2013 Reports

Investor-state dispute settlement: A government’s dilemma

Karl, Joachim

In recent years, more developed countries have been drawn into investment disputes. As of end 2011, at least 18 developed countries had faced investment arbitration -- as compared to 55 developing countries and 16 economies in transition. Governments face a dilemma. While many governments consider ISDS a key element of international investment protection, ISDS is becoming increasingly risky. For one, governments’ risk of being sued by foreign investors is growing. Second, when a dispute arises, the defence requires enormous resources; if a case is lost, damages can be very high. Third, governments live with an unpredictable arbitration practice without having the legal safety net of an appellate body like in the WTO. Fourth, complex domestic legal issues reaching beyond international investment law are examined by international arbitrators. Fifth, as more disputes are directed against countries with highly developed domestic judicial systems, governments need to ask themselves how positive discrimination of foreign investors in respect of ISDS can be justified.