Pacta Sunt Servanda and State Promises to Foreign Investors Before Bilateral Investment Treaties: Myth and Reality
76 Pages Posted: 26 Nov 2008
Date Written: November 25, 2008
This article challenges the dominant theoretical explanation for the popularity of bilateral investment treaties, or BITs. That explanation rests on the myth that prior to BITs developing countries were free to break their promises to foreign investors with impunity, in violation of the basic principle of pacta sunt servanda. I review the extensive international jurisprudence predating the BIT era to show that, contrary to the myth, international tribunals have long and consistently held that state promises to investors are strongly presumptively enforceable, and that investors are entitled to receive meaningful compensation in the event of a breach. My analysis suggests that developing countries can withdraw from the BIT regime, if they wish, without harming their ability to make binding promises to investors on a case-by-case basis through enforceable investment contracts.
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