International Investment Law and its Instruments: Managing Risks to Investors and Host States

Abstract

The purpose of the present paper is to examine the effectiveness of Bilateral Investment Treaties (BITs) and similar instruments as a factor in assessing the risks involved in foreign direct investments – both for investors and for the host countries, focusing, in particular, on the Less Developed Countries (LDC). What is the role of these instruments? How are they utilized? Following a discussion of the meaning of the term “investment,” I will take a closer look at the three main instruments employed for the protection of FDIs: the BITs, institutionalized investment arbitration (as offered by the International Centre for Settlement of Investment Disputes), and investment guarantees (as furnished by such entities as the Multinational Investment Guarantee Agency). A more thorough understanding of the workings and effects of these instruments will make possible an analysis of their costs and benefits – both for investors and for the LDCs – in managing the risks associated with foreign direct investments. To begin, I determined the sense in which the term “investment” is used in international law within the context of FDI. How did the phenomenon of FDI arise? What are the main investment products? Where are the investment markets? And what are the various possibilities for making such investments? In the following, I took a closer look at three investment protection mechanisms currently in wide use: bilateral investment treaties, investment arbitration, and investment guarantees. Of particular interest will be the question as to the extent to which they succeed in their objective of overcoming through good governance the spread of corruption and the lack of transparency in FDI.