{"id":1991,"date":"2025-10-16T21:10:56","date_gmt":"2025-10-16T21:10:56","guid":{"rendered":"https:\/\/novislegal.com\/the-balance-between-the-right-to-legislate-and-the-protection-of-foreign-investments\/"},"modified":"2025-10-20T15:49:23","modified_gmt":"2025-10-20T15:49:23","slug":"the-balance-between-the-right-to-legislate-and-the-protection-of-foreign-investments","status":"publish","type":"post","link":"https:\/\/novislegal.com\/en\/the-balance-between-the-right-to-legislate-and-the-protection-of-foreign-investments\/","title":{"rendered":"The Balance Between the Right to Legislate and the Protection of Foreign Investments"},"content":{"rendered":"\n

It is undeniable that every State, within the framework of its constitutional functions, has the duty to legislate in favor of its population. This duty entails updating regulations with the purpose of building a more sustainable, safe, and healthy country for its citizens. <\/p>\n\n

However, the State\u2019s power to legislate is not absolute. This authority is subject to limits and controls, among them the system of checks and balances, through which different public actors prevent the abuse of governmental power. While constitutional controls are the most commonly known, there are also other mechanisms linked to the fields of commercial law and public international law. <\/p>\n\n

In this context, Bilateral Investment Treaties (BITs) represent an intersection between both areas, as they seek to create favorable conditions for investors while simultaneously reflecting the State\u2019s essential public objectives.<\/p>\n\n

Thus, BITs have evolved into a new mechanism of checks and balances on the State\u2019s legislative power. These treaties often include provisions referring to the so-called \u201cright to regulate\u201d, which implies that States must ensure not only that their legislation complies with domestic constitutional standards, but also that it aligns with the international commitments undertaken toward investors. <\/p>\n\n

Initially, the tradition of BITs reflected a more restrictive conception of the State\u2019s regulatory power. States could only modify their laws when such changes did not amount to a violation of acquired rights, a frustration of legitimate expectations based on specific commitments, or measures that were disproportionate, unforeseeable, or discriminatory\u2014and when they were justified by a legitimate public interest. Under this earlier approach, States had to act with extreme caution when adopting new regulations, since doing so incorrectly could harm investors\u2019 interests and, in extreme cases, lead to multimillion-dollar claims before international arbitral tribunals. <\/p>\n\n

Aware of these constraints, States have recently promoted a new trend in international investment law aimed at balancing investors\u2019 rights with the sovereign right of States to regulate. In this regard, modern BITs explicitly establish that the mere fact that a State measure adversely affects an investment or interferes with an investor\u2019s profit expectations does not, by itself, constitute a treaty breach. This trend can be observed, for example, in the Agreement between the Government of Hungary and the Government of the Republic of Cabo Verde for the Promotion and Reciprocal Protection of Investments1, and in the Bilateral Investment Treaty between India and the United Arab Emirates. <\/p>\n\n

This evolution has also been recognized by international arbitral tribunals, which have held that: <\/p>\n\n

\u201cThe host State is not required to prioritize the investor\u2019s interests over all other considerations. The application of the Fair and Equitable Treatment (FET) standard allows for a balancing exercise by the State, and a determination of a breach must be made in light of the high degree of deference that international law generally affords to national authorities\u2019 right to regulate matters within their own borders.\u201d3<\/em> <\/p>\n\n

In other words, international law acknowledges that States are not obliged to place investors\u2019 interests above all else. Instead, they must primarily safeguard their constitutional objectives, such as the security, health, and welfare of their population.<\/p>\n\n

Based on this, several authors recommend that States conduct a three-level analysis before adopting legislative reforms, in order to minimize the risk of international claims:<\/p>\n\n

    \n
  1. Specificity of commitments: <\/strong>The more specific the State\u2019s promises or commitments toward an investor, the greater the likelihood of a successful Fair and Equitable Treatment (FET) claim. General or political statements are usually insufficient. <\/li>\n\n\n\n
  2. Degree of regulatory change: <\/strong>The more drastic the alteration of the regulatory framework, the higher the chances of success for an investor\u2019s claim<\/li>\n\n\n\n
  3. Proportionality of measures: <\/strong>Tribunals assess whether the State\u2019s measures were proportionate to their intended objectives, taking into account the economic and social context in which they were adopted.<\/li>\n<\/ol>\n\n

    In conclusion, although not all States have yet embraced this new trend toward balancing investor rights with the State\u2019s regulatory powers, the paradigm shift in international investment arbitration is evident.<\/strong> Nevertheless, as long as traditional investment treaties remain in force, States must continue to act cautiously, ensuring that any legislative change does not violate acquired rights or legitimate expectations, and that such changes are justified by a legitimate public interest, proportionate, and non-discriminatory. <\/p>\n\n

    <\/p>\n","protected":false},"excerpt":{"rendered":"

    It is undeniable that every State, within the framework of its constitutional functions, has the duty to legislate in favor of its population. This duty entails updating regulations with the purpose of building a more sustainable, safe, and healthy country for its citizens. However, the State\u2019s power to legislate is not absolute. This authority is […]<\/p>\n","protected":false},"author":17,"featured_media":2011,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"saved_in_kubio":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1991","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-sin-categoria"],"_links":{"self":[{"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/posts\/1991","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/comments?post=1991"}],"version-history":[{"count":5,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/posts\/1991\/revisions"}],"predecessor-version":[{"id":2003,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/posts\/1991\/revisions\/2003"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/media\/2011"}],"wp:attachment":[{"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/media?parent=1991"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/categories?post=1991"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/novislegal.com\/en\/wp-json\/wp\/v2\/tags?post=1991"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}