Investor misconduct

The possibility that host states might misuse sovereign powers and harm foreign investment is one of the primary purposes of international investment law. Modern investment treaties allow foreign investors to hold a host state accountable for breaching its commitments to them and, more generally, for misuse of sovereign powers. International investment law serves as a commitment mechanism to address the problem of the “obsolescing bargain” ¹ —that once a foreign investor invests in the host state (particularly in the case of large-scale infrastructure and other “bricks and mortar” investments), its bargaining power can rapidly diminish. An investor with a “sunk” investment of $250 million in a natural resources project cannot simply exit the host state with its investment if the host state reneges on its commitments. IIAs serve to reduce the risk of a host state acting opportunistically by providing foreign investors ex ante unilateral commitments about the treatment they can expect if they invest in the state and the ability to subject state conduct to independent scrutiny ex post through irrevocable pre-consent to investor-state arbitration.