Most indicative in this respect is the United States model bilateral investment treaty of 2004, if compared with the 1984 model.<sup>44</sup> It weakens various protections that international investors had acquired through BITs and free trade and investment agreements and hence gives more rights to governments. In particular, it explicitly includes an “essential security” clause that is self-judging. In other words, the treaty partners decide on their own, and not subject to arbitral review, whether or not a given situation involves an essential security interest and therefore makes it not necessary to observe commitments contained in a given treaty.

Such an evolution of the international investment regime is understandable, given that governments seek more freedom to pursue what they consider to be important national objectives and given that they do not want to be penalized (through arbitral awards against them) for actions taken in this respect. But this greater respect for national policy priorities is also understandable from another perspective: the international investment regime as it has evolved over time has focused almost exclusively on the protection of international investors by granting them broad rights and few responsibilities, while host country governments assume broad responsibilities and have few rights.<sup>45</sup>

# **The need for rebalancing**

The critical challenge therefore is to find the right balance between the rights and responsibilities of foreign investors on the one hand and those of governments on the other. It needs to be a balance that combines the stability, predictability and transparency that firms need to make investment decisions with the policy space that governments need to pursue legitimate domestic policy objectives – a balance that does not open the door for measures that are primarily protectionist in nature.

Finding regulatory solutions to this challenge is not easy. It is important that the process of rebalancing, which is already underway, proceed in a manner that strengthens the overall international investment regime. Among other things, this requires a clarification of such concepts as “national interest”<sup>46</sup> and “essential security interests,” as well as

> 44 See Kenneth J. Vandevelde, “A comparison of the 2004 and 1994 U.S. model BITs: rebalancing investor and host country interests,” in _Investment Yearbook,_ op. cit., pp. 283-316, and, even stronger, José E. Alvarez, “The once and future foreign investment regime,” in _Looking to the Future,_ op cit _._ The 2004 U.S. model BIT was under review beginning in 2009; it may well be that the outcome is a further strengthening of the rights of host country governments.

> 45 The underlying logic for favoring protection of investors over preserving host country policy space is, among other things, that MNEs are, in any event, subject to the laws and regulations of host countries that can be enforced through national courts and that such a regime helps countries to attract FDI. For evidence regarding the latter expectation, see Karl P. Sauvant and Lisa Sachs, eds., _The Effect of Treaties on Foreign Direct Investment: Bilateral Investment Treaties, Double Taxation Treaties, and Investment Flows_ (New York: Oxford University Press, 2009).

46 A survey by the OECD of a number of countries and their use of the concepts of “national security,” “essential security interests” and “public order” found that “the term ‘national security’ is shown to have a coherent and internationally understood meaning.” (See, OECD, “Security-related terms in international investment law and in national security strategies” (Paris: OECD, May 2009), mimeo., p. 4. If this finding regarding “national security” does, indeed, hold for a great number of countries, applies also to related 16