International Investment Law (10) ZHANG Jiao

BIT

Test How much do you know about the BIT ? Why are countries keen on signing BITs ? What are the main functions of BITs ?

The content of BITs Definition of investment and investor; Admission of foreign investors; Standards of treatment; Compensation in the event of expropriation; Methods of settling disputes.

BIT v. MFN

Differences in MFN clauses “(1) Neither Contracting State shall subject investments in its territory owned or controlled by investors of the other Contracting State to treatment less favourable than it accords to investments of its own investors or to investments of investors of any third State. (2) Neither Contracting State shall subject investors of the other Contracting State, as regards their activity in connection with investments in its territory, to treatment less favourable than it accords to its own investors or to investors of any third State.” “Investors of either Contracting State shall enjoy most-favoured-nation treatment in the territory of the other Contracting State in respect of the matters provided for in this Article.”

Differences in MFN clauses Netherlands Model BITUS-Chile FTA “(1) Each Contracting Party shall ensure fair and equitable treatment of the investments of nationals of the other Contracting Party and shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal thereof by those nationals. Each Contracting Party shall accord to such investments full physical security and protection. (2) More particularly, each Contracting Party shall accord to such investments treatment which in any case shall not be less favourable than that accorded either to investments of its own nationals or to investments of nationals of any third State, whichever is more favourable to the national concerned.” Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to investors of any non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investment in its territory.

Restrictions and exceptions on the MFN Regional economic integration; Matters of taxation; Subsidies or government procurement; Country exceptions; ……

Examples 1998 German Model BITDutch Model BIT “(3) Such treatment shall not relate to privileges which either Contracting State accords to investors of third States on account of its membership of, or association with, a customs or economic union, a common market or a free trade area. (4) The treatment granted under this Article shall not relate to advantages which either Contracting State accords to investors of third States by virtue of a double taxation agreement or other agreements regarding matters of taxation.” “(3) If a Contracting Party has accorded special advantages to nationals of any third State by virtue of agreements establishing customs unions, economic unions, monetary unions or similar institutions, or on the basis of interim agreements leading to such unions or institutions, that Contracting Party shall not be obliged to accord such advantages to nationals of the other Contracting Party”

International Commission Work on the MFN Granting State Third State Beneficiary State Basic treaty

International Commissin Work on the MFN The ejusdem generis principle: A MFN clause can only attract matters belonging to the same subject matter or the same category of subject as to which the clause relates. By the clause itself By the rights conferred by the granting States on the third State

Case: Maffezini v. Spain the Argentine investor Emilio Agustin Maffezini from Spanish entities, in connection with his investment in an enterprise for the production and distribution of chemical products in the Spanish region of Galicia. Spain objected to the tribunal’s jurisdiction since Mr. Maffezini had failed to comply with an exhaustion of local remedies requirements set forth in the Argentine-Spain BIT. Mr. Maffezini admitted that the dispute had not been referred to the Spanish courts prior to its submission to ICSID, but he argued that the MFN clause in the Argentine-Spain BIT would allow him to invoke Spain’s acceptance of ICSID arbitration contained in the Chile-Spain BIT and that none of the exceptions from MFN in the Argentine-Spain BIT applied to the dispute settlement provisions at issue in the case. “In all matters subject to this Agreement, this treatment shall be no less favourable than that extended by each Party to the investments made in its territory by investors of a third country.”

Erga Omnes Treaty-shopping Forum-shopping

Other Special Clauses

Stabilisation Clause Insulate foreign investors from any changes in the legal regime in the host country after the investment has been made. Require compensation for any interference by the host State that increases the costs of a project. Prevailing at the time the decision was taken by foreign investors to invest in the host countries.

Umbrella Clause Providing a blanket protection for foreign investment, including activities under a contract with a foreign investor. Once such activities are regarded as being covered by a BIT, then certain contractual undertakings to be governed by domestic law are liable to be elevated to international law obligations or enjoy protection under international law. Private law disputes v. public law disputes

Thinking … Most of the BITs contain no provisions designed to impose any obligations on foreign investors towards the host country. Preservation of the environment or the protection of human rights …

Balanced FTAs and BITs US-Singapore FTA: (a) The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact- based enquiry that considers, among other factors: (i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred; (ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and (iii) the character of the government action. (b) Except in rare circumstances, non-discriminatory regulatory action by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriation.

Balanced FTAs and BITs Environmental, Human rights, Other social impact assessments

Regulatory Measures to Protect the Environment Environmental Protection Profitability of Foreign Investment Control of pollution Discharge of chemicals Level of emission

Regulatory Measures to Protect the Environment International environmental law ‘polluter-pays’ principle Non-state actors World Charter for Nature The Draft Code of Conduct on Trans- national Corporations The OECD Guidelines of 2000 Jurisprudence

Regulatory Measures to Protect the Human Rights ILO Conventions Constitution of the ILO Convention Concerning Forced or Compulsory Labour 1949 Convention Concerning the Application of the Principles of the Right to Organise and to Bargain Collectively 1981 Convention Concerning Occupational Safety and Health and the Working Environment

Regulatory Measures in Pursuance of Social and Economic Objectives Economic sovereigntyThe right of states to economic self-determinationPermanent sovereignty over natural resources and wealthThe right to development

Thinking… Regulatory power of the State v. protection for foreign investment; Protection for foreign investment v. protection of environment, human rights, and other social and economic objectives