Investor–state dispute settlement

Investor–state dispute settlement (ISDS), or an investment court system (ICS), is a set of rules through which countries can be sued by foreign investors for certain state actions affecting the investments (FDI) of that investor by that state. This most often takes the form of international arbitration between the foreign investor and nation. For the rules to be effective, they must have been agreed upon between the states concerned.

ISDS most often is an instrument of public international law, granting private parties (the foreign investors) the right to sue a sovereign nation in a forum other than that nation's domestic courts. Investors are granted this right through international investment agreements between the investor's home nation and the host nation. Such agreements can be found in bilateral investment treaties (BITs), international trade treaties such as the United States–Mexico–Canada Agreement and the proposed Transatlantic Trade and Investment Partnership (TTIP), or other treaties like the Energy Charter Treaty. Settlement of a dispute by arbitration also can be agreed upon only by the parties concerned.

To be allowed to bring an investor-state dispute before an arbitral tribunal, both the home country of the investor and the country of investment must have agreed to ISDS, the investor from one country must have an investment in a foreign country and the foreign investor must put forward that the state has violated one or more of the rights granted to the investor under a certain treaty or agreement.

ISDS claims are often brought under the rules of ICSID (the International Centre for Settlement of Investment Disputes of the World Bank), or one of several other international arbitral tribunals governed by different rules or institutions, such as the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Hong Kong International Arbitration Centre (HKIAC), or the UNCITRAL Arbitration Rules.

The ISDS system has been criticized for its perceived failures, including investor bias, inconsistent rulings, inaccurate rulings, high damage awards, and high costs. There is a widespread call that the ISDS system should be reformed. As of May 2022, multiple reform efforts are underway; the EU's European Economic and Social Committee, for instance, backs criticism of ISDS and calls for a more holistic approach.