Fair and equitable treatment of foreign investors in an era of sustainable development

Abstract

The long-existing debate surrounding the environmental impacts of investment liberalism has been intensified by the rapid growth of an international investment regime, which now consists of more than 3,000 international investment agreements (“IIAs”) and more than 700 investor-state arbitration cases. Many scholars, states, and non-governmental organizations (“NGOs”) fear this effective investment protection regime may intrude on or “chill” the host state’s sovereign right to regulate public interests, including environmental protection. An unsolved task for arbitral tribunals is to distinguish non-compensable legitimate environmental regulation from regulatory conduct that triggers compensation paid by host states to foreign investors. This article provides a methodology to solve this task by focusing on one of the most prominent standards of treatment in IIAs—the Fair and Equitable Treatment (“FET”) Standard. The FET standard requires host states to provide fair and equitable treatment to foreign investors in their territories. Based on an examination of existing jurisprudence, this article analyzes four models adopted by tribunals in crafting the general threshold of the FET standard in environment-related investment cases and examines the tribunals’ diverse approaches to assessing the stability and due process of the host state’s environmental regulation. Ultimately, this article proposes a methodology to harmonize the chaos in jurisprudence: without specific commitments made by a host state to a foreign investor, the host state’s environmental regulation does not violate the FET standard, as long as the regulation is reasonable to achieve a genuine environmental protection objective and is applied non-discriminatorily and with due process.