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A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment is called foreign direct investment (FDI). BITs are established through trade pacts. A nineteenth-century forerunner of the BIT is the "friendship, commerce and navigation treaty" (FCN). This kind of treaty came in to prominence after World Wars when the developed countries wanted to guard their investments in developing countries against expropriation.[1]

Most BITs grant investments—made by an investor of one Contracting State in the territory of the other—a number of guarantees, which typically include fair and equitable treatment, protection from expropriation, free transfer of means and full protection and security.[2] The distinctive feature of many BITs is that they allow for an alternative dispute resolution mechanism, whereby an investor whose rights under the BIT have been violated could have recourse to international arbitration, often under the auspices of the International Centre for Settlement of Investment Disputes (ICSID), rather than suing the host State in its own courts.[3] This process is called investor-state dispute settlement (ISDS).

The world's first BIT was signed on November 25, 1959 between Pakistan and Germany.[4][5] There are currently more than 2500 BITs in force, involving most countries in the world.[6] and in recent years, the number of bilateral investment treaties and preferential trade agreements, in particular, has grown at a torrid pace; practically every country is a member of at least one.[7] Influential capital exporting states[citation needed] usually negotiate BITs on the basis of their own "model" texts (such as the Indian or U.S. model BIT).[8][9] Environmental provisions have also become increasingly common in international investment agreements, like BITs.[10]: 104  As part of the effort to reform substantive standards of investment protection, states have sought to introduce the right to regulate into their new BITs.[11]


BITs give rights to investors, but give obligations only to States. Whilst preliminary objections by states are becoming more common in cases instituted under BITs,[12] NGOs have spoken against the use of BITs - stating that they are essentially designed to protect foreign investors and do not take into account obligations and standards to protect the environment, labour rights, social provisions or natural resources. Moreover, when such clauses are agreed upon, the formulation is legally very open-ended and often unpredictable.[13] A counter-claim may be a way of rebalancing investment law, by allowing States to file claims against investors, as a means to sanction investor misconduct.[14]

See also


  1. ^ "For Cairns dispute, international arbitration is not the way forward". The Indian Express. 2021-07-21. Retrieved 2021-07-21.
  2. ^ Beri, Parfait Bihkongnyuy; Nubong, Gabila Fohtung (2020). "Impact of bilateral investment treaties on foreign direct investment in Africa". African Development Review: 1–13.
  3. ^ See Jarrod Wong, "Umbrella Clauses In Bilateral Investment Treaties: Of Breaches of Contract, Treaty Violations, and the Divide Between Developing and Developed Countries In Foreign Investment Disputes", George Mason Law Review (14 Geo. Mason L. Rev. 135) (2007).
  4. ^ "Germany - Pakistan BIT (1959)". Retrieved August 10, 2015.
  5. ^ " | The Bilateral Investment Treaty: Investment facilitator or host country albatross? - print". 2006-02-13. Archived from the original on 2006-02-13. Retrieved 2019-11-05.
  6. ^ See Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, Oxford, 2008, p. 2. Also see UNCTAD, World Investment Report (2006) XVII, 26.
  7. ^[bare URL]
  8. ^ "Model Text of the Indian Bilateral Investment Treaty" (PDF). Retrieved 25 October 2016.
  9. ^ "Bilateral Investment Treaties | United States Trade Representative". Retrieved 2019-11-05.
  10. ^ Condon, Madison (2015-01-01). "The Integration of Environmental Law into International Investment Treaties and Trade Agreements: Negotiation Process and the Legalization of Commitments". Virginia Environmental Law Journal. 33 (1): 102.
  11. ^ Titi, Aikaterini (2014). The Right to Regulate in International Investment Law. Nomos. doi:10.5771/9783845251783. ISBN 978-3-8452-5178-3.
  12. ^ See Deepaloke Chatterjee, Ansung Housing v China, World Trade Review,
  13. ^ Protest against EU investment policy Transnational Institute
  14. ^ Arnaud de Nanteuil (17 August 2018). "Counterclaims in Investment Arbitration: Old Questions, New Answers?". The Law & Practice of International Courts and Tribunals. Retrieved 23 November 2020.

External links