What is ISDS (investor-state dispute settlement)?
Key Points
- ISDS is a mechanism that permits investors to bring international arbitration claims against governments for breaches of international investment rules.
- Investors that have ISDS rights do not need to rely on their government to bring a claim on their behalf.
- Without ISDS provisions dispute settlement in free trade agreements is a state-to-state process, which may not work well for corporations seeking to enforce their rights.
- Countries should consider the inclusion of ISDS provisions in FTAs but with clarifications to ensure symmetry between investor interests and the ability to regulate for legitimate public welfare purposes.
- A cursory check of whether your next investment destination country is ISDS averse may be helpful as to how you evaluate the risks and structure the investment.
Why is this a divisive issue?
Much has been said about the inclusion (both for and against) of ISDS provisions in trade and investment agreements during the negotiations of agreements such as the Trans Pacific Partnership (TPP), and the recently concluded The Pacific Agreement on Closer Economic Relations (Pacer Plus) [1].
The protection of rights of investors is nothing new. Many the key investment rules are reflective of customary international law. This means that those rules are owed to foreign investors regardless of whether they are included in a trade agreement.
Common arguments made against the inclusion of ISDS provisions are the limit to sovereignty and that these provisions restrict legitimate government activity, such as the protection of public health or the environment.
What is ISDS?
ISDS is a mechanism that permits investors to bring international arbitration claims against governments for breaches of international investment rules.
What do ISDS provisions change?
ISDS changes the way that free trade agreement rules can be enforced.
Investors that have ISDS rights do not need to rely on their government to:
- bring a claim on their behalf in another international arbitration forum; or
- pursue what avenues they have open to them in domestic courts.
Instead, they can seek their own remedies through international arbitration.
ISDS is an extra mechanism that enables an investor to bring a claim against a host state that is a party to a free trade agreement. Otherwise dispute settlement in free trade agreements is a state-to-state process.
