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Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →A bilateral investment treaty (BIT) is an agreement between two countries setting out how each will treat certain investments made by investors from the other. Depending on its wording, a BIT may protect covered investors against specified forms of discrimination or uncompensated expropriation and may let them bring certain claims against a host government. It does not guarantee an investment’s success, give every investor access to arbitration, or prevent governments from regulating.
What a bilateral investment treaty does
A BIT is one type of international investment agreement. It creates reciprocal obligations between two states concerning investments by each other’s investors in their territories. Investment rules can also appear in broader trade agreements, so the treaty’s label alone does not establish what protections apply.
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The operative treaty text determines which investors and assets are covered, what each government has promised, and whether a dispute can be taken to arbitration. A company’s nationality, the nature and location of its investment, the treaty’s status, and any relevant exceptions or amendments can all matter.
What protections a BIT may provide
Treaties differ, but commonly used protections address how a host government treats covered foreign investors and investments. These are examples, not a checklist that appears identically in every BIT.
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| Protection | What it generally addresses |
|---|---|
| National treatment | Whether covered foreign investors or investments receive treatment comparable to domestic investors or investments in the circumstances specified by the treaty. |
| Most-favoured-nation treatment | Whether covered investors receive treatment comparable to investors from other countries, subject to the treaty’s wording and exceptions. |
| Fair and equitable treatment | A treaty standard for the host state’s treatment of covered investments. Its content is not uniform: treaty language may leave it broad, link it to the customary international law minimum standard, define specific elements, or omit it. |
| Full protection and security | An obligation concerning protection and security for covered investments, as defined and interpreted under the applicable treaty. |
| Protection against unreasonable or discriminatory impairment | A limit on specified government measures that impair the operation, management, maintenance, use, enjoyment, or disposal of covered investments, depending on the clause’s exact language. |
| Expropriation protections | Conditions governing certain direct or indirect takings of covered investments, including when compensation is required. |
A U.S. government-published treaty text illustrates one possible expropriation clause: it allows expropriation for a public purpose if it is nondiscriminatory, follows due process, and provides prompt, adequate, and effective compensation. That text describes compensation by reference to fair market value immediately before the expropriatory action. This is an example of treaty drafting, not a formula that applies to every BIT.
How a company may bring a claim against a government
Some BITs provide for investor-state dispute settlement (ISDS), which can allow an eligible foreign investor to bring specified claims against a host state before an arbitral tribunal. Whether a particular claim can proceed depends on the applicable treaty and the relevant procedural rules.
It helps to separate two questions: what the state promised and whether a tribunal has authority to hear this investor’s claim. A substantive protection, such as a restriction on certain expropriations, defines an obligation. Consent to arbitration, jurisdiction, and procedural requirements determine whether a tribunal can consider an alleged breach. A dispute clause is not an automatic win and does not turn every commercial disagreement into an international treaty claim.
- Identify the applicable treaty. Confirm that an agreement between the relevant states covers the investor and investment, and check its current status and any amendments or termination provisions.
- Check eligibility and consent. Read the definitions of investor and investment, the dispute clause, and any conditions that govern the state’s consent to arbitration.
- Check procedural requirements. The treaty may specify time limits, waiting periods, a forum, or other steps before a claim can be filed. The applicable rules may add procedural requirements.
- Assess the alleged breach. Compare the government measure and the facts with the particular obligation invoked, including any applicable exceptions.
Arbitration under the ICSID Convention also requires consent. Its preamble says: “no Contracting State shall by the mere fact of its ratification, acceptance or approval of this Convention and without its consent be deemed to be under any obligation to submit any particular dispute to conciliation or arbitration”. Ratification of the Convention alone therefore does not require a state to arbitrate every dispute.
Arbitration is not necessarily public
Transparency depends on the applicable treaty, arbitration rules, and other relevant instruments. UNCITRAL reports that it amended its Arbitration Rules in 2013 to incorporate Rules on Transparency in Treaty-based Investor-State Arbitration, and that the 2014 Mauritius Convention promotes applying those transparency obligations to existing investment treaties. Those developments do not mean every treaty arbitration is public.
Does a BIT stop a government from changing its laws?
No. A BIT is not a general ban on regulation. Governments retain authority to regulate, although a treaty may impose obligations on how they treat covered investors and may set conditions for certain expropriations. Whether a particular measure breaches a treaty depends on its text, any applicable exceptions, and the facts; the existence of a new law or policy does not by itself establish a treaty violation.
For example, the published U.S. treaty text described above permits expropriation for a public purpose when its nondiscrimination, compensation, and due-process conditions are satisfied. That example shows how a treaty can place conditions on a government measure without prohibiting the measure in all circumstances.
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Terms such as “investor,” “investment,” and “fair and equitable treatment” do not have one universal meaning across all treaties. UNCTAD notes that the definitions of investor and investment identify which parties and assets are covered and can affect the obligations created.
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Fair and equitable treatment is common but not a uniform, settled checklist. In a 2023 analysis of 2,670 investment treaties concluded by 99 jurisdictions participating in its work programme, covering treaties concluded from 1959 through 2023, the OECD found that almost 95% referred to fair and equitable treatment. The same analysis describes variation in treaty design: older clauses often left the standard unspecified, while newer approaches more often link it to the customary international law minimum standard, use a closed list of elements, or omit the obligation. UNCTAD described the standard in 1999 as “a yardstick by which relations between foreign direct investors and Governments of capital-importing countries may be assessed”; that is an analytical description, not binding treaty language or a tribunal ruling.
How to compare two BITs
If you are assessing whether a treaty might apply to a particular investment, compare the actual texts rather than relying on a summary of “typical BIT protections.” Check these provisions in each treaty:
- Investor and investment definitions: Which nationalities, entities, and types of assets qualify?
- When protection begins: Does the treaty protect investments only after establishment, or does it also address admission?
- Fair and equitable treatment: Is the standard stated broadly, linked to customary international law, limited by a list of elements, or absent?
- National treatment and most-favoured-nation treatment: What conduct and stages of investment do these clauses cover, and what exceptions apply?
- Expropriation: How does the text address direct and indirect expropriation, public purpose, compensation, and due process?
- Exceptions and regulatory language: Are there general or security exceptions or provisions addressing the right to regulate?
- Dispute settlement: What consent, forum, time limits, waiting periods, local-remedy requirements, and transparency rules apply?
- Treaty status: When did the treaty enter into force, and what do its amendment, termination, and survival clauses say?
For a real investment or dispute, identify the states and investment first, then verify the treaty currently applicable to those facts and review its procedural rules and amendments. This general explanation is not legal advice for a specific claim.
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