Opting Out of ICSID and BITs: Legal and Economic Effects
Published 17 June 2014
Summary
In the last decade, the International Center for Settlement of Investment Disputes (“ICSID”) has become much more visible due to it administering a rising number of arbitrations. Whereas there were only a handful of investor-state arbitration cases in the 1980s and early 1990s, by 2012 the cumulative figure had risen to 419. Over 77% of these cases were initiated from 2002 onwards.
Yet, several countries have recently decided to denounce the ICSID Convention and terminate Bilateral Investment Treaties (“BITs”). The purpose of this article was initially to review the countries that had left ICSID, terminated BITs, or refused to enter into ICSID or to conclude BITs, to determine the reasons and mechanisms behind their decisions, and finally to ascertain whether these decisions made sense from an economic point of view. The focus was in particular on the South American countries and Australia.
The result is, at best, ambiguous on many levels. Economic research has not yielded a consensus on the relationship between BIT participation, whether or not accompanied by access to ICSID arbitration, and Foreign Direct Investments (“FDI”) flows. The countries that recently withdrew from ICSID have seen no clear effects on their FDI stocks as a result of their announcements to do so.
This article reviews certain of the countries that are in some way against ISDS, the legal mechanisms of opting out of ISDS and particularly the ICSID system, the economic effect of opting out of ICSID, possible future developments, and alternative mechanisms within the existing system.