Development of Rule-Based Investment Protection Provisions in Mega-FTAs : A Manifestation or a Negation from Customary International Law Principles?

Customary international law affirms the obligation of the host state to protect foreign investors by according the minimum standard of treatment of foreign investors. These become well-established principles of fair and equitable treatment and full protection and security in foreign investment law. Led by the North American Free Trade Agreement (NAFTA), investment protection provisions are heavily negotiated in modern FTAs. The jurisprudence of investment protection in early FTAs, namely NAFTA, relied on principles of customary international law as the texts of agreements did not contain definitions or exemplification to the principles. A number of mega-FTAs, including the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) bring about changes in the minimum standard of treatment of foreign investors. In contrast to a principle-led approach, the minimum standard of treatment terms are more clearly defined in recent mega-FTAs. The fair and equitable treatment term in the TPP, for example, includes the obligation not to deny justice in criminal, civil or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world. The proposed TTIP provides that a breach of the fair and equitable include a targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief. The paper proposes that there has clearly been a shift in the minimum standard of treatment clause from the principle-based approach to the rule-based approach in recent mega-FTAs. On the one hand, the rule-based provisions in the new mega-FTAs could limit the scope of ordinary principles of customary international law and negate from a long-held jurisprudence in foreign investment law. On the other, the rule-based provisions could manifest the intention of parties to be bound by obligations provided by agreements and limit the expansive view of tribunals in applying the principle