21 Nov 2023    Working Papers

A TWAIL Approach to Reforming the International Investment Regime

WTI Working Paper No. 14/2023 by Olufunmilola Olabode


There is no gainsaying the fact that the International Investment Regime (IIR) was introduced to provide legal protection against the abuse of power and egregious behaviour of governments.  In fact, when entering into Bilateral Investment Treaties (BIT) arrangements, host states recognised that concessions had to be made for the sake of economic development in their countries. However, the problem is that there are concerns that the current IIR may have diminished the overall welfare of developing countries in particular. There have been several conflicts between obligations of host states to protect foreign investments and their other international and domestic law obligations. As a result of these conflicts, foreign investors have challenged a wide range of government measures that impact negatively on their investment through the Investor-State Dispute Settlement (ISDS) mechanism. For instance, more than 40 cases were instituted against the government of Argentina due to emergency measures taken to deal with the economic and financial crisis of 2001.[1] Other instances include claims that arose due to legislative reforms in the renewable energy sector,[2] or the right to regulate to protect public health under the Fair and Equitable Treatment (FET) and indirect expropriation clauses.[3] In sum, investment treaties have become “an open invitation to unhappy investors, tempted to complain that a financial and business failure was due to improper regulation, misguided macroeconomic policy or discriminatory treatment by the host government and delighted by the opportunity to threaten the national government with a tedious, expensive arbitration”.[4]

One of the main points in this chapter is that the IIR provides reasons to suspect regime bias as described by Gathii based on its neoliberal agenda of foreign investment protection; its disregard for the host states’ environmental or sustainable development goals, the need for the protection of health and safety, labour rights; and the way the regime eludes developing countries’ effective participation in its dispute settlement process.[5]

How then can developing countries address this bias in IIR?  The regime is at a watershed moment and a lot of changes are going on globally. The important questions to ask are, what type of foreign investment protection rules would best suit the interests of developing countries? Most importantly, in what ways can developing countries avoid the consequences of the earlier treaties of the 1990s and early 2000s? What is the most effective way to approach the reform? These questions are of great importance because presently, the world is witnessing power-bases shift in the investment regime, the developing states are becoming capital-exporting states, and unlike during the 20th century, they are now in a position to influence the development of a balanced international investment regime. These circumstances present developing countries with an opportunity to reform the IIR and transform it in such a way that they are no longer just rule takers but effective rule makers.

This chapter is structured into three main sections. The first section will discuss briefly the evolution of the IIR and the controversy surrounding the regime between the developed and developing countries.  The next section focuses on the recent efforts made by some developing countries at the national and bilateral levels to address the inequities in the IIR. The third section discusses the need for harmonized efforts by developing countries at the regional and continental levels in reforming the IIR.

Finally, this chapter argues that the piecemeal approach adopted at the national and bilateral levels will not tackle all the defects in the system. It is therefore recommended that developing countries have a better chance at reforming the IIR by implementing new investment policies through harmonized efforts at the regional and continental levels. The MERCOSUR State Parties’ Protocol on Investment Cooperation and Facilitation and The African Union’s African Continental Free Trade Area (AfCFTA) serve as good examples for other developing countries to adopt at the regional or continental levels.


[1] Reed (2009),  Scorecard of Investment Treaty Cases Against Argentina since 2001, Kluwer Arbitration Blog of 2nd March 2009. Available at http://arbitrationblog.kluwerarbitration.com/2009/03/02/scorecard-of-investment-treaty-cases-against-argentina-since-2001/ (last accessed 31 January 2023).

[2] UNCTAD’ May 2017 IIA Issues Note on Investor-State Dispute Settlement: Review of Developments in 2016. Available at https://unctad.org/system/files/official-document/diaepcb2017d1_en.pdf (last accessed 1 April 2023).

[3] Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7.Available at https://www.italaw.com/cases/460 (last accessed 1 April 2023).

[4]Peterson (2001), p. 13

[5] Gathii (2008), pp 261-264.

A TWAIL Approach to Reforming the International Investment Regime