An Investigation of the Investor-State Dispute Settlement Clause as seen Throughout International Free Trade Agreements

This paper examines the ISDS provision, which is a part of a growing number of investment treaties and trade agreements. I define ISDS itself, the idea and purpose, and how it began a few centuries ago to its modern evolved version. I take a look at the recent trends and discover its growth in usage over the past two decades. I analyze the results of ISDS decisions that state the most common winner of claims is the respondent, or sued government. The texts of the trade agreements NAFTA and TPP are examined closely. While the NAFTA was the introduction of ISDS in a major international agreement, the scope of its usage and its effect on countries was more reflected in the TPP. I study the impact of ISDS provisions on foreign direct investment (FDI) flows; multiple papers suggest the impact to be positive. But there are many elements related to ISDS that affect FDI like the strength of the ISDS provisions, characteristics of the host country, the status of the treaty in question, and the time period. Weaker provisions are shown to affect FDI flows on a greater scale, stronger provisions have a significant impact given the treaty or agreement in question is ratified. Additionally, agreements signed or ratified in the past 14 years have more impact on FDI, except for those with strong provisions in signed agreements. Also, weaker form provisions have a larger impact on FDI flows into developed, less developed, OECD, and non-OECD countries but stronger ISDS only meaningfully impacts developed countries. Lastly, several noteworthy cases are discussed that have had varying results. Limits of arbitration have been tested resulting in decades long litigation, investors have taken advantage of ISDS; countries' laws have been protected by ISDS; awards to investors are almost always much smaller than their claimed compensations.