Originally from the American Review of International Arbitration, Vol. 29 No. 4

The benefits of investor-state dispute settlement (“ISDS”) in international investment agreements (“IIAs”) has long been challenged by developing countries, who are respondents in most ISDS claims. 

This paper focuses on a different and more recent critique of ISDS driven by developed countries, many of which are now reconsidering whether ISDS ought to be preserved, revised, or replaced.  This critique arises in response to the increasing and unanticipated trend of investors using ISDS to bring claims against developed countries. Even more surprising is that these claims have predominately been brought through ISDS provisions contained in IIAs between developed countries (“Inter-Developed Country IIAs”).  There are over 300 such treaties.

Among developed countries, Australia has been the most vocal critic of ISDS.  Australia historically had been a staunch supporter of ISDS until 2011, when its government categorically rejected the system.  In 2013, Australia again revised its position and decided to consider the inclusion of ISDS in IIAs on a case-by-case basis. The government has since availed itself of this flexibility, concluding some treaties with ISDS provisions and others without. 

This paper explores the evolution of IIAs and ISDS as between developed countries and canvasses the critiques of ISDS expressed by those countries.  It highlights that one size may not fit all and that, arguably, the best approach for developed countries would be to follow Australia’s lead by not rejecting ISDS entirely.  Instead, developed countries should keep the possibility of ISDS on the negotiation table and undertake to assess whether to include it in future treaties on a case-by-case basis.