How Does Investment Law Structure Power?

Investment treaties are often presented as neutral instruments designed to protect cross-border capital. Yet their legal architecture does more than facilitate investment.

The critical question is not simply whether states retain regulatory sovereignty in theory, but how arbitral interpretation of treaty standards shapes the practical space within which states can respond to social conflict, environmental concerns, and political pressure.

Through standards such as fair and equitable treatment, indirect expropriation, and stabilisation commitments, treaty regimes do not merely regulate economic activity; they structure political and economic power.

This becomes most visible when tribunal decisions interpret treaty protections in ways that shape the boundaries of state authority and investor expectations.

With this in mind, the following cases illustrate how treaty language, tribunal reasoning, and compliance requirements recalibrate the balance between investor protection and regulatory autonomy.

Bear Creek Mining Corporation v. Republic of Peru is an instructive case in which an investor invoked bilateral investment treaty protections after Peruvian national and sub‑national authorities responded to community resistance to a proposed mine.¹.

In the dispute, Bear Creek alleged violations of fair and equitable treatment and indirect expropriation under the Canada–Peru Free Trade Agreement. The tribunal’s handling of environmental permitting and community opposition raised questions about how arbitrators interpret host state authority and regulatory choices within investor protection frameworks.¹.

What makes Bear Creek v Peru analytically compelling for the theme of law and power is how the investment protection regime tends to treat regulatory actions, especially in response to social conflict, as potentially adverse to investor expectations, shaping strategic incentives for both investors and state policymakers.².

The case thus illustrates how interpretive methodology, rather than explicit treaty text alone, shapes the boundaries of regulatory discretion.

Similarly, in Cortec Mining v. Republic of Kenya, although the tribunal ultimately declined jurisdiction on definitional grounds, the case illustrates how treaty language and domestic regulatory compliance requirements (such as environmental impact assessments) can delineate the scope of investor protection with major implications for state autonomy.³.

Here, the tribunal’s emphasis on legality and compliance underscores that access to treaty protection is mediated through legal form; in so doing, domestic administrative procedures become ‘gatekeepers’ to international protection.

Cortec reveals a different dimension of treaty power: not merely the constraining effect of investor claims, but the capacity of legal drafting and compliance thresholds to structure who qualifies for protection and on what terms.

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Another instructive example, Nachingwea and Others v. United Republic of Tanzania, underscores how host-state regulatory actions, such as licence revocation, can be interpreted within an expropriation paradigm that triggers significant compensation obligations.⁴.

This case highlights how sovereign regulatory decisions, including licence cancellations, can constitute compensable takings under international investment law. The analytical shift from public regulatory act to private economic loss reconfigures the legal meaning of state authority.

When regulatory revocation is recast as expropriation, the treaty regime embeds a particular hierarchy: investor loss becomes juridically central, while public policy motivations are filtered through compensation standards.

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Overall, it is safe to conclude that law is not neutral.

These cases demonstrate that international investment law does not simply protect investment; it institutionalises a particular allocation of power.

Through interpretive doctrines, jurisdictional thresholds, and compensation frameworks, treaty power operates as a structural constraint on regulatory discretion. Even where tribunals decline jurisdiction or recognise compliance conditions, the analytical frame remains one in which investor protection standards define the outer boundaries of state action.

In this regard, Investment treaties and arbitration norms effectively embed a hierarchy of interests: transnational investor expectations are legalised and protected at the supranational level, while host-state policymaking is constrained by potential liability.

This is not simply a matter of legal text, but of institutional architecture that privileges capital mobility, enforcement of contractual stability, and investor recourse over flexible, democratically accountable regulatory discretion.⁵.

Question is?

Does this framework then leave sufficient space for states to pursue sustainable development goals?

1. See Bear Creek Mining Corporation v Peru, ICSID Case No ARB/14/21, Award (2017).
2. See generally Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press, 2007); notably the discussion of how tribunals frame regulatory measures relative to investor expectations, especially in extractive contexts.
3. Cortec Mining v. Republic of Kenya, ICSID Case No. ARB/15/29 (award dismissing jurisdiction based on investment definition and compliance requirements).
4. Nachingwea and Others v. United Republic of Tanzania, ICSID Case No. ARB/14/16 (award for claimant on unlawful expropriation).
5. See also M. Sornarajah, The International Law on Foreign Investment (5th ed., Cambridge University Press, 2017), on how investor protection norms shape regulatory sovereignty.