The International Center for the Settlement of Investment Disputes (ICSID), part of the World Bank Group, is an arbitration forum between governments and foreign investors to settle investment disputes. Two thirds of international investment disputes go through ICSID.
Use of ICSID has expanded rapidly as bilateral investment treaties (BITs) have increased from 385 in 1989 to over 3,000 today. Investment and free-trade treaties offer compensation to foreign investors if the government from the ‘host’ country ‘expropriates’ the investment or disrupts it. Most treaties contain an investor-state dispute resolution mechanism. Using this mechanism companies can by-pass domestic courts and go directly to international arbitration when they believe their contracted rights have been violated.
ICSID was established with 20 members through a Convention in 1966. Today there are 143 contracting states. Bolivia is the only country to have officially withdrawn from ICSID in 2007 and Ecuador recently has begun the exit procedure (see Update 66). ICSID’s use has risen in parallel to the increase in international capital flows, particularly foreign investment. However, some countries such as Brazil and India, which attract the largest amount of foreign investment, are not involved in ICSID. China only ratified in 1993.
ICSID’s organisational structure consists of an administrative council chaired by the World Bank president and a secretariat. The council is made up of a representative from each of ICSID’s contracting states, with equal voting power. Decisions are adopted with a two-thirds majority.
The ICSID secretariat supports the tribunals and committees that form during an arbitration. All administrative costs are funded by the Word Bank, but dispute costs are covered by the conflicting parties. The secretariat is comprised of a secretary general and 29 members of staff. The ICSID secretariat maintains two panels, one for conciliation and one for arbitration. Each contracting state may allocate four persons of any nationality to each panel and the chairman may allocate 10. During a dispute a tribunal is constituted from the panel, with the two parties appointing its members.
ICSID has concluded 162 cases since its inception and has 125 cases pending, a third of which are against Argentina. Almost half of cases involve the services sector, and all cases involving the natural resources sector are in mining, oil and gas exploration activities. Reports of the tribunals need not be published if a disputing party objects. Since reforms in 2006 it is now at the tribunal’s discretion (not the parties’) to consider requests for third party submissions. Only two cases have done so, and no arbitration has permitted public attendance.
ICSID, operating as an ad hoc arbitration panel and not a court with permanent judges, lacks a formal appeals process. Instead there is a review committee which lacks the power to overturn judgements made by the original panel.
The largest known payment in an investor-state settlement is $877 million, paid by the Slovak Republic to the Czech bank CSOB in 2004. The biggest claim still pending is of the UK-based Group Menatep, a major shareholder in the large Russian oil company Yukos, which seeks damages of $28.3 billion allegedly incurred through stock losses during the government’s takeover of Yukos.
ICSID’s revenues from arbitration proceedings were over $17 million in 2008, compared to $250,000 a decade earlier. Revenues include the payment of fees and travel costs of arbitrators, and other supporting services. Most tribunals are held at the permanent court of arbitration at The Hague. Payments made but not yet disbursed to ICSID are managed by the World Bank.
The legal fees and arbitration costs are borne by the losing party. The implications for developing countries are substantial, in respect to the technical capacity to handle investment disputes, the effect of the award on the national budget, and the resultant damaged investment reputation to the country.
The proportion of cases filed against G8 countries is 1.4 per cent, all of which have been filed by US investors. Cases against middle-income countries account for 74 per cent of all ICSID cases and low-income countries 17 per cent.
Twenty per cent of ICSID cases are brought by companies that rank within the top 500 globally, seven of these companies have revenues that exceed the GDP of the country they are bringing a case against. Seventy per cent of ICSID cases have favoured the investor, whether through settlement in or out of court.