Investment treatiesWhy developing countries are dumping investment treaties

By Uma Kollamparambil

Published 31 March 2016

A new generation of investment treaties must balance investment policy and the development strategies of host countries while ensuring responsible investor behavior. This is why there is a growing view that the traditional model for bilateral investment treaties needs a review. This must focus on developing a new generation foreign investment policy framework. This should, along with promoting foreign investment, also enable recipient countries to regulate foreign direct investment in line with their public policies. The United Nations Conference on Trade and Development’s Investment Policy Framework for Sustainable Development is a step forward.

Bilateral investment treaties have been a source of political controversy in recent years. This is clear from the alarming increase in the number of disputes between investors and governments.

The treaties create an unequal distribution of rights and obligations between developed countries, which are the source of most foreign direct investment, and developing countries, which are mainly recipients. They lead to the increased risk of litigation and have a negative impact on the net benefit of investment to recipient countries.

Investors have initiated a large number of cases against countries that have bilateral investment treaties. Moreover, the benefit of these treaties in attracting foreign direct investments is not seen to compensate for the litigation initiated against these countries.

This is why there is a growing view that the traditional model for bilateral investment treaties needs a review. This must focus on developing a new generation foreign investment policy framework. This should, along with promoting foreign investment, also enable recipient countries to regulate foreign direct investment in line with their public policies.

What treaties were designed to do
Bilateral investment treaties provide for international arbitration of disputes between investors and governments. Arbitration can happen at the World Bank’s dispute settlement body, the Stockholm Chamber of Commerce or the International Chamber of Commerce in Paris.

Alternatively there is an ad-hoc tribunal set up under the United Nations Commission on International Trade Law. The World Bank’s body accounts for 62 percent of all cases, the UN’s for 28 percent, Stockholm’s for 5 percent and others, including the Paris-based organization, for 5 percent.