Law Assignment: Discussion On Investment Treaties
Prepare an law assignment addressing the following topic:
‘Investment treaties provide a wide range of protections to investors’. Discuss the various ‘standards of protection’ that safeguard foreign investments against interference by the host State.
The main concern of this law assignmentis on 'investment', a key term in an investment treaty, but it does not have a uniform meaning. In the broad sense it may be any asset that has been acquired by fraud( )or developed with resources provided by investors'. In a more narrow sense, however, there are three categories of assets that enjoy distinct levels of protection under international law: movable property, such as cash, shares and contracts; immovable property, such as land and buildings; and enterprises, which are business organizations or assets.
Host nations may interfere with foreign investments for a variety of reasons, such as to protect local businesses or to pursue national interests done by manipulation. Investors who are confident that their investment is protected by international standards can be more assured that their investment will be safe from political interference. There are a number of different standards of protection that investors can rely on.
The International Centre for Settlement of Investment Disputes, or ICSID, is a multilateral investment treaty (MIT) providing a neutral and international platform for arbitration and conciliation3 between foreign investors and host nations. Both investments and affected business parties may be represented by counsel in this tribunal. ICSID operates under the auspices of the World Bank. The treaty is open to all countries that have ratified it, which includes almost every country in the world with the exception of a few outliers such as Cuba and North Korea.(2) The Convention on the Settlement of Investment Disputes between States and Nationals of Other States, or the Washington Convention, is another important treaty that offers protection to foreign investors.
The Washington Convention was one of the first treaties to address the issue of foreign investment and has been amended a number of times over the years to reflect changing economic realities. The Washington Convention operates as a forum for bilateral investment disputes. This means that if an investor invests in one country but is discriminated against by the host nation, he must bring suit against both the home nation and the host nation under separate treaties that are administered by separate tribunals.
The focus of the Washington Convention is on protecting investments. It was not intended to serve as a means of resolving commercial disputes.
The North America Free Trade Agreement (NAFTA) is a trade deal between the United States, Canada, and Mexico that came into effect in 1994. NAFTA was one of the first international trade deals to include an investment chapter meant to promote foreign investments by providing protections for MNCs investing in NAFTA member countries. NAFTA also established a legal forum4 to resolve disputes called the Free Trade Commission, or FTC. The FTC offers foreign investors the same advantages that ICSID does in terms of supporting a neutral and efficient tribunal with a substantial case law interpreting the treaty's provisions.Article 1105 of NAFTA provides a broad standard of protection for foreign investments. It prohibits, among other things, expropriation without prompt and adequate compensation.
A variety of bilateral investment treaties (BITs)(3) exist throughout the world today. These treaties5 serve a number of purposes, making them a common feature of international law. BITs are meant to promote foreign investment by protecting investors from discrimination and expropriation. They also have the effect of encouraging one nation to invest in another because it offers that nation certain protections.
One example is the 2012 case of Suez, SociedadAnónima v. Argentine Republic(4), in which an Italian company that had invested in water and sanitation services in Argentina claimed that the Argentine government's seizure of its assets amounted to an unlawful expropriation7. The tribunal determined that the seizure had violated the investor's rights under both the Argentina-Italy bilateral investment treaty and the expropriation clause of the Argentine constitution. Another example is the 1991 case of Methanex v. United States, in which a Canadian corporation sued the U.S. government for prohibiting it from exporting methanol to California on the grounds that doing so would contribute to air pollution in violation of the Clean Air Act. The tribunal ruled that the U.S. government's actions had violated the investor's rights under both the Canada-U.S. bilateral investment treaty and the expropriation clause of the NAFTA agreement.
Some of the case laws are5
Argentina-Uruguay BIT (2005, CIADI; ICSID case no. ARB/03/30)
Brazil-Spain BIT (1996, ICC)
Canada-Peru FTA (2004, NAFTA ISDS arbitrator)
Chile-Japan BIT (1997, ICC)
China-Mexico BIT (2004, CIADI)
Egypt-South Korea BIT (2000, ICSID case no. ARB/00/7)
France-Cameroon BIT (1996, ICC)
Germany-Pakistan BIT (2004, ICSID case no. ARB/04/5)
Hong Kong-Indonesia BIT (1998, ICSID case no. ARB/98/3)
India-Belgium BIT (2002, ICSID case no. ARB/02/17)
Italy-Jordan BIT (2004, ICSID case no. ARB/04/14)
Italy-Netherlands BIT (2004, ICSID case no. ARB/04/19)
Montenegro-Slovenia BIT (2006, SCC arbitrator)
Morocco-Spain BIT (1996, ICC)
There are a number of different standards of protection that investors can seek under an investment treaty. The most common standard is known as 'fair and equitable treatment' (FET), which requires the host State to act in good faith and to not arbitrarily9 or unjustifiably interfere with an investment. Other standards of protection include 'protection against unlawful appropriation' (PUA), which requires the host State to protect an investment from being seized or nationalized without compensation; and 'protection against denial of justice' (PDJ), which prohibits the host State from taking any action that would prevent an investor from seeking legal redress10 in the courts of the host State.
Investment treaties typically provide for ISDS to be included as a dispute settlement mechanism. Investors can therefore commence binding arbitration proceedings against the host State if they suffer losses as a result of breaches of investment treaty provisions. The standards of protection set out in investment treaties are sometimes referred to as 'standards of treatment' or 'protection standards'.
The interpretation of this standard has aroused considerable debate. The main point of contention relates to whether an investor is entitled to a stable regulatory framework or must settle for one that is subject to constant change. Particular reference should be made to the discussion on the meaning of 'fair and equitable treatment', which has been subject to extensive interpretation in investment arbitration.
The PUA standard requires the host State to provide compensation for any expropriation or nationalization of an investment. The nationalization of an investment must be in accordance with the principles of international law, including the right to due process and the prohibition of expropriation11 without compensation. This standard is found in a number of investment treaties, including the ECT and the North American Free Trade Agreement (NAFTA). The PDJ standard requires the host State to ensure that investors can access effective remedies against acts of the State that violate their rights or that otherwise constitute breaches of investment rules. As with the FET standard, this does not mean that an investor is entitled to specific performance (i.e. it cannot demand that a court order has immediate effect) but rather means that an investor can claim damages for losses suffered as a result of a breach. This standard is found in a number of investment treaties, including the NAFTA and the ECT.
The ICSID Convention requires that any dispute between an investor and the host State be resolved through arbitration. The arbitration must be conducted in accordance with the rules of ICSID, which provide for a neutral and independent tribunal to hear the case. This is the most common form of investor-State arbitration. Other forms of arbitration include ad hoc arbitration and UNCITRAL arbitration. In ad hoc arbitration, the parties to the dispute agree on a tribunal to hear the case. This is often done through a treaty or contract between the parties. In UNCITRAL arbitration, the parties submit the case to a permanent arbitral institution, which has rules governing how it is constituted.
The most common form of this type of arbitration is administered by the International Centre for Settlement of Investment Disputes (ICSID).6
There are a number of different arbitration forums available to resolve investor-State disputes, including the International Centre for Settlement of Investment Disputes (ICSID), the World Bank's Tribunal for the International Bank for Reconstruction and Development (IBRD), the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, ad hoc arbitration, and investor-State dispute settlement provisions in free trade agreements. The most common is ICSID arbitration because it provides consistency and predictability to investors through a permanent tribunal11 which can be relied upon to consistently apply the rules.
As per the above analysis on law assignment it is conclude that investment treaties provide a wide range of protections to investors from expropriation and from breaches of other treaty obligations. It is important to note that the standards of protection vary significantly between treaties. The level of protection afforded by an international treaty depends upon a number of factors, including its subject matter, the negotiating history and the parties to the treaty12. The strongest protections are usually found in treaties with developed countries, where the parties have significant legal, political and economic capacity to enforce their rights. The weakest protections are normally found in treaties with developing or emerging economies, especially those that have less developed legal systems. Depending on the circumstances of the case, an investor may also be able to successfully bring a claim against the host State in the national courts.
(Database of Bilateral Investment Treaties | ICSID 2021)
2.(Bilateral Investment Treaties | United States Trade Representative 2021)
3. (Investment Treaties | italaw 2021)
4. (Mundi, Suez v. Argentina, Decision on Argentina’s Application for Annulment, 14 Dec 2018 2021)
5. (Investment Treaties | italaw2021)