'Primer On International Investment Treaties and Investor-State Dispute Settlement', December 2021

What is Foreign Direct Investment (FDI)?

FDI occurs when an individual or corporation in one country (“home state”) sets up or buys all or a significant part of a company that is incorporated in a different country (“host state”). Companies invest abroad to access land-based resources including mining, more affordable labour for instance in manufacturing, and new markets, among other reasons. Many countries seek to attract FDI in order to realize benefits in the form of tax revenues, technology transfer, jobs, and other economic linkages.

What are International Investment Treaties (IITs)? 

IITs (also called International Investment Agreements, or IIAs) are bilateral or multilateral treaties that commit state-parties to afford specific standards of treatment to foreign investors from the other state-parties. These treaties grant foreign investors certain protections and benefits, including recourse to Investor-State Dispute Settlement (ISDS) to resolve disputes with host states.   Over  3,300 agreements  have been concluded worldwide.

Why do countries sign IITs?

States often sign IITs based on the assumptions that (1) investment protections and privileges will promote investment flows, (2) those investment flows will promote sustainable economic development, and (3) that the development benefits of IITs outweigh the costs for the state and its citizens. Proponents of IITs also allege that the treaties, including their dispute settlement mechanism, depoliticize disputes between investors and states, and between the state parties, and promote the rule of law.

What is Investor-State Dispute Settlement (ISDS)? 

IITs allow foreign investors (individuals and companies)3 to allege treaty violations by suing states through arbitration. Arbitration tribunals are appointed and paid for by one or both of the disputing parties. Tribunals are not bound by precedent, and can order remedies (usually in the form of monetary awards) to investors if they find that states have breached treaty obligations. In most cases, investors are not required to attempt to resolve disputes through available domestic remedies before filing ISDS claims.

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