Part V – The Right to Regulate: Balancing Policy Space and Predictability

The right to regulate provision (draft provision 19) similarly drew divided reactions. For many developing countries, affirming the sovereign right to regulate in the public interest—particularly in areas like health, environment, and human rights—is an essential component of any reform package. They pointed to the asymmetry created when States bear legal and financial risks for enacting public interest regulation, while investors face few equivalent constraints.

Opposition came largely from industry observers, particularly the USCIB observer, who argued at length that the provision had no place in the WGIII reform process. Their intervention was echoed by a few developed country delegations, many of whom claimed that the provision exceeded the group’s mandate. According to this view, draft language that shields public interest regulation from investor claims would gut the entire investment regime. In any case, some argued, the ongoing discussions at the Organization for Economic Cooperation and Development (OECD) is a more appropriate venue to tackle this topic. Others noted, however, that the OECD lacks global representation and binding authority—and is inaccessible to many States actively participating in ISDS reform at UNCITRAL.

In contrast, many developing countries anchored their support for the provision in prior remarks from the Chair—often stating, “as the Chair has indicated, this is within the mandate.” But in response to these diverging interpretations, the Chair clarified that his earlier mandate interpretation applied only to shareholder claims, not the right to regulate. The distinction was subtle but important—and left open the possibility that the Chair might view the right to regulate provision as straying from the group’s procedural scope. As with earlier sessions, this underscored how influential framing by the Chair and Secretariat can be in shaping negotiation dynamics, even when States hold ultimate decision-making authority.

CCSI intervened as an observer to help reframe the issue. We emphasized that the right to regulate is not only substantively important, but also a procedural concern. Regulatory chill and the asymmetric allocation of regulatory risk are at the heart of the legitimacy crisis facing ISDS. In a world facing cascading public interest challenges—from climate change to public health—States must be able to regulate without fear of legal retribution. Procedural tools like carve-outs, filters, and consent requirements are not beyond the mandate; they are the mandate—precisely the types of structural fixes needed to recalibrate a system long skewed in favor of investor protections. 

Leaving the right to regulate out of the final reform package would leave a gaping hole in any credible effort at systemic change. Without it, States—particularly those facing intersecting development and environmental pressures—will remain exposed to legal risks simply for regulating in the public interest. A meaningful reform process cannot afford to ignore that reality.

See ISDS Reform Without Remedy: A Report from the 51st Session of UNCITRAL WGIII for the full report. 

Back to Part IV – Shareholder Claims: A Fight Over Process and Substance.