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.
2.
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.
3.
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.
4.
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.
5.
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.
6.
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
(info@victoria.associates).
