Investor-State Dispute Settlement (ISDS) is a mechanism included in international investment agreements to ensure that commitments that countries have made to one another to protect mutual investments are respected.
These agreements date back to the 1960s. Today there are more than 3000 international investment agreements containing Investor-to -State dispute settlement provisions. EU member States account for 1400 of these.
In these investment agreements, countries have agreed upon a number of limited rules (“investment protection standards”) on how to treat foreign investors established in their country (i.e. not to discriminate, but to provide fair treatment, to compensate in case of expropriation, and to allow the investor to transfer funds freely). If an investor considers that these basic rules have been breached, the investment agreements provide the possibility for investors to bring the matter before specialised investment tribunals set up under international rules on arbitration (UN or World Bank rules), i.e. Investor-to –State Dispute Settlement.
International enforcement mechanisms are a normal feature of most international agreements. The intention is to provide a neutral forum to solve disputes (e.g. the WTO dispute settlement system).
Also, international agreements, including investment agreements, are based on international law and most often do not form part of the domestic legal system. As a result they cannot be invoked before domestic courts, (which are competent to rule on disputes brought on the basis of national law). This is the raison d'être for international tribunals, including for investment matters.