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Rebalancing sovereignty and investor rights: reforming
International Investment Agreements in the 21st century
Jaloliddin RAKHMONOV
1
Tashkent State University of Law
ARTICLE INFO
ABSTRACT
Article history:
Received July 2025
Received in revised form
15 July 2025
Accepted 25 July 2025
Available online
15 August 2025
This article examines the evolving relationship between
state sovereignty and investor rights in international
investment law, with a focus on recent reforms aimed at
rebalancing the two. Over the past few decades, the traditional
regime of international investment agreements (IIAs) has been
criticized for favoring investor rights at the expense of host
states' regulatory authority. In response, many states have
moved towards new-generation treaties that safeguard public
policy objectives while ensuring fair treatment for investors.
The article explores key reform initiatives, including
substantive changes to treaty provisions and procedural
adjustments to the investor
–
state dispute settlement (ISDS)
system. It also critically assesses whether these reforms
effectively address the concerns of sovereignty and investor
protection in the context of global challenges such as climate
change, public health, and economic security.
2181-
1415/©
2025 in Science LLC.
https://doi.org/10.47689/2181-1415-vol6-iss7/S-pp148-152
This is an open access article under the Attribution 4.0 International
(CC BY 4.0) license (https://creativecommons.org/licenses/by/4.0/deed.ru)
Keywords:
International Investment
Agreements (IIAs),
sovereignty,
investor rights,
Investor
–
State Dispute
Settlement (ISDS),
treaty reform,
public policy.
XXI asrda xalqaro investitsiya bitimlarini isloh qilish:
davlat suverenitetini va investor huquqlarini qayta
muvozanatlash
ANNOTATSIYA
Kalit so‘zlar
:
Xalqaro investitsiya
bitimlari,
suverenitet,
investor huquqlari,
Investor-davlat nizolarini
hal qilish,
Ushbu maqola xalqaro investitsiya huquqida davlat
suvereniteti va investor huquqlari o‘rtasidagi o‘zgaruvchan
munosabatlarni tahlil qiladi, bunda asosiy e’t
ibor ularni
qayta muvozanatlashtirishga qaratilgan so‘nggi islohotlarga
qaratiladi. O‘tgan bir necha o‘n yilliklar davomida xalqaro
investitsiya bitimlarining an’anaviy tizimi qabul qiluvchi
1
Lecturer, Tashkent State University of Law. E-mail: jaloliddin.rakhmanov@gmail.com
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shartnoma islohoti,
davlat siyosati.
davlatlarning tartibga solish vakolatlarini cheklab, investorlar
huquqlarini ustun qo‘ygani uchun tanqidga uchradi. Bunga
javoban ko‘plab davlatlar investorlarga adolatli munosabatni
kafolatlab, ayni paytda davlat siyosati maqsadlarini himoya
qiluvchi yangi avlod shartnomalariga o‘tdilar. Maqolada
islohotlarning asosiy
yo‘nalishlari, jumladan, shartnoma
qoidalarini mazmun jihatidan o‘zgartirish va investor
-davlat
nizolarini hal qilish tizimiga (ISDS) protsessual tuzatishlar
kiritish masalalari o‘rganiladi. Shuningdek, ushbu islohotlar
iqlim o‘zgarishi, aholi salomatligi
va iqtisodiy xavfsizlik kabi
global muammolar sharoitida suverenitet va investorlarni
himoya qilish masalalarini samarali hal eta olishi tanqidiy
baholanadi.
Восстановление баланса между суверенитетом и
правами инвесторов: реформирование международных
инвестиционных соглашений в XXI веке
АННОТАЦИЯ
Ключевые слова:
Международные
инвестиционные
соглашения,
суверенитет,
права инвесторов,
механизм урегулирования
споров между инвестором
и государством,
реформа договоров,
государственная
политика
.
В данной статье исследуется эволюция взаимоотношений
между
государственным
суверенитетом
и
правами
инвесторов в международном инвестиционном праве, с
особым вниманием к недавним реформам, направленным на
восстановление баланса между ними. На протяжении
последних
десятилетий
традиционный
режим
международных
инвестиционных
соглашений
(МИС)
подвергался критике за предоставление преимуществ
правам инвесторов в ущерб регулятивным полномочиям
принимающих государств. В ответ многие страны перешли к
договорам нового поколения, которые защищают цели
государственной
политики,
обеспечивая
при
этом
справедливое отношение к инвесторам. В статье
рассматриваются
ключевые
инициативы
по
реформированию, включая существенные изменения в
положениях договоров и процедурные корректировки
системы урегулирования споров между инвестором и
государством (ISDS). Также критически оценивается
эффективность этих реформ в решении вопросов
суверенитета и защиты инвесторов в контексте глобальных
вызовов, таких как изменение климата, общественное
здравоохранение и экономическая безопасность.
INTRODUCTION
International investment agreements (IIAs) have grown rapidly in recent decades,
with over 3,200 treaties signed globally (around 2,600 currently in force). Most of these
are older “first
-
generation” agreements from the 1990s–
2000s, which often granted
broad investor rights, such as guarantees of “fair
and equitable treatment” (FET) and
access to investor-state dispute settlement (ISDS) arbitration, while imposing few
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obligations on investors. Critics argue that this system has created an imbalance, favoring
investors’ rights over host states’ sovereign
ability to regulate in the public interest. The
increasing number of arbitral awards holding states liable for breaching expansive treaty
standards, resulting in significant financial burdens, has led to growing calls for reform.
This article examines the tension between sovereignty and investor rights, reviews key
reforms in recent years, and critically assesses whether these changes effectively address
the concerns driving them.
The central debate revolves around the tension between a state’s sovereignty
to
regulate for public policy objectives and the rights granted to foreign investors under
IIAs. Governments need adequate policy space to regulate health, safety, the
environment, and other public interests. However, traditional IIAs, enforced through
ISDS arbitration, can limit this space by allowing investors to challenge domestic
regulations that affect the value of their investments. These tribunals can award damages
that strain government budgets, creating a phenomenon known as “regulatory chill.” Th
is
issue is particularly acute in areas like environmental regulation, where investor rights
have been used to challenge public health measures or bans on harmful substances. Many
developing nations view the traditional system as inequitable, arguing that it prioritizes
foreign investors' interests over national laws and democratic processes. Reform efforts
seek to rebalance the protection of investors with the need to preserve state sovereignty.
Several trends over the past decade have increased pressure to reform the
investment treaty system. High-profile ISDS disputes, such as those related to the Energy
Charter Treaty (ECT), have raised awareness about the overreach of investor protections,
especially in the context of climate and energy policies. For example, the ECT's
provisions, including FET and the protection of investors' “legitimate expectations,” were
increasingly criticized for allowing fossil fuel investors to challenge reforms aimed at
meeting Paris Agreement targets. In response, several European Union (EU) countries
have withdrawn from the ECT to preserve their ability to enforce climate policies.
Similarly, developing countries, many of which signed old-generation Bilateral
Investment Treaties (BITs) in the 1990s, have faced costly ISDS awards that have
undermined their regulatory autonomy. This has led to a legitimacy crisis in the
international investment regime, prompting countries like South Africa and Indonesia to
terminate or renegotiate outdated treaties. Broad coalitions, including UN agencies and
reform-oriented governments, are now pushing for comprehensive reforms.
Reforming International Investment Agreements: Recent Developments
To address these criticisms, states and international organizations have
undertaken a range of reforms focused on two key areas: (1) substantive treaty
provisions and (2) procedural and institutional changes to the ISDS mechanism.
A significant trend in recent years is the emergence of “new
-
generation” IIAs that
safeguard states' regulatory prerogatives while narrowing investors' rights. Post-2015
treaties often include provisions affirming the “right to regulate,” clarifying that states
can enact measures for public health, safety, and environmental protection without
violating the treaty, provided they are non-discriminatory and in good faith.
Furthermore, new agreements typically exclude non-discriminatory regulatory actions
from being considered indirect expropriation. A notable example is the 2023 Protocol on
Investment under the African Continental Free Trade Area (AfCFTA), which omits the
FET standard and replaces it with a narrower obligation to ensure “administrative and
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judicial treatment” following due process. This change, along with other innovations such
as excluding certain sensitive sectors like taxation and government procurement from
investor-state coverage, signals a shift towards a more circumscribed approach.
Some newer agreements also impose obligations on investors, ensuring a more
reciprocal balance. For example, recent African and Asian BITs require investors to
comply with domestic laws and anticorruption standards. Additionally, these treaties
may allow states to bring counterclaims against investors for damage or misconduct,
a feature almost absent in older BITs. However, not all countries have embraced these
reforms. For instance, the United States-Mexico-Canada Agreement (USMCA) of 2020
continues to prioritize investor protections, signaling that the rebalancing trend is not
universal.
Alongside substantive changes, procedural reforms to the ISDS system have been
introduced. Notable changes occurred in 2022 with an overhaul of the ICSID arbitration
rules, aimed at increasing transparency and improving fairness. These include automatic
publication of awards and orders, shorter timelines for rendering decisions, and
disclosure of third-party funding. These reforms, while not solving all criticisms of ISDS,
represent a meaningful effort to improve the system’s efficiency and transparency. On a
broader scale, the UNCITRAL Working Group III has made progress on creating a Code of
Conduct for ISDS adjudicators and has discussed the creation of an Advisory Centre to
assist developing countries facing ISDS claims.
The most ambitious reform proposal is the creation of a permanent multilateral
investment court with an appellate mechanism. While this idea has garnered support,
especially from the EU, it has faced significant challenges due to differing views on how
the court should be structured and funded. In the meantime, some states have moved
towards establishing bilateral or regional appellate mechanisms, such as the EU-Canada
CETA’s Investment Cou
rt System. The fragmentation of ISDS reforms suggests a complex,
evolving path forward.
CONCLUSION
The efforts to rebalance sovereignty and investor rights in international
investment agreements are well underway, with recent reforms marking a shift toward a
more equitable system. While many new IIAs reflect a better balance between protecting
investors and preserving state sovereignty, challenges remain. The process of reform is
ongoing, with debates over the scope of changes continuing. Old-generation treaties still
represent a significant portion of global FDI protection, and the full impact of recent
reforms remains to be seen. While some reforms have been significant, more radical
changes, such as the establishment of a multilateral investment court, remain elusive.
The future of international investment law hinges on achieving a balance that allows for
both investment protection and state regulatory freedom.
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1.
United Nations Conference on Trade and Development (UNCTAD),
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investme
nt agreements trends: the increasing dichotomy between new and old treaties,”
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No. 2 (Oct. 2024)
2.
South Centre & Geneva Graduate Institute,
“Investor Obligations in International
Investment Law,”
Report (Dec. 2024)
3.
Kyla Tienhaara et al.,
“En
ding the Era of Investor-
State Dispute Settlement,”
CIGI
Policy Brief (2023)
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