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Columbia FDI Perspectives
Perspectives on topical foreign direct investment issues
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Abigail Greene ([log in to unmask])
The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.
No. 345 November 28, 2022
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Independently of any reform of the investor-state dispute-settlement (ISDS) mechanism, governments need to establish domestic policy and organizational mechanisms to effectively manage investment disputes.[1] Specifically, two aspects should be considered:
- Create a domestic legal framework for effective amicable dispute-settlement processes. While recent international agreements contain detailed provisions on amicable dispute-settlement processes,[2] countries should also provide a clear legal basis for domestic dispute management. It should provide for amicable dispute settlement, expressly endorsing it as a viable tool. Importantly, this would also mitigate potential concerns, such as the possible liability of public officials involved in negotiations or mediation with foreign investors. Ideally, this framework would furthermore identify who, within a country, has the ultimate authority to sign off on any settlement, or the process pursuant to which such authority is determined.
- Establish a domestic (lead) entity responsible for investment-dispute management. Disputes are often complex and typically involve multiple public entities. One of the stated obstacles to effective investment-dispute management is the absence of a responsible/lead entity that centralizes and coordinates a country’s activities. While the lead entity does not need to also have the ultimate authority to decide on settlements, it should streamline the decision-making process among the responsible domestic institutions. At the same time, countries should clearly identify which entity or entities should retain the power to make final decisions regarding ISDS-related issues.
The organizational structure of these (governmental) entities can differ from country to country, depending on specific administrative needs, budgetary constraints, experience, frequency of ISDS disputes, and cultural and legal particularities. The entity could be an autonomous unit, a unit within a ministry or an inter-ministerial commission consisting of government officials already in charge of handling disputes in various ministries. The entity may either (i) be responsible only for coordinating formal and informal dispute-settlement efforts, or (ii) also cover the period prior to such proceedings (i.e., facilitating the resolution of investment grievances informally or amicably when they first arise).[3] The two approaches have been implemented in different jurisdictions, such as the Dominican Republic and Costa Rica.
Regardless of the organizational form, to be effective, the lead/responsible entity should be vested with the following functions:
- serve as the first contact in case of ISDS disputes;
- handle all communications with the investor(s);
- coordinate public statements, ensure governmental compliance with public disclosure obligations and implement a strategic communication plan;
- coordinate among government entities to gather facts, share knowledge and provide technical advice;
- help manage civil society/local community concerns about the dispute;
- gather data to identify governmental conduct generating political risks,[4] which can also serve as an early warning mechanism;
- provide information as to where capacity building is needed;
- conduct a comprehensive assessment of the dispute and identify the most effective course of action, including amicable settlement processes such as mediation;
- lead negotiations, represent and prepare the country’s defensive strategy or line of approach during all the phases of the dispute settlement;
- have the authority to negotiate and a clear line of communication to the body with settlement authority;
- be vested with the ability to approve funds for dispute-settlement proceedings and hire professional support (external experts, counsel);
- conduct training for all public officials involved in investment matters, to minimize recurrence of such disputes;
- maintain a centralized data repository on investment disputes, the process followed, outcomes, and economic impact.
Such a domestic legal framework increases stakeholders’ confidence in a country’s effective management and resolution of investment disputes. It should therefore strengthen and possibly increase FDI retention. It also enables countries to proactively manage ISDS disputes, create in-house expertise and save resources. The usefulness of such a domestic legal framework depends not only on its design, but also on its effective implementation at all governmental levels. Capacity building and awareness raising for public officials regularly interacting with foreign investors is therefore vital.
* Alejandro Carballo Leyda ([log in to unmask]) is the General Counsel of the international Energy Charter; Frauke Nitschke ([log in to unmask]) is Senior Counsel/Team Leader at the International Centre for Settlement of Investment Disputes. The views expressed here do not necessarily reflect the views of the institutions with which the authors are affiliated. The authors wish to thank Priyanka Kher, Judith Knieper and Joachim Knoll for their helpful peer reviews.
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The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Alejandro Carballo Leyda and Frauke Nitschke, ‘Investment dispute management: The importance of the domestic dimension,’ Columbia FDI Perspectives No. 345, November 28, 2022. Reprinted with permission from the Columbia Center on Sustainable Investment (http://ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
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For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Abigail Greene, [log in to unmask].
Most recent Columbia FDI Perspectives
- No. 344, Julien Chaisse and Arjun Solanki, “Advancing climate-change goals: From reactive to proactive systemic integration,” Columbia FDI Perspectives, November 14, 2022
- No. 343, Carlo Pietrobelli, Roberta Rabellotti and Ari van Assche, “How are global value chains altering policy narratives?,” Columbia FDI Perspectives, October 31, 2022
- No. 342, Wolfgang Alschner, “Why omitting general public policy exceptions from investment treaties is a setback for the right to regulate,” Columbia FDI Perspectives, October 17, 2022
All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives.
Other relevant CCSI news and announcements
- On November 16, CCSI's annual International Investment Law and Policy Speaker Series concluded with a panel on “Interpretation of Treaties.” Visit our website to view the video.
- Apply now for our 2023 virtual Executive Training Program on Sustainable Investments in Agriculture from May 2-12, 2023. This interdisciplinary program explores challenges and solutions for advancing sustainable investments in agriculture. It includes asynchronous and synchronous components, including short and interactive live sessions dedicated to engagement with course lecturers and participants from around the world. Applications will be considered on a rolling basis until March 15, 2023. For more information, and to apply, visit our website.
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Karl P. Sauvant, Ph.D.
Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
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