Caveat Investor - Where Do Things Stand Now?

In C L Lim, Alternative Visions of The International Law on Foreign Investment (Cambridge, 2016) Ch 3

UNSW Law Research Paper No. 18-13

23 Pages Posted: 22 Feb 2018

See all articles by Leon Trakman

Leon Trakman

University of New South Wales (UNSW) - Faculty of Law

D. Musaleyan

University of New South Wales (UNSW)

Date Written: January 1, 2018


This chapter focuses on a perceptible shift in international investment law from investor protections embodied in investment treaties. Professor Sornarajah has spoken at length on the future of investor-state arbitration (henceforth ISA). According to Sornarajah, ISA represents asymmetric protection of investment. This system privileges powerful business interests and holds strong stay over the regulatory power of weaker states. Feeling the potential vicissitude of the system they had created, developed states are now retreating from the expansive protections that they had previously provided to outbound investors. Citing examples of countries such as the US, Australia, Canada and the EU, Sornarajah argues that the legitimacy of ISA is seriously questioned. Envisioning a world where investors may devise their forms of dispute resolution subject to domestic constraints, Sornarajah further argues that ISA will be replaced by a more state centric system of investor-state dispute resolution.

Indeed, investor-state arbitration has received critical coverage in the academic literature on the account of its potential to unduly favour investors over domestic public policies directed at public health, environmental protection and national security. These concerns are covered at length in the other chapters of this volume and are only briefly examined in the third section of this chapter. More pertinent to the present discussion is the fact that a number of states have rejected ISA and require foreign investors to bring their grievances to the local courts of host states.

Initially, for example, ISA was rejected by Ecuador, Bolivia and Venezuela. However, recently a number of major market economies have pledged to abolish ISA. These states are Australia, India, Indonesia and South Africa. Some EU member states are also considering reforming their ISA granting agreements. Taking these recent developments into the consideration, where do things stand now with regards to ISA? This issue is the subject of the present discussion. The actual or potential rejection of ISA by major developed free-market economies lends support to Sornarajah`s thesis. However, while discontent with ISA is certainly identifiable, this chapter does not envision a wholesale abolition of the system. As will be demonstrated below, the initial furore against ISA has subsided. In fact, even the states that have pledged to terminate ISA have either abandoned their initial position or have not taken concrete actions to articulate their desired investment regimes. Thus, while this paper agrees with Sornarajah that investment treaties are becoming more balanced, the author of the present volume predicts continuation of the existing ISA regime.

The goal of this chapter is to demonstrate how states struggle to uphold their rejection of ISA and analyse the types of regulatory regimes they have implemented in light of their disaffection with it. To this end, the second part of this chapter then proceeds with a general overview of states that chose to restrict ISA and the manner in which they chose to limit it. The third section examines some of the commonly cited reasons for excluding ISA, followed by a defence from the proponents of the system. The subsequent section examines the treaty making behaviour of states following the rejection of ISA. Finally, the fifth part of the paper explains the resilience of ISA.

Keywords: investor-state arbitration, ISA, investor protections, investor law, investment treaties

Suggested Citation

Trakman, Leon and Musaleyan, D., Caveat Investor - Where Do Things Stand Now? (January 1, 2018). In C L Lim, Alternative Visions of The International Law on Foreign Investment (Cambridge, 2016) Ch 3, UNSW Law Research Paper No. 18-13, Available at SSRN: or

Leon Trakman (Contact Author)

University of New South Wales (UNSW) - Faculty of Law ( email )

Kensington, New South Wales 2052

D. Musaleyan

University of New South Wales (UNSW)

High St
Sydney, NSW 2052

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