Three parties in interest:
- Investor
- Home State
- Host State
Capital-exporting States
Home country of foreign investment
• Traditionally global “North” (e.g., North America and Western Europe)
• Increasingly BRICS, Middle East, Turkey, East Asia, Latin America
Capital-importing States
Host country of foreign investment
• Traditionally global “South” (e.g., Africa, Asia, Eastern Europe, Latin America)
Conflicting Positions Between Investor & Host
Host State
• Irrelevance of foreign laws and foreign courts
• Application of law of host state not necessarily favorable to host state
Investor
• Disputes to be submitted to international arbitration
• Applicable law: international law or general principles of law (in addition to law of host State)
• Application of rules of international law not always in investor’s favor
Basis of State’s ability to bring a claim:
“It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another state, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights – its right to ensure, in the person of its subjects, respect for the rules of international law.” – Mavrommatis Palestine Concessions case (1924)
International Minimum Treatment Standard
- Capital-exporting states – foreign nationals and their property are entitled under customary international law to a minimum standard of treatment
- “Each country is bound to give to nationals of another country in its territory the benefit of the same laws, the same administration, the same protection, and the same redress for injury which it gives to its own citizens, and neither more nor less: provided the protection which the country gives to its own citizens confirms to the established standard of civilization …. If any country’s system of law and administration does not conform to that standard of justice, although the people of the country may be content or compelled to live under it, no other country can be compelled to accept it as furnishing a satisfactory measure of treatment to its citizens.” – Elihu Root, Address to ASIL (1910)
Equality of Treatment Standard
The Calvo Doctrine:
- Foreign nationals entitled to no better treatment than host State nationals
- Rights of foreign nationals governed by host State law
- Exclusive jurisdiction of host State courts over disputes involving foreign nationals
General Assembly Resolution 1803 (XVII), Permanent Sovereignty over Natural Resources (1962), Paragraph 4
“Nationalization, expropriation or requisitioning shall be based on grounds or reasons of public utility, security or the national interest which are recognized as overriding purely individual or private interests, both domestic and foreign. In such cases the owner shall be paid appropriate compensation, in accordance with the rules in force in the State taking such measures in the exercise of its sovereignty and in accordance with international law. In any case where the question of compensation gives rise to a controversy, the national jurisdiction of the State taking such measures shall be exhausted. However, upon agreement by sovereign States and other parties concerned, settlement of the dispute should be made through arbitration or international adjudication.”
General Assembly Resolution 3281 (XXIX), Charter of Economic Rights and Duties of States (1974) Article 2, Section c
“Each State has the right . . . [t]o nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means.”
Under ICSID, private investors can escape:
- Traditional scheme of diplomatic protection
* National jurisdiction
Balanced provisions of ICSID:
Article 27(1) & Article 42(1)
Article 27(1) concerns
Diplomatic Protection:
“No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.”
Article 42(1) concerns
Applicable Law:
“The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute . . . and such rules of international law as may be applicable.”
Investment treaties bridge . . .
the substantive divides between the positions of capital-exporting and capital-importing States.
Investment treaties grant partnering nations:
• guarantees to qualifying foreign investors
• e.g. no expropriation without compensation;
guarantee of fair and equitable treatment; non-
discrimination protections
• the right to seek damages from the State through international arbitration
General structure of EU/OECD investment treaties:
BITs: Largely similar in structure to one another.
• Preamble
• Definitions (investment/investor)
• Core standards of protection:
• Fair and equitable treatment
• Non-discrimination (national treatment; most-favoured- nation treatment)
• Expropriation
• Free transfer of funds
• Investor-state arbitrationGeneral structure of investment treaties since 2004:
U.S. and Canada Model BIT revisions:
• Increasingly sophisticated, complex and lengthy
• Clarifying in greater detail the meaning of many standard investment protection clauses
• More emphasis on public policy concerns, such as protection of national security, health, the environment, financial stability, and labor rights
• Increasingly detailed dispute resolution provisions
Since 2004, international investment rules are increasingly being formulated as agreements that
- Encompass a broader range of issues (including trade, services, competition, intellectual property).
- Can be free trade agreements (FTAs) or agreements by other names, e.g., economic partnership agreements, economic cooperation agreements, etc.
