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International investment disputes hit record in 2012: UN report


Foreign investors are increasingly resorting to investor-State arbitration to settle investment disputes, with a record number of cases filed last year, according to a new report released on Wednesday by the United Nations Conference on Trade and Development (UNCTAD).

The report, "Recent Developments in InvestorState Dispute Settlement (ISDS)," showed that 62 new cases were filed in 2012, of which 68 percent of respondents were from developing or transition economies.

"Recent developments have amplified a number of cross-cutting challenges that are facing the ISDS mechanism, which gives credence to calls for reform of the investment arbitration system, " said James Zhan, director of UNCTAD's Division on Investment and Enterprise, which published the report.

Established in 1964 as a permanent intergovernmental body and subsidiary of the UN General Assembly, the UNCTAD is the UN focal point for the integrated treatment of trade and development and related issues of finance, investment, technology and sustainable development.

Foreign investors challenged a broad range of government measures, including revocations of licenses, breaches of investment contracts, irregularities in public tenders, changes to domestic regulatory frameworks, withdrawal of previously granted subsidies, direct expropriations of investments and imposition of taxes, the report said.

Nine decisions in 2012 awarded damages, including the World Bank's International Center for the Settlement of Investment Disputes (ICSID), which ordered Ecuador to pay 1.77 billion U.S. dollars to Occidental Petroleum Corp as compensation for taking over its assets in 2006. The monetary award was the highest in the history of Investor-State Dispute Settlement (ISDS).

In addition, for the first time in treaty-based ISDS proceedings, an arbitral tribunal affirmed its jurisdiction over a counterclaim lodged by a respondent State against the investor.

By the end of 2012, the total number of known cases reached 518, and the total number of countries that have responded to one or more ISDS claims increased to 95, according to UNCTAD.

The overall number of concluded cases reached 244, out of which about 42 percent were decided in favor of the State and 31 percent in favor of the investor, said the report, adding that 27 percent of the cases were settled.

"The ISDS mechanism is already a source of considered reflection in numerous bilateral and regional IIA negotiations. However, a multilateral dialogue on ISDS could prove more effective in bringing about a harmonized approach to reform," Zhan said.