Leveling the Playing Field: Is It Time for a Legal Assistance Center for Developing Nations in Investment Treaty Arbitration?


As part of an effort to encourage foreign direct investment, developing nations have signed over 1500 bilateral investment treaties (BITs) in just the last fifteen years. BITs grant foreign investors substantive rights, such as freedom from expropriation and the right to sue governments directly for a breach of the treaty in a process known as investment treaty arbitration. Over the last five years, the number of investment treaty arbitration claims filed against developing nations has more than tripled. The stakes are high: investor claims routinely seek damages in excess of $100,000,000 and challenge host state regulation of basic public services like water, energy, and waste disposal.

Mounting an effective defense to these claims is essential for a developing nation, as even a single adverse award could wreak havoc on its economy, weaken its capacity to regulate in the public interest, and damage its reputation as a desirable investment location. However, due to financial and administrative barriers, many developing nations do not have the legal expertise within their government service to defend investment treaty claims. As a consequence, most are forced to hire one of a handful of international law firms who charge the same premium market rates that wealthy individual investors and corporations pay for their services. Meanwhile, developing nations who cannot hire outside counsel face scattered and incomplete sources of legal authority, uncertainty over the meaning of key BIT provisions, and no organized legal assistance from the international community. Unfortunately, these concerns are far from theoretical: in interviews done for this article, developing nation lawyers report not having access to fundamental sources of arbitration law, or having to go to extraordinary lengths to obtain it.

Developing nations’ lack of access to affordable legal authority and expertise threatens the legitimacy of investment treaty arbitration by furthering the damaging perception that the arbitration process is unfairly tilted toward investors and wealthier States. The time is right for the establishment of a legal assistance center for developing nations facing actual or potential investment treaty arbitration claims. A legal assistance center would bolster the legitimacy of the investment treaty arbitration process by ensuring that developing nations have, at a minimum, access to fundamental legal authority and some basic level of legal expertise. A legal assistance center would not only promote fairness for developing nations, but also lead to a more efficient and effective arbitration process. Better informed developing nation counsel will make more cogent legal arguments, enhancing the quality and efficiency of the arbitration process as well as the ultimate result. By ensuring that developing nations have affordable access to legal authority and expertise, a legal assistance center will ensure that investment treaty arbitration more perfectly fulfills its vital mission of providing a truly neutral and just form of dispute settlement.


International Law

Date of this Version

September 2006