The ISDS regime removes risks increased by disputes between States by realizing the depoliticizing of disputes over investments. To date, approximately 3,000 International Investment Agreements(IIAs) have embraced the ISDS regime. Current IIAs form an international investment protection regime with their substantive or procedural similarities. The increasing number of agreements that have embraced the ISDS regime demonstrate that the regime is an effective means for protecting investors. However, many problems have been raised in connection with the ISDS regime. The ISDS regime has been criticized in various aspects.
Firstly, the lack of consistency and predictability in awards triggered a crisis in the legitimacy of the ISDS regime itself. Moreover, the ISDS regime lacks a review and control mechanism for awards. Secondly, concerns have been raised for democratic accountability and legality of the ISDS regime itself. A State is guaranteed its legitimacy under international law since the mechanism of IIAs as investment treaties has been established. In the circumstances where State sovereignty is violated by awards under the ISDS regime, the democracy of the regime itself is not recognized. The procedure for appointing an arbitrator is not democratic, and there are problems in impartiality and independence of arbitrators in international investment arbitration. Thirdly, The duration and costs of proceedings of the ISDS regime and the lack of transparency are also controversial.
The ICSID, OECD, UNCTAD, UNCITRAL and other international economic organizations have been performing studies for the reform of the ISDS regime. The United States, the European Union and other States have been promoting progressive reform through IIAs. The most persuasive reform proposal was to establish an appeal mechanism. However, difficulties in the reform process have been pointed out, and the scheme to realize the mechanism was doubtful.
What are most noteworthy are the reform schemes proposed by the UNCITRAL and the EU. The UNCITRAL has already enforced the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (2104) and the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (2014) (the Mauritius Convention) and has succeeded in the reform in some aspects. Recently, the UNCITRAL continues studies on concurrent proceedings of the ISDS regime, ethics of arbitrators, etc. by approaching such issues step by step. Among other things, the UNCITRAL's research focuses on discussions on the establishment of a stand-alone appellate body and a permanent mechanism for the settlement of disputes over investments (such as an international tribunal for investments or an international dispute settlement body). Such discussions have proceeded very concretely, and substantial realization is expected.
With respect to bilateral relationships, the EU has shown the strongest will for the reform of the ISDS regime. The EU basically pursues common policies on trade and the economy and is sensitive to States' rights to regulation. Hence, it intends to change the ISDS regime to a system under international public law. In 2016, the EU signed agreements stipulating an appellate tribunal system; the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Vietnam FTA. Its efforts have significantly advanced the reform.
Furthermore, the EU has negotiated with the United States on an agreement for Transatlantic Trade and Investment Partnership (TTIP), which includes provisions concerning a permanent Investment Court system. However, the negotiation is suspended due to the conflict between the parties over the essence. The United States regards the current ISDS regime as an investor-led model of commercial arbitration. It deems that the design and birth of the ISDS regime are based on the commercial arbitration system. Meanwhile, the EU considers that the ISDS regime is a channel for State-led settlement of disputes under public law. It insists that the current ISDS regime is not capable of rectifying problems the regime has. Although the two parties conflict with each other, there is a consensus among many countries about the problems in the ISDS regime, and thus the parties are expected to reach an agreement.
The multilateral agreement approach is the most practical as a scheme to realize the reform of the current ISDS regime in the present situation where a conflict exists. The UNCITRAL has experience concluding the Mauritius Convention (a multilateral agreement); it is easy to design a multilateral agreement in terms of reservations or opt-in/opt-out; and there is no technical problem in connection with Article 30 of the Vienna Convention on the Law of Treaties. Only the relationship to Article 53 of the ICSID Convention should be resolved properly.