Originally from Investment Treaty Arbitration and International Law - Volume 8

I. INTRODUCTION

Foreign investment today not only takes the form of traditional foreign direct investment (FDI), like the prototypical foreign investor who builds and operates a factory or a plant in another country. In the 21st century, foreign investment comes in the form of “an increasing array of foreign-owned assets that have economic value.” The question of what constitutes an “investment” is critical to understand the scope of state obligations arising from international investment agreements, and may also be an important determinant of the jurisdiction of arbitral tribunals in investment treaty arbitration. Investment is broadly defined, and it is generally accepted that it encompasses more than physical property. As a legal term of art in international trade and investment agreements, the term investment can take any number of tangible and intangible forms, such as loans, portfolio investments, contractual, or intellectual property rights. The “protection and security” that may be owed to such investments by a foreign state pursuant to the terms of the state’s investment agreements likewise extends well beyond physical protection to intangible protections of no lesser significance.

Commentators and arbitral tribunals nevertheless debate what it means when a state has agreed to provide “full protection and security” to foreign investors. Some have taken the position that this means that a state need only provide for physical security of their persons and property, as by making available police protection. Others have taken the broad scope of the language “full protection and security” at face value, and recognized the state as having undertaken to provide at least some non-physical protections, such as ensuring investors' access to courts or other means to protect their legal rights.4 The better reasoned authorities have opted for the latter interpretation.