The Changing Role of the State in Investor-State Arbitration: a Comparison of Brazil and India’s Proposals

By:

Investor to State Dispute Settlement (“ISDS”) has been subject to extensive criticism in recent years, with opposition stemming from developing and developed states alike.  Some of the main points raised by critics are:  (i) the unpredictability of the interpretation of the standards of protection and the proliferation of conflicting awards; (ii) challenges to public policy; (iii) the system’s restriction of States’ regulatory freedom; and (iv) the lack of transparency. As a consequence of this general opposition, some states, such as Ecuador, Bolivia, and India, have seen the systematic withdrawal from BITs. In addition, other states have traditionally refused to take part in the system.  Brazil, for example, has only one BIT in force at the moment. When addressing ISDS reform, all of these states fall in the group of what scholars have called as the “paradigm shifters.”  In essence, these countries reject the possibility of investors bringing claims directly against the state, and therefore suggest a variety of alternate methods, such as domestic courts, ombudsmen, or state-to-state arbitration. The preponderance of the role of the investor’s state in these proposals has again raised concerns regarding a possible politicization of investment disputes.  Investor-to-state arbitration was created to avoid the political implications of diplomatic protection as protection to investors.  The primary drawbacks of diplomatic protection include the fact that the state of the investor has control over the existence of the process (meaning that the state has the ability to choose whether or not to sue the host state) and that the state has the ability to drop the claim at any moment. Meanwhile, the investor has no decision-making power at...