INTRODUCTION: AD HOC INVESTMENT ARBITRATION UNDER SCRUTINY

The current investor-state dispute settlement system (ISDS) is evolving. The fact that ISDS is conducted on a one-time basis has caused fragmentation over the years. The debate about the pros and cons of this ad hoc mechanism has been gaining momentum. Investment policymakers, stakeholders and international organisations are engaged in a process of reflection about possible reforms to the system. Some features of ISDS have become subject to increased scrutiny in recent years and its reform is on the agenda of a number of states and international organisations.

One tension comes from some states questioning, if not abandoning, ISDS as their preferential way of resolving the conflicts with their foreign investors. This is the case with Pakistan, South Africa and Brazil to name a few, which are adopting alternative dispute resolution methods (ADR) to solve this kind of dispute other than ad hoc arbitration, if not going back to state – state arbitration. Mediation is also the mechanism envisaged by the European Commission to settle intra-EU investment disputes. The recently adopted Protocol for the Cooperation and the Facilitation of Investment of MERCOSUR excludes investor-state arbitration, resorting to domestic litigation the disputes between investors and host states while allowing the use of MERCOSUR's ADR mechanisms including state-to-state arbitration. Another tension towards ISDS's reform comes from inside the current ad hoc arbitration system, the academia and the civil society, giving raise to what has come to be known as a’ backlash’ against investment arbitration.

This chapter intends to report on the current state of ISDS and the main proposals that have already been put forward for its reform for improving the system in terms of legitimacy, transparency and consistency. In particular, we will focus on the position adopted by the European Union (EU) and its ambitious proposal for the creation of a permanent adjudicative body for investment disputes. The chapter will also analyse the current work on ISDS under the auspices of the United Nations Commission on International Trade Law (UNCITRAL).