The Evolving Landscape Of Investor-State Dispute Settlement (ISDS) In Portugal

By January 15, 2024 No Comments
Victoria Associates International Disputes Black-01

Over the years, Portugal has witnessed significant developments in its approach to Investor-State Dispute Settlement (ISDS), reflecting broader global trends and policy shifts. This evolving landscape is crucial to understand how the country navigates the delicate balance between attracting foreign investment and safeguarding its regulatory autonomy. Here, we delve into a few key aspects of this evolution, exploring recent developments, ongoing challenges, and the implications for both investors and the Portuguese government.

 

  1. Termination of BITs and the European Union’s influence

One of the most notable shifts in Portugal’s ISDS landscape has been the termination of Bilateral Investment Treaties (BITs) between the European Union (EU) Member States – this is in line with the EU’s broader policy position to reform ISDS. As of July 2022, Portugal ratified the termination of such BITs, emphasizing a unified EU approach to investment protection. Such decision reflects a move towards a more integrated and standardized system, where intra-EU investment disputes are resolved within the EU framework.

 

  1. European Union’s push for Investment Court System

Portugal’s alignment with the EU’s broader strategy can be seen in its potential support for the Investment Court System (ICS). The ICS represents a departure from traditional ISDS mechanisms, aiming to establish a permanent international investment court with appointed judges and an appeal procedure. By endorsing this approach, Portugal will likely be able to signal its commitment to a more transparent, accountable, and institutionalized system for resolving investment disputes. This new paradigm is consistent with the EU’s efforts to address criticisms of traditional ISDS mechanisms, such as a lack of transparency and potential conflicts of interest.

 

  1. Flexibility in Dispute Resolution Mechanisms

Portuguese investment treaties still demonstrate a certain degree of flexibility in dispute resolution mechanisms. Including options such as local courts, ICSID Arbitration, and ad hoc arbitration under UNCITRAL rules offers investors with choices. However, some treaties limit recourse to local remedies, emphasizing a balance between encouraging diplomatic resolution through negotiation and providing international arbitration channels available.

 

  1. Ongoing challenges and concerns

The termination of BITs and the shift towards the ICS model are not without challenges. Critics argue that the ICS might introduce complexities and delays into the dispute resolution process, potentially deterring investments. Additionally, the reliance on local courts in some treaties raises concerns about impartiality and the effectiveness of domestic judicial systems. Finding the right balance between investor protection and preserving regulatory autonomy remains a key challenge for Portugal.

 

  1. Implications for investors and the Portuguese government

The evolving ISDS landscape in Portugal has significant implications for both investors and the government. Investors benefit from a clearer and more standardized framework for dispute resolution, promoting confidence and predictability. At the same time, the Portuguese government gains greater control over its regulatory processes thereby decreasing the exposure to external arbitration. The emphasis on diplomatic negotiations as a precursor to arbitration indicates a commitment to settling disputes amicably whenever possible.

 

  1. Future directions and international cooperation

Looking ahead, the Portuguese approach to ISDS is expected to further develop in response to global trends and challenges and Portugal could play a key role in shaping EU debates on investment protection. International cooperation to improve the ICS model and address concerns is indeed vital and, in this sense, Portuguese diplomatic and legal experience could contribute to the ongoing dialogue on the creation of a sound and fair international mechanism for resolving investment disputes.

All in all, the ISDS landscape in Portugal is changing, mirroring the dynamic nature of international investment law. The termination of BITs, the alignment with the EU’s ICS model and the focus on the flexibility of dispute resolution mechanisms highlight Portugal’s willingness to adopt a balanced and adaptable approach. Implications for investors and government underline the importance of navigating this evolving landscape with caution and foresight.

 

To learn more, please read the Portuguese chapter of the GAR Investment Treaty Arbitration, submitted by the Portuguese team of Victoria Associates, available here.

Victoria Associates has successfully represented clients in disputes related to international investment arbitration and welcomes any question that may arise in this context ([email protected]).