LEGAL ASPECTS OF DIPLOMATIC OF FOREIGN INVESTMENT

This article examines the legal architecture governing foreign investment as understood in the late 1980s, with emphasis on state consent, treaty layering, and dispute settlement design. It outlines the move from ad hoc diplomatic protection to more formalized commitments through domestic investment codes, bilateral investment treaties, and multilateral conventions. Core standards—fair and equitable treatment, national and most-favored-nation treatment, and safeguards against uncompensated expropriation—are mapped alongside exceptions for public purpose and regulatory change. The discussion highlights jurisdictional gateways for arbitration, especially consent via treaty and ICSID mechanisms, and analyzes enforceability, forum selection, and the politics of awards. By situating these legal tools within host-state development strategies, the paper shows how governments attempted to balance credibility for investors with policy space for industrial policy and public welfare.

The body traces the historical evolution of consent from diplomatic espousal to standing offers embedded in treaties and statutes, showing how this shifted bargaining power and reduced politicization of disputes. It then analyzes the anatomy of an arbitration clause, including scope, applicable law, and carve-outs, and discusses doctrines such as exhaustion of local remedies and fork-in-the-road. Case illustrations demonstrate how tribunals interpreted indirect expropriation, legitimate expectations, and proportionality. A section on enforcement reviews the New York Convention, recognition of awards, and limited annulment grounds, clarifying why compliance tends to be high even absent coercion. The paper also considers critiques from development economists and civil society regarding regulatory chill and asymmetries of standing, proposing transparency, amicus participation, and carefully drafted exceptions to preserve reform latitude. It concludes by noting that legal predictability need not preclude adaptive regulation if commitments are clear, exceptions are narrowly tailored, and states coordinate across agencies to avoid inconsistent signals to investors.