2.1. Liberal International Order and the Law: From Globalization to ‘Domestication’

The Liberal International Order came to rise in the aftermath of World War II. Liberal internationalism reflects the ideas of political and economic liberalism at the international level.Footnote ¹¹ The LIO operates based on the principles of open markets, security cooperation, and liberal democracy. The post-WWII order has been marked by the globalization of economies, culture, societies, and the law. Globalization is a top–down movement that highlights the supremacy of economic relationships in the interaction between the global and local. One of the main features of post-WWII globalization was that politics at the domestic and international levels were sometimes perceived as secondary to the development of the global economy. Globalization may be described as a process of ‘de-nationalization’; of gradual merging of markets, politics, and the law – as well as integration of peoples and individuals.Footnote ¹²

A series of economic, financial, political, and health crises have questioned economic globalization since 2008.Footnote ¹³ ‘De-globalization’ or ‘slow-balization’ trends seem to be taking over.Footnote ¹⁴ Global trade has been receding since 2012,Footnote ¹⁵ as well as global FDI since at least 2016.Footnote ¹⁶ The COVID-19 pandemic has provided further impetus to these trends.Footnote ¹⁷

The balance of power in international relations is changing too. The BRICS countries,Footnote ¹⁸ for example, have developed in very different ways than other developing nations; they occasionally adopt foreign and international economic policies that are like the ones of traditional capital-exporting countries. Several highly competitive economies have emerged in the South and East of the world beyond the BRICS, all of which have a strong interest in investing abroad revenue generated through the exploitation of natural resources or otherwise, with a strong preference for investments in the North. The governments of emerging economies have surfaced as foreign investors, using such vehicles as state-owned enterprises and sovereign wealth funds.Footnote ¹⁹

Overall, and beyond the economy, the previous trust in international institutions is on the decline.Footnote ²⁰ In recent years, there has been a significant pushback against international economic integration.Footnote ²¹ IEL, and its subfields of international trade and investment law, have been subject to severe criticism.Footnote ²²

Before the rise of LIO, international law was less relevant for the regulation of international trade and investment. Foreign trade operated mainly with the unilateral opening of domestic borders,Footnote ²³ often supported by Treaties of Friendship, Commerce, and Navigation (FCN). International law was also largely irrelevant for the regulation of foreign investment until the 1960s. Upon independence, the new states of the post-colonial world in Asia and Africa started developing their national investment laws relating to foreign investment.Footnote ²⁴ The trend proliferated in other developing countries too.Footnote ²⁵

The law has been called upon to play a special role in the constitution of LIO. Liberal internationalism involves international cooperation through multilateral institutions like the international organizations forming part of the United Nations family and the World Trade Organization (WTO), as well as regional organizations such as the European Union. IEL was shaped as a separate discipline of international law in the era of the dominance of LIO and has largely accommodated the freedom of movement of goods and capital. International investment law, in the form of the BIT system,Footnote ²⁶ developed as a separate field to accommodate the main tenets of the LIO.Footnote ²⁷ International law largely replaced domestic law as the dominant means for cross-border trade and investment protection in the second half of the twentieth century.Footnote ²⁸ In the 1990s, many developing countries adopted in their domestic laws too some of the guidelines suggested by a World Bank study.Footnote ²⁹ As the number of international investment treaties increased,Footnote ³⁰ academic interest in domestic laws relating to foreign investment decreased.

Following economic de-globalization and slow-balization, a trend towards legal and institutional de-globalization started emerging too. Governments worldwide have terminated several of their BITs or have allowed many of their BITs to expire.Footnote ³¹ Instead, many governments are developing robust domestic frameworks for the management of foreign trade and investment flows.

The current ‘domestication’ trend seems to be challenging the assumptions of the post-WWII international order.Footnote ³² The remainder of this section gives a brief account of domestic laws relating to investment with a focus on DILs.

2.2. From Laws Relating to Investment to Domestic Investment Laws

The overall domestic political and legal framework plays a vital role in the decision of an investor to make an investment in a foreign jurisdiction. There is a great variety of specialized and non-specialized laws that differ significantly in scope, and could be considered as part of a broader set of laws relating to foreign investment.Footnote ³³

Some jurisdictions do not have in place a separate legislative framework for the regulation of foreign investment. Foreign investors are treated like domestic investors under the regular laws of the host state. Laws in the areas of competition and company law, such as mergers and acquisitions, may apply to foreign investors.Footnote ³⁴ Property laws often place restrictions on real estate ownership by foreigners,Footnote ³⁵ or operate as an investment incentive. Employment laws will impact foreign investment, as well as nationality and residence laws.Footnote ³⁶ Recently, data-related laws have also become very pertinent to foreign investors.Footnote ³⁷ Public procurement and public–private partnerships laws will apply to investors entering a foreign jurisdiction too.Footnote ³⁸ Arbitration laws often form part of the factors foreign investors consider when deciding whether to invest in a foreign jurisdiction; states willing to create attractive fora for foreign investors often draft arbitration laws on the example of the UNCITRAL Model Law; this is arguably a safeguard for foreign investors who can rely on potential disputes being adjudicated under a legal framework they are familiar with.Footnote ³⁹

Some countries opt to develop a specialized legal framework for foreign investment. A longstanding, yet sometimes unnoticed, institution for the promotion of foreign investment is that of Special Economic Zones (SEZs).Footnote ⁴⁰ SEZs are geographic areas designated as zones for the promotion of trade and attraction of foreign investment.Footnote ⁴¹ Zones carve out a ‘special’ jurisdiction for a separate economic regime within the broader national jurisdiction. Rules that find application in these areas – investment and trade laws, tax laws, labour laws, customs laws, etc. – differ from the rest of the domestic jurisdiction and are specifically designed with the intent of attracting foreign investment and trade in the zone.

There are moreover laws that aim at controlling investment. Investment Screening Laws (ISLs) emerged in the 1970s, and have been making a come-back recently.Footnote ⁴² Some countries have a longstanding tradition in ISLs;Footnote ⁴³ investment screening mechanisms are now proliferating, as mature economies have been developing investment screening frameworks to control investment flows from emerging economies. Different rationales may lie behind the promulgation of such laws; national security is the main consideration.Footnote ⁴⁴ While domestic screening systems have generally evolved in accordance with each country's political and economic specificities, the example of the Committee on Foreign Investment in the United States (CFIUS) has often been followed.Footnote ⁴⁵ Investment screening mechanisms are sometimes embedded in broader investment statutes, such as DILs.

According to Parra, developed country investment laws traditionally have the goal to control and supervise foreign investment;Footnote ⁴⁶ on the other side, investment statutes of developing countries have historically had a ‘promotional’ character – aiming at promoting or facilitating foreign investment.Footnote ⁴⁷ These specialized legislative instruments that seek to attract – promote and/or facilitate – investment are identified as DILs in this article. Some countries also have established Investment Promotion Agencies (IPAs) to institutionally facilitate attracting foreign investment to their jurisdiction.Footnote ⁴⁸

DILs also come in many forms. There are generic DILs that address investment independent of the origin of the investor – domestic or foreign. Other DILs address foreign investment specifically. Such DILs have historically been mostly stipulated by developing countries and emerging markets seeking to promote and facilitate foreign investment in one single instrument.Footnote ⁴⁹ They are sometimes referred to as Foreign Investment Laws (FILs) to distinguish them from generic DILs.Footnote ⁵⁰ Countries in the Gulf Region, for example, have traditionally opted for the latter approach. Still, most generic DILs have separate provisions on foreign investors and investments too.

DILs, unlike the rules of international investment law, are unilateral laws stipulated at the domestic level, which may extend protection to both domestic and foreign investors.Footnote ⁵¹ DILs include investment-related rules under one heading with a view to facilitating and/or promoting investment.Footnote ⁵² The broader function of DILs is to help foreign investors identify the rules that apply to them.Footnote ⁵³ This function is usually associated with the provision of more favourable treatment to foreign investors than national legal systems would otherwise guarantee.Footnote ⁵⁴ DILs aim at attracting investment by providing financial and institutional incentives to (foreign) investors. The next section turns to the ways in which these broader functions of DILs are operationalized in the specific rules they provide for.

3.1. Admission

The two non-discrimination standards – National Treatment (NT) and Most-Favoured Nation (MFN) – are the cornerstone of the international economic order.Footnote ⁵⁵ National Treatment does not allow parties to an international treaty to treat domestic market actors more favourably than foreign market actors; MFN does not allow parties to treat foreign market actors from certain countries more favourably than from others.Footnote ⁵⁶ The essence of non-discrimination is to provide foreign market actors ‘access to a domestic market under equal competitive parameters compared to domestic market actors’.Footnote ⁵⁷

These standards apply to all types of obstacles at the border or after the border.Footnote ⁵⁸ There is yet a difference between trade and investment law in the application of the non-discrimination standards. The General Agreement on Tariffs and Trade (GATT) generally recognizes market access rights,Footnote ⁵⁹ but states have a sovereign right under IEL to regulate the entry and establishment of foreign investment within their borders.Footnote ⁶⁰ NT and MFN generally find application after an investment has been given market access.

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) does not include any rules on pre-entry protection. States may grant foreign investors admission or establishment rights in their market using BITs or other IIAs. Only a limited number of IIAs grant market access rights, or any other pre-entry safeguards, to prospective investors. Such ‘pre-entry IIAs’ grant a right of establishment, which is often limited in scope, subject to a ‘national law’ clause, or expressed as ‘soft’ or ‘best endeavour’ obligations.Footnote ⁶¹ Admission rights are sometimes recognized under the National Treatment clause. A commonly cited example is the US Model BIT of 2012:

DILs may play a similar role; they liberalize the rules governing admission and entry, as well as conduct, of foreign investors in the host state. Almost no DIL provides for an unrestricted right of entry into the host market though.Footnote ⁶³ DILs increasingly now play the role of specifying the conditions for the establishment of foreign investors, an area that is not regulated under IIAs, and not specifically otherwise regulated under regular domestic law. Generic DILs develop one umbrella framework for both domestic and foreign investors; they still almost invariably include separate provisions for foreign investors. The separate provisions may either aim at promoting and/or facilitating foreign investment, or instead be controlling in nature, including investment prohibitions or screening mechanisms.Footnote ⁶⁴ Some DILs regulate both issues pertaining to foreign investment in the general jurisdiction, as well as in SEZs.Footnote ⁶⁵

DILs also define the admission process and its administration, including screening and entry approvals, or even sometimes access to land, site development, and utility connections, as well operational requirements.Footnote ⁶⁶ New DILs often establish ‘one-stop shops’ for investment approvals.Footnote ⁶⁷ One-stop shops may be political or bureaucratic and technical bodies, or combinations thereof. The Council of Ministers of the United Arab Emirates (UAE), for example, is responsible for the appointment of a Foreign Direct Investment Committee that monitors and implements the UAE Foreign Investment Law. The committee is chaired by the Minister of Economy and involves representatives from competent authorities.Footnote ⁶⁸ This committee oversees all issues relating to foreign investment. A more technical Foreign Direct Investment Unit embedded within the Ministry of Economy is further involved in both policy-making and implementation of the law.Footnote ⁶⁹ Different agencies may then be responsible for foreign investment licensing.

DILs often include provisions restricting foreign investment. Foreign investors may be prohibited from investing in specific industries, or their access may be restricted to certain sectors or (the extent of) ownership in specific sectors, such as the natural resource and real estate sectors.Footnote ⁷⁰ DILs may include ‘lists’ with requirements that foreign investors will have to fulfil for their investments to be established in that jurisdiction. Some jurisdictions only allow market access and admit foreign investors based on a ‘positive list’ of sectors and requirements that foreign investors need to comply with. When a positive list is in place, all other economic sectors are closed to foreign investment.

More liberal DILs adopt a ‘negative list’; foreign investment is allowed in all sectors except for the ones excluded under the list. Newer DILs move towards negative lists. Under Investment Law No. 1 of 2019 of Qatar, for example, all sectors are open to foreign investment; still, foreign investors are not allowed to invest in banks and insurance companies unless the Council of Ministers licences the investment in these areas.Footnote ⁷¹ Until recently, China was following the positive list system under the Guideline of Industries for Foreign Investment. The 2019 Foreign Investment Law of the People's Republic of China adopted a negative list system.Footnote ⁷²

3.2. Post-Admission

Once foreign investors are admitted in the host jurisdiction, they may be protected under IIAs against expropriation as well as under substantive standards of protection such as NT, MFN, Fair and Equitable Treatment, Full Protection and Security, and transfer of funds.Footnote ⁷³ These protections for foreign investors find application if there is an IIA in place. NT as a norm of IEL has a relatively limited scope, even though it generally applies to de jure as well as de facto discriminatory measures:Footnote ⁷⁴ it must be explicitly stipulated in an international agreement; it usually applies post-establishment, unless otherwise stipulated in the IIA; it is subject to domestic law requirements.

Otherwise, foreign investors will have to rely on the domestic legal framework for protection of their investments. There are three main investor rights and safeguards found in most DILs: NT, protection against expropriation, as well as assurances for the repatriation of investment and profits.Footnote ⁷⁵

DILs have historically included NT provisions;Footnote ⁷⁶ the majority of contemporary DILs still include a NT provision.Footnote ⁷⁷ Yet, the NT standard is usually qualified,Footnote ⁷⁸ using similar language as that of BITs. NT is provided to investors in ‘like circumstances’, or is subject to reciprocity.Footnote ⁷⁹ Moreover, NT operates in different ways in generic DILs and FILs. FILs are explicit about the fact that foreign investors are a different category of investors altogether. NT under DILs finds application after the admission has been granted to a foreign investor, and has the function of extending equivalent treatment to foreign investors as to domestic ones. Independent of the type of DIL, foreign investors, once admitted, will only be allowed to operate under the conditions prescribed in domestic law and/or in designated economic sectors. DILs define the policy objectives that allow domestic non-discriminatory and non-protectionist measures.

DILs have often gone beyond that. They frequently provide fiscal and other privileges to foreign investors, such as tax incentives, that are not available for nationals.Footnote ⁸⁰ In this way, they sometimes provide treatment that is more favourable than the regular legal framework that finds application to domestic investors.Footnote ⁸¹ However, there seems to be reversal of the practice in more recent DILs. The South African example highlights this.

After the fall of the apartheid regime, the South African government entered into many BITs – mostly with western European countries – that included boilerplate substantive standards of protection such as NT, MFN, FET, repatriation of investment returns, as well as Investor-State Dispute Settlement (ISDS). In 2005, the Department of Trade and Industry conducted a review of the compatibility of South African BITs with national laws. The review concluded that the terms of the BITs were inconsistent with the National Strategic Plan (NSP) and the Black Economic Empowerment (BEE) program as they were too intrusive into government policy, largely favouring private investors.Footnote ⁸² It also found certain BITs as not compatible with the South African Constitution, especially Section 25 on property and expropriation.Footnote ⁸³ Based on this review, the Government of South Africa decided not to renew the BITs concluded after 1994 and to terminate most of them. Instead, it brought forward a national legislative framework in the form of a DIL, the Protection of Investment Act (PIA) of 2015.Footnote ⁸⁴

The PIA is concise and includes provisions that are generally found in BITs, as well as some significant innovations. According to Section 5 PIA, the Act applies to all investments in the Republic made in accordance with the requirements of the Act. Section 8 safeguards NT and proclaims that foreign investors must not be treated less favourably than local investors in like circumstances.Footnote ⁸⁵ Foreign investors have an equal right to property as provided for under the South African constitution.Footnote ⁸⁶ Foreign investors may also repatriate funds subject to taxation and other applicable legislation, such as exchange control regulations.Footnote ⁸⁷

While extending NT to foreign investors, the government's ‘right to regulate’ finds an important place in the Act.Footnote ⁸⁸ Moreover, PIA identifies an ‘investor’ as ‘an enterprise making an investment in South Africa regardless of nationality’;Footnote ⁸⁹ it thus adopts the ‘enterprise-based’ definition of investment, as opposed to the ‘assets-based’ definition, according to which an investor would have to be an incorporated legal entity in compliance with domestic law to qualify as a protected investment. This goes against the tradition of qualifying as an investment any ‘asset’ without the need for incorporation.

While both general international law and international economic law allow that foreign citizens be treated less favourably than nationals in the host jurisdiction, the PIA clarifies that ‘reverse discrimination’ is unconstitutional under the South African Constitution.Footnote ⁹⁰ The rationale underlying the new statute and the broader South African policy is to level the playing field between domestic and foreign investors – this time in favour of domestic investors.Footnote ⁹¹ This highlights a new function that new DILs have been called upon to play recently.Footnote ⁹²

The presence of an IIA determines to some degree the way DILs may function in the overall system of investment protection. This plays out in the safeguard of the second prong of the non-discrimination principle, MFN. The adoption of DILs instead of – rather than in addition to – IIAs usually leads to the exclusion of MFN treatment; MFN is more often than not excluded from the scope of DILs. South Africa, for example, both withdrew from its BITs, and does not provide for MFN treatment in the PIA. A notable exception is the Zimbabwe Investment and Development Agency Act of 2020 that provides for MFN treatment to foreign investors.Footnote ⁹³ Still, this is subject to several exceptions, among which is ISDS under IIAs.Footnote ⁹⁴

3.3. Settlement of ‘Investment Disputes’

While WTO law follows the traditional pattern of inter-state dispute settlement, international investment law allows foreign investors access to international tribunals in the form of ISDS.Footnote ⁹⁵ During the 1990s, at the peak of the LIO, a great number of disputes between foreign investors and national governments broke out. DILs are now defining a new category of domestic ‘investment disputes’.Footnote ⁹⁶

The historically dominant, at least among developing nations, dispute settlement mode in DILs is international arbitration.Footnote ⁹⁷ Countries in the North and West have instead traditionally not included international arbitration clauses in their investment laws.Footnote ⁹⁸ The first post-war DILs often included no provisions on dispute resolution. This implicitly delegated the task of resolving investment disputes to domestic courts. In the era of the consolidation of the Washington Consensus, most DILs adopted international arbitration for the settlement of investment disputes.Footnote ⁹⁹ The same applied to DILs stipulated during the 1990s.Footnote ¹⁰⁰

The most commonly used mechanisms for the settlement of investment disputes in DILs are international arbitration, local courts, and Alternative Dispute Resolution (ADR).Footnote ¹⁰¹ Many DILs set ADR as the starting point for the resolution of investment disputes.Footnote ¹⁰² Following negotiation, most DILs still favour international arbitration and include ISDS provisions.Footnote ¹⁰³ The overwhelming majority of investment laws makes reference to ICSID procedural rules; UNCITRAL and other institutional and ad hoc rules remain the exception.Footnote ¹⁰⁴ Many DILs provide for consent to ISDS, sometimes with explicit reference to ICSID.Footnote ¹⁰⁵ In some of the newer DILs, prospective investors can often bring a claim before a grievance committee against the decision denying them market access;Footnote ¹⁰⁶ grievance committees are part of the executive branch of government.

A minority of DILs provide for the exclusive jurisdiction of domestic courts in investment cases.Footnote ¹⁰⁷ Recent DILs seem to be further pursuing this approach, or similar approaches that favour more domestic means for the settlement of investment disputes. The South African PIA exemplifies again the new directions in DIL design.Footnote ¹⁰⁸ It provides for a combination of means of dispute settlement. In case of a complaint against the government, investors may within six months request the Department of Trade and Industry to appoint a mediator and facilitate the resolution of the dispute through mediation.Footnote ¹⁰⁹ The investor may moreover initiate proceedings before the South African courts or tribunals.Footnote ¹¹⁰ Subject to exhaustion of local remedies, the South African Government may consent to ad hoc inter-state arbitration between South Africa and the home state of the foreign investor.Footnote ¹¹¹ In Sudan, the 2021 Investment (Encouragement) Act sets a default rule in favour of domestic ‘competent courts’ for the settlement of investment disputes; this does not apply if the dispute is covered by agreements Sudan is a party of, or the parties have agreed otherwise.Footnote ¹¹² The statute also provides for the establishment of specialized courts for investment disputes,Footnote ¹¹³ as well as a specialized prosecution bureau for violations relating to investments.Footnote ¹¹⁴

Nepal's law may be seen as an effort to reconcile old and new approaches to dispute settlement. The Foreign Investment and Technology Transfer Act of 2019 carries on the tradition of favouring arbitration; at the same time, investor–state disputes are to be resolved using UNCITRAL rules and procedures, unless otherwise agreed upon by the parties to the dispute.Footnote ¹¹⁵ Such arbitration shall be held in Nepal, and the law of Nepal shall apply.Footnote ¹¹⁶ The law even provides for a mechanism for the resolution of investment disputes between a Nepali investor and a foreign investor in relation to foreign investment. These disputes are to be resolved by recourse to domestic arbitration.Footnote ¹¹⁷

More recent DILs seem thus to be following in the settlement of investment disputes an approach similar to the one adopted for substantive law matters. A reimagined NT principle guides the design of dispute settlements provisions too;Footnote ¹¹⁸ recent DILs subject foreign and domestic investors to the same dispute settlement fora – rejecting the idea of reverse discrimination;Footnote ¹¹⁹ a preference for domestic courts can be observed too.

4.1. Domestic Law and International Principles

The theory of the modern state developed around an epistemological condition: the ‘state of nature’. The state of nature is a state of anarchy before individuals form civil society.Footnote ¹²⁰ This is the epistemological starting point of modern international relations and international law too.Footnote ¹²¹ Anarchy has given rise to different interpretations and traditions of international law and international relations. International relations scholar Hedley Bull has identified three patterns of thought regarding the role of international law in the history of the modern states system.Footnote ¹²² In the realist or Hobbesian tradition, international politics are seen as a constant state of war of all against all. The law has little to say in the relations among states.Footnote ¹²³ The Grotian tradition sees international politics as taking place within the international society of states.Footnote ¹²⁴ While accepting the original premise of the Hobbesian pattern that international politics is made by states rather than individuals, it suggests instead that states are limited in their conflicts by common rules and institutions.Footnote ¹²⁵ Coexistence and cooperation in the society of states are predicated upon common imperatives of morality and law within a framework of common rules and institutions.Footnote ¹²⁶ The cosmopolitan or Kantian tradition focuses on transnational social bonds that link individuals as human beings.Footnote ¹²⁷ A community of men has the potential to subsume states in a just world order based on federation.Footnote ¹²⁸ International law and morality eventually suggest the formation of a cosmopolitan society as a universal community of mankind.Footnote ¹²⁹

This tripartite typology has been subject to some criticism more recently – by both international relations and international legal scholars.Footnote ¹³⁰ Recent scholarship on Hobbes suggests that the English political philosopher was not a ‘Hobbesian’.Footnote ¹³¹ Hobbes imagined instead a different political economy than the one ascribed to him – or the one that eventually gave rise to the contemporary system of international law and international relations.Footnote ¹³² Equally, it has been suggested that Kant is not a Kantian. While a proponent of Perpetual Peace,Footnote ¹³³ the Prussian philosopher did not see the world State as a way to achieve it.Footnote ¹³⁴ National legal systems that showcase greater respect for their citizens and grant them further civil liberties and rights are instead necessary. The first and foremost step towards Perpetual Peace is state formation and the gradual transformation of European states into constitutional republics.Footnote ¹³⁵

When it comes to commerce, doux commerce theory suggested that international commerce would eventually pacify states in their interaction.Footnote ¹³⁶ For others, commerce had become the state of war equivalent in the economic rivalry among sovereigns;Footnote ¹³⁷ economic antagonism was added to political rivalry.Footnote ¹³⁸ The modern state system was thus seen as largely incompatible with international trade.Footnote ¹³⁹ The line of law and political economy presented here perceives the relationship between domestic law and foreign commerce in the same way as the relationship between domestic law and international politics. Kant was generally favourably predisposed towards international commerce;Footnote ¹⁴⁰ he also had a deterministic approach to the expansion of commerce around the globe. The ‘spirit of commerce’ would result in the pacification of the relations among European states, as well as between them and polities in the other continents.Footnote ¹⁴¹ While war would cause the gradual transformation of European states into republics, commerce would allow the development of human relations into a cosmopolitan order.Footnote ¹⁴²

This discussion reveals a more nuanced picture about Kant than Bull's interpretation of ‘Kantianism’. While favouring cosmopolitan ideals such as Perpetual Peace in international politics, or the value of international commerce to achieve peace and economic prosperity, the means to achieve these goals are largely domestic. The envisaged international law is one of ends, rather than means. The means to achieve the ends – international pacification or commerce – may be domestic. This strand of international political economy imagined an international law based on cosmopolitan goals, values, and principles, which were not necessarily reflected in positive international law or international institutions.Footnote ¹⁴³

This alternative political economy supports current developments in IEL. While some domestic measures indicate a move away from IEL as developed during the LIO, most of them take place in an environment of broader acceptance of the values of the international economic system.Footnote ¹⁴⁴ This has not always been the case with previous moves to ‘domesticate’ international law such as the Calvo doctrine.Footnote ¹⁴⁵ This approach is also different from the approach under the New International Economic Order (NIEO) that used international law to promote domestic goals.Footnote ¹⁴⁶

While on the face of it IEL may be seen as retracting, domestic policies and measures such as DILs may be indications of the furtherance of IEL principles. There is a trend, for example, towards a unilateral extension of the NT standard to foreign investors.Footnote ¹⁴⁷ At the same time, the NT standard receives a new and more domestic law-oriented interpretation. Moreover, investors receive a clear and less ambiguous definition of the scope of application of NT.

This is admittedly different when it comes to MFN. MFN has a long but eventful history in international (economic) law. Already its designation as a treatment accorded to the ‘most-favoured-nation’ is not accurate per se. MFN clauses in international economic agreements do not guarantee more favourable treatment; instead, their aim is to grant equally favourable treatment to signatories and their nationals. MFN treatment gained general acceptance in IEL with the introduction of an unconditional MFN clause in Article I of the GATT. From its origin in trade, it found its way into BITs and other IIAs. The operation of MFN clauses in the trade and investment law contexts is, however, different. The WTO operates as an institutional umbrella for MFN, and involves horizontal disputes between states. International investment law, on the other side, is fragmented and gives rise to disputes between states and private parties. Moreover, while MFN in the GATT concerns the treatment of goods coming from different markets, MFN in investment law allows ad hoc tribunals to compare investors, businesses, business sectors, and possibly also broader legal systems of three different countries to determine whether or not the host state has violated the MFN clause. The most recent developments discussed in the previous section suggest that the future of the MFN principle in international investment law remains uncertain.Footnote ¹⁴⁸

Contemporary developments in IEL such as legal and institutional de-globalization are admittedly a deviation from the liberal international order. But they are not a deviation from any alternative perception of international law developed during the formation years of the discipline. Instead, they vindicate the approach to international law and international political economy presented above.

4.2. A ‘Right to Invest’: The Right to Hospitality and the Protection of Investor Rights

Kant identified three layers of public law. Besides constitutional and international law, he added ‘cosmopolitan law’ (Weltbürgerrecht) as a third layer.Footnote ¹⁴⁹ The difference between international law and cosmopolitan law are their addressees: while international law regulates the relationship between states, cosmopolitan law is a body of law that regulates the status of individuals as human beings as opposed to individuals as citizens of a state, as well as the status of individuals when engaging with states they are not citizens of.Footnote ¹⁵⁰

In Kant's classification, ‘citizens of the world’ (Weltbürger) have ‘cosmopolitan rights’ independent of their nationality.Footnote ¹⁵¹ The ‘right to hospitality’ is the most central right of cosmopolitan law.Footnote ¹⁵² ‘Hospitality means the right of a stranger not to be treated with hostility when he arrives on someone else's territory’.Footnote ¹⁵³ This includes a right for individuals and states ‘to try to establish’ economic relations with other states and citizens in other states, as well as to ‘visit all regions of the earth’.Footnote ¹⁵⁴ However, this broad right does not include the right to enter foreign territory or ‘make a settlement on the land of another nation’.Footnote ¹⁵⁵ A contract is needed for that. Instead, it is a right to ‘attempt to enter into relations’ with the local population.Footnote ¹⁵⁶

The right to hospitality corresponds to a legal obligation for states to let foreigners use parts of their territory under certain circumstances. States retain the power though to refuse foreign nationals wanting to enter their territory. The right does not add up to a legal requirement to give up part of one's property for the benefit of strangers.Footnote ¹⁵⁷ Later scholars such as Fichte echoed Kant. Upon landing on a foreign shore, the only right that the foreigner could possibly claim from local institutions and individuals was mere hospitality – the rest was purely voluntary on behalf of the host state:

Kant did not exactly define the issues relating to the potential institutionalization of cosmopolitan law and cosmopolitan rights.Footnote ¹⁵⁹ Perpetual Peace and a cosmopolitan order can be achieved without an international law in the contemporary sense. International institutions may be complementary but not necessary for the peaceful coexistence of nations. Domestic law may instead contribute to the realization of international legal principles and values. Ultimately, what matters is the ‘proper’ republican constitution of states. Cosmopolitan rights can (also) be guaranteed by domestic law and institutions.Footnote ¹⁶⁰

DILs, especially more recent ones, establish the right to hospitality in international investment law. Foreign investors obtain a ‘right to invest’ under DILs.Footnote ¹⁶¹ The right to invest may be seen as a cosmopolitan right to hospitality institutionalized at the domestic level.

The level of protection of investor rights is also provided for along the lines of the right to hospitality. The right to invest is a right to minimum, rather than maximum protection; it is a right to attempt to invest in accordance with domestic laws. In the South African example, despite the withdrawal from BITs, domestic law adopts the idea of providing foreign investors and their investments treatment no less favourable than that accorded to domestic investors. Similar trends may be observed elsewhere, such as in the Gulf Region. Gulf states have a tradition of only allowing foreigners to invest in most sectors of the economy provided that they become shareholders of a company established under domestic law and that they have a local partner that contributes no less than 51% of the capital of the company.Footnote ¹⁶² Recent foreign investment laws in Gulf countries lift some of these restrictions; the new investment laws of the UAE and Qatar, for example, allow majority foreign shareholding in domestic companies as a default rule for almost all sectors.Footnote ¹⁶³ In the same spirit, MST and NT are sometimes extended – beyond the post-admission – to the admission stage too. As discussed above, prospective investors can now often bring a claim before a grievance committee against the decision denying them market access in the first place.Footnote ¹⁶⁴

The right to hospitality does not go beyond what domestic law would guarantee to nationals of the host state. Intergenerational and sustainable development goals of investment, corporate social responsibility standards, or human rights-related obligations, for example, are only imposed on foreign investors to the extent that they are imposed on domestic investors.Footnote ¹⁶⁵

The other side of the coin of the provision of the right to invest to foreign investors is the equalization of protection between foreign and domestic investors. International law generally allows reverse discrimination;Footnote ¹⁶⁶ customary international law allows treating aliens and their property more favourably than host state nationals. International investment law provides for substantive rights to foreign investors that go beyond non-discrimination, as well as a forum for dispute settlement that is not in place for nationals. Many kinds of protection become available to foreign investors under IIAs that may not be available for domestic investors. It thus arguably institutionalizes reverse discrimination.Footnote ¹⁶⁷ Reverse discrimination is now seen in some countries as violating domestic constitutional rights and principles, such as equality – as it allows for discrimination against domestic investors.Footnote ¹⁶⁸ Under new DILs, NT is now acquiring new dimensions towards mandating the equal treatment of foreign and national investors.Footnote ¹⁶⁹ Foreign investors are required to resort to domestic courts, or other means of dispute settlement that are the same as for domestic investors. The South African PIA, for example, purports at bringing foreign investment protection in line with the South African Constitution; the Act was a move by the South African government to provide a framework that regulates investment in the country while redressing the injustices caused by the apartheid rule that excluded historically disadvantaged social and ethnic groups from economic activities.Footnote ¹⁷⁰

The new international political economy acknowledges cosmopolitan goals, values, and principles; yet, in this new order the ends do not justify the means.