Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks

Abstract

International investment agreements (IIAs) emerged in the 1960's as an instrument to lower political risk for foreign investors and to facilitate political risk insurance when investing in developing countries with weak governance structures. Political risk is constituted by interferences to the investment by host states once the investor has entered the market and which would render the execution of the investment unduly burdensome, deprive the investor of the control or enjoyment of the investment or discriminate or treat the foreign investor arbitrarily. The legal provisions in IIAs include non–discrimination provisions, fair and equitable treatment, full protection and security, rights to compensation in case of expropriations, including indirect regulatory ones with the effect of depriving the investor of the control and benefits of the investment, provisions on free transfer of capital and, occasionally, non–precluded measures clauses as well as stabilization clauses in which the host state promises not to change the regulatory environment affecting the investment.