The Risk of ISDS Claims Through National Investment Laws: Another “Damocles sword” hanging over governments’ COVID-19 related measures?

This policy brief examines the risk of Investor-State Dispute Settlement (ISDS) claims against governments arising from national investment laws, particularly in the context of emergency COVID-19 measures. It highlights how domestic laws providing consent to international arbitration can expose states to costly claims and suggests mitigation strategies.

• Governments face a significant risk of ISDS claims through national investment laws, which can act as a parallel threat to treaty-based claims when implementing COVID-19 emergency measures such as lockdowns, export bans, or the nationalization of health care systems.
• According to UNCTAD data, there are 125 national investment codes, mostly in developing countries. Of these, 49 include international arbitration provisions, and 40 provide explicit state consent to international arbitration for foreign investors.
• National investment laws can increase a state's exposure to ISDS because they often apply to all foreign investors regardless of their home state, unlike treaties which are limited to party states. Furthermore, they allow international tribunals to interpret domestic law instead of domestic courts.
• The risk of costly arbitration is exacerbated when national laws incorporate substantive treaty-style standards, such as 'fair and equitable treatment' (FET) and 'indirect expropriation,' which are often vaguely defined and interpreted expansively by tribunals.
• Many developing countries adopted these high-risk ISDS provisions following advice from international organizations like the World Bank, which promoted them as 'international best practice' to provide investors with more comfort.
• While treaty-based ISDS cases are more common (over 1,000), investment law-based cases exist; for example, the Kyrgyz government has been the respondent in 14 known arbitration cases since its 2003 investment law, with at least five claiming jurisdiction based on that law.
• Governments can mitigate these risks by amending or suspending ISDS provisions in their national laws. Unlike treaties, investment laws can be changed unilaterally without the agreement of another government.

APA

Nikièma, H. S., & Maina, N. (2020). The Risk of ISDS Claims Through National Investment Laws: Another “Damocles sword” hanging over governments’ COVID-19 related measures? International Institute for Sustainable Development. https://www.iisd.org/system/files/2020-09/isds-claims-investment-laws-en.pdf

Chicago

Nikièma, H. Suzy, and Nyaguthii Maina. The Risk of ISDS Claims Through National Investment Laws: Another “Damocles sword” hanging over governments’ COVID-19 related measures? International Institute for Sustainable Development, 2020. https://www.iisd.org/system/files/2020-09/isds-claims-investment-laws-en.pdf.

Wikipedia

{{cite report |last1=Nikièma |first1=H. Suzy |last2=Maina |first2=Nyaguthii |title=The Risk of ISDS Claims Through National Investment Laws: Another “Damocles sword” hanging over governments’ COVID-19 related measures? |publisher=International Institute for Sustainable Development |date=September 2020 |url=https://www.iisd.org/system/files/2020-09/isds-claims-investment-laws-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{nikima2020risk, author = {Nikièma, H. Suzy and Maina, Nyaguthii}, title = {{The Risk of ISDS Claims Through National Investment Laws: Another “Damocles sword” hanging over governments’ COVID-19 related measures?}}, institution = {International Institute for Sustainable Development}, year = {2020}, month = sep, url = {https://www.iisd.org/system/files/2020-09/isds-claims-investment-laws-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }