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This chapter focuses on particular challenges in the interpretation of investment treaties before international tribunals. Interpretation of authoritative texts (divine, legal, or scholarly) is always difficult and apt to provoke engaged challenges. This is even more so if the community within which and for which application takes place does not share a widespread homogeneity of political, ideological, religious, or professional values. Investment arbitration by ad hoc tribunals is a novel and therefore unfamiliar form of international adjudication; as a result, it needs to make more effort to achieve political legitimacy — whatever the legal legitimacy founded on international treaties. The best approach is a resolutely technical and professional approach, that is, an approach that employs increasingly detailed drafting techniques in treaty-making, but also a predominantly textual approach linked to identifiable common elements of modern practice in interpretation.

This chapter assesses whether BITs have achieved their objectives. The first part of the chapter examines the historical movement to form BITs. The second part explores the goals motivating BITs, namely foreign investment protection, market liberalization, and foreign investment promotion. The next three parts assess the success of BITs in achieving each of these goals. The chapter concludes by considering the implications of the BIT movement for the further development of international investment law.

This chapter traces the history of international investment agreements. The history thus far comprises three separate eras. The first, the colonial era, began in the late 18th century and continued until the end of the Second World War. The second, the postcolonial era, began with the end of the war and continued until approximately 1990, with the collapse of the Soviet Union. The third, the global era, began in approximately 1990 and continues to the present.

This chapter presents an overview of the most common provisions found in International Investment Agreements (IIAs), focusing on bilateral investment treaties (BITs), as they represent the most common type of IIA. These provisions include the preamble, provisions defining the scope of application of the treaty, standards of treatment, and dispute settlement clauses.

In 2004, the United States government adopted and published a Model Bilateral Investment Treaty that substantially revised the Model Bilateral Investment Treaty previously employed by it in negotiations with other governments over the conclusion of bilateral investment agreements. It has subsequently used the 2004 Model BIT in negotiating bilateral investment treaties, and investment chapters of free trade agreements, with other governments. This chapter focuses on a single provision stating that the ‘fair and equitable treatment includes the obligation not to deny justice’. The result of this specification is that the standard of fair and equitable treatment that is a paramount standard of bilateral investment treaties the world over is reduced in the US Model BIT to (i) ‘the customary international law minimum standard of treatment’ and (ii) ‘the obligation not to deny justice’.

This chapter introduces investment law and arbitration by examining the historical conflict between capital-exporting and capital-importing countries over proposals for a multilateral investment treaty, and by arguing that this legal conflict is interwoven with the social and economic history of European expansion and colonialism, and the corresponding efforts of newly independent countries to achieve greater regulatory autonomy over foreign-owned assets within their territory. It provides an overview of the present system of investment treaty arbitration and the manner in which its use has expanded as multinational firms have capitalized on the opportunity to bring claims against middle-sized developing and former communist states. Finally, it offers an explanation for why capital-importing countries have agreed in bilateral and regional treaties to accept an intensity of adjudicative supervision and investor protection that they long opposed at the multilateral level.

This chapter empirically examines the effect of bilateral investment treaties (BITs) and double taxation treaties (DTTs) on foreign direct investment. This chapter is structured as follows: firstly it describes bilateral investment and tax treaties, and reviews existing empirical studies on both BITs and DTTs. It then describes the methodology and data, and discusses the estimation technique and results, and conclusions. The chapter shows that transition countries that have BITs with developed countries receive more FDI inflows from these countries. It also provides evidence that BITs function to some extent as substitutes for institutional quality. There was no robust effect of tax treaties on FDI.

This chapter focuses on the creation of new independent regulatory agencies and signing of thousands of bilateral investment treaties during the era of liberalization. This was another massive experiment with the logic of discipline. But the experiment did not always produce the expected results. Governments sometimes escaped the constraints they had promised to honor. And where constraints continued to bind, troubling questions about the corrosion of democratic governance were raised.

Under customary principles of treaty interpretation, tribunals routinely resort to rules of international law whose normative validity is grounded in a source outside of the treaty that is the subject of interpretation. Rules fitting this description are referred to as ‘external rules’ in relation to the treaty being interpreted. This chapter explores the possibility that investment tribunals may take international human rights law into account as such external rules when interpreting the treaties upon which investor claims are based. Section B discusses the practice of the International Court of Justice (ICJ) in looking to external rules of international law as interpretative aids. Section C examines Article 31, paragraph 3, sub-paragraph c (Article 31(3)(c)) of the 1969 Vienna Convention on the Law of Treaties. Section D briefly sets out the ways in which international human rights law can inform the interpretation of BITs, based on our analysis of ICJ case law and Article 31(3)(c).

This chapter looks at why BITs have become the preferred method for governing the relationship between foreign investors and host governments in developing countries. It offers a novel explanation of why developing states fought aggressively against the former rule of “prompt, adequate, and effective” compensation for expropriation and in favor of a more lenient standard, and yet contemporaneously flocked to sign treaties that offer investors much greater protection than did the old rule of customary international law. It shows that although an individual country has a strong incentive to negotiate with and offer concessions to potential investors—thereby making itself a more attractive location relative to other potential hosts—developing countries as a group are likely to benefit from forcing investors to enter contracts with host countries that cannot be enforced in an international forum, thereby giving the host a much greater ability to extract value from the investment. The chapter offers a comprehensive explanation for the behavior of developing countries and assesses the desirability of BITs. It discusses the welfare implications of BITs as compared to the “appropriate compensation” standard that developing countries have advocated at the UN. It demonstrates that although BITs increase global efficiency, they likely reduce the overall welfare of developing countries. Finally, the chapter discusses the impact of BITs on customary international law.

This chapter examines the correlation between previous foreign investment and the signing of bilateral investment treaties (BITs) to explore whether there is any evidence that the signing of BITs is investor-driven. It also looks at how BITs affect the flow of investments between countries when a wide range of controls for the economic environment, such as home and host GDP, wage rates, and risk measures are considered. The chapter identifies two factors that are likely to influence the observed benefits of country decisions to enter into BITs. First, although treaties are viewed as forward-looking tools that are signed to gain future investments, treaty signing also has a backward-looking element. In particular, countries that had already received larger stocks of foreign investment are more likely to sign BITs than countries that had been less successful in attracting foreign investment. This result suggests that the interest of exiting foreign investors drove the signing of BITs, at least in part. The second conclusion of this chapter is that controls for timing, intrinsic country attractiveness, and investor identity are all important. When these issues are addressed, BIT signing did help developing countries attract a larger volume of foreign investment.

This chapter deals with the applicable procedure in investment treaty arbitration. It notes that although investment treaty arbitration has a public law character, the applicable procedure typically follows the model of international commercial arbitration. With this in mind, the chapter considers whether some features of the procedure that is applied in domestic public law litigation — in particular, in judicial review proceedings before domestic courts — might be relevant and applicable to investment treaty arbitration, so that it might better reflect its public law function. It then reviews the applicable procedure in such proceedings in the United Kingdom, Australia, the United States, Germany, and France, and suggests that the following aspects of procedure are worthy of consideration by investment treaty tribunals: the evidence-gathering powers of domestic tribunals, aspects of the inquisitorial process, the regime for access to the courts for non-disputing parties, and the diverse range of available remedies.

This chapter begins by addressing the drafting approaches found in investment protection treaties that appear to provide a basis for investment-related State contract disputes to be submitted by an investor to a treaty-based arbitral tribunal for determination. It then addresses the competence of treaty-based arbitral tribunals to determine contractual claims per se. Finally, it reviews the publicly available arbitral practice on the prospect that contractual claims may be determined pursuant to generic investment treaty dispute settlement provisions.

This chapter examines how investment treaty arbitrators have exercised their power. Four broad approaches emerge from the jurisprudence to date. Two of them emphasize a reciprocal legal framework in their conceptualization of investment treaty arbitration: the first by treating it as a form of commercial arbitration; the second as public international law. In contrast, the third and fourth approaches to the subject recognize the regulatory character of the underlying relationship between investors and state. The first does so by comparing investor protection to the protection of human rights; the second by applying a more prudential public law framework which moderates state liability in order to preserve governmental discretion. Each of these approaches is examined, informed by the view that the appropriate approach is to accept the regulatory context for investment disputes, and thus the relevance of public law, within the boundaries set by the inter-state bargain of an investment treaty.

This chapter reviews the notion of ‘investment’ in contemporary treaties to demonstrate that the system affords to arbitrators a broad jurisdiction over a wide range of sovereign acts. It argues that the treaties typically apply broadly framed standards of review by looking at three key standards — national treatment, the minimum standard of treatment, and compensation for expropriation — which reveal the interpretive and governmental discretion that is delegated to arbitrators. The aim here is not to demarcate precisely the boundaries of arbitrator authority or the meaning of particular standards, but merely to show that within those boundaries a wide expanse of regulatory activity is subject to intensive review.

This chapter provides yet another eclectic analysis, this time of the still-irreconcilable controversy surrounding the “appropriate” kinds and extent of governmental regulation of MNCs as entities and FDI as process. The initial section explains why so little progress has been made in establishing meaningful international rules covering these international business phenomena. Next is an abbreviated survey of the major bilateral agreements and voluntary codes of conduct that seek to regulate FDI-related activities to serve the common good. The conflicting attitudes towards the appropriate kinds and extent of multilateral regulations are explained in depth by examining two major loci of contention: the would-be Multilateral Agreement on Investment, and the existing Chapter 11 of the North American Free Trade Agreement (NAFTA). The increasing significance of activist non-government organizations as unofficial regulators of MNC behavior is examined in the concluding section.

This chapter explores the possibility of applying the proportionality principle, which is currently used by the ECtHR in its jurisprudence, in investor-state arbitration and, particularly, in expropriation-related claims. It argues that when States' obligations flowing from international investment treaties and human rights law come into tension, the application of the ‘proportionality test’ in the course of investor-state arbitration concerning expropriation may represent one of the routes through which a balancing of human rights protection imperatives and investor interests can take place. The complexity of this interplay relates to the fact that interests on both sides of the balance have human rights aspects. By virtue of ‘double proportionality’ testing, investor-state arbitration practice may be merging investment and human rights law proportionality standards — a development that is to be encouraged.