Reevaluating the Role of Foreign Investment in Economic Development: Investment Protection and the Subordinate Role of Developing Countriess Interests in Investor-State Arbitration

Abstract

Neo-liberal economic thought underpins Developing Countries’ future economic development on their robust capacity to attract foreign investment, given the many economic benefits associated with foreign investment. This often ignores that such foreign investment migrates to Developing Countries only with the condition of a stable legal system conducive to foreign investment protection. To address such concerns, foreign investors have been able to lobby their governments to create several mechanisms to reduce the uncertainties associated with investing overseas by providing assurances and security to foreign investments, namely investor-state arbitration and its concomitant bilateral investment treaties (BITs) and denationalized tribunals such as the international centre for the settlement of investment disputes (ICSID). However, with the international investment regimes predisposition to foreign investment protection and the consequent disregard for the socio-economic welfare of host-States, a pertinent issue, which has not been discussed in sufficient detail, is whether foreign investment is the panacea to overcoming economic underdevelopment in Developing Countries as some seem to think. Capital-exporting States' BIT practice reveals that these instruments are designed primarily to achieve investment protection. ICSID, the primary institution for resolving investor-state disputes is merely carrying on the neoliberal agenda of the World Bank of investment protection. Criticism particularly target investor-State arbitration practices. This include the manner in which tribunals interpret and apply international investment law, to promote foreign investment protection and fail to pay equal attention to the interests of Developing Countries. This include: the increasingly expanding interpretation of foreign investment, by international tribunals, which is evolving to capture new forms of investment–an anathema to the notion that only FDI are captured by customary international law; the phenomenon of internationalization of disputes which is unfounded in law; tribunals increasing expansion of the rules relating to expropriation of foreign property; and the application of an international standard of compensation to Developing Countries despite the fact that that it has no grounding in international law. Together this reveals that investor-state arbitration is predisposed to investment protection. Only secondary consideration is accorded to States’ socio-economic responsibilities, such as it obligation to continuously improve the lives of its citizens and augment it development. To this extent it must be argued that foreign investment is not the panacea to economic development in the Developing World.