Brief Historical Development of International Investment Law

After colonialism termination, core investments were regularly administered by conformities between host States and investors, frequently expression compromises. These conformities normally established broad rights to foreign investors and missing the host State with restricted control above their actions.

The need to draw foreign investment has guided the majority countries, particularly rising countries, to take on strategy that are proposed to make a constructive investment atmosphere. A significant component of this strategy is lawful protection. These lawful protection include the solidity of the legal situation in which an investor be able to activate, the worth of the local public management, intelligibility of the scheme of local policy & a successful scheme of disagreement resolution. numerous countries have accepted investment codes which are considered to come together transparency with encouraging situation for FI

In accumulation to promises enclosed in domestic law, prospective host States to investment also provide global legal assurances to investors. These are typically put down in bilateral as well as multiparty treaties.

The era 1945 up to 1990 saw main disagreement among the rising number of recently IDC-exporting states & concerning the status of customary law governing FI. These were regularly encouraged by ideological situations, as a result of a persistence on harsh ideas of dominion (‘everlasting dominion over Natural Resources’), and by the describe for economic decolonization, sustained by an economic policy calling for sovereignty from jogs of colonialism. In 1962, semi a century before, an premature disagreement broken with a negotiation: As expressed in GA declaration 1803, for the case of expropriation, ‘suitable compensation’ would have to be compensated, thus clearly proving neither the Hull rule nor the Calvo doctrine. Amazingly, agreement surviving then that foreign investment conformity accomplished by a government must be practical in good faith.

The rising states determined to get the fight more and brought it to a conclusion in 1974, again in the UN GA. One foundations was the obvious elimination rules of IL governing the expropriation of alien property & their substitute by domestic rules as resolute by national Sovereign.. Really, this era of disagreement guided to lack of confidence about the customary global rules governing FI. In 1992, the original approach shaped up within the preface of the World Bank’s procedure on the handling of FDI.

Inside this unique weather of universal economic associations, the effort of earlier ten year periods alongside habitual rules shielding FI had suddenly grow to be dated and out of date. Still while the beginning of 1990s, the explanation of state habitual law is no longer central apprehension of academic commentators. However, the relevant issues have certainly not disappeared. For instance, in context of NAFTA, the 3 states parties determined that the standards of ‘fair and equitable treatment’ and of ‘full protection and security’ must be understood to require host states to observe customary law and not more demanding autonomous treaty-based standards.

The roots of modern treaty rules on foreign investment can be traced back to 1778 when the United States and France concluded their first commercial treaty, followed in the nineteenth century by treaties between the United States and their European allies and subsequently the new Latin American states. These early treaties mainly addressed trade issues, but also contained rules requiring compensation in case of expropriation. After 1919, the United States negotiated a series of agreements on friendship, commerce, and navigation (FCN), followed by another series of treaties between 1945 and 1966.

Rules on investment were never well-known or distinct in these FCN treaties, even though the pre-1945 treaties contained not just compensation clauses, but also provisions on the right to establish certain types of business in the partner state. After 1945, trade matters were regulated in separate treaties, and FCN treaties contained more detail on foreign investment.

The era of modern investment treaties began in 1959 when Germany and Pakistan adopted a bilateral agreement which entered into force in 1962. Germany had decided to launch a programme for a series of bilateral treaties to protect its companies’ foreign investments made in accordance with the laws of the host state. Soon after Germany had launched its programme and successfully negotiated its first treaties, other European states followed suit: Switzerland concluded its first such treaty in 1961, France in 1972.

In 1977, the US State Department launched an initiative for the United States to join the European practice of the past two decades and to conclude agreements which were meant to address issues of foreign investment only, mainly to protect investments of nationals abroad.

Following a short period of political hesitation in view of the issue of exporting jobs by way of promoting foreign investment, and a shift of responsibility from the State Department to the United States Trade Representative during that period, the United States, between 1982 and 2011, concluded 47 bilateral treaties, mainly with developing states. At the same time, more and more developing states have negotiated BITs among themselves, altogether more than 770. In the period between 2003 and 2006, these treaties outnumbered those between developed and developing states.

The general point seems to be that home states of investors, whatever their historical background, consider specially negotiated rules desirable. A comparison of treaties concluded between developing countries does not reveal significant differences to agreements concluded with developed states.

In World Bank, at first sight, it was the then General Counsel, Aron Broches concept (‘procedure before substance’) seemed to be a limited and modest one. However, he designed what was to become, in 1965, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) establishing the International Centre for Settlement of Investment Disputes (ICSID). In retrospect, it is clear that the creation of ICSID amounted to the boldest innovative step in the modern history of international cooperation concerning the role and protection of foreign investment.

The success of this concept became apparent when the ICSID Convention quickly entered into force in 1966 and especially when in subsequent decades more and more investment treaties, bilateral and multilateral, referred to ICSID as a forum for dispute settlement. From the point of view of member states, one major advantage of the system was that investment disputes would become ‘depoliticized’ in the sense that they avoided confrontation between home state and host state. For two decades ICSID’s caseload remained quite modest. However, by the 1990s ICSID had become the main forum for the settlement of investment disputes, and Broches’ vision had become a reality.

Following its earlier efforts in the 1960s towards the creation of a multilateral investment treaty, the OECD in 1995 decided to launch a new initiative in this direction. These negotiations took place from 1995 to 1998 and built, to a considerable extent, on the substance of existing bilateral treaties. The last draft for a Multilateral Agreement on Investment (MAI) dated 22 April 1998 indicates major areas of consensus and some points of disagreement.

The WTO Agreement of 1994 had embodied a first step of the trade organization into the field of foreign investment: the so-called TRIMS Agreement .In particular, this Agreement regulates issues of so-called performance requirements imposed by the host state upon foreign investors and aims at reducing or eliminating laws which require that local products are used in the production process by foreign investors (local content requirements). The further development of the emerging investment agenda of the WTO was addressed but not decided in 1996. In 2004, six years after the end of the OECD initiative, the efforts within the WTO to include investment issues generally into the Organization’s mandate also came to a halt.

At present, a comprehensive multilateral solution to investment issues is not in sight. It remains to be seen whether the international community will continue to develop its patchwork approach to foreign investment or whether the advantages of more global homogeneity will eventually be accepted.

Until the early 1990s international investment law had not created any important case law. In the meantime this condition has altered dramatically. Both in the framework of the ICSID Convention and further than there is a genuine overflow of cases that has formed and continues to produce an ever-growing case law in the field. To a large amount this dramatic increase of activity before arbitral tribunals was the direct outcome of the availability of investor-state arbitration on the basis of a quickly rising number of BITs. Inevitably, the large number of decisions produced by differently composed tribunals has led to concerns about consistency and coherence.

Under the Treaty of Lisbon, in 2009 the European Union assumed exclusive competence for foreign direct investment. This makes the future policy of the EU on investment is likely to have global repercussion.

There is no single definition of what constitutes foreign investment. According to Juillard and Carreau, the absence of a common legal definition is due to the fact that the meaning of the term investment varies according to the object and purpose of different investment instruments which contain it. A great variety of assets are included today in the DI and broad definitions appeared in national investment codes and international instruments.

Moreover ,the word ‘investment’ can be defined in many ways according to different theories and principles. It is a term that can be used in a number of contexts. However, the different meanings of ‘investment’ are more alike than dissimilar. Generally, investment is the application of money for earning more money. It also means savings or savings made through delayed consumption.

An amount deposited into a bank or machinery that is purchased in anticipation of earning income in the long run is both examples of investments. Although there is a general broad definition to the term investment, it carries slightly different meanings to different industrial sectors.

In practice, to provide legal means of investment, two conceptual approaches have been developed. One, two-sided and many-sided treaties & the further perform of states & tribunals. In the first approach, two-sided & many-sided treaties frequently at the commencement of concord provide typically their own meaning of investment in detail. The 2nd approach is based on the practice of the term in regular economic idiom and providing the interpretation & application to the practice of states and tribunals

According to the 1st approach, universal investment conformities usually define investment in very broad words. They refer to “each kind of asset” pursued by an descriptive but typically non-exhaustive list of assets, distinguishing that investment forms are always evolving. So, most of the documents, adopt an asset-based, rather than a process-based, meaning of investment

There are many two-sided and many-sided treaties1 provided broad meanings of investment and they try to cover any or other resources, the expectation of gain or profit, or the assumption of risk”2. This agreement in addition to the definition of investment has emphasized on its characteristics. Now the second approach, the practice of states and tribunals is examined. A significant number of states have foreign investment rules that include a definition of investment.