How does Jordan perceive international investment laws and treaties, and what are its current challenges?

International Investment Law and Bilateral Investment Treaties: Historical Evolution, Contemporary Challenges, and the Jordanian Perspective

1. Introduction

International investment law constitutes one of the most influential and contested branches of contemporary international economic law. At its core, it governs the legal relationship between foreign investors and host States, seeking to balance investment protection with sovereign regulatory autonomy. The principal instruments of this regime are Bilateral Investment Treaties (BITs), alongside multilateral arrangements and investor–State dispute settlement (ISDS) mechanisms.

Over the past six decades, international investment law has undergone profound transformations: from a protection-driven framework favoring capital-exporting States, to a system increasingly scrutinised for its impact on public policy, sustainable development, and regulatory sovereignty. Jordan, as an emerging investment destination and an active treaty participant, offers a compelling case study of these dynamics.

2. Historical Foundations of International Investment Law

The intellectual and legal foundations of international investment law predate the post–Second World War era and may be traced back to the economic arrangements developed during the Ottoman period, particularly through the system of Capitulations. These instruments, concluded between the Ottoman Empire and European powers from the sixteenth century onwards, granted foreign merchants and investors extensive privileges, including extraterritorial jurisdiction, tax exemptions, and diplomatic protection. While not investment treaties in the modern sense, the Capitulations established early forms of legal protection for foreign economic activity and entrenched asymmetrical relationships between host authorities and foreign economic actors. Their legacy profoundly influenced later debates on sovereignty, foreign investment protection, and the limits of host-State regulatory authority—especially in the Middle East.

Following the decline of imperial systems and the eventual dismantling of Capitulations in the early twentieth century, the regulation of foreign investment increasingly shifted toward public international law. However, it was in the aftermath of the Second World War—coinciding with the decolonisation of Asia, Africa, and the Middle East—that international investment law began to crystallise as a distinct legal regime. Newly independent States, including those emerging from Ottoman and colonial administration, faced urgent development needs and sought foreign capital, technology, and expertise. Conversely, capital-exporting States pursued legal certainty and enforceable protections for their investors operating in politically and economically volatile environments.

In the absence of a comprehensive treaty framework, early investment protection relied primarily on customary international law, particularly the doctrines of diplomatic protection and the international minimum standard of treatment. Under this system, injury to a foreign investor was treated as an injury to the investor’s home State, allowing that State to espouse the claim at the international level. This approach, however, was deeply contested. Developing States argued that it undermined sovereignty and perpetuated colonial-era power imbalances, particularly in relation to expropriation and the standard of compensation. Disagreements crystallised around whether compensation should be “prompt, adequate, and effective” or determined in accordance with domestic law and national development priorities.

These tensions ultimately prompted a shift from customary norms to treaty-based solutions. The conclusion of the first modern Bilateral Investment Treaty (BIT) between Germany and Pakistan in 1959 marked a decisive turning point. This treaty model introduced reciprocal, legally binding commitments and direct access for investors to international dispute settlement, bypassing diplomatic channels. Over the following decades—particularly during the 1970s to 1990s—BITs proliferated rapidly, giving rise to a dense global network exceeding 3,000 treaties.

This treaty-based regime standardised a core set of substantive protections, most notably: the obligation to accord fair and equitable treatment (FET); protection against direct and indirect expropriation without compensation; guarantees of national treatment and most-favoured-nation (MFN) status; and the free transfer of capital and returns.

A critical institutional development reinforcing this framework was the establishment of the International Centre for Settlement of Investment Disputes (ICSID) in 1966 under the auspices of the World Bank. ICSID provided a depoliticised, rules-based forum for resolving investor–State disputes, transforming investment protection from a State-to-State diplomatic matter into a legalised adjudicatory system with direct enforceability. This institutionalisation cemented international investment law as a central component of the post-war international economic order, while simultaneously laying the groundwork for the legitimacy debates and reform movements that define the field today.

3. The Structure and Legal Logic of Bilateral Investment Treaties

BITs are reciprocal agreements through which States commit to minimum standards of treatment for each other’s investors. Their appeal lies in their simplicity, predictability, and enforceability. From a legal perspective, BITs operate as public international law instruments that confer enforceable rights directly upon private investors, an exceptional feature within international law. Through ISDS clauses, investors may bypass domestic courts and bring claims directly against host States before international arbitral tribunals. While this structure enhanced investor confidence and capital flows, it also generated systemic concerns. Broadly drafted standards, particularly FET and indirect expropriation, allowed tribunals significant interpretive discretion, sometimes constraining legitimate public regulation.

4. Expansion and Crisis of the ISDS System

The exponential growth of investor–State dispute settlement (ISDS) claims from the late 1990s onwards marked a critical turning point in the evolution of international investment law. States increasingly found themselves challenged over a broad spectrum of sovereign measures, including environmental protection, public health and safety regulation, energy transition policies, taxation and financial regulation, and privatisation reversals. What had initially been conceived as exceptional remedies for egregious State conduct evolved into a routine mechanism through which investors contested core public policy decisions.

A number of high-profile arbitral cases played a decisive role in intensifying criticism of the regime. In Metalclad v. Mexico (2000), a tribunal found that local environmental permitting decisions constituted indirect expropriation, signalling an expansive interpretation of investor protection that appeared to subordinate environmental regulation to investment guarantees. Similarly, Tecmed v. Mexico (2003) articulated a broad and investor-oriented understanding of the fair and equitable treatment (FET) standard, emphasising the protection of investors’ legitimate expectations. Perhaps most emblematic of the regime’s reach was Philip Morris v. Uruguay (2016), where a multinational corporation challenged tobacco control measures adopted in the interest of public health, reinforcing concerns that ISDS could be used to contest non-discriminatory regulatory action undertaken for public welfare objectives.

These and similar cases fuelled growing apprehension regarding regulatory chill, whereby States might refrain from adopting legitimate public interest measures due to the risk of costly arbitration. Additional concerns emerged regarding the inconsistency of arbitral awards, the lack of transparency and accountability, and the perceived structural bias in favour of investors, particularly given the asymmetry of access to ISDS and the absence of corresponding investor obligations.

In response, a global backlash began to take shape. Several States elected to terminate or allow the expiry of existing BITs, others withdrew from ICSID, and many undertook comprehensive treaty model reforms aimed at narrowing substantive protections and reaffirming the State’s right to regulate. As a result, the central debate within international investment law shifted decisively—from questioning whether investment protection is necessary, to examining how the regime should be recalibrated to achieve a more sustainable balance between investor rights and sovereign regulatory autonomy.

5. Contemporary Trends in International Investment Law

International investment law is currently undergoing a phase of recalibration rather than collapse. While bilateral investment treaties (BITs) and investor–State dispute settlement (ISDS) remain central features of the regime, States are increasingly re-examining how investment protection is framed, interpreted, and enforced. This recalibration reflects an effort to preserve legal certainty for investors while restoring an appropriate degree of regulatory autonomy to host States.

5.1 Treaty Modernisation and Rebalancing of Substantive Standards

One of the most visible trends is the modernisation of investment treaties. New-generation BITs increasingly depart from the broad and open-ended formulations that characterised first- and second-generation treaties. States are now adopting narrower and more precise definitions of “investment” and “investor”, often excluding speculative assets, short-term capital flows, or purely contractual claims that lack a genuine economic presence in the host State. This approach seeks to limit treaty protection to investments that contribute meaningfully to economic development.

A similar recalibration is evident in the treatment of the fair and equitable treatment (FET) standard. Rather than leaving FET open to expansive interpretation, many modern treaties explicitly tie the standard to customary international law, or enumerate its constituent elements, such as denial of justice, manifest arbitrariness, or abusive treatment, thereby constraining arbitral discretion. This drafting technique aims to reduce uncertainty and prevent the elevation of investors’ commercial expectations into quasi-guarantees against regulatory change.

Modern treaties also increasingly incorporate explicit carve-outs and exceptions for public policy measures, particularly in areas such as public health, environmental protection, financial stability, and national security. In parallel, sustainable development considerations have gained prominence. Recent BITs frequently include references to environmental protection, labour standards, corporate social responsibility, and ESG principles, signalling a shift toward viewing investment protection as part of a broader governance framework rather than an isolated legal regime.

5.2 Reform of Investor–State Dispute Settlement

Alongside substantive reform, ISDS itself has become the focal point of systemic critique and reform efforts. At the multilateral level, discussions within UNCITRAL Working Group III have brought unprecedented momentum to reform initiatives. These discussions respond directly to longstanding concerns regarding the consistency and correctness of arbitral awards, as tribunals constituted on an ad hoc basis have produced divergent interpretations of similar treaty language.

Another central concern relates to the independence, impartiality, and ethics of arbitrators, particularly in light of repeat appointments and the dual role of individuals acting as both arbitrators and counsel. Reform proposals therefore place strong emphasis on stricter ethical standards, enhanced disclosure obligations, and institutional oversight.

5.3 Integration of Public Interest and the Right to Regulate

A further defining trend is the explicit integration of public interest considerations into the architecture of international investment law. Recent treaties increasingly acknowledge that investment protection must coexist with States’ legitimate right—and duty—to regulate in pursuit of public welfare objectives. This recognition is particularly pronounced in relation to climate change mitigation, energy transition policies, public health regulation, and labour protection.

Rather than treating public regulation as an exception or deviation from investor protection, modern treaty practice increasingly frames regulatory authority as a co-equal normative objective. Provisions affirming the State’s right to regulate, references to international environmental and labour instruments, and safeguards against claims arising solely from non-discriminatory regulatory change all reflect this evolving balance.
Collectively, these developments illustrate a broader transformation of international investment law: from a regime primarily designed to insulate foreign investment from sovereign interference, to one that seeks to reconcile investment protection with sustainable development, democratic governance, and regulatory legitimacy.

6. Jordan and International Investment Law

Jordan has historically adopted an open and investor-friendly approach to foreign investment, positioning itself as a stable gateway economy within the Middle East. Since the early 1980s, the Kingdom has concluded more than fifty bilateral investment treaties (BITs) with States across Europe, Asia, Africa, and the Arab world, and has been a long-standing member of the International Centre for Settlement of Investment Disputes (ICSID). This extensive treaty network reflects Jordan’s strategic reliance on foreign direct investment (FDI) as a driver of economic growth, employment, and infrastructure development.

Jordan’s BIT framework has played a meaningful role in attracting investment into key sectors such as energy, infrastructure, telecommunications, financial services, and large-scale real estate projects. By offering international legal guarantees, particularly protection against expropriation, fair and equitable treatment, and access to international arbitration, these treaties have complemented domestic incentives and contributed to investor confidence. In practice, BITs have functioned as an external layer of assurance, reinforcing Jordan’s domestic investment climate.

At the same time, Jordan’s experience as a respondent State in two ISDS proceedings has brought into sharp focus the practical implications of broadly drafted treaty obligations. Investment disputes have illustrated how international commitments may intersect with domestic regulatory measures, including those adopted in pursuit of environmental protection, fiscal management, or sectoral reform. These cases have underscored the importance of coherence between Jordan’s international treaty obligations and its internal legal order.

This dynamic has unfolded alongside a series of domestic legal reforms, most notably the enactment of the Investment Environment Law No. (21) of 2022. This law represents a deliberate effort to modernise Jordan’s investment framework by enhancing transparency, improving governance structures, streamlining licensing procedures, and strengthening institutional oversight. Importantly, the law also reflects a growing emphasis on sustainable investment, expressly linking investment promotion to national development objectives rather than treating it as an isolated economic activity.

The interaction between domestic investment legislation and BITs is therefore central to Jordan’s investment governance model. While BITs provide international guarantees and dispute resolution mechanisms, domestic laws define the conditions under which investments are established, licensed, operated, and regulated. A well-functioning investment regime depends on the alignment of these two layers: BITs facilitate investor confidence at the international level, while domestic laws operationalise investment policy and ensure regulatory legitimacy on the ground.

From a policy standpoint, Jordan increasingly faces the challenge of balancing its international investment obligations with domestic priorities, including fiscal stability, environmental protection, public service provision, and long-term sustainable development. This does not necessarily require a retreat from investment treaties, but rather a more calibrated approach, one that recognises the complementary roles of bilateral treaties and domestic regulatory frameworks in shaping a stable, predictable, and development-oriented investment environment. 

Jordan has not taken an aggressive termination approach toward BITs. Instead, its trajectory suggests a measured recalibration strategy, characterised by: greater scrutiny of treaty drafting, emphasis on domestic legal remedies and institutional reform, alignment of investment policy with national development objectives and increased awareness of dispute-prevention mechanisms. This pragmatic approach reflects Jordan’s geopolitical position, economic structure, and reliance on foreign investment, while recognising the evolving global consensus on reform.

7. Conclusion

International investment law is no longer a static framework designed solely to shield foreign capital from sovereign interference. It has evolved into a dynamic and contested regime, increasingly shaped by demands for regulatory legitimacy, sustainable development, and public accountability. Bilateral investment treaties remain central to this architecture, yet their function is being recalibrated through modernised drafting, procedural reform, and a renewed emphasis on the State’s right to regulate.

Jordan’s experience encapsulates this broader transformation. Its extensive treaty network and investor-friendly posture have supported economic development, while domestic legal reforms, particularly in investment governance and environmental regulation, underscore the growing importance of coherence between international obligations and national priorities. The future of international investment law, in Jordan and beyond, will be defined not by the retreat from investment protection, but by the careful alignment of treaties, domestic law, and public interest objectives within an increasingly complex global economy.

Ja’far Mohammad Khair AlSabbagh
AlKhair Legal Attorneys