Effects of Foreign Direct Investment Arbitration on a State’s Regulatory Autonomy Involving the Public Interest – Vol. 23 No. 2

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Author: Stephanie Bijlmakers*

Published: December 2012


Today’s governance of foreign investment is dictated by a patchwork of investment treaties and preferential trade agreements. The flow of foreign direct investment (“FDI”) has increased dramatically over the past two decades, up to US $1.24 trillion in 2010. A further upsurge to $1.7 trillion in 2011 was anticipated. Whilst FDI arbitration3 was largely unknown until fifteen years ago, the present number of publicly identified FDI arbitrations, in a context of more than 2800 bilateral investment treaties (“BITS”) and approximately 300 trade agreements, is well over 390.4 The governance of FDI is premised on the notion that the provision of reciprocal investment protection fosters investment and economic prosperity. However, as is well known, FDI has an impact on essential interests other than the economic development it seeks. These include human rights and environmental protection. There are increasing concerns that present arrangements under FDI arbitration constrain States’ exercise of national sovereignty, particularly their regulatory autonomy to enact regulations and design policies to advance these public interests. FDI arbitration is tainted by incoherencies and imbalances. Some are inherent to International Investment Agreements (“IIAs”) that explicitly grant investors extensive protection of their interests. The right to bring a claim for arbitration is a case in point. Others are implicit to FDI arbitration procedures, which arguably tip the balance in favor of investor interests. This article will examine how these issues taint the law and practice of FDI. Its structure is three-fold. The next part will contextualize the evolution of the FDI governance system from investor protection through …

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*Research Fellow, Ph.D. candidate (law), Leuven Centre for Global Governance Studies, KU Leuven.