Bilateral investment treaty

Arbitration International Centre for Settlement of Investment Disputes Investor-state dispute settlement

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).[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. 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 ICSID (International Center for the Settlement of Investment Disputes), rather than suing the host State in its own courts.[2] This process is called investor-state dispute settlement.

The world's first BIT was signed on November 25, 1959 between Pakistan and Germany.[3][4] There are currently more than 2500 BITs in force, involving most countries in the world.[5] 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).[6][7]


NGOs have spoken against the use of BITs, stating that they are mostly designed to protect the 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 unpredictable.[8]


  1. ^ See W. Michael Reisman et al.,"International Law in Comparative Perspective" (2004), p. 460.
  2. ^ 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).
  3. ^ "Germany - Pakistan BIT (1959)". Retrieved August 10, 2015.
  4. ^ " | 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.
  5. ^ See Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law, Oxford, 2008, p. 2. Also see UNCTAD, World Investment Report (2006) XVII, 26.
  6. ^ "Model Text of the Indian Bilateral Investment Treaty" (PDF). Retrieved 25 October 2016.
  7. ^ "Bilateral Investment Treaties | United States Trade Representative". Retrieved 2019-11-05.
  8. ^ Protest against EU investment policy Transnational Institute