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ICSID—International Centre for Settlement of Investment Disputes

The International Center for the Settlement of Investment Disputes (ICSID), part of the World Bank Group, is an arbitration forum between governments and foreign investors to settle investment disputes. Investment and free-trade treaties offer compensation to foreign investors if the government from the 'host' country 'expropriates' the investment or disrupts it. Most treaties contain an investor-state dispute resolution mechanism. Using this mechanism companies can by-pass domestic courts and go directly to international arbitration when they believe their contracted rights have been violated.

Use of ICSID has expanded rapidly as bilateral investment treaties (BITs) have increased from 385 in 1989 to over 3,000 today, with two thirds of international investment disputes going through ICSID. Correspondingly, ICSID's revenues from arbitration proceedings have increased from $250,000 a decade ago to $17 million in 2008. ICSID was established with 20 members through a Convention in 1966. Today there are 143 contracting states. Bolivia is the only country to have officially withdrawn from ICSID in 2007 and Ecuador recently has begun the exit procedure (see Update 66).

ICSID's organisational structure consists of an administrative council chaired by the World Bank president and a secretariat. The ICSID secretariat supports the tribunals and committees that form during an arbitration. All administrative costs are funded by the Word Bank, but dispute costs are covered by the conflicting parties. The secretariat is comprised of a secretary general and 29 members of staff. The ICSID secretariat maintains two panels, one for conciliation and one for arbitration.

Reasons for the vocal and mounting critiques against ICSID peg around its governance, its biasness in favour of rich countries and its role in crisis.

ICSID is known as a secretive court as no arbitration has permitted public attendance. Reports of the tribunals need not be published if a disputing party objects. ICSID, operating as an ad hoc arbitration panel and not a court with permanent judges, lacks a formal appeals process. Instead there is a review committee which lacks the power to overturn judgements made by the original panel.

The proportion of cases filed against G8 countries is 1.4 per cent, all of which have been filed by US investors. Cases against middle-income countries account for 74 per cent of all ICSID cases and low-income countries 17 per cent. Twenty per cent of ICSID cases are brought by companies that rank within the top 500 globally, seven of these companies have revenues that exceed the GDP of the country they are bringing a case against. Seventy per cent of ICSID cases have favoured the investor. The legal fees and arbitration costs are borne by the losing party. The implications for developing countries are substantial, in respect to the technical capacity to handle investment disputes, the effect of the award on the national budget, and the resultant damaged investment reputation to the country.

ICSID's role in settling disputes that have arisen out of the measures a government has taken to shield its citizens from economic crisis is controversial, and it remains to be seen how the global crisis of 2008 may see a turning of the tables towards investors from the South bringing cases against government's of the North. See Update 66 for more information on the case of a Chinese investor and Belgian Fortis finance company.

Published: Tuesday 14th July 2009, last edited: Wednesday 19th August 2009

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