The international investment law system is developing quickly. Benefiting from favourable agreements, while ensuring you can regulate them so you can sustain a growing economy, remains a crucial challenge for jurisdictions, believes Julien Chaisse of the Chinese University of Hong Kong.

International investments are one the key interests of any country’s political economy. Foreign investments may, among other benefits, help the host country to develop a sound economic structure, increase and diversify manufacturing, offer novel and more developed services, create employment and bring innovative technology. Countries also endeavour to foster well-established domestic companies to expand their business into other markets. National companies abroad bring long-term capital gains, help build economic and political ties with other nations and may ensure access to key resources that the home country lacks. Governments have at their disposal a number of policy tools to work towards these goals. Concluding international agreements with relevant partners is not a minor one. International investment agreements may signal to international investors a favourable investment environment and provide them with guarantees that their investments will benefit from adequate regulatory conditions for their business operations.

The main recent developments in international investment law are under discussion here through examining investment rulemaking practice at the bilateral agreement and regional level (in both international instrument devoted solely to investment regulation, as in agreements of wider scope that provide too substantial obligations on foreign investment) as well as the multilateral level since some WTO provisions are relevant to the treatment of foreign investment. Countries have indeed been very active in this field. At the end of 2014, more than 175 countries had concluded with each other the thrilling figure of 2,900 bilateral investment treaties (BITs). Over 250 free trade agreements (FTAs) had also established cooperation frameworks in investment, with a view to enhancing investment rules in the future or feature substantive rules on investment, similar to those found in bilateral investment agreements.

The meaning of investment

The concept of investment governs the assets that fall under the scope of application of the agreement. In other words, it answers the question of what type of investments are covered.

Typically, investment agreements adopt a broad definition that refers to ‘every kind of asset’, suggesting that any economic value is covered by the agreement. This asset-based definition is usually followed by an illustrative list of assets covered, which includes:

  • movable and immovable property and other property rights. This category includes property rights on any goods, as well as ownership of land or any sort of real-state interest, such as mortgages, liens and pledges;
  • interests in the property of companies, such as shares, stock and debentures. Under these terms, there is neither a minimum equity participation required to be covered by the agreement, nor is the foreign investor required to be in a position of control over the enterprise. Moreover, other forms of participation as bonds and, loans and debt instruments may also be included in this category;
  • claims to money and claims to a performance under a contract having financial value. This category suggests that the agreement applies not only to property rights, but contractual rights as well. Many agreements expressly refer to rights acquired under concession contracts, including those for the exploitation of natural resources. The inclusion of contractual rights under the definition of investment raises a number of questions as to contractual relations for cross-border trade in goods and services can be considered ‘investment’ for the purposes of the agreement. The general wording adopted does not seem to restrict the scope of the agreement to long-term contracts, for which under this category, any kind of portfolio investment is included;
  • intellectual property (IP) rights. This grouping encompasses trade marks, trade secrets, patents and copyrights. Some BITs expressly include technical processes, know-how, geographical indications and goodwill, indicating that the agreement also covers newer forms of IP rights. There is no express requirement that these rights were registered or acquired under the laws of the host country.

Under this broad-asset based definition of investment, any asset of economic value retained by the investor as a result of its business operations in the host country can be considered to fall under either one of the categories expressly listed by the agreement, or, ultimately, under the all-encompassing terms of the chapeau of the provision, that is, “every kind of asset”. Some investor-State arbitrations in recent years addressed the definition of investment in several agreements featuring an asset-based definition, though not necessarily including the terms “every kind of asset”. Some operations that have been considered to be covered investment include, for instance, the establishment of an office to sell cross-border services, market share through trade, promissory notes, loan agreements, construction contracts and the establishment of a law firm.

Some countries have included language in their agreement to clarify the scope of the term ‘investment’, and hence the subject matter of the treaty. In this line, for instance, agreements promoted by Canada feature an exhaustive –rather than illustrative- list of assets which are considered investment for the purposes of the agreement. The Canadian Model FIPA [Foreign Investment Promotion and Protection Agreement] of 2003 also expressly lists some assets that are not an investment and hence fall outside the reach of the agreements, that is, a) a loan and debt securities to one of the parties or to a state enterprise, b) a loan granted by or debt security owned by a cross-border financial service provider, and c) claims to money arising from commercial contracts for the cross-border sale of good and services or any other claims to money, ’that do not involve the kinds of interests set out in’ the exhaustive list previously featured. Similarly, the US Model BIT of 2012, while maintaining an open-ended list of assets that have “the characteristics of an investment”, has also introduced clarifying language in regard to certain assets. In this sense, a footnote to the definition of investment recognises that:

some forms of debt, such as bonds, debentures, and long-term notes, are more likely to have the characteristics of an investment, while other forms of debt, such as claims to payment that are immediately due and result from the sale of goods or services, are less likely to have such characteristics.

The subject-matter of the agreement may also be restricted by introducing more limitations to the covered investments, other than the definition of ‘investment’ itself. For instance, though the parties would intend to give the agreement a broad coverage in regard to the types of investments that qualify for the protection of the agreements, they may wish to limit those benefits to the investment that have fulfilled certain formalities.

Alternatively, some investment agreements that have been concerned primarily with foreign direct investment have focused on foreign investment in an “enterprise” rather than in a variety of assets. This enterprise-based definition gives attention to the investor’s objective of establishing a long-term relation with the economy of the host country, through the acquisition of a lasting interest in the ownership or management control of an enterprise. This approach is found, for instance, in the Denmark-Poland BIT, (Article 1(1)(b)) of 1990, which defines investment as:

all investments in companies made for the purpose of establishing lasting economic relations between the investor and the company and giving the investor the possibility of exercising significant influence on the management of the company concerned.

Enterprise-based definitions, in principle, exclude from their coverage portfolio investment. This means that assets such as equity securities, debt securities in the form of bonds and notes, money market instruments, and financial derivatives such as options and a variety of new financial instruments may be also excluded. For this reason, countries with particular concerns about the balance of payments and macroeconomic effects of removing restrictions on foreign investment, especially as it relates to short-term capital movements, may opt for this kind of enterprise-based definition.

Substantive standards

Investment agreements enshrine a series of obligations on the parties aimed at ensuring a stable and favourable business environment for foreign investors. These obligations pertain to the treatment that foreign investors and their investments are to be afforded in the host country by the domestic authorities, as well as giving foreign investors the ability to perform certain key operations related to their investment.

The treatment granted to investors encompasses all sorts of laws, regulations and practices from public entities that apply to or affect the foreign investors or their investments. All public entities are bound by international obligations, including the federal and sub-federal governments, where applicable, local authorities, regulatory bodies, and entities that exercise delegated public powers. Measures adopted by private actors can also – though rather exceptionally - fall under the scope of international agreements when such private measures can ultimately be attributed to the governmental entity.

The set of obligations is rather consistent among a great number of international investment agreements. The core provisions found in investment agreements typically include a most favoured nation treatment obligation, the granting of a national treatment, obligation to provide fair and equitable treatment as well as protection and security to foreign investors, and an obligation to allow international transfers of funds. However, while the substance of these principles remains the same throughout a great number of investment agreements, the precise scope and reach of each obligation depends on the precise wording featured in each case.

Three generations of investment agreements

The international investment law system essentially depends on the BITs and PTAs (preferential trade agreements) which continue to grow in number across the globe. Substantive disciplines on investment are also enshrined in the expanding web of modern FTAs (free trade agreements). Investment arbitration contributes its share in the interpretation and application of these rules. One could identify three generations of investment agreements as stylised facts of the international investment system. A first-generation set of bilateral investment agreements focuses on the protection of foreign investors, though maintaining some important reservations on some key guarantees towards foreign investment, such as national treatment, measures against unlawful expropriation, and access to international arbitration. A second generation of international agreements – embodied by a majority of BITs as well as investment disciplines adopted in some FTAs - provides broader and more substantive obligations in regard to the treatment of foreign investment. Post-establishment national treatment –though with sectoral reservations in some cases - and no substantial restrictions on the ability of foreign investors to challenge host country measures in international arbitration are standard in this category.

Recent model BITs and investment chapters of the growing number of FTAs represent a nascent third generation of investment agreements. These agreements maintain the high standards on the protection of investments recognised in second generation agreements while they seek to open new investment opportunities in foreign markets through national treatment in regard to entry rights – subject to sectoral exclusions in the forms of positive and negative. Interestingly, third generation investment agreements aim also at ensuring that the rights to foreign investors do not override domestic regulatory powers on other key policy areas. Perhaps not surprisingly this trend is pioneered by some of the countries that have been most exposed to international arbitration claims – the US and Canada. This evolution of investment rulemaking interests developed and developing countries. As developing countries become capital-exporting nations investment agreements may prove a useful tool to open business opportunities abroad. As developed countries receive foreign companies into their markets they are bound by international investment law too. Many countries’ interest in investment agreements is two-fold, as leading capital-importing economies and emerging leaders in capital exports. Coping with the quickly evolving nature of the international investment law system and reaping the benefits of international agreements, while ensuring domestic regulatory capacity with a view to sustain its growing economy, remains a crucial challenge for all.


Professor Julien Chaisse, Director, Centre for Financial Regulation and Economic Development in the Faculty of Law at the Chinese University of Hong Kong, is an award-winning specialist in international economic law, with particular expertise in the regulation and economics of foreign investment. His research also covers other relevant fields, such as WTO law, international taxation and the law of natural resources. He also has wide experience as a practitioner, and is engaged as an expert, counsel and arbitrator in transnational dispute settlement. Professor Chaisse is also regularly invited to provide legal advice and training courses on cutting-edge issues of international economic law for international organisations, governments, multinational law firms and private investors.