For nearly six decades, States have entered into approximately 3,000 bilateral investment promotion and protection treaties (“BITs”) and some multilateral treaties (“MITs”), which possess the same dual purposes as the North American Free Trade Agreement (“NAFTA”) and the Energy Charter Treaty (“ECT”). They have been signed, ratified, and entered into force for mutual benefit: investment in the States party to the BIT or MIT is mutually encouraged, in good part by each State party guaranteeing the other State party’s investors an acceptable level of legal protection, usually consisting of “fair and equitable treatment” (“FET”), “full protection and security” (“FPS”), specific rules governing compensation for expropriation, and, via a “most-favored-nation clause” (“MFN”), the same overall level of legal protection as is accorded to nationals of other States with whom the respondent State party to the BIT or MIT has similar treaties in force.
Key to the nationals of each State party who invest in the other State is the mechanism for enforcing those protections, which is known as investor-State arbitration, or investor-State dispute settlement (“ISDS”). As most treaty parties do not wish their nationals investing abroad to be compelled to dispute with the host State over whether the involved treaty has been breached decided by a national court of the host State, the parties agree in the BIT or the MIT that any dispute between a national of one party investing in the other party will be decided by, typically, a three-person arbitral tribunal, to which each party to the dispute—the investor and the host State—appoints one arbitrator. The third person, who is to chair the arbitration, is appointed by the other two arbitrators, or by the parties to the dispute, or—failing success in that effort for a stated period of time—by an agreed “appointing authority.” All three members of the arbitral tribunal are required and pledge to be independent and impartial to the arbitrating parties.