The global transition to renewable energy systems will be mineral intensive and, under the current linear economy conditions,...
The global transition to renewable energy systems will be mineral intensive and, under the current linear economy conditions,...
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The most recent session of the United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WGIII), held in April 2025, brought to the surface a now-familiar dynamic: ongoing debates over key reform issues were marked by procedural disputes and divergent positions among States and observers. Despite years of effort and a clear mandate to address widespread concerns about legitimacy and imbalance in the investor–State dispute settlement (ISDS) system, a number of key cross-cutting issues—namely, (1) the exhaustion of local remedies, (2) the denial of benefits, (3) shareholder claims, and (4) the right to regulate—faced challenges to remaining on the reform agenda, or risked being reframed in ways that would merely codify existing practice.
These issues are not minor technical points. Alongside topics such as damages assessment and the regulation of third-party funding, they go to the heart of many States’ calls for reform. For a significant number of countries—especially those facing frequent ISDS claims—these proposals are key to ensuring adequate policy space, addressing asymmetries in the current regime, and restoring greater balance in the system. However, the session saw a continuation of procedural debates over whether these issues fit within the Working Group’s scope, limiting the opportunity for substantive engagement.
Several States—including Bahrain, Japan, Singapore, Switzerland, the United States, and, to a lesser extent, Canada, the European Union and its Member States, and the Republic of Korea—expressed skepticism about whether these cross-cutting provisions should be discussed within WGIII. Their positions were echoed by industry associations such as the Corporate Counsel International Arbitration Group (CCIAG) and the United States Council for International Business (USCIB), who argued that certain reform proposals fell outside the Working Group’s mandate.
While framed as procedural concerns, these objections often constrained the scope of the conversation. It is worth noting, however, that the UNCITRAL Secretariat has consistently indicated that WGIII’s mandate includes addressing features of the ISDS system that have generated significant concerns about its legitimacy and viability (paras 45–47 of the 2017 Secretariat’s Note). The proposals in question—such as requiring exhaustion of local remedies, restricting reflective loss shareholder claims (a principle firmly rooted in domestic and customary international law), and reaffirming the sovereign right to regulate—are grounded in long-standing critiques and are not novel departures from international practice. They are targeted responses to long-recognized harms and imbalances in the investment treaty system. Yet these efforts are often dismissed as “too substantive,” while the power to define what qualifies as procedural—and thus appropriate for WGIII’s agenda—remains narrowly controlled.
At its core, this is a debate about agenda-setting. Many developing countries entered the WGIII process having accepted an important limitation: that the Working Group would not address the substantive investment protections themselves, even though many of them consider those protections central to the systemic challenges. Instead, they made a significant compromise to focus on procedural reform. For this reason, many delegations see the cross-cutting provisions—though technically procedural—as essential to ensuring that reforms meaningfully improve the practical functioning of ISDS. Some delegations expressed concern that efforts to narrow the scope of the agenda risked sidelining the issues that matter most to countries seeking a more development-oriented and balanced investment framework. If the core concerns that brought many States to the table are removed from consideration on procedural grounds, the legitimacy and impact of the entire reform process may be called into question.
One of the more pointed interventions came from the delegate of the United States, who stated that provisions on denial of benefits, shareholder claims, and the right to regulate address issues that are too “substantive” to be considered within WGIII. The U.S. delegate also questioned why Working Paper 244 proposed “novel approaches without adequately explaining the need for deviating from practice.” But it is precisely because current practices have generated sustained concerns that reform is being pursued. Calls for change are grounded in the lived experiences of States that have confronted the burdens and limitations of the existing system. WGIII was convened in response to the legitimacy and accountability crisis in ISDS.
As several delegations noted during the session, reform requires more than updating procedures—it demands engagement with the structural elements of ISDS that have contributed to the imbalance in outcomes. The right to regulate, for example, is not an ancillary concern, it is a foundational one. As one delegate put it, “this needs to continue to develop because it really is part of the essence of the work of this Working Group when it seeks to reform… we cannot do the same thing [as the past] when we’re seeking to reform something for the modern era.”
Continue to Part II – The Exhaustion of Local Remedies: A Frustrating Start
Continue to Part III – The Denial of Benefits Provision: A Test Case for Real Reform
Continue to Part IV – Shareholder Claims a Fight Over Process and Substance
Continue to Part V – The Fight to Recognize the Right to Regulate
This session reaffirmed many of the broader dynamics that have shaped WGIII’s reform process. While the agenda remains formally open to proposals aimed at addressing systemic imbalances in the ISDS system, meaningful engagement with these issues often runs up against procedural hurdles or political resistance. Where provisions do advance, they risk being diluted to the point of reinforcing existing practice—offering continuity over transformation—justified by concerns that even modest reforms might somehow deter foreign investment. Yet, the empirical evidence for that claim remains inconclusive, at best. There is little indication that ISDS attracts productive, sustainable investment—and growing evidence that it entrenches extractive and harmful ones.
In that context, proposals aimed at addressing central concerns—such as denial of benefits, shareholder claims, exhaustion of local remedies, and the right to regulate—should be treated as foundational, not peripheral. These issues go to the heart of whether international investment law can be reconciled with democratic governance, environmental protection, and equitable development. And yet, in WGIII, they are often sidestepped, fragmented, or watered down to fit within a framework designed to privilege investors’ economic interests.
Despite this, the countries most burdened by the current system remain in the room. They continue to push for reforms that could curb abuse, protect public interest regulation, and restore some balance to an uneven legal regime. That persistence is not a concession to the system—it is a pragmatic attempt to secure what limited justice may still be possible. But it is increasingly difficult to see how this process will deliver the kinds of changes many developing countries—and their publics—have called for. While the mandate promised systemic reform, the process has too often settled into procedural tinkering that leaves core structural inequities intact.
Rather than continue investing scarce time and resources in a process that may no longer serve their interests, States should begin to consider alternatives. Some have already taken steps to terminate or renegotiate their investment treaties. Others are working toward drafting model agreements that are better aligned with their development and constitutional priorities. States are also exploring regional frameworks or turning to different multilateral spaces to pursue reforms with greater ambition. Multilateralism itself is not the problem—but this particular multilateral process may no longer offer the clearest or most effective path toward meaningful reform.
