The investor-state dispute settlement (ISDS) has gained notoriety since it provides companies the means to sue governments in ad hoc arbitrations if they feel their rights have been abused through a change in the legal basis on which their investment was made.
As per the head of investment at the United Nation’s trade and development agency, U.S President Donald Trump’s decision to pull out of the Paris climate agreement is likely to impact the flow of foreign direct investment (FDI) into the U.S. and could potentially lead to investor-state disputes.
“We cannot quantify it but we see there will be an important impact on global FDI and on FDI into the U.S. as well,” said James Zhan, senior director of investment and enterprise at UNCTAD.
He went on to add that U.S. policy is an important influence in the global pattern of FDI flows, including cross-border corporate mergers and investment in start-up projects abroad.
Significantly, many countries have already signed up investment treaties that protect the rights of companies thus allowing them to sue governments in an ad hoc arbitrations if they feel their rights have been abused, such as by a change in the legal basis on which their investment was made.
Although the investor-state dispute settlement (ISDS) is intended to reassure investors however it has become controversial since it gives the companies rights over governments.
Case in point: Ecuador’s government was forced to pay Occidental Petroleum Corp nearly $980 million for seizing one of its oil fields.
“And now what are they going to do? Are they going to adjust for that? Investors have already envisaged the investment prospects and the business prospects and the potential benefit from the policies that have been put in place.”
Countries across the globe have frowned Trump’s decision to leave the landmark Paris accord, with Europe, India and China pledging to unite to save “Mother Earth” in the face of such rash decisions.
The United States is the world’s second largest carbon polluter.