Ashwathi Menon, Dr. D.Y Patil College of Law

Sakshi Belwal, Assam University Silchar

Editor: Jasmine Emmanuel, GLC Thrissur


International investment law has developed in the past few decades due to the advent of globalization and the considerable increase in the growth of cross border investments. In simple words, international investment law can be described as the field of law that governs relationship between states and foreign investors.

In the earlier times, there wasn’t much prevalence of FDI owing to the restraints placed on foreign investments, however, towards the end of the 20th century it could be seen that the world was opening up to transform itself into one huge market. Initially, FDI was regarded as a national concern with a little application of customary international law, however with emerging international legal framework for FDI was drawn. It consists of many kinds of national and international rules and principles of law. The entire structure rests on the twin foundations of customary international law and national laws and regulations and relies for its substance on a multitude of international investment agreements (IIAs) and other legal instruments. This system of International law does not have one central treaty but it consists of thousands of IIAs.

This article aims to summarize the existing international investment laws in prevalence.

International Investment Laws

As we have already seen international investment laws is not one single set of law but is more of a compilation of various agreements between parties, with the application of International customary law and national policies. Let us discuss in depth the role played by each of the above.

National Policies &Customary International Law

National Policies of a state and customary international law play a major role when it comes to formation of international investment agreements which form the substance of the international investment law.

National Polices are of utmost importance when it comes to FDI as these policies form the basic legal framework with regard to foreign investments. Most of the countries have specific FDI laws which are to be followed by the foreign investors and influence their decision. Even a country’s commercial and corporate law also to an extent has a control over the decisions of foreign firms in starting their operation in the host countries.

There are certain international rules and laws which are considered to be the bible when formulating international agreements. Therefore, it is necessary that while drawing such international investment agreements they have to be in consensus with the customary international law.

International Investment Agreements

An International Investment Agreement (IIA) is a type of treaty between countries that addresses issues relevant to cross-border investments, usually for the purpose of protection, promotion and liberalization of such investments. Most IIAs cover foreign direct investment (FDI) and portfolio investment, but some exclude the latter[1]. These IIAs are largely- bilateral, regional or multilateral.

Multilateral Investment Treaties

Multilateral agreements, especially those of worldwide scope, are the closest equivalent to “legislation” that exists in international law. They make possible the formulation and application of “universal” rules, agreed by and applicable to all States[2]. However, in the subject of international investments there is no such comprehensive convention that all the states have agreed upon. Of the relevant multilateral agreements in existence, some deal with broader issues that are important for FDI, as in the case of the Articles of Agreement of the International Monetary Fund, the GATT, or even the international conventions concerning intellectual property, within the framework of the World Intellectual Property Organization (WIPO) or the World Trade Organization (WTO).

One of the major international conventions is Convention on the Settlement of Investment Disputes between States and Nationals of Other States. ICSID conventions are related to settlement of investment schemes between states and national of other states entered into force in 1966. These treaties were ratified by 154 contracting states. It provides the procedural framework for dispute settlement between host state and foreign investors.

Regional Agreements

Regional international agreements are agreements in which only a limited number of countries participate and which are often not open to the participation of all countries. They are of course binding on the participating countries alone and applicable only to them. The European Union (EU) is, among other things, a customs union that involves a significant process of economic and political integration. Citizens of the EU have a right of establishment in all EU countries and there is a guarantee of free movement of capital. The result is an unparalleled degree of openness to investment between member states.[3] NAFTA is a comprehensive trade and investment agreement between Canada, Mexico and the United States. There are many more such agreement which form a comprehensive part in international investment law.

v Bilateral Investment Treaties

BITs are a principal element of the current framework for FDI. The United Nations Conference on Trade and Development (UNCTAD) defines BITs as “agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other’s territories by companies based in either country.” More than 2500 bilateral investment treaties have been concluded since 1960s[4]. The 1990s saw the most dramatic surge in the volume of these treaties, with their numbers quintupling in that decade. As the WTO’s Doha Round of trade negotiations has faltered, many countries have accelerated the negotiations of bilateral free trade agreements.

The principal focus of the BITs has been from the very start on investment protection, in the wider context of policies that favour and promote FDI: the protection of investments against nationalization or expropriation and assurances on the free transfer of funds and provision for dispute-settlement mechanisms between investors and host States.[5]

BITs have been useful because they have developed a large number of variations on the main provisions of IIAs -- especially those related to the protection of investments, of course, but also those referring to the ways in which national investment procedures may be taken into account.

BITs & India

Since signing the first BIT in 1994 with the UK, India has inked 86 such bilateral treaties, the latest being with Brazil in 2020. BITs have been one of the major drivers of FDI inflows into India. A 2016 study suggests that by providing substantive protection and commitment to foreign investors, BITs indeed contributed to rising FDIs in the 2001-2012 period. However, there have been many cases of the penalty awarded by an International Dispute Settlement (ISDS) tribunal served against India. For example, in cases involving regulatory measures such as, the imposition of retrospective taxes, cancellation and revocation of spectrum and telecom licenses.

This led to a review of the BITs and in 2016 India launched the Model BIT. It aims to act as a base for negotiating new BITs with other States, as well as for re-negotiation of the existing ones. As per Model BIT in 2016, India moved away from an overly investor-friendly approach to a somewhat protectionist approach concerning foreign investments. Since its adoption, India has unilaterally terminated 66-odd BITs from 2016 to 2019, sending negative signals to the global investor community. This is evident as no country has shown any inclination to re-negotiate based on the Model BIT.


In this article, we have explored laws and treaties in prevalence with relation to international investment laws and also noted it in relation with India. One of the daunting issues of international investment law is the lack of a comprehensive convention in regard to international investment laws. Hopefully, in the near future we may come to consensus in establishing such a universal law which shall eliminate most of the issues and can guarantee a better method for dispute settlement.

[1]Tai-Heng Cheng “Power, Authority and International Investment Law” American University International Law Review 20.3(2005) 466-470 12th August 2020 [2]UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, INTERNATIONAL INVESTMENT AGREEMENTS: KEY ISSUES Volume I 12th August 2020 [3] Konrad von Moltke and Howard Mann “Towards A Southern Agenda on International Investment: Discussion Paper on the Role of International Investment Agreements” e International Institute for Sustainable Development 12th August 2020 [4]Malta Law Guide 12th August 2020 [5] UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, INTERNATIONAL INVESTMENT AGREEMENTS: KEY ISSUES Volume I 12th August 2020

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