Progress of ISDS Reform: Outcomes of the 54th Session of UNCITRAL Working Group III

From 23 to 27 March 2026, the International and Comparative Law Research Center participated as an observer in the 54th session of Working Group III of the United Nations Commission on International Trade Law (UNCITRAL). The Center was represented by Sofia Sarenkova, Head of Public International Law, and expert Anna Kozyakova.

Read about the progress of discussions within UNCITRAL Working Group III on our website:

• at the 53nd session of the Working Group
• at the 52nd session of the Working Group
• at the 51st session of the Working Group (its 2nd part)
• at the 50th session of the Working Group
• at the 8th intersessional meeting of UNCITRAL Working Group
• at the 49th session of the Working Group
• at the 47th session of the Working Group
• at the 46th session of the Working Group
• at the 44th session of the Working Group
• at the 38th session of the Working Group

The reform of the investor-state dispute settlement (ISDS) system has been underway since 2017 and, according to the plan, is scheduled to be completed in 2027. At the past session, the main focus was on issues of jurisdiction for the future permanent tribunal and permanent appellate tribunal (previously considered by the Working Group as a single standing mechanism for the resolution of international investment disputes) (A/CN.9/WG.III/WP.256). In addition, a first reading was held on parts F (Operation of the Permanent Tribunal) and G (Final Clauses) of the draft statutes of both permanent mechanisms (A/CN.9/WG.III/WP.259 and A/CN.9/WG.III/WP.260).

Due to UN budget constraints, the 54th session consisted not of five but of four official days of negotiations and one day of informal consultations on Monday, which was conducted exclusively in English, without interpretation into the official languages of the UN.

Overall, during the session, the main discussions focused on defining the jurisdiction of the permanent tribunal and, to a lesser extent, the appellate tribunal. This issue was the subject of truly substantive consideration for the first time. In the past, discussions on the categories of disputes to be resolved by the permanent mechanism had been repeatedly postponed, which drew criticism, as the answer to this question affects many other important decisions that must be agreed upon in connection with the establishment of the new courts (such as requirements for judges’ qualifications or funding issues).

The discussion of jurisdiction is complicated by the fact that it must be defined across several “dimensions” at once:

1. based on the legal basis of the dispute (disputes arising from an international investment agreement, an investment contract, or national legislation);
2. based on the parties to the dispute (disputes between an investor and a state, or disputes between states);
3. by the nature of the jurisdiction (whether it should exclude other means of dispute resolution or supplement them);
4. in terms of the possibility of resolving disputes arising from treaties, not all of whose contracting states have become members of the permanent tribunal or appellate tribunal, with the consent of the disputing parties themselves.

(i) First and foremost, the debate centered on whether the tribunal’s jurisdiction should be limited solely to international investment disputes arising from international investment agreements (IIAs), that is, from international treaties. Most delegations (Russia, India, Japan, Israel, Indonesia, Thailand) supported an approach whereby the permanent mechanism should consider only or primarily disputes arising from IIAs. A broader approach, allowing disputes arising from investment contracts and national legislation to fall within its jurisdiction — at the discretion of the participating states — was supported by the EU, Switzerland, Brazil, and Ecuador. Proponents of the latter approach pointed out, among other things, that this could increase budget revenues through service fees. Moreover, some states (such as Ecuador) have committed to a full transition to regulating relations with investors on a contractual basis, and if jurisdiction were limited to that from international treaties, access to the dispute resolution mechanism would be precluded for such states. Opponents, in particular, raised the objection that the new tribunal could become overwhelmed with claims arising from contracts and legislation, to the detriment of its ability to resolve disputes arising from IIAs. In this context, the question was also raised as to whether it is appropriate to delegate the authority to apply and interpret national law to an international court.

Ultimately, the delegations did not reach an agreement and will await draft language from the Secretariat to describe the scope of jurisdiction, reflecting the approaches that were voiced.

(ii) Regarding inter-state disputes, most delegations opposed their inclusion (including the United States, Bahrain, Russia, and Republic of Korea), since they do not constitute international investment disputes, and referring them to the proposed tribunal could politicize decision-making within the Conference of the Parties (for example, during the election of judges). On the other hand, Brazil noted that under its current IIAs’ practice, the possibility of resolving disputes between an investor and a state is not provided for in principle, and only an inter-state mechanism is available; therefore, the new tribunal could certainly hear such inter-state cases in the interest of resolving investment disputes.

It was agreed that the updated wording of the provision on jurisdiction will reflect the possibility of referring such disputes between states to the court (when the investment treaty does not provide for the possibility of diagonal settlement).

(iii) The third major issue concerned whether the jurisdiction of the permanent mechanism should be exclusive — that is, whether it should exclude all other dispute resolution methods provided for in the IIAs — and, if so, how this should be implemented. Indeed, granting the permanent tribunal “exclusive” jurisdiction would in most cases represent a significant departure from the dispute resolution provisions agreed upon by states in their IIAs, moving toward a restriction on the choice of dispute resolution methods (for example, ad hoc arbitration or the ICSID would be excluded). Such a change in the terms of the treaty must be clearly and unambiguously accepted by its parties.

Although no strong objections were raised during the session to the very possibility of states granting a permanent tribunal exclusive jurisdiction, the question of how to establish the existence of such consent among states proved sensitive for many delegations.

Two main options were discussed:

• Under the first option, exclusive jurisdiction applies automatically when the treaties (IIAs) included in the list in respect of which each state accepts the jurisdiction of the permanent tribunal, match; however, the parties may waive exclusivity through an express declaration of intent. This option was supported by the EU, France, Spain, and Switzerland.

• In the second option, not only must the treaties match, but the parties must also give their express consent for the permanent mechanism to have exclusive jurisdiction. Nigeria, India, Thailand, Singapore, China, and Israel expressed support for this option.

The United States, India, and Japan insisted on preserving the parties’ autonomy and the option to choose multiple forums; it was repeatedly emphasized that silence should not be interpreted as consent not only to the exclusive nature of jurisdiction but also, in principle, to the exercise of such jurisdiction over disputes arising from a specific IIA.

(iv) The discussion as a whole revealed no serious objections to granting the tribunal jurisdiction over disputes arising from treaties in which not all parties are members of the tribunal. The key point is that the relevant State party to the treaty must express its consent to the adjudication of disputes arising therefrom by a permanent tribunal; however, many delegations opposed the idea that such consent could be implied. It must be expressly and clearly stated, including with regard to whether it applies to all disputes or only to specific ones.

In the context of discussing options for extending the jurisdiction of the new tribunal to various categories of disputes, the ICLRC noted that for the successful implementation of the reform, it is important for states to fully understand the scope of the obligations assumed in connection with participation in the new permanent tribunals, and how far the legal consequences of participation will extend. The complex “organization” of jurisdiction, which was evident, among other things, in the complexity of discussions during the session, should be taken into account in light of the future need to follow domestic procedures, such as submitting proposals for participation in the statute of a permanent tribunal for parliamentary approval. It is also useful, in further discussions of the mechanics of extending different types of jurisdiction to different treaties, to ask whether states have appropriate domestic procedures for making such decisions, particularly beyond the scope of decisions on ratification or accession to the statute.

The jurisdiction of a permanent appellate tribunal was treated in the same manner as that of a permanent tribunal, in various dimension. The possibility of including ICSID awards and ad hoc awards within the jurisdiction of the appellate tribunal was discussed, but no consensus was reached. The issue of the parties’ consent was addressed as follows: in the case of a “perfect match” (where the treaties included by the participating states in the list submitted to the depositary match), consent to appeal is deemed automatic; in the case of a “non-perfect match” (where only one of the parties has included the treaty in the list), the express consent of the parties is required, although no practical decision was reached regarding the form such consent should take. It was also discussed that the seat of the appellate mechanism should be located in one of the participating states to ensure the effective enforcement of decisions.

The subsequent discussion of financing, as well as the final provisions of future statutes, demonstrated that states have very different views not only on key jurisdictional issues, but also on how these new bodies should be established and function.

Financing (Article 24 of the draft statute of the permanent tribunal and Article 29 of the draft statute of the appellate tribunal). The key problem at this stage arises from the high degree of unpredictability regarding the costs of establishing the bodies and creating all the conditions necessary for their operation during the initial establishment phase and thereafter (the number of participating states, the number and conditions for the appointment of judges, and other financially significant conditions, including which categories of disputes may be heard in the tribunals). States proceed from the assumption that dispute resolution services will be provided to the disputing parties on a fee-paying basis and that at least part of the costs of the bodies’ operation will be covered by the corresponding fees. Some even voiced expectations that these revenues could cover nearly the entire budget of the tribunals. However, it is clear that this depends entirely on how quickly and what kind of demand develops for the services of the new tribunals. Until demand significant enough to cover costs forms, all funding for the tribunals will rest on the shoulders of the participating states.

In addition, the discussion regarding the potential “self-financing” of the tribunals necessitated a review of key approaches to determining service fees. Although the relevant rules will need to be developed at a later stage and adopted by the respective Conferences of the Parties to the future statutes, several important points were raised: on the one hand, service fees should not be merely symbolic, so as not to “subsidize” investors’ claims against states, but they should also not be “prohibitively high” to ensure the accessibility of this means of dispute resolution. It was also suggested that judges’ fees should not be paid from the service fees collected, as this could compromise their independence.

Despite all the remaining uncertainties, as an interim conclusion, the delegates agreed to implement a hybrid funding model: in the early stages, through state contributions covering the establishment and launch of the tribunal; subsequently, the bulk of funding will be provided through user fees. Future funding arrangements must ensure the tribunal’s independence, prevent donor influence, and minimize conflicts of interest. Developing countries emphasized the tribunal’s accessibility and a flexible approach to contributions, taking into account economic capacity.

During the discussion, the ICLRC proposed clarifying the provision regarding the restriction of a State Party’s rights in the event of arrears in budget contributions. In particular, it pointed to the widespread practice of applying restrictions on rights in cases of non-payment of contributions for two consecutive years or when arrears reach the amount of contributions for two years — this somewhat limits the discretion of the Conference of the Parties in applying restrictions on rights. It also recommended considering clarifying the list of rights that may be restricted in such cases. In particular, it noted that restricting the right to participate in voting for judges could negatively affect the subsequent perception of the legitimacy of the tribunal’s composition appointed in this manner. In response, support was expressed by some delegations, in particular for establishing the condition of “two-year” arrears, and the comment regarding the consequences of restricting the right to participate in elections was noted. Nevertheless, the Working Group considered it appropriate to leave the determination of the relevant conditions and procedures to the Conferences of the Parties, rather than including them directly in the statutes.

Immunities (Article 25 of the draft statute of the permanent tribunal and Article 30 of the draft statute of the appellate tribunal). The version of the article on the immunities of tribunals, judges, staff, and participants in proceedings drafted by the Secretariat will be substantially revised as a result of the discussion. Delegates decided that judicial personnel should be granted more limited functional immunity, while judges should be afforded potentially enhanced protection. The protection of witnesses and experts was also discussed, including those against whom, for example, there is an arrest warrant for acts unrelated to the case at hand, or against whom unilateral restrictive measures, including entry bans, are in place.

Final provisions (Articles 26–32 of the draft statute of the permanent tribunal and Articles 31–37 of the draft statute of the appellate tribunal). The discussion regarding the entry into force and the required number of ratifications revealed significant differences in positions. A high threshold (60 or more, with figures as high as 85 ratifications even being mentioned — all with the caveat that the figures were provided solely to illustrate the high threshold and did not constitute an official proposal at this stage) was supported, in particular, by Russia, Panama, Bahrain, and the United States, citing, among other things, legitimacy, the geographical representation of participants and judges, and the equitable distribution of initial costs. The importance of ensuring that the establishment of the tribunals was based on broad participation by states from the outset, rather than being carried out by a small group of initial participants — which could reduce the institution’s appeal to other countries preparing to join — was also noted. A low/medium threshold (15–20 ratifications), on the other hand, was advocated by the main proponents of the new tribunals — the EU — supported by Singapore and Nigeria. Their arguments centered on the rapid launch of the reform and the gradual subsequent development of the institution.

After discussing some additional possible conditions for the statutes to take effect (for example, the accumulation of a specified number of investment treaties, disputes over which the parties agree to refer to the new tribunals), the members of the Working Group decided not to include them, retaining only the standard condition regarding the number of instruments of ratification (acceptance, accession) deposited — though, of course, without an agreed-upon number for the time being.

Toward the end of the session, the recognition and enforcement of decisions were considered (Article 23 of the draft statute of the permanent tribunal). The purpose of this provision is to ensure the direct and effective enforcement of decisions of the permanent tribunal, similar to ICSID system. Many delegations supported this mechanism, under which decisions are treated, for enforcement purposes, as equivalent to a final judgment of a court in the State of enforcement. As a result of the broad support for this mechanism, the provision allowing for the refusal to recognize and enforce a decision at the request of the party against whom it was rendered (para. 4) was excluded at this stage. On the other hand, following the discussion, the reference in para. 3 to the fact that, for the purposes of enforcement in States not party to the statute of the permanent tribunal, a decision of the permanent tribunal is treated as an “arbitral award” under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) was preserved. However, a number of delegations noted that this provision does not and cannot create legal obligations for parties to the New York Convention that are not parties to the statute of the permanent tribunal and cannot preempt the legal characterization of the permanent tribunals’ decisions by the state courts of those jurisdictions that have not acceded to the relevant institutions.

The past session of the Working Group was, in some ways, a breakthrough — participants finally began to discuss substantively and openly what they expect from the future tribunals, what jurisdiction they consider appropriate to grant each of them, to what extent they are prepared to contribute financially to their establishment and operation, and how broad they envision participation in them to be. The Chair and delegates noted the overall success of the session and progress on a number of fundamental issues concerning the structure of the permanent and appellate tribunals. At the same time, the outlined plan to finalize the statutes by the UNCITRAL session in the summer of 2027 may prove too ambitious, given that no more than two of the three upcoming sessions of the Working Group can be devoted to the statutes, and disagreements on key issues remain quite substantial.

The ICLRC continues to actively follow the progress of Working Group III and participates in discussions as an observer. Participants in the 2025/2026 Investment Law and Arbitration Lab are also involved in analyzing agenda items, including specific issues related to the draft statutes of the permanent and appellate mechanisms.