The right of states to regulate in their public interest and the right of investors to receive fair and equitable treatment: The search for a balance in treaties and cases on international investment law

Abstract

At present, we see that a new generation of international investment agreements (IIAs) is being negotiated, e.g. CETA, TTIP and multiple European Union trade and investment treaties. In these processes, negotiators of contracting states articulate the issue of the host state’s ‘right to regulate’ and discuss in which way, in IIAs, ‘policy space’ can be preserved for host states. The goal is to ensure that a host state, which wants to welcome foreign direct investment, retains the power to change its existing policies and introduce new ones in furtherance of public interests, and/or in order to comply with its obligations under international human rights, environmental and health treaties. Nonetheless, the host state also needs to provide the foreign investor with a certain level of ‘investment protection’ and comply with international investment law standards, such as the fair and equitable treatment standard (FET). The FET standard has become one of the most important pillars of foreign investment protection under international investment law. The number of investment decisions in which this standard has been evoked, has grown enormously in the last two decades. Many of these conflicts reveal that on the one hand a foreign investor has an expectation of a ‘stable legal and business environment’, which is essential for the planning of investments. On the other hand, host states have a duty to regulate in the public interest, particularly in the light of ‘changing social, economic and political circumstances’. In this book, an overview of the various types of FET clauses in IIAs is presented as well as an analysis of pertinent case law. In the analysis of the cases, the question is addressed in which way a host state can lawfully exercise its right to regulate in the public interest, while remaining in compliance with its obligation to provide fair and equitable treatment to a foreign investor under applicable IIA(s). Reviewing the case law of the last decades, it has however become clear that the text of many existing IIAs does not offer sufficient clarity regarding the legal conditions that apply (i) to a host state’s right to regulate and (ii) to the investor’s protection under the FET standard provisions. Hence, striking the balance between the interests of host states on the one hand, and investors on the other, has proved to be challenging for tribunals. The trends in the case law are articulated and compared with the latest trends in treaty drafting. In particular, the newest generation of IIAs and those that are currently under development draw inspiration from ground-breaking cases. This study examines whether, and if so to what extent, in such investment cases and the new generation of IIAs, the balance between the host state’s right to regulate and the protection afforded to the foreign investor under the FET standard has shifted. This book will be useful for treaty drafters, policymakers, practitioners, and academics to understand the complexities concerning exercising the right to regulate and applying the FET standard.