International Investment Agreements: Is An Overhaul Necessary?


For the past seven decades, international investment agreements (IIAs) between nations have been viewed as one of the most successful aspects of international commercial law.[i] In short, IIAs are investment treaties that two or more countries agree upon, which then provide specific protections and privileges to private investors. As a result of IIAs, billions of dollars have been invested into foreign states by various private entities – which has led to increased trade, stimulated economic development, and even marked improvements in foreign relations.[ii] But with these fairly clear benefits, some drawbacks have also emerged behind the scenes that have revealed some rather serious structural and institutional concerns regarding how IIAs––both bilateral and multilateral––have been written, enforced, and resolved when disputes inevitably occur.[iii]

The massive increase in arbitration claims under IIAs have left host nations at a loss for how to balance domestic public policy goals with their participation in these agreements. In a broad sense, private entities—often corporations—will bring arbitration claims against developing host nations alleging noncompliance with the agreement, forcing host nations to often choose between domestic policy interests or compliance with the treaty. This article will consider the problems that stem out of this scenario, and whether or not reforms are necessary in the IIA regime.

International Investment Agreements: The Main Points and Problems

The issues plaguing IIAs are well cataloged.[iv] The United Nation’s Conference on Trade and Development (UNCTAD) releases annual investment reports that discuss the state of IIAs involving member nations.[v] Since the 1990s, many of these concerns have revolved around the issue of ambiguity in how these agreements are drafted––particularly in how much authority host nations can wield in ensuring the protection of their public policy goals.[vi]  Naturally, this has led to a large amount arbitral disputes that otherwise could have been avoided. Indeed, UNCTAD’s 2019 World Investment Report shows just how widespread the increase in arbitral disputes has become, particularly in recent years:[vii]

What’s more, the nature of these claims indicate a trend: a perception has spread among stakeholders that some of the older investment agreements were drafted too broadly and vaguely.[viii] 95% of IIAs in force now were concluded prior to 2010.[ix] In absolute terms, that equals to roughly 2,500 IIAs that have given rise to Investor State Dispute Settlement (ISDS) claims.[x] As trends in foreign direct investment (FDI) continue to change, (FDI is facing a decline in developed nations for the third year in a row), it is easy to conclude that (1) the sheer lack of uniformity in IIAs regarding dispute resolution has led to serious legitimacy concerns, and (2) host nations are often unable to adequately pursue or protect their own interests.[xi]

A full survey of all the main issues and proposed solutions for ambiguous clauses in IIAs would be the subject of a much larger work. So for the sake of simplicity, this article will focus singularly on the following issue – how host nations have faced a considerable amount of claims brought by private investors that are in conflict with the host nation’s domestic policy goals. In other words, the constant stream of arbitration claims brought by private investors is causing host nations to choose to either comply with the treaty or pursue their own domestic interests.[xii]

Indeed, host nations do not have a winning track record. In 2018, for example, UNCTAD reports that, of the publicly available arbitration results, nearly two-thirds of arbitral awards granted were in favor of the investor rather than the host country.[xiii] This is costly for host nations, as the average claim against host nations by investors is roughly $300 million, with the average award being $120 million.[xiv] This is not even to mention that the empirical evidence showing an increase in FDI through IIAs is inconclusive at best.[xv] This creates a catch-22 for many host nations — particularly developing ones. The governments of host nations may be more willing to sacrifice domestic policy goals to avoid the risk of losing out on what is viewed as valuable foreign investment opportunities––or at the very least to prevent a costly arbitration dispute.[xvi] This contention is not new. Tom Ginsburg, an international law scholar at the University of Chicago, has been attempting to measure how developing nations’ participation in IIAs –– specifically bilateral investment treaties (BITs) — have affected their domestic governance quality since the early 2000s.[xvii] In one empirical study, Ginsburg found decreases in overall domestic institutional quality in certain years.[xviii]

Unsurprisingly, UNCTAD has been advocating for improvements to IIAs for the better part of a decade now, in large part, to improve this incentive trap.[xix] The operative question is what kind of reforms would help to: (1) lower the number of arbitral disputes among investors and host nations, and (2) allow host nations to openly consider and defend their own public policy interests without fear of arbitral claims from the wide-range of investors that are beneficiaries of the treaty in question. UNCTAD has developed a three-phase approach to bring harmony and stability to older IIAs, but a few specific proposed solutions deserve closer attention.[xx] These specific proposals are discussed further below.

Are Public Policy Exception Clauses the Answer?

UNCTAD’s goal for the redrafting of older treaties is not an original one. Indeed, IIA redrafting has been in wide practice for about 20 years.[xxi] NAFTA’s revisions provide a good example of a regional agreement successfully overhauling its investment provisions. In 2004, the United States and Canada updated Chapter 11 (the ISDS section of the Agreement) to be more explicit after being on the losing end of a few broad arbitral claims by investors.[xxii] The constant and piecemeal update of IIAs is not a new phenomenon and likely will not provide a drastic change to the current trends anytime soon.[xxiii]

Perhaps the most exciting solution that has been proposed is “public policy exception clauses” (also known as “general exception clauses”),to both new and existing IIAs. On their face, these clauses may seem a bit radical with respect to how IIAs are conventionally developed: In short, public policy exceptions act as a liability shield for host nations against arbitral claims so long as they can show that their noncompliance with the agreement is for a legitimate public policy interest.[xxiv] This strong, black and white reasoning is not new for IIAs––the benefits of public policy exceptions are analogous to those that accompany national security exceptions that have been present in IIAs for decades.[xxv]

Indeed, there is a track record of respondent host nations succeeding in arbitral claims with public policy concerns as a defense.[xxvi] For example, in 2011, Australia’s parliament passed more stringent tobacco packaging laws.[xxvii] Philip Morris challenged the rule under the ISDS provision of the Australia-Hong Kong BIT, but the claim was ultimately unsuccessful in part due to a defense of public interest.[xxviii] Later, during its participation in drafting the Trans-Pacific Partnership Agreement (TPP), Australia insisted on a “tobacco carve-out” which would prevent host nations from having to defend the implementation of plain packaging laws against investors.[xxix] While this is a good example of the creation of a specific public policy exception in a new treaty in response to a dispute, it ended up only being half the story.

Part of the reason the tribunal dismissed the claim was based on a determination that Philip Morris’s arbitration claim constituted an abuse of rights under the Australia-Hong Kong BIT.[xxx] For some background, Philip Morris underwent a corporate restructuring several years before the passing of the stricter tobacco laws in Australia, so as to bring them under the protection of the Australia-Hong Kong BIT as a beneficiary.[xxxi] The tribunal found that Philip Morris’ determinative reason for doing so was to seek the protection of the BIT, which then allowed the company to bring the claim against Australia. This was done with advanced knowledge that Australia was likely going to pass stricter tobacco laws in the near future.[xxxii]

Australia succeeded in having the claim dismissed, but the proceedings still took many years of costly arbitration.[xxxiii] It’s also worth noting that Australia is a wealthy, highly developed nation capable of putting forth the resources necessary to fight such a claim. Developing nations that are parties to similar investment agreements are often under threat of similar claims by large, sophisticated investors — usually multinational corporations.[xxxiv] In fact, while the arbitration proceedings in Australia were ongoing, New Zealand delayed the passing of its own tobacco laws for fear of facing a similar claim.[xxxv]

Taken as a whole, these types of disputes make a strong argument for the need for much more robust, clear, and wide-ranging public policy exceptions that host nations may be able to use to protect themselves from the threat of arbitration claims that interfere with their domestic interests. But as of now, the development of such clauses and the updating of older IIAs has been slow going.[xxxvi]

Perhaps but one of the most common knocks on public policy exceptions has been that they tend to serve, at best, as a buffer to Fair and Equitable Treatment (FET) clauses that are already present in IIAs.[xxxvii] FETs historically draw upon larger conventions of international law than public policy exceptions do.[xxxviii] At worst, public policy exceptions are viewed as redundant to FETs. This could be in part because arbitrators presiding over disputes in which a public policy exception clause is invoked simply do not know what to do with them.[xxxix] Indeed, a few of the most recent public arbitral awards involving public policy exceptions revealed that they did not play a significant role in the decision.[xl] Rather, a recent empirical study looked into the interpretive tendencies of the most prominent IIA arbitrators and discovered that, when analyzing a conflict involving FETs, prominent individual arbitrators have resolved disputes with an “expansive” interpretation of the clause 83% of the time, and expansive interpretations usually slant to a favorable outcome for the investor rather than the host nation.[xli]

Frustrated with these trends, some nations have started to withdraw from various IIAs altogether. For example, in 2017, India sent notices of termination of 58 BITs it shared with other countries.[xlii] Many believe that the reason for this massive withdrawal is that India has faced numerous arbitration claims from investors under its BITs.[xliii] Indeed, India was one of the most frequently named respondent states in BIT proceedings in 2016.[xliv]

Similarly, Ecuador withdrew from its 16 remaining BITs in 2017.[xlv] The country is currently party to zero BITs. Throughout its history, Ecuador had been the respondent in 26 arbitration claims, 15 leading to awards, and only two of those were in favor of the host nation. South Africa, Bolivia, and Indonesia have also recently withdrawn from BITs citing similar issues.[xlvi]

So, what are some other solutions? A true correction will likely require a multifaceted approach. As mentioned above, UNCTAD has developed a three-phase program to more effectively update older IIAs with these clauses in mind.[xlvii] But predictability is a strong currency in the world of international arbitration, and it takes time for norms to be developed around certain clauses that will gain the trust of the relevant parties, let alone act as a deterrent to arbitral claims that bring up larger questions about sovereign authority. UNCTAD’s 2020 World Investment Report is forthcoming, and it will be interesting to see how these international movements continue to unfold.


[i] See Michael B. Froman, The Strategic Logic of Trade, Foreign Affairs (Nov. 2014),

[ii] U.N. Conf. on Trade and Dev., World Investment Report, at 2, UNCTAD/WIR/2019, Sales No: E.19.II.D.12 (2019).

 [iii] See, World Investment Report, supra note 2 at 104.

[iv] See Tarald Laudal Berge & Wolfgang Alschner, Reforming Investment Treaties: Does Treaty Design Matter?, Inv. Treaty News (Oct. 17, 2018),

[v] See generally World Investment Report, supra note 2 at 2-3.

[vi] See Berge & Alschner, supra note 4.

[vii] World Investment Report, supra, note 2 at 103.

[viii] See Berge & Alschner, supra note 4.

[ix] U.N. Conf. on Trade and Dev., Phase II of IIA Reform: Modernizing The Existing Stock Of Old-Generation Treaties, at 1, UNCTAD/DIAE/PCB/2017/3,(2017).

[x] U.N. Conference on Trade and Development, UNCTAD’s Reform Package for the International Investment Regime, at 47, (2018). [hereinafter UNCTAD’s Reform Package].

[xi] World Investment Report, supra note 2 at 2.

[xii] World Investment Report, supra note 2 at 18.

[xiii] World Investment Report, supra note 2 at 18.

[xiv] Primer: International Investment Treaties and Investor-State Dispute Settlement, Colum. Ctr. on Sustainable Inv. (Jun. 6, 2019), [hereinafter Primer].

[xv]Investor-State Dispute Settlement: What Are We Trying to Achieve? Does ISDS Get us There?, Colum. Ctr. on Sustainable Inv. (Dec. 11, 2017), [hereinafter Does ISDS Get us There?]

[xvi] Id.

[xvii] Tom Ginsburg, International Substitutes for Domestic Institutions: Bilateral Investment Treaties and Governance, 25 Int’l Rev. of L. & Econ. 107–123 (2005).

[xviii] Id. (the author also states that some years institutional quality improved, nevertheless, the results have been viewed as inconclusive and the threat of lower institutional quality as a result of BITs persists).

[xix] See, Phase II of IIA Reform, supra note 9.

[xx] UNCTAD’s Reform Package, supra, note 10.

[xxi] See Berge & Alschner, supra, note 4.

[xxii] William L. Owen, Investment Arbitration under NAFTA Chapter 11: A Threat to Sovereignty of Member States?, 39 Case W. Res. Can-U.S. L.J., 6 (2014).

[xxiii] See Berge & Alschner, supra, note 4.

[xxiv] Levent Sabanogullari, The Merits and Limitations of General Exception Clauses in Contemporary Investment Treaty Practice, Inv. Treaty News, (May 21, 2015),

[xxv] Id.

[xxvi] Philip Morris Asia Ltd. v. Austl, ISDS Blog (May 6, 2016).

[xxvii] Id.

[xxviii] The United Nations Commission on International Trade Law, Reform Options for ISDS, at 6, (last visited, Feb. 17, 2020).

[xxix] Philip Morris Asia Ltd. v. Austl, supra note 25.

[xxx] Philip Morris Asia Ltd. v. Austl, supra note 25.

[xxxi] Reform Options for ISDS, supra note 27.

[xxxii] Reform Options for ISDS, supra note 27.

[xxxiii] Reform Options for ISDS, supra note 27.

[xxxiv] Does ISDS Get us There?, supra note 15.

[xxxv] Reform Options for ISDS, supra note 27.

[xxxvi] See Berge & Alschner, supra note 4.

[xxxvii] Sabanogullari, supra note 23.

[xxxviii] Sabanogullari, supra note 23.

[xxxix] Wolfgang Alschner & Kun Hui, Missing in Action: General Public Policy Exceptions in Investment Treaties, 1 (Ottawa Fac. of Law Working Paper No. 22, 2018)

[xl] See, Caroline Henckels, Should Investment Treaties Contain Public Policy Exceptions?, 59 B.C L.Rev., 2831–2838 (2018).

[xli] Harten, G. V., Leaders in the Expansive and Restrictive Interpretation of Investment Treaties: A Descriptive Study of ISDS Awards to 2010, 29 Eur. J. Int’l L., 515 (2018).

[xlii] Nicholas Peacock & Nihal Joseph, Mixed Messages to Investors as India Quietly Terminates Bilateral Investment Treaties with 58 Countries, HSF Notes (Mar. 16, 2017),

[xliii] Id.

[xliv] Id.

[xlv] Ecuador Denounces its Remaining 16 Bits and Publishes CAITISA Audit Report, Inv. Treaty News (Jun. 12, 2017),

[xlvi] Peacock & Joseph, supra note 41.

[xlvii] Reform Package, supra note 10.


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