Cultural Policies under the Mechanism for Foreign Investment Protection

The recent development in the international rules and procedures for investment protection, caused by the spread of bilateral investment treaties and the use of investment arbitration, has remarkably reduced foreign investors' risks. At the same time, however, there is concern for the erosion of host states' regulatory powers. Specifically, it will be a serious question for policymakers whether and to what extent the investment protection mechanism will undermine the policy space for regulating economic activities which would affect national cultural identities. This paper approaches the problem by analyzing the relevant arbitral awards in detail. The study reveals that, as long as cultural policies are introduced in a reasonable and proportionate manner, arbitral tribunals usually do not find a violation of treaty obligations. Basic principles of investment protection, such as non-discrimination, prohibition of expropriation, and fair and equitable treatment, contain enough margin of interpretation to allow host states to pursue public interests even if some foreign investors were to suffer. In the light of these findings, the paper identifies the specific conditions in which host states can lawfully maintain their cultural policies under the obligation of foreign investment protection.