International Investment Law and Arbitration Commentary, Awards and other Materials

CHAPTER OUTLINE

This chapter charts the rise of treaties as key instruments of foreign investment protection. In this chapter, investment treaties refer to bilateral or multilateral treaties that address investment protection exclusively, as well as chapters in free trade agreements that highlight investment protection as one of several trade-related concerns. There are currently more than 3,000 investment treaties in existence, weaving almost every country in the world into a vast, complex web of overlapping treaties. Today, foreign investment that is not subject to investment treaty protection is the exception to the norm. Section 1 situates the emergence of investment treaties in their proper historical, political and economic context. Section 2 discusses the period of rapid growth in the number of investment treaties, the ensuing surge in the invocation of investment treaties by foreign investors against host States and the consequences of the turn to investment treaty protection. Section 3 demonstrates how investment treaties, as well as the regime they fostered, are currently undergoing a period of resistance and change. Measures that purportedly achieve a better balance between the right of investors to protection and the right of States to regulate are being taken to address the deficiencies in the status quo.

INTRODUCTION

The rise of investment treaties as important instruments of foreign investment protection is a recent phenomenon. Although foreign investment existed since the days of exploration and empire where foreign trade and settlement flourished, the traditional mode of recourse in the event of a dispute between the investor and the host State was diplomatic protection. This involved the investor writing to his home State with a claim against the host State, and the home State deciding whether to take up the matter with its foreign counterpart. However, the discretionary nature of diplomatic protection offered neither clarity nor certainty to investors seeking recompense for host State interference with their investments. The appeal of diplomatic protection waned in the aftermath of the two World Wars, which devastated national economies and ushered in a period of urgent economic rebuilding. States actively sought a way to stimulate the inward flow of foreign capital while simultaneously safeguarding that capital, thereby ensuring sustainable economic rejuvenation and development. Investment treaties, which offer holders of foreign capital assurances that diplomatic protection does not, are promising means to those ends.