Abstract

Foreign direct investment forms an ever more important part of globalized market structures and International Investment Law has become one of the most successful and judicialized areas of public international law. In order to attract investment, states bind themselves by treaties which restrict their regulatory sovereignty in sometimes unpredictable ways as the terms of the treaties are vague and the tribunals do not adjudicate always coherently.
Several perils arise out of that: first, states may opt out of the system, e.g. by exiting treaties or by non-compliance. They may also water down the substantive or procedural protections. Second, investors find themselves in a prisoners´ dilemma: for each one it is advantageous to get as much protection as possible, e.g. by forum-shopping but for the group as a whole that might lead to less protection in the long run. Third, whereas investment treaties were seen in the beginning as a restraint on developing countries, more and more investment flows to equally highly regulated developed countries. As legal protection is reciprocal but the capital flows used to be unilateral, developed countries might also react to their restriction of sovereignty. Those perils could lead to a backlash in international investment protection for which we already find indications.