Sovereign Wealth Funds and Investor-State Dispute Settlement: The Interplay between Domestic and International Investment Law

AuthorMuhammad Ussama Mahmoud
PositionIndependent Scholar
Pages337-394
e Indonesian Journal of International & Comparative Law
ISSN: 2338-7602; E-ISSN: 2338-770X
http://www.ijil.org
© 2019 e Institute for Migrant Rights Press
sovErEign WEalth funds and invEstor-statE
disputE sEttlEmEnt:
The InTerplay beTween DomesTIc anD InTernaTIonal InvesTmenT law
Muhammad Ussama Mahmoud
Independent Scholar
E-mail: muhammad.saied@icloud.com
Having managed to impose the prevalence of its interests in the twentieth century, inter
alia, through ideas of “internationalization” of investment agreements signed between
host states and private foreign investors and right of access, it is perhaps ironic to observe
countries of the Global North seeking refuge in the caves of protectionism as evidenced
in their recently-issued domestic laws. Now that the ow of FDI is no longer moving in
one direction, developed countries have increasingly tasted the bitterness of presuming
the role of the “host state of investments”. Upon the conclusion of Global Financial Cri-
ses of 2007-2009, developed states have grown worrisome of the considerable rise in the
importance of sovereign investors in general, and sovereign wealth funds (“SWFs”) in
particular, especially now that their assets under management have reached trillions
of dollars. As a result of various concerns which developed countries have concerning
investments made by SWFs, developed countries have been keen on taking necessary
steps to control, or even block, foreign investments made by these funds. Recourse to
national law to treat potential problems that naturally fall within the realm of interna-
tional investment law, however, is problematic and is arguably not the best approach.
States cannot invoke their domestic laws to rid themselves of international obligations
which are incorporated in international investment agreements (“IIAs”). Guarantees
against discrimination, including national treatment (“NT”) and most-favoured-nation
(“MFN”) clauses, and fair and equitable treatment (“FET”) can prove quite problematic
for developed countries resorting to protectionist measures. A nding of breach of any of
these substantive standards of protection by an investment arbitration tribunal entails
the liability of the host state that committed the breach. On the basis of this discussion
and analysis, the present piece of work emphasizes the importance of realizing the in-
terplay between domestic and international law in the eld of international investment
law, and points to the inherent aws and dangers of abandoning international obliga-
tions for protectionist measures. It further points to the existence of double standards
in how developed countries have reacted to problems of foreign investment law in the
twentieth century and in the present time.
Keywords: international development, global trade, international law, economic law.
VI Indonesian Journal of International & Comparative Law 337-394 (July 2019)
338
Ussama
INTRODUCTION
e Global Financial Crises of 2007-09 has truly le its mark on the
global economy. With the resulting serious doubts as to the power
and eciency of the “invisible” hand of the market and the manner
in which “Too-Big-To-Fail” private corporations and institutions are
managed and operated, it has been noted that liberal capitalism has
suered a considerable blow.1
It has also been noted that state capitalism is on the rise, with
governments of various emerging economies and developing states
heavily relying on state entities, including sovereign wealth funds
(SWFs), to achieve and realise their economic development goals.2
Indeed, given their considerable importance and signicant value
of their assets under management (AUM) reaching about USD 7
trillion in recent years, numerous scholars working in the eld of
international law have dedicated their focus to the study of state owned
or controlled entities (SOEs), private national champions (such as
national big private oil and gas companies) and development funds.
is is not surprising because most of this USD 7 trillion amount is not
invested in the home states of these funds, but in foreign soil through
transnational transactions and investments across the world and,
particularly, in the Global North.3 Now that SWFs have proven their
1. See, e.g., Alastair Hudson, T L  F 1313-25 (Sweet & Maxwell
2nd ed., 2013); Jiangyu Wang, State Capitalism and Sovereign Wealth Funds:
Finding A “So” Location In International Economic Law, in A
V O T I L  F I, 405-06 (C.
L. Lim ed., Cambridge University Press 2016); Adrian Orr, Sovereign Wealth
Funds as Long-Term Investors: Taking Advantage of Unique Endowments, in
T N F  S I, 35-36 (Malan Rietveld &
Perrine Toledano eds., Columbia University Press 2017); e Visible Hand, in
Special Report: State Capitalism, T E, (Jan. 21, 2012), www.econo-
mist.com/node/21542931 (last visited Sep. 25, 2019).
2. See, e.g., Wang, supra note 1, at 405-406; T E, supra note 1.
3. See Sanjay Peters, Sovereign Wealth Funds and Long-Term Investments in Infra-
structure: Why the Glaring Absence?, in T N F  S
I, 218-19 (Malan Rietveld & Perrine Toledano eds, 2017). See also
Malan Rietveld & Perrine Toledano, Conclusion, in Rietveld & Toledano, supra
note 1, at 270-71; A C, C’ W: W (A H)
S F S B M B T P F T P 3
339
Sovereign Wealth Funds and Investor-State Dispute Settlement
Ussama
worth as powerful, ecient investment vehicles, more and more states
have been establishing SWFs and, hence, SWFs’ numbers have been
noted to double within the last decade.4
However, developed states have not been oblivious to the
political aspect that is inherent in the establishment, and possibly the
management and investment agenda and goals, of SWFs originating
in the territories of emerging economies and developing states.5 While
developed states had a serious incentive to accept capital injections
made by these funds when the Global Financial Crises hit in 2007 and
during its aermath, these states (namely, developed states) have lately
been heeding the potentially serious concerns raised with respect to the
underlying objectives and goals of investments sought to be made by
these funds and their level of transparency.6 As will be discussed in detail
below, developed states have been taking concrete steps at the domestic
plane with the aim of controlling, or even blocking, investments made,
or sought to be made, in their territory by SWFs. Germany, Canada,
Australia, and the United States of America (USA) are merely examples
of developed states who see in SWFs’ investments underlying political
goals and concerns, and have taken refuge in protectionist measures
(2016); Adrian Orr, Sovereign Wealth Funds as Long-Term Investors: Taking Ad-
vantage of Unique Endowments, in Rietveld & Toledano, supra note 1, at 35-36;
Walid Ben Hamida, Sovereign FDI and International Investment Agreements:
Questions Relating to the Qualication of Sovereign Entities and the Admission
of their Investments under Investment Agreements, 9 L.  P. I’ C. 
T 17, 18 (2010).
4. See, e.g., Malan Rietveld & Perrine Toledano, Introduction, in Rietveld & Tole-
dano, supra note 1, at 3; Massimiliano Castelli & Fabio Scacciavillani, SWFs
and State Investments: A Preliminary General Overview, in R H-
  S W F  I I
L 13-15 (Fabio Bassan ed., 2015); Paul Blyschak, State-Owned Enterpris-
es and International Investment Treaties: When Are State-Owned Entities and
eir Investments Protected?, 6 J. I’ L.  I’ R 1, 1-3 (2011); Robert
M. Kimmitt, Public Footprints in Private Markets: Sovereign Wealth Funds and
the World Economy, 87 F A. 119, 121-22 (2008); Christopher Beus,
Sovereign Wealth Funds in the ICSID: A New Approach to Standing, 1 I. J.
I’  C. L. 543, 544-45 (2014); Hamida, supra note 3, at 17-18.
5. See Wan g, supra note 1, at 405-406.
6. Robert Ohrenstein & James White, e Governance Implications of the Increas-
ing Levels of Direct Investment of Sovereign Wealth Funds, in Rietveld & Toleda-
no, supra note 1, at 45. See also Wan g, supra note 1, at 405-406.

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