The standard of fair and equitable treatment (FET) in investment arbitration
The principle of equality (Fair and Equitable Treatment, FET)
General introduction
The principle of fair and Equitable Treatment (FET) is one of the central standards for protecting the rights of foreign investors in international investment agreements. Despite the lack of a universal definition, this principle is firmly entrenched in international arbitration practice and has become a key element of many bilateral and multilateral treaties [1].
The history of the FET principle
For the first time, the idea of fair and fair treatment of foreign investment was recorded in the drafts of the post-war agreements, including the Havana Charter of 1948.
The history of the FET principle
For the first time, the idea of fair and fair treatment of foreign investment was recorded in the drafts of the post-war agreements, including the Havana Charter of 1948.
However, this standard has been most actively implemented in bilateral investment agreements (BITs) since the 1960s and 1970s. Its formulations vary depending on the specific agreement: from laconic mentions to complex descriptions indicating specific violations that are considered unacceptable within the framework of the FET [2].
Modern bits include both stand-alone formulations of the FET and its mention in connection with international custom or the minimum standard for the treatment of foreigners. This variability has led to the development of several approaches to the interpretation of the principle.
Modern bits include both stand-alone formulations of the FET and its mention in connection with international custom or the minimum standard for the treatment of foreigners. This variability has led to the development of several approaches to the interpretation of the principle.
The history of the FET principle
For the first time, the idea of fair and fair treatment of foreign investment was recorded in the drafts of the post-war agreements, including the Havana Charter of 1948. However, this standard has been most actively implemented in bilateral investment agreements (BITs) since the 1960s and 1970s. Its formulations vary depending on the specific agreement: from laconic mentions to complex descriptions indicating specific violations that are considered unacceptable within the framework of the FET [2].
Modern bits include both stand-alone formulations of the FET and its mention in connection with international custom or the minimum standard for the treatment of foreigners. This variability has led to the development of several approaches to the interpretation of the principle.
Modern bits include both stand-alone formulations of the FET and its mention in connection with international custom or the minimum standard for the treatment of foreigners. This variability has led to the development of several approaches to the interpretation of the principle.
Content and legal significance of the standard
Despite the variety of formulations, arbitration practice has developed a relatively stable understanding of the content of the FET[3]. It includes:
— the duty of the state to observe transparency, consistency and stability in legal regulation;
— Prohibition of arbitrary, discriminatory or repressive measures;
— the need to comply with due process;
— the obligation to act in good faith and avoid abuse of authority;
— respect for the principle of proportionality between the public interest and the rights of the investor.
In fact, the FET principle is a set of legal and ethical obligations of the state to a foreign investor.
In a number of treaties, FET is equated to the "Minimum Standard of Treatment" (MST) according to customary international law. In this approach, the standard is interpreted through the prism of the decision in the case of Neer v. Mexico (1926), which emphasized the need for the absence of arbitrariness, malice or gross injustice.
At the same time, most modern arbitrations adhere to the position that FET is an autonomous standard that goes beyond MST. It is formed not only on the basis of customary international law, but also takes into account the objectives of investment agreements — attracting investments and ensuring legal stability[4].
Despite the well-established importance of the principle of fair and fair treatment (FET) in international investment practice, its application in practice is accompanied by a number of difficulties and contradictions that are of concern to both States and researchers in the field of international law.
First, one of the key problems is the lack of clear and universally recognized criteria for determining FET violations. Unlike formally established procedural rules, the FET standard is often flexible and evaluative. Arbitration tribunals have considerable discretion in their interpretation, which leads to a high degree of variability in decisions. The same set of facts may be recognized as a violation of the FET in one arbitration, but not in another. This unpredictability makes it difficult for both investors and States to build a sustainable legal strategy.
Secondly, States are increasingly expressing concern that FET arbitration practices go beyond the original intent of investment protection standards. In some cases, arbitrations, referring to the principle of fair and fair treatment, interpret it extremely broadly, including, for example, protecting legitimate investor expectations from any adverse changes in the regulatory environment. Such an approach can undermine the regulatory sovereignty of the state, especially in the field of social, environmental, fiscal or health policy. The adoption of laws aimed at protecting the public interest may be considered a violation of the FET if it entails losses for the investor, even in the absence of discrimination or bad faith.
The third problem is related to the difficulty of establishing a balance between the protection of foreign investments and the implementation of public functions by the State. International investment protection cannot exist in isolation from other international and domestic obligations. States are responsible for protecting public health, protecting the environment, and ensuring social justice and security. In cases where measures are taken in the public interest (for example, the introduction of restrictions in connection with the pandemic, environmental licensing, reforms in the health sector), it is necessary to take into account how justified, proportionate and predictable they were. However, even if there are good-faith motives, government measures can be interpreted as a violation of the FET if the tribunal finds that they contradict the "legitimate expectations" of the investor.
Thus, despite its important role, the principle of fair and conscientious treatment remains the subject of intense debate in international law. In modern conditions, it is an urgent task to develop clearer contractual formulations, as well as to develop balanced approaches that take into account both the interests of investors and the legitimate goals of public policy.
— the duty of the state to observe transparency, consistency and stability in legal regulation;
— Prohibition of arbitrary, discriminatory or repressive measures;
— the need to comply with due process;
— the obligation to act in good faith and avoid abuse of authority;
— respect for the principle of proportionality between the public interest and the rights of the investor.
In fact, the FET principle is a set of legal and ethical obligations of the state to a foreign investor.
In a number of treaties, FET is equated to the "Minimum Standard of Treatment" (MST) according to customary international law. In this approach, the standard is interpreted through the prism of the decision in the case of Neer v. Mexico (1926), which emphasized the need for the absence of arbitrariness, malice or gross injustice.
At the same time, most modern arbitrations adhere to the position that FET is an autonomous standard that goes beyond MST. It is formed not only on the basis of customary international law, but also takes into account the objectives of investment agreements — attracting investments and ensuring legal stability[4].
Despite the well-established importance of the principle of fair and fair treatment (FET) in international investment practice, its application in practice is accompanied by a number of difficulties and contradictions that are of concern to both States and researchers in the field of international law.
First, one of the key problems is the lack of clear and universally recognized criteria for determining FET violations. Unlike formally established procedural rules, the FET standard is often flexible and evaluative. Arbitration tribunals have considerable discretion in their interpretation, which leads to a high degree of variability in decisions. The same set of facts may be recognized as a violation of the FET in one arbitration, but not in another. This unpredictability makes it difficult for both investors and States to build a sustainable legal strategy.
Secondly, States are increasingly expressing concern that FET arbitration practices go beyond the original intent of investment protection standards. In some cases, arbitrations, referring to the principle of fair and fair treatment, interpret it extremely broadly, including, for example, protecting legitimate investor expectations from any adverse changes in the regulatory environment. Such an approach can undermine the regulatory sovereignty of the state, especially in the field of social, environmental, fiscal or health policy. The adoption of laws aimed at protecting the public interest may be considered a violation of the FET if it entails losses for the investor, even in the absence of discrimination or bad faith.
The third problem is related to the difficulty of establishing a balance between the protection of foreign investments and the implementation of public functions by the State. International investment protection cannot exist in isolation from other international and domestic obligations. States are responsible for protecting public health, protecting the environment, and ensuring social justice and security. In cases where measures are taken in the public interest (for example, the introduction of restrictions in connection with the pandemic, environmental licensing, reforms in the health sector), it is necessary to take into account how justified, proportionate and predictable they were. However, even if there are good-faith motives, government measures can be interpreted as a violation of the FET if the tribunal finds that they contradict the "legitimate expectations" of the investor.
Thus, despite its important role, the principle of fair and conscientious treatment remains the subject of intense debate in international law. In modern conditions, it is an urgent task to develop clearer contractual formulations, as well as to develop balanced approaches that take into account both the interests of investors and the legitimate goals of public policy.
Resource
1. Fair and Equitable Treatment in Investment Arbitration [Electronic resource] // Aceris Law. URL: https://www.acerislaw.com/fair-and-equitable-treatment-in-investment-arbitration / (date of access: 06/11/2025).
2. Fair and Equitable Treatment [Electronic resource] // Jus Mundi. URL: https://jusmundi.com/en/document/publication/en-fair-and-equitable-treatment (date of access: 06/11/2025).
3. Fair and Equitable Treatment Standard in International Investment Law [Electronic resource] // OECD Working Papers on International Investment, 2004/03. – OECD, Directorate for Financial and Enterprise Affairs. – URL: https://dx.doi.org/10.1787/675702255435 (date of access: 06/11/2025).
4. Sarmiento F., Nikièma S. Fair and Equitable Treatment: Why it Matters and What Can Be Done [Electronic resource] // IISD Best Practices Series: Policy Brief. – Winnipeg: International Institute for Sustainable Development, 2022. – 14 с. – URL: https://www.iisd.org/publications/policy-brief/fair-equitable-treatment-why-it-matters (date of access: 06/11/2025).
2. Fair and Equitable Treatment [Electronic resource] // Jus Mundi. URL: https://jusmundi.com/en/document/publication/en-fair-and-equitable-treatment (date of access: 06/11/2025).
3. Fair and Equitable Treatment Standard in International Investment Law [Electronic resource] // OECD Working Papers on International Investment, 2004/03. – OECD, Directorate for Financial and Enterprise Affairs. – URL: https://dx.doi.org/10.1787/675702255435 (date of access: 06/11/2025).
4. Sarmiento F., Nikièma S. Fair and Equitable Treatment: Why it Matters and What Can Be Done [Electronic resource] // IISD Best Practices Series: Policy Brief. – Winnipeg: International Institute for Sustainable Development, 2022. – 14 с. – URL: https://www.iisd.org/publications/policy-brief/fair-equitable-treatment-why-it-matters (date of access: 06/11/2025).