Alschner Americanization

Goettingen Journal of International Law 5Americanization
(2013) 2, 455-486
of the BIT Universe 455
Americanization of the BIT Universe: The Influence of

Friendship, Commerce and Navigation (FCN) Treaties
on Modern Investment Treaty Law
Wolfgang Alschner*
Table of Contents
A. Introduction..........................................................................................456
B. FCN Treaties as Investment Protection Agreements .............................461
C. The 1980s U.S. Debate and the Shift From FCN to BITs..................... 463
D. The Impact of FCN Treaties on the U.S. BIT Program........................ 468
I. Pre-Establishment Provisions.............................................................469
II. Non-Conforming Measures..............................................................470
III. International Law Minimum Standard..............................................471
IV. Protection of Personal Investor Rights...............................................472
V. Transparency and Other Positive Integration-Type
Obligations.......................................................................................473
E. There and Back Again: The Return of the FCN Approach
to Investment Treaties..........................................................................474
I. The Rise and Decline of First Generation BITs..................................475
II. The Changing Economics of Investment ..........................................477
III. The Rise of a New Generation of Investment Treaties...................... 480
F. The Americanization of the IIA Universe............................................. 484
G. Conclusion: What to Make of the Return of the FCN
Approach?.............................................................................................485
* Graduate Institute of International and Development Studies, Geneva, Switzerland. An

earlier version of this paper was presented at the 2nd Conference of the Postgraduate
and Early Professionals/Academics Network of the Society of International Economic Law
(PEPA/SIEL) at Goettingen University, 25th & 26th January 2013. I want to thank the
organizers for their great work and the participants and commentators for their valuable
feedback.
doi: 10.3249/1868-1581-5-2-alschner
456 GoJIL 5 (2013) 2, 455-486
Abstract
Friendship, Commerce and Navigation (FCN) treaties are more than a histori-
cal precursor to international investment agreements (IIA) and continue to in-
fluence and inspire modern investment treaty design. Until the 1960s, FCN
treaties were the American conceptual alternative to the European BIT Model.
FCN treaties were comprehensive and complex agreements covering trade, in-
tellectual property, and even human rights in addition to investment disciplines.
BITs, in contrast, were short, simple, and focused on investment protection
only. Furthermore, while FCN treaties were designed to govern symmetrical
investment relations between like-minded developed countries, BITs targeted
an asymmetrical relationship between developed capital exporting States and
developing capital importers. Even after the U.S. shifted from FCN to BITs in
the early 1980s, FCN treaties continued to impact investment policy-making.
First, key FCN features such as pre-establishment commitments, non-conform-
ing measures, and investor rights survived the U.S. policy-shift and have since
found their way into IIAs around the world. Second, as a conceptual alternative
to simple and specialized European BITs, FCN treaties have inspired a new
generation of IIAs that are complex and comprehensive in nature, containing
a fine-tuned mix of rights and obligations, and treating investment alongside
other policy concerns. Third, the spread of FCN-inspired treaties coincides with
the demise of European-style BITs. As policy-makers turn to the United States
instead of Europe for investment policy innovation, we observe an Americaniza-
tion of the IIA universe.
A. Introduction
The year 1959 is often referred to as the date of birth of the modern
international investment agreement (IIA) with the conclusion of the first bilateral
investment treaty (BIT) between Germany and Pakistan.1 This reference, and the
underlying emphasis on BITs, tends to neglect another rich body of investment
treaties – the so-called Friendship, Commerce and Navigation (FCN) treaties.2
1
1959 Germany–Pakistan BIT, 25 November 1959, 457 UNTS 23. R. Dolzer & C.
Schreuer, Principles of International Investment Law, 2nd ed. (2012), 6. United Nations
Conference on Trade and Development (UNCTAD), Bilateral Investment Treaties 1959-
1999 (2000), 1 [UNCTAD, Bilateral Investment Treaties 1959-1999].
2
For recent work on FCN treaties and its relevance for investment law, see J. F. Coyle,
‘The Treaty of Friendship, Commerce and Navigation in the Modern Era’, 51 Columbia
Americanization of the BIT Universe 457
Predating BIT practice and primarily concluded by the United States of

America (United States, U.S.), FCN treaties were originally concerned mainly
with commercial matters, but developed a significant investment protection
component after the Second World War.
FCN treaties can tell us much about the past, present, and arguably even
the future of international investment treaty law. On the historical front, FCN
treaties inspired the terms of the Abs-Shawcross Draft Convention, upon which
the first BITs were modeled. Thereby, FCN treaties coined some of the core
standards like ‘fair and equitable treatment’ (FET) that are omnipresent in
today’s investment law.3 But FCN treaties also remain relevant on their own.
Over forty FCN treaties are still in force today and exist in parallel to the BIT
universe.4 The ELSI case, one of the few investment disputes brought before the
International Court of Justice, concerned the breach of an FCN treaty.5 Moreover,
creative lawyers have contemplated the use of FCN treaties to advance arguments
impossible to justify under BITs.6 In the most comprehensive recent study on
the modern relevance of FCN treaties, Coyle even argues that these treaties can
inform future policy-making.7 While he concedes that FCN treaties are less
important today when it comes to protecting rights of foreigners in domestic
litigation, since host State’ statutes and more specialized international treaties
have largely supplanted FCN provisions, he points out that the FCN model can
Journal of Transnational Law (2013) 2, 302; J. W. Yackee, ‘Sacrificing Sovereignty: Bilateral

Investment Treaties, International Arbitration, and the Quest for Capital’, USC Center in
Law, Economics and Organization Research Paper No. C06-15 (2006); O. T. Johnson Jr. &
J. Gimblett, ‘From Gunboats to BITs: The Evolution of Modern International Investment
Law’, 3 Yearbook on International Investment Law & Policy (2010-2011) (2012), 649; K. J.
Vandevelde, Bilateral Investment Treaties: History, Policy, and Interpretation (2010), 19-24
(in particular) [Vandevelde, BITs: History, Policy, and Interpretation].
3
H. Abs & H. Shawcross, ‘The Proposed Convention to Protect Private Foreign Investment:
Introduction’, 9 Journal of Public Law (1960) 1, 115, 119-120; F. A. Mann, ‘British Treaties
for the Promotion and Protection of Investments’, 52 British Yearbook of International Law
(1981), 241, 241. For the influence of the Draft Convention on BITs, see S. W. Schill, The
Multilateralization of International Investment Law (2009), 35-36.
4
For an overview of U.S. FCN treaties in force, see the website of the U.S. Trade Compliance
Center, available at http://tcc.export.gov/Trade_Agreements/index.asp (last visited 31
January 2014).
5
It concerned an alleged breach of the U.S.–Italy FCN Treaty. See Elettronica Sicula S.p.A.
(ELSI) (United States of America v. Italy), Judgment, ICJ Reports 1989, 15.
6
See Schill, supra note 3, 147-150. He points out that the Germany–U.S. FCN Treaty,
unlike most BITs, does not exclude benefits from the ambit of its MFN clause that arise by
virtue of a contracting party’s membership in a regional integration organization.
7
Coyle, supra note 2.
458 GoJIL 5 (2013) 2, 455-486
address two pressing contemporary challenges in international law. First, FCN

treaties show how diverse areas of law can be managed under a single treaty
umbrella, providing a practical solution to international law’s fragmentation.
Second, in the debate over re-balancing investment treaties, FCN treaties offer a
unique but overlooked example on how non-investment considerations such as
human rights can be inserted into investment protection treaties.8
The most important contributions of FCN treaties to our understanding
of the modern investment treaty universe, however, lie elsewhere. A fact that
is seldom acknowledged is that until the 1960s, FCN treaties remained the
American alternative to the BIT program of European States. Whereas BITs
were short, simple, and focused on investment protection, FCN treaties were
comprehensive and complex agreements covering trade, navigation, intellectual
property, and even human rights in addition to investment disciplines.
Furthermore, FCN treaties were primarily signed between developed countries
and reflected the spirit of symmetrical political and economic relations. In
the context of reciprocity, each contracting party would only demand what
it was willing to give in return, resulting in carefully balanced treaties. BITs,
in contrast, emerged in the context of asymmetrical political and economic
relations. The balance underlying BITs was not a reciprocal trade-off between
rights and obligations, but a ‘grand bargain’ of Northern capital in exchange
for Southern countries tying their hands to investment protection standards.9
So, FCN treaties and BITs were alternative approaches to investment policy-
making, pursuing the same end through very different treaty design means.
The co-existence of the two models of investment protection agreements
did not last long. In the midst of the Cold War and decolonization, it became
increasingly difficult for the United States to sign FCN treaties. American
business groups grew increasingly weary of negotiations with potential markets
for foreign direct investment being stalled over human rights issues, while
their European competitors benefited from the competitive advantage of an
increasingly wide web of investment protection agreements. After a number of
failed negotiations, the United States finally decided to abandon its century-old
8
Ibid.
9
J. W. Salacuse & N. P Sullivan, ‘Do BITs Really Work: An Evaluation of Bilateral
Investment Treaties and Their Grand Bargain’, 46 Harvard International Law Journal
(2005) 1, 67 [Salacuse & Sullivan, Do BITs Really Work].
policy of concluding FCN treaties in the late 1970s and, instead, endorsed the
European BIT approach.
The U.S. debate surrounding the shift from FCN to BITs is not only of
historical interest. In fact, as this article will show, it exposes fault lines that still
run through the investment treaty universe today and can tell us much about
investment law’s evolution. Firstly, even after they were formally abandoned,
the FCN treaty heritage had a marked influence on the U.S. investment
treaty program. Even though the U.S. largely followed the European BIT
Model, American BITs retained a number of key FCN treaty design features
absent in European BITs. These treaty features included 1) an important
liberalization dimension, 2) reservations to safeguard policy space, 3) references
to the international law minimum standard, 4) a greater focus on the investing
individual (rather than just her investment) and, finally, 5) positive integration-
type obligations. After being first incorporated into the U.S. BIT program,
these FCN features inspired NAFTA and ultimately spread into the entire
investment treaty universe. Today, these FCN elements continue to evolve and
are systematically used in IIAs concluded by Australia, Canada, Chile, Japan,
South Korea, Peru, Singapore, and Taiwan amongst others.
Secondly, as a conceptual alternative to the BIT approach, FCN treaties
had a lasting ideational impact beyond the American BIT program, inspiring
the recent emergence of a second generation of investment treaties markedly
different from first generation European treaties. At its core, the 1980s U.S.
debate concerned the question of what treaty design is best suited to govern
investment relations. Should inter-state investment relations be regulated by
short, simple, and specialized agreements focusing on investment protection
only, or, should they be governed by more complex and comprehensive
instruments that treat investment in its wider context? In the U.S. policy debate
of the 1980s, the contest was won by the BIT approach. With the advent of
more symmetrical investment flows, a more intertwined global economy, and
developed countries entering in investment treaties among themselves, however,
we observe a full reversal of the U.S. debate. More and more countries revert
from simple BITs to more complex and comprehensive BITs and preferential
trade and investment agreements (PTIAs) that are better suited to govern 21st
century investment relations. While this emerging second generation of IIAs
has little in common with FCN treaties in terms of subject matters covered, it
reflects the FCN approach to investment policy-making: protecting investment
abroad while safeguarding policy space at home and treating investment
in its wider policy context. Hence, the FCN treaty approach to investment
460 GoJIL 5 (2013) 2, 455-486
treaties, its demise in the 1980s and its recent return are a prism through
which we can better understand the evolution of investment treaty law.10
Finally, the return of the FCN treaty approach and its design elements
also point to an Americanization of the global investment treaty universe which
had long been dominated by European-style BITs. As more and more countries
dissatisfied with the performance of existing BITs look to Washington instead
of Europe for policy innovation, the new gold-standard for investment treaties
is made in the U.S. This global policy shift is currently at a critical juncture
as the European Union, which recently acquired competency over investment
policy-making through the Lisbon Treaty, is negotiating IIAs with Canada and
the U.S. If the EU rejects the long-standing traditional BIT approach of its
most influential Member States and turns to more complex and comprehensive
agreements, these negotiations will mark the late victory of the FCN approach
over the short, simple, and specialized BIT model.
As an alternative approach to investment protection, the FCN model
has thus informed investment treaty-making, has inspired concrete treaty
design features absent in traditional BITs, and is likely to become the globally
dominating approach to investment policy-making. This article traces this
impact of FCN treaties on modern investment treaty law, offering new insights
into the evolution of investment treaty-making. First, it presents FCN as an
alternative approach to investment policy-making. Second, it recapitulates the
U.S. debate in the early 1980s that surrounded the transition from FCN to
BITs. Third, by identifying FCN design features that survived the transition,
the article shows how FCN treaties inspired the provisions of the U.S. BIT
program. Fourth, moving from concrete treaty features to underlying ideas, the
contribution describes and explains the re-emergence of the FCN approach in
recent IIAs and highlights the increasing Americanization of the global IIA
This contribution is a study of comparative treaty design. Aside from conducting a

10
traditional comparative legal analysis of BITs and FCN at a micro-level (specific legal
provisions) and a macro-level (surrounding legal context), this study introduces a meso-
level treaty design analysis. Occupying a middle ground, a treaty design analysis looks
beyond content and context and instead focuses on the functional architecture and
underlying structures of a treaty. For traditional comparative law, see K. Zweigert & H.
Kötz, Einführung in die Rechtsvergleichung auf dem Gebiete des Privatrechts, 3rd ed. (1996),
4-5.
universe. The paper concludes by evaluating the impact of the return of FCN
treaty design on international investment treaty law.
B. FCN Treaties as Investment Protection Agreements

As their name suggests, friendship, commerce and navigation treaties
were not initially conceived as investment protection agreements. Originally,
these treaties sought to establish friendly political and commercial relations
between the newly independent American colonies and the Old Continent.11
The first FCN treaty was concluded in 1778, in the midst of the American
War of Independence, between the United States and France and was
signed together with a treaty of alliance between the two countries.12 After
independence, similar agreements between the U.S. and other European and
South American countries followed suit.13 These early FCN treaties primarily
dealt with commercial matters, guaranteeing most-favoured nation (MFN)
treatment in trade,14 but also addressed the status of American citizens abroad
covering consular relations, immigration, as well as religious and personal
rights.15 The protection of alien property rights was present, but initially
constituted a mere incidental feature of early FCN treaties.16 This began to
change after the First World War, as the U.S. turned from a capital importer
to a capital exporter.17 From the 1923 U.S.–Germany FCN Treaty onwards,
the United States began to systematically expand the treaties’ scope, from

11
Vandevelde, BITs: History, Policy, and Interpretation, supra note 2, 21-23.

12
Ibid., 19; H. Walker Jr., ‘Treaties for the Encouragement and Protection of Foreign
Investment: Present United States Practice’, 5 American Journal of Comparative Law (1956)
2, 229, 231 [Walker, Protection of Foreign Investment].

13
Walker, ‘Protection of Foreign Investment’, supra note 12, 231; H. Walker Jr., ‘Modern
Treaties of Friendship, Commerce and Navigation’, 42 Minnesota Law Review (1958)
5, 805, 805 (in particular) [Walker, Modern Treaties of Friendship, Commerce and
Navigation]; Vandevelde, BITs: History, Policy, and Interpretation, supra note 2, 21-26.

14
Schill, supra note 3, 29-30.

15
K. S. Gudgeon, ‘United States Bilateral Investment Treaties: Comments on Their Origin,
Purposes, and General Treatment Standards’, 4 International Tax & Business Lawyer (1986)
1, 105, 108. On the common origins of trade, investment, and human rights law, see
also N. DiMascio & J. Pauwelyn, ‘Nondiscrimination in Trade and Investment Treaties:
Worlds Apart or Two Sides of the Same Coin?’, 102 American Journal of International Law
(2008) 1, 48.

16
Vandevelde, BITs: History, Policy, and Interpretation, supra note 2, 21.

17
R. R. Wilson, ‘A Decade of New Commercial Treaties’, 50 American Journal of International
Law (1956) 4, 927, 928 [Wilson, Commercial Treaties].
462 GoJIL 5 (2013) 2, 455-486
covering primarily natural persons to also protecting the rights of companies

abroad,18 and also set out to strengthen the protection of private property.19
The major change in the focus of FCN treaties occurred in the years
following the Second World War. With international trade becoming subject
to multilateral rules through the inception of the GATT in 1947, the content of
FCN treaties gradually shifted towards the protection of investment abroad. In
post-war FCN treaties, investment-related provisions then made up almost half
of the treaty body.20 In the words of one commentator, these instruments had
effectively been turned into “Treaties for the Encouragement and Protection of
Foreign Investment”.21 Hence, contrary to what is sometimes asserted,22 FCN
treaties, at least in the post-war era, were not primarily about trade, but already
contained extensive investment protection standards.23 Sachs thus concludes
that “the [U.S.] transition from FCN to BIT occurred not in the early 1980s
but some thirty years earlier”.24 Between 1946 and 1966, the U.S. concluded 21
such agreements.25 Other countries such as Japan and, to a more limited extent,
Germany and the UK concluded similar FCN type treaties in the same period.26
These FCN treaties contained investment protection standards very
similar to those offered by early BITs albeit with minor differences in language,
with the FCN treaty referring to ‘nationals’, ‘companies’ or, ‘property’ whereas
BITs talked about ‘investors’, ‘investment’ and ‘assets’.27 This is best illustrated
by the U.S.–Pakistan FCN Treaty concluded in the same year (1959) as the
first BIT between Germany and Pakistan. The two agreements contained the
same core investment protection standards, such as non-discrimination, full
18
H. Walker Jr., ‘Provisions on Companies in United States Commerical Treaties’, 50
American Journal of International Law (1956) 2, 373; W. Sachs, ‘The New U.S. Bilateral
Investment Treaties’, 2 International Tax & Business Lawyer (1984) 1, 192, 196.
19
R. R. Wilson, ‘Property-Protection Provisions in United States Commercial Treaties’, 45
American Journal of International Law (1951) 1, 83.
20
Walker, ‘Protection of Foreign Investment’, supra note 12, 234.
21
Ibid., 229.
22
Schill, supra note 3, 29.
23
K. J. Vandevelde, ‘A Brief History of International Investment Agreements’, 12 UC Davis
Journal of International Law & Policy (2005) 1, 157, 162-166 [Vandevelde, A Brief History
of IIAs].
24
Sachs, supra note 18, 197.
25
K. J. Vandevelde, ‘The Bilateral Investment Treaty Program of the United States’, 21
Cornell International Law Journal (1988) 2, 201, 209 [Vandevelde, The BIT Program of
the United States].
26
Johnson Jr. & Gimblett, supra note 2, 677; Yackee, supra note 2, 19.
27
See Coyle, supra note 2, 350-351.
protection and security, expropriation and transfer of funds.28 Neither of the

two agreements provided for investor-State arbitration (ISA), since BITs began
to include ISA provisions, “what has turned out to be their primary—indeed,
their only truly important—difference from modern FCN treaties”,29 only in the
1960s.30 So, in summary, in the early 1960s, FCN treaties and BITs coexisted as
investment protection treaties.
C. The 1980s U.S. Debate and the Shift From FCN to

BITs
In spite of their similarities, FCN treaties and BIT differed notably in their
underlying approach to investment policy-making. These differences crystallized
most clearly in the U.S. debate in the late 1970s and early 1980s on whether the
U.S. should adopt the European-style BITs or continue to conclude FCN treaties.
At that time, the American business community had become increasingly
dissatisfied with FCN treaties as a policy tool for investment protection, and
had begun to pressurise the government to endorse a treaty model more akin
to European BITs.31 The principal criticism was targeted at the design of FCN
treaties. Even in its post-war form, FCN treaties remained comprehensive and
complex agreements covering a wide array of potentially controversial subject
matters such as human rights, immigration policy, or religious practices.32 As
Bergmann notes: “the attempt to address very complex issues in the context
of such a broad spectrum of relations detracted from the utility of the FCN as
an investment protection device”33 and made the negotiation of these treaties
highly cumbersome and politicized, often resulting in failure. The United States
28
Johnson Jr. & Gimblett, supra note 2, 678; Yackee, supra note 2, 89 (note 43).
29
Johnson Jr. & Gimblett, supra note 2, 679.
30
On the similarities and differences between BITs and FCN, see Vandevelde, ‘A Brief
History of IIAs’, supra note 23, 168-175.
31
V. H. Ruttenberg, ‘The United States Bilateral Investment Treaty Program: Variations
on the Model’, 9 Journal of International Business Law (1987) 1, 121, 122; Sachs, supra
note 18, 21; C. A Hamilton & P. I. Rochwerger, ‘Trade and Investment: Foreign Direct
Investment Through Bilateral and Multilateral Treaties’, 18 New York International Law
Review (2005) 1, 1, 4-5; Vandevelde, BITs: History, Policy, and Interpretation, supra note 2,
25.
32
Hamilton & Rochwerger, supra note 31, 44; Gudgeon, supra note 15, 108.
33
M. S. Bergman, ‘Bilateral Investment Protection Treaties: An Examination of the
Evolution and Significance of the U.S. Prototype Treaty’, 16 New York University Journal
of International Law & Politics (1983) 1, 1, 7.
464 GoJIL 5 (2013) 2, 455-486
concluded its last FCN treaty with Thailand in 1966.34 A subsequent negotiation
with the Philippines was abandoned in the early 1970s.35
At the same time, European countries were highly successful in
negotiating BITs. Until the late 1970s over 170 of such agreements had been
concluded.36 The comparative advantage of European BITs lay in their “brevity
and simplicity”.37 In contrast to FCN treaties, BITs were short, intuitive, and
focused on investment protection only. As the primary advocate of BITs in the
U.S., the American business community hoped that a more concise treaty model
tailored to the specific needs of American investors especially in developing
countries could close the gap of treaty protection separating them from their
European competitors.38 This appeared particularly acute in light of frequent
investment restrictions and expropriations in developing countries at the time.39
In response, the Reagan Administration decided to shift from the traditional
FCN treaty to the European BIT Model.40 The first U.S BIT was concluded
with Egypt in 1982, and nine more agreements followed in the same decade.41
The shift from FCN to BITs marked a significant conceptual departure
in the U.S. investment treaty policy in two ways. First, U.S. FCN treaties had
not been limited or even primarily targeted at developing countries.42 Rather the
opposite was true. As ‘treaties of general relations’ they were originally designed
to form political and economic ties with other developed countries.43 Also in the
post-war period, negotiations by the U.S. included major developed States such
as France, Italy, Belgium, or Germany. FCN treaties were thus firmly grounded
in the principle of symmetry, reciprocity, and mutuality – premises which did
not vary significantly even when applied to a developing country treaty partner,
since FCN, like later BITs, were negotiated using model agreements.44 This
34
Ruttenberg, supra note 31, 124.
35
Gudgeon, supra note 15, 108.
36
United Nations Centre on Transnational Corporations (UNCTC), Bilateral Investment
Treaties 1959-1991 (1992), 3.
37
Gudgeon, supra note 15, 110.
38
39
Vandevelde, ‘A Brief History of IIAs’, supra note 23, 166-171.
40
41
Sachs, supra note 18, 193 (note 10).
42
Vandevelde, ‘The BIT Program of the United States’, supra note 25, 209: “Unlike the
modern FCNs, which were directed primarily at developed countries, the BITs, were
targeted at developing countries.”
43
Coyle, supra note 2, 306-307.
44
Vandevelde, BITs: History, Policy, and Interpretation, supra note 2, 19; Sachs, supra note 18,
197; Wilson, ‘Commercial Treaties’, supra note 17, 928.
symmetry coupled with the fact that FCN treaties were considered directly
enforceable before U.S. courts45 and could spark actual litigation on issues
highly intrusive to national sovereignty such as employment regulations46 had
important repercussions on treaty design. As Walker observed, “the limits of
[a] [FCN type] investment treaty are set by the degree to which the United
States is willing to bind its own domestic policy”.47 In other words, reciprocity
in law and in fact imposed a natural restraint on investment protection in
FCN treaties. As a result, these treaties reflected a finely tuned balance of
investment protection obligations and flexibility clauses preserving the right
to regulate in sensitive policy areas48 which rendered FCN treaties “essentially
moderate in their content and purport”.49 The same is not true for BITs. BITs
were designed to cover an asymmetrical relationship between developed, capital
exporting countries and developing, capital importing countries.50 Although
BITs formally apply equally to both parties, with investment flows being
unidirectional, “reciprocity is to a large extent a matter of prestige rather than
reality”.51 The former U.S. negotiator Alvarez concurs: “[t]he regulatory burdens
of [early U.S. BITs] fell almost entirely on our (LDC) BIT partners.”52 Even

45
Coyle, supra note 2, 335 (note 142).

46
J. A. Miller, ‘Title VII and the FCN Treaty: The Exemption of Japanese Branch Operations
from Employment Discrimination Laws’, 7 Boston College International and Comparative
Law Review (1984) 1, 67.
47
Walker, ‘Protection of Foreign Investment’, supra note 12, 246. Similarly, Walker, ‘Modern
Treaties of Friendship, Commerce and Navigation’, supra note 13, 810.
48
Walker, ‘Protection of Foreign Investment’, supra note 12, 247. For examples of such
investment-related flexibility clauses, see, for instance, the 1959 U.S.–Pakistan FCN Treaty,
Arts II (3), VII (2), IX (3), XII (2) & XX (12 U.S.T. 110, 112, 114-117 & 121-122).
49
Walker, ‘Protection of Foreign Investment’, supra note 12, 247. Walker goes on to
confirm that “moderation is not synonymous with ineffectiveness. These treaties focus, in
fundamental terms of enduring value over the long range, upon the line between policy
favorable and policy unfavorable to foreign investment.” Ibid.
50
J. W. Salacuse, ‘BIT by BIT: The Growth of Bilateral Investment Treaties and Their Impact
on Foreign Investment in Developing Countries’, 24 The International Lawyer (1990) 3,
655, 663: “A BIT purports to create a symmetrical legal relationship between the two States,
for it provides that either party may invest under the same conditions in the territory of the
other. In reality, an asymmetry exists between the parties to most BITs since one State will
be the source and the other the recipient of virtually any investment flows between the two
countries. This asymmetry conditions the dynamics of the BIT negotiation.”
51
Mann, supra note 3, 241.
52
J. E. Alvarez, ‘The Evolving BIT’, 7 Transnational Dispute Management (2010) 1, 1, 3.
466 GoJIL 5 (2013) 2, 455-486
if reciprocal investment flows had existed, the possibility of litigation against

developed countries was dismissed by commentators. As Gann put it in 1985,
“[f]rom the United States’ standpoint, the rights and duties under
the BITs are redundant because investments in the United States
already receive substantial and non-discriminatory protection. The
practical effect of the BIT, then, is to secure from the signatory
developing country some assurance of encouragement and
protection of outbound U.S. investment.”53
Since reciprocity coupled with the threat of litigation at home, which had
imposed a natural restraint on FCN treaties, was thus absent in BITs, the treaty
design of the latter became skewed in favor of investment protection obligations,
giving little consideration to the host State’s regulatory autonomy. The quid pro
quo of BITs was thus fundamentally different from the trade-off of rights and
obligations in FCN treaties.54 Developing countries signed BITs ‘that hurt them’
to benefit from a different bargain: they hoped to reap development benefits
arising from increased foreign investment, in exchange for limiting their right
to regulate and expropriate.55 In sum, FCN treaties and BITs were signed in
very different spirits, and reflected a very different mix of investment protection
obligations and regulatory flexibility.
Second, the U.S.’ endorsement of the BIT model meant an investment
policy shift away from a holistic treatment of investment, trade, and foreign
relations together to a compartmentalization of legal regimes. Proponents of BITs
considered this investment-only approach to be beneficial as it allowed for stronger
and more tailored investment protection and avoided politically contentious

53
P. B. Gann, ‘The U.S. Bilateral Investment Treaty Program’, 21 Stanford Journal International
Law (1985) 2, 373, 374.

54
See Salacuse & Sullivan, ‘Do BITs Really Work’, supra note 9, 77: “An investment treaty
between two developed States, both of whose nationals expect to invest in the territory of
the other, would be based on the notion of reciprocity and mutual protection. However,
this bargain would not seem applicable in the context of a treaty between a developed,
capital-exporting State and a poor, developing country whose nationals are unlikely to
invest abroad.”

55
A. T. Guzman, ‘Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of
Bilateral Investment Treaties’, 38 Virginia Journal of International Law (1998) 4, 639, 658-
665; Salacuse & Sullivan, ‘Do BITs Really Work’, supra note 9, 77.
issue areas, speeding up negotiation.56 Divorcing investment protection from its

wider policy context, however, also has important drawbacks. As Walker noted:
“The building and operation of a motor factory by a big corporation

clearly is ‘investment’ in its major ‘economic development’
connotation; but how can, and why should, treaty protection be
written that does not cover also, at the other end of the business
scale, the individual entrepreneur engaged in a sales activity?”57
In practice, investment transactions are often intrinsically linked to trade

and intellectual property rights but also touch upon environmental, cultural,
and human rights issues. That is why, as Walker put it:
“[The FCN treaty] regards and treats investment as a process

inextricably woven into the fabric of human affairs generally; and
its premise is that investment is inadequately dealt with unless set
in the total ‘climate’ in which it is to exist. A specialized ‘investment
agreement’ [i.e. a BIT] based on a narrower premise would be to
that extent unrealistic and inadequate.”58
So whereas the BIT as a special-purpose vehicle may have been more apt
to advance some of the protective interests of investors, it lacked the benefits
associated with a comprehensive treatment of investment ‘in context’ which
FCN treaties displayed.
In sum, FCN treaties and BITs were both agreements to protect foreign
investment, but they reflected two opposing philosophies on how this was best to
be achieved. BITs were short, simple, and highly specialized agreements tailored
to govern an asymmetrical economic relationship, whereas FCN treaties were
complex and comprehensive agreements placing investment protection in its
wider context and designed to cover symmetrical economic exchanges. In spite
of these differences, it is not entirely true that the “FCN treaty has few bases for
comparison with the more focused investment treaties of modern times”.59 As
56
Gudgeon, supra note 15, 108-109; Ruttenberg, supra note 31, 124.
57
58
Ibid.
59
M. Sornarajah, The International Law on Foreign Investment, 3rd ed. (2010), 182. For
Sornarajah, FCN treaties may, however, offer an insight into how instruments initially
designed to spread the influence of powerful countries can be turned against their initial
masters. Not unlike NAFTA, which was unexpectedly used to challenge not only Mexican,
468 GoJIL 5 (2013) 2, 455-486
will be further explored in the following sections, as an alternative approach to

investment treaty design FCN treaties continue to inspire actual policy-making.
D. The Impact of FCN Treaties on the U.S. BIT Program

While the U.S. policy shift reflected a change in the underlying approach
to investment policy-making, the U.S. did not fully abandon its FCN heritage.
In fact, several FCN treaty design elements survived the policy shift and were
integrated and reformulated in the U.S. BIT program and, from there, inspired
NAFTA and, indeed, global investment treaty-making.
Although commentators differ in their assessment of the FCN impact
on U.S. BITs,60 it can be safely said that FCN treaties provided a crucial
reference point for early U.S. BIT negotiators. On the one hand, the FCN
experience provided motivation to remedy perceived deficiencies of earlier
treaties in the new BITs. For instance, improvements were perceived necessary
with respect to expropriation and arbitration provisions of FCN treaties.61
On the other hand, the U.S. program clearly built on the FCN experience.
Rather than blindly copying from European-style treaties, U.S. drafters strove
to combine the best of both worlds.62 Sometimes this meant improving on
both FCN treaties and European BITs. For instance, both FCN treaties and
BITs were criticized for the vagueness of their treaty provisions.63 According
to Gudgeon “there was concern that the European model lacked sufficient
but also Canadian and the American measures, FCN treaties had been used by Japanese
nationals or the governments of Nicaragua and Iran to bring a case against U.S.
60
Some authors consider the U.S. BIT program as the clear successor of the FCN program,
albeit stripped of its non-investment components. See Gudgeon, supra note 15, 108-110;
Sachs, supra note 18, 193-198; Vandevelde, BITs: History, Policy, and Interpretation, supra
note 2, 1. Other authors clearly see a break between them. See Ruttenberg, supra note
31, 125-126; Bergman, supra note 33, 6 & 10; P. McKinstry Robin, ‘The Bit Won’t Bite:
The American Bilateral Investment Treaty Program’, 33 American University Law Review
(1984) 4, 931, 941-942.
61
Bergman, supra note 33, 8.
62
For detailed comparison see Gann, supra note 53.
63
Bergman, supra note 33, 8; Ruttenberg, supra note 31, 125; McKinstry Robin, supra note
60, 941.
specific guidance in the enforcement context”.64 As a result, the language of

the 1982 U.S. Model BIT became particularly (or even overly) complex.65
Also, performance requirements absent in earlier FCN treaties or European
BITs were considered necessary innovations and thus made their way into the
IIA universe through the first U.S. BIT.66 Most interesting for our purposes,
however, are the instances where the U.S. program constituted the continuation
of the FCN legacy. Largely absent in European-style BITs, five FCN design
elements in particular survived the U.S. policy shift in the 1980s and have
started to thrive in the modern investment treaties across the globe. They include
1) pre-establishment clauses, 2) non-conforming measures, 3) international law
minimum standard references, 4) personal investor protection, and 5) positive
integration-type clauses.67 Aside from the United States, Australia, Canada,
Chile, Japan, South Korea, Mexico, Singapore, and Taiwan, also, amongst
others, today systematically include some or all of these FCN design features
into their treaties.
I. Pre-Establishment Provisions
Whereas European BITs were typically limited to investment protection
post-establishment, American BITs from the very start also contained pre-
establishment commitments that had traditionally been found in FCN
treaties.68 The common purpose of American FCN treaties and BITs was not
only the protection of investment stock but also the liberalization of investment

64
Gudgeon, supra note 15, 110. Conflicting interpretations by arbitral tribunals of similar
treaty provisions (e.g. the necessity defense) are cases in point.

65
The language was simplified in subsequent U.S. BITs. See Gann, supra note 53, 374. For
criticism of the rigidity of the early U.S. BIT Model, see Ruttenberg, supra note 31, 134-
137.

66
A. Newcombe & L. Paradell, Law and Practice of Investment Treaties: Standards of Treatment
(2009), 422; McKinstry Robin, supra note 60, 949-950; Bergman, supra note 33, 18;

67
This list is not meant to exhaust the number of FCN features that were retained in U.S.
BITs. As stated in the introduction, the impact of FCN language on BITs (both U.S. and
non-U.S.) is much more pervasive. The purpose of this section is to identify conceptually
significant treaty designed features that survived the shift from BITs to FCN.

68
UNCTAD, The Role of International Investment Agreements in Attracting Foreign Direct
Investment to Developing Countries (2009), 20: “[...] looking from the perspective of
developing countries, there are two BIT models: (a) ‘protection only’ BITs mostly with
European countries and other developing countries; and (b) liberalizing BITs concluded
mainly with the United States and Canada, and more recently, with Japan.”
470 GoJIL 5 (2013) 2, 455-486
flows.69 The typical American IIA thus offers national treatment and most-
favored nation treatment to foreign investors for the phases of acquisition and
establishment also. The inclusion of a pre-establishment component has since
become increasingly common in IIAs around the world.70
II. Non-Conforming Measures

Historically linked, but not limited to the pre-establishment component
of FCN treaties are reservations, also called non-conforming measures,
which carve out certain policy areas from the national treatment and MFN
obligations. The U.S. typically maintained restrictions regarding, for instance,
the foreign acquisition of businesses in the field of communications, air or water
transport, the exploitation of land, or other natural resources in their FCN
treaties.71 The early U.S. BITs continued this practice, but moved the listing of
non-conforming measures to the annexes.72 Modern investment treaties have
followed NAFTA in refining this practice by setting up a complex multiple annex
structure of non-conforming measures that include 1) existing non-conforming
laws sometimes distinguishing between national and sub-national levels and
2) future non-conforming measures that may be taken in identified sectors or
sub-sectors. Aside from grandfathering existing restrictions, the purpose of
these annexes is to establish a ceiling of reservations, while allowing sufficient
flexibility to regulate sensitive policy areas. These reservations are no longer
limited to national treatment and MFN, but typically also cover performance

69
Vandevelde, BITs: History, Policy, and Interpretation, supra note 2, 413-418. See also
UNCTAD, Admission and Establishment (2002), 17 & 26.

70
See, for instance, ASEAN-Australia-New Zealand Free Trade Agreement (2009), Art. 4 of
Ch. 11, available at http://www.asean.fta.govt.nz/assets/Agreement-Establishing-the-ASE
AN-Australia-New-Zealand-Free-Trade-Area.pdf (last visited 31 January 2014), 148;
2002 Japan–South Korea BIT, Art. 2; 2004 Singapore–Jordan BIT, Art. 5; 2005 Belgium-
Luxembourg–Dem. Rep. of the Congo BIT, Art. 4 (2). China, in contrast, which has endorsed
many of the other FCN features discussed below, has limited its pre-establishment
commitments to MFN only. See 2012 Canada–China FIPA, Art. 5. All named BITs and
the FIPA can be retrieved at http://www.unctadxi.org/templates/DocSearch____779.aspx
(last visited 31 January 2014).

71
See, for instance, 1954 Germany-U.S. FCN Treaty, Art. VII (2) (7 U.S.T. 1839, 1847).

72
See, for instance, 1994 U.S. Model BIT, Art. II (2) (a) (Treaty Between the Government
of the United States of America and the Government of [...] Concerning the Encouragement
and Reciprocal Protection of Investment, reprinted in UNCTAD, International Investment
Instruments: A Compendium, Vol. III (1996), 195, 197).
requirements and sojourn of personnel provisions.73 Additional policy space is

accounted for in recent IIAs that provide the contracting States with the right
to issue interpretations of annexes in the course of investor-State arbitration that
are binding on the tribunal.74 Importantly, the inclusion of non-conforming
measures does not necessarily translate into a lower level of investment
protection, as compared to European BITs where such reservations are generally
absent. As highlighted by several commentators, American treaties reach even
higher levels of protection, since non-conforming measures are accompanied by
more extensive or new protective obligations (e.g. performance requirements)
generally not found in European BITs.75
III. International Law Minimum Standard

One of the goals of the American FCN and then the BIT program
consisted of the reinforcement and recognition of an international customary
law minimum standard of treatment (MST) in light of its contestation by
countries of the South.76 While the ‘fair and equitable treatment’ (FET) clause
was typically self-standing in FCN treaties, the obligation to afford ‘constant
protection and security’ to nationals was tied to the international law minimum
standard.77 When the new U.S. Model BIT joined the two clauses, the reference
to international law was retained in Article II (4) of the 1982 U.S. Model BIT.78
Such a direct textual reference was absent both in the Abs-Shawcroft Draft and
the 1967 OECD Draft Convention on the Protection of Foreign Property which
inspired European BITs, leading to a debate on whether these standards are free
standing, or linked to customary international law.79 While the inclusion of the
73
See, for instance, 2011 Colombia–Japan BIT, Art. 1 of Annex I or 2008 Rwanda–U.S. BIT,
Explanatory Notes of Annex I. Both BITs can be retrieved at http://www.unctadxi.org/
templates/DocSearch____779.aspx (last visited 31 January 2014).

74
See, e.g., 2008 Rwanda–U.S. BIT, Art. 31. The BIT can be retrieved at http://www.unctad
xi.org/templates/DocSearch____779.aspx (last visited 31 January 2014).

75
Bergman, supra note 33, 24; Gann, supra note 53, 439.

76
Bergman, supra note 33, 34-35. See generally S. Montt, State Liability in Investment Treaty
Arbitration: Global Constitutional and Administrative Law in the BIT Generation (2009).

77
See, for instance, 1959 U.S.–Pakistan FCN Treaty, Arts I & III (1) (supra note 48, 110 &
112); 1961 U.S.–Belgium FCN Treaty, Arts 1 & 3 (1) (14 U.S.T. 1284, 1286 & 1288);
1966 U.S.–Thailand FCN Treaty, Arts I (2) & III (2) (19 U.S.T. 5843, 5845 5847).
78
See also Vandevelde, BITs: History, Policy, and Interpretation, supra note 2, 76.
79
The 1967 Commentary to the OECD Draft Convention, however, links “fair and equitable
treatment” and “constant protection and security” to the international law minimum
standard. OECD (ed.), Draft Convention on the Protection of Foreign Property: Texts with
Notes and Comments (1962), 9 (paras 4 & 5).
472 GoJIL 5 (2013) 2, 455-486
international law reference is an important element of continuity from FCN to

BITs, one must admit that its underlying function has changed dramatically
since the U.S. policy shift. From being a floor (i.e. encouraging protection
beyond the MST) it has been turned into a ceiling in investment protection (i.e.
confining FET to MST) in post-NAFTA treaties, as States seek to strengthen
the defensive elements of their treaties in light of growing investment claims.80
IV. Protection of Personal Investor Rights

Whereas European BITs focused on the protection of investment, FCN
treaties placed the investing national or company center-stage.81 The additional
protection afforded to the person of the investor has remained a pillar of the U.S.
BIT program although in a more confined manner. The U.S. has consistently
included provisions governing the entry and sojourn of personnel and senior
management in its treaties, continuing its long-standing FCN practice in this
regard.82 Moreover, modern U.S. treaties are not only concerned with host State
measures relating to investment, but extend their coverage to measures affecting
investors of the other party.83 In particular, national and MFN standards of

80
Consider, in particular, the intervention by the NAFTA parties through an authoritative
interpretation. See NAFTA Free Trade Commission, ‘Notes of Interpretation of
Certain Chapter 11 Provisions’ (31 July 2001), available at http://www.sice.oas.org/
tpd/nafta/Commission/CH11understanding_e.asp (last visited 31 January 2014). See
also UNCTAD, ‘Interpretation of IIAs: What States Can Do’, IIA Issues Note No. 3 (11
January 2012), available at http://www.unctad.org/en/Docs/webdiaeia2011d10_en.pdf
(last visited 31 January 2014) [UNCTAD, Interpretation of IIAs].

81
Coyle, supra note 2, 350, stating that “[t]he transition from the FCN treaty to the
BIT, moreover, represents a transition from a treaty regime concerned with protecting
individuals to one concerned with protecting investment”.

82
1982 U.S. Model BIT, Art. 5 (b) (Treaty Between the United States of America and [Country]
Concerning the Reciprocial Encouragement and Protection of Investment, reprinted in 15 Law
and Policy in International Business (1983) 1, 273, A-1, A-7); North American Free Trade
Agreement, 8-17 December 1992, Art. 1107, 32 ILM 289 & 32 ILM 605, 640 [NAFTA];
2012 U.S. Model BIT, Art. 9 (Treaty Between the Government of the United States of America
and the Government of [Country] Concerning the Encouragement and Reciprocal Protection
of Investment, available at http://www.state.gov/documents/organization/188371.pdf (last
visited 31 January 2014), 13).

83
See NAFTA, Art. 1101 (1), supra note 82, 640; 2004 U.S. Model BIT, Art. 2 (1) (Treaty
Between the Government of the United States of America and the Government of [Country]
Concerning the Encouragement and Reciprocal Protection of Investment, available at http://
www.state.gov/documents/organization/117601.pdf (last visited 31 January 2014), 6) and
2012 U.S. Model BIT, Art. 2 (1), supra note 82, 6.
treatment are typically given not only to investments but also to investors.84 As
a result, treaties containing such language cannot, and should not, be reduced
to property protection treaties. Rather, like FCN treaties, they also contain a
significant personal protection component.85 The granting of independent
investor rights has potentially important repercussions. In RosInvest v. Russia,
involving a similarly worded treaty between the Soviet Union and the United
Kingdom (1989), the tribunal stressed the fact that the treaty extended MFN
coverage not only to investment, but also to investors, which meant that the
latter could invoke it to rely on the more favorable dispute settlement provision
of a third treaty.86 The existence of personal investor rights may prove significant
also on other fronts, e.g., on the question whether tribunals can award moral
damages. In sum, the personal protection granted to the investor is an important
continuation of the FCN experience.
V. Transparency and Other Positive Integration-Type Obligations

A final treaty design heritage of the FCN treaty is the reliance on positive
integration-type obligations. European BITs were negative integration-type
treaties that prohibit or constrain certain governmental conduct.87 Positive
integration-type obligations, in contrast, require a specific positive administrative
or legislation action on part of the contracting States. FCN treaties contained
extensive positive integration obligations relating, for instance, to the protection
of human or consular rights, or the recognition procedure of arbitral awards.
These concerns have since been addressed on the multilateral level through the
Human Rights Covenants, the Vienna Convention on Consular Relations and the
New York Convention. What survived the transfer to the American BIT program,

84
See 2004 U.S. Model BIT, Art. 3 (1), supra note 83, 6 and 2012 U.S. Model BIT, Art. 3
(1), supra note 82, 7.

85
Z. Douglas, The International Law of Investment Claims (2009), 136-141, paras 276-290.
Contrary to Douglas’ assertion that treaties granting investor rights are an exception, they
have been proliferation rapidly and are today systematically included in the BIT program
of Australia, Canada, Japan, U.S., Singapore, and Taiwan amongst others.

86
RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. V079/2005, Award on
Jurisdiction of 1 October 2007, 77-80, paras 126-133.

87
Negative integration type clauses may still require positive action, for instance, if benefits
witheld to foreign investment but accorded to domestic investment have to be extended
to all investment by virtue of the National Treatment obligation. J. Robbins, ‘The
Emergence of Positive Obligations in Bilateral Investment Treaties’, 13 University of Miami
International & Comparative Law Review (2006) 2, 403. This, however, is just an incidental
effect of negative integration type clauses and does not reflect the distinction drawn here.
474 GoJIL 5 (2013) 2, 455-486
however, were the obligations to publish laws in advance and to guarantee access
to institutions and proceedings of domestic justice.88 While the importance
of the latter is today somewhat reduced due to the widespread recourse to
arbitration, transparency clauses remain meaningful and have since evolved to
include means for participation in law-making for the other contracting party
or affected stakeholders.89 The 2012 U.S. Model BIT goes particularly far by
extending the reach of this obligation to domestic standard setting.90
In sum, important FCN treaty design elements survived the U.S. shift
from FCN to BITs and gave the American BIT program a unique design,
distinguishing it from European BITs. These FCN design features have since
found their way into NAFTA and were subsequently included in the investment
treaty programs of other major economies, where they continue to evolve.
E. There and Back Again: The Return of the FCN

Approach to Investment Treaties
In addition to shaping the American BIT program, FCN treaties have
influenced modern investment treaty law in a more subtle way, by providing the
ideational roots for the emergence of a second generation of investment treaties.
Although BITs and FCN treaties are no longer competing in actual investment
treaty making as in the 1960s, they remain conceptual alternatives that continue
to inspire different approaches to investment policy-making.
The American policy shift suggests that the economic and political context
to a large extent determines whether a FCN or a BIT approach is chosen. In the
immediate post-war era, FCN treaties were the instruments of choice to put
the economic and political relations between like-minded developed countries
on a new foundation. Then, the intensifying Cold War confrontation and

88
See 1959 U.S.–Pakistan FCN Treaty, Art. XV (supra note 48, 119) (the article’s scope,
however, was limited to trade matters); 1984 U.S. Model BIT, Art. II (8) & Art. IX
(U.S. Model Treaty Concerning the Reciprocal Encouragement and Protection of Investment,
reprinted in 4 International Tax & Business Lawyer (1986) 1, 136, 138 & 142). See also
R. R. Wilson, ‘Access-to-Courts Provisions in United States Commercial Treaties’, 47
American Journal of International Law (1953) 1, 20.

89
See, for instance, 2011 Japan–Papua New Guinea BIT, Art. 7 & 8; 2007 Peru–Colombia
BIT, Art. 15; 2005 U.S.–Uruguay BIT, Art. 11. All named BITs can be retrieved at http://
www.unctadxi.org/templates/DocSearch____779.aspx (last visited 31 January 2014).

90
2012 U.S. Model BIT, Art. 11 (8) (a), supra note 82, 16, stipulates that “[e]ach Party
shall allow persons of the other Party to participate in the development of standards and
technical regulations by its central government bodies”.
decolonization changed the political climate, making it less conducive to treaties

of general relations. At the same time, the need for investment protection became
most acute in developing countries which had no outward investment of their
own, making asymmetrical rather than symmetrical treaties a more natural
choice. In that setting, the more specialized and seemingly more technical BITs
presented an attractive alternative to the FCN treaty. Just as the political and
economic climate favored the rise of the BITs approach, changes in the world
economy have since led to its decline and to a re-emergence of the FCN approach
to investment policy making.
I. The Rise and Decline of First Generation BITs

After the fall of the Berlin Wall, BITs proliferated quickly across the globe.
In the 1990s alone, almost 1600 such treaties were concluded.91 The brevity and
simplicity of BITs made them easy to negotiate.92 At its peak in 1996, UNCTAD
reported the conclusion of 211 BITs – meaning that on average, a new BIT was
signed every one and a half days.93
The enthusiasm towards European-style BITs, however, started to wane in
the early 21st century. Until the late 1990s, investor-State arbitration, provided
for in most BITs, had largely lain dormant. Since then, however, a total of over
500 cases have been filed.94 In light of the flood of investment claims, States
began to discover that the early BIT approach of brevity and simplicity coupled
with a focus on investment protection not only had certain benefits but also
entailed significant risks.95 BITs’ simplicity made them prone to unpredictable
91
UNCTAD, Bilateral Investment Treaties 1959-1999, supra note 1, 1.
92
In addition, until recently, the majority of these treaties were closely modeled on the
OECD Draft Convention on the Protection of Foreign Property of 1967 producing largely
homogenous treaties. Hence many countries shared a common reference point which also
facilitated negotiations. See Schill, supra note 3, 35-36.
93
UNCTAD, ‘Quantitative Data on Bilateral Investment Treaties and Double Taxation
Treaties’, available at http://www.unctad.org/en/Pages/DIAE/International%20Investme
nt%20Agreements%20(IIA)/Quantitative-data-on-bilateral-investment-treaties-and-
double-taxation-treaties.aspx (last visited 31 January 2014).
94
UNCTAD, ‘Recent Developments in Investor-State Dispute Settlement (ISDS)’, IIA Issues
Note No. 1 (10 April 2013), available at http://www.unctad.org/en/PublicationsLibrary/
webdiaepcb2013d3_en.pdf (last visited 31 January 2014), 3.
95
L. N. Skovgaard Poulsen & E. Aisbett, ‘When the Claim Hits: Bilateral Investment
Treaties and Bounded Rational Learning’, 65 World Politics (2013) 2, 273; L. N. Skovgaard
Poulsen, Sacrificing Sovereignty by Chance: Investment Treaties, Developing Countries, and
Bounded Rationality (2011) [Skovgaard Poulsen, Sacrificing Sovereignty by Chance].
476 GoJIL 5 (2013) 2, 455-486
and, at times even, inconsistent interpretation.96 Their brevity created an

apparent justification for judicial activism in order to clarify vague treaty
language and to close gaps left open by the drafters.97 Finally, their focus on
investment protection sparked debates on their compatibility with other public
policy objectives such as human rights or environmental protection especially as
investors began challenging general legislation in the public interest.98
As a result of these concerns, States began to re-consider their approach
to investment treaties. Some countries started to denounce their BITs.99 Bolivia,
Ecuador, and Venezuela even exited the ICSID Convention.100 In general, States
became more hesitant to negotiate BITs. With only 20 new BITs signed in 2012,
the number of agreements concluded yearly has reached pre-1990 levels.101 This

96
Consider for example the conflicting awards involving Argentina’s necessity defense: CMS
Gas Trasmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Award of 12
May 2005, 44 ILM 1205; Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic,
ICSID Case No. ARB/01/3, Award of 22 May 2007; LG&E Energy Corp. and Others
v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability of 3 October
2006, 46 ILM 40; Sempra Energy International v. Argentina, ICSID Case No. ARB/02/16,
Decision on the Argentine Republic’s Request for Annulment of the Award of 29 June
2010, 49 ILM 1445; Enron Creditors Recovery Corp. Ponderosa Assets, L.P. v. The Argentine
Republic, ICSID Case No. ARB/01/3, Decision on the Application for Annulment of the
Argentine Republic of 30 July 2010.
97
W. Alschner, ‘Interpreting Investment Treaties as Incomplete Contracts: Lessons from
Contract Theory’ (2013), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=2241652 (last visited 31 January 2014).
98
See generally M. Waibel et al. (eds), The Backlash Against Investment Arbitration: Perceptions
and Reality (2010); S. D. Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration:
Privatizing Public International Law Through Inconsistent Decisions’, 73 Fordham Law
Review (2005) 4, 1521.
99
South Africa, for instance, denounced or declined to renew several BITs with EU countries.
See Webber Wentzel, ‘SA Declines to Renew Bilateral Investment Treaties With European
Union Member States’ (1 October 2012), available at http://www.polity.org.za/article/
sa-declines-to-renew-bilateral-investment-treaties-with-eu-member-states-2012-10-01
(last visited 31 January 2014). See also M. Allix, ‘EU Steps up Fight to Have Treaties
With SA Retained’, Business Day (12 November 2013), available at http://www.bdlive.
co.za/business/trade/2013/11/12/eu-steps-up-fight-to-have-treaties-with-sa-retained (last
visited 31 January 2014).
100
UNCTAD, ‘Denunciation of the ICSID Convention and BITS: Impact on Investor-State
Claims’, IIA Issues Note No. 2 (10 December 2010), available at http://www.unctad.org/
en/docs/webdiaeia20106_en.pdf (last visited 31 January 2014), 1.
101
UNCTAD, World Investment Report 2013: Global Value Chains: Investment and Trade for
Development (2013), 101.
decline in numbers cannot be explained by a saturation of the field alone.102

Rather, more and more countries have put their BIT program on hold in order
to re-evaluate their approach to investment policy-making.103
II. The Changing Economics of Investment

International arbitration, which exposed the risks and liabilities of BITs,
was not the only factor triggering a reconsideration of the underlying approach
towards investment treaty-making. Importantly, the economic patterns of
investment have also undergone a significant change, making a policy adjustment
necessary.
First, with the dawn of the 21st century, the traditional investment treaty
paradigm of Northern countries being capital exporters, and Southern States
being capital importers, began to wane. Instead, emerging economies have
turned into sources of outward investment and developed countries have become
the recipients of investment from the South. Investment flows are increasingly
becoming bi-directional.104 The change of global investment patterns coupled
with the availability of investor-State arbitration has reshuffled benefits and costs
in investment treaties. The regulatory burden of BITs does not fall any longer
on the developing country BIT partners alone, but is also borne by developed
countries. Hence, today reciprocity is not a matter of formal prestige any more,
but of reality. As a result of bi-directional investment flows, no country can feel
safe from investment claims. With the return of reciprocity, many developed
102
Skovgaard Poulsen, Sacrificing Sovereignty by Chance, supra note 95, 210. See also
UNCTAD, World Investment Report 2011: Non-Equity Modes of International Production
and Development (2011), 102-103 [UNCTAD, World Investment Report].
103
For India, see N.N., ‘India Places All BIT Talks on Hold, Pending Review of Own
Model Deal’, Inside U.S. Trade (1 February 2013), available at http://www.wtonewsstand.
com/Inside-US-Trade/Inside-U.S.-Trade-02/01/2013/menu-id-445.html (last visited
31 January 2014). For Pakistan, see M. Haider, ‘Bilateral Investment Treaties Need
Reexamination’, The International News (3 July 2013), available at http://www.thenews.
com.pk/Todays-News-3-187324-Bilateral-investment-treaties-need-reexamination (last
visited 31 January 2014). For South Africa, see South African Department of Trade and
Industry, ‘Bilateral Investment Treaty Policy Framework Review: Executive Summary of
Government Position Paper’, Government Gazette/Staatskoerant No. 32386 (7 July 2009),
available at http://www.northernlaw.co.za/images/stories/files/actsbills/BILATERAL%20
INVESTMENTS%20TREATY%20POLIVY.pdf (last visited 31 January 2014). For
Australia, see Australian Government Productivity Commission, ‘Bilateral and Regional
Trade Agreements’ (November 2010), available at http://www.pc.gov.au/projects/study/
trade-agreements (last visited 31 January 2014).
104
See UNCTAD, World Investment Report 2011, supra note 102, 2-4, which shows that
developing countries are becoming important sources of outward investment.
478 GoJIL 5 (2013) 2, 455-486
country negotiators thus have again seen the need to scale down their investment
protection demands to levels that they are willing to grant foreign investors in
return. Just as Walker had observed in the context of FCN treaties, reciprocity
and symmetry tend to balance and moderate the content of investment treaties.
Second, aside from differences between developed and emerging
economies being evened out, investment agreements themselves have moved into
new territories. These agreements are not concluded anymore only by developed-
developing country pairs, but also increasingly govern investment relations
between developing-developing and, more recently, developed-developed States
at bilateral and regional levels.105 In South-East Asia especially, a tight net of
investment agreements has emerged that connects highly linked economies
of a similar level of development. On-going negotiations over a transpacific
partnership and a transatlantic trade and investment partnership between the
EU and the U.S. have given negotiations among high-income countries a global
dimension. The changed context of investment treaties involving countries that
share a similar level of development creates further pressure for more symmetrical
and reciprocal rule-making.
Finally, the notions of ‘investment’ and ‘investors’ have changed
considerably in economic terms since the advent of the first BITs. Over the last
twenty years, we have observed the emergence of global value chains in what
Baldwin called the “unbundling of productions stages previously clustered in
factories and offices”.106 Products like iPods are invented and developed in the U.S.,
their parts manufactured in South East Asia, and the final product assembled in
China. Hence, different forms of investment transactions increasingly interact
both among themselves and with other types of economic activities resulting in
what Baldwin termed 21st century commerce or the “trade-investment-service
nexus”.107 Furthermore, disputes have begun to span across legal regimes, such as
the plain cigarette packages litigation against Australia before the WTO and an
investment tribunal,108 giving rise to a risk of inconsistent awards. The realization
105
See UNCTAD, ‘The Rise of Regionalism in International Investment Policymaking:
Consolidation or Complexity?’, IIA Issues Note No. 3 (13 June 2013), available at http://
www.unctad.org/en/PublicationsLibrary/webdiaepcb2013d8_en.pdf (last visited 31
January 2014).
106
R. E. Baldwin, ‘21st Century Regionalism: Filling the Gap Between 21st Century Trade
and 20th Century Trade Rules’ (April 2011), available at http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=1869845 (last visited 31 January 2014), 5.
107
Ibid.
108
A. D. Mitchell, ‘Australia’s Move to the Plain Packaging of Cigarettes and its WTO
Compatibility’, 5 Asian Journal of WTO and International Health Law and Policy (2010)
that different economic transactions as well as legal regimes become increasingly

intertwined puts into question the compartmentalization underlying traditional
BITs, in which investment protection is treated in isolation.
The need to take the wider context of investment protection into account
is also highlighted by the changing forms of investors. Formerly, the interests of
home States were largely aligned with that of their investors who formed part of a
national business community. The BIT was an “institutional means of protecting
the private foreign investments of Western capital-exporting nations”.109 Today,
with the rise of multinational companies (MNCs) the bondage of nationality
is beginning to break down. Due to the highly fungible nature of international
capital,110 the protection of shareholders and the myriad of means for corporate
restructuring and treaty shopping,111 every BIT may potentially benefit capital
originating from a variety of States. As a result, the means of control by home
States are diminishing and treaty protection may be accorded to types of
investors which the home State does not actually want to protect.112 This is all
the more disconcerting as MNCs are often engaged in activities that involve the
provision of essential services such as water, sewage-disposal, or electricity and
directly impact human rights, public health, or environmental issues. Where
the developing host State does not have the capacity to effectively regulate
MNCs and no home State exists, international norms such as corporate social
responsibility standards need to step in to regulate investment in context.113
Hence, with investment trans-nationalizing and investors multi-nationalizing,
2, 405; T. Voon & A. Mitchell, ‘Time to Quit? Assessing International Investment Claims
Against Plain Tobacco Packaging in Australia’, 14 Journal of International Economic Law
(2011) 3, 515 [Voon & Mitchell, Plain Tobacco Packaging in Australia]. See generally
T. Voon & A. Mitchell, ‘Implications of International Investment Law for Tobacco
Flavouring Regulation’, 12 Journal of World Investment & Trade (2011) 1, 65.

109
Abs & Shawcross, supra note 3, 115.

110
B. Legum, ‘Defining Investment and Investor: Who is Entitled to Claim?’, 22 Arbitration
International (2006) 4, 521.

111
Schill, supra note 3, 197-240.

112
For instance, while Philip Morris Hong Kong launched an investment claim against
Australia’s Plain Cigarette Packaging legislation, its home State Hong Kong received a
WHO award on the ‘World No Tobacco Day 2011’ for being at the forefront of tobacco
control policies. So, in some instances, the policy goals of a home State and its investor
may be very much opposed. See Voon & Mitchell, ‘Tobacco Packaging in Australia’, supra
note 108, 523.

113
W. Alschner & E. Tuerk, ‘The Role of International Investment Agreements in Fostering
Sustainable Development’, in F. Baetens (ed.), Investment Law Within International Law:
Integrationist Perspectives (2013), 217.
480 GoJIL 5 (2013) 2, 455-486
the FCN logic of treating “investment as a process inextricably woven into the
fabric of human affairs generally”114 regulating and coordinating a wider range
of policy issues has become more pertinent than ever.
III. The Rise of a New Generation of Investment Treaties

The emergence of bi-directional investment flows coupled with the
proliferation of investor-State arbitration and the changing economic realities
of investment transactions have led States to re-consider the early BIT approach
to investment treaty design. Realizing that Walker might have been right
that “[a] specialized ‘investment agreement’ [...] would be [...] unrealistic and
inadequate”115, States began to turn their backs on the traditional brevity
and simplicity of first generation BITs and embraced more complex and
comprehensive agreements more akin in design to FCN treaties, giving rise to
what we will call a second generation of investment agreements.
The first step towards this second generation was the emergence of
preferential trade and investment agreements beginning with the conclusion
of NAFTA in 1992.116 It is no coincidence that NAFTA marked the re-entry
of the FCN approach to investment policy-making. Since the United States
shifted relatively late from FCN to BITs and even then retained many FCN
components in its treaties, it was well situated to revive the FCN approach to
investment policy-making, as the European BIT Model became ill-equipped to
deal with a new economic context. This moment came when, for the first time
in post-FCN treaty-making, the United States was negotiating not only with a
developing but also with a developed country partner. The symmetry of levels of
development coupled with the prospect of bi-directional investment flows made
a new approach to investment policy-making necessary. Like FCN treaties, but
unlike the BITs of its time, NAFTA is a complex, delicately balanced agreement
that regulates investment ‘in context’. In addition to its non-investment chapters
and environmental and labour side agreements, Chapter 11 itself contains
references to a number of non-investment concerns most notably in a special
clause on environmental measures in Article 1114. Moreover, Articles 1106 on
performance requirements and 1108 on reservations are remarkably fine-tuned
clauses reflecting an intricate balance of investment protection and policy space
preservation. NAFTA thus became the first specimen of a second generation
114
115
Ibid.
116
The earlier 1988 Free Trade Agreement between Canada and the United States (CUFTA)
only contained a limited investment chapter without investor-State arbitration.
of IIAs. Since then, PTIAs modelled on NAFTA have proliferated and are
today concluded by Australia, ASEAN, Canada, Chile, Japan, Mexico, Peru,
Singapore, and Taiwan to name but a few. Structured in detailed chapters, these
PTIAs re-unite trade and investment governance alongside other economic
policy concerns such as intellectual property rights, competition policy, or
business facilitation.
Crucially, the return of the FCN approach is not limited to PTIAs but also
extends to a new generation of BITs. Hence, following NAFTA, an increasing
number of countries have also fundamentally changed the design of their BITs.
Whereas the 1959 Germany–Pakistan BIT contained only 14 articles, the 2008
U.S.–Rwanda BIT has 37, the 2011 Colombia–Japan BIT 44 and the 2006
Canada–Peru BIT even 52 articles.117 Part of the increase in length is devoted to
more detailed arbitration procedures, but other elements point to an FCN-like
approach also in BITs. This is not to say that this emerging second generation of
IIAs is substantively similar to FCN treaties. Subject matters such as consular
relations, navigation, or human rights are today regulated by a multitude of
other specialized bilateral and multilateral treaties. Rather, the similarities lie in
their common underlying approach to treaty design based on symmetrical and
complex rules and investment protection ‘in context’.
First, in light of reciprocal investment relations, second generation IIAs,
like their FCN predecessors, are highly complex with carefully worded provisions
and an intricate interplay of obligations and exceptions reflecting the need to
balance investment protection abroad with policy space at home.118 On the
one hand, this is done through exception clauses. A number of countries have
inserted general exceptions in their BITs.119 The 2011 Colombia–Japan BIT, for
instance, has no less than 14 exception clauses.120 As already mentioned above,
exclusions in the form of non-conforming measure clauses increasingly find their
way also into treaties across the globe. On the other hand, States have added
117
These BITs can be retrieved at http://www.unctadxi.org/templates/DocSearch____779.
aspx (last visited 31 January 2014).
118
For fine-tuning of rights and obligations in recent BITs, see A. van Aaken, ‘International
Investment Law Between Commitment and Flexibility: A Contract Theory Analysis’,
12 Journal of International Economic Law (2009) 2, 507; S. A. Spears, ‘The Quest for
Policy Space in a New Generation of International Investment Agreements’, 13 Journal of
International Economic Law (2010) 4, 1037.
119
See, for instance, the model BITs of Botswana, Canada, Colombia, Egypt, Latvia,
Mauritius, Norway, and Turkey.
120
Counted are clauses that begin with “nothing in this agreement [or article] shall prevent”
or “notwithstanding […] a Contracting Party may”.
482 GoJIL 5 (2013) 2, 455-486
precision confining the reach of the primary investment protection obligations.

One frequently found example is an explanatory clause clarifying that “non-
discriminatory measures of a Party that are designed and applied to protect
legitimate public welfare objectives, such as health, safety and the environment,
do not constitute indirect expropriation”.121 Hence, second generation IIAs
contain a fine-tuned balance of rights and obligations.
Second, the new generation of IIAs considers investment in its wider
policy context. While they do not go as far as FCN treaties to comprehensively
cover civil or religious rights, they have expanded their coverage to a wider
range of investment-related concerns. Many of the recently concluded IIAs
refer to trade law, intellectual property rights, or even non-economic concerns
such as environmental protection or labour rights. A 2011 OECD Working
Paper showed, for example, that over 100 treaties out of a sample of 1,593 BITs
contain references to environmental concerns.122 These references, virtually
absent before the mid-1990s, have sky rocketed to being part of 89 percent
of newly concluded treaties in 2008.123 In addition, all PTIAs in the sample
contained environmental language. Other novel concerns are also tackled in
IIAs. Japan, for instance, has consistently included anti-corruption standards in
its modern BITs.124 Canada and the U.S. have begun to address corporate social
responsibility in some of their PTIA investment chapters.125 A number of Belgian
121
2004 Canada Model BIT, Annex B.13(1) (Agreement Between Canada and ... for the
Promotion and Protection of Investments, available at http://www.italaw.com/documents/
Canadian2004-FIPA-model-en.pdf (last visited 31 January 2014), 21). See also, e.g., 2005
U.S–Uruguay BIT, Annex B; 2008 Japan–Peru BIT, Annex IV. The BITs can be retrieved
at http://www.unctadxi.org/templates/DocSearch____779.aspx (last visited 31 January
2014).
122
K. Gordon & J. Pohl, ‘Environmental Concerns in International Investment Agreements:
A Survey’, OECD Working Papers on International Investment No. 2011/1 (2011), available
at http://www.oecd-ilibrary.org/content/workingpaper/5kg9mq7scrjh-en (last visited 31
January 2014), 5.
123
They are particularly frequent in recent agreements by Canada, New Zealand, the U.S.,
Japan, Mexico, Finland, and Peru. Other countries like Germany and the UK still refrain
from including such concerns into their treaties on a systematic basis.
124
2011 Japan–Papua New Guinea BIT, Art. 9; 2008 Japan–Laos BIT, Art. 10, 2008 Japan–
Uzbekistan BIT, Art. 9, 2008 Japan–Peru BIT, Art. 10, 2011 Japan–Colombia BIT, Art. 8. All
named BITs can be retrieved at http://www.unctadxi.org/templates/DocSearch____779.
aspx (last visited 31 January 2014). See also J. Pauwelyn, ‘Different Means, Same End: The
Contribution of Trade and Investment Treaties to Anti-Corruption Policy’, in S. Rose-
Ackerman & P. D. Carrington (eds), Anti-Corruption Policy: Can International Actors Play
a Constructive Role? (2013), 247, 257-261.
125
UNCTAD, World Investment Report 2011, supra note 102, 120.
BITs require that the contracting parties’ “legislation provides for high levels
of environmental protection”.126 By considering issues such as environmental
protection, a regulatory race to the bottom or corporate social responsibility, the
new generation of IIAs has extended its scope beyond having bilateral investment
protection as its sole policy concern and tackled wider regulatory objectives.
In conclusion, FCN treaties may have covered different issue areas than
recently concluded IIAs, but their underlying approach still inspires modern
investment treaty-making. In a time of reciprocal investment flows and an
increasing need to consider investment in its wider policy context, the FCN
philosophy of investment protection agreements has proven more apt to address
21st century policy challenges than the short, simple, and specialized BIT
model.127
126
2009 Belgium–Barbados BIT, Art. 11 (1); 2009 Belgium–Panama BIT, Art. 5 (1); 2009
Belgium–Tadjikistan BIT, Art. 5 (1); 2009 Belgium–Togo BIT, Art. 5 (1). All named BITs
can be retrieved at http://www.unctadxi.org/templates/DocSearch____779.aspx (last
127
The following figure ‘The Gobal Policy Shift From FCN to BIT and the Rise of a Second
Generation of IIAs’ summarizes the findings of this section.
484 GoJIL 5 (2013) 2, 455-486
F. The Americanization of the IIA Universe

Since the conclusion of NAFTA, we are witnessing a global policy
shift towards a second generation of investment treaties that has its ideational
roots in the American FCN program. Today, countries look to Washington
and not to Europe to seek inspiration for their investment policy-making. Put
differently, like in the 1960s, again two competing approaches to investment
policy-making are available to policy-makers, but this time the FCN-inspired
treaties are gaining the upper hand. Hence, tracing the impact of FCN treaties
on modern investment treaty law reveals one final insight: the Americanization
of the investment treaty universe which for a long time had been dominated
by the European BIT approach. As specific FCN treaty design features and
its general approach to investment policy-making spread into the IIA universe,
they have given it a distinctly American touch.
The Americanization of the formerly European-style BIT universe is
equivalent to a change in the dominant approach to investment treaty-making.
As more and more countries experience frustration with European style BITs,
the comprehensive and complex FCN approach ‘made in the U.S.’ presents
a natural alternative to reform investment policy without engaging in costly
institutional innovation from scratch. Especially in America and Asia, the U.S.
Model BIT is visibly used as a template for treaty negotiations.128 Part of the
appeal of the U.S. Model BIT is undoubtedly due to the status of the U.S. as
major political and economic power. In addition, the U.S. was among the first
developed countries to be challenged before investment treaty arbitration. It is
thus not surprising that other countries want to learn from the U.S. experience
as a litigator as well as treaty-maker to improve the arbitration procedure and to
enhance defensive elements in their treaties. Importantly, however, these more
recent adjustments to better accommodate the increase in investment litigation
constitute a mere tactical change in investment treaty design compared to the
more fundamental strategic transition in global investment policy-making from
See, for instance, M. Kinnear & R. Hansen, ‘The Influence of NAFTA Chapter 11 in
128
the BIT Landscape’, 12 UC Davis Journal of International Law & Policy (2005) 1, 101;
A. Berger, ‘Investment Rules in Chinese PTIAs – A Partial “NAFTA-ization”’, in R.
Hofmann, S. W. Schill & C. J. Tams (eds), Preferential Trade and Investment Agreements:
From Recalibration to Reintegration (2013), 297.
first generation BITs to FCN-inspired second generation treaties which began

with NAFTA.
The rise of a FCN-inspired second generation of investment treaties has
today become a global phenomenon. FCN elements are not limited to IIAs of
the United States, Canada, or Mexico, but have spread to South America (e.g.
Colombia, Chile, Peru), Asia (e.g. Japan, South Korea, Singapore, Taiwan), and
even Europe (e.g. Belgium Luxembourg, Finland, Latvia) with more countries
following suit. Although some countries such as Germany, the Netherlands, or
the United Kingdom, as intellectual fathers of the original BIT approach, are still
firmly committed to brevity and simplicity in their BITs, the pendulum is swinging
towards more complex and comprehensive treaties that consider investment
protection in context. With the investment competency shift towards the EU
through the Lisbon Treaty and the on-going PTIA negotiations with the NAFTA
countries, Canada and the U.S. – both firmly rooted in the FCN approach –, Europe
is also likely to shift towards an FCN-inspired investment treaty approach.129
G. Conclusion: What to Make of the Return of the FCN

Approach?
The IIA universe is changing. From short, simple, and specialized
agreements we observe a shift towards complex and comprehensive IIAs that treat
investment ‘in context’ having more in common with the approach underlying
FCN treaties than with first generation European BITs. On a general level, typical
FCN-inspired second generation treaties are characterized by a more elaborate
mix of rights and obligations and provisions covering investment-related issues
such as intellectual property rights, trade, labour, or environmental issues. On
a more concrete level, these treaties often contain liberalization provisions, non-
conforming measure clauses, references to the customary international law
minimum standard, personal protection provisions of the investor, and a range
of positive integration-type clauses.
The return of the FCN approach to investment policy-making has three
important repercussions on investment law. First, with respect to dispute
settlement, more exceptions and a stronger alignment of interests between host
and home State are likely to make it more difficult for investors to succeed in
traditional investment claims. Already today, a State is almost twice as likely to

129
N. Lavranos, ‘The New EU Investment Treaties: Convergence Towards the NAFTA Model
as the New Plurilateral Model BIT Text?’ (29 March 2013), available at http://papers.ssrn.
com/sol3/papers.cfm?abstract_id=2241455 (last visited 31 January 2014).
486 GoJIL 5 (2013) 2, 455-486
win a NAFTA dispute as compared to a non-NAFTA dispute.130 At the same time,

second generation treaties also offer protection clauses absent in European BITs
making it more difficult to determine, on balance, whether we see a reduction,
augmentation, or simply restructuring of investment protection levels. In any
case, more precise language is likely to generate more predictable outcomes –
a development which is going to benefit both States and investors and which
may also lead to more amicable settlements. Second, within but also beyond
dispute settlement, the new symmetry and equality between the contracting
parties is likely to strengthen cooperative elements in investment treaties.
Many treaties modelled on NAFTA delegate certain questions of interpretation
to the contracting States or set up treaty-based committees in which party
representatives jointly monitor the agreement’s application.131 We are likely to
see more concerted and unilateral State interventions into the arbitral process
in the future.132 Finally, second generation IIAs, like FCN treaties, are likely to
fulfil broader governance functions that go beyond investment protection. They
regulate investment in its wider context, e.g., by imposing negative integration-
type clauses in IIAs on new subject matters such as environmental protection,
but also venture into positive integration-type clauses on diverse issue areas. In
sum, the global policy shift from first generation BITs to second generation IIAs
marks a fundamental transformation of the IIA universe, the impact of which
we are just beginning to understand.

130
The calculation is based on UNCTAD’s ISDS database which lists treaty-based arbitrations
decided until 2010. The database is available at http://www.unctad.org/iia-dbcases/ (last
131
UNCTAD, ‘Interpretation of IIAs’, supra note 80.
132
For an elaboration of this point, see W. Alschner, ‘The Return of the Home State and the
Rise of ‘Embedded’ Investor-State Arbitration’, in S. Lalani & R. Polanco (eds), The Role
of the State in Investor-State Arbitration (2014) (forthcoming).

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Goettingen Journal of International Law 5Americanization

Americanization of the BIT Universe: The Influence of

* Graduate Institute of International and Development Studies, Geneva, Switzerland. An

Predating BIT practice and primarily concluded by the United States of

Journal of Transnational Law (2013) 2, 302; J. W. Yackee, ‘Sacrificing Sovereignty: Bilateral

address two pressing contemporary challenges in international law. First, FCN

This contribution is a study of comparative treaty design. Aside from conducting a

B. FCN Treaties as Investment Protection Agreements

covering primarily natural persons to also protecting the rights of companies

protection and security, expropriation and transfer of funds.28 Neither of the

C. The 1980s U.S. Debate and the Shift From FCN to

if reciprocal investment flows had existed, the possibility of litigation against

issue areas, speeding up negotiation.56 Divorcing investment protection from its

“The building and operation of a motor factory by a big corporation

In practice, investment transactions are often intrinsically linked to trade

“[The FCN treaty] regards and treats investment as a process

will be further explored in the following sections, as an alternative approach to

D. The Impact of FCN Treaties on the U.S. BIT Program

specific guidance in the enforcement context”.64 As a result, the language of

II. Non-Conforming Measures

requirements and sojourn of personnel provisions.73 Additional policy space is

III. International Law Minimum Standard

international law reference is an important element of continuity from FCN to

IV. Protection of Personal Investor Rights

V. Transparency and Other Positive Integration-Type Obligations

E. There and Back Again: The Return of the FCN

decolonization changed the political climate, making it less conducive to treaties

I. The Rise and Decline of First Generation BITs

and, at times even, inconsistent interpretation.96 Their brevity created an

decline in numbers cannot be explained by a saturation of the field alone.102

II. The Changing Economics of Investment

that different economic transactions as well as legal regimes become increasingly

III. The Rise of a New Generation of Investment Treaties

precision confining the reach of the primary investment protection obligations.

F. The Americanization of the IIA Universe

first generation BITs to FCN-inspired second generation treaties which began

G. Conclusion: What to Make of the Return of the FCN

win a NAFTA dispute as compared to a non-NAFTA dispute.130 At the same time,

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