ICSID Explained: The Secret Court Helping Multinationals Sue Governments

The International Center for Settlement of Investment Disputes (ICSID) is a World Bank-funded, Washington DC-based supranational court set up in 1966 to settle disputes between multinational corporations and countries that have signed up to the court. 

Although not widely written about or reported in the mainstream media, many critics have spoken out against ICSID, due to the fact that it has the power to overrule legal and other judicial decisions made by sovereign states, combined with the ability to make governments change certain decisions they've made.

The court is the main avenue for foreign multinational corporations to sue governments if they feel their business operations or investments have been inhibited.

Most international investment treaties contain clauses that ensure countries are members of the court, which in turn entitles foreign investors the right to activate the dispute arbitration system, known as the Investor-State Dispute Settlement (ISDS).

Fears of More Powers Under TTIP, TPP

While the court has been in operation for close to 50 years, there are fresh concerns over a potential increase to its powers, with proposed multinational trade deals TTIP, TPP and TISA thought to provide ICSID with a broader scope for multinationals to pursue legal action against governments.

The idea that corporations can sue governments for introducing measures harmful to a company's investment potential is among one of the chief concerns from critics of the Transatlantic Trade and Investment Partnership (TTIP).

There is a fear that it will lead to a reduction in the qualities of many services, such as the UK's NHS, with critics arguing that international corporations will be out to make a profit instead of focusing on quality service and customer care.

As part of negotiations, officials from France and Germany have expressed their concerns with the ISDS arbitration system, calling for it to be removed from any potential trade deal.

Matthias Fekl, French Secretary of State for Foreign Trade, was quoted earlier this year saying that he would "never allow private tribunals in the pay of multinational companies to dictate the policies of sovereign states, particularly in certain domains like health and the environment."

The court has also seen some ethically questionable legal challenges take place, such as the decision by tobacco giant Philip Morris to sue the governments of Australia and Uruguay, after lawmakers introduced plain packaging cigarette legislation for health reasons.

While many health experts applauded the governments' decisions, the company has argued that the packaging requirements in both countries violated its international investment, while proceedings are ongoing.

ICSID Raises Legal Questions

Along with trade agreement proposals giving greater power to the international dispute court, there are also major concerns about the legitimacy of the ICSID when compared to basic legal standards. 

The ICSID rules and guidelines are written by the court itself, meaning that in effect, it creates its own rules, which goes against international court regulations.

There are also questions over the neutrality of the ICSID decision-makers, as the court is accused of not having independent arbitration, with lawyers often mediating disputes between corporations and governments, leading to concerns over potential conflicts of interest.

While unlike most universal judicial systems, precedent law is not used in ISDS processes, leading many governments to question their defense of certain lawsuits, as there is also no appeal process against decisions.

On top of criticism from anti-TTIP, TPP and TISA campaigners, negative sentiment against the court has long been felt in South America, with Bolivia, Venezuela and Ecuador withdrawing from the court, while Brazil has never been a member.