Introduction

One of the crucial questions posed by the expanding application of international investment agreements (IIAs) over the last two decades is the extent to which they regulate host States' ability to enact and enforce regulation intended to protect society and the environment. That question is now on the agenda of the international community and has been taken up by a prominent figure at the United Nations, the Special-Representative of the Secretary-General (SRSG) on the Issue of Human Rights, Transnational Corporations and Other Business Enterprises, Harvard political science professor John Gerald Ruggie. In his 2009 report to the Human Rights Council, the SRSG expressed concern that ‘recent experience suggests that some [investment] treaty guarantees and contract provisions may unduly constrain the host Government's ability to achieve its legitimate policy objectives, including its international human rights obligations’. Undue constraints may emerge, the SRSG explained, because ‘under threat of binding international arbitration, a foreign investor may be able to insulate its business venture from new laws and regulations, or seek compensation from the Government for the cost of compliance’. A number of non-governmental organisations (NGOs) and other analysts have expressed similar concerns and warned that IIAs and investor–State arbitration may have a chilling effect on host State regulatory initiatives that are needed to address non-investment policy objectives.

The SRSG and others cite as the basis for their concern a growing number of investor–State cases in which investors have challenged sensitive domestic legislative and administrative measures. These include cases under the North American Free Trade Agreement (NAFTA) in which investors have challenged environmental and social regulation; cases brought by investors from the US and UK in which Argentina has been held liable as a result of measures that it took in response to a serious economic crisis in 2001; and cases under a range of IIAs in which investors have challenged regulatory measures that host States have defended as designed to achieve legitimate domestic policy objectives.