By Kaitlyn Welsh

Introduction

 The International Centre for Settlement of Investment Disputes (“ICSID”) is the leading institution administering Investor-State Dispute Settlement (“ISDS”) cases, handling about 70% of all international investment disputes. The objective of ISDS is to provide foreign investors of host states with a neutral forum to resolve such disputes as opposed to reliance on domestic courts. ISDS has become increasingly controversial. The United States has reduced its reliance on ISDS while the United Kingdom has recently reaffirmed its commitment to its use as they face their first ever ISDS claim and arbitration. This dissimilarity is only a small part of the growing difference of opinion on the use of ISDS mechanism worldwide, leaving foreign investors facing inconsistency within international arbitration.  

Brief Background of ISDS 

 Prior to the World Bank creation of ICSID, foreign investors had limited remedy in the event of a country’s action that materially affected their investment. ISDS is a mechanism in investment and trade agreements that allows investors to settle disputes in a country where it has made an investment (known as the host state) through neutral arbitration. ISDS is not in itself an agreement, rather it is a provision that appears in bilateral investment treaties (“BITs”) and free trade agreements (“FTAs”). These agreements establish rules governing the obligations states owe to foreign investors. ISDS is a clause within an agreement that dictates how to resolve arising disputes subject to the terms of the agreement, usually through international arbitration. The World Bank intended for the system to offer a secure legal framework to protect investors from unfair government actions and, in turn, boost foreign direct investment. 

 Despite this initial intent of ISDS, there has been discussion in recent years criticizing the use of ISDS related to the cost and efficiency of the system. Although skepticism has prompted increased scrutiny from host states, it has not been sufficient to curb ISDS arbitration, which remains active.  

ISDS in the United States as compared to the United Kingdom’s First ISDS Arbitration

The United States

 The United States promotes American entrepreneurs and businesses finding opportunities in overseas markets. This notion was the driving force of the United States’ use of the ISDS mechanism for decades. However, in recent years, ISDS has become increasingly limited and politically contested in the United States. A major shift in United States policy on ISDS came with the explicit exclusion of ISDS from the United States-Mexico-Canada Agreement (“USMCA”) in 2020, reflecting a broad change supported by both political parties. Since then, the United States has only continued to distance itself from the use of ISDS. This shift is reflected in the 2025 Public Citizen’s quote sheet, which illustrates that the United States is neither pursuing new trade or investment agreements that include ISDS nor maintaining it in existing agreements, and instead gravitating toward reliance on domestic courts as the primary forum for dispute resolution. The turn to domestic courts effectively narrows arbitration mechanisms available to foreign investors. 

The United Kingdom

Amongst the United States active shift away from the use of the ISDS system, the United Kingdom has faced its first ISDS Arbitration, illustrating that the international debate of ISDS remains active and unresolved. Filed by a Singapore-based Woodhouse Investment Pte Ltd and its United Kingdom subsidiary West Cumbria Mining Ltd, the United Kingdom’s first ISDS arbitration arises under the 1975 UK-Singapore BIT and stems from the Woodhouse Colliery project for a proposed coal mine in the United Kingdom. In 2022, the Secretary of State for Levelling Up, Housing, and Communities granted planning permission, but the High Court subsequently rescinded that decision, prompting West Cumbria Mining to withdraw its application. The claimants maintain that the United Kingdom, as the host country, unlawfully deprived them of their coal mine investment after the English High Court revoked the approval for the Woodhouse Colliery project on grounds of climate impact. Considering the long-term existence of the ICSID, this first claim against the United Kingdom is significant to the current global disagreement of ISDS. In light of this dispute, the United Kingdom government has found pressure to eliminate ISDS provisions from its bilateral investment treaties. 

Notwithstanding any global concerns, the Labour government led by Prime Minister Keir Starmer has declined to rescind ISDS mechanisms and has even incorporated a new ISDS provision in its ongoing negotiations of a new BIT with India. Further releasing a Trade Strategy statement that it will continue to insert ISDS into future trade deals.

“The divergence in the support for ISDS in foreign investment and trade agreements foreshadows a fragmentation of global investment law, warranting close attention for their potential impact on future international trade relations.”

^{Kaitlyn Welsh}

What impact does the United Kingdom’s express support for ISDS have, given the United States’ simultaneous phase out from its use?

The divergence in the support for ISDS in foreign investment and trade agreements foreshadows a fragmentation of global investment law, warranting close attention for their potential impact on future international trade relations. Notably, foreign investors face different arbitration frameworks, effectively incentivizing corporations to use strategic behavior. Corporations, in turn, may engage in forum shopping by assessing whether a host state integrates ISDS clauses into their agreements to select a venue favorable for resolving disputes with host states. In doing so, corporations may strategically select a host country where they have a greater likelihood of prevailing in a dispute through an ISDS mechanism, often because ISDS allows them to bypass domestic courts in favor of arbitration forums.

This disparity is evident when comparing the United States and the United Kingdom. With the United Kingdom’s favor of ISDS, there are undoubtedly more arbitration protections for foreign investors. By contrast, the United States in its move away from ISDS leaves foreign investors with limited access to international arbitration. This contrast will likely attract foreign investors to host states where they are provided with heightened ISDS protections. Without a consistent application of ISDS, many foreign investors would be left with little to no meaningful remedies in the face of arbitrary or unfair treatment by a host country. This current inconsistency of ISDS provision use undermines the World Bank’s very objective in protection of foreign investors.