What is International Centre for the Settlement of Investment Disputes

The International Centre for the Settlement of Investment Disputes (ICSID) is an international organization linked to the World Bank Group, and it is entrusted with the responsibility of facilitating conciliation and arbitration of international investment disputes. The ICSID was established in 1966 following the entry into force of the Convention on the Settlement of Investment Disputes between States and Nationals of other
States (Convention). Negotiated under the auspices of the International Bank for Reconstruction and Development (the World Bank), the Convention represented a significant breakthrough in international law, as it effectively granted foreign investors the right to enforce treaties or contracts against a host state in a supranational forum insulated from the interference of domestic courts or diplomatic protection. Since 1978, the ICSID has expanded its reach with the inclusion of the Additional Facility Rules that enable the use of the ICSID machinery by states and nationals of states not parties to the Convention. The Additional Facility is of particular importance for cases under Chapter 11 of the North America Free Trade Agreement because neither Mexico nor Canada have yet ratified the Convention.
The ICSID organizational structure comprises two organs: the Administrative Council and the Secretariat. The Council includes representatives of each contracting party and is chaired ex officio by the president of the World Bank. It meets once a year in conjunction with the World Bank annual meeting and is responsible for the election of the secretary general and the deputy secretary general; furthermore, it oversees the ICSID institutional rules, operations, and budget. The Secretariat, headed by the secretary general, provides a number of administrative functions such as keeping a record of all the panels of arbitrators and conciliators designated by parties, registering arbitration requests, assisting the formation of conciliation commission and tribunals as well as administering the proceedings and costs of each case. The World Bank houses the ICSID and, in accordance with the Convention, it also finances ICSID administrative costs, although the costs of the proceedings are paid by the disputing parties.
Despite being considered a dormant institution for over three decades, the ICSID has recently experienced a surge in interest and prominence. Compared to the 23 contracting states in 1966, the number of parties currently stands at 143, with an additional 12 signatories. Furthermore, between 1995 and 2008 the caseload has also witnessed a dramatic increase as the number of pending cases climbed from 7 to 124. The revival of the ICSID can be most notably explained by the proliferation of bilateral investment treaties (BITs) and multilateral free trade agreements (FTAs), the majority of which stipulate consent to ICSID arbitrations to resolve disputes arising from the provisions of these treaties. Although other public and private institutions and rules such as UNCIT-RAL (United Nations Commission on International Trade and Law) and the International Chamber of Commerce are available to resolve investment arbitrations, the ICSID is the most commonly utilized; estimates compiled by UNCTAD, in fact, indicate that two-thirds of all known disputes have been registered with the ICSID.
Proponents of the ICSID arbitration and conciliation facilities have argued that the institution offers a self-contained and neutral mechanism that offers a high degree of competence in investment and trade matters. Additional advantages include the ICSID independence of the parties’ willingness to cooperate, the possibility to object to frivolous claims at an early stage in the arbitration, the recognition and likelihood of awards enforcement in the contracting states, and the option to seek annulment of the award. Furthermore, in April 2006, in order to improve upon what some nongovernmental organizations (NGOs) considered an “opaque” arbitral system with potentially significant social and environmental ramifications, the Administrative Council implemented new rules that allow third parties (amicus curiae) with an interest in the proceedings to send to tribunals written submissions and, subject to the disputing parties’ consent, attend the hearings.
Critics, however, argue that the ICSID procedures and new rules continue to favor investor’s rights at the expense of democracy and human rights, as several notable cases involved disputes over access to water and electricity while others posed significant challenges to environmental regulation. Reformist NGOs and lawyers have suggested that tribunals should be obliged to ensure open hearings, document disclosure, unconditional acceptance of amicus curiae, and have also proposed for the ICSID to consider the creation of an appeals mechanism to permit the correction of legal errors. However, Bolivia’s politically charged denunciation of the Convention and Ecuador’s notification of restrictions to the types of cases filed under the ICSID have led commentators to assert that the ICSID is heading toward a broader crisis of legitimacy. Confronted with several challenges posed by civil society and the Convention’s parties, the ICSID is at a crossroads.