Colombia’s President Gustavo Petro has announced that his country will withdraw from the international investment-arbitration system. Because arbitral tribunals too often ruled in favor of private companies, for example in disputes over phasing out fossil fuels. In practice, there are, however, several hurdles.
Everything began with an open letter to the president. Colombia would please withdraw from Investor-State Dispute Settlement (ISDS) – and lead an international exit movement. For the mechanism that is supposed to settle disputes between investors and states, it hinders the exit from fossil fuels.
More than 200 predominantly left-leaning, international academics signed the letter. Among them: Nobel laureate in economics Joseph Stiglitz, French economist Thomas Piketty, as well as José Antonio Ocampo – United Nations Under-Secretary-General for Economic Affairs and Petro’s first Finance Minister.
The ISDS system is supposed to guarantee to investors, regardless of the country of investment, that they do not lose their invested money because of political influence – because a government might, for example, decide to close a gas field early. In the Netherlands, for instance, ExxonMobil and Shell are suing the Dutch state before such an arbitral tribunal.
Climate Fighter Gustavo Petro
With the left-leaning President Petro, who often presents himself internationally as a climate fighter, the letter found receptive ears: His country announced after the 2025 UN Climate Conference in Belem, Brazil, a conference on phasing out fossil fuels – and a pause for energy projects in the Amazon. That could potentially violate contracts: according to Boston University, roughly 129 oil-and-gas project contracts in the Colombian Amazon region include clauses that protect investors with the ISDS mechanism.
Foreign investments are also needed for the energy transition, says economist Dumar Miguel Vargas Reyes
Mauricio Salcedo Maldonado doubts that withdrawal is even possible. The lawyer represented Colombia for 17 years before dispute-resolution bodies and participated in most negotiations on Colombia’s free trade agreements.
In Colombia, economic agreements of the state must be enacted by law and examined by the Constitutional Court. An exception in international comparison. Therefore, it takes Colombia much longer than in most EU countries to approve trade agreements at the national level.
The president cannot unilaterally amend laws, explains Salcedo. That can only be done by Parliament. For Salcedo, Petro’s announcement is therefore primarily “political in nature,” with limited practical effects.
Salcedo acknowledges that there is justified criticism of the ICSID.
The ICSID is the most important court implementing ISDS.
For example, the appointments of judges are not necessarily transparent; their careers often alternate with work as process and corporate lawyers, representing interests of various kinds, often aligned with investors.
Colombia Won Against a US Real Estate Company
Colombia’s experiences with ISDS and the International Centre for Settlement of Investment Disputes (ICSID) are overall positive, emphasizes Salcedo. In the case against the US real estate company Meritage, for example, the state won. It had confiscated property in a luxury complex because the drug cartel would have benefited from money laundering – rightly, ruled ICSID. It refused compensation for expropriation.
Even in defeats, the sanctions remained within a reasonable frame: In the high-profile case brought to ICSID involving mobile operators Movistar and Claro, Colombia did lose – but the ruling reduced the fines already imposed nationally on the companies only. The state, in the end, still collected about 1.5 billion dollars. Exiting the ISDS system would, according to Salcedo, also not make a big difference. The national protection standards correspond to those in investment protection agreements.
The Colombian-American Chamber of Commerce warns of growing uncertainty that could deter investors. A concern shared by Dumar Miguel Vargas Reyes. He teaches in the Faculty of Economics at Universidad del Norte in Barranquilla. The international arbitration system has a reputation for transparency among firms – precisely because it is not run by Colombian institutions.
“The Petro government has tried to make investments in non-renewable energy more difficult and to decarbonize the country,” says Vargas. But foreign investments are also needed for the energy transition. Colombia is among the countries with the most complaints. “I suspect this has to do with the government’s new energy policy.” For him, it’s clear: the initiative is tied to the presidential election campaign. The elections are at the end of May. And the outcome will determine what becomes of the proposal.
