Foreign direct investment and bilateral investment treaties have become key building blocks of the international legal and economic architecture. There are over 2,600 bilateral investment treaties (“BITs”) and a growing number of investor-state disputes. These disputes have revealed a number of tensions in the BIT architecture, including the discord between preserving sovereignty and attracting investment and concern over the scope of treaty obligations. Such tensions point to a growing backlash against the regime of investment treaty arbitration characterized by critiques of substantive bias, procedural shortcomings, and political consequences.
This Article explores the historical and jurisdictional factors that underpin the mounting critique. The Article places the international investment regime, which hinges on the BIT, in historical context. It asserts that the regime is characterized by a unique bargain in which developing countries traded part of their regulatory sovereignty for the promise of foreign investment. However, several recent studies suggest that BITs may not affect the flow of investment to signatory countries, calling into question the basis of the bargain. After laying the historical groundwork, the Article argues that the real bargain underlying the BIT regime is one in which countries bargained away sovereignty for the enhanced protection of the property and contract rights of foreigners. The nature of this bargain, together with the historical features of the BIT regime, resulted in the collapsing of two key binaries that formerly structured the field: the international/national and the public/private. The collapsed binaries highlight some of the regime’s internal contradictions and current challenges.