1. Introduction
On 25 February 2024, 123 WTO members jointly issued a Joint Ministerial Declaration, marking the finalization of the Investment Facilitation for Development Agreement (hereinafter referred to as the ‘IFD Agreement’), which is regarded as a significant milestone in WTO historyFootnote 1. Investment facilitation was first introduced as an informal dialogue by the Friends of Investment Facilitation for Development (FIFD) in April 2017Footnote 2. This structured discussion, initiated by a coalition of developing and least developed countries within a multilateral framework, was deliberately designed to be distinct from traditional investment policies such as investment protection and investment liberalization. Relying on the institutional framework of the WTO and its mechanisms, the IFD Agreement aims to establish a binding set of investment rules,Footnote 3 such as providing for the application of the Dispute Settlement Understanding (DSU) to determine the means of dispute resolution among Members.Footnote 4 It aspires to advance the ultimate goal of ‘development’ within a multilateral context.Footnote 5 This approach offers a new perspective for the ongoing reform of IIL.
Excluding the era of diplomatic protection during the colonial period prior to World War II, which relied primarily on international customary law for the protection of foreign investments, the signing of the world's first bilateral investment treaty (BIT) between Germany and Pakistan in 1959 marked a pivotal moment in the evolution of modern IIL.Footnote 6 In the decades that followed, BITs emerged as codified legal instruments, delineating rights and obligations for contracting states and relevant stakeholders. These agreements largely reflected the Hull formula, advocated by developed countries in the context of investment protection.Footnote 7 Without questioning whether the rights and obligations among parties were symmetrical or equitable, this phase can be understood as the first configuration of IIL. This configuration not only established the fundamental framework of IIL but also entrenched within it the underlying structural contradictions that continue to shape the discipline.
The late twentieth century marked another pivotal turning point in the evolution of IIL. With the emergence of investor–state dispute settlement (ISDS) claims brought against them as respondents, developed countries gradually became aware of the boomerang effects of traditional investment protection policies and began to recognize the ‘double-edged sword’ nature of conventional investment treaties. The United States, for instance, did not anticipate that it would become a respondent in investment arbitration when drafting its pre-1994 BIT model and was confident that its legal system fully complied with BIT obligations. This perception persisted until the 1998 case of Loewen v. United States shattered these assumptions.Footnote 8 In response, the United States undertook substantial revisions in its 2004 BIT model, departing significantly from the 1994 version in an effort to strike a balance between the host state's regulatory discretion and the protection of investor interests. Notably, these adjustments included clarifying substantive standards of treatment – such as specifying that fair and equitable treatment and full protection and security should not exceed the minimum standard of treatment under customary international law – to curtail overly expansive interpretations by arbitral tribunals.Footnote 9 Furthermore, the ISDS provisions were refined to enhance procedural quality, for example, by expediting the constitution of arbitral tribunals, enabling the prompt dismissal of frivolous claims, and advancing the establishment of an appellate mechanism. Certain disputes were even excluded entirely from the scope of investment arbitration, for instance by encouraging the exhaustion of local remedies and promoting amicable settlements through negotiation.Footnote 10 In essence, these developments represent a critical reflection by developed countries on the traditional BITs established during the ‘first configuration’, marking the gradual transition toward the ‘second configuration’ of IIL.
However, has this adequately addressed the international community's concerns over the legitimacy of IIL and its ISDS mechanism? To this day, the outcome remains uncertain. Taking the reform of the ISDS mechanism as an example, debates within multilateral forums often intensify whenever discussions touch upon the substantive issues of IIL. For instance, although United Nations Commission on International Trade Law (UNCITRAL) Working Group III is mandated exclusively to address procedural issues, attempts to engage with the three ‘grey area’ topics – damages and compensation, the right to regulate, and counterclaims – frequently lead to disagreements among states, particularly regarding debates over the right to regulate, due to controversies about whether these topics fall under substantive or procedural matters.Footnote 11 In comparison, the International Centre for Settlement of Investment Disputes (ICSID), which narrowly focused on procedural matters (e.g., arbitrator appointments, efficiency of process, and third-party funding), has encountered less criticism.Footnote 12 The underlying logic of this predicament lies in the fact that, even in the ‘second configuration’ of IIL, the discipline has not moved beyond the traditional investment protection framework. This is, to a considerable extent, because the ‘first configuration’ had already established an extensive and highly standardized network of BITs, thereby significantly constraining scope for subsequent reform. As a result, traditional BITs have increasingly been subsumed – at least in part – by large-scale FTAs and updated BITs, and, in recent years, there have even been signs of a return to unilateralism.Footnote 13
Against this backdrop, investment facilitation appears to be intentionally advancing a third configuration to achieve what IIL has thus far failed to accomplish. Accordingly, beyond the introduction in section 1, the remainder of this article is structured as follows: section 2 reviews the processes and inherent limitations of the first two configurations; section 3 examines investment facilitation as a distinct third configuration and, drawing on the text of the IFD Agreement, conceptualizes this process through a ‘risk-capacity’ framework; section 4 identifies key areas for further action in investment facilitation and explores potential outcomes; finally, section 5 concludes by asserting that investment facilitation represents a promising pathway for the future evolution of IIL.
2. Background: The First Configuration, the Second Configuration, and Their Limitations
2.1 The First Configuration of IIL: Capital-Driven Structuring
After World War II, driven by the demand for markets and resources in Southern countries, as well as the need to safeguard their outward foreign direct investment (OFDI), Northern countries sought to establish an institutional framework that would be acceptable to Southern countries, replacing the pre-war practice of diplomatic protection. However, the decolonization process in the post-colonial era required time. Given that foreign direct investment (FDI) entails control over the means of production, newly independent states tended to perceive foreign investment as a new form of neo-colonialism.Footnote 14 As a result, although the first modern BIT was concluded in 1959, IIL remained a slow-developing field in its early years, primarily serving as an investment protection mechanism for developed countries as capital exporters. During the first two decades of the modern BIT era, the United States continued to rely on its Friendship, Commerce, and Navigation (FCN) treaties and only shifted to the BIT model in the late 1970s,Footnote 15 while globally, the number of new BITs concluded each year remained in the single digits.Footnote 16 Nevertheless, during this period, substantive standards of protection in BITs gradually became more standardized, and independent, enforceable ISDS procedures and arbitration mechanisms were established.Footnote 17
This dynamic shifted in the 1980s. As Southern countries grappled with tightening budgets and mounting debt crises,Footnote 18 policymakers, constrained by bounded rationality, began to embrace BITs and liberalization policies.Footnote 19 However, they did not genuinely perceive FDI or IIL as a stabilizing legal order, particularly given that BITs at the time were overwhelmingly designed to advance the investment policy objectives of Northern countries – primarily by diminishing the regulatory authority of host states.Footnote 20 Instead, their acceptance of these asymmetrical yet enforceable investment protection agreements was largely driven by opportunismFootnote 21 and herd behavior,Footnote 22 motivated by the pursuit of incremental capital inflows rather than a deep-seated trust in the system.
The first configuration of rights and obligations between investors and host states was primarily structured through the investment protection provisions embedded by Northern countries in their BITs, with a gradual shift toward greater investment liberalization emerging in the later stages. Specifically, on the one hand , investment protection codified the minimum standard of treatment within BITs, establishing it as an inherent right of foreign investors in host states through fair and equitable treatment (absolute standard) and non-discrimination (relative standard).Footnote 23 Additionally, the Hull formula and independent ISDS mechanisms delineated the standards and avenues for investor rights’ redress.Footnote 24
On the other hand, signs of investment liberalization had already begun to emerge toward the end of the first configuration. For instance, the US 1983 BIT model included provisions on performance requirements and the movement of natural persons (such as allowing senior management positions, irrespective of nationality and granting visas, to authorized investors). The 1994 model further expanded the list of prohibited performance requirements.Footnote 25 This development is consistent with Kenneth J. Vandevelde's view that, in the era of globalization, the purpose of investment treaties has gradually shifted from investment protection (preventing expropriation) to investment liberalization (removing barriers).Footnote 26
From the process of establishing the institutional framework of IIL and the mutual compromises between Northern and Southern countries, it becomes evident that the first configuration of IIL was primarily driven by the pursuit of capital (and resources). Capital-exporting countries (predominantly Northern countries at the time) formulated a scheme for allocating rights and obligations between host states and investors, which capital-importing countries (primarily Southern countries at the time) accepted in anticipation of potential surplus benefits.Footnote 27 However, this configuration approach presents several inherent issues.
First, the determination of the configuration scheme – the process of distributing rights and obligations – lacked broad stakeholder participation. The first configuration, dominated by Northern countries, was overly aligned with the interests of capital-exporting states, placing primary emphasis on investor empowerment while largely neglecting the perspectives of host states.
Second, the capital (resource)-driven configuration process was highly speculative. Driven by the pursuit of profit and economic returns, investors tended to prioritize economic efficiency, while host states, constrained by the limited regulatory space permitted under BITs, often found it difficult to exercise adequate governance. As a result, long-term negative impacts may arise with respect to environmental protection, local communities, and other public interests.
Third, under the promotion of BIT templates by developed countries, BITs expanded rapidly, surpassing 2,000 treaties by the year 2000. However, these agreements were largely negotiated based on idealized standards of investment protection and investment liberalization, leading to highly standardized and repetitive treaty language, which further constrained regulatory flexibility and policy innovation.Footnote 28
2.2 The Second Configuration of IIL: Sovereignty Reclamation and Structural Constraints
By the end of 2014, approximately half of all IIAs had extended national treatment and most-favoured-nation treatment to both the acquisition and establishment phases of investment.Footnote 29 However, does sufficient evidence exist to establish a causal relationship between IIAs and a country's investment flows? Alternatively, if the investment protection offered by host states fails to guarantee anticipated investment growthFootnote 30 – and it is even observed that host state restrictions are negatively correlated with FDI inflows (for instance, the United States, despite having the most extensive FDI restrictions among the Organisation for Economic Co-operation and Development (OECD) members, remains the world's leading recipient of FDI, a pattern that similarly applies to China)Footnote 31 – can the initial configuration be expected to persist? The answer appears to be negative.
By the end of the twentieth century, the latent risks embedded in the initial configuration began to materialize. As the distinction between capital-importing and capital-exporting countries became increasingly blurred for both Northern and Southern states,Footnote 32 concerns over investor protection, market deregulation, and sovereignty were no longer exclusive to any single group.Footnote 33 Moreover, the investment protection policies embedded in BITs under the first configuration evolved into a ‘treaty shopping’ privilege for investors, enabling them to leverage ISDS claims in ways that infringed upon host state sovereignty far beyond what had been anticipated at the time of treaty conclusion.Footnote 34 This outcome fostered a growing sense of prudence among both Northern and Southern stakeholders toward the traditional IIL framework.Footnote 35 Developed countries began to seek new-generation model agreements better suited to their interests under the evolving circumstances, exemplified by the United States’ 2004 BIT model. Moreover, the number of newly concluded IIAs dropped sharply, with those signed or updated after 2010 accounting for only about 15% of all IIAs.Footnote 36 As a result, IIL entered the phase of a second configuration, which could also be regarded as a ‘course correction’ of the first configuration. Unlike the first configuration's excessive focus on economic interests and efficiency, the second configuration placed greater emphasis on sovereignty, constitutional principles, and other political considerations.Footnote 37
The second configuration of IIL represents a structural reassessment of the distribution of rights and obligations, as well as the institutional arrangements established during the first configuration, aiming to address the shared sovereignty concerns of both Northern and Southern stakeholders. This reassessment primarily involves rectifying the imbalanced empowerment of parties under BIT rules and scrutinizing the legitimacy of the investment arbitration mechanism. For example, this entails refining investment disciplines articulated in BITs, particularly substantive standards such as expropriation compensation, fair and equitable treatment, and non-discrimination,Footnote 38 while incorporating clearer public policy exceptions (e.g., security, environment, and health). These exceptions enable host states to retain inherent police powers and preserve a defensive space in areas of public concern.Footnote 39 Additionally, the second configuration seeks to reform the ISDS mechanism established during the first configuration, addressing widely criticized issues such as the consistency of arbitral tribunal interpretations, the accuracy of arbitral decisions, and the independence and impartiality of arbitrators.Footnote 40
Thus, the second configuration of IIL can be summarized as the restoration of policy space based on national sovereignty. Compared to the first configuration, the second configuration exhibits several distinctive characteristics:
First, the formulation of configuration schemes now involves a broader range of actors, with Southern countries – having been disadvantaged under the first configuration – actively engaging in IIL reforms. Notably, they have contributed the majority of innovative proposals, often surpassing those put forward by Northern countries.Footnote 41
Second, the balance of interests has been enhanced through the revision of BIT texts, for example by incorporating non-economic policy objectives – such as environmental protection, labor rights, corporate social responsibility, and sustainable development – into the preambles of BITs.Footnote 42 This enables a more balanced interpretation of the rights and obligations of the respective parties within the substantive provisions of BITs under the framework of the Vienna Convention on the Law of Treaties (VCLT). As previously noted, other examples include the explicit clarification of substantive standards of treatment and the encouragement of the exhaustion of local remedies in the 2004 US model BIT. It is important to note that the second configuration does not seek to diminish the treatment afforded to investors. In fact, the 2004 US model BIT even further expanded investor rights, for example, by imposing greater transparency obligations on host states within the ISDS mechanism and broadening the scope of prohibited performance requirements.Footnote 43 The primary focus, rather, is on recalibrating the balance of rights and obligations between public and private interests.
Third, building on the previous point, the second configuration has also revealed a sense of distrust among Northern actors toward the traditional IIL system. Whereas the first configuration saw Northern countries reallocating certain powers to the IIL framework – such as enabling the enforcement of investment arbitration awards under the ICSID Convention – the second configuration proactively seeks to reassert these powers in the form of rights reserved to states. This is exemplified by the strengthening of exception clauses, which serve as ‘safety valves’ and provide host states with greater flexibility to defend their measures on legitimate grounds.
It is equally important to recognize that the second configuration still faces significant and, in some cases, insurmountable limitations.
First, although Northern and Southern countries share a common objective in the second configuration – restructuring the policy space of host states – their proposed configuration schemes often conflict.Footnote 44 This divergence stems from the varying degrees of participation by different actors during the first configuration. For instance, American investors exhibit strong faith in investment arbitration,Footnote 45 whereas certain Latin American countries remain deeply apprehensive of it.
Second, an often-overlooked aspect is that the highly standardized template of agreements established during the first configuration, together with the sheer volume of existing BITs, have significantly constrained the scope for textual innovation in the second configuration. As a result, many of the substantive obligations contained in newly concluded IIAs during the second configuration continue to reflect those found in the earlier generation of BITs.Footnote 46
Third, and most critically, the second configuration remains largely dominated by Northern countries, with an excessive emphasis on investment protection. For example, the European Parliament's Resolution on the future European international investment policy of 6 April 2011 explicitly affirmed that investment protection must always be the first priority of IIAs.Footnote 47 Admittedly, Northern countries have also sought to strike a balance between the regulatory authority of host states and the protection of investments – for instance, the European Union has developed clearer and higher substantive standards in this context.Footnote 48 Nevertheless, due to disparities in economic power and the ability to establish consistent treaty networks, Northern countries are able to embed their preferred treaty designs in the configuration process, whereas Southern countries have little influence over the substantive content of the agreements to which they have become parties.Footnote 49
3. Investment Facilitation: The ‘Risk-Capacity’-Based Third Configuration
Reflecting on the evolutionary trajectory of the first two configurations, one gets the sense that IIL has consistently been propelled forward by an invisible external force – best understood as discourse power rooted in strength – rather than exhibiting any intrinsic, self-sustaining dynamism as a genuine legal framework. This absence of internally driven momentum is evident both in the initial configuration of rights and obligations among IIL stakeholders and in the subsequent reform proposals aimed at reshaping its mechanisms. In other words, positioning capital and policy space as the ultimate objectives of IIL is inherently flawed. Configuration schemes designed with such a focus fail to reflect the development needs of diverse stakeholders and run counter to the fundamental principle that ‘IIL should conform to the principles of justice'.Footnote 50
So, how should the configuration scheme be structured at the normative level for IIL, which currently stands at a crossroads? The IFD appears to offer a new approach. In contrast to the traditional IIA framework, which centers on investment protection through substantive standards and procedural dispute settlement mechanisms, the IFD seeks to establish a more broadly acceptable investment policy framework within a multilateral setting. It aims to simultaneously address the host state's need to attract investment and the investor's demand for protection. This represents a novel direction, which, for the reform of IIL – often hampered by irreconcilable divergences – may hold promise for overcoming trust deficits and mitigating the trend toward unilateralism.
As its name suggests, the IFD is oriented toward ‘development’, specifically aligning with the ‘sustainable development’ goals articulated in the United Nations 2030 Agenda.Footnote 51 In terms of implementation, the IFD abandons the deterrence-based logic that characterized the first two configurations – instead of prescribing how actors should be constrained, it sets out a set of high-standard behavioral norms conducive to sustainable investment, thereby fostering a new paradigm that encourages dialogue and responsible conduct among stakeholders. This model may be described as the third configuration of IIL.
N. Jansen Calamita has questioned the ‘added value’ of the WTO as a multilateral framework for promoting sustainable investment, arguing, for example, that states do not need the WTO to facilitate sustainable investment and that the draft agreement under negotiation at the time did not prioritize sustainable investment.Footnote 52 However, this article contends that ‘states can act on their own’ is not equivalent to ‘a multilateral framework has no value’. The existence of sovereign power does not necessarily entail the capacity to act; many developing and least developed countries (LDCs) lack the ability to establish an investment-friendly environment. The IFD Agreement addresses this gap by providing a coordinated facilitation framework and offering technical assistance and mechanisms for communication and cooperation to these members. Further, the IFD Agreement introduces genuinely novel elements – for instance, it is the first WTO treaty to incorporate responsible business conduct and to reference the OECD Guidelines for Multinational Enterprises.Footnote 53
3.1 Risk
3.1.1 Trust risks
The preceding analysis suggests that, although Southern countries partially accepted the configuration schemes in the first two configurations, they never truly placed trust in the IIL mechanisms meticulously designed by Northern countries. As Southern countries pointed out during the Doha Round negotiations, Northern countries have never genuinely prioritized their development concerns and have even advocated trading developmental goals – such as protecting vulnerable populations – for economic growth.Footnote 54 This lack of trust may explain the extreme reactions of some Southern countries toward IIL, such as Brazil's refusal to ratify any of its signed BITs on the grounds of unconstitutionality.Footnote 55
Drawing on John Rawls’ theory of justice, the concepts of the Original Position and the Difference Principle may provide insight into the trust crisis in IIL. On the one hand, Rawls advocates for impartial rules formulated behind a ‘veil of ignorance',Footnote 56 enabling rational decision-making through collective choices in response to uncertain circumstances. However, the first two configurations of IIL did not emerge from impartial negotiations conducted under the Original Position; rather, they were shaped by clearly defined role characteristics. For instance, the configuration scheme proposed by Northern countries during the first configuration was predicated on their role as capital-exporting countries, which subsequently contributed to the ISDS claims crisis. Similarly, the compromises made by Southern countries under the pressures of debt crises and capital demands were far from rational choices made under impartial conditions.
On the other hand, Rawls’ concept of justice does not necessitate equal distribution but instead permits unequal configuration, provided it maximizes the benefits of disadvantaged groups.Footnote 57 IIL, therefore, should protect the most fundamental rights naturally enjoyed by all stakeholders – namely, the right to development – even when disparities exist in the configuration process. Yet, it is evident that the first two configuration schemes failed to ensure fair opportunities for disadvantaged groups – such as Southern countries (particularly least developed countries) and local communities – to compete on a level playing field.
The trust risks associated with IIL also stem from the inadequacy of its configuration schemes in addressing practical challenges. As Federico Ortino observed, most traditional IIAs refer to ‘prosperity’ as their purpose in the preamble – at the time, this concept was largely synonymous with economic growth – and set investment protection as the object in the main text. Through substantive provisions on rights and obligations, these treaties were designed to promote the flow of capital between the contracting parties.Footnote 58 However, from the perspective of the ‘objective–configuration scheme–outcome’ framework, the ISDS mechanism as the object, together with approaches such as restricting host states’ regulatory authority, appears to have fallen short of achieving the intended purpose. The root cause lies in the overemphasis on external structures in the pathways established during the first two configurations, where the absence of key stakeholders disrupted the internal logical chain.
In other words, the host state – which ought to occupy a central position in this framework – has become increasingly constrained in exercising legitimate regulatory powers for public interest purposes, owing to the uncertainty of investment arbitration and the potential negative consequences of adverse awards, such as significant compensation liabilities, litigation costs, and domestic political or reputational risks.Footnote 59 This phenomenon, often referred to as the ‘chilling effect’, has led to regulatory hesitation on the part of host states.Footnote 60 However, differences in governance capacity between the North and South mean that the experience and response to this ‘chill’ are not uniform. Specifically, developed countries, equipped with highly capable administrative systems, are generally able to anticipate and manage the risks of potential claims under IIAs and the ISDS mechanism, and thus can respond to the chilling effect more proactively and effectively. By contrast, developing countries lacking robust bureaucratic capacity often find this much more difficult.Footnote 61
3.1.2 The trend toward unilateralism arising from insufficient representation
The UNCITRAL Secretariat has likened the ongoing reform of the investment treaty system to the architecture and floor plans of a building, where states can choose to enter different rooms on the same floor.Footnote 62 While UNCITRAL employs this analogy to illustrate the inclusiveness of potential multilateral reform tools, it also underscores the deep-seated and difficult-to-bridge divides between the approaches adopted by different countries.Footnote 63 Amid this process, a clear trend appears to be emerging: regardless of whether they are from the Global North or South, states are increasingly showing a tendency to address investment issues through domestic law mechanisms – for example, by invoking security exception clauses in IIAs.Footnote 64 This reflects a fundamental reality: even negotiated international investment treaties ultimately depend on the application of domestic rules by national administrative authorities for their enforceability.Footnote 65 As a result, a new trend is emerging in recently concluded, or updated IIAs, whereby contracting parties are expanding the scope for the application of domestic law in various ways. For instance, the India–UAE BIT (2024), as an updated version of the India–UAE BIT (2013), explicitly links investors’ treaty benefits to their compliance with domestic obligations.Footnote 66
This renewed trend toward unilateralism reflects growing doubts about the representativeness and governance capacity of IIL under new circumstances; in other words, the regime has increasingly failed to fulfill the treaty objectives of certain stakeholders.
First, Southern countries demand that IIL fully reflects their needs and values, yet neither of the first two configurations delivered on this promise. International economic law (IEL), including IIL, is traditionally premised on Western-style market economies and institutional frameworks,Footnote 67 which often conflict with the domestic institutional reforms of many Southern countries. Against this backdrop, some Southern countries have begun to shift toward domestic legislation. For example, South Africa enacted the Protection of Investment Act in 2015, seeking to replace BITs by stipulating the rights and obligations of the government and all investors – both domestic and foreign – within its national legal framework.Footnote 68 Additionally, as Southern countries accumulate more capital and information through transactions, and as they transition from being purely capital-importing countries to economies with bidirectional capital flows, the dependency relationships established under the original ‘center-periphery’ framework are gradually weakening. This shift, in turn, is reflected in their increased bargaining power during reform negotiations.Footnote 69 Consequently, Southern countries are now better positioned to propose independent, influential reform schemes – and they are actively doing so.
Second, Northern countries seek to continue leveraging IIL as a tool to advance their policy objectives, yet IIL appears increasingly incapable of fulfilling their ambitions. As previously discussed, developed countries, acting as capital-exporting states, crafted the first configuration schemes. However, the investment protection obligations imposed under BITs also constrained their legislative authority and sovereignty,Footnote 70 prompting them to initiate a new round of negotiations during the second configuration.Footnote 71 Interestingly, regulatory authority following these renegotiations has not expanded as anticipated and may, in some cases, have even contracted, particularly in the context of ISDS provisions.Footnote 72 Consequently, even Northern countries have begun reconsidering local remedies, proposing that host state governance capacity – such as a mature and advanced judicial system – be used as a condition for exemptions from investment arbitration.Footnote 73
Third, IIL must confront emerging challenges, yet collective action problems have made effective governance difficult to achieve. FDI does not automatically generate positive environmental, economic, or social outcomes, and not all investments contribute to development;Footnote 74 thus, policy guidance is needed to direct investment and mitigate associated risks. In recent years, the international investment landscape has been marked by new uncertainties arising from emerging issues – for example, the unique risks and concerns associated with the digital economy, which is often based on intangible assets and cannot be adequately addressed by traditional investment protection mechanisms designed with tangible assets in mind.Footnote 75 However, efforts to pursue international cooperation in response to such transnational challenges frequently encounter obstacles to coordination, as illustrated by the failure of the OECD's Multilateral Agreement on Investment (MAI) negotiations in the 1990s.
3.2 Capacity
As Julien Chaisse and Georgios Dimitropoulos have argued, ‘Legal deglobalization does not necessarily suggest a retreat from IEL; it rather suggests its transformation.’Footnote 76 While the failure of the first two configurations, coupled with the current wave of deglobalization, has dealt a dual blow to IIL, from another perspective, this moment presents an opportune time for IIL to undergo transformation. In this context, investment facilitation, as a new investment agenda distinct from and independent of traditional policies on investment protection and investment liberalization, proposes a timely and sustainable configuration scheme aimed at ‘building the capacity of IIL’. This article identifies it as the ‘third configuration’ of IIL.
Before delving into the capacity-building scheme of investment facilitation, two key points must first be clarified: On the one hand, the ‘capacity’ under investment facilitation refers to developmental capacity, which is achieved by narrowing the governance gaps between host states, ultimately leading to ‘sustainable investment'.Footnote 77 This fundamentally differs from ‘power’, which involves imposing one's will on others to influence outcomes, or ‘ability’, which relies on power as its foundation.Footnote 78 On the other hand, investment facilitation, as a configuration scheme emerging in response to contemporary needs, ultimately aims to achieve the capacity building of IIL by enhancing the capacity of host states. In other words, it seeks to represent the needs of all IIL stakeholders through a framework of ‘distributive justice’, thereby addressing IIL's trust risks. This also explains why the WTO was chosen as the forum for its structured discussions.
3.2.1 The capacity to address practical challenges
Under empirical logic, BITs function as ex-post mechanisms designed to address commitment problems, with IIL aiming to mitigate uncertainties arising from state opportunism, poor regulatory policies, and other destabilizing factors.Footnote 79 However, many developing countries – operating under conditions of bounded rationality – have seriously underestimated the risks associated with BITs, or have lacked a careful assessment of their potential legal implications, as illustrated by the earlier example of South Africa. It was only after facing ISDS claims that these states began to take the legal consequences of BITs seriously,Footnote 80 and, in some cases, even moved to oppose them.Footnote 81 As a result, BITs have struggled to effectively constrain state behavior under such circumstances, highlighting the need to pay greater attention to the agency of host states within an anarchical international system. The underlying logic for addressing this issue lies in the establishment of disciplinary rules that states can voluntarily accept. Consequently, the implementation of investment facilitation differs from those of the previous two configurations: (1) shifting the primary actor from external institutions to host states; (2) emphasizing dialogue; and (3) adopting procedural mandates to advance multilateral negotiations. In other words, rather than silencing host states, as traditional IIL has often sought to do, investment facilitation encourages them to act more ‘responsibly’.
As evidenced by the greater challenges faced by UNCITRAL Working Group III, strategically avoiding contentious issues – such as regulatory authority and substantive standards of treatment – may help accelerate the negotiation process, or at least render it politically viable at the multilateral level, when discussions move beyond procedural aspects of ISDS. Investment facilitation is skillfully advancing this logic by shifting the focus of discussions. Investment facilitation emphasizes a set of procedural measures and policies provided by host states for investors,Footnote 82 employing a ‘service-oriented’ narrative framework that steers clear of the more sensitive language of ‘regulation’. In essence, however, it serves to grant host states greater flexibility and autonomy. Moreover, while traditional BITs confer non-discriminatory treatment as a relative standard – providing specific protections to investors from the contracting parties – investment facilitation aims to enhance the host state's governance capacity in order to foster a more inclusive and enabling business environment for all investors. It should be noted that the IFD does not address substantive standards such as expropriation compensation or capital transfer, which underscores the clear distinction between investment facilitation and investment protection.
Investment facilitation emphasizes the importance of ‘dialogue among stakeholders’ and seeks to achieve this through institutional governance. On the one hand, it restores the significance of intergovernmental dialogue,Footnote 83 leveraging structured public–private dialogues to improve the relationship between host states and investors, thereby effectively achieving dispute prevention. On the other hand, dialogue is facilitated through specialized institutions that serve as platforms and mediators,Footnote 84 such as Focal Points (Ombudsmen) and Joint Committees established under the Cooperation and Facilitation Investment Agreement (CFIA),Footnote 85 with similar institutional arrangements also embedded in the IFD Agreement.Footnote 86 Moreover, investment facilitation maintains an open stance toward both dialogue participants and discussion topics. It not only allows (or invites) stakeholders – such as private sector actors and members of civil society – to engage in policy discussions,Footnote 87 but also requires contracting parties to respond to inquiries raised by relevant parties regarding measures covered by the agreement or any other relevant measures.Footnote 88
Another crucial aspect is that sustainable investment requires host states to possess the capacity to mediate the relationship between investors and local communities. It is difficult to deny that international law often neglects the protection of the rights of local citizens and,Footnote 89 in certain circumstances – such as when government authorities and multinational corporations share aligned interests – may even undermine local interests.Footnote 90 This is largely due to the state-centric structure of IIL, which typically allocates rights and obligations using formulations such as ‘contracting parties shall..’, rendering local governments virtually invisible and leaving their concrete responsibilities largely unspecified at the operational level. In contrast, the IFD Agreement expressly recognizes ‘competent authorities’ at the subnational level, as well as relevant non-governmental bodies exercising regulatory functions.Footnote 91 The agreement further articulates best-practice standards in areas such as transparency of investment measures, administrative efficiency, and regulatory consistency, thereby affirming the specific roles and responsibilities of local authorities. Examples include requirements for the publication of information and detailed procedures for the approval process. In addition, the IFD Agreement introduces measures to encourage the participation of local suppliers.Footnote 92
Notably, the IFD's emphasis on local (community) engagement differs from Articles 4 and 5 of the Articles on Responsibility of States for Internationally Wrongful Acts (ARSIWA), which address the attribution of responsibility for wrongful acts (ex post accountability), whereas the IFD focuses on providing ex ante guidance for the conduct of local entities.
3.2.2 Buffering capacity
As the WTO Director-General, Ngozi Okonjo-Iweala, has noted, the IFD Agreement ‘will contribute to making the global economy more inclusive'.Footnote 93 Investment facilitation embodies this inclusiveness through the concept of ‘policy space’, granting full respect to participants based on an acknowledgment of capacity differences. In other words, it ‘advances actions while deferring outcomes’, a principle that is also reflected in the arrangement of its rules and planning.
First, investment facilitation provides ‘IIL under challenge’ with room for reform. The IFD Agreement maintains a modest scope with respect to the range of issues it addresses. As participants clarified from the outset, the structured discussions on the IFD at the WTO should not include market access, investment protection, or ISDS mechanisms.Footnote 94 This not only serves to reduce the negotiation difficulty of the IFD within the WTO, but also reflects a deliberate respect for – and a wait-and-see attitude toward – the outcomes of other ongoing reform efforts, such as UNCITRAL Working Group III's reform of the ISDS mechanism and UNCTAD's initiatives to reform the IIA regime.
The IFD Agreement offers members an alternative set of options. The fact that the IFD does not cover investment protection or ISDS-related provisions does not mean that these aspects are ignored. The distinction lies in the approach: whereas traditional IIAs emphasize ‘post-dispute remedies’ and ‘pre-dispute deterrence’ (i.e., the threat of investment arbitration in case of non-compliance), the IFD focuses on dispute prevention, aiming to improve the investment environment in host states so that ‘resolving existing disputes’ is transformed into ‘reducing the likelihood of future disputes’. In this sense, the IFD and the traditional investment protection/ISDS mechanism represent two parallel approaches that operate in different domains, and participation in IFD negotiations does not preclude engagement with investment protection agreements. For example, after signing a CEPA with India in 2022 – which included provisions for investment facilitationFootnote 95 – the United Arab Emirates went on to sign an updated BIT with India in 2024, which still contained substantive protection standards and ISDS provisions.Footnote 96
It is important to distinguish the IFD Agreement from the relevant work of UNCITRAL Working Group III. The recently adopted UNCITRAL Guidelines on Mediation for International Investment Disputes (hereinafter ‘Guidelines on Mediation’) provide a dedicated framework for mediation after a dispute has arisen. The ongoing Draft Toolkit on Prevention and Mitigation of International Investment Disputes (‘Toolkit’) similarly addresses dispute prevention measures, such as investor grievances and institutional coordination. However, it should be emphasized that both documents are components of ISDS reform and are primarily aimed at the management and resolution of investment disputes. By contrast, the IFD Agreement's principal objective is to facilitate the investment environment, with dispute prevention as a secondary outcome.
In terms of the timing of intervention, the Toolkit is designed to operate after an investor's grievance has arisen but before it escalates into a ‘disagreement framed in legal terms'.Footnote 97 The IFD, by contrast, operates even earlier, aiming to create conditions that reduce the likelihood of grievances arising in the first place. As for the scope of disputes, the Guidelines on Mediation target disputes between investors and host states, whereas the single reference to mediation in the IFD Agreement pertains exclusively to disputes between states.Footnote 98
Second, investment facilitation respects ‘governance actors facing capacity gaps’ and seeks to establish an open and template-based plurilateral agreement.The IFD Agreement acknowledges the challenges faced by Southern stakeholders, particularly LDCs, in fulfilling obligations. As a result, it provides special and differential treatment (SDT), including grace periods and capacity-building assistance,Footnote 99 allowing LDCs to fulfill obligations only within their committed scope.Footnote 100 Additionally, regarding how to determine ‘insufficient capacity’, the ‘required grace periods’, and ‘assistance and support’, the IFD Agreement offers evaluation guidelines to assist these Southern countries in conducting self-assessmentsFootnote 101 and negotiating terms with other members.Footnote 102
Although the IFD Agreement employs ‘shall’ to impose binding obligations on members, the enforceability of these obligations varies according to members’ levels of development, as reflected in the two- to eight-year grace periods for the application of the DSU granted to developing countries and LDCs.Footnote 103 From another perspective, given that the IFD Agreement has not yet been incorporated into Annex 4 of the WTO Agreements, the mandatory obligations it contains currently lack real enforceability. As some have suggested, the IFD primarily serves as a signal to investors of host states’ good governance standards.Footnote 104 From this perspective, the IFD Agreement functions more like a set of ‘best practices’ to guide host states in formulating and implementing policies, granting them autonomy to decide whether and how to adopt such practices.
Third, investment facilitation creates a ‘neutral space’ amid an increasingly uncertain and competitive investment environment. Against the backdrop of the recent abuse of security exceptions, critical questions have emerged: Has economic security become synonymous with national security? Has investment protection evolved into protectionism?Footnote 105 These concerns underscore how IIL, shaped by power dynamics and unilateral policies, has increasingly become a tool for state self-judgment. For instance, in August 2018, the US Congress passed the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), empowering the Committee on Foreign Investment in the United States (CFIUS) to review foreign investments on national security grounds.Footnote 106
The rise of the IFD at this critical juncture offers a ‘safe haven’ for members who still retain confidence in IIL. This has several implications: On the one hand, the IFD Agreement explicitly excludes market access and investment protection,Footnote 107 incorporating ‘firewall clauses’ to insulate itself from other IIAs and ISDS mechanisms.Footnote 108 In other words, as a multilateral framework fundamentally distinct from traditional IIL, the IFD Agreement serves as a ‘shock-absorbing’ outlet for stakeholders dissatisfied with the current trajectory of IIL reform. Moreover, the IFD Agreement is open to all WTO members, providing substantial flexibility regarding accession, withdrawal, and reservations.Footnote 109
On the other hand, the implementation of the IFD inherently emphasizes the ‘responsible actions’ of host states, with a key measure being the reduction of policy uncertainty (or, conversely, the enhancement of policy stability and predictability). The IFD supports participants in achieving their public interest and security objectives through regulation,Footnote 110 but it rejects the increasingly uncertain investment environment seen in recent years, such as the broad discretionary powers granted to CFIUS under the generalized concept of security.Footnote 111 Notably, the IFD does not directly define exceptional circumstances (e.g., the ‘concept of security’). Instead, it provides a framework that promotes decision-making within a more controlled scope through ‘procedural justice’ and dialogue.
Finally, the IFD Agreement introduces a new language for rule-making, distinct from the standardized and uniform provisions of traditional BITs. This breaks the constraints imposed by past template contracts, granting states greater autonomy to address sustainable development needs.Footnote 112
3.2.3 Bargaining capacity (cooperative capacity)
In international economic relations, asymmetries in bargaining power often play a crucial role in shaping negotiation outcomes, with power and bargaining advantages typically exhibiting a positive correlation.Footnote 113 In response, investment facilitation does not seek to bridge power disparities between actors. Rather, it aims to enhance the bargaining capacity of weaker parties in the negotiation process by providing a platform and fostering cooperation. This approach resembles a strategic application of the ‘veil of ignorance’ from a ‘God's-eye view’.
As previously discussed, if a state anticipates its role at the time of concluding a BIT, the agreement is inherently predisposed to bias or rigidity, making it ill-equipped to adapt to misjudgments or changing circumstances. For analytical clarity, let us designate investment protection and investment liberalization as A and sustainable investment as B. Under this framework, the first two configurations reflect a scenario in which Northern countries, after lifting the ‘veil of ignorance’, established A as both the objective and the means, with the ultimate expectation of achieving B. However, the actual outcomes have fallen short of this aspiration. Ideally, IIA negotiations should proceed under the assumption that all parties could, at different times, function as both capital-exporting and capital-importing countries, as well as host and home states.Footnote 114 This approach decouples bargaining power from negotiation capacity, ensuring that configuration schemes are designed jointly by rational and neutral stakeholders from both the Global North and South. The optimal approach would be to set B as both the objective and the outcome, without placing undue emphasis on A. In the best-case scenario, A would emerge organically through the process rather than as a predefined condition. This logic underpins the IFD Agreement.
Of course, the above may be overly idealistic, as the ‘veil of ignorance’, much like a 24-hour convenience store, is unlikely to ever close once opened. Both the initial formation and subsequent reform of IIL can never be situated in a context wholly devoid of identity-based considerations. Nevertheless, as the distinction between capital-exporting and capital-importing countries has become increasingly blurred, an excessive focus on North–South narratives in IIAs has become somewhat anachronistic. Stakeholders, who now often assume multiple and shifting identities, find themselves in more complex and relatively symmetrical negotiating environments, with bargaining power, to some extent, more evenly distributed as a result of this fluidity. This has prompted a rethinking of how best to promote investment and development. Since the second configuration, an increasing number of stakeholders have chosen to incorporate more exceptions into ISDS provisions and to strengthen the alignment of interests between host and home states, perhaps underscoring this very point – a development that has been seen as a return to the US-style FCN approach.Footnote 115 From this perspective, the emergence of the IFD Agreement carries a certain historical inevitability.
Investment facilitation reduces the importance of North–South bargaining power dynamics, intentionally challenging the prevailing norm that ‘the strong make the rules, and the weak follow them'.Footnote 116 Rather than consolidating the economic strength of the Global South as a collective bargaining chip, the IFD provides all WTO Members – regardless of their status as Northern or Southern countries – with a platform for equal dialogue. For example, the process was initially launched through the informal Friends of Investment Facilitation for Development (FIFD) group, composed mainly of developing and least developed countries, and has since attracted the participation of over 30 developed countries.Footnote 117
Investment facilitation is not limited to the concerns of the Global South, but seeks to address the shared needs of both Northern and Southern stakeholders. It is difficult to deny that even Northern countries with advanced domestic governance systems have an interest in ensuring that Southern countries possess a minimum level of facilitation capacity, so as to promote and protect their own investors and investments abroad. In other words, Northern countries equally require a more transparent, efficient, and predictable market in the Global South – a need the IFD Agreement seeks to address by promoting best practices and offering the guarantees of the DSU. Just as the US shifted from the FCN model to the BIT framework, it did so not because its own domestic legal system lacked adequate and non-discriminatory protection, but rather to secure commitments from developing countries to protect US outbound investment.Footnote 118
4. The Future of the Third Configuration: What's Next for Investment Facilitation?
Currently, the IFD has attracted the participation of 126 WTO members. However, this does not signify a definitive success for the IFD. On the contrary, it may still face a long and complex path before it can effectively fulfill its role in configuring international investment governance. In terms of immediate priorities, the IFD urgently needs to address two key issues: its position within the WTO legal framework, particularly the issue of identity, and the assessment of member needs to ensure its effective functioning.
4.1 The Identity Challenge
4.1.1 Opposition voices
Recognizing the significant challenges of incorporating the IFD Agreement into the WTO legal framework, IFD members long abandoned the idea of including it in Annex 1 of the Marrakesh Agreement Establishing the WTO (hereinafter the ‘Marrakesh Agreement’), instead seeking its inclusion in Annex 4. Nevertheless, as of now, this aspiration remains unfulfilled, even after the formal announcement of the IFD Agreement during MC13 in February 2024.Footnote 119
According to WTO procedural rules, plurilateral agreements must be adopted by consensus at the Ministerial Conference.Footnote 120 However, members such as India and South Africa have consistently opposed this,Footnote 121 raising three primary objections. First, they argue that it undermines the fundamental principle of the WTO as a multilateral trade forum based on consensus and distracts from the Doha Round agenda, which they believe warrants greater attention. Second, they question the value of the IFD, contending that the significant disparities in domestic regulatory systems and capacities among members may hinder the achievement of its ambitious goals. Third, they assert that the IFD seeks to bind participants’ behavior through the WTO's dispute settlement mechanism, fundamentally exceeding its purported ‘voluntary’ nature.Footnote 122
4.1.2 Are they truly opposed?
If a new international commitment fails to offer sufficient anticipated added value while clearly increasing costs and obligations under the constraints of a dispute settlement mechanism,Footnote 123 members would indeed have little reason to accept such an initiative. But is the IFD Agreement truly such an entity? Addressing the concerns raised by opposing members through this logic may offer a potential breakthrough for the current impasse.
On the one hand, opponents argue that discussions on the IFD within the WTO lack legitimacy and that its substantive commitments will strain the Secretariat's resources.Footnote 124 However, looking back at the original intent behind members joining the WTO, it was fundamentally to seek the potential benefits offered by this mechanism.Footnote 125 This can be likened to a form of ‘transactional behavior’ governed by explicit rules, where members, upon joining the WTO, implicitly accept the asymmetry between potential benefits and risks. Of course, opponents may counter that initiating IFD negotiations contradicts the WTO's scope and decision-making mechanisms.Footnote 126 Nevertheless, it is worth reflecting on whether issues such as agricultural subsidies and non-agricultural market access under the Doha Agenda could realistically be resolved through consensus, even in the absence of the Joint Statement Initiative (JSI).Footnote 127
Furthermore, if the IFD Agreement ultimately fails to be incorporated into the WTO legal framework, its remaining option may be to become an independent agreement concluded outside the WTO framework, relying on GATT Article 24. Yet, would such an approach – one that fragments the WTO's capabilities and reduces its inclusiveness – truly align with the objectives of those opposing the IFD?Footnote 128
On the other hand, do opponents genuinely object to the provisions of the IFD Agreement? Take India, for example – India has, in fact, expressed dissatisfaction with the current progress of IIL and ISDS reforms. In the Trade and Economic Partnership Agreement (TEPA), signed with the European Free Trade Association (EFTA) in March 2024, India similarly replaced traditional investment arbitration with state-to-state consultations.Footnote 129 Although the term ‘investment facilitation’ is not explicitly used in the TEPA text,Footnote 130 its institutional governance mechanisms – such as sub-committees and contact pointsFootnote 131 – closely resemble those found in the IFD Agreement.
Moreover, in its statement to the WTO General Council, India firmly asserted that the initiation of IFD negotiations and the adoption of a final agreement within the WTO framework were ‘illegal’ (on the grounds that they were not adopted by consensus).Footnote 132 However, India made no substantive comment on whether the content of the IFD itself was good or bad, nor did it claim that the agreement would have adverse effects on India or its investors. This raises the question of whether such objections are more political in nature, simply cloaked in legal language.Footnote 133
4.1.3 The hypothesis of a dead end
Fortunately, despite the highly uncertain prospects, members have not abandoned hope of incorporating the IFD Agreement into the WTO framework.Footnote 134 However, in the face of India's persistent and vigorous opposition, the possibility of a failure to reach consensus cannot be entirely dismissed. A potential solution is to maintain the current ‘open plurilateral agreement’ while awaiting the transition to a ‘closed plurilateral agreement’ under Paragraph 3 of Article II of the Marrakesh Agreement, which would impose rights, obligations, and binding effects only on its members.
Two issues still warrant attention. On the one hand, the entry into force threshold and the effectiveness of open plurilateral agreements remain critical concerns. Although such agreements do not require unanimous approval from WTO members, their entry into force still depends on meeting certain conditions, typically the attainment of a ‘critical mass’ of signatories.Footnote 135
The Information Technology Agreement (ITA) is widely regarded as a successful example of a plurilateral agreement, having entered into force on 1 April 1997, with participants accounting for over 90% of global trade in information technology products.Footnote 136 However, the IFD Agreement does not follow this model. Instead, it establishes the ‘critical mass’ threshold at the 75th member accepting the agreement.Footnote 137 While such a design does indeed lower the threshold for the IFD Agreement to enter into force, there remain legitimate concerns about its practical impact given that the United States – both the world's largest recipient of FDI (accounting for one-quarter of the global total)Footnote 138 and its largest source of outbound FDIFootnote 139 – has expressed no intention to join the IFD Agreement.Footnote 140 There thus appears to be reason for concern regarding the actual impact of the IFD Agreement once it enters into force.
On the other hand, open plurilateral agreements also raise concerns about ‘free-riding’. While such agreements cannot impose additional obligations on non-participants – doing so would trigger the consensus requirement under Paragraph 9 of Article X of the Marrakesh AgreementFootnote 141 – non-participants can still benefit under the most-favored-nation (MFN) principle. For instance, the tariff commitments under the ITA were incorporated into the WTO schedules of concessions of its participants, enabling non-participants to access the resulting trade opportunities.Footnote 142 Although the IFD Agreement explicitly states that MFN treatment shall not be interpreted as conferring rights to non-participants, the improved investment environments resulting from capacity-building efforts and assistance provided to developing and least developed members under the IFD can still be ‘freely enjoyed’ by non-participants.Footnote 143
To address this issue, the most pragmatic approach appears to be securing a higher participation threshold.Footnote 144 Specifically, efforts should focus both on striving to bring the IFD Agreement to a ‘critical mass’ by encouraging the accession of additional WTO members – particularly those who currently oppose its incorporation into the WTO frameworkFootnote 145 – and on designing the core benefits of the IFD Agreement as exclusive, ‘club-like’ mechanisms. For example, certain privileges could be made available only to investors from participating members, such as access to contact point complaint mechanisms and expedited channels for addressing concerns. Furthermore, second-tier incentives could be introduced, allowing for future negotiations on issues such as negative lists for market access and ISDS mechanisms to be conducted within the existing IFD committee framework.
4.2 The Needs Assessment for IFD Members
According to the SDT provisions granted to developing and least developed members under the IFD Agreement, these members are required to categorize the applicable provisions based on self-assessments of their compliance levels and implementation needs.Footnote 146 The purpose of this needs assessment is to enhance the likelihood of positive impacts from assistance and to allocate limited resources in the most efficient manner.Footnote 147 To this end, the IFD provides members with self-assessment guidelines.Footnote 148
The initiatives established under the IFD are primarily aimed at reforming domestic administrative procedures within host states,Footnote 149 meaning that the assessment targets include sovereign entities such as national authorities and relevant institutions. Consequently, the needs assessment should primarily be conducted by the members themselves. However, given the capacity constraints faced by some members, assistance with the needs assessment may be provided – upon request – by other members or relevant international organizations,Footnote 150 such as UNCTAD, the International Trade Centre (ITC), the World Bank Group (WBG), and the Organisation of Eastern Caribbean States (OECS). Additionally, as an inclusive multilateral framework, the IFD also allows non-participants to request assistance in conducting needs assessments.
Based on current practices, the key focus areas and areas for improvement in the needs assessment procedure primarily center on institutional coordination, consultations, and stakeholder participation.
First, unlike the Focal Points established under Article 22 of the IFD Agreement,Footnote 151 institutional governance in this context requires not only cross-departmental and cross-level coordination within host states but also serves as a bridge facilitating communication and cooperation between donors and recipients of assistance.
Second, the needs assessment procedure aligns with the IFD's emphasis on dialogue, helping recipient members understand both the IFD's capacity and their own development needs.Footnote 152 As Quan Zhao, Senior Programme Officer at the ITC, noted, the purpose of assessment work is not merely to collect information but also to serve as a platform for information exchange.Footnote 153
Third, according to the evaluation checklist established by the IFD, stakeholders include ‘all relevant domestic authorities, entities, and possible other stakeholders (such as civil society organizations and private sector organizations)’.Footnote 154 This broad scope presents a challenge to the efficiency and progress of assessments. In response, the OECS has proposed a ‘targeted engagement of stakeholders’ approach, suggesting that not all stakeholders need to participate in consultations at all times.Footnote 155
In addition, although this issue has not been extensively addressed by representatives, the scope and intensity of assistance provided by developed members should arguably be considered as part of the needs assessment. Drawing lessons from the implementation of the Trade Facilitation Agreement (TFA), recipient members have valid reasons to scrutinize the firmness and practicality of donors’ commitments.Footnote 156 Therefore, based on the differences in needs identified through the assessment, it is essential to encourage donors to commit to fulfilling individually designated tasks. Consideration should also be given to utilizing the DSU mechanism to ensure the enforcement of these commitments.
5. Conclusion
Approximately a decade ago, Frank J. Garcia and others called for a fundamental paradigm shift in IIL.Footnote 157 Although various stakeholders have pursued fragmented reforms in key areas of IIL over the past decade, these efforts remain ongoing, and we are still awaiting the final outcome. As Anne van Aaken later reiterated, what IIL needs are ‘incremental changes’ rather than ‘fundamental shifts'.Footnote 158 Today, IIL appears to be moving further away from the vision outlined by Frank J. Garcia: ‘comprehensive multilateral rules, a strengthened rule of law, and clear and balanced public policy exceptions'.Footnote 159
We do not deny the international community's efforts in recent years to reform IIL. In fact, the dissatisfaction expressed by various stakeholders, along with the reform initiatives they have proposed, serves as an intrinsic driver for IIL's continuous evolution. However, the self-interested nature of the proposals advanced by different stakeholders, the unwieldy and cumbersome nature of the ‘treaty machinery’, and the difficulties in reconciling divergent positions on substantive protection standards and the ISDS mechanism have made it difficult for IIL reform to overcome collective action problems within UNCITRAL and similar platforms. It is against this backdrop that investment facilitation has emerged. By advancing the IFD Agreement in the WTO – an agreement distinct from traditional, highly standardized IIAs – and adopting a bottom-up, open approach through the Joint Statement Initiative (JSI), this process has circumvented the ‘single undertaking’ rule of WTO negotiations and allowed any interested member to participate and make its voice heard.
Of course, this is not to suggest that investment protection, investment liberalization, and the ISDS mechanism have outlived their usefulness. As previously noted, the IFD Agreement is intentionally and skillfully restrained in both its substance and function, advancing a capacity-based narrative that seeks to achieve some of the objectives addressed by investment protection and ISDS, while nevertheless maintaining a clear distinction from these mechanisms. In other words, the characterization of the IFD as the ‘third configuration’ of IIL in this article does not imply a complete replacement of the existing investment protection system established in the first two configurations. Rather, it positions the IFD as a parallel and supplementary option for ongoing IIL reform – one that is open to all WTO members to adopt at their own discretion.
Finally, it must be acknowledged that the relatively young IFD agenda will inevitably undergo a period of growth and adjustment – much like the ‘growing pains’ that accompany broader IIL reform. As such, the ultimate incorporation of the IFD Agreement into the WTO legal framework may require a degree of tolerance from all members, especially those who currently remain opposed, given that such a move would not in fact produce unacceptable consequences for them. Moreover, regardless of the final outcome, it is clear that the IFD Agreement has injected new vitality into the process of IIL reform. Its innovative approach – breaking free from rigid templates, focusing on the Global South, and prioritizing development – offers much-needed adaptability in an increasingly uncertain international investment governance environment. As João Aguiar Machado, the EU Ambassador to the WTO, has aptly remarked: ‘It is presumptuous and patronizing to put into question the legitimate position of the many developing countries that consider this Agreement as instrumental for their development.’Footnote 160 For these reasons, there is indeed good reason to be optimistic about the prospects for a positive outcome for the IFD.
Funding Statement
This article presents a research output associated to the projects titled ‘New Trends in International Lawmaking of State-owned Enterprises (SOEs) and China's Response’ (No. 20BFX200) of the National Social Science Foundation of China and ‘Investigation into the Legal Protection of Private Investments from Zhejiang in ASEAN Countries’ (No. 2023 NA01) within the Key Project of the Zhejiang Law Society.
