Investment Law

Author: Anna Hankings-Evans

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A. Introduction: Colonial Origins, Global and Regional Trends

International Investment Law is a subset of public international law, dealing specifically with the rights and obligations of states and foreign investors in relation to foreign direct investment (FDI). It regulates issues such as the protection of investments, the treatment of foreign investors in host states, and the settlement of investment disputes between foreign investors and host states (investor-state dispute settlement, "ISDS"). Since international investment law operates within the framework of public international law, it is guided by principles and norms derived from international treaties, customary international law, and general principles of law. The international investment law as we know it today has its roots in the early 20^th century with the emergence of bilateral investment treaties ("BITs"). The first BIT was signed between Germany and Pakistan in 1959. However, it was not until the gradual decolonization of the Global South in the 1960s and 1970s, when numerous countries began signing BITs to promote and protect foreign investment, that the modern framework of international investment law began to take shape. Authors have accordingly described international investment law as a field subject to controversy and contestation.

This is not least because international economic laws and policies have essentially played and continue to play a prominent role in the establishment of power structures and the accumulation of wealth in the Global North, but also due to contemporary scrutiny of a system that is believed to lack balance and legitimacy, which led to increased criticism and debate for reform in recent years. One primary concern is that international investment law grants significant privileges and protections to foreign investors, thereby appearing as an imbalanced regime, favoring corporate interests over the rights of states and their citizens. The arbitral awards rendered during the Argentina crisis of 2001, for example, resulted in a significant number of investment arbitration cases against Argentina, which highlighted the issue of inconsistent awards. Argentina was in severe economic turmoil at the time, including a default and currency devaluation, and faced arbitration by various foreign investors under BITs as a result of its remedial actions. The Global South and scholarly proponents of Third World Approaches to International Law ("TWAIL") attribute international investment law's power imbalances and deficiencies to it's colonial origin. It is therefore not surprising that the historical legacy of international investment law, to which most conventional international legal academics attributed a subordinate role in the past, is now increasingly the subject of academic discourse.

I. What is International Investment Law?

International investment law mainly governs FDI and the resolution of disputes between foreign investors and sovereign host states, meaning the state in which the investment was made. FDI is governed and protected predominantly by international investment agreements ("IIAs") entered into between sovereign states for the benefit of investors, regularly on a bilateral level in the form of BITs, making them amenable to the general rules of interpretation under international law. At the beginning of February 2023, the total number of IIAs was 3289, of which 2850 were BITs. Other sources of law include investment dispute settlement conventions such as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("ICSID Convention"), customary international law, and, secondarily, the decisions of various arbitration tribunals. The creation of the International Centre for Settlement of Investment Disputes ("ICSID") in 1966 further solidified the development of international investment law.

The law governing foreign investments may also be codified in domestic legal systems of host states that interplay with general international law. For instance, a BIT may refer to "citizenship" or "seat of the company" while the specific meaning of these terms are derived from domestic law. Additionally, international investment law intersects with other domestic fields of law regulating commercial activity, such as property, corporate or tax law. This is not surprising, given that international investment law is located at the intersection of public and private law, particularly when investment contracts between a private investor and a state entity are concluded.

1. The Definition of "Foreign Investment"

While IIAs generally aim at promoting and protecting foreign investments, a natural or legal person can only claim protection under the respective agreement in cases where the person also falls under the treaty's scope of application. Each IIA therefore offers a definition of what constitutes a "foreign investment" under the IIA and who benefits from its protection, meaning who is to be considered a "foreign investor". In negotiating IIAs, states usually aim at allocating the maximum possible protection to their own citizens, companies and corporations, while making sure that nationals from third states are excluded from benefitting from the IIAs' material guarantees.

Foreign investments can be broadly defined as the transfer, acquisition, establishment, or expansion of business operations by individuals, companies, or governments from one country (the home state) in another country (the host state). These investments may involve various types of assets, including financial resources, technology, expertise, and physical infrastructure. Although many investment agreements have the tendency to include a broad definition of foreign investment, thereby widening the scope of application of the respective treaty, it is generally agreed that international investment law excludes so-called "portfolio investments" from its subject matter.

FDI and portfolio investment are two distinct types of foreign investments, differing primarily in their nature, objectives, and level of ownership or control over the investment. While FDI generally involves substantial ownership or control in a business enterprise in the receiving state, portfolio investment merely involves holding financial assets like shares or bonds issued by companies or governments in other states. FDI is a form of foreign investment in which the investor purchases (e.g. through acquisitions, mergers, takeovers) or establishes (e.g. through incorporation) an enterprise in the receiving host country (usually more than 10%) and may have a long-term strategic interest in managing and influencing its operations. In contrast, portfolio investment does not entail ownership or control in the management of the entity in question. Some IIAs explicitly exclude portfolio investments from its scope of application. For instance, Article 2 of the ASEAN Framework Agreement on Investment clarifies that the agreement shall cover all direct investments other than portfolio investments. The reasons for the exclusion could be that portfolio investments are made primarily for financial motives and aim to maximize returns on investments through capital gains, interest, or dividends, to which some states do not want to provide protection through IIAs.

The Salini test is a set of factors derived from the Salini Costruttori S.p.A. v. Kingdom of Morocco proceedings, a dispute concerning the construction of a water pipeline. It provides guidance on determining the existence of an investment under international investment law. The tribunal established a three-pronged test, often referred to as the Salini test, to determine the existence of an investment. These prongs are a contribution of money, assets, or services by the investor; a certain duration or long-term character, and the investment should entail a certain degree of risk. The Salini test has been instrumental in defining an investment in investment treaties and arbitration proceedings, but its application and interpretation may vary depending on the specific facts and legal context.

2. Principal Actors

Traditionally, only states were considered subjects of international law, which led to the customary doctrine of diplomatic protection being the only remedy available to the foreign investor in question that wished to challenge host state measures affecting his or her property rights abroad. Diplomatic protection, however, constituted a genuine right of the home state, not the foreign investor, and accordingly largely depended on the home state's political willingness to challenge host state actions against its national by way of initiating an international claim for compensation. Diplomatic protection thereby depended on the exhaustion of domestic remedies as well as the foreign national's nationality that would amount to a genuine link between national and home state. The development of a separate international treaty-based substantive and procedural law thus also served to depoliticize the investment relationship.

International investment law typically involves a tripartite set of actors:

1. the capital-exporting home state;
2. the capital-importing host state; and
3. the foreign investor.

3. International Investment Agreements

International agreements are the foundation of foreign investment protection today. In addition to BITs, which are the most common manifestation type of IIAs, there are investment chapters in Free Trade Agreements ("FTAs"), regional treaties that contain investment chapters such as the Energy Charter Treaty ("ECT"), the North American Free Trade Agreement ("NAFTA") or the African Continental Free Trade Area ("AfCFTA"), whose investment protocol was concluded in October 2022 and is awaiting review and adoption by the Assembly of Heads of States of the African Union ("AU").

International agreements, including IIAs, are generally interpreted in accordance with Article 31et seqq. of the Vienna Convention on the Law of Treaties ("VCLT"). Article 31(1) VCLT provides that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. The object and purpose of an international agreement is usually found in the preamble of the treaty. IIAs, constituting international agreements between states, are in principle subject to the interpretative methods of Articles 31 et seq. VCLT. Despite the VCLT only entering into force on 27 February 1980, its provisions are considered customary international law and are, thus, applied in accordance with their customary law content IIAs that were concluded prior to 1980. For instance, in the arbitration proceedings Itisaluna Iraq LLC and others v. Republic of Iraq instituted before the International Centre for the Settlement of Investment Disputes ("ICSID"), the Tribunal held that:

"Iraq is not a party to the VCLT. The Convention does not, accordingly, bind Iraq qua treaty obligation. It is, however, uncontroversial that the provisions of the VLCT setting out the rules on treaty interpretation reflect customary international law. The texts of Articles 31-33 of the VCLT are therefore usefully recalled as an iteration of the content of relevant and applicable customary international law that guides the Tribunal in its task."

The starting point of the proceedings was an agreement between the claimantss and the Iraqi National Communications & Media Center, concluded in June 2006, according to which the plaintiffs were to be granted a comprehensive license for the installation, construction and operation of a public network for telecommunications services in Iraq. However, the license did not include important aspects, such as international gateway services. The case was decided in favor of the respondent state for lack of jurisdiction.

4. Bilateral Investment Treaties

The overwhelming number of IIAs in existence today demonstrates the importance of this field, particularly in terms of its relevance to the regulatory decisions of national legislatures. The constraint on this was often attributed to the far-reaching investor rights enshrined in IIAs – in the absence of corresponding obligations – which had led to increased criticism, particularly from a development and human rights perspective. According to critics, IIAs significantly restrict the ability to regulate in favour of public objectives and thus make it impossible, or at least more difficult, to achieve sustainable development goals in developing states.

BITs are considered the primary source of international investment law today. Germany became a pioneer of the legalization process following its defeat in World War II and the resulting loss of numerous foreign investments, and is today the state with the highest number of BITs. As of February 2023, Germany has signed 120 BITs, of which 114 BITs are in force. It negotiated its first BIT with Pakistan in 1959, paving the way for IIAs, which are usually negotiated between an industrialized country and a developing country. The Germany-Pakistan BIT (1959) entered into force in 1961, and contained standard provisions on non-discrimination, protection and security, protection against expropriation, as well as MFN treatment when granting compensation. Interestingly enough, a FET standard was not included, even though similar standards were integrated into the Havana Charter for an International Trade Organization in 1948.

After Germany, other European countries also launched their own BIT programs. Western states - such as France in 1960 with Chad, France and the Netherland in 1963 with Tunisia, Italy in 1964 with Guinea, Sweden in 1965 with Côte d‘Ivoire, Denmark in 1968 with Indonesia, Great Britain in 1975 with Egypt, and the USA in 1977 with Panama - all concluded their first BITs with states of the Global South, oftentimes states . The success of the BIT program was also due to the failure of a multilateral solution stemming from differences of opinion between industrialized and developing states. The "bilateralization" process followed different regional trends. While Latin American states wrote socialist models into their national constitutions in the spirit of the "Calvo Doctrine", numerous African states supported a liberal approach to their foreign economic policy. Thus, the vast majority of BITs were concluded between European and African states in the early years. In the 1960s, African states were more involved in concluding BITs than any other region in the world.

The first BIT with African participation was concluded as early as 1960 between France and Chad, followed by the BIT between Germany and Togo (1961) and the BIT between Niger and Switzerland (1962). Egypt is the African state that has concluded most BITs with European states today, followed by Morocco, Tunisia, Algeria and Mauritius. However, the vast majority of BITs with African participation were concluded only in the late 1990s and early 2000s, attributed in part to increasing competitive pressures to attract FDI flows, as well as to the increasing neoliberal policies of financial institutions such as the IMF.

5. Customary International Law

Besides IIAs, customary international law plays a significant role in international investment law. Long before efforts to create bilateral treaty obligations, customary international law regarding the expropriation and compensation already existed with respect to foreign property, although the precise content of the scope of protection under customary law initially remained controversial. International investment developed essentially from the customary standards of treatment applicable to foreign nationals and their property. A foreign national who saw their investment threatened by the actions of a host state could only assert their claims through so-called "diplomatic protection" by their home state, which was regularly associated with risks. This was necessary, especially since "foreign nationals" as natural or legal persons had no legal personality under international law and could assert claims only as claims of the home state.

While there was agreement on the existence of customary law, its content was long considered controversial. Capital-exporting states such as the United States and capital-importing Latin American states long disputed over the content of the minimum standard of international law. The question of the minimum standard under customary international law concerned the minimum level of protection obligations of the host state with respect to the (property) protection of aliens under international law. Capital-importing Latin American states saw their regulatory sovereignty restricted, in part because the United States insisted on far-reaching (minimum) international law claims by U.S. investors. This disagreement provided the basis for its subsequent codification through an international treaty.

6. Foreign (Private) Investment Contracts

Foreign (private) investment contracts are the basis of many large-scale investment projects. They are contractual agreements between a foreign investors (or a local affiliate of a foreign investor) and a government (or a government-owned entity). They do not constitute agreements codifying international obligations within the meaning of Article 38(1) lit. a of the ICJ-Statute, but set out the terms and conditions for a specific investment project in the territory of the relevant host state. Investment contracts are, thus, generally drafted as mixed contracts under private and public law. The nature and content of investment contracts may vary, depending on sector, host state and investment project. Common types of investment contracts include for example:

1. Concession Agreements: These are contracts between a concession-granting authority (e.g., the government or a regulatory agency) and a (private) concessionaire that typically grant the investor the use of natural resources or the operation of utilities or other public services in exchange for royalties.
2. Production Sharing Agreements (PSAs): These are contracts utilized predominantly in the petroleum sector and concluded between the investor (usually a resource extracting company) and the host state or a state-owned oil corporation. PSAs specify how much of the resource (usually oil) extracted from the country each investor will receive in return for providing financial and technical services to the state/ state-owned corporation (e.g. it funds exploration, development and production).
3. Build-Operate-and-Transfer Agreements: These types of contract are typically used to finance, for example, large infrastructure projects like airports, ports, dams, power plants and water supply systems that are developed through public-private partnerships. The investor usually takes over the construction and financing of the infrastructure project and operates and maintains it for an agreed period of time, during which the investor can collect levy, charges and other fees for the use of the infrastructure. After the agreed period, the facility is handed over to the state.

Investment contracts are thereby often criticized by scholars, social justice organizations and research institutes for their far-reaching impact on sustainable development and human rights protection. Not only is their negotiation oftentimes accompanied by secrecy and lack of transparency, they also oftentimes extend protection beyond the standards of general international law. They, for instance, oftentimes contain a stabilization clause, whereby host states undertake not to use their administrative or legislative powers in a way that is detrimental to the foreign investor. The most far-reaching form of stabilization clause is the freeze clause, by which states agree to freeze the law with respect to the investment for a period specified in the investment contract. Arbitral tribunals have previously upheld the legality of stabilization clauses and awarded compensation to the investor in the event of violations by the state.

Another implication for sustainable development and human rights is the so-called "umbrella" or "observance of undertakings" clause included in many BITs. These clauses regularly provide that the host state must equally observe all other obligations related to the investment. These obligations may include (private) investment contracts between the host country and the foreign investor, but also any other bilateral or multilateral obligations.

7. Domestic Laws Governing Foreign Investment

Finally, international investment rule- and policymaking is not only taking place in international settings, but is often also regulated at the national level. Domestic laws of the host state may play an important part in governing foreign investments. National laws, particularly in developing countries, often contain obligations to cooperate with state units or state-owned enterprises of host states, thereby tying the admissibility of foreign investment in certain sectors to (domestic) conditions. A number of developing states, for instance, maintain a so-called "Negative List" for foreign investment. The list is crucial in determining whether foreign investment can access a particular sector or not. is a list of industry sectors in which foreign investment is prohibited or restricted. For instance, FDI in China is subject to a Negative List which prohibits or restricts certain industries for foreign investment purposes. Likewise, Ghana reserves certain sectors for Ghanaians and Ghanaian owned enterprises. According to sec. 27(1) of the Ghana Investment Promotion Centre Act 2013 (Act 865) stipulates that:

"A person who is not a citizen or an enterprise which is not wholly owned by citizen shall not invest or participate in—

a. the sale of goods or provision of services in a market, petty trading or hawking or selling of goods in a stall at any place;

b. the operation of taxi or car hire service in an enterprise that has a fleet of less than twenty-five vehicles;

c. the operation of a beauty salon or a barber shop;

d. the printing of recharge scratch cards for the use of subscribers of telecommunication services;

e. the production of exercise books and other basic stationery;

f. the retail of finished pharmaceutical products;

g. the production, supply and retail of sachet water; and

h. all aspects of pool betting business and lotteries, except football pool."

For example, in an attempt to take back regulatory control over foreign investment, South Africa passed the new South African Protection of Investment Act No. 22 of 2015 in 2018, which essentially brings international investment protection into the domestic sphere. While the preamble to South Africa's Protection of Investment Act recognizes the importance of FDI to job creation, economic growth and sustainable development, investment protection is secured solely through domestic remedies. According to sec. 13(4) of South Africa's Protection of Investment Act

"Subject to applicable legislation, an investor, upon becoming aware of a dispute as referred to in subsection (1), is not precluded from approaching any competent court, independent tribunal or statutory body within the Republic for the resolution of a dispute relating to an investment."

South Africa's decision followed the ICSID case Piero Foresti, Laura de Carli Others v. The Republic of South Africa, which had been initiated under the Belgium-Luxembourg-South Africa BIT (1998). The case concerned several Italian citizens and a Luxembourg company challenging the mandatory Black ownership requirements of the new mining law as part of the Broad-Based Black Economic Empowerment legislation, aimed at achieving economic equality and undo historic wrong. The applicants in the proceedings had argued that South Africa's Broad-Based Black Economic Empowerment legislation amounted to expropriation without compensation. The case was eventually dismissed, and South Africa further raised the minimum threshold for black ownership of mining companies from 26 to 30% in 2017.

II. The Evolution of International Investment Law

The evolution of the international law relating to foreign investment, as conflicting views would suggest, was accompanied and inevitably shaped by a long history of dispute over applicable rules and standards. What is known today as IIA can be traced as far as to the first half of the 20^th century, a time that witnessed significant developments of international norms protecting aliens and their property against interference of the territorial state. These developments were thereby largely shaped by major powers and the protection of their nationals assets in Latin American states. As for the rest of the world, no participation in the law-making of IIA was possible and, from a European perspective, hardly needed. This was due to the colonization mission on which European states embarked in the 16^th century, bringing large parts of the world under its control and rendering the protection of foreign property irrelevant. Protection was rather achieved through occupation and the subsequent installment of colonial administrative systems. It was not until the period of decolonization of particularly Africa and Asia after World War II that formerly colonized states were able to contribute to the evolution of today's IIA and adjudication.

1. The Colonial Period

The law of foreign investment is inextricably linked with the colonial venture and expansion. It was early writings by European institutions on the treatment of aliens that launched the evolution of protection of assets abroad. For instance, the Dutch jurist Hugo Grotius (1583 – 1645), the 'father' of international law, played an essential role in the legal justification of the colonial expansion into Asia and Africa. Grotius had worked closely with the directors of the Dutch East India Company (officially the United East India Company), a multinational trading and investment company of the 17^th century, and developed rights and contract theories for the benefit of the corporation and its commercial, particularly foreign investment interests oversees. By the 19^th century, a large part of the non-Western world had been brought under colonial control, which made the development of rules on the protection of foreign investments largely redundant. Instead, investment protection of assets acquired in colonies was guaranteed by the forceful integration of the colonial legal systems into the imperial state's parliamentary and court system. Colonial state power, motivated by furthering the commercial interests of its trading and investment companies, thus, served as the protector of its nationals' investments abroad.

2. Treaties of Friendship, Commerce, and Navigation and “Unequal Treaties”

The precursor to the modern BITs were bilateral so-called Treaties of Friendship, Commerce and Navigation ("FNC"), of which the Treaty of Amity and Commerce between the United States and France of 1778 or the Treaty of Amity, Commerce and Navigation between United States and Great Britain of 1794 are often cited as the first of its kind. It was, in fact, John Adams, one of the founding fathers of the United States, who was involved in negotiating the Treaty of Amity and Commerce between the United States and France of 1778. FNC treaties, for instance, contained far-reaching procedural rights and codified the principle of "national treatment" and the principle of "most-favored-nation treatment". Typically, FCN treaties regulated shipping rights, but also rights of entry and establishment. They also regularly codified a right to compensation in the event of expropriation.

Conversely, investment protection in colonized territories was guaranteed through so-called “gunboat diplomacy” and the imposition of a colonial administration. Trade and investment protection in non-European yet not under colonial rule, such as China, were often safeguarded on the basis of contractually agreed non-reciprocal principles of extraterritoriality that favored European and American states. Utilizing FNC treaties, Western states secured far-reaching privileges by way of extraterritorial application of European or American law in states such as China, Thailand, Japan, Iran, Egypt, Morocco and Turkey. For instance, bilateral treaties between the Qing dynasty in China and the United States as well as other European states that were negotiated governing diplomatic and commercial relations between the parties, stipulated home state jurisdiction, meaning the application of laws of the respective home state to its citizens abroad.

For instance the Treaty of Wanghia of 1844 between the United States and China established different regimes for citizens of the United States and China:

"Citizens of the United States resorting to China for the purpose of commerce will pay the duties of import and export prescribed by the Tariff which is fixed by and made a part of this Treaty. They shall in no case be subject to other or higher duties than are or shall be required of the people of any other nation whatever. Fees and charges of every sort are wholly abolished; and officers of the revenue who may be guilty of exaction shall be punished according to the laws of China. If the Chinese Government desire to modify in any respect the said Tariff, such modifications shall be made only in consultation with Consuls or other functionaries thereto duly authorized in behalf of the United States, and with consent thereof. And if additional advantages or privileges of whatever description be conceded hereafter by China to any other nation, the United States and the citizens thereof shall be entitled thereupon to a complete, equal, and impartial participation in the same."

Likewise the Treaty of Friendship and Commerce between the Queen of Great Britain and Ireland and the Kings of Siam, 18 April 1855:

"The interests of all British subjects coming to Siam shall be placed under the regulation and control of a Consul, who will be appointed to reside at Bangkok: he will himself conform to and will enforce the observance, by British subjects, of all the provisions of this Treaty, and such of the former Treaty negotiated by Captain Burney in 1836, as shall still remain in operation. He shall also give effect to all rules or regulations that are now or may hereafter be enacted for the government of British subjects in Siam, the conduct of their trade, and for the prevention of violations of the laws of Siam. Any disputes arising between Siamese and British subjects shall be heard and determined by the Consul, in conjunction with the proper Siamese officers; and criminal offences will be punished, in the case of English offenders by the Consul, according to English laws, and in the case of Siamese offenders, by their own laws, through the Siamese authorities. But the Consul shall not interfere in any matters referring solely to Siamese, neither will the Siamese authorities interfere in questions which only concern the subjects of Her Britannic Majesty […]."

Due to the one-sidedness of privileges accorded by these FNC-Treaties with non-European entities, they were later referred to as 'unequal treaties' by China. The inequality that inhibited these bilateral treaties was thereby a clear contradiction to the proclaimed sovereignty and equality of states under international law. On the other hand, they also manifested a clash of empires, from which one emerged as the victor by contractually establishing the victory of on legal framework over the other. FCN treaties were thereby concluded until the 20^th century, such as the last recorded FCN treaty of 1956 between Nicaragua and the United States.

3. The Status of Foreigner, Diplomatic Protection and the Quest for a (Customary) International Minimum Standard

Prior to the evolution of treaty-based foreign investment protection, the enforcement of any property claims by a foreigner abroad was possible solely through the doctrine of diplomatic protection by their home states. The further development of international investment law in its early days served to redress this imbalance of power in favor of the - back then regularly weaker - foreign investor, and in this regard was largely due to the legal relations between the United States and Latin American states. A different set of rules was applied with respect to the expansion into Africa and Asia, where property law liabilities were obtained through coercion and colonial opression.

The "international minimum standard" of treatment is today considered a rule of customary international law regarding the treatment of aliens and their property within a host state. It was as early as 1758 that the Swiss international lawyer Emer de Vattel (1714 – 1767) published his in Northern scholarship widely recited book The Law of Nations, in which he articulated the rule that once a sovereign state willingly granted a foreigner access to its territory, it had to treat the foreigner in the same way as its own. The treatment of aliens was essentially regulated by the law of (host) state responsibility, encompassing for instance the customary “international minimum standards” and the standard of “national treatment” that today constitutes one of the guiding and oftentimes contractually agreed principles in international economic lawmaking today.

The international minimum standard did thereby not establish without being challenged by non-Western, particularly Latin American states.

a. The Soviet Union and the First Wave of Expropriation

Subsequent to the October Revolution in Russia, the Decree on Peace that was written by Vladimir Lenin, the head of government of Soviet Russia, was passed on 26th of October 1917 by the Second All-Russian Congress of Soviets, resulting in the abolition of private land and a wave of expropriation of foreign property without compensation. Western governments reacted indignantly to the measures taken by the new Soviet government, insisting on a well-established principle among civilized states that prescribes compensation to be paid for any forceful expropriation and nationalization. In 1920, due to internal economic hardship, the Soviet Union passed the New Economic Policy with the intend of receiving economic assistance from the international community. It simultaneously opened up to the idea of compensating previously confiscated foreign property, nevertheless insisting that no customary state duty exists that would obligate a state to compensate foreign nationals in cases where property had been expropriated. In return for the Soviet Union's concessions, counterclaims were being asserted on behalf of the latter for military intervention it endured in response to the October Revolution. Years of negotiations followed, initiated by states such as the United Kingdom and the United States, which did, however, not lead to the anticipated outcome of successful settling all claims. The Soviet Union rather upheld its opposition to the customary minimum standard being asserted by the West.

b. The Calvo Doctrine

Latin American states resisted the assertion of a customary international minimum standard. Instead, Latin American states argued for a "national treatment" of foreign investors, according to which they should not be treated better than local investors, which restricted foreign investment protection to the standard accorded by domestic law. The conception became known as the so-called Calvo Doctrine. It was developed by the Argentinian diplomat and legal scholar Carlos Calvo (1822 – 1906). To give emphasis to the doctrine, Latin American states such as Peru and Bolivia went on to incorporate the Calvo Doctrine into their national constitutions or otherwise into their national legal frameworks, or entered into commercial agreements with foreign investors based on the Calvo Doctrine. Western states responded by challenging the legality of domestically regulating foreign investments under international law's doctrine of diplomatic protection.

According to the Calvo Doctrine, the risk of foreign property protection was basically on the side of the private investor, who voluntarily submitted to the national legal system of the host state. Accordingly, foreign property and investment protection was primarily governed by the national rules of the host state. In addition, disputes were no longer to be resolved through diplomatic intervention by the home state, particularly in the exercise of diplomatic protection, but were to be decided by national courts. Many Latin American states considered their national laws to provide sufficient protection to foreign investors and their resistance was, in part, seen as an expression of opposition to powerful capital-exporting states such as the United States and its supremacy.

c. The Hull Formula

Conversely, capital-exporting states such as the United States maintained the existence of an international (minimum standard) of treatment applicable to foreign investments must be a standard that exists independently of local laws. The so-called Hull Formula formula was coined in 1938 by former U.S. Secretary of State and co-founder of the United Nations Cordell Hull (1871 – 1955). Hull responded with the requirement of "prompt, adequate and effective" compensation, which in he argued constituted a minimum standard under international law. The "Hull formula" corresponded with the predominant practice of Western states. Prompt in that regard refers to compensation in close temporal connection with the expropriation, especially if otherwise an inflationary loss would have to be accepted, adequate refers to appropriate, usually full compensation for value (market value), and effective means payment without foreign exchange restrictions and in a convertible currency.

While Latin American states continued to resist the U.S. determination of the minimum standard under international law, states such as the Soviet Union, Mexico, and Romania in some places denied the existence of customary international law property protection altogether. This and the continued resistance of Latin American states, among others, prevented the codification of the international law minimum standard in international treaties at that time. Today, IIAs regularly codify the U.S.-style international law minimum standard. The far-reaching establishment of the Hull formula was regularly achieved through capital-exporting states of the Global North, but also through reform conditionality of institutions such as the World Bank or the IMF.

4. The Era of Decolonization and the Second Wave of Expropriation

The gradual decolonization of the Global South contituted one of the most significant eras in human history, liberating approximately 80 percent of the global land and 75 percent of the world's population from the shackles of colonial domination and exploitation. The era simultaniously marks the beginning of the modern history of the development of international investment law and arbitration, curbed by a major wave of expropriations and the Western need to protects assets in formerly colonized states. With decolonization of the Global South, newly independent states had increasingly challenged the customary rules on foreign investments, encouraging the rapid codification of principles protecting foreign investments.

The best-known cases of expropriation include the expropriation of Dutch property in Indonesia between 1958 and 1959, the expropriation of Anglo-Iranian oil companies in Iran in 1951, and the expropriation of the French Suez Canal Company in Egypt in 1956. As a rule, these expropriations involved compensation payments, which, however, regularly did not correspond to the amount demanded in terms of a minimum standard under international law in the sense of the Hull formula advocated by Western states. Developing states also often cited their level of development and the economic impossibility of paying compensation, especially when the expropriations occurred as part of a reform program. According to the UN, between 1960 and 1974 a total of 875 state takeovers were initiated in 62 states.

Today virtually all BITs entail a substantive provision protecting foreign property against expropriation.

5. The Quest for a New International Economic Order

The New International Economic Order ("NIEO") was a set of proposals put forward within the United Nations General Assembly by developing countries mainly in the 1970s. The NIEO aimed at restructuring the global economic system in a way that would reduce economic inequality between rich and poor states. After regaining independence, newly independent states of the Global South were keen to take control over their natural resources. Coalitions were formed at the UN level to emphasize the principle of permanent sovereignty over natural resources as a logical consequence of the demand for decolonization and independence. What followed in 1962 was the adoption Resolution 1803 (XVII) on the Permanent Sovereignty over Natural Resources, which laid down the principles for the management and use of natural resources.

A few years later, states of the Global South moved to formulate norms and principles that they felt were necessary to address the issue of inequality and legitimacy. The UN General Assembly at that time served as the most important platform for states of the Global South to articulate their demands. They argued that formal equality and independence alone could not bring about the promised prosperity and realization of the right to self-determination, but rather that structural obstacles in the international economic system hindered the economic development of these states. With Resolution 3281 (XXIX) of December 12, 1974, the Charter of Economic Rights and Duties of States, states of the Global South objected in particular to the establishment of an international property and investment protection regime shaped primarily by European states.

According to Article 2 of the Charter of Economic Rights and Duties of States:

"1. Every State has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources and economic activities.

2. Each State has the right:

(a) To regulate and exercise authority over foreign investment within its national jurisdiction in accordance with its laws and regulations and in conformity with its national objectives and priorities. No State shall be compelled to grant preferential treatment to foreign investment;

(b) To regulate and supervise the activities of transnational corporations within its national jurisdiction and take measures to ensure that such activities comply with its laws, rules and regulations and conform with its economic and social policies. Transnational corporations shall not intervene in the internal affairs of a host State. Every State should, with full regard for its sovereign rights, cooperate with other States in the exercise of the right set forth in this subparagraph;

(c) To nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means."

The positions of the Global South differed from those of the industrialized countries, particularly with regard to host state powers in the regulation and control of foreign property. Interestingly enough, one cornerstone of the demand was the replacement of international laws governing the expropriation of aliens with domestic laws of the nationalizing state that would determine appropriate compensation and settle disputes arising from the question of compensation.

6. International Investment Law's "Legitimacy Crisis"

Beginning with the Argentine financial crisis in 2001 and the subsequent cases brought by foreign investors against the host state, individual states in the Global South moved to increasingly limit the jurisdiction of ISDS arbitral tribunals. In the academic literature, this has been referred to as a "legitimacy crisis" of or "backlash" against international investment law in general and ISDS specifically.

For example, Bolivia terminated the ICSID Convention in 2007, followed by Venezuela in 2012. Ecuador also terminated its membership in 2009, but rejoined the ICSID Convention in August 2021. In addition to withdrawing from the ICSID Convention, a number of states signaled their dissatisfaction with the substantive content of international investment law codified in BITs. For example, Ecuador terminated nine of its BITs in 2008 and announced the renegotiation of additional BITs. In 2009, the South African Department of Trade and Industry published a position paper in which it reviewed South Africa's policy framework with respect to its bilateral commitments and concluded that the current BIT regime does not meet South Africa's flexibility and development aspirations. As a result, South Africa terminated its BITs with Western countries such as Belgium, Luxembourg, Finland, Sweden, Austria, Spain, Germany, France, the United Kingdom, Denmark, Switzerland, the Netherlands, Italy, and Greece, arguing that the balance of power in the North-South negotiations had shifted sharply in favor of the industrialized country. Likewise, India announced in 2016 after adopting the Indian Model BIT that it would terminate a significant number of its BITs. According to UNCTAD's World Investment Report 2021, 42 terminations took effect, thereby exceeded the number of newly concluded IIAs in 2020, as in the previous year.

One of the reasons for such "backlash" is assumed in the increasing limitation of the host state's power, given that BITs are regularly concluded between a developing state of the Global North and an industrial state of the Global North. Some authors have accordingly attributed the resistance of these states to the regime's colonial legacy and the resulting asymmetrical contractual relations between the South and the North. In addition, the regime's historical legacy has driven the fragmentation of (private) investment protection and (public) common good interests such as human rights, environmental concerns, and the right to health, through the broad and incongruent interpretation of ambiguous investment protection clauses by ISDS arbitral tribunals, which is seen as another trigger for the perceived loss of legitimacy.

Conversely, the resistance generally referred to as "of the Global South" is in reality not limited to states of the Global South, but must be understood, at least today, as a reaction to systemic challenges of a rather unbalanced system. Despite the listed resistance of individual states, almost all states have ratified at least one BIT today. States of the Global South, which had called for the establishment of the NIEO and greater respect for national sovereignty at the UN level, rather continue to participate in the process of codifying international investment law.

B. General Structure and Substantial Guarantees of International Investment Agreements

I. Overview and Structure of International Investment Agreements

IIAs can be defined as international agreements between two or more states that governs investments made by a national of one state party to the treaty in the territory of the other state party treaty. IIAs generally show slight variations in language, with some restricting host state actions more severely than others. This is largely depends on and is often due to the differences in bargaining of negotiating states. Nevertheless, virtually all IIAs share significant similarities regarding their general structure and substantive provisions on the standard of treatment of foreign investors and their investments.

1. The Preamble

A preamble is an introductory statement or paragraph that appears at the beginning of an agreement and usually provides background information, sets forth the objectives, and expresses the underlying intentions and principles of the agreement. Preambles to IIAs usually articulate the objectives pursued by the agreement. They set forth the aspirations, values, or principles that underlie the agreement and guide its interpretation. IIAs, constituting international agreements between states, are in principle subject to the interpretative methods of Articles 31 et seq. VCLT. As stipulated above, the object and purpose of an international agreement is usually found in the preamble of the treaty. IIAs are regularly subjected to the promoting and protecting foreign investment in their respective preambles. Only a few preambles codify the objective of promoting development and economic prosperity in terms of distributive justice in addition to the objective of foreign investment promotion and protection. For example, the Morocco-Nigeria BIT (2016) refers in its preamble to the importance of foreign investment in promoting sustainable development and human rights, such as poverty reduction, and identifies these as possible long-term goals. This has led to many decisions that are favorable to the foreign investor. Developing countries are encouraged to reference economic and sustainable development and the transfer of capital and technology into their preambles. Since the VCLT prioritizes the ordinary meaning of specific substantive text over general purpose statements, scope and definition clauses in IIAs remain decisive.

2. Foreign Investors

Foreign investors can be divided into several sub-categories, the most important being non-state (private) investors as well as state investors. Sometimes investors are finally found in mixed form, for example, when a private company decides to enter into a joint venture with a state-owned company and invest jointly abroad. State investors usually refer to state-owned enterprises ("SOEs"), government corporations or entities that are at least controlled by the state. IIAs are generally designed to promote and protect these foreign investment activities, irrespective of its attribution to a private or state-controlled entity. In some cases, IIA include or exclude SOEs in their definitions of "investor". For instance, the China-Tanzania BIT (2013) defines "investor" in its Article 1(2)(b) as follows:

"[...] the term "enterprise" means any entity, including companies, firms, associations, partnerships and other organizations, incorporated or constituted under the laws and regulations of either Contracting Party and that have their seat and substantial business activities in that Contracting Party, irrespective of whether it is owned or controlled by a private person or the government."

SOEs are thus expressly included in the scope of protection under the China-Tanzania BIT (2013). UNCTAD's 2011 World Investment Report pointed to the increasing importance of SOEs for international investment protection law. State affiliated investors thereby raise a couple of geopolitical concerns, for instance regarding a home state's influence and a host state's security interests. This is because a state-owned or state controlled entity owning assets in another state allows for political power of that entity, and thus, the state of origin. States hiding behind a state-owned or state-controlled corporation that owns assets in another state may thereby exercise political power over the home state in question. It is therefore crucial that capital receiving home states assess potential risks and regulate accordingly those sectors that are not open to foreign investment by a state investor. This has been done by many capital-importing states, as state-affiliated corporations remain important investors both domestically and globally. Most IIAs distinguish between foreign investors that are natural persons and and foreign investors that are legal entities. A number of IIAs merely offers one definition that is equally applicable to natural and legal persons. In principle, any natural person fall under the scope of an IIA, if that natural person has the citizenship or nationality of the host state. Occasionally, the home state extends the scope of application also to natural persons that permanently reside in in the home state. Many IIAs thereby shift the scope of application to the domestic sphere, by establishing that domestic law as the denominator for the necessary link to the home state. Natural persons with dual citizenship accordingly pose a challenge to the establishment of the link, as IIAs are not intended to, for instance, leverage one nationality against the other. For instance, Article 1(2) Canada-China BIT (2012) defines investor as:

(a) to (j);

 2. “investor” means with regard to either Contracting Party:

o (a) any natural person who has the citizenship or status of

permanent resident of that Contracting Party in accordance with its

laws and who does not possess the citizenship of the other

Contracting Party;

o (b) any enterprise as defined in paragraph 10(a) of this Article;

that seeks to make, is making or has made a covered

"(a) any natural person who has the citizenship or status of permanent resident of that Contracting Party in accordance with its laws and who does not possess the citizenship of the other Contracting Party;

(b) any enterprise as defined in paragraph 10(a) of this Article;

that seeks to make, is making or has made a covered investment."

The typical form of private investors are regularly companies and corporations that are owned or controlled by private individuals or another corporate entity. Companies and corporations are usually created under domestic law of the respective home state, and can thus vary in form and structure. Nevertheless, due to different criterias incorporated into domestic legal systems, corporate nationality remains difficult to establish, with some referring to the place of origin or management seat. For instance, according to Article I(2) of the Association of Southeast Asian Nations' ("ASEAN") Agreement for the promotion and Protection of Investment:

"The term “company” of a Contracting Party shall mean a corporation, partnership or other business association, incorporated or constituted under the laws in force in the territory of any Contracting Party wherein the place of effective management is situated."

Companies and corporations can take complex forms, particularly if they enter into joint-ventures with other companies and create subsidies in receiving states.

Despite being beneficiaries of these international agreements, foreign investors do not acquire international legal personality, but are empowered to resort to treaty-based dispute resolution using international platforms and procedures. Such developments are similar to those in other areas of international law, namely human rights law, which comparatively give individuals a treaty-based right of action against a state.

II. Standard of Treatment

IIAs generally contain provisions governing the substantive and procedural protection of foreign investment in the host country. Typical safeguards include non-discrimination clauses such as national treatment ("NT") and most favored nation ("MFN") principles, but also fair and equitable treatment ("FET") requirements as well as the host state's obligation to compensate in the event of expropriation or measures amounting to (direct or indirect) expropriation. The interpretation of these clauses does not depend exclusively on the will of the parties, but is regularly interpreted by the arbitral tribunals uniformly and in accordance with their customary meaning.

1. Principles of Non-Discrimination

BITs generally contain provisions that regulate the substantive and procedural protection of foreign investments in the host state. Typical protection clauses include prohibitions of discrimination, such as the principle of national treatment ("NT") and the principle of most-favored nation ("MFN"), but also the requirement of fair and equitable treatment ("FET") and the host state's obligation to compensate in the event of expropriation or expropriation-like measures. In the absence of a binding agreement, the interpretation of these clauses does not depend exclusively on the potential will of the parties, but is generally considered uniformly by arbitral tribunals.

a. The Principle of National Treatment

The national treatment ("NT") standard requires host countries to treat foreign investors and their investments in a nondiscriminatory manner, i.e., no less favorably than domestic investors in comparable circumstances. It aims to eliminate discriminatory practices and ensure a level playing field. Once a foreign investor has made an investment in a host state, they should be treated in the same way as domestic investors. The NT standard generally applies to various aspects of investment, such as establishment, operation, expansion and sale of investments. For example, it may cover areas such as licensing and permits, tax treatment, regulatory measures, government procurement, and other economic and legal regulations. While US and Canadian BITs, for example, extend national treatment to freedom of establishment ("pre-establishment NT"), South-South BITs generally apply the NT principle more restrictively.

A restrictive approach can be found in Article 6(2) and (3) of the Morocco-Nigeria BIT (2016):

"(2) Each Party shall allow investors of the other Party to invest and contract business in conditions no less favourable than that accorded, in like circumstances, to investments of its own investors in accordance with its laws and regulations.

(3) For greater certainty, references to "like circumstances" in paragraph 2 requires an overall examination on a case-by-case basis of all the circumstances of an investment including, but not limited to:

a) its effects on third person and the local community;

b) its effects on the local, regional or national environment, including the

cumulative effects of all investments within a jurisdiction on the environment;

c) the sector in which the investor is in;

d) the aim of the measure concerned;

f) the regulatory process generally applied in relation to the measure concerned;

The examination referred to in this paragraph shall not be limited to or be biased toward anyone factor."

One study found that over 30% of the South-South BITs examined did not contain any reference to the principle of national treatment, while this was true for only 8% of the North-South BITs.

b. The Most-Favored Nation Principle

Most-favored nation is a principle that requires a host state to extend any privileges, advantages, or preferential treatment it grants to one foreign investor to all other foreign investors from other states It ensures that foreign investors are treated equally and prohibits discriminatory treatment of investors from different countries. The principle of MFN is regularly included in all international economic agreements, i.e. also in those of international trade law. For inctance, Article I of the General Agreement on Tariffs and Trade ("GATT") contains a general MFN clause. According to Article 6(4) of the Morocco-Nigeria BIT (2016):

"(4) Each Party shall allow investors of the other Party to make an investment and conduct business in conditions no less favourable than that accorded, in like circumstances, to investors of another third state."

Some agreements may include exceptions or carve-outs that limit the application of the MFN principle. These exceptions can be based on specific sectors, policy objectives, or other considerations. For instance, the Morocco-Nigeria BIT (2016) codifies an exception to the rules outlined above (NT and MFN) in its Article 6(5):

"(5) The treatment granted under 1, 2, 3 and 4 of this article shall not be construed as to preclude national securiry-, public securiry- or public order nor oblige one Party to extend to the investors of the other Party and their investment the benefit of any treatment, preference or privilege resulting from:

a) its membership of, or association with, any existing or future free trade areas, customs union, economic union, common market or monetary union, or

b) an existing or future free trade agreement

c) any international agreement or any domestic legislation relating wholly or mainly to taxation.

d) other Agreement for the avoidance of double taxation or by virtue of its participation in customs union and free trade areas, or on basis of reciprocity with a third country."

Further, the timing of the MFN principle's application may vary. Some IIAs stipulate that it may apply to existing investments at the time of the agreement's entry into force, others that it only applies to future investments made after the agreement's effective date. The International Law Commission described the essence of the MFN standard as follows.

"In a sense, this is at the very core of what MFN is about: it seeks to provide something better than what the beneficiary would otherwise receive under the basic treaty. On that basis, it would seem inevitable that if the basic treaty provides for a certain kind of treatment, the consequence of the application of an MFN clause is that the treaty provision in the basic treaty would be overridden."

BITs are regularly the result of a complex and bilateral negotiation process and the resulting contractual norms are the corresponding result of the negotiating skills and/or negotiating power of the contracting parties. Accordingly, a mechanical inclusion of the MFN principle regularly diminishes the respective regulatory space of such states that have negotiated with caution.

2. Fair and Equitable Treatment

The fair and equitable treatment ("FET") principle is a fundamental principle in international investment law, guaranteeing that foreign investors are treated fairly and without discrimination by host states. It requires host states to provide foreign investors with a certain level of protection and security for their investments, including, for instance, protecting investors from arbitrary or discriminatory measures, creating a stable and predictable legal framework and/ or afford procedural fairness and due process to foreign investors and their investments. One major challenge of the FET principle is thereby that it lacks a precise definition, meaning that its content and scope may vary in different treaties. In general, however, it encompasses the principles of good governance, due process, non-arbitrariness, and protection against targeted or discriminatory treatment.

In principle, all BITs oblige the host state to provide FET to foreign investors and their investment. Today, the FET clause is one of the frequently challenged clauses in a successful ISDS case, including the one in Biwater Gauff (Tanzania) Ltd. v. The United Republic of Tanzania based on the Tanzania-UK BIT (1994).

According to its Article 2(2) of the Tanzania-UK BIT (1994),

"Investments of nationals or companies of each Contracting Party shall at all times be accorded fair and equitable treatment and shall enjoy full protection and security in the territory of the other Contracting Party. Neither Contracting Party shall in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its territory of nationals or companies of the other Contracting Party. Each Contracting Party shall observe any obligation it may have entered into with regard to investments of nationals or companies of the other Contracting Party."

The dispute followed inter alia the termination of a water and sewerage lease agreement between a Tanzania-incorporated company with majority ownership by Biwater Gauff (Tanzania) Ltd. and the Tanzania Water and Sanitation Authority. While the ICSID tribunal did not extensively analyze the content of the FET principle, it found that the FET clause had been violated and that the state measures, in particular the verbal statements of the Tanzanian minister, constituted unwarranted interference in the ordinary contractual termination proceedings.

The case is also interesting because the ICSID tribunal granted an application for amicus curiae status by Tanzanian and international non-governmental organizations ("NGOs"), which separately highlighted corporate responsibility and the human right to clean and safe water. An amicus curiae brief is a brief to a court in which a person or organization not itself involved in the proceedings can present legal arguments and a recommended course of action for a case that is being litigated in court.

3. Guarantees Against Expropriation and Dispossession

The question of the admissibility of expropriatory or expropriation-like host state measures with regard to foreign property is one of the most controversial issues of modern international law. The right of territorial host state to expropriate and the corresponding obligation to compensate are among the core aspects of investment protection under international law. BITs generally all contain an expropriation clause, which regularly sets out the conditions under which expropriation and measures equivalent to expropriation are permissible.

As a rule, expropriation or nationalization is only permissible if it has been carried out in the public interest, in a non-discriminatory manner, in accordance with the rule of law and in return for compensation. Most IIAs contain similar language regarding the standard of treatment. For instance, accorrding to Article 6 of the US Model BIT (2012):

"1. Neither Party may expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization (“expropriation”), except:

(a) for a public purpose;

(b) in a non-discriminatory manner;

(c) on payment of prompt, adequate, and effective compensation; and

(d) in accordance with due process of law and Article 5 [Minimum Standard of Treatment](1) through (3).

2. The compensation referred to in paragraph 1(c) shall:

(a) be paid without delay;

(b) be equivalent to the fair market value of the expropriated investment immediately before the expropriation took place (“the date of expropriation”);

(c) not reflect any change in value occurring because the intended expropriation had become known earlier; and

(d) be fully realizable and freely transferable."

The US Model BIT (2012) contains an Annex B on "Expropriation", clarifying the specific meaning of Article 6.

Besides direct expropriation, an investor can experience an expropriation-like measure that amounts to "indirect expropriation". This can be a regulatory act by the state that has an indirect and significant effect on the foreign investment. The difficulty lies precisely in the distinction between permissible state regulation and indirect expropriation measures. The legality of such regulatory measures largely depend on the preservation of regulatory space in a state's IIA regime and will be further addressed below when discussing the right to regulate.

4. Other Standards

a. Full Protection and Security

The "full protection and security" standard requires host states to provide foreign investments with adequate security and protection against any harm, including physical and political risks. In general, this means that investments must be protected from unlawful interference such as expropriation or destruction. Historically, protection was understood as safeguarding the physical integrity of an investment against any interference by use of force.

According to Article III(2) of the ASEAN Agreement for the promotion and Protection of Investment:

"Investments of nationals or companies of and obligations Party in the territory of other Contracting Parties shall at all times be accorded fair and equitable treatment and shall enjoy full protection and in the territory of the host country."

Some BITs extend this standard exlicitly to legal protection of an investment.

b. Umbrella Clause

An umbrella clause is a provision that raises contractual obligations between a host state and a foreign investor to the level of international law. It enables a foreign investors to bring a claim for breach of contract directly under an IIA. The controversial "umbrella" or "observance of undertakings" clause is inherent in many BITs and can be traced back to the post-1945 era. Umbrella clauses regularly provide that a host state must honor all commitments related to the investment equally. They can be seen as bridge between private investment contracts, domestic laws of the host state and puclic international law. These obligations include private investment contracts between the host state and the foreign investor, such as concession or lease agreements, but also any other bilateral or multilateral obligations.

According to Article III(3) of the ASEAN Agreement for the promotion and Protection of Investment:

"Each Contracting Party shall observe any obligation arising from a particular commitment it may have entered into Title with regard to a specific investment of nationals or companies of the other Contracting Parties."

The above-mentioned clause reflects a typical wording of an umbrella clause.

c. Transfer Provisions

One of the important provisions in BITs for both the foreign investor and the host state is the regulation of the transfer of investment-related funds from the host state. The so-called transfer clause basically provides that payments and other investment-related funds can be transferred out of the host state immediately and usually in a freely convertible currency. This is of key importance to foreign investors, as the ability to freely transfer funds can be an important factor in their investment decision.

For example, Article 6(3) of the China-Namibia BIT (2005) provides exception for balance of payments adjustment:

"In case of serious balance of payments difficulties and external financial difficulties or the threat thereof, each Contracting Party may temporarily restrict transfers, provided that such restriction:

1) shall be promptly notified to the other Party;

2) shall be consistent with the Articles of Agreement of the International Monetary Fund;

3) shall be within an agreed period;

4) would be imposed in an equ itable, non discriminatory and good-faith basis."

Overall, a rather restrictive approach to transfer clauses in South-South BITs has been identified in literature. In contrast, capital-importing developing states often have shown an interest in negotiating more restrictive clauses, e.g. in the form of restrictive exchange rates, in order to better cope with possible economic and financial crises.

d. Non-Precluded Measures: Essential Security, Economic Stability and the Defense of Necessity

A number of BITs contain provisions that provide for the protection of essential security interests of the state as a justification for otherwise prohibited state action. The provisions appear to be explicitly self-judging in nature, as they grant a state party the right to take any action it deems necessary to protect its essential security interests.

The US Model BIT contains such a close in its Article 18:

"Nothing in this Treaty shall be construed:

1. to require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or

2. to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests."

III. Investor-State Dispute Settlement

Underlying international investment protection law is one of the most powerful dispute settlement mechanisms of the modern era, which is often identified in the literature as another cause of the global legitimacy crisis. According to critics, ISDS not only promotes the shift of power to private actors, but also favors the shift of jurisdiction away from host-state courts to a seemingly "secretive" ISDS arbitration proceedings that restrict the regulatory freedom and decision-making power of host-state legislative bodies.

The innovation of ISDS is the granting of non-reciprocal (private) procedural rights under international law, whereby the foreign investor can regularly take action against measures of the host state on the basis of a BIT under international law without exhausting national legal remedies. Originally, ISDS was intended to balance the imbalance of power between the (weaker) investor and the (powerful) host state. The German-Pakistan BIT (1959) did not yet contain any reference to such a procedural right. Rather, it merely provided for interstate dispute settlement in its Article 11. The BIT between Indonesia and the Netherlands (1968) was the first BIT to provide for the establishment of an ISDS procedure between a foreign investor and the host state, but only with the consent of the host state. According to its Article 11:

"The Contracting Party in the territory of which a national of the other Contracting Party makes or intends to make an investment, shall assent to any demand on the part of such national and any such national shall comply with any request of the former Contracting Party, to submit, for conciliation or arbitration, to the Centre established by the Convention of Washington of March 18, 1965, any dispute that may arise in connection with the investment."

It was the BIT between Italy and Chad (1969) that provided for an unrestricted right of the private investor. Although the right of private investors to take action against the host state is one of the most advanced developments in modern international law, this procedural right has some implications for developing states.

1. The International Centre for Settlement of Investment Disputes

The International Centre for Settlement of Investment Disputes ("ICSID Centre") is an international arbitration institution based in Washington, D.C. that is part of the World Bank Group. As the principal institution for investment arbitration, ICSID supports dispute resolution primarily in ISDS under BITs and sometimes multilateral investment treaties by providing procedural rules, premises, a secretariat, and administrative support for arbitration and mediation. The ICSID Centre is established by the ICSID Convention in its Article 1. The purpose of the Centre is to provide facilities for conciliation and arbitration of investment disputes between member states and nationals of other member states in accordance with the provisions of this Convention.

According to its Article 25:

"The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally."

Often overlooked in legal scholarship is the fact that the participation of African states was crucial to the creation of the ICSID Convention. In 1964, the World Bank had convened the first of four regional conferences in Addis Ababa to discuss the creation of a new international institution for the settlement of investment disputes. Fifteen newly independent African states-Benin, Burkina Faso, the Central African Republic, Chad, the Republic of Congo, Côte d'Ivoire, Gabon, Ghana, Madagascar, Malawi, Mauritania, Nigeria, Sierra Leone, Tunisia, and Uganda-participated actively in the drafting process and played a critical role in the entry into force of the ICSID Convention in 1966. Recent series of publications dedicated to the investment law engagement of the African continent highlight this crucial role of the fifteen African states. The other five states that finally brought the ICSID Convention into force in 1966 were Iceland, Jamaica, Malaysia, the Netherlands, and the United States.

By establishing a secure enforcement framework, African states believed they would increase foreign investors' confidence in the legal security of their respective African states. And in fact, the first ISDS case in 1972 was against an African host state. In 2020, a full nine ICSID proceedings were registered against an African host state, against Algeria, Cameroon, Zambia, Benin, Tanzania, South Sudan, Nigeria, and Egypt. In 2021, ICSID proceedings were initiated against Tanzania, Nigeria, Mauritania, Mali, Republic of Congo, Egypt, Morocco, Burkina Faso and Sudan, making African states regular participants in ICSID proceedings with more to be expected.

2. The United Nations Commission on International Trade Law

The United Nations Commission on International Trade Law ("UNCITRAL") is a subsidiary body of the UN General Assembly that was established in 1966, with the mandate to promote the harmonization and modernization of international trade law. It aims at facilitating the development and adoption of uniform rules and standards in the field of international trade law, particularly in the areas of commercial transactions, arbitration, and dispute resolution. Foreign investors are often provided with a choice in IIAs between initiating ICSID arbitration proceedings under the ICSID Convention or to opt for ad hoc arbitration under the UNCITRAL Arbitration Rules. The UNCITRAL Arbitration Rules were adopted in 1976 and constitute comprehensive procedural rules for the conduct of international commercial arbitrations.

According to Article 1(1) of the UNCITRAL Arbitration Rules, even the rules of the arbitral tribunal may be freely modified by the parties and adapted to their respective needs:

"Where parties have agreed that disputes between them in respect of a defined legal relationship, whether contractual or not, shall be referred to arbitration under the UNCITRAL Arbitration Rules, then such disputes shall be settled in accordance with these Rules subject to such modification as the parties may agree."

The UNCITRAL Arbitration Rules, for instance emphasize party autonomy, allowing the parties to tailor the arbitration proceedings to their specific needs and circumstances. The parties have the freedom to agree on various aspects, such as the number and appointment of arbitrators, the place of arbitration, language, and applicable law.

C. Public Policy Issues: Environmental Protection, Human Rights and Sustainable Development

I. The Right to Regulate and International Investment Law

The right to regulate refers to a state's authority and sovereign power to regulate its internal affairs and to adopt measures in the public interest, even when those measures may adversely affect foreign investors and their investments. It is generally recognized that states have the right to enact and enforce laws, regulations, and policies for purposes such as public health, the environment, human rights, and economic development. The tension between the need to adopt measures for the benefit of the general public by the domestic legislator and the protection of the foreign investments guaranteed in international investment agreements, is often not adequately resolved in the BITs themselves. The problem of conflicting norms in international investment law as well as in public international law in general is thereby partly due to the phenomenon of fragmentation of international law. From the perspective of foreign investors, therefore, regulatory discretion by the host state generally poses an investment risk.

BITs can, depending on their respective wording, make it impossible for the host state to regulate in favor of the public interest and to initiate legislative measures. The state's right to regulate can be enshrined in a variety of clauses and typically appear as exceptions, carve-outs, or safeguard measures that allow states to adopt and maintain measures that may impact investments in pursuit of legitimate policy objectives. Only a few agreements explicitly mention such a regulatory right.

For instance, according to Article 13(2) of the Morocco-Nigeria BIT (2016):

"The Parties recognize that each Party retains the right to exercise discretion with respect to regulatory, compliance, investigatory, and prosecutorial matters and to make decisions regarding the allocation of resources to enforcement with respect to other environmental matters determined to have higher priorities."

In addition, the Morocco-Nigeria BIT (2016) contains an explicit reference to human rights obligations in its Article 15, and also implements far-reaching obligations of private investors ("corporate social responsibility") in its Article 24. These examples, however, remain rare. Another constraint is that progressive BITs are rarely brought to life. The Morocco-Nigeria BIT (2016), for example, has so far been signed but not yet ratified, indicating a lack in political will. Overall, the precise scope and interpretation of the right to regulate can vary depending on the specific provisions of IIAs, as well as the decisions of arbitral tribunals.

II. Globalization and Legitimacy in International Investment Law

An important aspect of the question of systemic legitimacy is the increasing shift of state power to the private sector by means of extensive and unilateral international treaty protection mechanisms in favor of private investors. This has been particularily highlighted in TWAIL scholarship. The globalization process is the driving force behind the increasing diffusion of state power, which makes state borders in economic matters increasingly blurred. In particular, transnationally operating multinational enterprises ("MNEs") have gained economic, social and political importance through globalization processes. It has been reported that with increasing activity of MNEs in developing states, especially in extractive sectors, the risk of human rights violations increases at the same time.

In addition, the vagueness and broad interpretation of investment protection clauses favors the increasing shift of power to private actors. For example, the often broad interpretation of the personal scope of protection allows for the possibility of so-called "forum shopping," i.e., investors "shopping" for the BITs most advantageous to them and initiating proceedings through their subsidiary/branch offices, while the headquarters of the company is located in a third country. In extreme cases, this may even lead to the initiation of ISDS proceedings against one's own nation state.

Further Readings

• Anghie, Antony, Imperialism, Sovereignty and the Making of International Law, Cambridge University Press 2005.
• Dolzer, Rudolf, Kriebaum, Ursula and Schreuer, Christoph, Principles of International Law, 3rd edition, Oxford University Press 2022.
• Miles, Kate, International Investment Law: Origins, Imperialism and Conceptualizing the Environment, Colorado Journal of International Environmental Law and Policy, Vol. 21, No. 1, 2010, pp. 1 – 47.
• Pahuja, Sundhya, Decolonising International Law: Development, Economic Growth and the Politics of Universality, Cambridge University Press 2011.
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Conclusion

• Summary I
• Summary II