing from it altogether.

Instead of focusing on procedural tweaks on the margins of the ISDS system, governments in UNCITRAL should put their efforts into discussing on how to move away from the current investment treaty system altogether. Thus, a more constructive focus for UNCITRAL would be to concentrate on the structural problems of the investment treaty regime and to facilitate a discussion on termination or wholesale replacement of existing agreements without countries being bound to the extended “survival” clauses.

We call on our governments to refrain from signing any new trade and investment pacts that include these extraordinary rights for foreign investors, to terminate existing ISDS-enforced treaties, and to use the UNCITRAL process to address the fundamental problems of the current system. This means that governments must reject the EU’s “multilateral investment court” proposal, establishment of an appellate mechanism, or any other attempts to institutionalise or further entrench the investment arbitration regime.

The full list of signatory organizations is available here.

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