In a recent opinion piece, Washington Post columnist Harold Meyerson criticized something called the “investor-state dispute settlement” (ISDS) mechanism, which is included in some trade agreements. My colleague Dan Ikenson responded here; I wrote a letter to the Post, which said:
Harold Meyerson made valid points about the Investor-State Dispute Settlement (ISDS) clause in trade agreements in his Oct. 2 op-ed column, “A flawed trade clause.” However, with all the misinformation that exists on this issue, it is important to be precise. Foreign investors cannot sue “over any rules, regulations or changes in policy that they say harm their financial interests.”
Rather, they can sue if the host government has discriminated against an investor because it is foreign; if an investment has been expropriated, either directly or indirectly; or if the investor has experienced bad treatment of a more general sort (this controversial standard is known as “fair and equitable” treatment).
In a sense, the ISDS provision creates international judicial review of national laws and regulations, with such review available only to foreign investors. That is certainly a controversial proposition, but it is important to keep the debate focused on the facts, rather than on myths that have been put forward.
You only get so much space for these letters, so I thought I’d elaborate here.
ISDS allows foreign investors to challenge any and all domestic government actions before an international tribunal. That includes local, state, and national measures, by legislators, regulators, or courts. In terms of the substance of the claims that can be made, they look a lot like certain constitutional doctrines: Equal Protection, Takings, and Due Process. What you end up with, in effect, is a special international “constitutional” court (of sorts), available only to foreign investors. (It can’t strike down the domestic laws, of course, but it can award damages for violations.)