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University of New South Wales Faculty of Law Research Series

Faculty of Law, UNSW
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Trakman, Leon --- "Foreign Direct Investment: Hazard or Opportunity?" [2010] UNSWLRS 32

Last Updated: 26 August 2010

Foreign Direct Investment: Hazard or Opportunity?

Leon Trakman, University of New South Wales

This paper is available for download at


This article is forthcoming in the 41 George Washington International Law Review, volume 1-65 (2010).


The procedural trappings associated with the regulation of Foreign Direct Investment (FDI), measured attempts at increased transparency, expanded public participation in international investment, and improvements in private investors’ access to international investment are profoundly different in international investment law today as compared to decades past. The attempts by states to extend their regulation of FDI beyond that allowed to them under customary international law and the newly developed rights of foreign investors to protection from such assertions of state power are challenging in the dynamic world of international investment. The evolving right of investors to participate in FDI within a liberalized international regime and the sovereignty of states to protect domestic interests from the exigencies of FDI is an ongoing concern.1 An important issue is the need for international investment law to address conflicts arising out of this tension between state sovereignty and the liberalization of investment in a manner that is principled, transparent, and evenhanded. Accommodating the equitable treatment of FDI while preserving the natural resources and other public interests of host states requires careful balancing. Though the conflict between state and investor interests appears significant, these interests are often compatible. Sovereign states are interested not only in regulating FDI on public policy grounds, but also in avoiding the flight of investor capital from states whose regulatory regimes investors may consider unclear, arbitrary, or capricious. Investors are interested not only in protecting their rights, but also in establishing long-term investment relationships including relationships with host states.

This Article explores these issues in light of customary international investment law, international conventions such as the United Nations Commission on International Trade Law (UNCITRAL) and the decisions of international investment tribunals such as under the International Centre for Settlement of Investment Disputes (ICSID). A central purpose is to evaluate the extent to which international investment law protects the procedural and substantive rights of foreign investors while also being responsive to the sovereignty of states including their police and related powers. The Article pays particular attention to the development of free trade agreements (FTAs) and bilateral investment agreements (BITs). Chapter 11 of the North American Free Trade Agreement (NAFTA) illustrates dispute resolution mechanisms in FTAs. It emphasizes that the regulatory regime governing FDI needs to be not only stable, but also sensitive to sociocultural and economic change in FDI.

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