Originally from Investment Treaty Arbitration and International Law - Volume 18

Preview Page

I. INTRODUCTION

The history of the international protection of investments is relatively recent. From the 18th to the beginning of the 20th Century, international trade expanded together with the spread of colonial regimes. Colonial power began concluding “friendship, commerce, and navigation” agreements among themselves, which recognized the freedom and security of large-scale trade, investment rights, non-discriminatory commercial access to the territory of the host state, and the right of foreigners to travel, reside, and trade. Under these regimes, the protection of investors was carried out through diplomatic mechanisms or “gunboat diplomacy”, i.e., they remained within the realm of State-to-State relations. 

After World War II, the victorious powers concluded several international agreements aimed at global trade liberalization, including the creation of the World Bank and the International Monetary Fund. In this context, international instruments began to include the protection of foreign investment. Since 1959, States have concluded thousands of bilateral investment treaties (“BITs”), 2,222 of which were in force as of late 2024.  These BITs generally include a dispute resolution mechanism that allows investors to directly bring claims against States before independent arbitrators, who will decide according to the applicable law. Arbitration thus took the place of diplomacy, with or without gunboats. A development that one can hardly criticise. 

As soon as arbitration started to be widely used, however, a backlash against it emerged. The justifications for the backlash have varied, ranging from, inter alia, inconsistency in arbitral decisions, encroachment on the right to regulate, lack of transparency, investment arbitration costs and high amount of damages awarded to investors, the ad hoc nature of investment arbitration not being suitable for public controversies, and conflict of interest or perceived bias of arbitrators in favour of investors.  The backlash was exacerbated in more recent years, including the anti-investment arbitration and anti-trade groups campaigns against investment arbitration in the context of the negotiations of the in the Transatlantic Trade and Investment Partnership (“TTIP”) between the EU and the U.S.