The Justification of Privilege in International Investment Law: Preferential Treatment of Foreign Investors as a Problem of Legitimacy

A fundamental feature of international investment law is that it only applies to foreign investment. This has historical reasons and is connected to deep-rooted principles of international law. It has also been a historical cause of controversy because it requires states to treat foreign investors better than they treat their own nationals. This article shows how the international minimum standard for treatment of foreigners nevertheless developed in a dialogue with such a concern for equality. The article argues that the way in which international investment law has developed in recent years into an effective remedial mechanism that can be invoked by individual foreign investors against host states ignores this historical lesson and now poses a particular challenge to its legitimacy. It privileges foreign investors as a select group worthy of more effective legal protection than ordinarily provided under municipal law, challenging the ideal of equality before the law as a basic constitutional value. The article discusses possible justifications of such privilege, arguing that only a more traditional international minimum standard rationale provides a convincing justification of special treatment of foreign investment. This has important implications for the reform of the current investment regime, suggesting that it should be redesigned to adopt a more supplementary role and deferential attitude to domestic law and courts – for example, through a requirement to exhaust local remedies.