ISDS, another economic policy impeding sovereignty

Published on 7 October 2023 at 10:17

ISDS stands for Investor-State Dispute Settlement. It is a mechanism often included in international investment agreements, like bilateral investment treaties (BITs) or free trade agreements (FTAs), that allows foreign investors to bring claims directly against the host country before an arbitral tribunal if they believe their rights under the agreement have been violated.

Critics argue that ISDS can impede on a country's sovereignty in favor of private interests in the following ways:

1. **Regulatory Chilling Effect**: Governments might be deterred from enacting regulations in areas like environmental protection, public health, or workers' rights out of fear of potential ISDS claims and associated financial liabilities.

2. **Bypassing Domestic Courts**: ISDS allows foreign investors to bypass a country's domestic courts, which some argue gives preferential treatment to foreign investors over domestic entities.

Two notable examples where ISDS has been invoked are:

1. **Occidental Petroleum vs. Ecuador**: In the early 2000s, Occidental Petroleum, a U.S.-based company, initiated an ISDS claim against Ecuador, alleging that the country had wrongfully terminated its oil concession. In 2012, an arbitration tribunal awarded Occidental $1.77 billion, one of the largest ISDS awards ever. This case sparked significant debate about the equity and fairness of the ISDS system, especially given the significant financial burden the award placed on Ecuador.

2. **Lone Pine Resources vs. Canada**: While Canada isn't in the global south, the inclusion of ISDS in the North American Free Trade Agreement (NAFTA) and its implications for developing countries within trade networks is notable. Lone Pine Resources, a U.S. company, initiated a $250 million claim against Canada after the province of Quebec imposed a moratorium on fracking under the St. Lawrence River, claiming the moratorium amounted to a revocation of their permit without compensation. This case has often been cited in discussions about the potential threats ISDS poses to environmental regulations in both developed and developing countries.

These cases underscore concerns that ISDS might disproportionately favor large multinational corporations at the expense of states' rights to regulate in the public interest, especially in countries with fewer resources to defend against such claims.

Some might say a policy like this is necessary to encourage foreign investment in developing countries but time and time again we see it being used to exploit developing countries. This notion is further supported by the history of ISDS. Read the article below to see how from its inception ISDS has been a protector of private interests over state and human rights. 


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