- An International Investment Agreement (IIA) is a type of treaty between countries that addresses issues relevant to cross-border investments, usually for the purpose of protection, promotion and liberalization of such investments.
- Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude the latter. Countries concluding IIAs commit themselves to adhere to specific standards on the treatment of foreign investments within their territory.
- IIAs further define procedures for the resolution of disputes should these commitments not be met.
How are IIA and ISDS related?
- The most common types of IIAs are Bilateral Investment Treaties (BITs) and Preferential Trade and Investment Agreements (PTIAs).
- Typical provisions found in BITs and PTIAs are clauses on the standards of protection and treatment of foreign investments, usually addressing issues such as fair and equitable treatment, full protection and security, national treatment, and most-favored nation treatment.
- A core element of BITs relates to the settlement of disputes between an investor and the country in which the investment took place. These provisions, often called investor-state dispute settlement (ISDS), usually mention the forums to which investors can resort for establishing international arbitral tribunals (e.g. ICSID, UNCITRAL or ICC)
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What is ISDS?
- ISDS is a mechanism included in many trade and investment agreements to settle disputes.
- Settling these investor disputes relies on arbitration rather than public courts.
- Investor-state dispute settlement (ISDS) or investment court system (ICS) is a system through which individual companies can sue countries for alleged discriminatory practices.
- Under agreements which include ISDS mechanisms, a company from one signatory state investing in another signatory state can argue that new laws or regulations could negatively affect its expected profits or investment potential, and seek compensation in a binding arbitration tribunal.
- The system only provides for foreign companies to sue states, not the other way around