Working Paper No. 1248

Investor-State vs. State-State Dispute Settlement

Published: November 14, 2018, revised February 2019Pages: 34Keywords: ISDS; Expropriation; International investment agreements; Regulatory chillJEL-codes: F21; F23; F53; K33

Investor-State vs. State-State Dispute Settlement Henrik Horn

International investment agreements have provoked intense criticism in the policy debate during recent years. Particularly contentious has been their “ISDS” mechanisms, which enable investors to bring disputes against host countries. This paper examines whether host countries would be better off with state-state dispute settlement (SSDS), as often alleged, assuming that SSDS cause political/diplomatic arbitration costs that are not present with ISDS.

Two separate reasons why host countries might benefit from SSDS are identified, but neither provides a convincing argument for host countries to move to SSDS. The paper concludes that host countries should reduce the stringency of their agreements, rather than introduce imperfections in the dispute settlement systems to reduce their bite.​

Henrik Horn


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This book explores the complex and ever-changing relationship between the European Union and its member states. The recent surge in tension in this relationship has been prompted by the actions of some member state governments as they question fundamental EU values and principles and refuse to implement common decisions seemingly on the basis of narrowly defined national interests.

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