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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 247 March 11, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
*The state of the international investment law and policy regime*
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* <#m_-4411844725554706118__edn1>
by
Karl P. Sauvant** <#m_-4411844725554706118__edn2>
On occasion of the 60th anniversary year of the first bilateral investment
treaty,[1] <#m_-4411844725554706118__edn3> it is appropriate to review the
state of the international investment law and policy regime. After a slow
start, the regime has expanded with extraordinary speed over the past few
decades. But it faces challenges.
From the beginning, the regime’s explicit objective was to protect
international investors, combined with the common assumption that this will
lead to increases in investment flows that would substantially contribute
to host countries’ development.
Accordingly, the regime’s substantive provisions focus on investor
protection, most importantly national treatment, most-favored-nation
treatment, fair-and-equitable treatment, and expropriation only with
compensation. *Grosso modo*, the protections are settled in favor of strong
rights for investors, even though more recent treaties define protections
in greater detail (e.g., fair-and-equitable treatment) and limit certain
abuses (e.g., by requirements curtailing treaty shopping).
These rights are enforced through an effective dispute-settlement mechanism
(to which only investors have access), with the designated form being
arbitration. The significant number of investor-state dispute-settlement
(ISDS) cases, reaching over 70 new cases in 2017, and a very high
compliance rate with awards, reflect this effectiveness. Moreover, this
mechanism is being improved in response to some criticisms, e.g., by
increasing transparency and limiting process abuse.
The regime has served international investors well. Yet, it needs to serve
host countries more to maintain its legitimacy. Principal challenges
include:
- The regime’s objective needs to be broadened to encompass explicitly
the promotion of sustainable development, given that the Sustainable
Development Goals have become the lodestar of international economic
policy. Importantly, that additional objective should be operationalized in
the text of investment treaties and their application. Accordingly,
arbitrators should recognize—and heed when deliberating specific cases—that
investments should contribute meaningfully to the economic development of
host countries.[2] <#m_-4411844725554706118__edn4> They could do so by
using widely accepted FDI sustainability characteristics, requiring more
from investors than not doing harm. The latter, moreover, suggests that
access to effective remedy is required.
- The regime’s substantive provisions have to be re-balanced. Currently,
the regime protects the rights of investors, without giving them
responsibilities. To balance these rights, investment treaties need to
include binding and actionable responsibilities for investors. Progress is
being made, as reflected in the inclusion of (albeit voluntary) corporate
social responsibility provisions in recent investment agreements and the
explicit recognition of host countries’ right to regulate. Only by creating
such a balance can all stakeholders support the regime in the long run.
Another way to rebalance the regime is to limit investment protections
through exceptions, although care needs to be taken that exceptions do not
afford too much leeway, given the rise of self-judging essential security
clauses; ways need to be found to protect the investment regime against
their potential abuse.
- The regime’s dispute-settlement mechanism needs to be overhauled and
made accessible eventually to governments. Most importantly, the European
Commission’s proposal to create a Multilateral Investment Court
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(being discussed in the United Nations Commission on International Trade
Law) would substantially improve the current mechanism, increasing its
legitimacy (including by addressing perceived arbitrator bias and
inconsistency concerns). Moreover, the proposed amendments to the
procedural rules of the International Centre for Settlement of Investment
Disputes
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incrementally improve aspects of the mechanism’s efficiency. Both reforms
should move forward expeditiously. Additionally, an independent Advisory
Center on International Investment Law should ensure equality of arms for
under-resourced developing country respondents in ISDS cases.[3]
<#m_-4411844725554706118__edn5> It may also become necessary to
determine under what condition an exhaustion of local remedies might be
required, if only to ensure that the regime is not overwhelmed by disputes.
As before, the evolution of the investment regime will be driven by the
interests of the principal countries, their foreign investors and civil
societies. Yet, the relative importance of change-driving stakeholders will
shift. With over 170 economies reporting outward FDI stocks in 2017, their
interest constellation is changing: the defensive interests of a growing
number of developing countries as host countries (e.g., to preserve policy
space) are gradually complemented by their offensive interests as home
countries (e.g., to protect their investors and afford them dispute
settlement); concurrently, developed countries have become more aware of
the risks they face as host countries. Both developments contribute to
blurring the North-South divide that has governed the past and, taken
together, offer opportunities for advancing the global investment regime.
While this eases the evolution of the regime, civil society will have to
play a greater role in arguing for regime improvements.
The international investment law and policy regime is probably the
strongest international regime existing today, in terms of its substantive
provisions and enforcement. However, to maintain its legitimacy and retain
the support of key constituencies, the regime’s objectives need to be
broadened to embrace sustainable development, it needs to be balanced in
substance and its dispute-settlement mechanism needs to be beyond reproach.
------------------------------
* <#m_-4411844725554706118__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
series.*
** <#m_-4411844725554706118__ednref2> Karl P. Sauvant ([log in to unmask])
is Resident Senior Fellow at the Columbia Center on Sustainable Investment,
a joint center of Columbia Law School and the Earth Institute at Columbia
University. The author wishes to thank Mark Feldman and Federico Ortino for
their feedback on a draft and Manfred Schekulin, Stephen Schwebel, Wenhua
Shan, and Gus Van Harten for their helpful peer reviews.
[1] <#m_-4411844725554706118__ednref3> The 1959 German – Pakistan BIT
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.
[2] <#m_-4411844725554706118__ednref4> See Salini v. Morocco, ICSID Case No
Arb/00/04, *Decision on jurisdiction* (July 23, 2001)
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.
[3] <#m_-4411844725554706118__ednref5> Robert W. Schwieder, “Lessons for a
future advisory center on international investment law,” *Columbia FDI
Perspectives*, no. 241, December 17, 2018
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.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Karl P. Sauvant, ‘The state of the international
investment law and policy regime,’ Columbia FDI Perspectives, No. 247,
March 11, 2019. Reprinted with permission from the Columbia Center on
Sustainable Investment (**www.ccsi.columbia.edu*
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A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*. *
For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Marion A. Creach, [log in to unmask]
*Most recent Columbia FDI Perspectives*
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- No. 246, Joachim Pohl, “Is international investment threatening or
under threat?,” February 25, 2019
- No. 245, Carlos Esplugues, “A future European FDI screening system:
solution or problem?,” February 11, 2019
- No. 244, Mark Feldman, “China’s Belt and Road investment governance:
building a hybrid model,” January 28, 2019
*All previous FDI Perspectives are available at *
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late spring/early summer 2019. *To apply for the position, please see
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Statement of Attendance from Columbia University.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
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Fax: (212) 854-7946
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*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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