A Study on the Application of Investors’ Reasonable Expectations in the Fair and Equitable Treatment Clause

Abstract

The fair and equitable treatment clause is a core provision of modern international investment agreements. As the central criterion for the interpretation and application of this clause, the concept of an investor’s legitimate expectations originates from the principle of protection of legitimate expectations in domestic administrative law and has evolved through arbitration practice into a key basis for determining whether a host state has breached its obligations. Due to the absence of clear and uniform rules for its determination, its application faces challenges such as inconsistent standards, excessive expansion of scope, and an imbalance between the interests of investors and host states, thereby encroaching upon the host state’s regulatory sovereignty. This paper examines the underlying theories and logical connections between the two concepts. Addressing the practical challenges, it proposes pathways including the clarification of constituent elements, the delineation of boundaries for application, the standardisation of interpretative methods, and China’s response strategies. These aim to provide support for balancing investor rights with the host state’s regulatory authority, contribute to the improvement of the international investment legal framework, and align with China’s requirements for the development of its foreign-related legal system.