Examining the Interaction and Conflict Between Foreign Investment Arbitration and the Principle of State Sovereignty

Abstract

Foreign investment arbitration, as the most significant mechanism for resolving disputes between states and foreign investors, has played a decisive role in the international investment law system over recent decades. Designed to create a secure and predictable environment for investors, this system imposes obligations that go beyond the classical standards of state responsibility. Conversely, the principle of state sovereignty—rooted in the longstanding tradition of public international law—continues to serve as the principal foundation for domestic regulation, development priorities, and the state’s ability to adopt sovereign measures. Consequently, a structural conflict has emerged between the requirements of investment arbitration and the sovereign regulatory powers of states in key areas such as environmental protection, natural resources, public health, and economic policymaking. The primary objective of this study is to explore the nature, dimensions, and mechanisms of interaction and conflict between these two domains. Using a descriptive–analytical method, the author concludes that although the tension between investor protection and state sovereignty is inevitable, recent reform-oriented approaches—including the inclusion of regulatory clauses, enhanced transparency, revision of older bilateral investment treaties, and the movement toward establishing a multilateral investment court—can create an appropriate balance between these spheres. Overall, achieving equilibrium between investment arbitration and the principle of state sovereignty is not only possible but necessary, and the future of the international investment framework is inevitably moving toward strengthening the role of states while preserving the efficiency of arbitration.