Charges that investor-state arbitration is undemocratic, undermines national sovereignty, and prevents necessary regulations have prompted some states to develop new approaches to the field. Recent initiatives in Africa and South America aim to readjust the system in two very different ways.

Earlier this year, Morocco and Nigeria published their innovative model bilateral investment treaty, which may represent a new and progressive path forward for ISDS. While this model BIT ensures protections to investors that are commensurate with traditional BITs, it also imposes on investors significant obligations, including environmental (for example, application of the “precautionary principle” to investors), anti-corruption, and corporate governance obligations.

The Mercosur regional economic bloc has taken a very different approach, and signals an important potential shift by narrowing or entirely excluding certain substantive protections traditionally found in international investment agreements. Following the Brazilian model in its recent BITs with India and Mozambique, the Protocol excludes investor-state arbitration as a recourse for dispute settlement. Instead, investors may pursue domestic judicial recourse or through the existing state-to-state dispute settlement mechanism under the Mercosur.

In addition to narrowing the avenues for dispute settlement, the Protocol closely tailors the substantive protections accorded to investments. The types of protected investments are defined in Article 3 and, notably, given Argentina’s recent experience, exclude sovereign debt as a covered investment. Article 4 explains that investors are entitled to due process and access to all judicial and administrative remedies permitted under the local law, but “fair and equitable treatment” and “full protection and security” – standard substantive protections found in many investment treaties – are not granted under the Protocol. Likewise, Article 6 stipulates that indirect expropriation is not accorded protection under the Protocol.

While the Protocol aims to create a stable legal framework for intra-Mercosur investments, in which the Mercosur countries commit to transparency, non-discrimination, and the fight against corruption and illegality, it remains to be seen whether these reduced investment protections will serve to enhance or stymie foreign direct investment. The original (Spanish) text of the signed Protocol is available here.