The International Center for the Settlement of Investment Disputes (ICSID), part of the World Bank Group, is an arbitration forum where governments and foreign investors settle investment disputes.
ICSID was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). Currently, ICSID includes 164 Member States (156 contracting states and 8 signatory states) in contrast to the 193 member states of the UN. Concerns about investor bias have historically made countries reluctant to join the Convention. For instance, in Latin America, Bolivia was the first state to withdraw from the ICSID Convention in 2007 – although it resumed its membership in 2021 – Ecuador withdrew in 2010, followed by Venezuela in January 2012 (see Bulletin December 2013), and Brazil has never ratified the ICSID Convention.
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. The secretariat consists of a secretary general, one (or more) deputy secretaries – elected by the administrative council by a two-thirds majority of its members – and 70 staff members.
The ICSID secretariat supports the tribunals and committees formed during an arbitration. 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 chairperson may allocate ten. During a dispute a tribunal is constituted from the panel, with the two parties appointing its members. All administrative costs are funded by the Word Bank, but dispute costs are covered by the conflicting parties.
Dispute resolution and criticisms in recent years
ICSID has been widely criticised for alleged corporate bias, secrecy and lack of democratic accountability (see Observer Autumn 2015, Summer 2014; Bulletin December 2013). ICSID is the principal forum for the settlement of investor disputes brought against states through the system of Investor-to-State Dispute Settlement (ISDS). ISDS provisions are included in many bilateral and multilateral trade agreements and provide foreign companies and individuals privileged treatment and recourse against states outside the jurisdiction of domestic courts (see Observer Summer 2020).
To date, of the 1,104 known ISDS cases, 686 have been administered by ICSID. In 2021, 66 cases were filed under the ICSID Convention, of which 58 per cent emanated from bilateral investment treaties, 23 per cent were related to South America and 29 per cent were connected to the oil, gas and mining sectors. According to a 2019 report by Mining Watch Canada, the Institute for Policy Studies and the Center for International Environmental Law, the number of mining, oil and gas cases filed at ICSID has nearly doubled in the past two decades, as have the monetary sums awarded to private companies in these sectors. This raises concerns about ICSID becoming a haven for fossil fuels interests, despite the intensifying climate crisis (see Observer Winter 2020).
ICSID, operating as an ad hoc arbitration panel and not a court with permanent judges, lacks a formal appeals process. A revision must be sought on the determination that a fact unknown to the tribunal at the time of the arbitration would have had a decisive impact on the decision (according to Article 51 of the Convention). An annulment can take place if any of a series of wrongdoings listed in Article 52 of the Convention has taken place.
The legal fees and arbitration costs are borne by the losing party. The implications for developing countries are substantial. ICSID disputes are legally complex and require experienced staff and significant resources. The awards against states can have a significant impact on national budgets. The threat of a large award may deter state action and therefore indirectly impact its sovereignty. Additionally, an adverse ruling may damage the country’s reputation as a good investment destination, therefore limiting its access to capital and investments.
ICSID threatens low-carbon transition and undermines human rights
In 2020, as Covid-19 hit and countries had to stop commercial activities in order to refocus their resources to fight the pandemic, fears of a flood of arbitration cases brought to ICSID by private companies spread (see Observer Summer 2020). In June 2020 a civil society letter signed by 630 groups noted that “from 1 March until 25 May 2020 when most governments were in the midst of the pandemic crisis, 12 new ISDS cases were filed at [ICSID] alone.” The letter urged governments to take a series of steps before the first cases related to the effects of the pandemic were brought to ICSID. These included, “Permanently restrict the use of ISDS in all its forms in respect of claims that the state considers to concern COVID-19 related measures,” and, “Suspend all ISDS cases on any issue against any government while it is fighting COVID-19 crises, when capacity needs to be focused on the pandemic response.” In fiscal year 2021, ICSID registered 70 new cases, the largest number in a single year since its inception.
In October 2021, UN experts called on states, “to ensure that international investment agreements do not provide a ‘safe harbour’ for investors to abuse the human rights of individuals and communities” and pointed out that, “Most existing international investment agreements reflect three ‘I’s: imbalance [because investors’ rights grossly outweigh their obligations], inconsistency [in the way investors, in comparison to affected communities, are able to settle disputes] and [all of which] contribute to irresponsibility.” These arguments were in line with the statement by UN expert Alfred de Zayas before the Parliamentary Assembly of the Council of Europe in April 2016, where he highlighted that, “The time has come to abolish ISDS [and ICS] and to ensure that henceforth, trade works for human rights and not against them. The ideological apriorisms of market fundamentalists must…respect and fulfil existing human rights treaty obligations, achieve the sustainable development goals and address the urgent challenges of climate change.”
An April report by the International Panel on Climate Change, reinforced this claim, highlighting for the first time that the new Energy Charter Treaty’s ISDS mechanisms offer fossil fuel companies an escape by allowing them to sue governments as these take unprecedented steps to address the climate crisis.
The way forward
In March 2022 the Member States of ICSID adopted a new set of amendments to ICSID regulations and rules, effective from 1 July. Among these reforms, the Member States agreed on measures such as allowing third-parties to attend and observe hearings and publishing of recordings and transcripts of hearings, unless any of the parties object, in order to increase transparency; the requirement for the Tribunal or the Secretary-General to establish mandatory time limits for the completion of each procedural step in the proceeding; and restructuring of the procedures supported by ICSID, with the creation of a new Additional Facility Rules to provide broader access to the parties even if they are not an ICSID Contracting State.
However, it remains to be seen whether these amendments will minimise the challenges ICSID brings for countries to tackle the climate, debt and Covid-19 crises and fulfil their human rights obligations. While the amendments are a welcomed step in increasing transparency, they seem to do little to address ICSID’s inherent ‘three Is’ flaws identified by the UN human rights experts.