Part III – The Denial of Benefits Provision: A Test Case for Real Reform

The discussion on the denial of benefits provision (draft provision 17) proved to be one of the most revealing—and debated—moments of the session. On the final day, Argentina introduced a revised version of the Secretariat’s draft, broadening the range of situations in which States could withhold treaty protections. The Secretariat’s draft already permitted denial of benefits to shell companies and investors engaged in corruption, fraud, or conduct contrary to the treaty’s objectives (paragraph 2). Argentina’s addition included language aimed at curbing treaty shopping—specifically, allowing the denial of benefits to investors that restructure solely to gain access to ISDS.

This proposal drew a visible dividing line in the room: nearly 20 States, largely from the Global South, voiced support or urged further discussion, while several developed States expressed concern that such changes went too far or fell outside WGIII’s procedural scope.

An especially striking moment came during the intervention from the CCIAG observer, who argued that the denial of benefits provision was “discriminatory”—not against mailbox companies or multinational investors, but against small and medium enterprises (SMEs) and even developing countries themselves. His rationale was that large multilateral corporations from wealthier countries can easily meet the formal criteria required to avoid denial of benefits provisions—such as establishing fully staffed holding companies with boards of directors—whereas SMEs may lack the resources to do so and could therefore be excluded from treaty protections.

While this argument may appear sympathetic to SMEs at first glance, it ultimately missed the mark and misrepresented the reform’s intent. The aim of expanding denial of benefits provisions is not to target SMEs or legitimate investors, but to curtail the abuse of the ISDS system by investors, large or small, who manipulate legal structures for treaty shopping, round-tripping, or shielding fraudulent or unlawful conduct. Most developing countries that backed Argentina’s proposal were doing so not because they wanted to discriminate arbitrarily among investors, but because they wanted to limit their exposure to meritless or abusive claims that obstruct regulatory and development priorities. If that means placing stricter limits on some types of claims, even at the cost of excluding a subset of investors who fail to meet minimum transparency or conduct-based thresholds, then so be it—it is a targeted response to real, documented risks.

More fundamentally, the CCIAG intervention was problematic in tone and substance. Speaking as if on behalf of developing countries, the representative implied that these States were incapable of discerning their own interests. But the record shows otherwise: it was precisely these delegations—from Latin America and Africa, in particular—that strongly supported Argentina’s proposed language. Far from being out of step with their needs, the proposal was grounded in the lived experience of States regularly targeted by ISDS claims, and it aimed to close well-known jurisprudential gaps. In the end, the intervention revealed less about the risks to SMEs and developing countries and more about how industry groups continue to resist meaningful reform by reframing safeguards as threats. It is one thing to raise implementation concerns—which can be addressed in good faith. It is quite another to dress up obstructionism as advocacy for the Global South.

Fortunately, the strength and breadth of support for Argentina’s intervention, whether formally coordinated or not, meant that the broader denial of benefits language may have survived—at least for now—despite sustained pressure to narrow or remove it.  Still, there is some concern that the next draft may dilute this provision—perhaps citing “divergence of views” as justification, already noted in the Report of the 51st Session. That would follow a pattern seen with other cross-cutting reform topics, where language has been softened to reflect the lowest common denominator rather than ambition. The Chair, in his closing remarks, noted that even a narrow denial of benefits clause would represent progress, given that many existing treaties lack such provisions. While this may be true in a formal sense, many delegations see the broader reform agenda as an opportunity to move beyond merely documenting existing practices.

See Part IV – Shareholder Claims: A Fight Over Process and Substance

Back to Part II – Exhaustion of Local Remedies: A Missed Opportunity for Meaningful Engagement