Risks of Investor-State Dispute Settlement Provisions in International Investment Treaties

Investor-state dispute settlement provisions (ISDS) give foreign companies capability to resolve any alleged dispute in the neutral international way. This opportunity encourages foreign direct investment because the investors can rest assured that, if the host state would make internal changes of regulations that would affect their investment, the investor would potentially be protected by the ISDS.

This, from the other hand, could raise concerns for the host state, because, if the state would like to make changes to regulations of employment, human or other rights in public interests, the investor company could use rights to raise the alleged dispute internationally using ISDS.

This also raises another issue: the obvious unfairness to state internal investors in comparison to foreign investors. Internal investors would not have any other choice as to comply with the new regulations, because they in case of a potential dispute would need to address their claim to the government courts, which, as being part of the government, would not be able to consider a case against the government itself. Whereas, the foreign investors would have right to raise the alleged case with one of external, state neutral tribunals.

Therefore, the state sovereignty is under question. The ISDC gives the foreign investors potential freedom to disregard state regulations. The host state eventually is not able to freely regulate their internal affairs due to potentially many international trade and investment treaties, which allow the foreign investments this freedom.

Nevertheless, ISDS, by providing assurance of protection to the foreign investors, attracts the investors. Therefore, if a state wishes to attract foreign investors, it would be highly recommended to include this provision.

For a state considering whether to include ISDS provision, another important point would be that any one of the available international tribunals has been designed to resolve disputes in more efficient and potentially cheaper manner than any court, and the disputes are being considered by expert lawyers in the certain area, instead of general knowledge judges.

Taking in to consideration all mentioned, the advice whether to include ISDS provision in an international investment agreement, in my opinion, is consideration of whether the state wishes to be more attractive for international investors, because foreign investors, most likely, would prefer availability to raise potential claim with state neutral, international tribunal, instead of host or home courts, which would take a long time, money and most probably would be incompetent in international dispute settlement.

Thank you.