SPECIAL ECONOMIC ZONES AND INVESTOR-STATE DISPUTE SETTLEMENT: FROM CONFLICT TO CONVERGENCE

This AF-ISDS Working Paper examines the interface between SEZs and ISDS. States use SEZs to attract investment through customs and tax treatment, administrative streamlining, and zone level institutions. Those same features can trigger disputes that later reach treaty arbitration. The paper argues that SEZ disputes place recurring pressure on ISDS because zone measures often sit at the junction of domestic administrative action, contract rights, and treaty claims, and because zone governance can blur the line between public authority and operational management. The paper sets out six lessons. First, SEZ measures should align with IIAs, and treaty drafting should address SEZ related measures where feasible. Second, zone level grievance channels, mediation, and other early resolution tools can resolve some disputes before arbitration. Third, where arbitration proceeds, procedure and tribunal composition should reflect common SEZ fact patterns, including the selection of arbitrators with experience in zone administration and public authority questions. Fourth, both investors and States face risks of parallel proceedings across zone bodies, domestic courts, contract arbitration, and ISDS, hence treaty instruments should include coordination devices. Fifth, attribution disputes recur where zone authorities, subnational bodies, SOEs, or concessionaires take the acts at issue, hence States should reduce threshold disputes by stating clearly, in line with ARSIWA, when zone actors exercise public authority for treaty purposes. Sixth, investor duties and administrative capacity matter for compliance and dispute prevention in SEZ regimes. The paper concludes that SEZs do not sit outside the investment treaty system. They recur in disputes that test consent, attribution, applicable law, and recovery. Lessons from those disputes point to drafting choices and institutional design that can make ISDS more coherent, predictable, and credible for both States and investors.