May 19,2015

Press Contact:

Aaron Fobes, Julia Lawless (202) 224-4515

ISDS: Just the Facts

Trade Promotion Authority Sets High Standards for Investor-State Dispute Settlement

Talk about Investor-State Dispute Settlement (ISDS) has caused confusion about how it relates to the current debate on Trade Promotion Authority (TPA). Let’s take a look at the facts:

What is ISDS?

In short, ISDS is a mechanism found in many trade agreements that gives American investors doing business in a foreign market an avenue to seek redress for violations of basic protections through an independent arbiter.

Why is ISDS needed?

Here’s the problem:  While U.S. law provides a high level of protection for U.S. and foreign investors in the United States, American investors in foreign jurisdictions often do not receive the same level of basic protections. 

That means the protections investors take for granted in the United States found in the constitution, State and Federal law, and Supreme Court interpretations are not always available to them in foreign jurisdictions. 

Meaning, American investors are sometimes left without assurance of fair and equitable treatment or without protections against uncompensated expropriations.

How does TPA deal with ISDS?

TPA sets high standards for ISDS and requires that trade agreements uphold the values of the U.S. constitution and the rule of law so that American investors receive basic levels of protection against discrimination and expropriation.

Is ISDS new?

No. Right now, ISDS is a tenet of many trade agreements crafted to ensure international investors are not subject to discrimination overseas. In fact, the United States has secured these bilateral agreements for over 30 years, and currently holds such agreements with more than 50 countries.

Does ISDS put American sovereignty in jeopardy?

No. ISDS has no power to overturn U.S. laws or regulations.  The U.S. constitution makes clear that only Congress can change U.S. law.   Therefore, ISDS panels have no say in U.S. law. 

TPA 2015 specifically states the United States cannot be compelled to change its law due to an adverse finding by an arbitration tribunal.

Why is ISDS Important to Exports?

The lack of adequate legal protections for U.S. investors is a significant barrier to U.S. exports.  Foreign investment by U.S. companies spurs U.S. exports.

For example, U.S. parent firms export more goods and services to their foreign affiliates than foreign affiliates export to the United States, thus improving the U.S. balance of trade.  In order for these beneficial effects of foreign investment to continue, it is important that U.S. investors abroad receive legal protections similar to what U.S. and foreign investors receive in the United States.

THE BOTTOM LINE: TPA 2015 sets strong standards for ISDS, and ensures that other countries are providing the same, basic protections for American investors that we already enjoy under U.S. law.  And that means more American exports.