A new analytical matrix for understanding International Investment Law Agreements in the Global South

Abstract

This article explores the unique dynamics of international investment law from the perspective of the Global South, a highly heterogeneous collective of emerging and least-developed economies. Traditional international investment agreements (IIAs) often place these countries in positions where they must compromise their regulatory autonomy to attract foreign investment. By proposing a new analytical matrix, the authors aim to elucidate the various ways in which countries of the Global South engage with IIAs. This matrix is tested through theoretical categorization and concrete examples, highlighting engagement strategies from passive compliance to active reform and radical disengagement. The matrix serves as a foundational tool for understanding these nations’ complexities and varied responses within the global investment regime. The article concludes by emphasizing the need for a reimagined approach that balances foreign investment needs with the Global South’s sovereign developmental and regulatory goals. This new framework seeks to offer scholars and policymakers a refined instrument to advocate for equitable benefits from IIAs, urging a reconsideration of current norms and practices to better align with the developmental objectives of host countries.

INTRODUCTION

International investment law is a product of the encounter of investors from Global North countries with developing countries in the Global South.¹ These investors, espoused by their governments, want to have access to the natural resources of Global South countries while being subject to less stringent labour and environmental laws. At the same time, they demand a legal system that protects their investments from macroeconomic variations and politically unstable governments that, taken together, jeopardize their profits.

The Global South, a highly heterogeneous group of countries that encompasses emerging and least-developed economies, recognizes that its social and economic development is highly dependent on external capital from the developed world. As such, it perceives foreign investors as economic allies in achieving central public policy objectives, such as physical and digital infrastructure, technology transfer, electricity, sanitation, telecommunications, etc. At the same time, by entering investment agreements as a strategy to foster inbound investment flows, they make commitments that compromise their domestic regulatory space. Given that this external capital is, to some extent, limited, Global South countries compete amongst one another by offering the most attractive institutional environment, often translated into tax exemptions and unrealistic long-term promises.

The encounter between capital-exporting investors of the Global North and weaker economies in the Global South has produced a peculiar legal system built around a combination of different actors and legal tools, mainly international investment agreements (IIAs) designed to protect investors’ property rights at the expense of host countries’ policy space. Domestic rules, private arrangements, and a plethora of other international norms may somehow affect the regulation of investment and the rights and duties of investors and host countries. Nonetheless, IIAs are still the cornerstone of the regime.

This structural imbalance of interests underlying IIAs has led to growing discontent by some developing countries, prompting some reform movements. If we approach international investment law from a Global South perspective, there has been an inconsistency between periods of strong contestation and periods of blind compliance with IIAs. Some countries have voiced, at different times and under diverse terms, strong criticism of the unbalanced protection of foreign capital and constraints on their right to regulate in the public interest. For structural reasons, some other countries have been compelled to accept the standard terms of these agreements.

Centring the analysis of investment law in the Global South faces two methodological limitations. First, the geographical extension of the analysis of the ‘rest of the world’, which is also ‘most of the world’. It would require an unfeasible effort to accurately and equally understand the political, economic, and legal vectors underlying the approach of each of these countries to international investment law. Secondly, each of the individual countries, albeit with a shared past of colonization, experiences different stages of social and economic development. It would be too ambitious to adequately cover the particularities of these countries’ legal systems, economic projects, and political environments.

Our goal for this contribution is far less ambitious. We are taken with the question of what it means to think about international investment law from the Global South, broadly understood. Therefore, our main contribution in this article is to propose a new matrix explaining how Global South countries engage with IIAs.² The ‘Global South struggles within IIAs’ section examines how some countries in the Global South try to overcome the constraints imposed on them through investment agreements, both substantively and procedurally. For us, to think from the perspective of the Global South means to consider the sensibilities of countries that are predominantly capital-importing and lack the agency to determine the rules of engagement with the investment regime, thereby becoming rule-takers and facing legal claims before investment tribunals that impose significant financial constraints, thereby limiting their policy space.

Then, in the ‘Proposing a matrix to understand the Global South engagement with IIAs’ section, we propose a new analytical matrix to explain the ways in which countries in the Global South have traditionally engaged with the investment regime. Our efforts consist of first proposing analytical categories and then testing their validity through concrete examples. By shifting the focus of the debate to the Global South, we expect to invite legal scholars and policymakers to rely on our matrix as a point of departure to reimagine the Global South’s engagement with investment agreements.

GLOBAL SOUTH STRUGGLES WITHIN IIAs

Developing countries increasingly integrated into the global investment network during the second half of the 20th century in the quest for economic development, often sacrificing their national policy autonomy.³ The international investment regime, characterized by its emphasis on investment protection rules, presents a peculiar challenge: it demands concessions from host countries that might contravene their domestic policies and objectives.⁴ The tension between securing external capital and preserving the autonomy to pursue public policy goals leads to a complex interplay between compliance and resistance within the regime.⁵

Deciding whether to engage with international investment law is not made in a vacuum. It involves a careful calibration of priorities, influenced by a multitude of factors originating from both domestic politics and international economic relations.⁶ National political agendas, development strategies, and the broader geopolitical context play pivotal roles in shaping the approach of developing countries to international investment law.⁷ This complexity is further intensified by the dynamic nature of international economic relations, which influences developing nations’ bargaining power and strategies.⁸

Decisions taken by developing countries regarding investment regulation are, therefore, not solely driven by rational considerations. Instead, domestic politics, the dominant party’s ideology, and past experiences with the investment regime significantly influence whether to engage with, abandon, or actively participate in its reform. Furthermore, the colonial history shared by global south countries impacts their perception, adoption, and application of international economic law. This colonial legacy influences their capacity to challenge or modify the rules and institutions.⁹

The architecture of international investment law, with its roots deeply embedded in the economic interests of the Global North, presents a challenging landscape to which Global South countries must react.¹⁰ Historically positioned as rule-takers, these countries often find themselves engaging with a pre-existing set of norms that reflect the priorities and economic philosophies of more developed nations. Developing countries often find themselves in a subordinate position within the international economic order, particularly in investment law. This status quo results from a historical process where the rules of engagement in international investment were established primarily by the interests and for the benefit of the Global North.¹¹

Developing countries typically engage with these rules not as equal partners in their creation but as latecomers to a system with established norms and standards.¹² The foundational principles of international investment law were developed to protect the interests of investors from capital-exporting countries, predominantly located in the Global North.¹³ This paradigm, emerging from a colonial logic that views developing countries and their peoples¹⁴ primarily as territories and subjects for exploitation, has seen its influence perpetuate across decades into the postcolonial era.¹⁵ The institutional model of investment law, conceived without the input of the developing world, inherently favours the interests of capital exporters.¹⁶ Given this historical backdrop and the capital-importing nature of developing countries, scepticism towards the prevailing investment protection model is not an unpredictable response.¹⁷ Global South approaches towards the international investment regime are, therefore, to be understood mainly as reactions to a preformatted model of regulation conceived by the developed world.

Developing countries find themselves at a precarious crossroads between acceptance of the global North-conceived investment regime, scepticism over its implications, resistance to the existing framework, and imagination of paths for reform. The expectation of attracting foreign investment is often balanced by concerns that investment arbitration affects the global South disproportionately.¹⁸ Thus, while most Global South countries lack the agency to change the current rules system, some–the more powerful amongst them–have started to reimagine their participation in the investment regime. This critical reassessment occurs at the regime’s substantive and procedural aspects.

Substantive issues: the struggle for regulatory space in investment agreements

Within the general anatomy of investment agreements, specific provisions can be used to constrain states’ regulatory space when they challenge the interests of foreign investors. The most eloquent examples are the definition of investment and investor, standards of treatment, rules on expropriation and compensation, and guarantee of free transfers. While some countries in the Global South subscribe to these rules without reservations, others are crafting alternative formulations to safeguard their policy space.¹⁹

A few examples illustrate our point. On investment and investors definition, countries like Brazil and South Africa have come to define investment according to domestic laws instead of relying on treaty definitions, thereby limiting the scope of application of investment agreements. India, South Africa, and several of China’s post-2008 agreements have introduced a ‘substantive business activity requirement’. In the case of China, recent treaties often require that an investment have the “characteristics” of an investment, such as the commitment of capital. They generally include a requirement in relation to business activities, concerning the exclusion of letterbox companies, usually included in the denial of benefits clause.²⁰

On general standards of treatment, some countries in the Global South are adjusting clauses related to National Treatment (NT), Most-Favoured-Nation (MFN), and Fair and Equitable Treatment (FET) in their investment agreements to balance regulatory autonomy with investor protection. Concerning NT obligations, countries like China, India, and South Africa are moving towards qualified versions of NT and carving out exceptions to prevent excessive interpretations by arbitral tribunals. India excludes NT obligations from certain measures taken by regional or local governments, while South Africa exempts the government from NT obligations to provide beneficial treatment related to various areas. Concerning MFN, some countries, including South Africa and India, are excluding MFN clauses from new agreements to uphold policy space and avoid challenges in investor–state arbitration. Brazil retains MFN clauses but excludes their application to dispute settlement provisions. China adds qualifications to prevent misinterpretation. The FET clause, qualified as the heart of the investment regime,²¹ has been cautiously approached by some countries in the Global South in light of its controversial interpretations in investor–state arbitrations.²² China and India adjust their FET approach based on partner countries’ priorities, with India listing specific state obligations under customary international law. Brazil and South Africa exclude FET from their new model investment agreements. These modifications in NT, MFN, and FET clauses demonstrate countries’ efforts to safeguard their policy space while addressing the balance between investor protection and broader policy objectives in their investment agreements.

Provisions on expropriation have also received considerable attention in the reform process. IIAs originally focused on preventing expropriation without adequate compensation as protection for capital-exporting countries, often at the expense of the host countries’ ability to implement their own policies. These agreements typically had broad definitions of investments and treatment standards, leading to extensive protection for investors and limited policy space for host nations, particularly in cases of indirect expropriation, where government actions, such as revoking licenses for environmental reasons, could lead to claims without actual nationalization.

In response, some countries have revised their approach to expropriation in their model investment agreements. China has included more specific criteria to determine what constitutes indirect expropriation and has carved out exceptions for public health and environmental measures. India has gone further by raising the threshold for indirect expropriation claims and emphasizing domestic law and decision-making in its new model investment agreement. India also considers multiple factors in determining compensation, including the investor’s behaviour and the impact of the investment on the environment and local community.

South Africa and Brazil have excluded indirect expropriation from their model agreements entirely, a choice influenced by past negative experiences and—in the case of South Africa—legal precedents like the Foresti case.²³ Both countries focus on a domestic law approach to compensation for direct expropriation, which aligns with their constitutions and broader national goals, such as land reform in South Africa and reducing foreign intervention in Brazil.²⁴ Taken together, these changes illustrate a shift in investment treaty practices, from prioritizing investor protection to balancing these interests with the ability of host countries to govern and regulate in accordance with their own policies and legal frameworks.

Finally, the guarantee of free capital transfers related to investment activities, a common feature in bilateral investment treaties (BITs) signed during the 1990s, did not account for its potential disruptive effects on host countries’ macroeconomic policies, such as monetary and exchange rate policies. This oversight particularly impacted developing countries with unstable economies, prompting many to incorporate exceptions into their model investment agreements.

China, which does not fit the typical profile of a fragile economy, has historically had stringent capital controls and a regulated exchange rate regime. Consequently, China’s IIAs reflect these concerns, initially making investment-related fund transfers subject to domestic regulations. However, post-2000, under its ‘go global’ policy and a push towards economic liberalization, China modified its stance to include exceptions, such as those for balance-of-payments crises, aligning with other Global South countries, including Brazil and India.

India’s model investment agreements go even further by listing additional scenarios where transfers can be conditioned or prevented, encompassing compliance with labour and tax laws, social security obligations, and public retirement or compulsory savings schemes. South Africa’s approach is less detailed; its agreements simply state that fund repatriation by investors is ‘subject to taxation and other applicable legislation’, which can introduce ambiguity and potential uncertainty for investors.

Procedural issues: The ISDS controversy and alternatives

Global South countries are traditionally respondents in investment dispute settlement,²⁵ given the standard features of IIAs and the political economy of investment flows. While some countries in the Global South consistently abide by standard dispute settlement arrangements, which tend to rely on investor–state dispute settlement (ISDS), other countries are designing alternatives in order to safeguard their policy space.

Brazil, India, and South Africa have taken different approaches to ISDS, ranging from complete rejection to exhaustion of local remedies before initiating an investor–state arbitration.

India’s model agreement for dispute resolution in investment encompasses comprehensive rules for arbitration, including the appointment of arbitrators, a conduct code, transparency rules, and options for counterclaims. Unlike other countries heavily employing ISDS, India requires the exhaustion of local remedies before investors can access ISDS. Furthermore, arbitration procedures dealing with a dispute cannot reassess issues already decided by the host state’s judicial authorities, nor can they re-evaluate the merits of a judicial decision.²⁶

Brazil, in contrast, has largely moved away from ISDS in response to national opposition and a historic struggle with BIT ratification that emphasized the risks of undermining local judicial processes and public policy. Brazil’s alternative involves mandatory negotiation and state-to-state arbitration, facilitated by an ombudsperson and a joint committee, who engage in initial mediation-like efforts before interstate arbitration can proceed.²⁷ This system also emerges from Brazil’s state-driven investment strategy, focusing on dispute prevention and maintaining solid investor relations.²⁸

South Africa’s model has shifted from ISDS to a hybrid system involving mediation, recourse to local courts, and state-to-state arbitration, which can proceed only with government consent and after local remedies have been attempted. Unlike Brazil, mediation in South Africa is optional rather than mandatory.²⁹

Each of these countries has established distinctive approaches to managing investment disputes, highlighting a blend of localized solutions and traditional arbitration tailored to their specific legal, economic, and political contexts. The submissions to the UNCITRAL Working Group III ISDS reform process further support the argument that Global South countries’ approaches to international investment dispute resolution are far from monolithic.³⁰

For instance, Indonesia’s broader view that ‘procedural law is inherently substantive and vice versa’³¹ contrasts with Thailand’s focus on procedural aspects, and its suggestion that proposals ‘should form part of the “building blocks” for future work’.³² Brazil’s insistence on its own ombudsman solution, under the assumption that ‘dispute prevention becomes a preferred regulatory alternative’³³ largely differs from Chile’s call, in a joint submission with Israel and Japan, for ‘maximum flexibility to develop a menu of relevant solutions’ that countries could adopt according to their priorities.³⁴ Mali’s support for a ‘comprehensive investor-State dispute settlement reform that fosters sustainable development’³⁵ also diverges from Burkina Faso’s particular emphasis on ‘the importance of rethinking the rules and modalities for calculating compensation’.³⁶

These varied submissions illustrate the diverse and context-specific approaches that Global South countries bring to the table. This diversity of perspectives and priorities reinforces the lack of a single and uniform strategy across Global South countries.

PROPOSING A MATRIX TO UNDERSTAND THE GLOBAL SOUTH ENGAGEMENT WITH IIAs

Global South countries find themselves at a crossroads in the international investment regime. They face the dual challenge of attracting much-needed external capital for development while striving to maintain sovereignty over their public policy objectives.

This section aims to conceptualize the diverse strategies that Global South countries adopt in response to the international investment law framework, acknowledging their unique characteristics and the complex, sometimes contradictory, nature of their responses. First, we review previous efforts to conceptualize analytical frameworks to document the international investment regime, highlighting how they differ from our approach. We then develop a theoretical categorization informed by our observations of the engagement of Global South countries with the international investment regime. Finally, we test our analytical framework through concrete examples.

Some previous attempts to conceptualize analytical matrices

Some authors have attempted to conceive analytical frameworks to explain different features of the international investment regime, particularly its ongoing reform. These efforts have mainly dealt with procedural aspects of the international investment regime and focused on the options available to states in general, especially those involved in the United Nations Commission on International Trade Law (UNCITRAL) discussions on the reform of ISDS.

Whilst procedure is a blatant issue in investment agreements in mainstream discussions in the international forums, our intention is to categorize the specific approaches of the Global South that accounts for procedure and substance.

Using comparative institutional analysis, Puig and Shaffer explored the trade-offs among different institutional alternatives for resolving investment disputes, emphasizing accountability and the rule of law. They recognize that ‘all institutional options are imperfect and subject to trade-offs’, highlighting how the choice of a country depends on various factors, including capital endowment, market size, ideology, institutional maturity, and historical context. Although they do not specify the most suitable alternative for the current reform efforts, they conclude that the primary objective of any institutional reform should be to strengthen the domestic rule of law.³⁷ The authors’ analysis of the investment regime reform focuses on procedural aspects, overlooking the significant benefits of including stakeholders, such as affected communities, in the dispute resolution process to enhance the chosen mechanism’s legitimacy and acceptance.

Another attempt to theorize international investment regulation comes from Anthea Roberts. She shifts the emphasis from specific institutional solutions to the approaches that states might adopt during the reform discussions conducted within the UNCITRAL mandate on reforming ISDS. Roberts proposes a threefold categorization into incremental, systemic, and paradigmatic strategies to embody the possible strategies of states involved in the UNCITRAL process.³⁸ In another contribution, she considers that each strategy could be observed across three dimensions: procedure, substance, and form.³⁹ This method provides a more detailed framework for conceptualizing and implementing reforms across various aspects of the investment regime, even though it mainly draws upon the perspectives of countries participating in the ongoing reform process within the UNCITRAL.

A third effort to conceptualize an analytical matrix comes from Shan and Feng, who argue that the two previous attempts to explain ISDS reform concentrated, respectively, on its methods and subjects. Instead, they propose a framework to examine the nature of ISDS disputes. Their matrix divides investment disputes into four colour-coded zones based on each dispute’s political and social sensitivity. The authors then suggest suitable dispute settlement mechanisms for each category: for instance, red zone disputes, with both social and political high sensitivity, would be better settled in local courts or through an interstate mechanism; on the other hand, green zone disputes, with both social and political low sensitivity, would be better settled under conventional ISDS.⁴⁰

Our approach differs from these previous attempts for two reasons. First, we focus specifically on the perspective of developing countries, as opposed to considering the positions of states in general or solely of those states engaged in the UNCITRAL reform. Secondly, we examine concrete examples of countries transitioning across our imagined categories while theorizing on possible categories to describe the approaches of the Global South.

Our proposed categorization is expected to establish a descriptive framework that invites further discussion and refinement. We theorize these categories based on our observations of general features of the developing world in the economic order, then we test these categories by mapping out concrete examples. We do not exclude the possibility that developed countries could also fall under our categorization, but it is beyond the scope of this article to do so.

Proposing an analytical matrix for Global South countries

Our categorization aims to describe the legal responses of Global South countries in relation to IIAs, rather than suggesting specific methods or alternatives. We delineate three primary categories that encapsulate the spectrum of engagement strategies (Figure 1). Our categories are to be understood as part of a continuum, representing a spectrum of responses that developing countries may offer. Developing countries might shift positions along this spectrum over time due to, for instance, changing political and economic circumstances. They might also adapt their approach to fit different international forums or to respond to their specific interests in establishing economic relations with a particular counterparty. This oscillating movement should not be seen as contradictory but rather as strategic and pragmatic navigation through the constraints of international economic relations.

At one end of this spectrum, we encounter countries that adopt an ‘engagement by default’ approach. These countries integrate into the global investment framework with minimal scrutiny of the implications of such engagement, reflecting a general and broad acceptance of investment treaties and their preformatted standards. This tendency towards passive conformity might be driven by several key factors. A pronounced dependence on foreign capital for economic development projects primarily compels these countries to align their domestic regulatory landscape with traditional investment law provisions. This alignment is often further reinforced by a shared commitment to neoliberal economic policies, underpinned by beliefs in the benefits of free market principles and economic liberalization.⁴¹ Additionally, these countries might not have encountered significant adversities with international investment arbitration, fostering a perception of alignment with international economic standards as largely beneficial. Political stability or alignment with major economic powers further encourages a default engagement stance, as does a limited domestic capacity to critically engage with or influence international institutions.⁴²

At the other end of the spectrum, the ‘radical disengagement’ approach means a complete departure from the standard norms and practices of the international investment regime. This radical rupture is not without cause; it often follows negative experiences with investment arbitration that reveal the high domestic social or political costs associated with such investment projects. Countries adopting this stance may have witnessed foreign investment concentrating in sensitive sectors with negative externalities locally, prompting a re-evaluation of such engagements’ costs and benefits. The disillusionment with IIAs and an ideological rejection of foreign influence underscores a prioritization of national interests and self-determination.

In the middle of the spectrum lies the ‘selective engagement’ approach, where countries navigate the constraints of international economic law with different degrees of pragmatism. This stance is characterized by a critical yet constructive engagement with the regime, recognizing its limitations while seeking to overcome adverse impacts. Countries adopting this strategy are aware of the critical aspects of the investment regime but weigh these against the necessity of foreign capital for their economic development. This pragmatic navigation is often driven by a desire to balance economic openness with preserving policy space, illustrating an economic pragmatism that values strategic integration over other interests. Political willingness to engage with international norms, even if it means slight adaptations to protect national interests better, is the hallmark of this category.

Understanding these categories as reference points across a spectrum reveals the existence of intermediate categories or subcategories that embody elements of more than one main category. In our categorization, we highlight two such instances. First among these intermediate positions is the subcategory of ‘mainstream reformism’, which is particularly interesting. It is situated between ‘selective engagement’, because it is characterized by a critical yet pragmatic acceptance of investment regime rules; and ‘engagement by default’, because it deals with reform ideas still situated within the general framework that prioritizes investment protection over other competing interests. Mainstream reformists can be distinguished by their participation and support for reform movements, although their level of engagement varies. These countries encourage specific adjustments rather than comprehensive overhauls, aligning their reform efforts with discussions predominantly led by developed countries in international forums.⁴³ They foster incremental improvements within the existing legal and institutional frameworks of protective international investment law. This strategy reflects a belief in the potential for positive change through gradual adjustments, avoiding radical departures from established norms.

In the origin of mainstream reformism, there is a willingness to incrementally improve the system—or simply take advantage of it—without essentially challenging its foundations. This incrementalism stems from recognizing the potential risks associated with radical reform or disengagement, coupled with a desire to preserve the benefits of participation in the global investment regime. Engagement with global governance structures and forums allows these countries to contribute to and be influenced by the prevailing discourse on investment law reform, which is often shaped by the interests and perspectives of more economically developed states. Economically, countries in this cluster are motivated by the desire to attract foreign investment while securing more advantageous or equitable terms and valuing the stability and predictability offered by the existing system.

Secondly, and in contrast to the ‘mainstream reformism’ approach, the ‘alternative thinking’ cluster represents a group of countries that endeavours to pioneer innovative approaches to investment regulation. This subcategory would be situated between the ‘selective engagement’ approach, because it also recognizes the critical aspects of the international investment regime, and the ‘radical disengagement’ category, because it attempts to distance itself from conventional regulatory strategies, embracing creativity and innovation in its engagement with the international investment regime. These countries are not content with merely adjusting the existing system; instead, they aim to redefine the norms and practices of international investment to better respond to their unique policy priorities, which includes avoiding standard features of investment agreements that harm developing countries.

The ‘alternative thinking’ countries distinguish themselves by actively pursuing new agreements that diverge markedly from traditional investment-protection treaties. They explore, for instance, the drafting of national laws that prioritize domestic developmental needs over the interests of foreign investors. They also experiment with alternative modes of international investment regulation that challenge the centrality of investor and investment protection by focusing on promoting other goals, such as investment cooperation and facilitation, and rebalancing investor–states obligations. These countries might share a perception that they hold the power to influence international debates on investment law, at least regionally. This confidence emboldens them to propose and sponsor innovative solutions that challenge the status quo. Strong domestic resistance to the adoption of rules that unduly favour foreign investors over domestic interests fuels the search for alternatives. This resistance is often rooted in past experiences where the interests of foreign investors were seen as conflicting with national development goals or public interests. A strong desire to preserve policy space and support national economic development is another critical factor for this group.

Testing of our analytical categories

Once the categories and subcategories have been broadly described, we can move from theoretical conceptualization to testing the proposed categories through concrete examples. Some tangible examples of countries’ behaviours are fundamental in illustrating the accurate portrayal and the dynamic nature of our categorization.⁴⁴

The evolution of Chile’s approach towards IIAs offers a compelling case study that underscores the fluidity and adaptability of national strategies in response to changing economic and political landscapes. Historically, Chile’s engagement with the international investment regime could be characterized as ‘engagement by default’. For much of its history, Chile signed several BITs with little deviation from the established investment protection norms and standards. This approach reflected a broad acceptance of the prevailing international investment law framework, aligning closely with neoliberal economic policies and the global push for economic liberalization that marked the late 20th century.⁴⁵

However, a notable shift in Chile’s approach occurred post-2003 when it ceased to sign traditional BITs and instead began negotiating free trade agreements that incorporated modernized features of investment law. This turn included linking the FET standard to the customary international law minimum standard of treatment and introducing more sophisticated and developed ISDS rules.⁴⁶ Such innovations can be interpreted as a move towards ‘selective engagement’, wherein Chile kept its position to engage with the investment regime⁴⁷ while incorporating specific changes that aligned with its development goals and policy space.

In more recent developments, Chile has been active in UNCITRAL, together with Colombia, Mexico, and Peru, to promote the establishment of a multilateral instrument that allows reform, modernization, and unification of certain procedural aspects already included in recent IIAs.⁴⁸ This behaviour exemplifies ‘mainstream reformism’, in which Chile aligns with general reform discussions to promote incremental amendment of certain aspects considered critical in the current system.

The evolution of Argentina’s approach to international investment law illustrates a different narrative. Historically aligned with the ‘engagement by default’ mode characteristic of many Latin American countries in the 1990s, Argentina’s perception of the investment regime was affected by its over 60 ISDS claims. This onslaught prompted a temporary halt in its BIT signings, indicating a re-evaluation of its engagement strategy. The subsequent signing of modernized BITs with countries like Qatar in 2016 and the United Arab Emirates and Japan in 2018 may be seen as Argentina’s tentative shift towards ‘selective engagement’.⁴⁹ The decision to refresh the engagement with investment agreements, regardless of previous experience with ISDS, seems to be linked to a domestic political shift leading to substantial ideological and economic changes.⁵⁰ Despite the uninterrupted commitment to investment agreements, Argentina’s active participation in discussions on investment facilitation within the World Trade Organization mirrors a simultaneous move closer to the ‘alternative thinking’ cluster.⁵¹

Conversely, Ecuador, Bolivia, and Venezuela’s experiences illustrate a collective journey from the typical ‘engagement by default’ attitude of the 1990s to a ‘radical disengagement’ in the 2010s, particularly within the context of the Bolivarian Alliance.⁵² Reacting to numerous ISDS claims, these countries took decisive steps away from traditional investment agreements by denouncing the ICSID Convention, with Ecuador additionally withdrawing from all its BITs.⁵³ This radical shift underscores a broader disillusionment with the prevailing international investment regime and a concerted effort to reclaim sovereignty over economic policies and developmental trajectories.

With a particular narrative stands Brazil, a country that historically espoused a ‘radical disengagement’ stance by neither signing the Washington Convention nor ratifying any of its signed BITs.⁵⁴ In the 2010s, Brazil was faced with the imperative to support its investors abroad, so it embarked on developing an innovative model of Cooperation and Facilitation Investment Agreements (CFIA).⁵⁵ This model aims to transform the paradigm from investor protection to investment facilitation, representing a clear manifestation of the ‘alternative thinking’ subcategory. Brazil’s approach exerted influence within the Mercosur bloc, leading to the adoption of a CFIA-like protocol in 2017. Furthermore, Brazil’s stance has shaped discussions on investment facilitation at the World Trade Organization (WTO).⁵⁶

The trajectory of African countries in relation to international investment law captures different degrees of commitment, from initial passive acceptance to a more assertive and strategic engagement. Initially, many African countries could be categorized within the ‘engagement by default’ category. Post-independence in the 1960s, particularly during the 1990s, these countries underwent a surge in the signing of traditional BITs, often with former colonial powers in Europe. This initial wave was less about the economic development priorities of the newly independent African states and more reflective of lasting colonial linkages and heritage.⁵⁷

However, the narrative began to shift as African countries increasingly sought to exercise their collective regional strength.⁵⁸ Emerging regional investment regulations aimed at harmonizing the diverse and often conflicting investment regimes that resembled a ‘spaghetti-bowl’ phenomenon. Regional and continental instruments could exemplify the shift towards ‘selective engagement’. This regional approach seeks to foster a harmonized and development-oriented investment framework that builds on existing regional institutions and processes. This transition has been marked by the attraction of investments for sustainable development, safeguarding regulatory space for host States, the exclusion of portfolio investments, and the provision of investor obligations.⁵⁹

Furthermore, some African states have modernized their domestic investment codes, while others have reassessed the substantive content of their intra-African BITs.⁶⁰ These efforts are part of a broader regional and continental push towards a unified African vision for investment regulation—a move that could arguably border on ‘alternative thinking’. Even though the regional agreements still rely significantly on the logic of investment protection, the drive to regionalize and ensure coherence across the continent represents a unique development within the Global South concerning the construction of a legal framework.

On an individual level, countries like South Africa and Egypt illustrate different paths within our spectrum of categories. South Africa’s decision to move away from traditional BITs, opting not to renew them and instead relying on national regulation based on the Protection of Investment Act, could be considered the signal of a move towards ‘radical disengagement’. However, this shift was not as extreme as in some other global south countries, as the domestic law still incorporates many traditional investment protection features, albeit within a national framework.⁶¹

Conversely, in the north of the continent, Egypt seems to remain close to the ‘engagement by default’ category. Its overall positive experience with investment agreements has kept its policies aligned with international trends. Egypt has introduced domestic reforms to its investment laws and institutions in parallel with adopting IIAs, suggesting a continued alignment with conventional international investment norms.⁶²

In Asia, the negotiation and adoption of BITs occurred during a period marked by substantial economic growth, which distinctly shaped the region’s approach compared to other parts of the world. Unlike regions that entered BIT negotiations primarily to attract much-needed foreign direct investment during economic downturns, many Asian countries experienced robust economic expansion throughout the 1990s and 2000s when the global BIT movement was at its peak. This era of strong growth rates conferred strategic advantages because these countries were attractive destinations for investment, not merely because of the stability and potential for high returns but also due to the broader economic vitality. The economic prosperity then reduced the immediate political pressures that typically compel governments to adopt liberal FDI policies as a quick fix to stimulate economic growth.⁶³

Therefore, with less urgency to concede to investor-friendly conditions at the cost of national regulatory autonomy, these countries often negotiated BITs that maintained greater control over their economic and regulatory environments. This dynamic suggests that Asian countries adopted a ‘selective engagement’ approach from the beginning. Current Asian regionalism emphasizes this approach, with newer agreements replacing ISDS with recourse to state courts and state-to-state proceedings, reflecting a growing preference for more controlled and state-centric dispute resolution mechanisms.⁶⁴

China has historically opted to engage selectively with the international investment regime, with its approach to managing investment disputes through ISDS having evolved across distinct phases⁶⁵: (i) from the 1980s to the 1990s: initially, China’s BITs restricted ISDS to disputes specifically concerning the calculation and payment methods of compensation following expropriation. These early BITs did not extend ISDS provisions to cover other investment protections like NT, reflecting China’s status as a major recipient of FDI, its limited foreign investments, and its restrictive domestic policies on investment and economic liberalization; (ii) in the late 1990s, with its accession to the Washington Convention and commitments under WTO accession, China broadened the scope of ISDS clauses in its BITs to include ICSID arbitration. This phase marked China’s deeper integration into the global economic order, aiming to protect its investors abroad and attract more foreign investment. The renegotiated and new BITs during this period featured ISDS clauses that were formulated to remove earlier obstacles, facilitating broader investor protection; and (iii) from 2008 onwards: recognizing the need for individualized and detailed agreements, China started negotiating ISDS clauses that are very specific and can vary significantly from one treaty to another. These clauses often include detailed procedural aspects such as transparency, arbitrator conduct, and applicable law. This phase indicates a shift towards tailor-made agreements that respect regulatory spaces and aim for mutual acceptance through negotiation. Overall, China’s evolving ISDS strategies reflect its growing role in global economics, the shifting dynamics of its foreign investment strategies, and its adaptive negotiation tactics to accommodate both domestic and international economic interests.

India, on the other hand, demonstrates oscillation in its engagement with the international investment regime. The country was traditionally closer to the engagement by default category until the White Industries case,⁶⁶ which extended to the Australian investor a substantive provision contained in a BIT between India and Kuwait by relying on the MFN clause of India’s BIT with Australia. That case and the threat of new ones prompted India to change its approach to investment regulation, falling under our selective engagement category. India’s model investment agreement excludes MFN clauses altogether. India has moved away from the unqualified approach to FET, replacing it with a list of state obligations under customary international law: (i) denial of justice under customary international law; (ii) unremedied and egregious violations of due process; and (iii) manifestly abusive treatment involving continuous, unjustified and outrageous coercion or harassment.⁶⁷ India also started to act selectively and strategically in relation to ISDS, by conditioning recourse to ISDS on the exhaustion of local remedies in relevant domestic courts or administrative bodies.⁶⁸ All these examples confirm the accuracy of our proposed matrix to capture the complexity and inconsistency of the engagement of the Global South with the international investment regime.

CONCLUSION

The exploration of international investment law reveals a complex interplay between the Global North’s capital-exporting nations and the Global South’s diverse economies. This legal landscape has been shaped by the Global North’s desire for access to natural resources and less stringent regulations, supported by investment agreements that protect their investments while also constraining the regulatory autonomy of host countries in the Global South. These countries view foreign investment as a crucial vehicle for achieving essential public policy objectives, yet their need to attract such investments often leads them to make concessions that may limit their regulatory and policy space.

The resulting legal framework features IIAs that predominantly protect investor rights, often at the expense of the developmental needs of the host nations. This inherent imbalance has sparked periods of contention and compliance among countries in the Global South, reflecting their ongoing struggle between attracting necessary foreign capital and maintaining sovereign control over their economic and social policies.

This article aimed to provide a new analytical matrix to broadly understand how the Global South engages with international investment law. By considering the unique economic, political, and legal realities of these countries, the analysis seeks to shift the focus towards the perspective of the Global South and to offer an instrument for policymakers from these countries to assert more control of their investment policies and benefit more equitably from IIAs.

Ultimately, this reimagined engagement requires a reconsideration of the existing norms and practices to ensure they serve not just the interests of foreign investors but also the developmental goals and regulatory needs of the host countries in the Global South. Our analytical matrix is a tool for legal scholars and policymakers to navigate the current reform movements. This contribution is open for further refinements, yet it paves the way for understanding how international investment law functions in a globally diverse context.

Funding

Funding support for this article was provided by the National Council for Scientific and Technological Development (CNPq, Brazil), 310606/2023-3; and Coordination for Higher Education Staff Development (CAPES, Brazil), 88887.917116/2023-00.

The authors thank the following people: the University of Michigan Law School Librarian Shay Elbaum and Library Research Assistant Andrew Eslich for their valuable research assistance. All errors are ours.

Footnotes