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7 Eur. J. Risk Reg. 439 (2016)
Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks

handle is hein.journals/ejrr2016 and id is 459 raw text is: EJRR 212016 Trade, Investment and Risk This section highlights the interface between international trade and investment law and munici- pal and international risk regulation. It is meant to cover cases and other legal developments in WTO law (SPS, TBT and TRIPS Agreements and the general exceptions in both GATT 1994 and GATS), bilateral investment treaty arbitration and other free trade agreements such as NAFTA. Per- tinent developments in international standardization bodies recognized by the SPS and TBTAgree- ment are also covered. Reinterpreting the Fair and Equitable Treatment Provision in International Investment Agreements as a New and More Legitimate Way to Manage Risks Azernoosh Bazrafkan and Alexia Herwig* 1. Introduction International investment agreements (IIAs) emerged in the 1960's as an instrument to lower political risk for foreign investors and to facilitate political risk in- surance when investing in developing countries with weak governance structures. Political risk is consti- tuted 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 con- trol or enjoyment of the investment or discriminate or treat the foreign investor arbitrarily. The legal pro- visions in IIAs include non-discrimination provi- sions, fair and equitable treatment, full protection and security, rights to compensation in case of expro- priations, including indirect regulatory ones with the effect of depriving the investor of the control and benefits of the investment, provisions on free trans- fer of capital and, occasionally, non-precluded mea- sures clauses as well as stabilization clauses in which the host state promises not to change the regulatory environment affecting the investment. Azernoosh Bazrafkan is a PhD candidate, and Alexia Herwig is Assistant professor, both at the University of Antwerp. An extend- ed version of this report is forthcoming in an OUP volume on Risk in International Law. 1 Peter Egger and Michael Pfaffenmayr The Impact of Bilateral Investment Treaties on Foreign Direct Investment, in Karl P The unique value of these protections lies in the fact that IIAs allow foreign investors to take the host country government to investor state arbitration. Ar bitration allows the investors to get around lack of impartiality or adequate procedures in litigation be- fore courts of the host state and the awards are auto- matically enforceable in other states, subject only to very narrow reviewing power of domestic courts. Starting from the mid-1990s, foreign investors be- gan using IIAs more and more to challenge risk reg- ulatory policies of host states. Disputes have, for ex- ample, concerned landfills, noxious chemicals, tobac- co packaging, the termination of green energy sub- sidies and states' anti-nuclear energy policy. With the coming of age of investment arbitration, criticisms started to be levied against IIAs and investor state ar bitration. The critique focuses, broadly speaking, on the over protection of private investor interests when compared to the protection of the public interest of the host state. The worry of the host state public interest legiti- macy critics is that IIAs lead to 'regulatory chill' in developing countries for fear of liability,2 that arbi- tral tribunals have stretched the meaning of IIA pro- visions to render poorly reasoned and even inconsis- tent investor friendly decisions3 and that foreign in- vestors obtain special rights in comparison to domes- tic investors to be free from regulatory interference.4 A further concern is that strong counter majoritari- an protection of investor rights skews democratic de- cision-making on the protection of the public inter Reports | 439

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