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Home > Penn Carey Law Journals > U. Pa. J. Int'l L. > Vol. 47 > Iss. 1

 

University of Pennsylvania Journal of International Law

Amin R. Yacoub

Publication Date

Fall 2025

First Page

83

Document Type

Article

Abstract

Investor-State Dispute Settlement (“ISDS”) is the most valuable international mechanism presently used to resolve high-value disputes between host States and foreign investors. Once thought necessary to attract Foreign Direct Investments (“FDI”) and achieve sustained economic growth, the ISDS bites back at developing nations’ public budgets with unprecedented rates and prevents them from changing regulations to achieve economic prosperity, without paying a hefty price.
Due to a desire to attract FDI, developing States often establish an overly protective legal framework for foreign investors. That legal framework comprises municipal stabilization clauses and international bilateral investment treaties (“BITs”). Both municipal and international agreements aim to promise foreign investors full protection against any legal or economic instability the host State may induce in the future. On the international level, a BIT will typically enumerate two overly broad investment standards, among others, to protect a foreign investor against any future regulatory changes: Full Protection and Security (“FPS”) and Fair and Equitable Treatment (“FET”). Unlike foreign investors who enjoy extra protections under international law, national investors do not enjoy the same level of legal and economic security under municipal laws.
This Article highlights two phenomena: (1) the discrimination between foreign and national investors, and (2) the fragmentation between international investment law (as applicable by ISDS Tribunals) and the municipal law of the host State (as applicable by municipal courts). I argue that these two phenomena combined contribute to what is known as a regulatory chill in developing nations.
Accordingly, reversing these two phenomena would resolve the regulatory chill of developing host States. In this regard, this Article normatively proposes multiple solutions to eliminate the asymmetrical levels of protection that favor foreign investors, as well as the fragmentation between international and municipal laws. Achieving that end on the ISDS level would also result in wide-ranging improvements in the legal and economic infrastructures of developing nations, allowing them to achieve long-term economic prosperity and sustainable economic growth.

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