The Difference of Interests between Host State and Investors Related to Fair and Equitable Treatment in Bilateral Investment Treaty

Abstract

The host state requires a source of funds in its national economic development which requires investors to increase their income to be able to run the national economy which results in people's welfare. However, before investing, the investors consider several factors related to investment, such as low labor costs, abundant natural resources, low production costs, large market share, the existence of supporting facilities, and a consumptive lifestyle. These things are then called the investment climate. On the other hand, developing countries frequently make it difficult for investors who will invest their capital in their countries, such as making it difficult to obtain permits, making changes in legislation due to regime change, changing the way of the government due to changing government structures, and so on. In the international investment, these kind of changes are called the Dynamic Inconsistency Problem (DIP). It then makes the investors feel insecure and not protected by the host state. When the national interests of the host state are confronted with the interests of investors regarding violations of the FET clause, there are many ways that can be done so that the two parties are not disadvantaged in the investment. One of the effective ways that can be done is determining limitations regarding the FET clause and the reasonable expectations of investors with the aim of keeping the investment climate stable.