Abstract:

International investment agreements (IIAs) are a significant manifestation of the impact of legal globalization on national public policy. These are thousands of (mostly) bilateral treaties through which states commit to protect the rights of foreign investors. Moreover, these obligations can be enforced by a system of binding international investor-state dispute settlement (ISDS), which allows investors to file claims against host countries that allegedly violated their obligations under their IIAs. The legitimacy of IIAs and ISDS is highly contested, however. On the one hand, they encroach on states’ regulatory space (SRS) and delegate legal authority to ad-hoc arbitration bodies, which lack transparency and accountability. On the other hand, their alleged positive effect on foreign investment is uncertain. As a party to about forty IIAs, Israel’s SRS is certainly affected by IIAs. Such potential impact came to the fore when an American company, Noble Energy, indicated that it might turn to ISDS against the Israeli government in relations to a disputed gas exploration project. This article examines the implications of IIAs and ISDS to SRS both globally and with respect to Israel. After elaborating on and illustrating these relationships in the global arena, we present a measure of SRS that facilitates a systematic comparison of IIAs across time and space on this key dimension. We show that, of late, states around the world conclude IIAs with greater regulatory space and that Israel tracks this global trend. A legal analysis of two investment disputes in the energy sector suggests that Israeli IIAs expose the country to costly ISDS claims and potentially limit its ability to regulate in important policy areas. We conclude that Israel will do well to sign or renegotiate IIAs with greater regulatory space.