Investor-State Dispute Settlement (ISDS): Balancing Economic Sovereignty and International Legal Commitments

Abstract

Investor–State Dispute Settlement (ISDS) has become one of the most controversial processes of international economic law, and has straddled the nexus of foreign investment, sovereignty and development policy. Though ISDS was initially created to give its investors a sense of security and depoliticize their claims, lately it has gained critics over excess damage payments, regulatory stifling and political responsibility. The example of Pakistan, most notable in the Tethyan Copper arbitration exemplifies the disadvantages developing states suffer when signing one-sided investment treaties. The paper is a critical review of the historical developments, economic justification as well as the criticisms of ISDS using EU, U.S and Chinese experiences as a case example. It also gets involved in current reformist discussions such as the Multilateral Investment Court and the evaluations of their possible impact in terms of balancing investment protection and regulatory independence of states. The analysis outlines that it is in Pakistan interest to adopt a dual approach to the treaty modernization and institutional strengthening and also get actively involved in multilateral reform efforts in order to make ISDS consistent with the state policy of economic development and its sovereignty.