GROWTH OF FOREIGN INVESTMENT AND INVESTMENT ARBITRATION

Foreign investment is a critical component of the world's economy. Global flows of investment in 2006 amounted to U.S. $1.2 trillion. Although the highest capital inflows in any single country went to the United States, record levels were attained in Africa, Asia, South-East Europe and the Commonwealth of Independent States. Because many developing countries do not have the capital, technology, or other resources needed to modernize their infrastructure and develop their industries, foreign investment is seen as crucial to making them more competitive in a global economy. Developed countries, as well, know the importance of attracting foreign investment. Investment to developed countries in 2006 reached U.S. $800 billion, an increase of 48% over the previous year. It is thus not surprising that many countries have actively sought ways to encourage foreign investment.

Foreign investors who are considering major capital-intensive projects such as the financing and development of a power plant, the construction of a 5,000 unit housing project, the building of long-distance oil and gas pipelines, or the development of transportation or communications infrastructure want assurances that their investments will not be taken over (expropriated) by the host country or so undermined by changes in the host country's regulations or laws that the investment is constructively expropriated. They also want a way to resolve disputes that does not depend upon the courts of the host country, for fear that they will not receive fair and equal treatment in those courts when the opposing party is the State or a State entity.