The acceleration in BITs is essentially a 1990s phenomenon, heralding the emergence of market capitalisation, with liberation of the East European nations from the tentacles of communism. There was China, which sent out signals ending its earlier regime of economic hostility.

A third group comprised the Latin American nations, creating a new platform for themselves migrating from the traditional Calvo doctrine to that of investor protection treaties with neutral dispute resolution mechanisms. Today China has entered into over 100 BITs and not faced a single treaty dispute, while Latin America has been mired in treaty arbitrations and awards, with Bolivia and Ecuador announcing their withdrawal from ICSID as the arbitral tribunal for future disputes.

It is interesting to examine this disparate evolution of BITs in the context in treaty structures. China has structured its treaties in manner that the definition of "investment" is subjected to the regulatory regime, and disputes other than expropriation compensation are decided by the domestic courts or local arbitration , subject to PRC determining the occurrence of expropriation. China has cleverly nuanced the balance of power in concessions to investor states to optimise mutual benefits.

Another jurisdiction following a similar model is South East Asia. A fundamental issue in the context of BITs is the host state's right to regulate its public welfare, the rule of thumb being that treaty obligations should override sovereign rights of the State, unless provided otherwise. South East Asia has succeeded in ensuring conservation of regulatory space in its treaties, so that each and every state action cannot be treated as a treaty violation.

Foreign investment definitions are restrictive, precise and protection is extended only to investments approved in writing. This is what saved Malaysia when exchange controls were imposed during a financial crisis and the Arbitral Tribunal declined jurisdiction as the investment was not "approved". Yet FDI flows are not impeded.

The Argentine experience has been bitter, as in the scramble for investments, certain compromises were made — the outcome of which was not contemplated by the states. This raises the question of fairness and bias in interpretation of treaty provisions: whether host states would have agreed had they known they were opening a Pandora's box?

The most innovative interpretations are of "investor" and "investment". There have been several instances of persons, not being a national of the Contracting state, but of a third nation having a minority stake, getting benefit of a treaty clause.

The flexibility of multiple claimants is achieved through the concept of corporate nationality. Establishing presence in a Contracting State assures unrelated nationals from acquiring protection and benefit under the investment treaty. In most situations an establishment is created specifically for facilitation aof this benefit, no different from the approach under tax treaties. The difference lies that restrictions on sovereignty under investment treaties are more onerous than that those under tax treaties.

The wide categorisation and interpretation given to expropriation of investments of foreign investors, to the extent of "indirectly or tantamounting to a taking" has probably been the last stroke.

In cases brought against Argentina involving the state's efforts to create stability for the local currency, the gas tariffs payable to the US investors were adversely affected. Proposed increase in prices, already rocketing led to riots virtually bringing the nation to brink of political collapse. In the multiple arbitrations invoked, Argentina raised the defence of "State of Necessity". In one decision, the Tribunal held that State of Necessity involved grave and imminent peril, which was not case and therefore Argentina was liable to bear the investor's losses.

On the same facts, the same Tribunal held in another matter that there was a State of Necessity that excused non performance, though for a shorter period. The larger question is whether an Investor Tribunal is competent to adjudicate on a national political emergency not to speak of consternation at the inconsistent findings. The counter to this is a host state garners for itself the unqualified right to escape performance of treaty obligations on this pretext. The fault therefore does not lie in BITs per se but in the approach and interpretation.

Kumkum Sen is a Partner in Rajinder Narain & Co, and can be reached at kumkumsen@rnclegal.com