A Brief History of International Investment Agreements

International investment agreements (IIAs) are legally binding instruments between two or more countries that aim to protect and promote foreign investment. Their objective is to provide a framework of rules that encourages foreign investment by creating a stable and predictable environment for investors.

The history of IIAs dates back to the late 19th century when the first bilateral investment treaty (BIT) was signed between Germany and Pakistan in 1959. Prior to this, most countries relied on national laws and regulations to govern foreign investment.

Over the years, the number of BITs and other IIAs has grown significantly. By the end of 2020, there were over 3,500 IIAs in force, including BITs, free trade agreements (FTAs), and other regional and multilateral agreements.

The proliferation of IIAs was driven by a number of factors. Firstly, many countries saw foreign investment as a key driver of economic growth and development. By providing legal protection to foreign investors, IIAs helped to attract much-needed investment capital.

Secondly, IIAs were seen as a way to encourage foreign investors to invest in countries that were not traditionally considered attractive investment destinations. Developing countries, in particular, saw IIAs as a way to attract foreign investment and promote economic development.

Thirdly, IIAs were seen as a way to reduce political risk for foreign investors. By providing a stable and predictable legal framework, IIAs helped to reduce the risk of expropriation or other forms of political interference.

However, IIAs have also been criticized for a number of reasons. Critics argue that IIAs can undermine the ability of governments to regulate in the public interest, as they can give foreign investors the right to sue governments for compensation if their investments are adversely affected by government policy.

In recent years, there has been a growing debate about the need to reform the international investment regime. Some have called for a more balanced approach that takes into account the interests of both investors and host countries.

Despite these criticisms, IIAs continue to be an important tool for promoting and protecting foreign investment. As the global economy becomes increasingly integrated, IIAs will continue to play an important role in shaping the international investment landscape.

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