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Investment

One of the most remarkable recent developments in international law is the exponential growth of International Investment Agreements (IIAs). An IIA is a treaty between countries to deal with issues concerning the protection, promotion and liberalization of cross-border investments. The most common types of IIAs are standalone Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) that contain investment chapters.

Although not precisely defined, a BIT is a legally binding agreement between two countries that establishes reciprocal protection and promotion of investments in both countries. The United Nations Conference on Trade and Development (UNCTAD) defines BITs as “agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country.” The countries signing BITs com¬mit themselves to following specific standards on the treatment of foreign investments within their jurisdiction. If there is a breach of such commitments, BITs provide expansive procedures for the resolution of disputes.

It is fair to say that BITs have emerged as the primary source of international investment law to protect and promote cross-border investment flows. The first BIT was signed between Germany and Pakistan in 1959. Today, there are more than 3,000 BITs in existence globally, with the great majority having been concluded since 1990. Almost every country in the world has signed at least one BIT.

These treaties originated from the desire of capital-exporting developed countries to seek protection for investors and their investments in capital-importing developing countries. However, the underlying interests and power relations have changed considerably in recent years due to the rise of South-South Foreign Direct Investment (FDI) flows. A num¬ber of developing countries, especially the BRICS – Brazil, Russia, In¬dia, China and South Africa – are increasingly emerging as important outward investors. The number of BITs between developing countries has grown remarkably since 2004. With the changing pattern of global investment flows, the landscape of BITs is quickly evolving.

Paradoxically, it seems that the current BIT regime is at a crossroads, in spite of the rapid proliferation of treaties in recent years. There are signs of growing unease with the current regime across countries and regions. To a large extent, this unease has arisen due to frequent use of investor-state dispute settlement (ISDS) mechanisms under BITs, which allow investors to directly sue host state governments before international arbitral tribunals for alleged violations of treaty provisions.

The growing number of investor claims against sovereign states challenging a wide array of public policy decisions and regulatory measures has evoked deep concerns about the potential costs associated with investment treaties. The vague terms (such as ‘fair and equitable treatment,’ ‘indirect expropriation’ and ‘umbrella clause’) and other ambiguities can result in expansive interpretations by arbitral tribunals, leading to substantial monetary claims by foreign investors while unduly restricting regulatory space in the form of ‘regulatory chill.’ The risk of regulatory chill is very real, as a wide range of policy and regulatory measures (from taxation to the plain packaging of tobacco products to the disposal of hazardous waste) have all been challenged by foreign investors in the recent past.

The increasing use of ISDS mechanisms also highlights the lack of balance between public rights and private interests under the framework of a BIT. The current BITs regime has failed to address the balance of rights and responsibilities of foreign investors as it offers numerous legal rights for investors without requiring corresponding responsibilities for them. In both policy and academic circles, legitimate questions are being raised on the cost and procedure of arbitration, expansive interpretations by arbitral tribunals and the inconsistency of awards.

Both developed and developing countries are paying far greater attention today to the scope of their treaty obligations and, now more than ever before, are seeking a better balance between investor rights and the right to regulate in the public interest. Increasingly the existing treaty regime is considered irrelevant in terms of addressing emerging social, economic, environmental and developmental challenges, both at national and global levels.

There is hardly any empirical evidence to prove that BITs alone result in increased investment flows. At best, BITs could be considered as one factor among many in creating a favourable investment climate for foreign investors in a host country.

Therefore a number of countries have been revisiting their BITs program since the early 2000s. Some countries are clarifying the language used in BITs in order to bring uniformity and coherence in treaty interpretations while others are terminating their existing treaties in the wake of public outcry over arbitration notices served by foreign companies demanding billions of dollars in compensation for the alleged violation of BITs.

The decisions taken by these countries to roll back their BIT commitments represent a significant development and should be viewed in the much broader context of attempts made by other countries to revisit their BIT regime and to explore innovative policy solutions to tackle the problems posed by the current BIT regime, as well as to improve the governance of cross-border investment flows.

Contributed by Kavaljit Singh (Madhyam) and Burghard Ilge (Both Ends). Excerpt from Rethinking bilateral investment treaties.

last update: March 2017

ISDS case map



Click on the dots on the map to explore ISDS cases or look at the list below


Additional resources:

Photo: Transnational Institute


Woodside Energy files arbitration proceedings against Senegal
Australia’s Woodside Energy, which operates Senegal’s Sangomar oil and gas field, has filed a complaint with the World Bank’s International Centre for Settlement of Investment Disputes against the West African country over taxes, a spokesperson for the company said on Monday.
Indiana Resources takes legal action after Tanzania breaches $90M settlement deal
Indiana Resources (ASX:IDA) has taken formal steps in response to Tanzania’s breach of its July 2024 settlement deed.
Estonian glass facade manufacturer Windoor prevails in ICSID arbitration against Kazakhstan
The ICSID Tribunal has ruled in favour of one of Estonia’s largest glass and aluminium facade manufacturers, Windoor, in its dispute against the Republic of Kazakhstan.
Rockhopper "disappointed" by award annulment in case against Italy
Rockhopper Exploration PLC suffered a blow in its campaign to win GBP190 million in tranche payments from the Italian government.
Humans Group initiates arbitration proceedings against the Republic of Uzbekistan to protect its investment
Humans Mobile Ltd, an international holding company and owner of Humans’ business in Uzbekistan, has formally initiated arbitration proceedings against the Republic of Uzbekistan.
AES wins landmark $733 million arbitration award against Argentina: the path to collection
The AES Corporation, a global power generation and utility company, has secured a significant victory in a long-standing dispute with the Argentine Republic.
RS faces potential €700 million arbitration over Ugljevik power plant debt
The issue stems from a €67 million debt owed by the Ugljevik Mine and Thermal Power Plant to Slovenia’s state-owned electricity company, Elektrogospodarstvo Slovenije.
Protecting foreign investments in clean energy projects from regulatory changes
By protecting fossil fuel investments, investment treaties with ISDS are undermining the global energy transition. This briefing explores three alternative tools that may protect foreign investors from regulatory changes.
Ending the era of investor-state dispute settlement
To accomplish the removal of ISDS efficiently, G7 countries, or some subset of them, could lead the development of a plurilateral agreement to alter all IIAs amongst the parties that sign up to it.
Arbitration body raises amount awarded to Enagas to $302 million in process against Peru
Spanish gas grid operator Enagas said the World Bank’s ICSID raised the amount the company is entitled to be paid in an arbitration process over a pipeline it built in the country.

    Links


  • ECT’s dirty secrets
    The Energy Charter Treaty (ECT) grants corporations in the energy sector enormous power to sue states at international investment tribunals.
  • EFILA
    The European Federation for Investment Law and Arbitration (EFILA) has been established in Brussels to promote the knowledge of all aspects of EU and international investment law, including arbitration, at the European level
  • Egregious Corporate Attacks on Public Interest Policies
    The site provides case studies of some of the most expensive and outrageous ISDS attacks on public health, environmental, and other critical policies.
  • Energy Charter Treaty: Investment dispute settlement cases
    The Energy Charter Secretariat has compiled a list of investment dispute settlement cases and this information is updated regularly.
  • Global ISDS Tracker
    The Global ISDS Tracker database contains information on all publicly known 1362 ISDS cases.
  • ICSID
    International Centre for Settlement of Investment Disputes is an autonomous international organisation, linked to the World Bank. It is the most ’referred to’ arbitration facility for disputes under bilateral trade and investment agreements, with its own set of rules and procedures.
  • IISD
    The International Institute for Sustainable Development is an independent think tank championing sustainable solutions to 21st century problems.
  • Investment Treaty News
    ITN is a web-based platform for discussion and debate, as well as providing regular journalistic reporting on developments and trends in international investment law, hosted by the International Institute for Sustainable Development.
  • ISDS Impactos
    Los impactos del sistema de protección de inversiones en América Latina
  • ISDS Reform
    Website examines the evolution of the investment treaty system.
  • ISDS: Corporate attacks on the public interest
    Public Citizen website about ISDS, including petition to US government
  • italaw
    Comprehensive and free database on investment treaties, international investment law and investor-state arbitration.
  • Mapping investment treaties
    Discover patterns of consistency and innovation in the bilateral investment treaty universe
  • Network for Justice in Global Investment
    The Network for Justice in Global Investment is a joint effort by citizens and organizations in a variety of countries to challenge one of the most anti-democratic aspects of the global economic order – the rules governing international investment.
  • Permanent Court of Arbitration
    The PCA is one of the main administering institutions of investor-state arbitrations. Its website provides a list of cases in which the parties have agreed to release public information.
  • Red Carpet Courts
    10 stories of how the rich and powerful hijacked justice
  • Reprenons le pouvoir !
    Site présentant quelques cas d’ISDS et de déni de justice de manière interactive.
  • Stockholm Chamber of Commerce
    The arbitration institute of the Stockholm Chamber of Commerce (SCC) is one of the world’s leading forums for investor-state dispute resolution.
  • Stop ISDS
    Corporations have too much power. It’s time to take it back from them!
  • The Chevron Pit
    A blog maintained by the team suing Chevron for the oil giant’s human rights problems in Ecuador and across the world
  • UNCITRAL
    United Nations Commission on International Trade Law is a body under the UN General Assembly mandated to unfiy international trade law. Disputes between investors and states under many FTAs and BITs are arbitrated, in private, according to UNCITRAL rules. UNCITRAL itself does not administer arbitrations.
  • UNCTAD BIT database
    UNCTAD maintains the most comprehensive database of BITs online
  • UNCTAD ISDS database
    UNCTAD’s comprehensive database of ISDS cases
  • We won’t give up Rosia Montana!
    Romania’s new government wants to give the green light to the Rosia Montana gold mine in return for a deal with Gabriel Resources dropping its ISDS arbitration case against the government.​ Take action now!