Fair and Equitable Treatment: Why it matters and what can be done

The document examines the 'fair and equitable treatment' (FET) standard, a controversial provision found in nearly 95% of international investment agreements. It argues that the vagueness of FET leads to inconsistent interpretations by arbitral tribunals, which can result in 'regulatory chill' for states. The brief analyzes five common treaty formulations of FET and concludes that even 'new-generation' agreements often produce the same unpredictable outcomes as older ones. To mitigate these risks, the authors propose three policy options: excluding FET standards entirely, using alternative terminology like 'fair administrative treatment,' or implementing a strictly defined, closed list of breach conditions that explicitly excludes investor expectations.

• The 'fair and equitable treatment' (FET) standard is highly prevalent and litigated, appearing in nearly 95% of investment treaties and featuring in approximately 83% of all treaty-based investor–state arbitration cases where data is available.
• Attempts by states to clarify FET in 'new-generation' agreements have largely failed to protect regulatory space, as interpretations of these new treaties often mirror those of older agreements.
• The ad hoc nature of the investor-state dispute settlement (ISDS) system, characterized by a lack of binding precedents and decision reviews, exacerbates the inconsistent interpretation of FET clauses.
• FET has become a 'catch-all' provision that can be breached by a wide variety of state conduct, including denial of justice, breach of due process, instability in legal frameworks, and the frustration of investors' legitimate expectations.
• To avoid the unpredictability of FET, states can adopt a 'fair administrative treatment' standard, which focuses on ensuring that legislative and judicial processes are not arbitrary and provide due process.
• The document recommends that if an FET standard is included, it should be limited to a closed list of specific violations—such as manifest arbitrariness or targeted discrimination—and explicitly state that inconsistency with investor expectations does not constitute a breach.

APA

Sarmiento, F., & Nikièma, S. (2022). Fair and Equitable Treatment: Why it matters and what can be done. International Institute for Sustainable Development. https://www.iisd.org/system/files/2022-11/fair-equitable-treatment-en.pdf

Chicago

Sarmiento, Florencia, and Suzy Nikièma. Fair and Equitable Treatment: Why it matters and what can be done. International Institute for Sustainable Development, 2022. https://www.iisd.org/system/files/2022-11/fair-equitable-treatment-en.pdf.

Wikipedia

{{cite report |last1=Sarmiento |first1=Florencia |last2=Nikièma |first2=Suzy |title=Fair and Equitable Treatment: Why it matters and what can be done |publisher=International Institute for Sustainable Development |date=November 2022 |url=https://www.iisd.org/system/files/2022-11/fair-equitable-treatment-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{sarmiento2022fair, author = {Sarmiento, Florencia and Nikièma, Suzy}, title = {{Fair and Equitable Treatment: Why it matters and what can be done}}, institution = {International Institute for Sustainable Development}, year = {2022}, month = nov, url = {https://www.iisd.org/system/files/2022-11/fair-equitable-treatment-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }