The Oxford Handbook of International Investment Law 9780199231386, 0199231389

Citation preview

the oxford handbook of

INTERNATIONAL INVESTMENT LAW

This page intentionally left blank

the oxford handbook of

INTERNATIONAL INVESTMENT LAW Edited by

PE T E R M UC H L I N S K I F E DE R IC O O RT I N O and

C H R I S T OPH S C H R E U E R

1

3

Great Clarendon Street, Oxford ox2 6dp Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide in Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Madrid Melbourne Mexico City Nairobi New Delhi Shanghai Taipei Toronto With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries Published in the United States by Oxford University Press Inc., New York © P Muchlinski, F Ortino, C Schreuer, 2008 The moral rights of the authors have been asserted Database right Oxford University Press (maker) Crown copyright material is reproduced under Class Licence Number C01P0000148 with the permission of OPSI and the Queen’s Printer for Scotland First published 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer British Library Cataloguing in Publication Data Data available Library of Congress Cataloging in Publication Data Data available Typeset by Newgen Imaging Systems (P) Ltd., Chennai, India Printed in Great Britain on acid-free paper by Antony Rowe, Chippenham ISBN 978–0–19–923138–6 1 3 5 7 9 10 8 6 4 2

Preface

This volume is the product of the work of the International Law Association’s Committee on the International Law on Foreign Investment. Its aim is to provide a representative overview of the most significant issues that arise in the field. The Committee first designed an outline of topics attempting to cover the various areas of international investment law as comprehensively as possible. These topics were then assigned to individual Committee members. Although each chapter is primarily the author’s responsibility the volume as a whole is very much a joint effort of the Committee. More than one third of the contributions were written jointly by two authors. (In some cases non-members of the Committee were invited to act as coauthors). Each paper was assigned to one or more readers who provided comments and suggestions on early drafts. Most papers were discussed at Committee meetings leading to further revisions by authors. Not surprisingly, the overall concept underwent revisions as the project developed. The final product offers thirty-one contributions in three major sections. These three sections address: (a) fundamental issues arising out of the nature, structure, sources and definitions of international investment law (including policy and objectives, applicable law and links to other areas of international law and international trade regulation); (b) substantive issues such as admission, standards of treatment, expropriation, taxation, most-favoured-nation (MFN), emergencies, insurance, corruption and corporate social responsibility; and (c) procedural issues mainly concerning the process of investor-state arbitration. Unlike international trade, foreign investments typically involve a longer term presence and exposure to influences and interferences by the host state’s authorities. The corresponding need for security has led to an elaborate system of protection that is contained in multilateral and bilateral treaties, in customary international law, in domestic statutes and in contracts between states and foreign investors. The case law of arbitral tribunals has also contributed substantially to the development of the law in this field. Investors and host states share a mutual interest in this legal framework. The investor looks for the stability and certainty that will permit rational business planning and will protect the investment, once made, from adverse interferences of a political nature. Host states, eager to attract investments seek to project an image of security and predictability. As an arbitral tribunal once put it: ‘to protect investments is to protect the general interest of development and of developing countries.’1 The 1 Amco v Indonesia, Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 389, at para 23.

vi

Preface

host state’s advantages from international investment law are not merely economic. Standards of due process and good governance required for foreign investment may spill over into domestic law and may set new standards also for the domestic legal system. In addition, settlement of disputes through investor-state arbitration is likely to improve the political climate between the states concerned. It averts diplomatic protection by states on behalf of their nationals, a source of frequent friction between states in the past. The traditional dichotomy between industrialised countries as home states of investors and developing countries as host states of investments has been overtaken by developments. This is demonstrated by the growing number of bilateral investment treaties between developing countries. More and more countries are becoming aware of their dual role as recipients of foreign investments and as home countries of investors acting abroad. Thus the recent treaty practice of the United States shows signs of a shift toward positions protecting its interest as a recipient of foreign investments. In turn, the PR China has changed its treaty practice towards a more effective protection of its investors abroad. Therefore, the once clearly competing interests of different states are converging. What this means for the future development of international investment law is not entirely clear. While the number of treaties is growing apace, there are also increasing voices of criticism that point to the unbalanced nature of first generation agreements. These criticisms arise on two main levels. First, it is only the host country that carries binding obligations towards investors under existing treaties. There is no reciprocal requirement for the investor to carry responsibilities. Nor is the home country required to act in any particular way. Thus the existing regime is seen by some as privileging investors over host countries. Secondly, international investment arbitration has been criticised for being non-transparent, inconsistent, unreliable and unpredictable, often leading to very large awards against host countries that may be developing or transitional countries barely able to afford such financial burdens. In addition the legitimacy of an internationalised system of dispute settlement has been questioned by reason of its carrying significant powers of review of national administrative action, but which is not subject to full systems of accountability and appeal, as is the case with a system of judicial tribunals. Both of these criticisms are addressed throughout the volume, though, as will be apparent, different authors have taken different positions on them. In this, the volume reflects the ongoing debates about the direction and evolution of the system of international investment law, as well as providing guidance upon some of the more technical substantive and procedural legal issues currently before arbitral tribunals. The editors are indebted to John Louth of Oxford University Press who has given invaluable support to this project. Special thanks go to Borzu Sabahi who has prepared the bibliographies and table of cases. PM FO CS

Contents

Table of Cases Table of International Treaties and Conventions Table of Rules and Resolutions Table of Legislation List of Contributors

xi xxxiii lvi lix lxiii

PA R T I F U N DA M E N TA L I S S U E S 1. Policy Issues

3

Peter Muchlinski

2. Investment, Investor, Nationality, and Shareholders

49

Engela C Schlemmer

3. Applicable Law

89

Ole Spiermann

4. Multilateral Investment Rules Revisited

119

Stefan D Amarasinha and Juliane Kokott

5. Interactions between Investment and Non-investment Obligations

154

Moshe Hirsch

6. Trade and Investment

182

Friedl Weiss

PA R T I I S U B S TA N T I V E I S S U E S 7. Admission and Establishment Ignacio Gómez-Palacio and Peter Muchlinski

227

viii

contents

8. Standards of Treatment

259

Todd J Grierson-Weiler and Ian A Laird

9. Coverage of Taxation under Modern Investment Treaties

305

Thomas W Wälde and Abba Kolo

10. Most-Favoured-Nation Treatment

363

Pia Acconci

11. Expropriation

407

August Reinisch

12. Emergency Exceptions: State of Necessity and Force Majeure

459

Andrea K Bjorklund

13. Investment Insurance

524

Andreas R Ziegler and Louis-Philippe Gratton

14. State Responsibility and Attribution

549

Kaj Hobér

15. Corruption

584

Hilmar Raeschke-Kessler and Dorothee Gottwald

16. Regulatory Transparency

617

Akira Kotera

17. Corporate Social Responsibility

637

Peter Muchlinski

PA R T I I I PRO C E DU R A L I S S U E S 18. Methods of Dispute Resolution

691

August Reinisch and Loretta Malintoppi

19. Procedural Transparency

721

Joachim Delaney and Daniel Barstow Magraw

20. Independence, Impartiality, and Duty of Disclosure of Arbitrators Loretta Malintoppi

789

contents

21. Consent to Arbitration

ix

830

Christoph Schreuer

22. Jurisdiction and Admissibility

868

David AR Williams QC

23. The Jurisdictional Threshold of a Prima-Facie Case

932

Audley Sheppard

24. The Relationship between International Tribunals and Domestic Courts

962

Jacomijn J van Haersolte-van Hof and Anne K Hoffmann

25. Parallel Proceedings

1008

Katia Yannaca-Small

26. Compensation, Damages, and Valuation

1049

Thomas W Wälde and Borzu Sabahi

27. Review of Awards

1125

Vladimír Balaš

28. An Appellate System in International Investment Arbitration?

1154

Asif H Qureshi

29. Compliance and Enforcement

1171

Alan S Alexandroff and Ian A Laird

30. A Doctrine of Precedent?

1188

Christoph Schreuer and Matthew Weiniger

31. Tribunal’s Powers versus Party Autonomy

1207

Giuditta Cordero Moss

Index

1245

This page intentionally left blank

Table of Cases

DE C I SIONS OF I N T E R NAT IONA L C OU RT S A N D T R I BU NA L S International Arbitrations Access to Information under the OSPAR Convention (Ireland v United Kingdom) 126 ILR 334 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1193 Administration of Posts and Telegraphs of Czechoslovakia v Radio Corporation of America, Award, 1932, (1936) 30 AJIL 523 . . . . . . . . . . . . . . . . 95 Alsing Trading Company Ltd v Greece, Award, 22 December 1954, 23 ILR 633 . . . . . . . . 95 Ambatielos Case (Greece v United Kingdom) Award, 6 March 1956, UNRIAA, 1963, vol XII 107 . . . . . . . . . . . . . . . . . . 389, 392, 397, 400 Merits: obligation to arbitrate, Judgment of 19 May 1953, ICJ Reports 1953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .935, 937, 949, 972 American Bottle Company (US v Mexico) (1929) 4 RIAA 435 . . . . . . . . . . . . . . . . . . . . . 1024 American Independent Oil Company (Aminoil) v Government of State of Kuwait, 21 ILM 976 (1982) . . . . . . . . . . . . . . . . . . . . .1062, 1067, 1074, 1089, 1097, 1100, 1104, 1107, 1114, 1116 American International Group v Islamic Republic of Iran, Award No 93-2-3, 19 December 1983. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408 Arbitral Award made by the King of Spain (Honduras v Nicaragua), 23 December 1906 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1015 BP v Libya Award, 10 October 1973, 53 ILR 300 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92, 93, 99, 101, 712 Decision on Competence, 1 August 1974, 53 ILR 375 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Bechtel Enterprises International v Overseas Private Investment Corporation, American Arbitration Association, No. 50 T195 00509 02, 3rd September 781, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 Beta International Corp v Alpha International SA, Award, 1989, ASA Bulletin 239 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 608 Biederman v Kazakhstan, unpublished . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1076, 1079, 1117 Biloune and Marine Drive Complex Ltd v Ghana Investments Centre and the Government of Ghana, UNCITRAL ad hoc Tribunal, Award on Jurisdiction and Liability, 27 October 1989, 95 ILR 183 . . . . . . . . . . . . . . .159, 174, 415, 427, 428, 446, 453, 1076, 1079 Bogdanov v Moldova, SCC, Award, 22 September 2005 . . . . . . . . 1089, 1096, 1117, 1231, 1236 Bridas SAPIC v Government of Turkmenistan, Case No. 9058/FMS/KGA, 21 October 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 916, 1096

xii

TABLE OF CASES

Canadian Cattlemen for Fair Trade v US . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727 Canfor Corp v United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746, 801, 802, 1035, 1036, 1037, 1039, 1040, 1041, 1042, 1044 Channel Tunnel Group and France-Manche v United Kingdom and France, Partial Award, 30 January 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112, 174 Claude Reymond Award . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 604 CME Czech Republic SA v Czech Republic Partial Award, 13 September 2001 . . . . . . . . . . . . . . . . . . . . . . . . .114, 343, 415, 426, 452, 453, 711, 995, 1000, 1011, 1091, 1197 Final Award, 14 March 2003 . . . . . . . . . . . . . . . . . . 66, 92, 106, 114, 270, 283, 434, 567, 568, 735, 847, 875, 914, 1009, 1011, 1015, 1018, 1019, 1020, 1022, 1024, 1033, 1051, 1055, 1060, 1069, 1071, 1077, 1084, 1094, 1107, 1117, 1138, 1139, 1140, 1142, 1199, 1216 Court of Appeal Judgment, 15 May 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 Company Z v State Organisation ABC, Award, April 1982, (1983) 8 Yearbook of Commercial Arbitration 94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97, 100 Dorner claim (1954) 21 ILR 164 (1954) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1076, 1094 EnCana v Ecuador, Award, 3 February 2006 . . . . . . . . . . . . . . 91, 113, 268, 307, 331, 340, 344, 348, 349, 350, 351, 354, 356, 709, 916, 1097, 1192 Ethyl Corporation v Canada, 24 June 1998, Jurisdiction Phase, UNCITRAL, 38 ILM 708 (1999) . . . . . . . . . . . . . . . 143, 431, 844, 845, 862, 914, 944, 1197 Eureko v Poland, Partial Award, 19 August 2005, 12 ICSID Reports 335 . . . . . . . . . . 107, 420, 432, 450, 451, 453, 570, 711, 806, 807, 825, 841, 863, 919, 967, 973, 977, 980, 984, 1031, 1090, 1197, 1237 Forests of Central Rhodope (Merits) 3 RIAA 1405 (1933) . . . . . . . . . . . . . . . . . . . . . . 469, 479 French Company of Venezuelan Railroads Case (France v Venezuela) 10 RIAA 285 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .465, 479, 517 GAMI Investments Inc v United Mexican States, Final Award, 15 November 2004 . . . . . . . . . . . . . . . . . . . . .83, 86, 274, 710, 797, 914, 994, 1101, 1102, 1111 Grand Rivers Enterprises Six Nations Ltd v US, Decision on Jurisdiction, 20 July 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1192 Himpurna v PLN, Award, 4 May 1999, 25 YB Comm Arb 11 (2000) . . . . . . . . . . . . . . . . . . . . .586, 592, 594, 597, 598, 604, 1098, 1099, 1105, 1117 International Bank of Washington v OPIC, 11 ILM 1216 (1972) . . . . . . . . . . . . . . . . . . . . . . 175 International Thunderbird Gaming v Mexico, Award, 26 January 2006. . . . . . . . . . . . . . . .176, 275, 298, 337, 343, 354, 710, 914, 1064, 1088, 1089 Jaffa-Jerusalem Railway Arbitration 1922 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1077 Jalapa Railroad and Power Co., American-Mexican Claims Commission, 1948, 8 Whiteman Digest of International Law 908 (1976) . . . . . . . . .418 Kügele v Polish State (1932) 6 ILR 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .347, 348, 349 Kuwait v Aminoil, Award, 24 March 1982, 66 ILR 529 . . . . . . . . . . . . . . . . . . . . . 101, 448, 711 LAFICO v Burundi 96 Int’l L Rep. 279 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474, 502 Lauder v Czech Republic, Final Award, 3 September 2001 . . . . . . . . . 444, 567, 711, 735, 844, 850, 914, 995, 996, 1009, 1011, 1020, 1027, 1033, 1091, 1094, 1138, 1197 Lena Goldfields Arbitration, 5 Annual Digest 3 (1930) . . . . . . . . . . . . . . . . . . . 93, 97, 712, 753 Liamco v Libya, Award, 12 April 1977, 62 ILR 145 . . . . . . . . . . . . . . 92, 99, 100, 712, 1104, 1118 Martini Case (Italy v Venezuela), 3 May 1930, 2 RIAA (194). . . . . . . . . . . . . . . . . . . . . . . . .718

TABLE OF CASES

xiii

Methanex v United States Decision on Petitions from Third Persons to Intervene as Amici Curiae, 15 January 2001 . . . . . . . . . . . . . . . . . 736, 738, 745, 746, 748, 749, 760, 762, 771, 773, 778, 779, 781, 782, 784 Partial Award, 7 August 2002 . . . . . . . . . . 147, 260, 348, 863, 920, 944, 945, 949, 973, 1102 Application of Non-disputing Parties for Leave to File a Written Submission, 9 March 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 748 Final Award, 3 August 2005, 44 ILM 1345 (2005) . . . . . . . . . . . . 170, 215, 415, 437, 438, 449, 451, 640, 710, 732, 733, 743, 871, 914, 921, 922, 1201 Morris v OPIC, Award, 3 December 1987, 27 ILM 487 (1987) . . . . . . . . . . . . . . . . . . . . . . . .332 Mox Plant Case (Ireland v UK) Request for Provisional Measures, ITLOS, Case No. 10, 3 December 2001 . . . . . . . . . 1018 Order of 3 December 2001, 41 ILM (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .405 1018, 1193 Myers (SD) Inc v Canada, UNCITRAL, Award of 12 November 2000, 40 ILM 1408 (2001) . . . . . . . . . . . . . . . .80, 147, 163–166, 168, 169, 173, 174, 175, 177, 213, 215, 232, 261, 266, 271, 282, 292, 293, 294, 297, 300, 415, 433, 437, 441, 443, 455, 631, 671, 673, 727, 800, 801, 1063, 1069, 1078, 1084, 1085, 1086, 1087, 1094, 1118 Second Partial Award, October 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1058 North American Dredging Co (USA v Mexico) (1926) 4 UN Rep 26 . . . . . . . . . . . . . . . . 999 Nykomb Synergistics Technology Holding AB v Latvia, Award, 16 December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . 287, 288, 289, 290, 341, 441, 564, 565, 580, 709, 847, 1084, 1085, 1090, 1093, 1096, 1103, 1118 Occidental Exploration and Production Company v Republic of Ecuador, Award, 1 July 2004. . . . . . . . . 106, 112, 113, 114, 275, 278, 280, 283, 285, 307, 329, 330, 331, 338, 339, 340, 346, 349, 356, 388, 436, 440, 708, 844, 850, 916, 1084, 1088, 1107, 1118 Petrobart Limited v The Kyrgyz Republic, Arbitration Institute of the Stockholm Chamber of Commerce, Arb No. 126/2003, Award 29 March 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .442, 709, 844, 912, 913, 1061, 1087, 1118 Pope & Talbot v Canada Award on Motion to Dismiss, 26 January 2000 . . . . . . . . . . . . . . . 944, 955, 956, 958, 1084 Interim Award, 26 June 2000 . . . . . . . . . . . . . . . . . . . . . . . . 213, 267, 414, 415, 426, 440, 455 Award on the Merits of Phase 2, 10 April 2001 . . . . . . . . . 213, 214, 232, 291, 292, 293, 294, 295, 296, 350, 351, 353, 383, 632 Award on Damages, 31 May 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176, 285, 384, 1113, 1118 Revere Copper and Brass Inc v Overseas Private Investment Corporation, Award, 24 August 1978, 56 ILR 261. . . . . . . . . . . . . . . . . . 99, 337, 348, 439, 451, 452, 1100 Rudloff Case, US-Venezuelan Claims Commission, Interlocutory Decision, 9 RIAA 244 (1903) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 Ruler of Qatar v International Marine Oil Company Ltd, Award, June 1953, 20 ILR 534 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Russian Indemnity Case, XI RAA 434 (1912). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500, 501, 507 Saluka v Czech Republic Jurisdiction over Counterclaims, 7 May 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1098

xiv

TABLE OF CASES

Partial Award, 17 March 2006 . . . . . . . . . . . .170, 176, 261, 262, 268, 269, 272, 275, 282, 283, 285, 287, 288, 289, 290, 300, 432, 433, 437, 438, 482, 631, 634, 709, 735, 900, 915, 1084, 1088, 1089, 1142 Sapphire v NIOC, Award, 15 March 1963, 35 ILR 136 . . . . . . . . . . . . . . . . . .93, 96, 97, 273, 712 Saudi Arabia v Aramco, Award, 23 August 1958, 27 ILR 117 . . . . . . . . . . . . . . . .93, 96, 97, 712 Sedelmayer v Russian Federation, Award, 7 July 1998 . . . . . . . . . . . . . . . .408, 996, 1118, 1173, 1177, 1182–1185 Shufeldt Claim, Award, 24 July 1930, 2 RIAA 1079 . . . . . . . . . . . . . . . . . . . . . . . . . . . .418, 1093 Société Rialet v Ethiopia, Award, 15 January 1929 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 SwemBalt v Latvia, Award, 23 October 2000 . . . . . . . . . . . . . . . . . . . . . . . 110, 1119, 1211, 1234 Texaco v Libya Preliminary Award, 27 November 1975, 53 ILR 393 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Award, 19 January 1977, 53 ILR 420 . . . . . . . . . . . . . . . . . . . . . . . . . . . 92, 99, 1057, 1058, 1068 Trail Smelter Arbitration (US v Canada) (1938, 1941) 3 RIAA 1905 . . . . . . . . . . . . . 669, 1016 Turiff Construction (Sudan) Ltd v Government of the Republic of Sudan (PCA Arbitration) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 710 United Parcel Services of America, Inc v Canada Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction, 5 January 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744, 745, 953 Decision re Amicus Intervention, 17 October 2001 . . . . . . . . . . . . . .736, 737, 738, 744, 745, 746, 750, 760, 761, 771, 784 Award on Jurisdiction, 22 November 2002 . . . . . . . . . . . . . . . . . . . 944, 945, 949, 973, 1201 USA (LF Neer) v Mexico (Neer Claim) (1927) AJIL 555 . . . . . . . . . . . . . . . . . . . . . . . . . 24, 269 US–Trucking, USA-MEX-98-208-01, 6 February 2001 . . . . . . . . . . . . . . . . . . . . 292, 294, 297 Wintershall AG v Qatar, Partial Award, 5 February 1988, (1989) 28 ILM 795 . . . . . . 106, 711 Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar ASEAN Case No. ARB/01/1 31 March 2003, 42 ILM 540 (2003) . . . . . . . . . . . . . . . . . . . . . . . . . . 54, 58, 65, 380, 398, 847 International Centre for the Settlement of Investment Disputes (Decisions and Awards of ICSID Tribunals including cases under the Additional Facility procedure) AES Corporation v Argentina, Decision on Jurisdiction, 26 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65, 844, 847, 865, 874, 875, 890, 894, 967, 1193, 1194, 1195 AGIP SPA v People’s Republic of the Congo ICSID Case No. ARB/77/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 95, 337 AMT v Zaire ICSID Case No. ARB/93/1, Award of 21 February 1997, 36 ILM 1531 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26, 55, 837, 1063 AMCO Asia Corp, Pan American Development Ltd v Indonesia, ICSID Case No. ARB/81/1 Decision on the Proposal to Disqualify an Arbitrator, 24 June 1982 . . . . . . . . . . . 794, 795 Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 389 . . . . . . . . . . . . . . . . . . . . . . . 63, 77, 832, 861, 862, 895, 896, 897, 942, 947, 955, 1019, 1116, 1191 Decision on Request for Provisional Measures, 9 December 1983, 1 ICSID Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410 759 Award, 20 November 1984, 1 ICSID Reports 413 . . . . . . . . . . . . . . . . . . . . . . . .114, 432, 443

TABLE OF CASES

xv

Annulment Decision, 16 May 1986, 1 ICSID Reports 509 . . . . . . . . . . . .100, 104, 700, 847, 1138, 1139, 1146, 1147, 1148, 1191 Decision on Jurisdiction, 10 May 1988, 3 ICSID Rev-FILJ 166 (1988), 27 ILM 1281 (1988), 89 ILR 552 . . . . . . . . . . . . . . . . 324, 1016, 1072, 1091, 1094 Award No. 2, 31 May 1990, 1 ICSID Reports 569 . . . . . . . . . . . . . . . . . . . . . . . . . .96, 105, 273 Second Annulment Decision, 19 December 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . 1146, 1149 ADF Group, Inc v United States of America, Final Award, 9 January 2003, ICSID Rev-FILJ 195 (2003) . . . . 270, 271, 292, 294, 384, 385, 705, 1201 Adriano Gardella SpA v Government of Ivory Coast ICSID Case No. ARB/78/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 ADT v Hungary ICSID Case No. ARB/03/16, Award, 2 October 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109, 112, 351, 843, 1116 Aguas Argentinas, SA, Suez, Sociedad General de Aguas de Barcelona SA and Vivendi Universal v Argentine Republic ICSID Case No. ARB/03/19 Decision on the Challenge to the President of the Committee, 17 ICSID Rev-FILJ (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796, 964, 965, 1038 Decision on Jurisdiction, 3 August 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .848, 1198 Order in Response to a Petition by Five Non-governmental Organizations for Permission to Make an Amicus Curiae Submission, 2 February 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .771, 785, 786 Order in Response to a Petition for Transparency and Participation as Amicus Curiae, 19 May 2005 . . . . . . . . . . .732, 733, 748, 749, 756, 762, 771, 773, 774, 778, 779, 780, 781, 783, 784 Aguas Cordobesas, SA, Suez and Sociedad General de Aguas de Barcelona, SA v Argentine Republic ICSID Case No. ARB/03/18 . . . . . . . . . . . . . . .1038 Aguas Del Tunari v Bolivia ICSID Case No. ARB/02/3, 29 August 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .781 Decision on Jurisdiction, 21 October 2005 . . . . . . . . . . . 863, 894, 897–901, 984, 985, 1199 Aguas Provinciales de Santa Fe, SA, Suez, Sociedad General de Aguas de Barcelona, SA ICSID Case No. ARB/03/17 . . . . . . . . . . . . . . . . . . . . . . .1038 AIG v Kazakhstan ICSID Case No. ARB/01/6, 7 October 2003 (not published). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1079, 1116, 1177, 1181–1182 Alcoa Minerals of Jamaica/Kaiser Bauxite Company/Reynolds Jamaica Mines and Reynolds Metals Company v Government of Jamaica ICSID Case No. ARB/74/2, 3 & 4 . . . . . . . . . . . . . . . . . . 63, 878 Alemanni v Argentine Republic ICSID Case No. ARB/07/8 . . . . . . . . . . . . . . . . . . . . . . . .519 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc v United Mexican States ICSID Case No. ARB (AF)/04/5, Order of the Consolidation Tribunal, 20 May 2005 . . . . . . . . . . . . . . . . . . . . . . . . 307, 1036, 1043, 1044 Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka ICSID Case No. ARB/87/3, Award, 27 June 1990, 30 ILM 577 (1991) . . . . . . . .26, 40, 85, 108, 110, 115, 252, 298, 372, 382, 837, 1067, 1073, 1074, 1079, 1116 Atlantic Triton Company Ltd v The Republic of Guinea ICSID Case No. ARB/84/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Autopista Concesionada de Venezuela CA v Bolivarian Republic of Venezuela ICSID Case No. ARB/00/5 Decision on Jurisdiction, 27 September 2001 . . . . . . . . . . . . . . . . . . . . . 66, 77, 79, 110, 856, 1073, 1076, 1107, 1117

xvi

TABLE OF CASES

Award, 23 September 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105, 110, 115 Azinian v Mexico, Award, 1 November 1998, 5 ICSID Reports 272 . . . . . . 114, 705, 797, 1029 Azurix Corporation v Argentine Republic ICSID Case No. ARB/01/12 Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494 . . . . .115, 797, 798, 806, 1027 Decision on Jurisdiction, 8 December 2003 . . . . . . . . . . . . .82, 83, 172, 844, 850, 865, 946, 949, 967, 984, 995, 999, 1024, 1096, 1117 Award, 14 July 2006 . . . . . . . . . . . . . . . . 111, 268, 283, 288, 300, 409, 419, 438, 442, 450, 581, 890, 1071, 1083, 1086, 1103, 1111, 1192 Banro American Resources Inc and Société Aurifère du Kivy et du Maniema SARL v Democratic Republic of the Congo ICSID Case No. ARB/98/7, Award, 1 September 2000, 17 ICSID Rev-FILJ 362 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 918, 919, 1013 Bayindar v Pakistan, Decision on Jurisdiction ICSID Case No. ARB/03/29, Decision on Jurisdiction, 14 November 2005 . . . . . . . . . . . . . . .65, 67, 111, 385, 844, 950, 967, 972, 973, 1195 Beccara v Argentine Republic ICSID Case No. ARB/07/5. . . . . . . . . . . . . . . . . . . . . . . . . . .519 Benvenuti & Bonfant v People’s Republic of the Congo ICSID Case No. ARB/77/2, Award, 8 August 1980. . . . . . . . . . . . 63, 428, 454, 874, 1019, 1023, 1024, 1117, 1176, 1177, 1178, 1179 CAA and CGE v Argentina, Award, 21 November 2000, 5 ICSID Reports 406 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106, 108 CDC v Seychelles Award, 17 December 2003, 11 ICSID Reports 211 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Annulment Decision, 29 June 2005, ICSID Reports 237 . . . . . . . . . . . . . . . . . . . . . .100, 701 CMS Gas Transmission Co v Argentina ICSID Case No. ARB/01/8 Decision of the Tribunal on Objections to Jurisdiction of 17 July 2003, 42 ILM 788 (2003) . . . . . . . . . . . . . . . . . . . . . . 83, 85, 115, 844, 850, 866, 927, 946, 949, 984, 995, 999, 1012, 1077, 1101 Award, 20 April 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .382, 1058, 1064, 1074, 1083, 1086, 1087, 1088, 1098, 1099, 1105, 1112 Award, 12 May 2005, 44 ILM 1205 (2005) . . . . . . .29, 109, 110, 112, 275, 283, 332, 426, 440, 462, 463, 464, 474, 475, 478, 479, 480, 481, 482, 484, 485, 486, 487, 488, 489, 490, 491, 492, 493, 494, 503, 504, 508, 512, 514, 515, 521, 841, 966, 978, 982, 1197, 1198 Decision on Annulment, 25 September 2007 . . . . . . . 115, 462, 489, 494, 495, 498, 512, 521 Cable TV v St. Kitts and Nevis, Award, 13 January 1997, 5 ICSID Reports 108 862, 905 Camuzzi International SA v Argentine Republic ICSID Case No. ARB/03/2, Decision on Jurisdiction, 11 May 2005 . . . . . . . . . . . . . .83, 115, 396, 837, 865, 967, 1038 Casado and President Allende Foundation v Republic of Chile ICSID Case No. ARB/98/2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799, 800 CDSE v Costa Rica, Award, 17 February 2000, 5 ICSID Reports 157 . . . . . . . . . . . . . . . . . .110 Ceskoslovenska Obchodni Banka AS (CSOB) v Slovak Republic ICSID Case No. ARB/87/4 Decision on Jurisdiction, 24 May 1999, 14 ICSID Rev-FILJ 251 (1999). . . . . . . . 64, 65, 66, 115, 400, 832, 862, 865, 872, 874, 877, 878, 1102, 1113, 1117 Decision, 1 December 2000, 5 ICSID Reports 358 . . . . . . . . . . . . . . . . . . . . . . . . . . 114, 400

TABLE OF CASES

xvii

Award, 29 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115, 116, 352, 1051 Champion Trading Company v Arab Republic of Egypt ICSID Case No. ARB/02/9, Decision on Jurisdiction, 21 October 2003 . . . . . . . . 72, 73, 74, 86, 291, 294, 297, 850, 886, 887, 889, 997 Colt Industries Operating Corp, Firearms Div v The Government of the Republic of Korea ICSID Case No. ARB/84/2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Compania de Aguas del Aconquija SA (CAA) and Vivendi Universal v Argentine Republic ICSID Case No. ARB/97/3 Award, 21 November 2000, 40 ILM 426 (2001) . . . . . . . . . . . . . . . . 572, 573, 574, 806, 849 Decision on Annulment, 3 July 2002 . . . . . 84, 85, 91, 107, 108, 114, 572, 701, 838, 850, 965, 966, 967, 968, 969, 973, 1138, 1146, 1152, 1197, 1210, 1241 Decision on Jurisdiction, 14 November 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1192 Award, 20 August 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109, 110, 114 Continental Casualty v Argentina ICSID Case No. ARB/03/9, Decision on Jurisdiction, 22 February 2006 . . . . . . . . . . . . . . . . . .396, 844, 951, 952, 961 Corn Products International, Inc v United Mexican States, Order of the Consolidation Tribunal, 20 May 2005 . . . . . . . . . . . . 307, 1036, 1043, 1044 Duke Energy International Peru Investment No. 1 Ltd v Republic ICSID Case No. ARB/03/26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798, 863 EDF International SA, SAUR International SA & Léon Participations Argentinas SA v Argentina ICSID Case No. ARB/03/23 . . . . . . . . . . . . . . . . . . . . . .1038 El Paso International Company v Argentina ICSID Case No. ARB/03/3, Decision on Preliminary Objections, 27 April 2006 . . . . . . .330, 339, 340, 352, 837, 841, 842, 844, 863, 952, 979, 980, 981, 982, 983, 1031, 1192, 1197 Electricidad Argentina, SA & EDF International SA v Argentina ICSID Case No. ARB/03/2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1038 Enron Corporation and Ponderosa Assets LP v Argentine Republic ICSID Case No. ARB/01/3 Decision on Jurisdiction, 14 January 2004, 11 ICSID Reports 273 . . . . . . . . . . . . .846, 850, 865, 1101, 1102, 1192, 1197 Decision on Jurisdiction, (Ancillary Claim), 2 August 2004 . . . . . . . . . . . 82, 85, 307, 319, 330, 331, 340, 967, 1027, 1102, 1193 Award, 22 May 2007 . . . . . . 109, 110, 462, 464, 474, 475, 480, 481, 483, 484, 486, 489, 491, 492, 493, 495, 496, 498, 499, 503, 504, 505, 512, 521 Fedax NV v Venezuela ICSID Case No. ARB/96/3 Award on Jurisdiction, 11 July 1997, 37 ILM 1378 (1998) . . . . . . . . . . . . . . 55, 65, 67, 68, 873, 876, 877, 878, 882, 913 Award, 9 March 1998, 37 ILM 1391 (1998), 5 ICSID Reports 200 (2002) . . . . . . . .974, 980, 1030, 1090, 1102, 1117 Feldman (Karpa) v Mexico ICSID Case No. ARB/99/1, Award, 16 December 2002 . . . .186, 292, 294, 295, 297, 307, 328, 346, 348, 350, 351, 425, 430, 434, 435, 436, 438, 441, 447, 705, 886, 887, 1084, 1085, 1107, 1117, 1191 Fireman’s Fund Insurance Company v Mexico, Decision on Jurisdiction, 17 July 2003, ICSID Reports 214 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112, 332 Fraport v Philippines, Award, 16 August 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112, 114, 115 Gas Natural SDG, SA v Argentina ICSID Case No. ARB/03/10, Decision on Preliminary Questions on Jurisdiction, 17 June 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 386, 393, 394, 847, 848, 853, 1192, 1195, 1198

xviii

TABLE OF CASES

Generation Ukraine, Award, 16 September 2003, ICSID Reports 240 . . . . . . . . . . . 112, 427, 432, 446, 449, 837, 844, 847, 856, 859, 1000, 1064, 1111 Genin, Eastern Credit Limited Inc and AS Baltoil v Republic of Estonia ICSID Case No. ARB/99/2, Award, 25 June 2001, 17 ICSID Rev-FILJ 395 (2002) . . . . . . . . . . . . . . 85, 634, 849, 999, 1027 Goetz v Republic of Burundi ICSID Case No. ARB/95/3, Award, 10 February 1999, 2001 6 ICSID Reports 5 . . . . . . . . . . . . . . . . . . . 85, 110, 307, 349, 454, 455, 845, 919, 1059, 1061, 1062, 1088, 1117, 1197, 1222 Gruslin v Malaysia, ICSID Award, 27 November 2000, ICSID Reports 483. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332, 843, 1146, 1147 Guadeloupe v Nigeria ICSID Case No. ARB/78/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Helnan International Hotels A/S v Arab Republic of Egypt ICSID Case No. ARB/05/19, Decision on Jurisdiction, 17 October 2006 . . . . . . . . . . . . . . . 859 Holiday Inns/Occidental Petroleum v The Government of Morocco ICSID Case No. ARB/72/1 63, Decision on Jurisdiction, 12 May 1974 . . . . . . . . . . . . . . . . . . . . . . . . . 337, 795, 833, 856, 884, 895, 1102 IBM World Trade Corporation v Ecuador ICSID Case No. ARB/02/10, Decision on Jurisdiction, 22 December 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973 Impregilo SpA v Pakistan ICSID Case No. ARB/03/3, Decision on Jurisdiction, 22 April 2005 . . . . . . . .398, 420, 442, 576, 577, 580, 837, 859, 924–927, 950, 951, 955, 960, 969, 970, 971, 982 Inceysa Vallisoletana v El Salvador ICSID Case No. ARB/03/26 Decision on Jurisdiction, 2 August 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57, 114 Award, 2 August 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111, 835, 863 Industrie National de Alimentos v Peru, Decision on Annulment, 5 September 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 Interagua Servicios Integrales de Agua, SA v Argentine Republic ICSID Case No. ARB/03/17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1038 Jan de Nul NV Dredging International NV v Arab Republic of Egypt ICSID Case No. ARB/04/13, Decision on Jurisdiction, 16 June 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66, 858, 865, 967, 973, 1192 Joy Mining Machinery Limited v The Arab Republic of Egypt ICSID Case No. ARB/03/11, 6 August 2004, 44 ILM 73 (2005); settled 16 December 2005. . . . . . . . . . . . . . . . . . . . 65, 67, 68, 695, 727, 840, 879, 948, 955, 961, 967, 975, 1031, 1197 Kaiser Bauxite Company v Jamaica ICSID Case No. ARB/74/36, Decision on Jurisdiction, 6 Jul 1975 ICSID Reports 296 (1993) . . . . . . . . . . . . . . . . . . 77 Kardassopoulos v Georgia ICSID Case No. ARB/05/18), Decision on Jurisdiction, 6 July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112, 115, 953 Klo˝ckner Industrie Anlagen GmbH v The United Republic of Cameroon and Société Camerounaise des Engrais (SOCAME), ICSID Case No. ARB/81/2 Award, 21 October 1983 . . . . . . . . . . . . . . . . . . . . . . . . 64, 91, 92, 103, 104, 105, 833, 895, 904, 1019, 1102, 1138, 1146, 1148, 1149, 1233 Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 . . . . . . . . . . . . . . . 104, 274, 700, 1146, 1147, 1149, 1191, 1210, 1237 LESI v Algeria ICSID Case No. ARB/05/03 Decision on Jurisdiction, 10 January 2005 . . . . . . . . . . . . . . . . . . . . . . . . . 68, 112, 844, 1031 Award, 10 January 2006, 19 ICSID Rev-FILJ 426 (2005) . . . . . . . . . . . . . . . . . 106, 967, 976

TABLE OF CASES

xix

LG&E Energy Corporation v Argentina ICSID Case No. ARB/02/1 Decision on Objection to Jurisdiction, 30 April 2004 . . . . . . . . . . . . . . . . . . . 769, 844, 850 Decision on Liability, 3 October 2006 . . . . . . 29, 82, 109, 267, 275, 276, 283, 287, 288, 298, 300, 462, 463, 464, 474, 475, 480, 481, 483, 484, 485, 487, 489, 491, 492, 493, 496, 497, 498, 503, 504, 507, 508, 509, 513, 842, 1031, 1098, 1099, 1198 Damages Award, 25 July 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514, 515, 520 Lanco v Argentina ICSID Case No. ARB/97/6, Decision on Jurisdiction, 8 December 1998, 40 ILM 457 (2000) . . . . . . . . . . . . . . . . . . . 84, 85, 847, 984, 1000, 1012 Lemire v Ukraine ICSID Case No. ARB(AF)/98/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1117, 1118 Liberian Eastern Timber Corp (LETCO) v The Government of the Republic of Liberia ICSID Case No. ARB/83/2 . . . . . . . . . . . . . 63, 64, 66, 100, 429, 1065, 1066, 1176, 1179–1180, 1191, 1232, 1237 Link-Trading Joint Stock Co v Moldova, Final Award, 18 April 2002 . . . . . . . . 307, 346, 349, 350, 735, 955, 9455 Loewen v United States ICSID Case No. ARB(AF)/98/3 Award on Jurisdiction, 5 January 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 760 Decision on Hearing of Respondent’s Objection to Competence and Jurisdiction, 5 January 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744 Award, 26 June 2003, 42 ILM 811 (2003) . . . . . . . . . . . . . . . . . . . . 25, 76, 271, 285, 292, 293, 388, 554, 574, 705, 744, 847, 992, 997, 1005, 1088, 1097, 1201 Petition to Vacate, 13 December 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388 Lucchetti v Peru ICSID Case No. ARB/03/4, Award, 7 February 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57, 385, 586, 592, 857 MTD Equity v Chile ICSID Case No. ARB/01/7 Award, 25 May 2004, 44 ILM 91 (2005) . . . . . 25, 109, 111, 112, 262, 275, 279, 300, 385, 448, 449, 633, 635, 844, 1087, 1089, 1096, 1107, 1112, 1113, 1118 Annulment Decision, 21 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108, 111, 112 Maffezini v Spain ICSID Case No. ARB/97/7 Decision on objections to jurisdiction, 25 January 2000, ICSID Rev-FILJ 212 (2001) . . . . .22, 41, 85, 107, 186, 291, 364, 367, 386, 387, 388, 390, 391, 392, 393, 394, 395,397, 399, 400, 401, 402, 403, 557, 558, 559, 560, 847, 848, 852, 857, 945, 949, 1026, 1112, 1118, 1198 Award, 13 November 2000, 6 ICSID Reports . . . . . . . . . . . . . . . . . . . . . . . . . 129 111, 112, 115 Malaysian Historical Salvors, SDN, BHD v Malaysia ICSID Case No. ARB/05/10 Decision on Jurisdiction, 17 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Award, 28 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Metalclad v United Mexican States, ICSID Case No. ARB(AF)/97/1, Award, 30 August 2000, 5 ICSID Reports 212 . . . . . . . . . . 66, 107, 110, 115, 147, 176, 217, 275, 279, 280, 281, 283, 285, 286, 287, 343, 351, 425, 426, 430, 447, 448, 455, 456, 571, 572, 629, 706, 759, 844, 907, 908, 1088, 1107, 1108, 1109, 1118 Middle East Cement v Egypt, Award, 12 April 2002, 7 ICSID Reports 178 . . . . . . . . . . . . . . . . . . . . . . . . . . .110, 115, 454, 455, 850, 1027, 1096, 1118 Mihaly International Corporation v The Democratic Socialist Republic of Sri Lanka, Decision of 15 March 2002, 41 ILM 867 (2002) . . . . . . . . . . . . . . . . . . . . . . . . 66, 872, 875, 876, 880–882, 945, 954, 961

xx

TABLE OF CASES

MINE v Guinea ICSID Case No. ARB/84/4 Award, 6 January 1988, 4 ICSID Reports 76 . . . . . . . . . . . . . . . . . . . . . . . . . . .702, 832, 1077 Decision on Annulment, 22 December 1989 . . . . . . . . . . . . . . . . .700, 1138, 1146, 1149, 1210 Mitchell v Democratic Republic of the Congo ICSID Case No. ARB/99/7 . . . . . . . . . 68, 91 Mobil Oil v New Zealand, Findings on Liability, Interpretation and Allied Issues, 4 May 1989, 4 ICSID Reports 164 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702 Mondev International Ltd v United States ICSID Case No. ARB (AF)/99/2, Award, 11 October 2002, 42 ILM 85 (2003) . . . . . . . . . . . . . . . . . . . 25, 262, 270, 271, 705, 860, 863, 994, 1101, 1201 National Grid v Argentina, Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115, 395, 806, 837, 848 Nicol v Ames, 1736 US 509-515 (1899) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .316 Noble Ventures Inc v Republic of Romania ICSID Case No. ARB/01/11, Award, 12 October 2005 . . . . . . . . . . . . . . . . . . . . 578, 579, 580, 841, 864, 967, 977, 981, 982, 1197 Olguín v Paraguay, Award, 26 July 2001, 6 ICSID Reports 164 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60, 112, 432, 444, 849, 997, 1027 Pan American Energy LLC and BP Argentina Exploration Company v Argentina ICSID Case No. ARB/03/13, Decision on Preliminary Objections, 27 July 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . .329, 330, 331, 332, 837, 842, 844, 850, 979, 982, 1031, 1090, 1192, 1197 Parkerings-Compagniet v Lithuania ICSID Case No. ARB/05/8, Award, 11 September 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114 Plama Consortium Ltd v Bulgaria ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, 44 ILM 717 (2005) . . . . . . . . . . . 386, 387, 388, 391, 395, 399, 400, 401, 402, 403, 848, 853, 854, 871, 917, 950, 953, 956, 973, 982, 1017, 1198 PSEG v Turkey ICSID Case No. ARB/02/5, Award, 19 January 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1107, 1108, 1113, 1114, 1118 RFCC v Morocco ICSID Case No. ARB/00/6, Award, 22 December 2003, ICSID Rev-FILJ 391 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291, 420, 701, 802, 803, 805 Decision on Jurisdiction, 16 July 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 969, 1037 Salini Costruttori SpA et Italstrade SpA v Kingdom of Morocco, Decision on Jurisdiction, 16 July 2001, 42 ILM 609 (2003) . . . . . . . . . . . .65, 67, 111, 560, 838, 844, 880, 913, 945, 949, 951, 955, 968, 969, 984, 1037, 1197 Salini Costruttori SpA et Italstrade SpA v The Hasemite Kingdom of Jordan, Decision on Jurisdiction, 15 November 2004, 44 ILM 576 (2005) . . . . . . . . . . . . . 67, 394, 396, 397, 398, 401, 563, 577, 797, 853, 859, 920, 922–923, 949, 951, 955, 956, 960, 971, 973, 975, 981, 1031 SEDITEX Engineering Beratungsgesellschaft fűr die Textilindustrie GmbH v The Government of the Democratic Republic of Madagascar ICSID Case No. Conc/82/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SGS v Pakistan ICSID Case No. ARB/01/13 Decision on Disqualification of Arbitrator, 19 December 2002, 8 ICSID Reports 398 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797 Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406 . . . . . . .58, 65, 106, 398, 410, 575, 586, 603, 694, 695, 702, 838, 840,

TABLE OF CASES

xxi

845, 864, 946, 947, 948, 949, 955, 966, 969, 970, 972, 975, 976, 979, 981, 984, 1030, 1031, 1090, 1194, 1196, 1197, 1200 SGS v the Philippines ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 January 2004 . . . . . . 58, 419, 575, 694, 695, 837, 840, 859, 860, 863, 864, 871, 913, 923, 924, 926, 927, 928, 947, 948, 951, 952, 953, 955, 956, 969, 970, 972, 975, 976, 978, 979, 980, 981, 984, 1004, 1030, 1031, 1097, 1194, 1196, 1197 SOABI v Senegal Decision on Jurisdiction, 1 August 1984, 2 ICSID Reports 175 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77, 78, 833, 896–897 Award, 25 February 1988 2 ICSID Reports 219 . . . . . . . . . . . . . . . . .63, 64, 862, 1063, 1066, 1102, 1176, 1177, 1179 SPP v Egypt Award, 16 February 1983, 1 ICC Awards 124 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Award, 11 March 1983, 3 ICSID Rep 46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1076 Decision on Jurisdiction I, 27 November 1985, 3 ICSID Reports 112 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 708, 833, 834, 835, 1016, 1023, 1024 Decision on Jurisdiction II, 14 April 1988, 3 ICSID Reports 131 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114, 702, 703, 834, 862, 865, 1016 Award, 20 May 1992, 3 ICSID Reports 189. . . . . . . . . . . . 95, 96, 100, 115, 166–168, 169, 174, 175, 414, 435, 1094, 1096, 1107, 1118 Saar Papier v Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1118 Saipem v Bangladesh ICSID Case No. ARB/05/7 Decision, 11 October 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799, 821, 822, 960 Decision on Jurisdiction, 21 March 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112, 115, 798 Decision on Jurisdiction, 29 November 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1198 Santa Elena v Costa Rica, Award, 17 February 2000, 5 ICSID Reports 157 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110, 115, 168–170, 171, 174, 177, 274, 430, 436, 446, 832, 1067, 1081, 1095, 1104, 1107, 1108 Sempra v Argentina ICSID Case No. ARB/02/16 Award, 28 September 2007 . . . . . . 109, 110, 462, 464, 474, 475, 480, 481,483, 484, 486, 489, 491, 492, 493, 496, 498, 499, 503, 505, 508, 512, 513, 837, 919, 967, 1031, 1038 Siag and Vecchi v The Arab Republic of Egypt ICSID Case No. ARB/05/15, Decision on Jurisdiction, 11 April 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71, 73 Siemens AG v Argentine Republic ICSID Case No. ARB/02/8 Decision on Jurisdiction, 3 August 2004, 44 ILM 138 (2005) . . . . . . . . . .83, 844, 847, 848, 853, 865, 882, 948, 967, 973, 982, 1101, 1198 Award, 6 February 2007 . . . . . . . . . . . . . . . . . . . . . 109, 110, 115, 174, 386, 392, 394, 798, 806, 839, 842, 1067, 1096, 1106, 1108 Soufraki v United Arab Emirates ICSID Case No. ARB/02/7 Award, 7 July 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73, 74, 886, 887 Decision on Annulment, 5 June 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113, 114, 116 Suez, Sociedad General de Aguas de Barcelona SA and InterAguas Servicios Integrales del Agua SA v Argentine Republic ICSID Case No. ARB/03/17, Decision on Jurisdiction, 16 May 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83, 386, 395, 402, 848, 853, 863, 1192

xxii

TABLE OF CASES

Swiss Aluminium Ltd (ALUSUISSE) and Icelandic Aluminium Company Ltd (ISAL) v The Government of Iceland ICSID Case ARB/83/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Tecmed v Mexico ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, 43 ILM 133 (2004). . . . . . . . 25, 31, 147, 170–173, 174, 176, 177, 272, 275, 279, 280, 283, 343, 391, 409, 430, 431, 436, 443, 446, 450, 455, 630, 631, 633, 634, 705, 861, 1074, 1076, 1088, 1119 Telenor Mobile Communications AS v Hungary ICSID Case No. ARB/04/1, Award, 22 June 2006 . . . . . . . . . . . 386, 401, 402, 843, 854, 956, 957 Tembec Inc v United States of America, Order of the Consolidation Tribunal, 7 September 2007. . . . . . . . . . . . . 1035, 1036, 1037, 1039, 1040, 1041, 1042, 1044 Terminal Forest Products Ltd v United States of America, Order of the Consolidation Tribunal, 7 September 2007 . . . . . . . . . . . . . 1035, 1036, 1037, 1039, 1040, 1041, 1042, 1044 Tesoro Petroleum Corp v The Government of Trinidad and Tobago ICSID Case No. Conc/83/1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63, 307 Tokias Tokelès v Ukraine ICSID Case No. ARB/02/18, Decision on Jurisdiction, 29 April 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 59, 77, 78, 79, 87, 561, 837, 839, 844, 890, 891–893, 900, 996 Total SA v Argentine Republic ICSID Case No. ARB/04/1, Decision on Objections to Jurisdiction, 25 August 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 952 Tradex Hellas SA v Republic of Albania ICSID Case No. ARB/94/2 24 December 1996, 14 ICSID Review-FILJ 197 (1999), 5 ICSID Rep 47 (2002) . . . . . . . 55, 59, 60, 429, 562, 563, 833, 834,835, 844, 856, 863, 943 Waste Management Inc v United Mexican States (I) ICSID Case No. ARB(AF)/98/2, 26 May 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1016, 1029 Waste Management Inc v United Mexican States (II) ICSID Case No. ARB(AF)/00/3 Preliminary Objections, 26 June 2002, 41 ILM 13215 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1016 Award, 30 April 2004, 43 ILM 967 (2004) . . . 25, 110, 111, 263, 269, 271, 272, 275, 285, 300, 319, 346, 418, 419, 430, 705, 706, 840, 996, 1029, 1031, 1088, 1201 Wena Hotels v Egypt ICSID Case No. ARB/98/4 Decision on Jurisdiction, 28 June 1999, 6 ICSID Reports 74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844, 893, 894, 943, 949, 1197 Award, 8 December 2000, 41 ILM 896 (2002). . . . . 26, 60, 109, 110, 111, 115, 276, 414, 586, 594, 597, 602, 1074, 1076, 1107, 1119 Decision on Annulment, 5 February 2002, 6 ICSID Rep 129. . . . . . . . . . . . . . . 60, 91, 109, 110, 111, 115, 700, 893, 967, 1142, 1146, 1210 World Duty Free Company v Kenya ICSID Case No. ARB/00/7, Award, 4 October 206. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111, 586, 594, 595, 597, 598, 1192 Inter-American Court of Human Rights Awas Tingni Community v Nicaragua, Inter-American Court of Human Rights. . . . . .156 Mayagna Awas Tingni v Nicaragua, Merits, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1111 Petruzzi v Perus, Merits, Inter-Am Ct HR, 30 May 1999, Ser C No. 52, Res 13 . . . . . . . .1056 Reyes v Chile 2006 Inter-Am Ct HR (Ser C) No. 151, 19 September 2006 . . . . . . . . . 756, 779 International Court of Justice Anglo-Iranian Oil Company (Jurisdiction) Case (United Kingdom v Iran), 22 July 1952, (1952) ICJ Reports 109 . . . . . . . . . . . . . . . . . . 365, 392, 397, 400, 715, 716, 939

TABLE OF CASES

xxiii

Anglo-Norwegian Fisheries Case (1951) ICJ Reports 116 . . . . . . . . . . . . . . . . . . . . . . . .272, 273 Application of the Genocide Convention (Bosnia and Herzegovina v Yugloslavia), Provisional Measures, Order of 8 April 1993, (1993) ICJ Reports . . . . . . . . . . . . . . . 939 Armed Activities on the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v Rwanda), Provisional Measures, Order of 10 July 2002, (2002) ICJ Reports 219 . . . . . . . . . . . . . . . . . . . . . . . . . . . 939, 954 Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v Rwanda), Provisional Measures, Order of 10 July 2002, (2002) ICJ Reports 219 . . . . . . . . . . . 939 Barcelona Traction Light and Power Company Limited (Belgium v Spain) (1970) ICJ Reports 3 . . . . . . . . .75, 76, 79, 81, 82, 85, 87, 310, 342, 344, 557, 581, 713, 716, 891, 901, 992, 996, 1101 Corfu Channel, Assessment of Amount of Compensation (1949) ICJ Reports 244 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569, 1062, 1104, 1166 Diallo (Guinea v Democratic Republic of the Congo), Preliminary Objections, General List No 103, ICJ Judgment, 24 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . 85, 1167 Delimitation of the Maritime Boundary in the Gulf of Maine Area, ICJ (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1166 East Timor, (1995) ICJ Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .857, 873 Effect of Awards of Compensation Made by the United Nations Administrative Tribunal (1954) ICJ Reports 47 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1015 Elettronica Sicula SpA (ELSI) (United States v Italy), Judgment of 20 July 1989 (1989) ICJ Reports 15 . . . . . . . . . . . . . . . . . . .82, 85, 114, 287, 289, 310, 716, 717, 1005, 1082, 1129 Fisheries Jurisdiction Case (Spain v Canada), Judgment, 4 December 1998, (1998) ICJ Reports 432 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 938, 953, 954, 1166, 1210 Gabčikovo-Nagymaros Project (Hungary v Slovakia) (1997) ICJ Reports 7 . . . . . . . . . . . . . . . . . . . . . . . 213, 464, 466, 468, 474, 475, 476, 477, 478, 481, 482, 483, 484, 485, 490, 503, 504, 508, 511, 512, 515, 668, 1089, 1096 LaGrand (Germany v US), ICJ Reports (2001) 466. . . . . . . . . . . . . . . . . . . . . . . . . . . . .114, 987 Legal Consequences of the Construction of a Wall in the Occupied Palestinian Territory, Order of 30 January 2004, ICJ Reports (2004) . . . . . . . . . . . . . . . . . . . . . . . 811 Legality of Use of Force in Yugoslavia (Yugoslavia v Italy), Provisional Measures, Order of 2 June 1999, (1999) ICJ Reports 481 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940, 947, 949, 950, 952, 954 Libyan Arab Jamahiriya v United Kingdom, Order 14 April 1992 (1992) ICJ Reports 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158, 502 Liechtenstein v Guatemala (Nottebohm case), (1955) ICJ Reports 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71, 72, 74, 996, 997, 1129 Maritime Delimitation and Territorial Questions between Qatar and Bahrain (2001) ICJ rep 303 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1016 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v USA) (1986) ICJ Reports 14 . . . . . . . . . . . . . . . . . . . . . . . 504, 568, 939, 961 North Sea Continental Shelf (Federal Republic of Germany/Denmark). (20 February 1969). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1104, 1166 Nuclear Tests Cases (New Zealand v France), Interim Measures of Protection, Order of 5 July 1951, (1973) ICJ Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939

xxiv

TABLE OF CASES

Oil Platforms (Islamic Republic of Iran v United States of America) (1996) ICJ Reports 803 . . . 871, 936, 937, 938, 939, 944, 947, 948, 949, 950, 951, 952, 953, 954, 956, 960, 961, 972, 1059 Phosphate Lands in Nauru, ICJ Reports (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1166 Rainbow Warrior 82 Int’l Rep 500 (1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475, 501, 1061 Republic of Guinea v Democratic Republic of the Congo, Preliminary Objections, 24 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Request for Interpretation of the Judgment of 11 June 1998 in the case concerning the Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v Nigeria) (1999) ICJ Reports 31 . . . . . . . . . . . . . . . . . . . . . .1016 Rights of Nationals of the United States of America in Morocco (France v United States of America), 27 August 1952 . . . . . . . . . . . . . 365, 392, 397, 400 Right of Passage over Indian Territory (Preol Objections) (Portugal v India) (1957) ICJ Reports 125 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 South West Africa (Ethiopia v South Africa), Judgment of 21 December 1962 (Preliminary Objections) 1962 ICJ 319 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269, 812, 1015 Temple of Preah Vihear (Cambodia v Thailand) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .275 International Chamber of Commerce Deutsche Schachtbau-and Tiefbohrgesellschaft mbH v United Arab Emirates, Award, 2 ICC Reports 154 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v State of R’as Al Khaimah (UAE), ICC Case No. 3572 1982, Y’bk Commercial Arbitration 111 (1989) . . . . . . . . 708 ICC Case No. 497 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609, 611 ICC Case No. 498-9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609, 611 ICC Case No. 1110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 609, 610, 611, 613 ICC Case No. 2730 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 609 ICC Case No. 3913 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 603, 609, 612 ICC Case No. 3916 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 609, 611, 612, 613 ICC Case No. 4145 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 592, 605, 608, 609, 611, 612, 613 ICC Case No. 5622 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 604, 609, 610, 612 ICC Case No. 5943 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 592, 610 ICC Case No. 6233 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1114 ICC Case No. 6248 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 588 ICC Case No. 6286 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 609, 612 ICC Case No. 6401 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 594 ICC Case No. 6474 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 603 ICC Case No. 6497 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 593, 605, 609, 610, 612, 613 ICC Case No. 7006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1096 ICC Case No. 7047 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 592, 609, 612, 613 ICC Case No. 7664 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592 ICC Case No. 8113. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 608 ICC Case No. 8891 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 605, 609, 612, 613 ICC Case No. 9333 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 605, 613 Lunik v Soliman, ASA Bulletin 210 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 613 Monsieur Y c l’Etat Y, Award 1968, 1 ICC Awards 218, ICC Award No. 3327, 1981, 1 ICC Awards 433 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

TABLE OF CASES

xxv

Société des Grands Travaux de Marseille v East Pakistan Industrial Development Corporation, Award, 1972, 1 ICC Awards 40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97, 106 Permanent Court of International Justice Factory at Chorźow (Germany v Poland) (1927) PCIJ Series A, Vol. 2, no. 8 . . . . 269, 414, 444, 452, 513, 715, 991, 1001, 1002, 1015, 1018, 1051, 1056–1058, 1068, 1080, 1083, 1092, 1093, 1095, 1099, 1106, 1107, 1112, 1113 Free Zones of Upper Savoy & the District of Gen, PCIJ (1929), (1930) and (1931) . . . . . .1166 German Interests in Polish Upper Silesia (Germany v Poland), Judgment, 25 May 1926, PCIJ Ser. A, No. 7 (1926) . . . . . . . . . . . . . . . . 412, 413, 414, 425, 1018, 1024 German Settlers’ Case (Germany v Poland), Advisory Opinion, 10 September 1923, PCIJ Ser. B, No. 6 (1923) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411 Mavromatis Palestine Concessions Case (Greece v UK), 26 March 1925, PCIJ Ser. A. No. 5 (1925) . . . . . . . . . 715, 934, 935, 937, 953, 954, 992, 993 Mellacher v Austria, Judgment, 19 December 1989, Ser. A No. 169 (1980) . . . . . . . . . . . . .435 Norwegian Shipowners’ Claims (Norway v USA), PCA, Award, 13 October 1922, 1 RIAA 307 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .411, 412, 444, 718 Oscar Chinn Case (UK v Belgium), Judgment, 12 December 1934, PCIJ Ser. A/B, No. 63 (1934) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412, 413, 434, 468, 715 Payment in Gold of Brazilian Federal Loans contracted in France, PCIJ Ser. A No. 21 (1929) 116. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94, 114, 1210 Phosphates in Morocco Case, PCIJ Ser. A/B No. 74 (1938) . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Polish Railways Workers, Jurisdiction of the Courts of Danzig, Advisory Opinion, 1928 PCIJ Ser. B No. 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987 SS Wimbledon Case PCIJ Ser. A No. 1, p.23 (1923) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1108 Serbian Loans Issues in France, Payment of, PCIJ Ser. A No.20 (1929) 41 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94, 106, 114, 469, 501, 517, 1099 Société Commerciale de Belgique, PCIJ Ser. A/B No. 78 (1939) . . . . . . . . . . . . . . . . . 469, 479 Iran-US Claims Tribunal AIG v Iran, 4 Iran-US CTR 96 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1063 American Bell v Iran, Award, 19 September 1986, 12 YB Comm Arb 292 (1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 592, 594, 595, 597 Amoco v Iran, Award, 14 July 1987, 15 Iran-US CTR 189 . . . . . . . . . . . . . . 99, 414, 1058, 1070, 1073, 1074, 1076, 1099 Anaconda v Iran 13 Iran-US CTR 199 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1107 Birnbaum v Islamic Republic of Iran, Award No. 549-967-2, 6 July 1993, 29 Iran-US CTR 260. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 Dallal v Iran, 3 Iran-US CTR 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332, 334, 335 Dual Nationality, Case No. A/18 Concerning the Question of Jurisdiction over Claims of Persons with, 5 Iran-US CTR 252 (1984 I) . . . . . . . . . . . . . . . . . . . . . 888 Hood Corp v Iran, 7 Iran-US CTR 36. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .332 INA Corp v Government of the Islamic Republic of Iran, Award No. 184-161/1, 13 August 1985, 8 Iran-US CTR 373 . . . . . . . . 408, 448, 1067, 1070 ITT Industries Inc v Government of the Islamic Republic of Iran, 2 Iran-US CTR 348 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425

xxvi

TABLE OF CASES

Mobil Oil Iran, Award, 14 July 1984, 16 Iran-US Claims Tribunal Reports 3 . . . . . . . . . . . 97 Oil Fields of Texas v Republic of Iran, Award, 8 October 1986, YB Comm Arb 287 (1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .586, 594, 597, 605, 1062 Payne v Government of the Islamic Republic of Iran, Award No. 245-335-2, 8 August, 1986, 12 Iran-US CTR 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .445, 1074 Phelps Dodge Corp v Iran 10 Iran-US CTR 121 . . . . . . . . . . . . . . . . . . . . . . . . . 445, 1077, 1079 Phillips Petroleum Co v Iran, 21 Iran-US CTR 79 (1989). . . . . . . . . . . . . . . 414, 418, 428, 454, 1064, 1067, 1074, 1076 Schering Corpn v Iran, 5 Iran-US CTR 361 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .332, 334 Sea-Land Services Inc v Iran, 6 Iran-US CTR 149 . . . . . . . . . . . . 332, 334, 439, 445, 446, 1053 Sedco Inc v National Iranian Oil Co 9 Iran-US CTR 248 (1985) . . . . . . . . . . . .433, 445, 1067 Starrett Housing Corp v Government of the Islamic Republic of Iran, 4 Iran-US CTR 122 (1983) . . . . . . . . . . . . . . . . 414, 424, 428, 434, 439, 454, 1064, 1067, 1074, 1082 Sylvania v Iran 8 Iran-US CTR 298 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1106, 1108 Tehran Inc v Government of the Islamic Republic of Iran, Award No. 220-37/231-1, 11 April 1986, 10 Iran-US CTR 228 . . . . . . . . . . . . . . . . . . . . 445 Teichmann, Inc v Hamadan Glass Co, 13 Iran-US CTR 130 . . . . . . . . . . . . . . . . . . . . . . . . .737 Tiles v Iran, Award No. 298/317, 14 Iran-US CTR 223 (1987) . . . . . . . . . . . . . . . . . . .1070, 1079 Tippetts, Abbett, McCarthy, Stratton v TAMS-AFFA Consulting Engineers of Iran, 6 Iran-US CTR 219 . . . . . . . . . . . . . . . . . 424, 439, 445, 446, 454, 1070 Too v Greater Modern Insurance Associates & the USA, 23 Iran-US CTR 378. . . . . . . . .345 WTO Dispute Settlement Body (Including GATT 1947 Panel Reports) Argentina—Safeguard Measures on Imports of Footwear (2000), WT/DS121/AB/R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 Brazil—Re-treaded Tyres (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774 Canada—Certain Measures Affecting the Automobile Industry, WT/DS139/R and WT/DS142/R (2000) . . . . . . . . . . . . . . . . . . . . . . . . . 194, 202, 293, 294 Canada—Measures Affecting Exports of Unprocessed Herring and Salmon, GATT Panel Report, 22 March 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .671 EC—Measures Affecting the Approval and Marketing of Biotech Products W/DS291, 292 and 293 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 EC—Measures Affecting Asbestos and Asbestos Containing Products WT/DS135/AB/R, 40 ILM 1193 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . .215, 668 EC—Bananas III, WT/DS27/AB/R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .195, 202, 214 EC—Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . .213, 668, 774 India—Measures Affecting the Automotive Sector, WT/DS146/R and WT/DS175/R (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 Indonesia—Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS5/R, WT/DS59/R and WT/DS64/R (1998) . . . . . . . . . . . . . . . . 202 Japan—Alcoholic Beverages II, WT/DS58/R, WT/DS10/R, WT/DS11/R (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214, 216, 293 Korea—Definitive Safeguard Measures on Imports of Certain Dairy Products, WT/DS98/AB/R (2000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 Korea—Measures Affecting Government Procurement, WT/DS163/R . . . . . . . . . . . . . . . 213

TABLE OF CASES

xxvii

Korea—Measures Affecting Imports of Fresh, Chilled and Frozen Beef, WT/DS 161 and 169/AB/R, 10 January 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .671 Korea—Taxes on Alcoholic Beverages, WT/DS11/AB/R, WT/DS84/AB/R . . . . . . . . . . . 293 Mexico—Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213, 1164 US—Measures Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297 US—Restrictions on Imports of Cotton and Man-made Fibre Underwear, WT/DS24/AB/R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278 US—Import Prohibitions of Certain Shrimp and Shrimp Products, WT/DS58/AB/R (1998) . . . . . . . . . . . . . . . . . . . . . . . .65, 213, 296, 665, 671, 1161 US—Section 301–310 of the Trade Act of 1974, WT/DS152/R . . . . . . . . . . . . . . . . . . . . . . . 277 US—Section 337 of the Tariff Act of 1930, 7 November 198, 36 GATT BISD 345 (1990). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293, 367, 671 US—Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .215, 269 US—Tax Treatment of Foreign Sales Corporations, WT/DS/108/AB/RW . . . . . . . . . . . . .323 US—Taxes on Automobiles, WT/DS31/R (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214 US and Canada Continued Suspension of Obligations in the EC—Hormones Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 774 EU ROPE A N C OU RT/C OM M IS SION OF H U M A N R IGH T S Barberà, Messegué and Jabardo v Spain, Judgment, 6 December 1998, ECHR Ser. A No. 146 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004 Bramelid and Malmström v Sweden, European Commission of Human Rights, App. No. 8588/9 and 8589/79 (1982), 29 Decisions & Reports 64 (1986) . . . . . . . . . . 416 British-American Tobacco Company Ltd v Netherlands, ECtHR, Ser. A No. 331 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .417 Brumārescu v Romania, Judgment, 28 October 1999, App. No. 28342/95 . . . . . . . . . . . . 425 Darby v Sweden, 13 EHRR 774 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 Eko-Elda Avee v Greece, No. 10162/02, ECHRR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 Former King of Greece v Greece, Judgment, 23 November 2000, ECtHR, App. No. 25701/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450 Findlay v UK (1997) I Eur Ct HR 263 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .807, 819 Fredin v Sweden, ECtHR, Ser. A No. 192 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 Gasus-Dossier v Netherlands (1995) 20 EHRR 304. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .345 H v Belgium, Judgment, 30 November 1987, ECHR Ser. A No. 127 . . . . . . . . . . . . . . . . . 1004 Håkanson and Sturesson v Sweden, Judgment, 21 February 1990, ECHR Ser. A No. 171-A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004 Iatridis v Greece, ECtHR 1999-II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .417 Jahn v Germany, Nos. 46720/99, 72203/01, 72552/01 [2005] ECHR 444, 30 June 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1098 James v United Kingdom [1986] ECHR, 21 February 1986 . . . . . . . . . . 155, 171, 172, 443, 1055 Jasiuniene v Lithuania, No. 41510/98, ECHR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 Kampff meyer v Commission (1967) ECHR 245 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1112 Le Compte v Belgium, Judgment, 10 February 1983, ECHR Ser. A No 58. . . . . . . . . . . . 1004

xxviii

TABLE OF CASES

Lithgow v United Kingdom, ECtHR, Ser. A No. 102 (1986) . . . . . . . . . . . . . . . . . . . . . . . . 416 Lundewall v Sweden, Judgment, 12 November 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004 McGonnell v United Kingdom, Judgment, 8 February 2000, CHR Reports 2000-II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004 Mellacher v Austria, Judgment, 19 December 1989, Ser. A No. 169 (1980) . . . . . . . . . . . . .435 National and Provincial Building Society v United Kingdom, Judgment of 23 October 1997, Reports 1997-VII 2325 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 Oberschlick v Austria, Judgment, 23 May 1991, ECHR Ser. A No. 204 . . . . . . . . . . . . . . 1004 Pailot v France, Judgment, 22 April 1998, ECHR Reports 1998-II . . . . . . . . . . . . . . . . . . 1004 Papamichalopoulos v Greece, Judgment, 24 June 1993, Ser. A No. 260-B . . . . . . . . .425, 431 Pfeifer and Plankl v Austria, Judgment, 25 February 1992, ECHR 1992, Ser. A No. 227 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1004 Pine Valley Developments Ltd v Ireland, Judgment of 29 November 1991, Ser. A No. 222 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .435 PM v United Kingdom, No. 6638/03, ECHRR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 Pressos Compania Naviera SA v Belgium, ECtHR, Ser. A No. 332 (1995) . . . . . . . . . .417, 450 Prince Hans-Adam II of Liechtenstein v Germany, Judgment of 12 July 2001, App. No. 42527/98 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448 Schöps v Germany, Judgment, 13 February 2001, ECHR Reports 2001-I . . . . . . . . . . . . 1004 Smith Kline and French Laboratories v Netherlands, European Commission of Human Rights, App. Nos. 12633/87, Decision, 4 October 1990 . . . . . . . . . . . . . . . 416 Sporrong and Lönnroth v Sweden, Judgment, 23 September 1982, Ser. A No. 52 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .425, 434, 435, 450 Stran Greek Refineries and Stratis Andreadis v Greece, ECtHR, Ser. A No. 301 . . . . . . .417 Tre Traktörer Ab v Sweden, ECtHR, Ser. A No. 159 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . 416 Van Merle v Netherlands, ECtHR, Ser. A, No. 101 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . .417 Weissmann v Romania, No. 63945/00, ECHR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 EU ROPE A N C OU RT OF J US T IC E /C OU RT OF F I R S T I NS TA NC E Ayadi v Council of the European Union (Case T-253/02) . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Cadbury Schweppes v Commissioners of Inland Revenue (Case C-196/04) . . . . . . . . . . . 313 Centros Ltd v Erhvervs-OG Selskabsstyrelsen, (Case C-212/97) [1999] 2 CMLR 551 . . . 248 Commission v Denmark (Case 302/86) [1988] ECR 4607 . . . . . . . . . . . . . . . . . . . . . . . . . . 328 Commission v France (Case C-270/83) [1986] ECR 273 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .314 Commission v France (Case C-334/02) [2004] ECR I-0000 . . . . . . . . . . . . . . . . . . . . . . . . . 313 Commission v Germany (Re Insurance Services) [1986] ECR 3755 . . . . . . . . . . . . . . . . . . 328 France v Parliament (Cases 358/85, 51/86) [1988] ECR 4846 . . . . . . . . . . . . . . . . . . . . . . . .1016 Groep v Commission (Cases 172, 226/83) [1985] ECR 2831. . . . . . . . . . . . . . . . . . . . . . . . . . 106 Gualco v High Authority of the European Coal and Steel Community (Case 14/64) [1965] ECR 51 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd, Case C-167/01 [2005] 3 CMLR 937 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Legal Protection of Biotechnological Inventions (Netherlands v European Parliament and EU Council) (Case C-377/98) [2001] CMLR 1173 . . . . . . . . . . . . . . . 665 Manninen (Case C-319/02) [2004] ECR I-7477 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .314 Marks & Spencer v HM Inspector of Taxes (Case C-446/03) . . . . . . . . . . . . . . . . . . . . . . . . 313

TABLE OF CASES

xxix

Metallegesellschaft v Commissioners of Inland Revenue and HM Attorney General (Case C-410/98) [23001] ECR I-1727 . . . . . . . . . . . . . . . . . . . . . . . . .314 Royal Bank of Scotland (Case C-311/79) [1999] ECR I-2651 . . . . . . . . . . . . . . . . . . . . . . . . . .314 Schoeppenstedt (Case 5/71). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1055 Segers, Case 79/85 [1986] ECR 2375, [1987] 2 CMLR 247 . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Staatssecretaris van Financien v Verkooijjen (Case C-35/98) [2000] ECR I-4071 . . . . . . .314 Tatry, The (Case 406/92) [1994] ECR I-5439 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1032 Torfaen Borough Council v B & Q Plc (Case 145/88) [1989] ECR 765 . . . . . . . . . . . . . . . . 328 Uberseering BV v Nordic Construction Company Baumanagement GmbH (NCC), Case C-208/00 [2002] ECR I-9919 Van Gend en Loos [1963] 1 CMLR 82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 987 NAT IONA L C A SE S Australia Alliance v Australian Gas Light Co (1983) 34 SASR 215 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754 Commonwealth of Australia v Cockatoo Dockyard Pty Limited [2001] NSWCA 468 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .758 Commonwealth of Australia v John Fairfax and Sons Ltd . . . . . . . . . . . . . . . . . . . . . . . . . .757 Corventina v Clough, Supreme Court of New South Wales . . . . . . . . . . . . . . . . 586, 592, 606 Esso Australia Resources Ltd v Plowman (Minister for Energy and Minerals) (1995) 183 CLR 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .739, 753, 754, 755, 757, 761, 776 John Fairfax & Sons v Police Tribunal (1986) 5 NSWLR 465 . . . . . . . . . . . . . . . . . . . . . . . 776 Belgium MINE v Guinea, Court of First Instance, Antwerp, 27 September 1985, 4 ICSID Reports 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 702 Canada Attorney-General of Canada v SD Myers, Inc, Court File No. T-225-01. . . . . . . . . . . . . . 992 United Mexican States v Metalclad Corp, Supreme Court of British Colombia (2001) BCSC 664 . . . . . . . . . . . . . . . . 607, 630, 706, 992, 1074, 1076, 1079, 1217 France Aita v Ojjeh (1986) Revue de l’Arbitrage 583 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740, 755, 761 Azzaro v Cattan, judgment of 12 November 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .817 Cass 2e civ 8 November 1989 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .817 Cass 2e civ, 13 April 1972 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .817 Corporación del Cobre c Société Braden Copper Corporation et Société le Groupement d’Importation des Métaux, Tribunal de grande instance de Paris, 29 November 1972, 12 ILM 182 (1973) . . . . . . . . . . . . . . . . . . . . . . . 698 ECT v Westman, Paris Court of Appeal, 30 September 1993, Revue de l’arbitrage 359 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 Fremarc v ITM Enterprises, Court of Cassation, judgment of 6 December 2001, Paris Court of Appeals, 2 April 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817, 818 Maec SA v P Mumbach, judgment of 23 March 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .817 Milan Presse v Media Sud Communication, judgment of 12 January 1999 . . . . . . . . . . . .817

xxx

TABLE OF CASES

SA Serf v DV Construction, Paris Commercial Court, 6 July 2004 . . . . . . . . . . . . . . . . . .817 Société Mytilineos Holdings v Authority for Privatization and State Equity Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .818 Sté Bord Na Mona v SA Norsk hydroazote, Cass Ass plén, 6 November 1998 . . . . . . . . . .817 STPIF v SB Ballestrero, Court of Appeals, judgment of 16 May 2002 . . . . . . . . . . . . . . . . .817 Germany Bundesverfassungsgericht, 2 BVM 1/03, Decision of 8 May 2007 . . . . . . . . . . . . . . . . 517, 518 Chilean Nationalization of El Teniente Mine, Landgericht Hamburg, 13 March 1974, 13 ILM 1115 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 German Federal Constititional Court decision of 22 June 1995, B Verg 2 BV/37/91 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 German Federal Supreme Court Decision BGH NJW 1985, 2406 . . . . . . . . . . . . . . . . . . . 609 Superior Court of Hamburg Decision Denying Third Party Attachment of Copper Sold by the Chilean Copper Corporation, Landgericht Hamburg, 22 January 1973, 12 ILM 251 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 India Vellore Citizen’s Welfare Forum v Union of India AIR 1996 2715 . . . . . . . . . . . . . . . . . . . 668 Jamaica Alcoa v Jamaica 17 Hart Intl LJ 90 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .337 Schmidt v Jamaica 17 Hart Intl LJ 90 (1976). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337, 778, 779 Netherlands Telekom Malaysia Berhard v Republic of Ghana, District Court of the Hague, 18 October 2004 . . . . . . . . . . . . . . . . . . . .802, 803, 804, 805, 806, 822, 825 New Zealand Attorney-General v Mobil Oil NZ Ltd, High Court, Wellington, 1 July 1987, 4 ICSID Reports 117 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .701 Methanex Motunui Ltd v Spellman [2004] 1 NZLR 95 (HC) . . . . . . . . . . . . . . . . . . . . . . . 873 Pakistan HUBCO v WAPDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 592, 594, 597, 602, 603, 606 South Africa Coetzee v Paltex, Provincial Division of the High Court of South Africa, 8 May 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 613 Sweden AI Trade Finance Inc v Bulgarian Foreign Trade Bank Ltd, Supreme Court, 27 October 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .753 Switzerland Decision No. 4P.115/1994, (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1241 Fomento de Construcciones y c Contratas S.S. v Colon Container Terminal SS . . . . . .1022 MINE v Guinea, 13 March 1986, 4 ICSID Reports 41, 1 ICSID Review 383 (1986) . . . . . . 702

TABLE OF CASES

xxxi

OTV v Hilmarton 24a YB Comm Arb 777 (1999) . . . . . . . . . . . . . . . . . . . . . . . .606, 607, 609 Saluka v Czech Republic, Supreme Court, 7 September 2006 . . . . . . . . . . . . . . . . . . . . . . 998 Tanzania Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania, Procedural Order No. 5, 2 February 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 771, 783, 785, 786 United Kingdom ATT v Saudi Cable [2000] 2 All ER 625, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .818 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyd’s Rep 643 . . . . . . . . . . . . . . . .752 Brit Transport Comm v Gourley [1956] AC 185. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1114 British Steel Corporation v Granada Television Ltd [1980] 3 WLR 774 . . . . . . . . . . . . . . .757 Cameroon Airlines v Transnet Limited [2006] TCLR 1, [2004] EWHC 1829 . . . . . . . . . 602 Dolling-Baker v Merett, CA [1990] 1 WLR 1205 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .752 Eastern Saga, The [1984] 2 Lloyd’s Rep 373 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .752 Foulser v MacDougall (Her Majesty’s Inspector of Taxes) [2003] 1 CMLR 1079 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Halki Shipping Corp v Sopex Oils Ltd [1998] 2 All ER 23 . . . . . . . . . . . . . . . . . . . . . . . . . . 873 Hassneh Insurance Co v Stewart J Mew [1993] 2 Lloyd’s Rep 243 . . . . . . . . . . . . 739, 752, 755 Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43 . . . . . . .1214 Lion Nathan and CC Bottlers [1996] 1 WLR 1438 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1080 Locabail (UK) Ltd v Byfield [2000] All ER 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .819 Occidental Exploration and Production Company v Republic of Ecuador [2005] EWCA Civ 1116, 45 ILM 249 (2006) . . . . . . . 39, 708, 998, 1001, 1003 Paula Lee Ltd v Robert Zehil & Co Ltd [1983] 2 All ER 290, QBD . . . . . . . . . . . . . . . . . . 1080 R v Bow Street Metropolitan Stipendiary Magistrates, ex parte Pinochet Ugarte No. 2 [2001] 1 AC 119 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828 R v Gough [1993] AC 646 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .818 R v HM Treasury, ex p Daily Mail and General Trust plc [1989] 1 All ER 328 . . . . . . . . . 248 R v Sussex Justices, ex parte McCarthy [1924] 1 KB 256 . . . . . . . . . . . . . . . . . . . . . . . . . . . .816 Soleimany v Soleimany [1999] 2 All ER 847 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586, 606 Westacre v Jugoimport (1997) 23 YB Comm Arb 836 . . . . . . . . . . . . . . . . . . . . . . . . . . 606, 611 United States Banco Nacional de Cuba v Sabbatino 376 US 398 (1964), 3 ILM 381 (1964) . . . . . . . . . . . . 697 Beneal v Freeport-McMoran 969 F Supp 362 (EDLA 1997) aff ’d F 3d 161 (USCA, Fift h Cir, 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 Case v State Farm Mutual Insurance Automobile Company CA 5th, 1961, 294 F 2d 676. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959 Commonwealth Coatings Corp v Continental Casualty Co 393 US 145 (1968) . . . . . . . . 820 Conley v Gibson 355 US 41 (1957) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959 Doe v Unocal 963 F Supp 880 US Dist Ct, CD Cal, 25 March 1997 . . . . . . . . . . . . . . 674, 675 Eastern Enterprises v APFEL and Commissioner of Social Security, 524, US 498, 118 S Ct 2131 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .312 First National City Bank v Banco Nacional de Cuba 406 US 759 (1972), 66 ILR 102 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697 Flores v Southern Peru Copper 343 F 3d 140 (2d Cir 2003), 43 ILM 196 (2004) . . . . . . . . 668

xxxii

TABLE OF CASES

Glamis Gold v United States of America, Submission of the Quechan Indian Nation, Nature of the Cultural Resources and Sacred Places at Issue in Claim . . . . . . . . . . .156 Jaffee v Redmond 518 US 1 (1996). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782 Kadic v Karadzic 70 F 3d 232 (2d Cir 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675 KBC v Pertamina (Indonesia) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 592, 1066 Lightwater Corp Ltd v Republic of Argentina 2003 US Dist. Lexis 6156 (SDNY 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517, 519 Lingel v Chevron USA Inc (04-163) 363 F 3d 846 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . 1080 Marbury v Madison. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1116 Miranda v Arizona 384 US 436 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 779 Mitsubishi Motors Corp v Soler Chrysler Plymouth Inc, 473 US 614 . . . . . . . . . . . . . . . . 927 Pakootas v Teck Cominco Metals 452 F 3d 1066, 2006 US App LEXIS 16684, 62 ERC (BNA) 1705 (Us CA 9th Cir) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 Rhodes v Chapman 452 US 337 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 778 RJR Nabisco v Internal Revenue Services, TC Memo 1998-252 . . . . . . . . . . . . . . . . . . . . . 1114 Sarei v Rio Tinto 221 F Supp 2d 1116 (CD Cal, 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 Underhill v Hernandez 168 US 250 (1897) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 697 United States v Concentrated Phosphate Export Assn Inc 89 S Ct, p 362, 1968. . . . . . . . . .81 United States v Panhandle Eastern Corp 842 F 2d 685 (3d Cir 1988) . . . . . . . . . . . . . 739, 753 Wilko v Swan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1143 Wiwa v Royal Dutch Petroleum Company 96 Civ 8389 (SDNY) . . . . . . . . . . . . . . . . . . . . 674

Table of International Treaties and Conventions

BI L AT E R A L I N V E S T M E N T T R E AT I E S BI T S Argentina-Chile BIT (1991). . . . . . . . 392, 393 Argentina-France BIT (1991) . . . . . 395, 573, 965 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 966 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .838 Art 8.2 . . . . . . . . . . . . . . . . . . . . . 966, 1026 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . .838 Argentina-Korea BIT (1994) Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Art 6(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Argentina-Venezuela BIT (1993) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 371 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Asian African Legal Consultative Committee (AALCC) Model BIT, Model A Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 Australia-Argentina BIT (1995) . . . . . . . . .72 Art 1(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Art 1(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Australia-Romania BIT (1993) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 372 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Australia-Vietnam BIT (1991) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 372 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Austria Model BIT Art 1(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .995 Art 5(3). . . . . . . . . . . . . . . . . . . . . . . . . .1003 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . .1002 Belgium-Burundi BIT . . . . . . . . . . . . . . . .845 Belgo-Luxemburg Model BIT Art 4(4) . . . . . . . . . . . . . . . . . . . . . . . . . .329

Belgo-Luxemburg-Egypt BIT . . . . . . . . .858 Bolivia-Peru BIT (1993) Art 3 . . . . . . . . . . . . . . . . . . . . . 366, 370, 372 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 371 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Brazil-Finland BIT (1995) Art 4(1)(b) . . . . . . . . . . . . . . . . . . . . . . . . 325 Bulgaria-Cyprus BIT (1987) . . . . . . 399, 400 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 853 Canada Model BIT 2004 . . . . . . 161, 237, 343, 353, 403, 423, 437 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . .370, 403 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 Art 9(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Art 10(4)(3) . . . . . . . . . . . . . . . . . . . . . . . 161 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art 16(4) . . . . . . . . . . . . . . . . . . . . . . . . . 353 Art 16(6). . . . . . . . . . . . . . . . . . . . . . . . . . 319 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . 355, 627 Annex B, Art 13(1)(b) . . . . . . . . . . . . . . .438 Annex III. . . . . . . . . . . . . . . . . . . . . 161, 403 Annnex B13(1) . . . . . . . . 343, 424, 427, 448 Canada Model FIPA . . . . . . . . . . . . . . . .1046 Art 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 Art 32(2)(b) . . . . . . . . . . . . . . . . . . . . . . 1035 Canada-Armenia BIT (1998) Art XVI(2). . . . . . . . . . . . . . . . . . . . . . . . 355 Canada-Costa Rica BIT (1998) . . . . . . . . . 237 Canada-Ecuador BIT. . . . . . . . . . . . . . . . .916 Art XII . . . . . . . . . . . . . . . . . . . . . . . . . . 340 Canada-Egypt (1996) Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art III(3)(b). . . . . . . . . . . . . . . . . . . . . . . 373 Canada-Latvia BIT (1995) Art III(3)(b). . . . . . . . . . . . . . . . . . . . . . . 373

xxxiv

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art XVI(2). . . . . . . . . . . . . . . . . . . . . . . . 355 Canada-Panama BIT (1996) Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . 3–70 Art III(3)(b). . . . . . . . . . . . . . . . . . . . . . . 373 Canada-Poland BIT (1990) Art III . . . . . . . . . . . . . . . . . . . . . . . 370, 371 Canada-South Africa BIT (1995) Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art III(3)(b). . . . . . . . . . . . . . . . . . . . . . . 373 Art IX(3) . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art XVI(2). . . . . . . . . . . . . . . . . . . . . . . . 355 Canada-Thailand BIT (1997) Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art III(3)(b). . . . . . . . . . . . . . . . . . . . . . . 373 Canada-Trinidad & Tobago BIT (1995) . . . . . . . . . . . . . . . . . . . . . . 373 Art III . . . . . . . . . . . . . . . . . . . . . . . 370, 371 Art III(3)(b). . . . . . . . . . . . . . . . . . . . . . . 373 Canada-Ukraine BIT (1994) Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art XVI(2). . . . . . . . . . . . . . . . . . . . . . . . 355 Canada-Venezuela (1996) Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Chile-Croatia BIT (1994). . . . . . . . . . . . . . 385 Chile-Denmark BIT (1993) Art 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Chile-Malaysia BIT (1992) . . . . . . . . . . . . 385 Chile-New Zealand BIT (1999) . . . . . . . . .57 Chile-Peru BIT (2000). . . . . . . . 385, 857, 858 Chile-UK BIT (1996) Art 3(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 335 China Model BIT Art 6(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 333 China-Argentina BIT (1992) Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . 366 China-Hungary BIT Art 10(1) . . . . . . . . . . . . . . . . . . . . . . . . . .843 China-Indonesia BIT (1994) Art VII. . . . . . . . . . . . . . . . . . . . . . . . . . . 335 China-Kuwait BIT (1985) Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 China-Netherlands BIT Art 3(6) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 China-Slovenia BIT (1993) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 371 China-Uruguay BIT (1993)

Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Colombia-Peru BIT (1994) Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Czech Republic-Netherlands BIT (1991) . . . . . . . . . . . . . .289, 631, 727, 995, 1011, 1089, 1199, 1216 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . .633, 634 Art 3(3) . . . . . . . . . . . . . . . . . . . . . . . . . 289 Art 3(5). . . . . . . . . . . . . . . . . . . . . . . . . . 289 Art 8(2) . . . . . . . . . . . . . . . . . . . . 1140, 1141 Art 8(5) . . . . . . . . . . . . . . . . . . . . . . . . . 1140 Art 8(6) . . . . . . . . . . . .768, 1140, 1141, 1142 Czech Republic-US BIT . . . . . . . . . 844, 1011 Art VI(3)(a) . . . . . . . . . . . . . . . . . . . . . . .845 Czech and Slovak Federal RepublicNetherlands BIT (2001) . . . . . . 915 Denmark Model BIT Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Denmark-Chile BIT (1993) . . . . . . . . . . . . 385 Denmark-Egypt BIT . . . . . . . . . . . . . . . . .859 Denmark-Poland BIT Art 1(1)(b) . . . . . . . . . . . . . . . . . . . . . . . . 20 Egypt-Malaysia BIT (1997) Art 3(2)(b) . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Egypt-Northern Ireland BIT (1976). . . . 894 Art 8(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 894 Egypt-UK BIT . . . . . . . . . . . . . . . . . 840, 948 Estonia-US BIT. . . . . . . . . . . . . . . . . . . . . 849 Finland Model BIT Art 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Finland-Bulgaria BIT . . . . . . . . . . . .399, 854 France-Mongolia BIT (1991) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 372 France-Uganda BIT Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .329 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .329 France-Vietnam BIT (1992) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 372 Germany Model BIT Art 1(1)(c) . . . . . . . . . . . . . . . . . . . . . . . . .410 Art 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art 4(4) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 844 Germany Model BIT (1998)

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art 3(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Germany-Argentina BIT . . . . 392, 842, 948 Art 7(2) . . . . . . . . . . . . . . . . . . . . . . . . . 842 Art 10(2). . . . . . . . . . . . . . . . . . . . . . . . . .847 Art 10(3) . . . . . . . . . . . . . . . . . . . . . . . . .847 Germany-Bangladesh BIT (1981) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Barbados Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Germany-Barbados (1994) Art 3(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art 3(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Germany-Barbados BIT (1994) Art 2(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Art 4(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Germany-Bolivia BIT (1987) Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Bosnia and Herzegovina BIT (2001) Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Cambodia BIT . . . . . . . . . . . . .343 Germany-China BIT (2003) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Hong Kong BIT Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-India BIT (1995) Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Kuwait BIT (1994) Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . .370 Germany-Mexico BIT (no date) Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Nigeria BIT (2000). . . . . . . . . .343 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Romania BIT Art 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Germany-Soviet Union [Russia] BIT . . . . . . . . . . . . . 1182, 1183, 1184 Germany-Soviet Union [Russia] BIT (1989) Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Germany-Swaziland BIT (1993) Art 3(92) . . . . . . . . . . . . . . . . . . . . . . . . . 371 Germany-Switzerland BIT . . . . . . . . . . . .528 Germany-Thailand BIT Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Germany-Tunisia BIT . . . . . . . . . . . . . . . .528

xxxv

Germany-US BIT, Protocol amending (1 June 2006) . . . . . . . . . . . . . . . 311 Greece-Albania BIT . . . . . . . . . . . . . . . . . .843 Hong Kong Model BIT Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .410 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .423 Hungary-Czech Republic BIT (1993) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . .366, 370 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Hungary-Norway BIT (1991) . . . . . 854, 956 Art IV(1) . . . . . . . . . . . . . . . . . . . . . . . . .854 Art VI . . . . . . . . . . . . . . . . . . . . . . . . . . .956 India Model BIT (1992) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 6.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art 12(1) . . . . . . . . . . . . . . . . . . . . . . . . . .768 India Model BIT (2003) Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Art 9(1). . . . . . . . . . . . . . . . . . . . . . . . . . .729 Art 9(2) . . . . . . . . . . . . . . . . . . . . . . . . . .729 Art 9(3) . . . . . . . . . . . . . . . . . . . . . . . . . 764 India-Ghana BIT (2000) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 371, 372 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . .370 India-Khazakhstan BIT (1996) Art 7(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 India-Mauritius BIT . . . . . . . . . . . . . . . . . .74 India-Singapore Model Agreement . . . . 333 Art 6.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Indonesia Model BIT Art II:1 . . . . . . . . . . . . . . . . . . . . . . . . . . .241 Indonesia-China BIT (1994) Art IV(3) . . . . . . . . . . . . . . . . . . . . . . . . . 325 Iran-Kazakhstan BIT (1996) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Israel-Estonia BIT (1994) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Israel-India BIT (1996) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . 370, 371 Art 4(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Art 4(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 372

xxxvi

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Israel-Ukraine BIT (1994) Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Italy-Bangladesh BIT (1990) Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Italy-Brazil BIT (1995) Art III(5) . . . . . . . . . . . . . . . . . . . . . . . . . 371 Italy-Bulgaria BIT (1998) Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Italy-Cuba BIT (1993). . . . . . . . . . . . . . . . . 371 Italy-Jordan BIT (1996) . . . . . . 396, 397, 398, 922, 949 Art 1(8) . . . . . . . . . . . . . . . . . . . . . . . . . . .336 Art 2(3) . . . . . . . . . . . . . . . . . . . . . . . . . 950 Art 2(4) . . . . . . . . . . . . . . . . . .564, 577, 950 Art 9(1). . . . . . . . . . . . . . . . . . . . . . . . . . .564 Art 9(2) . . . . . . . . . . . . . . . . . . 397, 563, 564 Art 9(3) . . . . . . . . . . . . . . . . . . . . . . . . . .564 Italy-Kazakhstan BIT (1994) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Italy-Korea BIT Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Italy-Mongolia BIT (1993) Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Italy-Morocco BIT . . . . . . . . . . . . . . 802, 945 Art 8 . . . . . . . . . . . . . . . . . . . . 560, 838, 968 Italy-Pakistan BIT (1997) . . . . . . . . 398, 576, 924, 925 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . 925, 926 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . 925, 926 Art 9(1). . . . . . . . . . . . . . . . . . . . . . .576, 925 Art 9(2) . . . . . . . . . . . . . . . . . . . . . . . . . 926 Italy-Philippines BIT (1988) Art 3(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Art VIII . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Italy-Russia BIT (1996) Art 6(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Italy-Tanzania BIT (2001) Art 3(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Italy-UAE BIT. . . . . . . . . . . . . . . . . . . .73, 886 Italy-Ukraine BIT (1995) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Italy-Vietnam BIT (1990) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Jamaica Model BIT Art 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . .241

Japan-China BIT (1988) Art 2(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Japan-Korea BIT (2003) . . . . . . . . . . 343, 355 Art 19 . . . . . . . . . . . . . . . . . . . . . . . .329, 330 Art 19(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Japan-Pakistan BIT (1998) Art 10(2). . . . . . . . . . . . . . . . . . . . . . . . . .836 Japan-Russian Federation BIT (1998) Art 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Japan-Turkey BIT (1992) Art 3(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Japan-Vietnam BIT (2003) Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 628 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . .330 Art 19(1) . . . . . . . . . . . . . . . . . . . . . . . . . .329 Jordan-Lebanon BIT . . . . . . . . . . . . . . . . .397 Art 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Kazakhstan-Netherlands BIT Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Kazakhstan-Turkey BIT (1992) Art 2(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Korea-Bolivia BIT (1996) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Korea-Kazakhstan BIT (1996) Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Korea-Nigeria BIT (1997) Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Korea-Saudi Arabia BIT (2002) Art 3(5). . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Lebanon-Switzerland BIT Art 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Lithuania-Kuwait BIT (no date) Art 2(4) . . . . . . . . . . . . . . . . . . . . . . . . . .329 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Art 4(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Malaysia-Ghana BIT . . . . . . . . . . . . . . . . 802 Art 3(2)(b) . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Malaysia-Kazakhstan BIT (1996) Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Netherlands Model BIT (1997) Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Netherlands-Bolivia BIT. . . . . . . . . 897, 899

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art 1(b)(ii) . . . . . . . . . . . . . . . . . . . . . . . 898 Art 1(b)(iii) . . . . . . . . . . . . . . . . . . 898, 900 Netherlands-Cuba BIT Art 1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Netherlands-Lithuania BIT (1994) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . .366, 370 Netherlands-Poland BIT . . . . . . . . . . . . . .977 Art 3(5). . . . . . . . . . . . . . . . . . . . . . 580, 977 Netherlands-Venezuela BIT . . . . . .878, 1030 Art 3(4) . . . . . . . . . . . . . . . . . . . . . . . . . .974 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Norway-Chile BIT (1993) Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . 366 Norway-Peru BIT (1995) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 371 Peru Model BIT Art 6(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Peru-Chile BIT . . . . . . . . . . . . . . . . . . . . . .592 Art 1(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 Philippines-Myanmar BIT (1998) . . . . . .399 Poland-UAE BIT (1993) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art 5(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art 7(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 371 Romania-Sri Lanka BIT . . . . . . . . . . . . .1026 Russia-Moldova BIT . . . . . . . . . . . . . . . .1089 Russian Federation-US BIT . . . . . . . . . . 244 Protocol, para 4(a) . . . . . . . . . . . . . . . . 244 Saudi Arabia-Malaysia BIT (2000) Art 3(3)(b) . . . . . . . . . . . . . . . . . . . . . . . . 325 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 South Africa-Korea BIT Art 1(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Spain-Argentina BIT . . . . . . . . 393, 395, 852, 857, 945 Art II(2) . . . . . . . . . . . . . . . . . . . . . . . . . .857 Art X(3)(a) . . . . . . . . . . . . . . . . . . . . . . .1026 Spain-Chile BIT (1995) . . . . . . . . . . .388, 852 Spain-Colombia BIT (1995) Art IV . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art IV(2) . . . . . . . . . . . . . . . . . . . . . . . . .370 Art IV(3) . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art VI . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art VI(5) . . . . . . . . . . . . . . . . . . . . . . . . . 371 Art VIII . . . . . . . . . . . . . . . . . . . . . . . . . . 372

xxxvii

Spain-Mexico BIT (1995) . . . . . . . 171, 172, 391 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . 172, 173 Art 5(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 Sweden Model BIT Art 1(b) . . . . . . . . . . . . . . . . . . . . . . . . . .995 Sweden-India BIT Art 1(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 911 Swiss Federation Model BIT (1986–95) Art 4(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Switzerland-El Salvador BIT (1994) Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . 366 Switzerland-Iran BIT (1998) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Switzerland-Pakistan BIT (1995) . . . . . . . . . . . . . 398, 576, 577, 845, 946, 970, 1200 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .839 Art 10(2). . . . . . . . . . . . . . . . . . . . . . . . . 840 Art 11 . . . . . . . . . . . . . . . . . . . . . . . 840, 975 Switzerland-Philippines BIT (1997) . . . . . . . . . . . . . . . . . .923, 947 Art VIII(2). . . . . . . . . . . . . . . . . . . .839, 947 Art X(2) . . . . . . . . . . . . . . . . . . . . . 864, 976 Switzerland-Sri Lanka BIT . . . . . . . . . . . .382 Turkey-Kazakhstan BIT (1992) Art IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 Turkey-Pakistan BIT (1995) . . . . . . . . . . . 385 UK Model BIT (1991) . . . . . . . . . . . . . 325, 326 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 UK Model BIT (2005) Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .410 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . 421, 423 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 UK-Angola BIT (2001). . . . . . . . . . . . . . . .343 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 UK-Argentina BIT . . . . . . . . . . . . . . . . . . . 395 UK-Argentina BIT (1990) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 UK-Bulgaria BIT (1988) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 UK-Cuba BIT (1995) Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 371 UK-Honduras BIT (1993) Art 1(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . . 371

xxxviii

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 UK-India BIT (1994) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 371 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 UK-Mozambique BIT (2004) . . . . . . . . . .343 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 UK-Soviet Union BIT (1989) Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . 333, 335 UK-Sri Lanka BIT (1980) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .382 UK-Turkmenistan BIT (1995) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . 370, 371 UK-Vanuatu BIT (2003) . . . . . . . . . . . . . .622 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 Ukraine-Lithuania BIT (1994) . . . . . . 59, 79, 80, 562, 891, 892 Art 1(2)(b) . . . . . . . . . . . . . . . . .80, 891, 892 Art 1(2)(c) . . . . . . . . . . . . . . . . . . . . . . . . 891 Art 8(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .562 US Model BIT (2004) . . . . . 34, 161, 237, 346, 353, 422, 625, 626, 729, 764, 1028, 1046, 1055, 1201 Art 1(d) . . . . . . . . . . . . . . . . . . . . . . . . . .995 Art 2(9) . . . . . . . . . . . . . . . . . . . . . . . . . .623 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . .625 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . .625 Art 13 . . . . . . . . . . . . . . . . . . . . . . . . 160, 161 Art 16 . . . . . . . . . . . . . . . . . . . . . . . . 160, 161 Art 21(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Art 21(2)(d) . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21(2)(e) . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21(2)(f) . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21(4). . . . . . . . . . . . . . . . . . . . . . . . . . 323 Art 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . .729 Art 24(1). . . . . . . . . . . . . . . . . . . . . . . . . .983 Art 24(2) . . . . . . . . . . . . . . . . . . . . . . . . .729 Art 24(3) . . . . . . . . . . . . . . . . 693, 729, 764 Art 26(2)(3) . . . . . . . . . . . . . . . . . . . . . .1028 Art 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . .959 Art 29(1) . . . . . . . . . . . . . . . . . . . . . . . . . .772 Art 29(2) . . . . . . . . . . . . . . . . . . . . . . . . .773 Art 30(1). . . . . . . . . . . . . . . . . . . . . . . . . 768

Art 30(2) . . . . . . . . . . . . . . . . . . . . . . . . 768 Art 30(3) . . . . . . . . . . . . . . . . . . . . . . . . 1201 Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 Art 33(6)(b) . . . . . . . . . . . . . . . . . . . . . . 1035 Art 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . .106 Annex A . . . . . . . . . . . . . . . . . . . . . . . . .265 Annex D . . . . . . . . . . . . . . . . . . . 1156, 1202 US-Albania BIT (1995) Art IX . . . . . . . . . . . . . . . . . . . . . . . . . . . 337 US-Argentina BIT (1991) . . . . . . 85, 382, 393, 395, 396, 462, 488, 490, 503, 505, 521, 846, 946, 951, 979 Art I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Art I(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Art II . . . . . . . . . . . . . . . . . . . .366, 371, 999 Art II(2)(c) . . . . . . . . . . . . . . . . 581, 841, 842 Art IV(3) . . . . . . . . . . . . . . . . . . . . 497, 498 Art VII. . . . . . . . . . . . . . . . . . . . . . 843, 848 Art XI . . . . . . . . . . . . . .462, 474, 486, 488, 489, 493, 494, 495, 496, 497, 503, 504, 512, 513 Art XII(2)(c) . . . . . . . . . . . . . . . . . . . . . . 338 Protocol, Art 4 . . . . . . . . . . . . . . . . . . . . 373 US-Armenia BIT (1992) Art XI . . . . . . . . . . . . . . . . . . . . . . . 329, 338 US-Azerbaijan BIT (1997) . . . . . . . . . . . . . 237 Art II(1) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art II(2)(b) . . . . . . . . . . . . . . . . . . . . . . . 373 Art XIII . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Annex, Arts 2 . . . . . . . . . . . . . . . . . . . . . 373 US-Bahrain BIT (1999) Art 2(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art 2(2)(b) . . . . . . . . . . . . . . . . . . . . . . . . 373 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Annex, Art 2 . . . . . . . . . . . . . . . . . . . . . . 373 US-Bangladesh BIT . . . . . . . . . . . . . . . . . .623 US-Bulgaria BIT Art II(2)(c) . . . . . . . . . . . . . . . . . . . . . . . .981 US-Congo BIT . . . . . . . . . . . . . . . . . . . . . .623 US-Croatia BIT Art XIV . . . . . . . . . . . . . . . . . . . . . . . . . . 337 US-Ecuador BIT (1993) . . . . . . .330, 340, 916 Art III . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 Art IV . . . . . . . . . . . . . . . . . . . . . . . 335, 338 Art IV(1)(a) . . . . . . . . . . . . . . . . . . . . . . . 338 Art IV(1)(b) . . . . . . . . . . . . . . . . . . . . . . . 338

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art VI . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 Art X(1) . . . . . . . . . . . . . . . . . . . . . . . . . .329 Art X(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 338 US-Egypt BIT (1982) . . . . . . . . . . . . . . . . 888 US-El Salvador BIT (1999) Art II(1) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art II(2)(b) . . . . . . . . . . . . . . . . . . . . . . . 373 Annex, Art 2 . . . . . . . . . . . . . . . . . . . . . . 373 US-Georgia BIT (1994) . . . . . . . . . . . . . . . 321 US-Grenada BIT . . . . . . . . . . . . . . . . . . . .623 US-Haiti BIT. . . . . . . . . . . . . . . . . . . . . . . .623 US-India Investment Incentive Agreement . . . . . . . . . . . . . . . . .530 US-Jordan BIT (1997) Art I(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Art II . . . . . . . . . . . . . . . . . . . . . . . . . . . 366 Art II(1) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art II(2)(b) . . . . . . . . . . . . . . . . . . . . . . . 373 Art IV(1) . . . . . . . . . . . . . . . . . . . . . . . . . 372 Art XIII . . . . . . . . . . . . . . . . . . . . . . . . . . 337 Annex, Art 2 . . . . . . . . . . . . . . . . . . . . . . 373 US-Kazakhstan BIT (1992) Art XI . . . . . . . . . . . . . . . . . . . . . . . 329, 338 US-Kyrgyzstan BIT (1994) Art XI . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 US-Latvia (1995) Art X . . . . . . . . . . . . . . . . . . . . . . . . . . . .329 US-Moldova BIT . . . . . . . . . . . . . . . . . . . .945 US-Nicaragua BIT (1995) Art II(1) . . . . . . . . . . . . . . . . . . . . . . . . . .370 Art II(2)(b) . . . . . . . . . . . . . . . . . . . . . . . 373 Art IV(1) . . . . . . . . . . . . . . . . . . . . . . . . . 372 Annex, Arts 2 and 3 . . . . . . . . . . . . . . . . 373 US-Panama BIT (1982) . . . . . . . . . . . . . . .623 Art 2(1) . . . . . . . . . . . . . . . . . . . . . . . . . . .528 US-Poland BIT (1990) . . . . . . . . . . . . . . . . 574 Art II(2)(b) . . . . . . . . . . . . . . . . . . . . . . . 373 Art VI . . . . . . . . . . . . . . . . . . . . . . . . . . .329 Art VIII . . . . . . . . . . . . . . . . . . . . . . . . . 624 Art XIII . . . . . . . . . . . . . . . . . . . . . . . . . . 574 US-Romania BIT (1995). . . . . . .578, 977, 978 Art II(2)(c) . . . . . . . . . . . . . . . . . . . .580, 841 Art IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 US-Russia BIT . . . . . . . . . . . . . . . . . . . . . 504 Protocol, Art 6 . . . . . . . . . . . . . . . . . . . . 373 US-Senegal BIT (1983) . . . . . . . . . . . . . . . .623 Art II(10) . . . . . . . . . . . . . . . . . . . . . . . . .623

xxxix

US-Sri Lanka BIT. . . . . . . . . . . . . . . . . . . .945 US-Turkey BIT . . . . . . . . . . . . . . . . . . . . . .623 US-Ukraine BIT . . . . . . . . . . . . . . . . . 321, 334 Art IV(3) . . . . . . . . . . . . . . . . . . . . . . . . .334 Art X . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 Art X(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 339 Art X(2)(c) . . . . . . . . . . . . . . . . . . . . 338, 339 US-Uruguay BIT (2004) . . . . . . 353, 626, 959 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .336 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 65 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 244 Art 3(2). . . . . . . . . . . . . . . . . . . . . . . . . . 244 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Art 4(1). . . . . . . . . . . . . . . . . . . . . . . . . . 244 Art 4(2) . . . . . . . . . . . . . . . . . . . . . . . . . 244 Art 5(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618 Art 8(3)(c) . . . . . . . . . . . . . . . . . . . . . . . 670 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . 29, 626 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . 29, 626 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . .653 Art 12(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 671 Art 12(2) . . . . . . . . . . . . . . . . . . . . . . . . . .672 Art 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . .653 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . .254 Art 21(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Art 21(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Art 28(3) . . . . . . . . . . . . . . . . . . . . . . . . . .43 Art 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Annex B. . . . . . . . . . . . . . . . . . . . . . .28, 343 para 4. . . . . . . . . . . . . . . . . . . . . . . . . .672 Annex E. . . . . . . . . . . . . . . . . . . . . . . . .1202 US-Uzbekistan BIT (1994) Art XIII . . . . . . . . . . . . . . . . . . . . . . . . . . 337 US-Zaire BIT (1983) Art XI(2)(c) . . . . . . . . . . . . . . . . . . . . . . . 338 West Germany-Pakistan (1959) . . . . . . . . . . . . . 528, 622, 1129 F R E E T R A DE AGR E E M E N T S F TA S Albania, Serbia and Montenegro FTA (2004) . . . . . . . . . . . . . . . . . . . . 404 Albania-Romania FTA (2004) . . . . . . . . 404 ASEAN Free Trade Agreement . . . . . . . . 123

xl

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Australia-US FTA (2004) . . . . . . . . . . . . .727 Canada-Chile FTA (1996) . . . . . . . . 208, 243 Art G-03 . . . . . . . . . . . . . . . . . . . . . . . . . 375 Art G-08 . . . . . . . . . . . . . . . . . . . . . . . . . 375 Art G-27 . . . . . . . . . . . . . . . . . . . . . . . . 1035 Canada-US FTA . . . . . . . . . . . . . . . . . . . . . 20 Cartegena Free Trade Agreement (1994) Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 731 Central America-Dominican Republic FTA (1998) Art 9–05(1) . . . . . . . . . . . . . . . . . . . . . . . 374 Art 9–06 . . . . . . . . . . . . . . . . . . . . . . . . . 375 Art 9.05(2) . . . . . . . . . . . . . . . . . . . . . . . . 375 Art 10.4 . . . . . . . . . . . . . . . . . . . . . . . . . . 375 Central America-Panama FTA (2002) Art 10–03. . . . . . . . . . . . . . . . . . . . . . . . . 375 Art 10–09 . . . . . . . . . . . . . . . . . . . . . . . . 375 Chile-Korea FTA (2003) Art 11(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art 100.4(1) . . . . . . . . . . . . . . . . . . . . . . .376 Colombia, Venezuela and Mexico FTA (1994) . . . . . . . . . 123, 197, 375, 706, 851 Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 Art 17–03(2). . . . . . . . . . . . . . . . . . . 374, 375 Art 17–03(3). . . . . . . . . . . . . . . . . . . . . . . 375 Art 17–03(4) . . . . . . . . . . . . . . . . . . . . . . 375 Art 17–18 . . . . . . . . . . . . . . . . . . . . . . . . 706 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 851 Costa Rica-Japan FTA . . . . . . . . . . . . . . . 1035 Czech Republic-Slovak Republic FTA Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Draft Central American Free Trade Area Agreement (DR-CAFTA). . . . . . 353, 485, 958, 961, 1034, 1157 Art 10.18 . . . . . . . . . . . . . . . . . . . . . . . . .1028 Art 10.20 . . . . . . . . . . . . . . . . .957–958, 959 Art 10.20(10) . . . . . . . . . . . . . . . . . . . . .1202 Art 10.25. . . . . . . . . . . . . . . . . . . . . . . . .1034 Art 10.28(4) . . . . . . . . . . . . . . . . . . . . . . . 333 Art 12.11 . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Art 21.3(2) . . . . . . . . . . . . . . . . . . . . . . . . 323 Art 21.3(4)(b) . . . . . . . . . . . . . . . . . . . . . . 321 Art 21.3(4)(c) . . . . . . . . . . . . . . . . . . . . . . 325

Art 21.3(4)(g) . . . . . . . . . . . . . . . . . . . . . . 327 Art 21.3(6) . . . . . . . . . . . . . . . . . . . . 333, 353 Art 21.3(d) . . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21.3(e) . . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21.3(f) . . . . . . . . . . . . . . . . . . . . . . . . 327 Annex 10-C . . . . . . . . . . . . . . . . . . . . . . .343 Annex 10-F . . . . . . . . . . . . . . . . . . . . . . 1157 EC-Mexico FTA . . . . . . . . . . . . . . . . . . . . 208 EFTA-Bulgaria FTA . . . . . . . . . . . . . . . . . 197 EFTA-Lebanon FTA . . . . . . . . . . . . . . . . 404 EFTA-Tunisia FTA . . . . . . . . . . . . . . . . . . 404 EFTA-Turkey FTA (1991). . . . . . . . . . . . . . 197 European Free Trade Agreement (EFTA) . . . . . . . . . . . . . . . . . . . 208 Japan-Mexico FTA (2004) . . . 343, 353, 1035 Art 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . .376 Art 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Art 83 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1035 Art 170(4) . . . . . . . . . . . . . . . . . . . . . . . . 353 Jordan-Singapore FTA (2004) . . . . . . . . 404 Mexico-Bolivia FTA (1994). . . . . . . . . . . 1035 Art 15–04(1) . . . . . . . . . . . . . . . . . . . . . . . 374 Art 15–04(2) . . . . . . . . . . . . . . . . . . . . . . 375 Mexico-Chile FTA (1998) Art 9–04 . . . . . . . . . . . . . . . . . . . . . . . . . 375 Mexico-Costa Rica FTA (1994) . . . . . . . . 197 Art 16–04(1) . . . . . . . . . . . . . . . . . . . . . . 374 Mexico-El Salvador, Guatemala and Honduras FTA . . . . . . . . . . . . 244 Art 14–05 . . . . . . . . . . . . . . . . . . . . . . . . . 375 Art 14–09 . . . . . . . . . . . . . . . . . . . . . . . . 375 Mexico-Nicaragua FTA (1997) Art 16–04(1) . . . . . . . . . . . . . . . . . . . . . . 374 Art 16–04(2) . . . . . . . . . . . . . . . . . . . . . . 375 Mexico-Singapore FTA (2000) . . . 208, 243 Mexico-Uruguay FTA (2003) Art 13–04 . . . . . . . . . . . . . . . . . . . . . . . . . 375 Art 13–09 . . . . . . . . . . . . . . . . . . . . . . . . . 375 New Zealand-Singapore FTA . . . . . . . . 244 North American Free Trade Agreement (NAFTA) . . . . . 55, 57, 76, 122, 126, 138, 143, 147, 148, 149, 156, 165, 166, 186, 197, 207, 208, 211, 218, 219, 232, 243, 246, 256, 260, 264, 282, 290, 297, 321, 353, 374, 375, 376, 384, 433, 542, 625, 632, 633, 670,

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS 705, 719, 724, 726, 731, 741–750, 760, 770, 771, 773, 792, 831, 860, 863, 908–909, 914, 917, 920, 933, 990, 992, 1009, 1046, 1069, 1137, 1200, 1214 Preamble . . . . . . . . . . . . . . . . . . . . . . . . . 356 Chap 11. . . 122, 124, 146, 147, 209–216, 217, 219, 295, 409, 421, 423, 430, 455, 572, 574, 629, 630, 705, 707, 710, 726, 741, 742, 743, 744, 745, 749, 750, 760, 771, 787, 801, 838, 887, 908, 917, 921, 944, 958, 1029, 1042 Chap 18 . . . . . . . . . . . . . . . . . . . . . . . . . .625 Chap 20 . . . . . . . . . . . . . . . . . . . . . 741, 1164 Art 101 . . . . . . . . . . . . . . . . . . . . . . .295, 298 Art 102 . . . . . . . . . . . . . . . . . . . . . . . . . . 630 Art 102(1) . . . . . . . . . . . . . 280, 281, 293, 625 Art 102(2). . . . . . . . . . . . . . . . . . . . . 165, 213 Art 103 . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Art 104 . . . . . . . . . . . . . . . 165, 166, 177, 672 Art 105 . . . . . . . . . . . . . . . . . . . . . . . . . . .572 Art 136(2) . . . . . . . . . . . . . . . . . . . . . . . . 1186 Art 201 . . . . . . . . . . . . . . . . . . . . . . . 572, 911 Art 1101 . . . . . . . . . . . . . . . . . 210, 742, 909 Art 1101(1) . . . . . . . . . . . . . . . . . . . 298, 909 Art 1102 . . .186, 210, 213, 214, 215, 243, 291, 293, 296, 298, 384, 673, 921, 944 Art 1102(1) . . . . . . . . . . . . . . . .243, 292, 295 Art 1102(2) . . . . . . . . . . . . . . . . . . . .243, 292 Art 1103 . . . . . 210, 243, 291, 296, 298, 374, 383, 384, 385, 388, 851 Art 1103(1) . . . . . . . . . . . . . . . . . . . .243, 295 Art 1103(2) . . . . . . . . . . . . . . . . . . . . . . . .243 Art 1104 . . . . . . . . . . . . . . . . . . . . . . 210, 243 Art 1105 . . . . . . . . . . . . . . .211, 215, 217, 219, 264, 286, 293, 383, 384, 630, 632, 633, 921, 993, 1190, 1200, 1201, 1217 Art 1105(1) . . . . . . . . . . . . . . . . . . . . . . . .186 Art 1105(3) . . . . . . . . . . . . . . . . . . . . . . . .384 Art 1106 . . . . . . . . . . . . . 200, 210, 243, 909 Art 1106(2) . . . . . . . . . . . . . . . . . . . . . . . 670 Art 1106(f) . . . . . . . . . . . . . . . . . . . . . . . . 211 Art 1107 . . . . . . . . . . . . . . . . . . . . . . . . . .243 Art 1107(2) . . . . . . . . . . . . . . . . . . . . . . . .243 Art 1108 . . . . . . . . . . . . . . . . . . 210, 243, 385 Art 1108(7)(a) . . . . . . . . . . . . . . . . . . . . . 385 Art 1110 . . . . . . . 147, 211, 217, 219, 350, 421,

xli

423, 438, 448, 735, 921, 944, 1071, 1085, 1191 Art 1110(1) . . . . . . . . . . . . 211, 298, 456, 542 Art 1113. . . . . . . . . . . . . . . . . . . . . . . 917, 995 Art 1114 . . . . . . . . . . . . . . . . . . 146, 210, 211 Art 1114(1) . . . . . . . . . . . . . . . . . . . . . . . .672 Art 1114(2) . . . . . . . . . . . . . . . . . . . . . . . . 671 Art 1115. . . . . . . . . . . . . . . . . . 298, 741, 1044 Art 1116 . . . . . . 103, 111, 707, 838, 850, 860, 944, 1102 Art 1116(1) . . . . . . . . . . . . . . . . . . . . . . . . 921 Art 1116(2) . . . . . . . . . . . . . . . . . . . . . . . 944 Art 1117. . . . . . . . . . . . . . . . . . . 103, 111, 1102 Art 1119 . . . . . . . . . . . . . . . . . . . . . . 742, 743 Art 1120 . . . . . . . . . 149, 705, 742, 844, 850, 909, 1037 Art 1120(2) . . . . . . . . . . . . . . . . . . . . . . . . 741 Art 1121 . . . . . . . . 707, 728, 850, 1028, 1029 Art 1121(1)(b) . . . . . . . . . . . . . . . . . . . . . .707 Art 1122 . . . . . . . . . . . . . . . . . . . . . .705, 850 Art 1124(1) . . . . . . . . . . . . . . . . . . . . . . . 802 Art 1126 . . . . . . . . . . 1034, 1036, 1040, 1043 Art 1126(2) . . . . . . . . . . . . . . . . . . . . . . . 1037 Art 1126(2)(b) . . . . . . . . . . . . . . . . . . . . 1035 Art 1128 . . . . . . . . . . . . . . . . . . . . . . 745, 777 Art 1130 . . . . . . . . . . . . . . . . . . . . . . . . . 706 Art 1131(1). . . . . . . . . .107, 162, 165, 281, 768 Art 1131(2) . . . . . . . . . . 727, 741, 1200, 1201 Art 1133 . . . . . . . . . . . . . . . . . . . . . . . . . .746 Art 1134 . . . . . . . . . . . . . . . . . . . . . . . . .1028 Art 1135. . . . . . . . . . . . . . . . 1029, 1061, 1084 Art 1136(1) . . . . . . . . . . . . . . . . . . .1190, 1191 Art 1136(3)(b) . . . . . . . . . . . . . . . . . . . . 1174 Art 1136(5) . . . . . . . . . . . . . . . . . . . . . . . 1186 Art 1136(7) . . . . . . . . . . . . . . . . . . . . . . .1002 Art 1137(4) . . . . . . . . . . . . . . . . . . . . . . . .750 Art 1138 . . . . . . . . . . . . . . . . . . . . . 909, 910 Art 1139 . . .138, 194, 210, 292, 410, 411, 995 Art 1139(h) . . . . . . . . . . . . . . . . . . . . . . . . .56 Art 1416 . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Art 1703 . . . . . . . . . . . . . . . . . . . . . . . . . .243 Art 1801 . . . . . . . . . . . . . . . . . . . . . . . . . .625 Art 1802 . . . . . . . . . . . . . . . . . . . . . . 355, 625 Art 1803 . . . . . . . . . . . . . . . . . . . . . . . . . .625 Art 1804 . . . . . . . . . . . . . . . . . . . . . . . . . .625 Art 1805 . . . . . . . . . . . . . . . . . . . . . . . . . .625 Art 2001(1) . . . . . . . . . . . . . . . . . . . . . . 1200

xlii

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art 2101 . . . . . . . . . . . . . . . . . . . . . . 186, 743 Art 2103 . . . . . . . . . . . . . . . . . . . . . . 353, 729 Art 2103(1) . . . . . . . . . . . . . . . . . . . . 321, 329 Art 2103(2) . . . . . . . . . . . . . . . . . . . . . . . . 323 Art 2103(4)(b) . . . . . . . . . . . . . . . . . . . . . 321 Art 2103(4)(c) . . . . . . . . . . . . . . . . . . . . . 325 Art 2103(4)(d) . . . . . . . . . . . . . . . . . . . . . 327 Art 2103(4)(e) . . . . . . . . . . . . . . . . . . . . . 327 Art 2103(4)(f) . . . . . . . . . . . . . . . . . . . . . 327 Art 2103(4)(g) . . . . . . . . . . . . . . . . . . . . . 327 Art 2103(6). . . . . . . . . . . . . . . . . . . . . . . . 353 Annex I Schedule . . . . . . . . . . . . . . . . . . . . . . .243 para 2 . . . . . . . . . . . . . . . . . . . . . . .243 Annexes I-IV . . . . . . . . . . . . . . . . . . . . . 211 Annex I-M-25 . . . . . . . . . . . . . . . . . . . . . 237 Annex II Schedule . . . . . . . . . . . . . . . . . . . . . . .243 Annex III Schedule . . . . . . . . . . . . . . . . . . . . . . .243 Annex IV Schedule . . . . . . . . . . . . . . . . . . . . . . .243 Agreement on Environmental Co-operation . . . . . . . . . . . . . . .672 Panama-Taiwan FTA (2003) Art 10.03 . . . . . . . . . . . . . . . . . . . . . . . . .376 Art 20.06(5)(VI) . . . . . . . . . . . . . . . . . . . 327 Singapore-Japan FTA . . . . . . . . . . . . . . . 244 Switzerland-Estonia, Latvia, Lithuania FTA (1993) . . . . . . . . . . . . . . . . . 197 US-Chile FTA (2003) . . . . . . . . . . . . 727, 1202 Art 10.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 375 Art 10.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Art 10.12 . . . . . . . . . . . . . . . . . . . . . . . . . 424 Art 10.17 . . . . . . . . . . . . . . . . . . . . . . . . .1028 Art 10.19(10) . . . . . . . . . . . . . . . . . . . . .1202 Art 10.20 . . . . . . . . . . . . . . . . . . . . . . . . .627 Art 10.24 . . . . . . . . . . . . . . . . . . . . . . . .1034 Annex 10-B . . . . . . . . . . . . . . . . . . . . . . 424 Annex 10-D. . . . . . . . . . . . . . . . . . . 411, 427 Annex 10-H . . . . . . . . . . . . . . . . . . . . . 1157 US-Colombia FTA (2006) . . . . . . . . . . . .959 US-Morocco FTA (2004) . . . . . . . .62, 65, 72 Art 10.17 . . . . . . . . . . . . . . . . . . . . . . . . .1028 Art 10.24 . . . . . . . . . . . . . . . . . . . . . . .10–34 Art 10.27 . . . . . . . . . . . . . 56, 62, 66, 67, 70 Art 10.4 . . . . . . . . . . . . . . . . . . . . . . . . . .376

US-Panama FTA (2007) . . . . . . . . . . . . . .959 US-Peru FTA (2006) . . . . . . . . . . . . . . . . .959 US-Peru/Colombia FTA Art 10.21(3) . . . . . . . . . . . . . . . . . . . . . . . 353 Art 20.1.3 . . . . . . . . . . . . . . . . . . . . . . . . . 353 Art 21.(3) . . . . . . . . . . . . . . . . . . . . . . . . . 353 Annex I . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Annex II . . . . . . . . . . . . . . . . . . . . . . . . . 353 US-Singapore FTA (2004) . . . . . . . . . 62, 65, 67, 435 Art 15.1(13) . . . . . . . . . . . . . . . . . . .57, 62, 66 Art 15.1(17) . . . . . . . . . . . . . . . . . . . . . . . . .67 Art 15.4(3) . . . . . . . . . . . . . . . . . . . . . . . .376 Art 15.19(10) . . . . . . . . . . . . . . . . . . . . . .1202 Art 19.5 . . . . . . . . . . . . . . . . . . . . . . . . . . .627 US-Vietnam FTA . . . . . . . . . . . . . . . . . . . 244 R E GIONA L AGR E E M E N T S AEC Treaty Establishing the African Economic Community (1981) . . . . . . . . . . . . . . . . . . . . . 208 Andean Community Agreement on Andean Sub-regional Integration (Cartegena Agreement) . . . . . . . . . . . . . . . .250 Uniform Code on Andean Mulitnational Enterprises . . . . . . . . . . . . . . . . 208 APEC Asia-Pacific Economic Co-operation Agreement (APEC) . . . . . . . . 208 Non-Binding Investment Principles (1994) . . . . . . . . . . . . . . . . .379, 380 ASEAN Agreement for the Promotion and Protection of Investments . . . . 209, 398, 399, 911 Art I(2) . . . . . . . . . . . . . . . . . . . . . . . . 911 Art I(3) . . . . . . . . . . . . . . . . . . . . . . 19, 56 Basic Agreement on ASEAN Industrial Joint Ventures (1987) Art V . . . . . . . . . . . . . . . . . . . . . . . . . .329 Framework Agreement on the ASEAN Investment Area (1998) . . . . . . .56, 57, 123, 249, 380, 398–399

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Art 4(6) . . . . . . . . . . . . . . . . . . . . . . . 249 Art 15 . . . . . . . . . . . . . . . . . . . . . . . . . . 333 ATI Agreement Establishing the African Trade Insurance Agency, 18 May 2000, 2200 UNTS 3 . . . . . 525 CARICOM Agreement between the Caribbean Community (CARICOM) and Republic of Costa Rica . . . . . . . . . . . . . . . . . . . . . . .241 Art X.03. . . . . . . . . . . . . . . . . . . . . . . .241 Agreement for the Establishment of a Regime for CARICOM Enterprises (1987) . . . . . . . . . . .250 Treaty Establishing the Caribbean Community (CARICOM) (1973) . . . . . . . . . . . . . . . . . 208, 249 Chap 3 . . . . . . . . . . . . . . . . . . . . . . . . 249 Protocol III (1999) . . . . . . . . . . . . . . .250 COMESA Treaty Establishing the Common Market for Eastern and Southern Africa (COMESA) (1993) . . . . . . . . . . 208 Community Investment Code of the Economic Community of the Great Lakes Countries (CEPGL) (1982) . . . . . . . . . . . . .250 EC Treaty. . . . . . . . . . 208, 245, 249, 314, 326 Art 43 . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 Art 48. . . . . . . . . . . . . . . . . . . 247, 248, 249 Art 55 . . . . . . . . . . . . . . . . . . . . . . . 248, 249 Art 234 . . . . . . . . . . . . . . . . . . 253, 353, 1204 ECOWAS Art 307 . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Revised Treaty of the Economic Community of West African States (ECOWAS) (1993) . . . . . . . . . . . . . 208, 249, 250 Art 3(2) . . . . . . . . . . . . . . . . . . . . . . . 249 Art 55 . . . . . . . . . . . . . . . . . . . . . . . . . 249 Egypt Framework Agreement (2004) . . . . . . . . . . . . . . . . . . . . 404 IAIGC Convention Establishing the InterArab Investment Guarantee

xliii

Corporation. . . . . . . . . . . . . . . . 535 Annex . . . . . . . . . . . . . . . . . . . . . . . . . 537 Preamble . . . . . . . . . . . . . . . . . . . . . . . 535 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 7(2) . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 9(a) . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 9(b) . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 9(c) . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 9(d) . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 13 . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 15(6). . . . . . . . . . . . . . . . . . . . . . . .536 Art 15bis . . . . . . . . . . . . . . . . . . . . . . . 535 Art 16(1) . . . . . . . . . . . . . . . . . . . . . . . .536 Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . .536 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . .536 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . . .536 Art 34. . . . . . . . . . . . . . . . . . . . . . . . . . 537 Art 35 . . . . . . . . . . . . . . . . . . . . . . . . . . 537 Art 36. . . . . . . . . . . . . . . . . . . . . . . . . . 537 Art 39. . . . . . . . . . . . . . . . . . . . . . . . . . 535 Art 45 . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Mercosur Asunción Treaty Estabishing a Common Market between Argentina, Brazil, Paraguay and Uruguay (Mercosur), (1991) . . . . . . . . . . . . . . . . . . 123, 207 Buenos Aires Protocol on the Promotion and Protection of Investments Made by Countries that are not Parties to Mercosur (1994) . . . . . . . . . . . . . 123, 376, 851 Art 2(C)(2) . . . . . . . . . . . . . . . . . . . . .377 Art 2(C)(3) . . . . . . . . . . . . . . . . . . . . . . 37 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 851 Colonia Protocol on the Reciprocal Promotion and Protection of Investments within Mercosur (1994) . . . . . . . .123, 186, 208, 335, 376, 731, 851 Art 3(2) . . . . . . . . . . . . . . . . . . . . . . . .377

xliv

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art 3(3) . . . . . . . . . . . . . . . . . . . . . . . .377 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 851 Southern Common Market Agreement (MERCOSUR) . . . . . . . . 208, 220 O T H E R AGR E E M E N T S Agreement among the Government of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments Manila, 15 December . . . . . . . . . . . . . . 1987 Art II . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Agreement in Arab Economic Unity (AEU) (1964) . . . . . . . . . . . . . . 249 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 249 Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP) . . . . . . . . . . . . . . . 208 Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA) Services Protocol, Art 2/4 . . . . . 209 Canada Agreement for the Promotion and Protection of Investments (2004) Art 7. . . . . . . . . . . . . . . . . . . . . . . . . . . 255 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . . 255 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . 255 Canada Foreign Investment Protection Agreement Model, 2004 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Art 5(2) . . . . . . . . . . . . . . . . . . . . . . . . . 17 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . . . .29 Annex B . . . . . . . . . . . . . . . . . . . . . . . .28 Canada-Chile RTA . . . . . . . . . . . . . . . 208 Canada-USA Transboundary Agreement (1986) . . . . . . . . . . . 165 EC-Chile RTA . . . . . . . . . . . . . . . . . . . .189 Title III . . . . . . . . . . . . . . . . . . . . . . . 209 Title V . . . . . . . . . . . . . . . . . . . . . . . . 209

Art 21 . . . . . . . . . . . . . . . . . . . . . . . . . 209 Annex VII . . . . . . . . . . . . . . . . . . . . 209 Annex VIII . . . . . . . . . . . . . . . . . . . . 209 Annex X . . . . . . . . . . . . . . . . . . . . . . 209 Annex XIV . . . . . . . . . . . . . . . . . . . . 209 EC-Morocco RTA Arts 33–35 . . . . . . . . . . . . . . . . . . . . . 209 Art 50 . . . . . . . . . . . . . . . . . . . . . . . . 209 EC-South Africa (Trade development and Cooperation Agreement, TDCA) Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . 209 Art 34. . . . . . . . . . . . . . . . . . . . . . . . . 209 Art 52 . . . . . . . . . . . . . . . . . . . . . . . . . 209 Economic Partnership, Political Coordination and Cooperation Agreement between EC and Mexico 245 Title II, Chap I, Art 4 . . . . . . . . . . . .245 EFTA-Singapore RTA . . . . . . . . . . . . . 209 EU-Chile Association Agreement . . . 123 EU-Mexico Association Agreement . . . . . . . . . . . . . . . . . 123 Europe Agreements EC-Bulgaria . . . . . . . . . . . . . . . . . . . 208 EC-Romania. . . . . . . . . . . . . . . . . . . 208 European Economic Area Agreement (EEA) . . . . . . . . . . 208 Fourth ACP (Lomé) Convention . . . 208 Treaty Establishing the Economic and Monetary Union of West Africa (1996) . . . . . . . . . . . . . . 208 O T H E R T R E AT I E S ACP-EEC Convention (Third) (1984) . . . 531 ACP-EEC Convention (Fourth) (1989). . . . . . . . . . . . . . . . . . . . . . 531 African Union Convention on Preventing and Combating Corruption Art 4 . . . . . . . . . . . . . . . . . . . . . . . . .588, 590 American Convention on Human Rights . . . . . . . . . . . . . . . . . . . . . 156 Art 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . .756 Andean Foreign Investment Code . . . . . . . . . . . . . . . . . .241, 242

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Austro-German Property Treaty (1957) Art 108 . . . . . . . . . . . . . . . . . . . . . . . . . . 1129 Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal . . . . . . . . . .166, 665 Art 4(5) . . . . . . . . . . . . . . . . . . . . . . . . . .164 Art 10(2). . . . . . . . . . . . . . . . . . . . . . . . . 665 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . 164, 165 Protocol (1999) . . . . . . . . . . . . . . . . . . . 667 Berne Convention for the Protection of Literary and Artistic Works (WIPO) . . . . . . . . . . . . . . . . 38, 197 Biodiversity Convention (1992) Art 16(1) . . . . . . . . . . . . . . . . . . . . . . . . . 665 Art 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . 665 Brussels Convention Relating to the Distribution of Programmecarrying Signals Transmitted by Satellite (UNESCO/ WIPO) . . . . . . . . . . . . . . . . . . . . 197 Brussels International Convention on Civil Liability for Oil Pollution Damage (1992) . . . . 667 Brussels International Convention on the Establishment of an International Fund for Compensation of Oil Pollution Damage (1992) . . . . 667 Brussels Regulation Art 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1032 Art 28.3 . . . . . . . . . . . . . . . . . . . . . . . . . 1032 Charter of Economic Rights and Duties of States (UNGA) . . . . . 527 Civil Law Convention on Bribery of the Council of Europe . . . . . . . . 590, 591, 595, 602 Art 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .588 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 Arts 3–7 . . . . . . . . . . . . . . . . . . . . . . . . . . 591 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 602 Art 8(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 609 Art 8(2) . . . . . . . . . . . . . . . . . . . . . . 595, 596

xlv

Claims Settlement Declaration of Algiers (1981) . . . . . 717, 718, 735, 888, 889 Art V . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718 Convention on Access to Information, Public Participation in the Decision-Making Process and Access to Justice in Environmental Matters (Aarhus Convention) (1998). . . . . . . . . . . . . . . . . . . . . 666 Chap V . . . . . . . . . . . . . . . . . . . . . . . . . 666 Convention for the Establishment of Central American Court of Justice (1907) Art II . . . . . . . . . . . . . . . . . . . . . . . . . . . 989 Convention Relative to the Creation of the International Prize Court (Hague Convention XII) (1907). . . . . . . . . . . . . . . . . . . . . 989 Convention Respecting the Limitation of the Employment of Force for the Recovery of Contract Debts (Drago-Porter Convention). . . . . . . . . . . . . . . .714 Conventions for the Pacific Settlement of Disputes of 29 July 1899, 18 October 1907 . . . . . . . . . . . . .184 Criminal Law Convention on Bribery of the Council of Europe Art 7 . . . . . . . . . . . . . . . . . . . . . . . . .588, 590 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . 588, 591 Arts 9–12 . . . . . . . . . . . . . . . . . . . . . . . . . 591 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . .588 Declaration concerning the Settlement of Claims Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Declaration of the Government of the Democratic and Popular Republic of Algeria Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran, 19 January 1981 . . . . . . . . . . . . . . . . . . . 421, 423

xlvi

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Energy Charter Treaty (1994) . . . . . . . 55, 56, 77, 123, 144, 161, 186, 244, 260, 264, 311, 321, 353, 356, 357, 377, 564, 575, 580, 709, 727, 731, 831, 851, 909–914, 917, 933, 950, 1009, 1069, 1214 Pt II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917 Pt III. . . . . . . . . . . . . . . . . . . . . 186, 566, 917 Pt V . . . . . . . . . . . . . . . . . . . . . . . . . 574, 917 Art 1(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 913 Art 1(6). . . . . . . . . . . . . . . . . . . . 56, 910, 912 Art 1(6)(b) . . . . . . . . . . . . . . . . . . . . . . . .995 Art 1(6)(c) . . . . . . . . . . . . . . . . . . . . 912, 913 Art 1(6)(f) . . . . . . . . . . . . . . . . . . . . . . . . 913 Art 1(7). . . . . . . . . . . . . . . . . . . . . . . 910, 912 Art 1(7)(a)(i) . . . . . . . . . . . . . . . . . . . . . . 911 Art 1(7)(a)(ii) . . . . . . . . . . . . . . . . . . . . . . 911 Art 10 . . . . . . . . . . . . . . . . . . . . . . . 263, 670 Art 10(1) . . . . . . . . . 263, 379, 442, 565, 576, 580, 839, 851, 1087 Art 10(2). . . . . . . . . . . . . . . . . . 245, 263, 330 Art 10(3) . . . . . . . . . . . . . . . . . 263, 378, 379 Art 10(4) . . . . . . . . . . . . . . . . .144, 245, 378 Art 10(5). . . . . . . . . . . . . . . . . . . . . .245, 330 Art 10(6) . . . . . . . . . . . . . . . . . . . . . . . . .245 Art 10(7) . . . . . . . . . . . . . . . . . 263, 378, 851 Art 12(1) . . . . . . . . . . . . . . . . . . . . . . . . . .378 Art 13 . . . . . . . . . . . . . . . . . . . 421, 565, 1081 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . 333, 334 Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917 Art 17(1) . . . . . . . . . . . . . . . . . . 917, 918, 995 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . .18, 664 Art 19(1)(f) . . . . . . . . . . . . . . . . . . . . . . . 670 Art 19(1)(i) . . . . . . . . . . . . . . . . . . . . . . . 670 Art 20. . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 Art 21(1) . . . . . . . . . . . . . . . . . . . . . . . . . .329 Art 21(2)(b) . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21(3) . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Art 21(3)(a) . . . . . . . . . . . . . . . . . . . . . . . 325 Art 21(3)(b) . . . . . . . . . . . . . . . . . . . . . . . 327 Art 21(4)(b) . . . . . . . . . . . . . . . . . . . . . . . 321 Art 21(5) . . . . . . . . . . . . . . . . . . . . . . . . . . 353 Art 21(6) . . . . . . . . . . . . . . . . . . . . . . . . . . 333 Art 21(7)(a) . . . . . . . . . . . . . . . . . . . . . . . 325 Art 21(7)(b) . . . . . . . . . . . . . . . . . . . . . . . 321 Art 22 . . . . . . . . . . . . . . . . . . . . . . . .566, 567 Art 22(1) . . . . . . . . . . . . . . . . . .566, 567, 580

Art 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575 Art 23(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 574 Art 23(2). . . . . . . . . . . . . . . . . . . . . . . . . . 574 Art 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . .379 Art 26 . . . . . . . 909, 912, 914, 917, 950, 1217 Art 26(1). . . . . . . . . . . . . . . . . . 103, 566, 851 Art 26(2) . . . . . . . . . . . . . . . . . . . . . . . . . 851 Art 26(3) . . . . . . . . . . . . . . . . . . . . . . . . . 851 Art 26(3)(a) . . . . . . . . . . . . . . . . . . 851, 1027 Art 26(4) . . . . . . . . . . . . . . . . . . . . . 727, 851 Art 26(5) . . . . . . . . . . . . . . . . . . . . . . . .1220 Art 26(5)(b) . . . . . . . . . . . . . . . . . . . . . .1002 Art 26(6) . . . . . . . . . . . . . . . . . . . . . . . . . 107 Art 26(7) . . . . . . . . . . . . . . . . . . . . . . . . 1102 Art 26(8) . . . . . . . . . . . . . . . . . . . . . . . . 1061 Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 574 Final Act, Annex I Art 17(1) . . . . . . . . . . . . . . . . . . . . . . . . .78 Annex ID . . . . . . . . . . . . . . . . . . . . . . . 1027 Annex NI . . . . . . . . . . . . . . . . . . . . . . . . 913 European Arbitration Convention . . . . . 312 European Convention on Human Rights . . . . . . . . . . . . . . . 986, 1004 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . .326 Protocol 1, Art 1 . . . . . . . . . . .345, 416, 417, 433, 434, 435, 444, 450, 1055, 1081 Protocol 11 . . . . . . . . . . . . . . . . . . . . . . . .416 European Energy Charter (1991) . . . . . . . 357 Annex I to the Final Act . . . . . . . .421, 709 European Union Convention on the Fight against Corruption involving Officials of the European Communities or Officials of Member States (1997) . . . . . . . . . . . . 590, 591 General Agreement on Tariffs and Trade (GATT) . . . . . . .32, 124, 125, 126, 161, 185, 187, 195, 197, 198, 199, 200, 206, 238, 266, 267, 291, 373, 620, 621, 622, 624, 671, 875, 1053 Art I . . . . . . . . . . . . . . . . . . . . . . . . . . . . .295 Art II . . . . . . . . . . . . . . . . . . . . . . . . . . . .295 Art III . . . . . . . . . . .124, 125, 199, 200, 201, 203, 212, 214, 326, 621 Art III:1 . . . . . . . . . . . . . . . . . . . . . . . . . .214

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art III:2 . . . . . . . . . . . . . . . . . . . . . . . . . .214 Art III:4 . . . . . 200, 201, 202, 215, 238, 669 Art IX:3 . . . . . . . . . . . . . . . . . . . . . . . . . . 255 Art X . . . . . . . . . . . . . . . . . . . . . . . .620, 621 Art X:2 . . . . . . . . . . . . . . . . . . . . . . . . . . .278 Art XI . . . . . . . 124, 125, 199, 201, 202, 505 Art XI:1 . . . . . . . . . . . . . . . . . . . . . . 201, 239 Art XX . . . . . . . 186, 212, 214, 295, 296, 670 Art XX(b) . . . . . . . . . . . . . . . . . . . . 215, 297 Art XX(g) . . . . . . . . . . . . . . . . . . . . 215, 297 Art XXIII . . . . . . . . . . . . . . . . . . . . . . . 1053 General Agreement on Trade in Services (GATS) . . . . . . . . .21, 123, 124, 127, 131, 137, 151, 187, 188, 189, 190, 192–196, 194, 195, 196, 201, 202, 209, 216, 240, 245, 246, 247, 254, 377, 619, 622 Art XVI(2)(e)-(f) . . . . . . . . . . . . . . . . . 246 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 624 Art I . . . . . . . . . . . . . . . . . . . . . . . . . 245, 377 Art I:1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Art I:2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Art I:3(b) . . . . . . . . . . . . . . . . . . . . . . . . . 195 Art I(2)(c) . . . . . . . . . . . . . . . . . . . . . . . . 123 Art I(c) . . . . . . . . . . . . . . . . . . . . . . . . . . .245 Art II . . . . . . . . . . . . . . . . 194, 195, 295, 397 Art II:1 . . . . . . . . . . . . . . . . . . . . . . . . . . .378 Art II(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Art II(2) . . . . . . . . . . . . . . . . . . . . . . . . . .378 Art II(3) . . . . . . . . . . . . . . . . . . . . . . . . . .378 Art III . . . . . . . . . . . . . . . . . . . . . . .619, 620 Art XI . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 Art XII . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Art XIII . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Art XIV . . . . . . . . . . . . . . . . . . 193, 295, 296 Art XIX(1) . . . . . . . . . . . . . . . . . . . . . . . 246 Art XVI . . . . . . . . . . . . . . . . . . . . . .194, 246 Art XVI(2)(f) . . . . . . . . . . . . . . . . . . . . . 192 Art XVII . . . . . . . . . . . . . 194, 211, 214, 295 Art XVII:2. . . . . . . . . . . . . . . . . . . . . . . .196 Art XVII:3 . . . . . . . . . . . . . . . . . . . . . . . .196 Art XVIII . . . . . . . . . . . . . . . . . . . . . . . .377 Art XX . . . . . . . . . . . . . . . . . . . . . . 246, 254 Art XXVIII . . . . . . . . . . . . . . . . . . . . . . .377 Art XXVIII(d) . . . . . . . . . . . . . . . . 193, 245 Art XXVIII(n) . . . . . . . . . . . . . . . . . . . . 194

xlvii

Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Second Annex . . . . . . . . . . . . . . . . . . . . 193 Geneva Convention Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .414 Geneva Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms (WIPO). . . . . . . . 197 German-Polish Convention (Upper Silesia Convention) (1922) Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 989 Greece-UK Treaty of Commerce and Navigation (1886) . . . 935, 936, 972 Declaration of 1926 . . . . . . . . . . . .935, 936 Hague Convention on Certain Questions Relating to the Conflict of Nationality Laws (1930) Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . .71, 888 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .885 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . .72, 885 Hague Convention for the Peaceful of Disputes (1899 and 1907) . . . . . . . . . . . . . .709, 725, 726 Art 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1128 Hague Convention for the Suppression of Unlawful Seizure of Aircraft (1970). . . . . . . . . . . . . . . . . . . . . 988 Harvard Draft . . . . . . . . . . 344, 347, 348, 356, 422, 440 Art 10(1) . . . . . . . . . . . . . . . . . . . . . . . . . 422 Art 10(3)(a) . . . . . . . . . . . . . . . . . . . . . . 422 Art 10(5). . . . . . . . . . . . . . . . . . . . . . . . . 344 Havana Charter of the International Trade Organization . . 184, 190, 216 Art 12(1)(c)(ii) . . . . . . . . . . . . . . . . . . . . . 194 ILC Articles on State Responsibility . . . . . . . . . 461, 464, 468, 485, 491, 493, 494, 501, 503, 504, 506, 507, 520, 521, 522, 550, 551, 552, 554, 571, 580, 582, 1003, 1061, 1084, 1112 Chap. 5. . . . . . . . . . . . . . . . . . . . . . . . . 511 Part 1 . . . . . . . . . . . . . . . . . . . . . .469, 552 Art 2. . . . . . . . . . . . . . . . . . . . . . . .551, 553

xlviii

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 551 Art 4 . . . . . . . 551, 554, 556, 570, 571, 579 Art 4:1 . . . . . . . . . . . . . . . . . . . 5, 556, 572 Art 4:2 . . . . . . . . . . . . . . . . . . . . . . . . . 555 Arts 4–11 . . . . . . . . . . . . . . . . . . . . . . .596 Art 5 . . . . 551, 556, 557, 560, 566, 579, 582 Art 7. . . . . . . . . . . . . . . . . . . . . . . 552, 555 Art 8 . . . 551, 556, 557, 563, 566, 570, 582 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . .569 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . 553 Art 23 . . . . . . . . . . . . . . . . . . . . . . . . . .473 Art 25 . . . . . . . . . . . . . 471, 474, 481, 486, 488, 494, 1198 Art 25(1)(b) . . . . . . . . . . . . . . . . . . . . .477 Art 26 . . . . . . . . . . . . . . . . . . . . 488, 492 Art 27. . . . 508, 510, 511, 512, 513, 514, 515 Art 27(b) . . . . . . . . . . . . . . . . . . . . . . . 516 Art 31 . . . . . . . . . . . . . . . . . . . . . .473, 569 Art 31(2). . . . . . . . . . . . . . . . . . . . . . .1094 Art 33 . . . . . . . . .469, 470, 471, 474, 1003 Arts 34–39 . . . . . . . . . . . . . . . . . . . . .1086 Art 35 . . . . . . . . . . . . . . . 1057, 1058, 1059 Art 35(2) . . . . . . . . . . . . . . . . . . . . . 1060 Art 38. . . . . . . . . . . . . . . . . . . . . . . . . 1106 Art 39. . . . . . . . . . . . . . . . . . . . . . . . .1096 Draft Articles on Diplomatic Protection Art 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . 712 Draft Articles on Most-FavouredNation Clauses Art 5 . . . . . . . . . . . . . . . . . . . . . . . 365, 367 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . .365 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . .365 ILO Constitution Art 3(1). . . . . . . . . . . . . . . . . . . . . . . . 646 Convention on Indigenous and Tribal Peoples . . . . . . . . . . . . . . 156 Convention No. 29 Forced Labour . . . 646 Convention No. 87 Freedom of Association and the Protection of the Right to Organize . . . . . . . . . . . .646, 651 Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . . 651 Convention No. 98 Right to Organize and Collective Bargaining . . . 646 Art 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . 651

Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . .652 Convention No. 100 Conditions of Employment of Plantation Workers . . . . . . . . . . . . . . . . . . 650 Convention No. 100 Equal Remuneration . . . . . . . . . 646, 648 Convention No. 105 Abolition of Forced Labour . . . . . . . . . . 646 Convention No. 111 Discrimination in Employment . . . . . . . . 646, 648 Convention No. 115 on Ionizing Radiation . . . . . . . . . . . . . . . . . 650 Convention No. 119 Guarding of Machinery . . . . . . . . . . . . . . . . 650 Convention No. 130 Medical Care and Sickness . . . . . . . . . . . . . . 650 Convention No. 136 on Benzene . . . . 650 Convention No. 138 Minimum Age . . . . . . . . . . . . . . . . . . 646, 650 Convention No. 139 on Occupational Cancer . . . . . . . . . . . . . . . . . . . 650 Convention No. 142 Vocational Guidance and Vocational Training in the Development of Human Resources . . . . . . . 649 Convention No. 182 Worst Forms of Child Labour . . . . . . . 646, 650 Declaration on Fundamental Principles and Rights at Work (1998) . . . . . . . . . 644, 647, 648, 649, 650, 652, 653, 654, 678 Art 2. . . . . . . . . . . . . . . . . . . 647, 651, 659 Addendum I . . . . . . . . . . . . . . . . . . . 650 Recommendation No. 30 Examination of Grievances within the Undertaking with a View to their Settlement . . . . . . . . . .652 Recommendation No. 69 Medical Care . . . . . . . . . . . . . . . . . . . . . 650 Recommendation No. 90 Equal Treatment for Men and Women Workers for Work of Equal value . . . . . . . . . . . . . 648 Recommendation No. 100 Conditions of Employment of Plantation Workers . . . . . . . . . . . . . . . . . . 650

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Recommendation No. 111 Discrimination in Respect of Employment and Occupation . . . . . . . . . . . . . . . 648 Recommendation No. 115 Workers’ Housing . . . . . . . . . . . . . . . . . . 650 Recommendation No. 119 Termination of Employment at the Initiative of the Employer . . . . . . . . . . . . . . . . . 649 Recommendation No. 134 Medical Care and Sickness. . . . . . . . . . 650 Recommendation No. 150 Vocational Guidance and Vocational Training in the Development of Human Resources . . . . . . . 649 Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (1978) . . . .141, 652, 659, 660 Inter-American Convention on Human Rights. . . . . . . . . . . . . . 156 Inter-American Convention Against Corruption in the Organization of the American States (OAS) Art I . . . . . . . . . . . . . . . . . . . . . . . . . . . .1002 Art VI . . . . . . . . . . . . . . . . . . . . . . .588, 590 International Centre for Settlement of Investment Disputes Convention (ICSID Convention). . . . 41, 59, 62, 63, 65, 68, 69, 70, 74, 76, 79, 80, 82, 108, 115, 186, 267, 274, 311, 398, 409, 526, 681, 692, 693, 698, 700, 701, 704, 705, 706, 708, 710, 711, 712, 714, 719, 723, 726, 730, 732, 733, 734, 742, 766, 771, 772, 776, 793, 794, 796, 828, 831, 847, 850, 851, 855, 856, 862, 864, 865, 869, 871, 872, 874, 875, 882, 883, 884, 885, 891, 893, 902, 904, 908, 924, 928, 952, 989, 997, 998, 1002, 1012, 1040, 1084, 1110, 1127, 1129, 1131, 1132, 1136, 1137, 1145, 1146, 1147, 1148, 1149, 1150, 1152, 1155, 1165, 1172,

xlix

1173, 1174, 1175, 1179, 1185, 1186, 1209, 1214, 1222 Chap III . . . . . . . . . . . . . . . . . . . . . . . . . .795 Chap IV . . . . . . . . . . . . . . . . . . . . . . . . . 1138 Chap IV, s 2 . . . . . . . . . . . . . . . . . . . . . . .795 Chap II. . . . . . . . . . . . . . . . . . . . . . . . . . .705 Preamble . . . . . . . . . . . . . . . . . . . . . . . . .877 para 3 . . . . . . . . . . . . . . . . . . . . . . . . . 694 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 Art 1(2) . . . . . . . . . . . . . . . . . . . . . . . . . . .702 Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . 699 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 Art 14(1) . . . . . . . . . . . . . . . . . .793, 795, 796 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . 698 Art 25 . . . . . . . .67, 73, 79, 83, 115, 692, 699, 702, 706, 862, 866, 870, 872, 878, 880, 890, 892, 893, 902, 907, 910, 911, 913, 920, 933, 1193 Art 25(1) . . . . . . . . . . . 62, 87, 699, 856, 865, 870, 871, 872, 876, 878, 879, 881, 883, 901, 902, 903, 906, 923, 941, 943, 945 Art 25(2). . . . . . . . . . . . . . 70, 856, 870, 871, 884, 900, 997 Art 25(2)(a) . . . . . . . . . . . . . . 70, 71, 72, 74, 870–871, 885, 886, 887, 888, 889 Art 25(2)(b) . . . . . . 75, 77, 78, 80, 871, 889, 890, 891, 892, 893–897, 894, 895, 896, 897, 900 Art 25(3). . . . . . . . . . . . 902, 904, 905–906 Art 25(4) . . . . . . . . . . . . . 63, 876, 879, 928 Art 26 . . . . . . . . 10, 112, 694, 701, 702, 846, 847, 852, 915, 1026, 1034 Art 27 . . . . . . . . . . . . . . . . 100, 112, 714, 856 Art 27(1) . . . . . . . . . . . . . . . . . . . . . . . . . 1186 Art 32(1) . . . . . . . . . . . . . . . . . . . . . . . . . 903 Art 34(1) . . . . . . . . . . . . . . . . . . . . . . 703, 715 Art 34(2) . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 36(3) . . . . . . . . . . . . . . . . . . . . 698, 856 Arts 37–40 . . . . . . . . . . . . . . . . . . . . . . . 766 Art 37(2)(a) . . . . . . . . . . . . . . . . . . . . . . 766 Art 37(2)(b) . . . . . . . . . . . . . . . . . . . . . . 766 Art 38 . . . . . . . . . . . . . . . . . . . 699, 766, 793 Art 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . .793

l

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art 40(2) . . . . . . . . . . . . . . . . . . . . . . . . .793 Art 41(1) . . . . . . . . . 64, 699, 886, 903, 1222 Art 42 . . . . . . . . . . . . . 99, 107, 108, 115, 116, 167, 273, 866, 1070 Art 42(1). . . . . . . 94, 98, 100, 104, 105, 106, 109, 110, 111, 115, 167, 1138 Art 42(3) . . . . . . . . . . . . . . . . . . . . . 93, 1222 Art 42(4) . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 43 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Art 44. . . . . . . . 115, 732, 764, 791, 856, 998 Art 45 . . . . . . . . . . . . . . . . . . . . . . . . . . . 699 Art 47 . . . . . . . . . . . . . . . . . . . . . . . . . . .1028 Art 48(5) . . . . . . . . . . . . . . . . . . . . . . . . .732 Arts 49–52 . . . . . . . . . . . . . . . . . . . . . . . 1130 Art 49(2) . . . . . . . . . . . . . . . . . . . . . . . . 1130 Art 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . .730 Arts 50–52 . . . . . . . . . . . . . . . . . . . . . . . 998 Art 51 . . . . . . . . . . . . . . . . . . . . . . . 730, 1130 Art 52 . . . . . . . .91, 699, 803, 907, 915, 1126, 1137, 1161, 1203, 1226, 1227, 1228 Art 52(1) . . . . . . . . . . . . . . . . . . . . . . . . . 700 Art 52(1)(a) . . . . . . . . . . . . . . . . . . . . . . 1147 Art 52(1)(b) . . . . . . . . 1059, 1147, 1152, 1228 Art 52(1)(d) . . . . . . . . . . . . . . . . . 1147, 1229 Art 52(1)(e). . . . . . . . . . . . . . .1147, 1152, 1191 Art 52(4) . . . . . . . . . . . . . . . . . . . . . . . . 1138 Art 52(5). . . . . . . . . . . . . . . . . . . . . . . . . 1138 Art 53 . . . . . . . . . . 699, 915, 998, 1173, 1175, 1179, 1185, 1186, 1193, 1203, 1205 Art 53(1) . . . . . . . 792, 1175, 1186, 1190, 1196 Art 54 . . . . . . . . . 699, 1061, 1173, 1175, 1176, 1178, 1179, 1180, 1185 Art 54(1) . . . . . . . .100, 700, 1173, 1176, 1228 Art 54(2) . . . . . . . . . . . . . . . . . . . . . . . . 1176 Art 54(3) . . . . . . . . . . . . . . . . . . . . . . . . 1176 Art 55 . . . . . . . . . . . . . . . . . . 1176, 1180, 1187 Art 56(3) . . . . . . . . . . . . . . . . . . . . . . . . .795 Art 57 . . . . . . . . . . . . . . . . . . . .795, 796, 797 Art 58 . . . . . . . . . . . . . . . . . . . .795, 798, 828 Art 64. . . . . . . . . . . . . . . . . . . . . . . 717, 1186 Art 68. . . . . . . . . . . . . . . . . . . . . . . . . . . .883 Art 71 . . . . . . . . . . . . . . . . . . . . . . . .681, 884 Art 72 . . . . . . . . . . . . . . . . . . . . . . . . . . . 884 Art 75 . . . . . . . . . . . . . . . . . . . . . . . . . . . .681 International Covenant on Civil and

Political Rights (1966) . . . . . . .140 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .661 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .661 Art 47 . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 International Covenant on Economic, Social and Cultural Rights (1966) . . . . . . . . . . . . . . . . . 141, 986 Optional Protocol, Art 1 . . . . . . . . . . . 986 Lisbon Agreement for the Protection of Appellations of Origin and Their International Registration (WIPO) . . . . . . . . . . . . . . . . . . . 197 London Agreement (1945) . . . . . . . . . . . . 988 London Agreement on German External Debts 1953 Art 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1129 Art 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1129 Annex I . . . . . . . . . . . . . . . . . . . . . . . . . 1129 Annex II . . . . . . . . . . . . . . . . . . . . . . . . 1129 Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods (WIPO) . . . . . . . . . . . . . 197 Mandate of Palestine (1922) Art 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . .934 Art II . . . . . . . . . . . . . . . . . . . . . . . . . . . .954 MIGA Convention Establishing the Multilateral Investment Guarantee Agency (1985) . . . . . . . . . . . . . . . . . . 537, 538 Art 1(b) . . . . . . . . . . . . . . . . . . . . 538, 539 Art 1.14(iv) . . . . . . . . . . . . . . . . . . . . 544 Art 1.14(v) . . . . . . . . . . . . . . . . . . . . . 544 Art 2(1) . . . . . . . . . . . . . . . . . . . . 538, 539 Art 2(2)(a) . . . . . . . . . . . . . . . . . . . . . 540 Art 3(a) . . . . . . . . . . . . . . . . . . . . . . . . 539 Art 3(c) . . . . . . . . . . . . . . . . . . . . . . . . 538 Art 4.11 . . . . . . . . . . . . . . . . . . . . . . . 544 Arts 4.15–4.19 . . . . . . . . . . . . . . . . . . 544 Art 11(a)(i) . . . . . . . . . . . . . . . . . . . . . .542 Art 11(a)(ii) . . . . . . . . . . . . . . . . . . . . .542 Art 11(a)(iii). . . . . . . . . . . . . . . . . . . . .542 Art 11(a)(iv) . . . . . . . . . . . . . . . . . . . . .543 Art 11(b) . . . . . . . . . . . . . . . . . . . . . . . 541 Art 11(c) . . . . . . . . . . . . . . . . . . . . . . . . 541 Art 12(a) . . . . . . . . . . . . . . . . . . . . . . 540

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art 12(c). . . . . . . . . . . . . . . . . . . . . . . 540 Art 12(c)(i) . . . . . . . . . . . . . . . . . . . . . 540 Art 12(d) . . . . . . . . . . . . . . . . . . . . . . 540 Art 13(a) . . . . . . . . . . . . . . . . . . . . . . . 540 Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . 538 Art 15 . . . . . . . . . . . . . . . . . . . . . 541, 5641 Art 16 . . . . . . . . . . . . . . . . . . . . . . . . . 544 Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . 544 Art 18(a) . . . . . . . . . . . . . . . . . . . . . . 544 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . . . 538 Art 21 . . . . . . . . . . . . . . . . . . . . . . . . . . 541 Art 23(b)(i) . . . . . . . . . . . . . . . . . . . . . 545 Art 26 . . . . . . . . . . . . . . . . . . . . . . . . . 543 Art 30 . . . . . . . . . . . . . . . . . . . . . . . . . 539 Art 31(a) . . . . . . . . . . . . . . . . . . . . . . . . 539 Art 31(a)(i) . . . . . . . . . . . . . . . . . . . . . . 539 Art 31(a)(ii) . . . . . . . . . . . . . . . . . . . . . 539 Art 31(a)(v) . . . . . . . . . . . . . . . . . . . . . 539 Art 31(a)(x) . . . . . . . . . . . . . . . . . . . . . 539 Art 31(b) . . . . . . . . . . . . . . . . . . . . . . . 539 Art 32(a) . . . . . . . . . . . . . . . . . . . . . . . 539 Art 32(b) . . . . . . . . . . . . . . . . . . . . . . . 539 Art 36(a) . . . . . . . . . . . . . . . . . . . . . . . 538 Art 42 . . . . . . . . . . . . . . . . . . . . . . . . 546 Arts 43–50. . . . . . . . . . . . . . . . . . . . . . 539 Art 51 . . . . . . . . . . . . . . . . . . . . . . . . . . 539 Art 52(a) . . . . . . . . . . . . . . . . . . . . . . . 539 Art 52(b) . . . . . . . . . . . . . . . . . . . . . . . 539 Art 56(a) . . . . . . . . . . . . . . . . . . . . . . . 545 Art 56(b) . . . . . . . . . . . . . . . . . . . . . . . 545 Art 57(a) . . . . . . . . . . . . . . . . . . . . . . . 545 Art 57(b) . . . . . . . . . . . . . . . . . . . . . . . 545 Art 58 . . . . . . . . . . . . . . . . . . . . . . . . . . 545 Art 59. . . . . . . . . . . . . . . . . . . . . . . . . . 539 Art 66 . . . . . . . . . . . . . . . . . . . . . . . . . 543 Annex II, Art 2 . . . . . . . . . . . . . . . . . 545 Investment Guarantee Guide . . . . . . . . . . . . .540, 542, 543 Art 11(b) . . . . . . . . . . . . . . . . . . . . . . . 541 Art 20 . . . . . . . . . . . . . . . . . . . . . . . . . 541 Multilateral Agreement on Investment Guarantees . . . . . . . . . . . . 186, 423 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . .423 Art 13 . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Art 13(b) . . . . . . . . . . . . . . . . . . . . . . . .72 Operational Regulations Annex B . . . . . . . . . . . . . . . . . . 540, 540

li

Arts 1.01–1.10 . . . . . . . . . . . . . . . . . . 540 Art 1.08 . . . . . . . . . . . . . . . . . . . . . . . 540 Art 1.11 . . . . . . . . . . . . . . . . . . . . . . . . 540 Art 1.19–1.19 . . . . . . . . . . . . . . . . . . . 540 Arts 1.42–1.45 . . . . . . . . . . . . . . . . . . .542 Art 1.44(i) . . . . . . . . . . . . . . . . . . . . . .542 Art 1.49 . . . . . . . . . . . . . . . . . . . . . . . . 543 Art 1.53. . . . . . . . . . . . . . . . . . . . . 541, 543 Art 1.54 . . . . . . . . . . . . . . . . . . . . . . . . 541 Arts 1.56–1.57 . . . . . . . . . . . . . . . . . . . 541 Arts 2.03–2.06 . . . . . . . . . . . . . . . . . 544 Arts 2.07–2.09 . . . . . . . . . . . . . . . . . 544 Art 2.16 . . . . . . . . . . . . . . . . . . . . . . . . 545 Art 3.03 . . . . . . . . . . . . . . . . . . . . . . . . 541 Arts 3.04–3.19 . . . . . . . . . . . . . . . . . . 540 Art 3.20 . . . . . . . . . . . . . . . . . . . . . . . . 543 Arts 3.22–3.25 . . . . . . . . . . . . . . . . . . . 541 Art 3.36 . . . . . . . . . . . . . . . . . . . . . . . . 543 Arts 3.36–3.47 . . . . . . . . . . . . . . . . . . . 543 Art 3.46 . . . . . . . . . . . . . . . . . . . . . . . . 543 Art 4.08 . . . . . . . . . . . . . . . . . . . . . . . 544 Arts 4.20–4.24 . . . . . . . . . . . . . . . . . . 545 Arts 5.03–5.18 . . . . . . . . . . . . . . . . . . 546 Montreal Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation . . . . . . . . 158, 988 Multilateral Agreement in Investment (MAI), Draft . . . . . . .124, 126, 127, 128, 131, 134, 135, 136, 138, 141, 144, 145, 146, 147, 148, 149, 219, 237, 244, 323, 347, 355, 378, 380, 381, 421, 422, 423, 433, 642, 1028, 1034, 1158 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1034 Art 9e . . . . . . . . . . . . . . . . . . . . . . . . . . .1034 Art II(2) . . . . . . . . . . . . . . . . . . . . . . . . . 422 Art VIII(3) . . . . . . . . . . . . . . . . . . . . . . . 355 New York Convention . . . . . . . 267, 611, 700, 706, 712, 730, 1002, 1173, 1174, 1218, 1229, 1238 Art I . . . . . . . . . . . . . . . . . . . . . . . . . . . .1002 Art II . . . . . . . . . . . . . . . . . . . . . . . 921, 1219 Art V . . . . . . . . . . . . . .104, 730, 1040, 1110, 1128, 1227, 1230

lii

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art V(1)(b) . . . . . . . . . . . . . . . . . . 1226, 1229 Art V(1)(c) . . . . . . . . . . . . . . . . . . 1220, 1228 Art V(1)(d) . . . . . . . . . . . . . . . . . . . . . . .1229 Art V(2)(a) . . . . . . . . . . . . . . . . . . . . . . . 1219 Art V(2)(b) . . . . . . . . . . . . . . . . . . .595, 605 Nicaragua-United States Treaty of Friendship, Commerce and Navigation (1956) . . .503, 504 OECD Anti-Bribery Convention. . . 140, 589, 590 Art 1.1 . . . . . . . . . . . . . . . . . . . . . . . . .587 Art 3.4 . . . . . . . . . . . . . . . . . . . . . . . . 590 Code of Liberalisation of Capital Movements . . . . . 52, 144, 186, 187, 246 Annex A . . . . . . . . . . . . . . . . . . . . . . .587 Code of Liberalisation of Current Invisible Operations. . . . . 52, 144, 186, 187, 246 Declaration and Decisions on International Investment and Multinational Enterprises 1991 Review . . . . . . . . . . . . . . . 666 Draft Convention on the Protection of Foreign Property Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . .576 Art 3 . . . . . . . . . . . . . . . . . . . 421, 423, 451 Employment Guidelines . . . . . . . . . . . 648 Guidelines on Disclosure . . . . . . 676–677 para 3 . . . . . . . . . . . . . . . . . . . . . . . . . .678 Model Convention. . . . . 320, 321, 347, 356 Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Art 3(2) . . . . . . . . . . . . . . . . . . . . . . . 320 Art 24 . . . . . . . . . . . . . . . . . . . . . . . . .326 Principles of Corporate Governance . . . . . . . . . . . .677, 678 Paris Convention for the Protection of IndustriaL Property (WIPO) . . . . . . . . . . . . . . . . 38, 197 Rio Declaration on Environment and Development . . . . . . . . . . 644, 663 Principle 1 . . . . . . . . . . . . . . . . . . . . . . . 664 Principle 15 . . . . . . . . . . . . . . . . . . . . . . 668 Principle 16 . . . . . . . . . . . . . . . . . . . . . .6655 Agenda 21 . . . . . . . . . . . . . . . . . . . 664, 665 Chap 19 . . . . . . . . . . . . . . . . . . . . . . . 665 Chap 20 . . . . . . . . . . . . . . . . . . . . . . . 665

para 8.28 . . . . . . . . . . . . . . . . . . . . . . 665 para 8.41 . . . . . . . . . . . . . . . . . . . . . . 665 para 20.29 . . . . . . . . . . . . . . . . . . . . . 665 paras 30.1–30.4 . . . . . . . . . . . . . . . . . 664 paras 30.19–30.29 . . . . . . . . . . . . . . . 665 paras 30.7–16. . . . . . . . . . . . . . . . . . . 665 para 34.11 . . . . . . . . . . . . . . . . . . . . . . 665 para 34.18(iv) . . . . . . . . . . . . . . . . . . 665 Rome Convention on Applicable Law (1980) Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 Art 3(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 607 Rome Statute of the International Criminal Court . . . . . . . . . . . . 660 Statute of the ICJ Art 17(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 812 Art 34(1) . . . . . . . . . . . . . . . . . . . . . . 715, 988 Art 36(2) . . . . . . . . . . . . . . . . . . . . . 715, 716 Art 38 . . . . . . . . . . . . . . .274, 346, 1015, 1189 Art 38(1) . . . . . . . . . . . . . . . . . . . . . . . . . .274 Art 38(1)(c). . . . . . . . . . . . . . . . . . . . . . . 1016 Art 38(1)(d) . . . . . . . . . . . . . . . . . . . 160, 274 Art 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1190 Art 61 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1130 Practice Direction VII . . . . . . . . . . . . . 812 Practice Direction VIII. . . . . . . . . . . . . 812 Statute of the PCIJ . . . . . . . . . . . . . . . . . . .934 Treaty of Amity, Economic Relations and Consular Rights between Iran and the United States of America (1955) . . . . . . . . . .936, 972 Art I . . . . . . . . . . . . . . . . . . . . . . . . . . . . .972 Art II . . . . . . . . . . . . . . . . . . . . . . . . . . . .954 Art IV . . . . . . . . . . . . . . . . . . . . . . . . . . .972 Art VI(1) . . . . . . . . . . . . . . . . . . . . . . . . .954 Art X . . . . . . . . . . . . . . . . . . . .937, 954, 972 Art XXI(2) . . . . . . . . . . . . . . . . . . . .936, 972 Treaty on Intellectual Property in Respect of Integrated Circuits (WIPO) . . . . . . . . . . . . 197 Treaty of Versailles (1919) . . . . . . . . 646, 989 UN Charter . . . . . . . . . . . . . . 158, 159, 255, 986 Art 25 . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Art 33(1) . . . . . . . . . . . . . . . . . . . . . . . . 715 Art 55 . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Art 56. . . . . . . . . . . . . . . . . . . . . . . . . . 159

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art 103 . . . . . . . . . . . . . . . . . . . . . 158, 179 Code of Conduct for Law Enforcement Officers . . . . . . . . . . . . . . . . . . . 660 Convention against Corruption . . . . 644 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . .588 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . .588 Convention against Torture . . . . . . . . 660 Convention on Climate Change, Kyoto Protocol . . . . . . . . . . . . 666 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . 667 Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . 666 Art 112(9) . . . . . . . . . . . . . . . . . . . . . 667 Convention on the Law of the Sea (1982) . . . . . . . . . . . . . . . . . .987 Genocide Convention (1948) . . . . . . . 988 Art IX . . . . . . . . . . . . . . . . . . . . . . . . 940 Model Double Taxation Convention . . . . . . . . . . . . . . . .320 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Art 3(2) . . . . . . . . . . . . . . . . . . . . . . . .320 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 321 Art 25 . . . . . . . . . . . . . . . . . . . . . . . . . .324 Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights . . . . . . . . 657, 658, 659, 660, 661, 673, 679, 680 Preamble, Recital 13 . . . . . . . . . . . . 660 s A para 1. . . . . . . . . . . . . . . . . . . . . . 660 s C para 3 . . . . . . . . . . . . . . . . . . . . . .659 s C para 5 . . . . . . . . . . . . . . . . . . . . . 660 s D para 5 . . . . . . . . . . . . . . . . . . . . . .659 s D para 6 . . . . . . . . . . . . . . . . . . . . . .659 s D para 7 . . . . . . . . . . . . . . . . . . . . . .659 s D para 8 . . . . . . . . . . . . . . . . . . . . . .659 s D para 9 . . . . . . . . . . . . . . . . . . . . . .659 s E para 10 . . . . . . . . . . . . . . . . . 659, 660 s E para 11 . . . . . . . . . . . . . . . . . . . . . .661 s E para 12 . . . . . . . . . . . . . . . . . 659, 660 s F para 13 . . . . . . . . . . . . . . . . . . . . . .661 s G para 14 . . . . . . . . . . . . . . . . . . . . .661 s H para 15. . . . . . . . . . . . . . . . . . . . . .679 s H para 16 . . . . . . . . . . . . . . . . . . . . .679 s H para 17. . . . . . . . . . . . . . . . . . . . . .679 s H para 18 . . . . . . . . . . . . . . . . 679, 680

liii

s H para 19 . . . . . . . . . . . . . . . . . . . . .661 Principles on the Use of Force and Firearms by Law Enforcement Officials . . . . . . . . . . . . . . . . . . 660 UNCITRAL Model Law on Arbitration. . . . . . . . 729, 730, 765, 807, 1136, 1139, 1144, 1174, 1218, 1227, 1229 Art 11(3)(a) . . . . . . . . . . . . . . . . . . . . . . . 1043 Art 12(1) . . . . . . . . . . . . . . . . . . . . . . . . . 807 Art 12(2) . . . . . . . . . . . . . . . . . . . . . . . . . 807 Art 13(3) . . . . . . . . . . . . . . . . . . . . . . . . . 824 Art 16(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 611 Art 18 . . . . . . . . . . . . . . . . . . . . . . . 735, 1225 Art 19(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 735 Art 28(3) . . . . . . . . . . . . . . . . . . . . . . . . 1218 Art 34 . . . . . . . . . . . . . . . . . 1040, 1227, 1228 Art 34(2)(a)(ii) . . . . . . . . . . . . . . . 1226, 1229 Art 34(2)(a)(iii) . . . . . . . . . . . . . . 1220, 1228 Art 34(2)(a)(iv) . . . . . . . . . . . . . . . . . . . 1229 Art 34(2)(b)(i) . . . . . . . . . . . . . . . . . . . . 1219 Art 36 . . . . . . . . . . . . . . . . . . . . . . . . . . 1040 UNESCO Convention on World Cultural Heritage (1972) . . . . . . . . . . . 156, 167, 175, 176 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 Art 11(2) . . . . . . . . . . . . . . . . . . . . . . . . . .168 Universal Copyright Convention (UNESCO) . . . . . . . . . . . . . . . . 197 Universal Declaration of Human Rights (1948). . . . . . . . . 140, 644, 657, 986 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .661 Art 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 US Restatement (Second) . . . . . . . . 985, 990 US Restatement (Third) . . . . . . . . . 342, 345, 347, 348, 356, 435, 440, 450, 985, 990 § 712 . . . . . . . . . . . . . . . . . . . . . . . . . . . .1068 § 712 . . . . . . . . . . . . . . . . . . . . . . . . 422, 427 US-Italian Treaty of Friendship, Commerce and Navigation (1948). . . . . . . . . . . . . . . . . . . . . . 717 Vienna Convention on the Law of Treaties . . . . . . 155, 173, 178, 367 Art 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1172 Art 27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 Art 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . .859

liv

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS

Art 30 . . . . . . . . . . . . . . . . . 159, 161, 162, 173 Art 30(1). . . . . . . . . . . . . . . . . . . . . . . . . . 158 Art 30(2) . . . . . . . . . . . . . . . . . .161, 166, 173 Art 30(3) . . . . . . . . . . . . . . . . . . . . . . . . . 161 Art 30(4)(b) . . . . . . . . . . . . . . . . . . . . . . . 162 Art 30(5) . . . . . . . . . . . . . . . . . . . . . . . . . 162 Art 31 . . . . . . . . 102, 165, 273, 357, 387, 392, 399, 899, 981, 987, 993 Arts 31–33 . . . . . . . . . . . . . . . . . . . . . . . .863 Art 31(1) . . . . . . . . . . . . . . 171, 279, 878, 918 Art 31(3) . . . . . . . . . . . . . . . . . .162, 899, 993 Art 31(3)(a) . . . . . . . . . . . . . . . . . . . . . . 1201 Art 31(3)(c). . . . . . . . . . . . . . . . . . . .162, 270 Art 31(4) . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Art 32 . . . . . . . . . . . . . . . 273, 399, 899, 900 Art 32(b) . . . . . . . . . . . . . . . . . . . . . . . . 889 Art 46. . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 Art 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . .596 Art 53 . . . . . . . . . . . . . .157, 158, 159, 162, 173 Art 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 Art 59(2) . . . . . . . . . . . . . . . . . . . . . . . . . 161 Art 61 . . . . . . . . . . . . . . . . . . . . . . . .473, 508 Art 61(2) . . . . . . . . . . . . . . . . . . . . . . . . . .473 Vaduz Convention (EFTA) . . . . . . . . . . . 208 Vienna Convention for the Protection of the Ozone Layer (1985) Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 665 Annex II . . . . . . . . . . . . . . . . . . . . . . . . 665 WTO Agreement establishing the WTO. . . . . . . . . . . . . . . . . .198, 620 Agreement on Government Procurement (AGP) . . . . . . . . . . . . .187, 204–205 Preamble . . . . . . . . . . . . . . . . . . . . . . . 621 Art IX . . . . . . . . . . . . . . . . . . . . . . . . . 621 Art VI . . . . . . . . . . . . . . . . . . . . .621, 622 Art XVI . . . . . . . . . . . . . . . . . . . . . . . 204 Art XXIV:1 . . . . . . . . . . . . . . . . . . . . 204 Art XXIV:2 . . . . . . . . . . . . . . . . . . . . 204 Annex 4. . . . . . . . . . . . . . . . . . . . . . . 204 Agreement on Preshipment Inspection Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . 620 Agreement on Rules of Origin Art 2(g) . . . . . . . . . . . . . . . . . . . . . . . . 621 Art 3(e) . . . . . . . . . . . . . . . . . . . . . . . . 621 Agreement on Sanitary and PhytoSanitary Measures and

Technical Barriers to Trade. . . . . . . . . . . . . . . . . 296, 620 Art 5.1 . . . . . . . . . . . . . . . . . . . . . . . . 669 Art 5.2 . . . . . . . . . . . . . . . . . . . . . . . . 669 Art 7. . . . . . . . . . . . . . . . . . . . . . . . . . 620 Agreement on Subsidies and Countervailing Measures . . . . . . . . . .145, 187, 202, 203, 205–206 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .205 Art 3.1 . . . . . . . . . . . . . . . . . . . . . . . . 206 Art 3.1(b) . . . . . . . . . . . . . . . . . . . . . . .203 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . 206 Art 8.2 . . . . . . . . . . . . . . . . . . . . . . . . 206 Art 8.2(a) . . . . . . . . . . . . . . . . . . . . . . 206 Art 8.2(b) . . . . . . . . . . . . . . . . . . . . . 206 Art 8.2(c) . . . . . . . . . . . . . . . . . . . . . . 206 Art 24.3 . . . . . . . . . . . . . . . . . . . . . . . .149 Agreement on Technical Barriers to Trade (TBT) Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . 620 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . 620 Art 15 . . . . . . . . . . . . . . . . . . . . . . . . . 620 Agreement on Trade in Civil Aircraft Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 621 Agreement on Trade Related Intellectual Property Rights (TRIPS) . . . . 35, 36, 38, 43, 187, 196–199, 202, 665 Art 1(1) . . . . . . . . . . . . . . . . . . . . . . . . . 198 Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Art 27. . . . . . . . . . . . . . . . . . . . . . . . . . 198 Art 65(2) . . . . . . . . . . . . . . . . . . . . . . . 198 Art 66 . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Art 66(1) . . . . . . . . . . . . . . . . . . . . . . . 198 Art 67 . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Art 70(8) . . . . . . . . . . . . . . . . . . . . . . . 198 Agreement on Trade Related Investment Measures (TRIMS) . . . . 32, 123, 124, 127, 128, 145, 151, 187, 188, 190, 193, 199–204, 201, 202, 203, 204, 208, 211, 219, 238, 239 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .201

TABLE OF INTERNaTIONAL TREATIES AND CONVENTIONS Art 2. . . . . . . . . . . . . . . . . . . . . . .203, 239 Art 2.1 . . . . . . . . . . . . . . . . . . . . .201, 202 Art 5.2 . . . . . . . . . . . . . . . . . . . . . . . . .201 Art 5.3 . . . . . . . . . . . . . . . . . . . . . . . . .201 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . 620 Art 9 . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Annex 1 . . . . . . . . . . . . . . . . . . . . . . . .201 para 1 . . . . . . . . . . . . . . . . . . . . . . . .239 para 2 . . . . . . . . . . . . . . . . . . . . . . .239 Agriculture Agreement Art 7. . . . . . . . . . . . . . . . . . . . . . . . . . 620 Customs Evaluation Agreement

lv

Art 12 . . . . . . . . . . . . . . . . . . . . . . . . . 620 Dispute Settlement Understanding (DSU) . . . . . . . . . . . . .149, 701, 1161 Art 8.3 . . . . . . . . . . . . . . . . . . . . . . . . . 815 Art 17.6 . . . . . . . . . . . . . . . . . . . . . . . 1135 Art 18 . . . . . . . . . . . . . . . . . . . . . . . . . . 815 Art 22. . . . . . . . . . . . . . . . . . . . . . . . . . 150 Appendix 2 . . . . . . . . . . . . . . . . . . . . . 621 Appendix 3 . . . . . . . . . . . . . . . . . . . . . 621 Trade Policy Review Mechanism Section B . . . . . . . . . . . . . . . . . . . . . . . 621 Section D . . . . . . . . . . . . . . . . . . . . . . 621

TABLE OF RULES AND R ESOLUTIONS

AAA/ABA Code of Ethics . . . . . . . . . 821, 822–823, 827 Canon II.A(1) . . . . . . . . . . . . . . . . . . . . .823 Canon II.A(2) . . . . . . . . . . . . . . . . . . . . .823 Canon II.C . . . . . . . . . . . . . . . . . . . . . . .823 Canon II.D . . . . . . . . . . . . . . . . . . . . . . .823 ALI/Unidroit Principles . . . . . . . 1223, 1224, 1235, 1242 Art 15.3 . . . . . . . . . . . . . . . . . . . . . . . . . . 1223 Art 15.3.3. . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 17.3 . . . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 22.1 . . . . . . . . . . . . . . . . . . . . . . . . . 1235 Art 22.2.3 . . . . . . . . . . . . . . .1212, 1236, 1241 Art 22.4 . . . . . . . . . . . . . . . . . . . . . . . . . 1235 IBA Guidelines . . . . . . . . . . . . . . . . . . . .821–822 General Standard 1 . . . . . . . . . . . . . .822 General Standard 2(a) . . . . . . . . . . . .822 General Standard 3(c) . . . . . . . . . . . .822 Introduction, para 6 . . . . . . . . . . . . . 821 Rules on the Taking of Evidence in International Commercial Arbitration (1999) . . . . . . . . . . . 821 Art 9(4) . . . . . . . . . . . . . . . . . . . . . . . 1223 Art 9(5) . . . . . . . . . . . . . . . . . . . . . . . 1223 ICC Arbitration Rules . . . . . . . . . . 101, 708, 731, 739–740, 772, 808, 809, 820, 870, 914, 915–916, 1223, 1242 Art 6(2) . . . . . . . . . . . . . . . . . . . . . . . . 915 Art 6(3) . . . . . . . . . . . . . . . . . . . . . . . 1222 Art 6(4) . . . . . . . . . . . . . . . . . . . . . . . . 611 Art 7. . . . . . . . . . . . . . . . . . . . . .808, 1225 Art 7(2) . . . . . . . . . . . . . . . . . . . . . . . .822 Art 7(3) . . . . . . . . . . . . . . . . . . . . . . . 809 Art 7(4) . . . . . . . . . . . . . . . 806, 808, 820

Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . 808 Art 15 . . . . . . . . . . . . . . . . . . . . . . . . . .739 Art 15(2) . . . . . . . . . . . . . . . 808, 810, 1225 Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . 769 Art 17(3). . . . . . . . . . . . . . . . . . . . . . . . .93 Art 18(3) . . . . . . . . . . . . . . . . . . . . . . 1222 Art 20 . . . . . . . . . . . . . . . . . . . 1224, 1225 Art 20(1) . . . . . . . . . . . . . . . . . . . . . . 1212 Art 20(4) . . . . . . . . . . . . . . . . . 1225, 1235 Art 20(5) . . . . . . . . . . . . . . . . . . . . . . 1223 Art 20(7) . . . . . . . . . . . . . . . . . . . . . . .739 Art 21 . . . . . . . . . . . . . . . . . . . . . . . . . .739 Art 21(1) . . . . . . . . . . . . . . . . . . . . . . . 1222 Art 21(2) . . . . . . . . . . . . . . . . . . . . . . 1223 Art 27. . . . . . . . . . . . . . . . . . . . . . . . . 1135 Art 31(3). . . . . . . . . . . . . . . . . . . . . . . 1045 Institut de Droit International Resolution on the proper law of the contract in agreements between a state and a foreign private person (1979) Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .102 Art 2. . . . . . . . . . . . . . . . . . . . . . . . . . .102 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . .102 Inter-American Court of Human Rights, General Assembly Resolution 2252, 6 June 2006 . . . . . . . . . . . . . . . .756 International Centre for Settlement of Investment Disputes Additional Facility Rules . . . . . . . . 409, 702, 704, 705, 710, 719, 727, 730, 731, 734, 742, 750, 764, 766, 793, 831, 850, 851, 906–908, 909, 1034, 1136, 1173, 1175 Art 2 . . . . . . . . . . . . . . . . . . . . . . . . 704, 907

TABLE OF RULES AND RESOLUTIONS Art 2(a) . . . . . . . . . . . . . . . . . . . . . . . . . 907 Art 2(b) . . . . . . . . . . . . . . . . . . . . . 704, 907 Art 2(c) . . . . . . . . . . . . . . . . . . . . . . . . . 907 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706 Art 13(2) . . . . . . . . . . . . . .725, 790, 793, 826 Art 20. . . . . . . . . . . . . . . . . . . . . . . . . . . 706 Art 44(2) . . . . . . . . . . . . . . . . . . . . . . . . 760 Art 54(1) . . . . . . . . . . . . . . . . . . . . . . . . . .106 r 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .734 r 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .734 r 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 791 r 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 r 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 r 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 r 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 r 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 766 r 39(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . .734 r 41(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .734 r 53(3) . . . . . . . . . . . . . . . . . . . . . . . .734, 750 International Centre for Settlement of Investment Disputes Appeals Facility Rules . . . . . . 1160 International Centre for Settlement of Investment Disputes Rules (ICSID Rules) . . . .41, 43, 71, 273, 692, 733, 734, 742, 750, 766, 772, 784, 790, 791, 793, 804, 829, 850, 851, 933, 961, 1174, 1217, 1222, 1242 r 1(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .794 r 6(2) . . . . . . . . . . . . . . . . . . . . . . . . 790, 794 r 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .795 r 9(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .795 r 9(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . .795 r 9(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . .797 r 32(2) . . . . . . . . . . . . . . . . 733, 734, 773, 774 r 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .785 r 37(2) . . . . . . . . . . . . . . . . . 43, 733, 734, 785 r 37(2)(b) . . . . . . . . . . . . . . . . . . . . . . . . 786 r 41.5 . . . . . . . . . . . . . . . . . . . . . . . . 959–960 r 48 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .734 r 48(4) . . . . . . . . . . . . . . . . . . . . . . .734, 750 International Centre for Settlement of Investment Disputes Rules of Procedure for Conciliation Proceedings (Conciliation Rules) . . . . . . . . . . . . . . . . . . . . 702

lvii

International Court of Justice Rules of Procedure Art 79(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 921 Iran-US Claims Tribunal Rules of Procedure. . . . . . . . . . . . . . . . . .759 LCIA Arbitration Rules . . . . . 709, 740–741, 810, 870, 914, 916–917, 1242 Arts 5–12 . . . . . . . . . . . . . . . . . . . . . . . . .810 Art 5.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 Art 5.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 Art 10.3 . . . . . . . . . . . . . . . . . . . . . . . . . . .810 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 Art 14.1. . . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 15(8) . . . . . . . . . . . . . . . . . . . . . . . . . 1222 Art 18.1(i) . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 21.1 . . . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 22.1(c) . . . . . . . . . . . . . . . . . . . . . . .1224 Art 22.1(e) . . . . . . . . . . . . . . . . . . . . . . .1224 Art 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . .916 Art 23.2 . . . . . . . . . . . . . . . . . . . . . . . . . .916 Art 23.4 . . . . . . . . . . . . . . . . . . . . . . . . . .916 Art 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 811 Art 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . .740 Art 30.1 . . . . . . . . . . . . . . . . . . . . . . . . . .740 Art 30.2 . . . . . . . . . . . . . . . . . . . . . . . . . .740 Art 30.3 . . . . . . . . . . . . . . . . . . . . . . . . . .740 OECD Declaration on National Treatment for Foreign-Controlled Enterprises . . . . . . . . . . . . . . . . . 291 Guidelines for Multinational Enterprises (2000) . . . . . . . .17, 38, 128, 141, 146, 187, 306, 643, 644, 648, 658, 660, 664, 666, 672 Annex I . . . . . . . . . . . . . . . . . . . . . . . 306 PCA Optional Rules for Arbitrating Disputes between Two States . . . . . . . . . . . . . . . . . . . . . .710 Rules of Arbitration and Conciliation for the Settlement of International Disputes between Two Parties of Which Only One is a State . . .710 Stockholm Chamber of Commerce Arbitration Rules . . . . . . 709, 851, 1209, 1218, 1219, 1242

lviii

TABLE OF RULES AND RESOLUTIONS

Art 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 20(3) . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 21(3) . . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 27(1) . . . . . . . . . . . . . . . . . . . . . . . . .1224 Art 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1222 Art 40 . . . . . . . . . . . . . . . . . . . . . . . . . . 1045 Art 41 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045 UNCITRAL Arbitration Rules (1976) . . . . . . . . . . 41, 103, 693, 705, 709, 710, 711, 718, 719, 728, 731, 735–738, 738, 742, 758, 760, 766, 771, 772, 800, 801, 807, 810, 824, 827, 831, 836, 870, 909, 914–915, 917, 920, 944, 998, 1034, 1136, 1145, 1150, 1152, 1160, 1173, 1175, 1209, 1217, 1219, 1222, 1240, 1242 Arts 5–8 . . . . . . . . . . . . . . . . . . . . . . . 766 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 9 . . . . . . . . . . . . . . . . . . . . . .807, 825 Arts 9–12 . . . . . . . . . . . . . . . . . . . . . . 766 Art 10 . . . . . . . . . . . . . . . . . . . . . . . . . 807 Art 12(1) . . . . . . . . . . . . . . . . . . . 800, 808 Art 13 . . . . . . . . . . . . . . . . . . . . . . . . . 766 Art 15 . . . . . . . . . . 735, 736, 737, 758, 759 Art 15(1) . . . . . . . . . . . .732, 735, 736, 750, 764, 784, 1225 Art 15(2) . . . . . . . . . . . . . . . . . . . . . . .1224 Art 21(1) . . . . . . . . . . . . . . . . . . . . . . . . 921 Art 24(1) . . . . . . . . . . . . . . . . . . . . . .1224 Art 24(3) . . . . . . . . . . . . . . . . . . . . . .1224 Art 25 . . . . . . . . . . . . . . . . . . . . . . 738, 759 Art 25(4) . . . . . . . . . . . . . . . . . . . 737, 773 Art 27(1) . . . . . . . . . . . . . . . . . . . . . .1224 Art 27(3) . . . . . . . . . . . . . . . . . . . . . . 1225 Art 28(1) . . . . . . . . . . . . . . . . . . . . . . 1222 Art 32 . . . . . . . . . . . . . . . . . . . . . . . . . .759 Art 32(2) . . . . . . . . . . . . . . . . . . . . . . .732 Art 32(5) . . . . . . . . . . . . . . . . . . .738, 750 Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . 769 Art 33(1) . . . . . . . . . . . . . . . . . . . . . . . 1140 Art 33(2) . . . . . . . . . . . . . . . . . . .92, 1140 Art 40 . . . . . . . . . . . . . . . . . . . . . . . . 1113 United Nations Code of Conduct on Transnational Corporations (1986) . . . . 140, 664

General Assembly Resolution 1803 (XVII) of 14 December 1962 on Permanent Sovereignty over Natural Resources Art 4 . . . . . . . . . . . . . . . . . . . 527, 1068 Art 6 . . . . . . . . . . . . . . . . . . . . . . . . 527 Resolution 3201 (1974) . . . . . . . . . . .1069 Resolution 3201 (S-VI) of 1 May 1974 on the Declaration on the Establishment of a New International Economic Order . . . . . . . . . . . . . . . . . . . . . 527 Resolution 3202 (1974). . . . . . . . . . .1069 Resolution 3281 (1974) . . . . . . . . . . .1069 Art 2(2) . . . . . . . . . . . . . . . . . . . . . 242 Global Compact . . . . . . . . . . .141, 644, 645 IMF Agreement Art VI(3) . . . . . . . . . . . . . . . . . . . . . . . 335 Art VIII(2) . . . . . . . . . . . . . . . . . . . . . 331 Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (1980 UN Set) . . . . . . . . . . 125, 138 Chap D . . . . . . . . . . . . . . . . . . . . . . . . 138 World Bank Guidelines on the Treatment of Foreign Direct Investment . . . . . . . . 186, 255, 306, 347, 356, 379, 380 Art III(9) . . . . . . . . . . . . . . . . . . . . . . 306 Art IV(6) . . . . . . . . . . . . . . . . . . . . . .1067 Art VI(1) . . . . . . . . . . . . . . . . . . . . . . . 331 WTO Dispute Settlement Understanding (DSU) Rules of Conduct (1996) . . . . . . . . . . . . . . . . . . . . . 815 Preamble . . . . . . . . . . . . . . . . . . . . . . . . . 815 s II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 s III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 s III para 1 . . . . . . . . . . . . . . . . . . . . . . . . 815 s IV para 1 . . . . . . . . . . . . . . . . . . . . . . . . 815 s VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 815 s VIII para 1 . . . . . . . . . . . . . . . . . . . . . . 816 s VIII para 2 . . . . . . . . . . . . . . . . . . . . . . 816 s VIII para 20 . . . . . . . . . . . . . . . . . . . . . 816

TABLE OF LEGISLATION

EU ROPE A N L E GISL AT ION Directive 88/361 of 24 June 1988 for the implementation of Art 67 of the Treaty . . . . . . . . . . . . . . . . . .587 Directive 98/44 on the legal protection of biotechnological inventions. . . . . . . . . . . . . . . . . . . 665 NAT IONA L L E GI SL AT ION Albania Law on Foreign Investments, Law No. 7764 of 2 November 1993 . . . . . . . . . . . .863 Art 1(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835 Art 8(2) . . . . . . . . . . . . . . . . . . . . . . 833, 943 Algeria Law No. 78–02 . . . . . . . . . . . . . . . . . . . . . 609 Argentina Constitution (1994) s 86 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .478 Decree No. 669/2000 . . . . . . . . . . . . . . . . .478 Decree No. 214/2002 . . . . . . . . . . . . . . . . .478 Decree No. 260/2002 . . . . . . . . . . . . . . . . .478 Decree No. 293/2002 . . . . . . . . . . . . . . . . 506 Economy Emergency Law No. 25, 561 . . . . . . . . . . . 478, 480, 508 Australia International Commercial Arbitration Act 1989 . . . . . . . . . . . . . . . . . . . . 1032 Austria Private International Law . . . . . . . . . . . . 1235 § 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213

Bolivia Supreme Decree No.28701, Nationalization of Hydrocarbon Sector, 1 May 2006 . . . . . . . . . . . . . . . . . . 409 Canada Foreign Investment Review Act . . . . . . 200 Chile Decree Law 600 Foreign Investment Statute . . . . . . . . . . . . . . . . . . . . . . .238 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .238 Colombia Decree 2279 of 10 July 1989 . . . . . . . . . . . 1033 Czechoslovakia Arbitration Procedure Act No. 216–1994 CoL Art 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1143 Rules of Civil Procedure s 228(1)(a) . . . . . . . . . . . . . . . . . . . . . . . . 1143 s 228(1)(b) . . . . . . . . . . . . . . . . . . . . . . . 1143 Egypt Law No. 90 of 1971 . . . . . . . . . . . . . . . . . . .834 Law No. 43 of 1974, Art 8 . . . . . . . . . .702, 833 France Capitation Declaration of 1695 Preamble . . . . . . . . . . . . . . . . . . . . . . . . . 315 Declaration of the Rights of Man (1789) Art 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 New Code of Civil Procedure . . . . . . . . 1179 Book IV, Title IV, Art 1481 . . . . . . . . . 1143 Book IV, Title IV, Art 1482 . . . . . . . . . 1143 Book IV, Title IV, Art 1483 . . . . . . . . . 1143 Book IV, Title IV, Art 1484 . . . . . . . . . 1143

lx

TABLE OF LEGISLATION Art 341 . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 Art 1502 . . . . . . . . . . . . . . . . . . . . . . . . 1040 Art 1504 . . . . . . . . . . . . . . . . . . . . . . . . 1040

Germany Civil Code (BGB) [ss] 134 . . . . . . . . . . . . . . . . . . . . . . . . . . 600 [ss]134 . . . . . . . . . . . . . . . . . . . . . . . . . . . 609 Code of Civil Procedure (ZPO) [ss] 293 . . . . . . . . . . . . . . . . . . . . . .1213, 1235 [ss] 1048(2). . . . . . . . . . . . . . . . . . . . . . . 1222 Federal Law on Administrative Procedure (BVwVfg) [ss]48 II 3 No. 1 . . . . . . . . . . . . . . . . . . . .601 Ghana Investment Code . . . . . . . . . . . . . . . . . . . . 159 Investment Promotion Centre Act 1994 . . . . . . . . . . . . . . . . . 231, 239 Hong Kong Arbitration Ordinance 1997 s 6B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1033 India Arbitration and Conciliation Act 1996 Chap VII . . . . . . . . . . . . . . . . . . . 1144, 1145 Art 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1145 Italy Law No. 555 of 1912 Art 8(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . .73 Private International Law Art 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213 Mexico Foreign Investment Law 1993 . . . . . . . 23, 256 Art 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .238 Namibia Foreign Investment Act 1992 s 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52, 53 s 5(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 s 5(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 s 5(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 s 6(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

s 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 s 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Netherlands Code of Civil Procedure Art 1046 . . . . . . . . . . . . . . . . . . . . . . . . . 1033 Art 1062–8. . . . . . . . . . . . . . . . . . . . . . 1040 New Zealand Bill of Rights 1990 s 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 903 Nigeria Decree No. 32 of 30 September 1998 s 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 s 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 Enterprise Promotion Act 1972 . . . . . . . . 237 Enterprise Promotion Act 1977 . . . . . . . . 237 Enterprise Promotion Act 1989 . . . . . . . . 237 Enterprises Promotion (Repeal) Decree 1995 . . . . . . . . . . . . . . 236, 239 s 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 s 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 s 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 s 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 s 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .236 Poland Civil Code . . . . . . . . . . . . . . . . . . . . . . . . . .570 Russian Federation International Arbitration Act Art 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1144 Law on Foreign Investments 1991 . . . . . . . . . . . . . . . . . . . . . . . . 244 Sweden Arbitration Act . . . . . . . . . . . . . 914–915, 1139 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1225 Art 24 . . . . . . . . . . . . . . . . . . . . . . . . . . .1226 Art 33 . . . . . . . . . . . . . . . . . . . . . . . . . . .1228 Art 33(1) . . . . . . . . . . . . . . . . . . . . . . . . . 1219 Art 34 . . . . . . . . . . . . . . . . . . . . . . . . . . .1228 Art 34(2) . . . . . . . . . . . . . . . . . . . . . . . .1228 Art 34(6) . . . . . . . . . . . . . . . . . . . 1216, 1229 Art 36 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1227

TABLE OF LEGISLATION Switzerland Arrêté fédéral concernant des engagements totaux pouvant être pris au titre de la garantie contre les risques de l’investissement Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 BGE 129 (2003) III . . . . . . . . . . . . . . . . . . . 595 Loi fédérale sur la garantie contre les risques de l’investissement Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533 Art 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533 Art 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 6(1). . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 17(1) . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 18(2) . . . . . . . . . . . . . . . . . . . . . . . . . .534 Ordonnance d’exécution de la loi fédérale sur la garantie contre les risques de l’investissement, 2 September 1970 Art 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 5(3). . . . . . . . . . . . . . . . . . . . . . . . . . .534 Art 12(1) . . . . . . . . . . . . . . . . . . . . . . . . . .534 Private International Law Act Art 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1213 Art 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . 608 Art 19(1) . . . . . . . . . . . . . . . . . . . . . . . . . 608 Art 20. . . . . . . . . . . . . . . . . . . . . . . . . . . 609 Art 180 . . . . . . . . . . . . . . . . . . . . . . . . . . . 819 Art 180(1)(c) . . . . . . . . . . . . . . . . . . . . . . 819 Art 180(3) . . . . . . . . . . . . . . . . . . . . . . . 820 Art 187 . . . . . . . . . . . . . . . . . . . . . . . . . . 608 Art 190 . . . . . . . . . . . . . . . . . . . . . . . . . . 1143 Tanzania Investment Act 1997 s 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 Thailand Foreign Business Act 1999 . . . . . . . . . . . . 237 United Kingdom Arbitration Act 1979 . . . . . . . . . . . . . . . .1228

lxi

Arbitration Act 1996 . . . . . . . . . . . . . . 39, 751 s 1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 818 s 24(1)(a). . . . . . . . . . . . . . . . . . . . . . . . . . 818 s 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1212 s 33(1)(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 818 s 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1212 ss 42–44 . . . . . . . . . . . . . . . . . . . . . . . . . .765 s 48(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1212 s 67 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1228 s 68 . . . . . . . . . . . . . . . . . . . . . . . .1040, 1228 s 69 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040 s 103 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040 Civil Procedure Rules Pt 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .958 Enterprise Act 2002 s 58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 Export Credit Guarantees Act 1991 . . . . . 531 Human Rights Act 1998 . . . . . . . . . . . . . . 819 s 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819 Magna Carta . . . . . . . . . . . . . . . . . . . . . . . . 316 Navigation Act 1660 . . . . . . . . . . . . . . . . . 315 Staple Act 1663 . . . . . . . . . . . . . . . . . . . . . . 315 State Immunity Act 1978 s 13(2)(b) . . . . . . . . . . . . . . . . . . . . . . . . . 1181 s 13(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1181 s 14(4) . . . . . . . . . . . . . . . . . . . . . . . 1181, 1182 United States Alien Tort Claims Act, 28 USC . . . 668, 673 § 1350 . . . . . . . . . . . . . . . . . . . . . . . . . . . .674 Californian Code of Civil Procedure § 1297.121 . . . . . . . . . . . . . . . . . . . . . . . . 820 § 1297.122 . . . . . . . . . . . . . . . . . . . . . . . . 820 § 1297.124 . . . . . . . . . . . . . . . . . . . . . . . . 820 Constitution . . . . . . . . . . . . . . . . . . . . 315, 354 Art 1 s 8, cl 3 . . . . . . . . . . . . . . . . . . . . . . 313 Declaration of the Rights and Duties of Man . . . . . . . . . . . . . . . . . . . . . . 156 Federal Arbitration Act. . . . . . . . . . 820, 927 § 1–16 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1151 § 10(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1143 Federal Aviation Act 1958, 49 USC § 40101 . . . . . . . . . . . . . . . . . . . . . . . . . . .236 Foreign Assistance Act 1969, 22 USC § 2191 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2193 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2194 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533

lxii

TABLE OF LEGISLATION

§ 2194(a)(2) . . . . . . . . . . . . . . . . . . . . . . 546 § 2197(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2197(e) . . . . . . . . . . . . . . . . . . . . . . . . . . 533 § 2197(f) . . . . . . . . . . . . . . . . . . . . . . . . . . 533 § 2197(m) . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2198(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2198(c) . . . . . . . . . . . . . . . . . . . . . . . . . . 533 § 2199(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2199(i) . . . . . . . . . . . . . . . . . . . . . . . . . . 532 § 2370(e)(2) . . . . . . . . . . . . . . . . . . . . . . 697 § 2911(i) . . . . . . . . . . . . . . . . . . . . . . . . . . 532 Foreign Corrupt Practices Act 1977 . . . .588 Foreign Sovereign Immunities Act 1976 . . . . . . . . . . . . . . . . . . . . 697

Freedom of Information Act . . . . . . . . . . 745 Revised Uniform Arbitration Act . . . . . 1143 Rules of Federal Procedure r 10A . . . . . . . . . . . . . . . . . . . . . . . . . . . . .958 r 12(b)(6) . . . . . . . . . . . . . . . . . . . . . . . . .958 r 56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .958 Trade Act 2002 . . . . . . . . . . . . . . . . . . . . . . 745 § 2102 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1155 § 2102(2)(b)(3)(H)(ii)(II) . . . . . . . . . . . . 745 Uniform Arbitration Act . . . . . . . . 820, 1143 Sri Lanka Constitution Art 157 . . . . . . . . . . . . . . . . . . . . . . . . 39, 252

List of Contributors

Pia Acconci, Associate Professor of European Union Law and International Law, University of Teramo, Italy Alan S Alexandroff, Research Director, Program on Conflict Management and Negotiation, University of Toronto Stefan D Amarasinha, Directorate General for Trade, European Commission Vladimír Balaš, Lecturer in International Law, Charles University, Prague Andrea K Bjorklund, Acting Professor, School of Law, University of California, Davis Joachim Delaney, Clifford Chance LLP, London Ignacio Gómez-Palacio, Founding Partner, Gómez-Palacio y Asociados, Mexico City; Professor, School of Law, Universidad Iberoamericana Dorothee Gottwald, Desk officer, Federal Ministry of the Interior, Berlin Louis-Philippe Gratton, Teaching and Research Assistant, University of Lausanne; PhD Candidate, Université Toulouse 1—Sciences Sociales, France Todd Grierson-Weiler, Adjunct Professor, Faculty of Law, University of Calgary and the Washington College of Law Moshe Hirsch, Arnold Brecht Professor in European Law, Faculty of Law and Department of International Relations, Hebrew University of Jerusalem Kaj Hobér, Partner, Mannheimer Swartling, Stockholm; Professor of East European Commercial Law, Uppsala University Anne K Hoffmann, Rechtsanwältin (Germany) and Solicitor (England and Wales), Python & Peter, Geneva Juliane Kokott, First Advocate General, Court of Justice of the European Communities Abba Kolo, Lecturer in Energy and Investment Law, Centre for Energy Petroleum and Mineral Law and Policy, University of Dundee, Scotland

lxiv List of contributors Akira Kotera, Professor, Graduate School of Public Policy, University of Tokyo Ian A Laird, Special Legal Consultant, Fulbright & Jaworski LLP, Washington, DC Daniel Barstow Magraw, President, Center for International Environmental Law, Washington, DC Loretta Malintoppi, Of Counsel, Eversheds, Paris Giuditta Cordero Moss, Professor, Institute of Private Law, University of Oslo Peter Muchlinski, Professor in International Commercial Law, School of Oriental and African Studies, London Federico Ortino, Reader in International Economic Law, King’s College London Asif H Qureshi, Professor of International Economic Law, Law School, University of Manchester Hilmar Raeschke-Kessler, Rechtsanwälte beim Bundesgerichtshof, Karlsruhe; Honorary Professor, University of Cologne, Germany August Reinisch, Professor of International and European Law, University of Vienna; Professorial Lecturer, Bologna Center of SAIS/Johns Hopkins University Borzu Sabahi, Adjunct Professor of Law, Doctoral (SJD) Candidate, Georgetown University Law Centre, Washington, DC Engela C Schlemmer, Professor of Law, Department of Constitutional, International and Indigenous Law, School of Law, University of South Africa Christoph Schreuer, Professor, University of Vienna; Chair, ILA International Law on Foreign Investment Committee Audley Sheppard, Partner, Clifford Chance LLP; Rapporteur of the ILA International Arbitration Committee (1996–2006) Ole Spiermann, Professor, Faculty of Law, University of Copenhagen Jacomijn J van Haersolte-van Hof, Advocaat and Counsel, Freshfields Bruckhaus Deringer, Amsterdam Thomas W Wälde, Professor and Jean-Monnet Chair, Centre for Energy Petroleum and Mineral Law and Policy, University of Dundee, Scotland; Essex Court Chambers Matthew Weiniger, Partner, Herbert Smith LLP, London Friedl Weiss, Professor of European Law and International Economic Law, University of Vienna

List of contributors

lxv

David AR Williams QC, Barrister, Bankside Chambers, Auckland, New Zealand; Essex Court Chambers, London Katia Yannaca-Small, Legal Advisor on International Investment, OECD, Paris Andreas R Ziegler, Professor, Faculty of Law and Criminal Sciences, University of Lausanne

This page intentionally left blank

Pa rt I

F U N DA M E N TA L ISSUES

This page intentionally left blank

Chapter 1

P O L IC Y I S S U E S * Peter Muchlinski

(1) The Principal Actors

6

(2) Ideological Factors

10

(3) Technical Issues

16

(a) Sources and Institutional Factors (b) Development of Substantive Standards (i) ‘Core’ Issues Concerning Investor/Investment Protection (ii) The Development Dimension (iii) Corporate Social Responsibility (iv) Home Country Measures (c) Enforcement and Dispute Settlement (i) International Investment Law and National Law (ii) Dispute Settlement

Concluding Remarks

16 19 19 31 37 38 39 39 40

44

* This chapter first appeared in an earlier draft as the First Report of the International Law Association (ILA) Committee on the International Law on Foreign Investment in ILA, Report of the Seventy-Second Conference Toronto 2006 (London, ILA 2006) at 410–46. The author is co-rapporteur to the Committee. The editors would like to express their thanks to the ILA for permission to reproduce the contents of the Report in the preparation of this chapter.

4

Peter Muchlinski

There can be no understanding of law, whether national or international, without a prior understanding of the policy issues that it seeks to deal with. In these circumstances, it is essential that the study of the international law relating to foreign investment is placed in its proper policy and political context. This is all the more necessary, given the long history of dispute over applicable rules and standards in this field. It is not proposed, nor is it necessary, to go over that history here. It has been done elsewhere.1 For present purposes, it is enough to point out that the regulation of relations between states and foreign investors may be said to have begun with the development, by the major powers, of international norms relating to the treatment of aliens and their property, including expropriation, in the first half of the 20th century. In addition, it should be noted that there have always been challenges to such norms, in particular, from socialist states, which opposed norms based on notions of private property, and newly independent post-colonial states, especially during the period of African and Asian de-colonization after World War II. This culminated, in the mid-1970s, with the adoption of UN Resolutions calling for the establishment of a New International Economic Order (NIEO), with its emphasis on sovereign rights to regulate and control foreign investors and their investments, and on the recognition of permanent national sovereignty over natural wealth and resources. More recently, such sovereignty-oriented challenges appear to have been mitigated and replaced by an acceptance of international standards of treatment, at least as treaty-based standards. This can be explained by a number of factors: first, the demise of the Socialist Bloc, which brought to an end the Cold War, with its attendant clash of ideologies and alliances, and which gave rise to the process of transition to market-based economies in the states of the former Soviet Union and Central and Eastern Europe; secondly, the effects of the debt crisis of the early 1980s upon the availability of public and private sector loan capital, which rendered foreign direct investment (FDI) the major source of capital especially in developing countries;2 thirdly, the increased acceptance by governments, through the 1980s and 1990s, of market-based approaches to economic development, in both developed and developing countries, resulting in the processes of liberalization, privatization, and gradual deregulation of national economies.3 This last factor may be said to arise directly 1 See Peter Muchlinski, ‘A Brief History of Business Regulation’ in Sol Picciotto and Ruth Mayne (eds), Regulating International Business: Beyond Liberalization (Basingstoke, Macmillan Press, 1999) 47; M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) ch 2. Charles Lipson, Standing Guard: Protecting Capital in the Nineteenth and Twentieth Centuries (Berkeley, Calif., University of California Press, 1985). I Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) ch 24. 2 See UNCTAD, World Investment Report 1992 (New York, United Nations, 1992) at 101; see further JH Dunning, Multinational Enterprises and the Global Economy (Wokingham, Addison-Wesley Publishing, 1993) ch 2. 3 See generally Robert Gilpin, The Challenge of Global Capitalism (Princeton, Princeton University Press, 2000) ch 2 ‘The Second Great Age of Capitalism’.

Policy Issues

5

out of the underlying process of economic globalization that is being driven by increased transnational economic integration though the growth of transnational production chains dominated by multinational enterprises (MNEs, also referred to as transnational corporations or TNCs in UN parlance) or through interlinked alliances of free-standing firms.4 To be successful, such modes of production will require large areas of economic and regulatory uniformity across national boundaries. Hence it may be said that economic globalization contains a built-in ‘bias’ in favour of liberalized national economic policies and pro-investor approaches to international business regulation. It may also require limits upon the sovereign right of states to regulate, as they please, economic activity within their borders. Against this, albeit brief, sketch of how we have arrived in the present phase of international legal concern over foreign investment, the remainder of this chapter will delve further into the details of the policy environment within which contemporary norms are evolving. This will be done, first, by considering the principal actors in the FDI process and their policy priorities: MNEs, home, and host states. To these may now be added non-governmental organizations (NGOs), as the apparent voices of so-called ‘civil society’,5 and intergovernmental organizations (IGOs) as possible locations for the further development of international standards and procedures. Secondly, the current ideological background to international foreign investment law needs to be more closely examined. In particular the above-mentioned ‘bias’ must be considered in more depth so that it may be properly understood, and in addition, it must be examined against the background of the influence, upon international law, of other evolving non-economic standards such as human rights, the right to development, and environmental and labour standards. To these should be added the established and more recent calls for greater international corporate social responsibility emanating from NGOs, IGOs, and industry groups themselves. Thirdly, and in the light of the preceding background factors, the more technical aspects of international investment law will be analysed from a policy perspective. Here three main issue areas arise: how the sources of international investment law may be influenced by policy factors; what types of substantive standards will evolve and to whom they will be addressed; and how are standards to be enforced and disputes resolved? 4 See Peter Dicken, Global Shift (London, Sage Publications, 5th edn, 2007) esp ch 1, ‘Questioning Globalization’. See too Francis Snyder, ‘Governing Economic Globalisation: Legal Pluralism and EU Law’ in Francis Snyder (ed), Regional and Global Regulation of International Trade (Oxford, Hart Publishing, 2002) 1, for a discussion of the regulatory needs of such systems of production. 5 ‘Civil society’ may be defined as, ‘the space for uncoerced human association and also the set of relational networks—formed for the sake of family, faith, interest and ideology—that fi ll this space’: MWalzer (ed), Toward a Global Civil Society (Providence, RI, Berghan Books, 2nd edn, 1998) at 7 adopted by Daphne Josselin and William Wallace (eds), Non-state Actors in World Politics (Basingstoke, Palgrave Publishers, 2001) at 20 n 5. On ‘international civil society’ see Holly Curren and Karen Morrow, ‘International Civil Society in International Law: The Growth of NGO Participation’ 1 Non-State Actors and Int’l Law 7 (2001).

6

Peter Muchlinski

(1) The Principal Actors The earliest international legal rules concerning foreign investors and investment assumed a tripartite set of actors: the home state, the host state and the investor, of whom only the first two had legal standing. This situation arises out of the fact that states have traditionally been seen as the principal subjects of international law. Typically, legal issues arising out of the treatment of a foreign investment would be dealt with as instances of diplomatic protection, whereby the home state of the investor would make direct representations to the host state, without the active participation of the investor, whose property and/or rights were alleged to have been infringed by the host. In this process the investor, as a non-state actor, would not be recognized as a subject of international law. Yet its claim could be taken up by the protecting state, the home state of the investor. This would take the form of an international claim for compensation, to which the claim of the investor would be assimilated, on the grounds that, by its actions towards the foreign investor, the host state had committed a breach of international law against the home state. This would be subject to the proviso that the domestic remedies rule had been exhausted, and that the investor did in fact possess the nationality of the home state.6 While this situation still represents the formal limits, ratione personae, of international law it does not fully explain recent developments in the field of foreign investment. It is not suggested here that investors, whether natural or legal persons, are acquiring international legal personality.7 Rather, as the protection of investors and their investments has become an established goal of many capital-importing states, they have been prepared to accept the obligation, in international law, to observe certain standards of treatment and, in most cases, to provide for the effective implementation of such obligations through the extension of direct treaty-based dispute settlement rights to investors, allowing them to use international dispute settlement procedures against the host state and/or its agents and entities.8 Thus investors, be they natural or legal persons, enjoy a measure of international locus standi before international tribunals in relation to investor protection obligations in investment agreements. However, the nature of the host state’s obligation remains somewhat ambiguous. It may be seen as a classical international obligation, owed in principle to the home state of the investor as a contracting party to the investment agreement. On the other hand, it may be said that, by agreement with the home state, 6 See further Lipson, and Brownlie, above n 1. See too UNCTAD, Dispute Settlement: Investor-State (New York and Geneva, United Nations, 2003) at 32–4 where it is doubted that the local remedies rule applies to investment agreements containing an investor–state dispute settlement provision. 7 On which see further D Ijalaye, The Extension of Corporate Personality in International Law (Dobbs Ferry, NY, Oceana, 1978). 8 On the issue of attribution of responsibility for acts of state agents or entities see further Hobér, ‘State Responsibility and Attribution’ ch 14 below.

Policy Issues

7

diplomatic protection is replaced by investor-held rights of action against the host state. Such rights are new and independent of any rights held by the investor’s home state under the International Investment Agreement (IIA). The national state of the investor has no residual interest in these new rights and obligations.9 This is in line with developments in other areas of international law, notably the law of human rights, where the individual may be granted treaty-based rights of action against the state. In addition, investor rights, both substantive and procedural, will not only be contained in treaties but also in investor–state agreements. These agreements will form the legal ‘constitution’ of the investment project and will determine the respective functions, contributions, and operational duties of the investor and the host state and/or its agents. Such agreements, referred to as state contracts, are governed by their proper law, usually the law of the host country, but will also give rise to obligations rooted in international law, regarding the treatment of the investor.10 The role of investors as actors in international investment law cannot be confined simply to the making of legal claims. The major investors, in particular MNEs, are at the heart of legal developments in this field, even if they are not formally its subjects. Their role as a special interest group that seeks to influence the development of the law in a manner conducive to the furtherance of investor interests cannot be ignored. There is little doubt that MNEs lobby governments and IGOs to ensure that normative development is business friendly.11 How successful they may be is another issue, as the case of the failure of the Multilaternal Agreement on Investment (MAI), or of the adoption of investment rules in the World Trade Organization (WTO), may suggest. Nonetheless, it is not possible to see the development of this area without taking account of the role of these important actors as a formative influence in the law. In addition, given the increased calls for the extension of legally binding international standards of corporate social responsibility, MNEs may become subject to new duties under international instruments. The legal nature of such instruments will be further discussed below. However, even where such instruments are nonbinding they help to create a climate in which binding obligations may follow.

9 See further Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ 74 BYIL 150 (2003) at 282. But see, for an argument that investors may acquire a degree of international personality as holders of rights under investment treaties, Ole Spiermann, ‘Twentieth Century Internationalism in Law’, inaugural lecture delivered at the University of Copenhagen on 20 January 2006. 10 See further UNCTAD, State Contracts, Series on issues in international investment agreements (New York and Geneva, United Nations, 2004); Charles Leben, La Théorie du Contrat d'Etat et l'Evolution du Droit International des Investissements (Leiden, Martinus Nijhoff Publishers, 2004). The issue of applicable law is covered by Spiermann, below Ch 3. 11 See eg Ian H Rowlands, ‘Transnational Corporations and Global Environmental Politics’ in Josselin and Wallace (eds), above n 5 at 133 and Andrew Walter, ‘Unravelling the Faustian Bargain: Non-state Actors and the Multilateral Agreement on Investment’ in ibid, at 150.

8

Peter Muchlinski

In addition to investors, other non-state actors need to be considered. In particular, NGOs that seek to influence the development of rules and procedures in this area must be taken into account. While the activities of such organizations are, perhaps, best known to lawyers in the field of human rights protection,12 NGOs have been increasingly active in the field of international business regulation. With the growth of economic globalization, the activities of such bodies, whether as critics and monitors of corporate excesses, or as advocates of further economic liberalization and facilitation for business interests, can be expected to grow. Indeed, in a global economic system where the transnational integration of business activities has forged ahead of regulatory developments that can effectively control the market in the public interest, the opportunities for informal action by so-called ‘civil society’ are considerable. It may be said that NGOs are filling a gap in regulatory order by placing certain issues on the political agenda, and contesting the very future of that regulatory order by their actions. In addition to states and non-state actors, the IGOs comprise a further set of influential participants in the development of international investment law and policy. IGOs are organized around the constitutive instrument establishing the organization to which the member states have consented. They have an existence rooted in the sovereign acts of states, but they exist over and outside those states. Equally, each IGO creates a legal sub-system based on its constituent instrument, which, in turn, will also be governed by a sub-system of public international law, the law of international institutions.13 Furthermore, an IGO may have a quasi-legislative power to develop substantive international rules and procedures governing its substantive field of activity. This specialized legal order may be said to constitute a tool for the pragmatic development of responses to the regulation of the phenomena of globalization.14 That this power has been used in relation to the development of norms of international investment law cannot be doubted, notwithstanding the history of frequent failure in relation to the adoption of international rules in this area. In particular the contributions of the Organization for Economic Cooperation and Development (OECD),15 the International Labour Organization (ILO),16 the UN 12 See A Cassese, Human Rights in a Changing World (Cambridge, Polity Press, 1994) at 171–4; Henry J Steiner and Philip Alston, International Human Rights in Context: Law, Politics, Morals (Oxford, Oxford University Press, 2nd edn, 2000) ch 11. 13 See Philippe Sands and Pierre Klein, Bowett’s Law of International Institutions (London, Sweet & Maxwell, 5th edn, 2001) paras 1–030 at p 17. 14 See Peter Thomas Muchlinski, ‘Globalisation and Legal Research’ 37 Int’l Law 221 (2003) at 226. 15 See the OECD: Guidelines for Multinational Enterprises (OECD, Paris, 2000), Codes on Liberalisation of Capital Movements and Invisibles (OECD, Paris, periodically revised), the Convention on Bribery 1997 and Principles of Corporate Governance (OECD, Paris, 2004), available at . On anti-corruption see further Raeshke-Kessler and Gottwald, ‘Corruption’ ch 15 below. 16 See the ILO Labour Conventions and specifically the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy 2000: 41 ILM 184 (2002) and the Declaration on Fundamental Principles and Rights at Work: 37 ILM 1233 (1998).

Policy Issues

9

Sub-commission on Human Rights,17 and United Nations Conference on Trade and Development (UNCTAD)18 should be taken into account as regards standard setting and research in this area, while the World Bank has, through the International Centre for Settlement of Investment Disputes (ICSID), established the leading investor–state dispute settlement body, which is handling an increased case-load19 that has an increasingly significant influence on the development of norms in this area.20 In addition the World Bank’s Multilateral Investment Guarantee Agency (MIGA) has contributed to the creation of investment opportunities in developing countries by offering a specific, development-oriented, investment insurance system that complements existing national investment insurance schemes.21 The range of organizations now involved in the foreign investment field points to a need for greater coordination and cooperation in order to further a more holistic approach to the regulation of foreign investment.22 Furthermore, it will be necessary to ensure that there is proper coordination between international obligations in investment agreements and non-investment obligations arising out of other international treaties and legal standards.23 Finally, this section needs to consider more fully the role of home states as actors in international investment law. To date, home states have not been the subjects of any direct international obligations, in relation to investment abroad, undertaken by their nationals. However, it is arguable that these countries ought to accept certain new obligations, so as to make the balance of rights and duties between the three main participants in the investment relationship more balanced. As noted above, the bulk of international obligations have hitherto fallen upon host states. By contrast, investors and home states have few, if any, international obligations. It has 17 UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights, UN Doc.E/CN.4/Sub.2/2003/12/Rev.2 (2003); comment by D Weissbrodt and M Kruger in 97 AJIL 901 (2003). 18 See UNCTAD, ‘Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices 1980’ 19 ILM 813 (1980) as revised, see: . More widely UNCTAD has performed a significant research and education function in this area and published the annual World Investment Report: see further Torbjorn Fredriksson and Zbygniew Zimny, ‘Foreign Direct Investment and Transnational Corporations’ in UNCTAD, Beyond Conventional Wisdom in Development Policy: An Intellectual History of UNCTAD 1964–2004 (New York and Geneva, United Nations, 2004) at 257. 19 This arises both through direct use of the conciliation and arbitration procedures by nationals of contracting parties and also through the ICSID Additional Facility, which is of particular importance in relation to the North American Free Trade Agreement (NAFTA) dispute settlement system. 20 This is evidenced by the considerable increase in the number of disputes submitted to ICSID in recent years under the Arbitration Rules and the Additional Facility Rules, which are used for NAFTA cases in particular. 21 See further Ziegler and Gratton, ‘Investment Insurance’ ch 13 below. 22 See F Ortino, ‘The Social Dimension of International Investment Agreements’ 7 Intl Law FORUM du droit international 243 (2005). 23 See Moshe Hirsch, ‘Interactions between Investment and Non-Investment Obligations’ ch 5 below.

10

Peter Muchlinski

already been shown that increasing attention is being paid to the duties of investors towards the countries in which they invest. Equally, it is possible to expect home states to undertake certain responsibilities. In particular, given that the majority of home states are developed, while many host states are developing or less developed, it may be valuable, as a stimulus for investment, to extend certain duties on home states to facilitate outward investment to developing countries, such as the provision of incentives or the encouragement of technology transfer.24 In addition, the home states’ legal and regulatory system might be used to ensure that MNEs based there conform to certain standards of good corporate citizenship through the sanction of home country laws and regulations, and through the provision of legal redress for claimants from outside the home country who are in dispute with the parent company for the acts of its overseas subsidiaries.25

(2) Ideological Factors The central issues surrounding the evolution of international legal policy on foreign investment cannot be understood without at least a preliminary route-map displaying the main ideological perspectives that help to form the debate in this field. In the introduction, a ‘bias’ in favour of a liberal regime for FDI was mentioned. This will be examined first, followed by a review of alternative positions. Throughout it must be remembered that an international legal order cannot display the same level of policy consensus that a more localized order may be capable of achieving. The degree of variation between the economic and social positions of the many countries that participate in this order will inevitably lead to compromise over strongly held policy positions, unless the system is to descend into hegemony and the forcible domination of any particular world view. Such a coercive perspective is not impossible, of course, and the history of international business regulation is as much a history of force as it is of moderation.26 However, if international investment law is to be a system based on a genuine respect for norms and rules it must command a degree 24 See UNCTAD, World Investment Report 2003 (New York and Geneva, United Nations) at 61–3. 25 Ibid, at 156. See further Peter Muchlinski, ‘Corporations in International Litigation: Problems of Jurisdiction and the United Kingdom Asbestos Case’ 50 ICLQ 1 (2001); Phillip Blumberg, ‘Asserting Human Rights against Multinational Corporations under United States Law: Conceptual and Procedural Problems’ 50 AJCL 493 (2002) and M Kamminga and S Zia-Zarifi (eds), Liability of Multinational Corporations under International Law (The Hague, Kluwer Law International, 2001) esp Sect III. 26 See J Braithwaite and P Drahos, Global Business Regulation (Cambridge, Cambridge University Press, 2000) ch 22.

Policy Issues

11

of consensus. This will be impossible to achieve without a measure of compromise over strongly held positions. Against this background, why should it be said that the current approach to norm formation may be ‘biased’ towards a liberal approach to FDI regulation and towards an emphasis on protection of investors and their investments? The main answer lies in the dominant forms of production that an increasingly integrated global economy creates.27 Specifically, the activities of MNEs are said to give rise to the emergence of what Peter Dicken calls a ‘new geo-economy’, characterized by changes in the geographical distribution of economic activity away from relatively selfcontained national economies towards globally integrated cross-national production and distribution chains organized by MNEs.28 Such economic changes leading to increased cross-border economic integration are said to be qualitatively different from earlier stages of international economic activity.29 Thus a distinction is to be made between internationalization—the process of increasing economic activity across national borders, which has been going on for centuries—and true globalization which involves not only an increase in such activities but their transformation into systems of integrated global economic activity, in the way described by Dicken above. The rise of global corporations, in effect, creates new vehicles for the global integration of trade and production.30 The major policy implication of this development is the need for a regulatory order that allows for untrammelled productive integration to take place. Hence the so-called ‘bias’ towards liberal economic policies and investor protection that, together, will stimulate increased cross-border investment flows and allow for deeper integration. Such integration, it is said, will allow for the further growth of the global economy and will ensure the increased participation within that economy of developing as well as developed countries.31 This approach is open to challenge. First, the significance of global patterns of economic integration has been doubted by research showing that MNEs remain highly embedded in national economic and regulatory systems and that few corporations can be seen as truly ‘global’.32 Secondly, it concentrates exclusively on 27 The following paragraphs are adapted from Muchlinski, above n 14 at 222–3. 28 See Dicken, above n 4 ch 1. See too UNCTAD, World Investment Report 1993, Part II ‘Integrated International Production’; and on the phenomenon of outsourcing of services activity UNCTAD World Investment Report 2004, Part II ‘The Shift Towards Services’. 29 See generally David Held, Anthony McGrew, Douil Goldblatt, and Janathan Perraton, Global Transformations: Politics, Economics and Culture (Cambridge, Polity Press, 1999). 30 Kenichi Ohmae, The Borderless World (London, Fontana, 1991). CA Bartlett and S Ghoshal, Managing across Borders: The Transnational Solution (Cambridge, Mass, Harvard Business School Press, 2nd edn, 1998 paperback edn, 2002). 31 See Martin Wolf, Why Globalization Works (New Haven and London, Yale University Press, 2004). 32 See PN Doremus WW Keller, LW Pauly and S Reich, The Myth of the Global Corporation (Princeton, Princeton University Press, 1998); see too Alan Rugman, UK Competitiveness and the Performance of Multinational Companies (Report funded by the Economic and Social Research Council (ESRC), September 2002); see ESRC Press Release, ‘Strategies and Performance of World’s

12

Peter Muchlinski

economic factors, ignoring the implications of certain sociological effects of increased global integration. Here the emphasis is on greater cultural interchange and on the development of global social phenomena such as global consumption patterns, transnational class formation, and what can be termed the global/local cultural paradox,33 as well as upon the economic manifestations of globalization.34 This perspective therefore adds a more comprehensive set of issues to be examined as evidence of globalization and as subject-matter for transnational legal processes. Furthermore, it raises the question whether we are creating some kind of global ethical system, possibly based on respect for fundamental human rights, which can be seen as a constitutional dimension of globalization, an issue that, as will be seen below, plays an increasingly important part in the substantive legal discussion of international investment law. In the light of the foregoing, it is clear that while there are significant indicators that a process of increasing global economic integration is under way, how wide and how far it develops is unclear and open to speculation. In the light of such uncertainty, it is perhaps not surprising that the debate surrounding the term globalization has acquired an ideological content. The parameters of the debate on globalization have distinct echoes in the debate over the content and future direction of international investment law. Held et al have identified three major positions in the globalization debate:35 first, the ‘hyperglobalists’ who stress the displacement of national economies by transnational production, trade, and financial networks, operating in an increasingly liberal global market order;36 secondly the ‘sceptics’ who doubt whether the economic evidence shows any real increase in international economic activity as compared with the period up to 1914, or that production chains are as global as some have asserted,37 and, thirdly, the ‘transformationalists’ who see the levels of transnational economic integration as unprecedented, and who feel that globalization is giving rise to a fundamental restructuring of power in a world where there is no Biggest 500 Multinationals Expose the Myth of Globalisation’, 2 September 2002, ; and Larry Eliott, ‘Big Business isn’t Really That Big’, the Guardian (2 September 2002) at 23. 33 For example, the local adoption of globalized cultural activities such as the playing of global sports, or the consumption of universally available fast foods, and the globalization of local customs and products such as the global trade in local cultural artefacts and the development of ‘multiculturalism’. 34 See eg Anthony Giddens, The Third Way (Cambridge, Polity Press, 1998); Malcolm Waters, Globalisation (London, Routledge, 1995); Leslie Sklair, The Transnational Capitalist Class (Oxford, Blackwell Publishers, 2001) and Globalization: Capitalism and its Alternatives (Oxford, Oxford University Press, 2002). 35 Held et al above n 29 at 2–10. 36 See eg Kenichi Ohmae, The End of the Nation-State (New York, Free Press, 1995). 37 See David Hurst and Grahame Thompson, Globalisation in Question (Cambridge, Polity Press, 2nd edn, 1999). Held et al dispute the empirical basis of Hurst and Thompson’s thesis, arguing that the changes in productive processes that MNEs have instituted do enhance the structural power of corporate capital at the expense of the nation-state, creating new issues of governance: see Held et al above n 29 at 281–2.

Policy Issues

13

longer a clear distinction between local, national, or international affairs. However, they do not share the ‘hyperglobalist’ view that this is leading inexorably towards a global free market. A further distinction should be drawn between those who see globalization as a real phenomenon, whether they agree with the ‘hyperglobalist’ faith in global free markets or not (as in the case of the so called ‘anti-globalisation’ movement38)—the ‘globalists’—and those who deny the reality of globalization— the ‘anti-globalists’.39 Views belonging to the latter group can range from the abovementioned ‘sceptics’, who assert that globalization is a myth generated to support neo-liberal policies, aimed at the deregulation of trade, investment, and financial flows, to outright nationalists, or religious fundamentalists, who reject the very notion of an integrating global economy as ‘a good thing’.40 From this brief review of positions on globalization, the major strands in the debate on foreign investment law can be identified. Thus a ‘hyperglobalist’ perspective can be seen among those who favour the full liberalization of investment barriers, leading to a more open and competitive global market for FDI, and the application of state-of-the-art protection for investors in IIAs. Such a perspective may be said to have informed the general development of FDI policy on the part of the NAFTA countries, in both their regional and bilateral dealings over FDI, and the policy preferences of MNEs. On the other hand, a ‘sceptical’ position is taken by those who remain to be convinced that full liberalization is necessary, and who wish to retain a high degree of state discretion in IIAs. It may be said that a number of leading developing countries take such a position, as is evidenced by discussions in the WTO Working Group on Trade and Investment, and by the opposition, on the part of such countries, to the commencement of negotiations over investment issues at Cancun in 2003.41 In addition some, but by no means all, civil society groups and NGOs that are concerned about the adverse effects of economic globalization may follow this position. A middle way between these positions may be said to be emerging from the work of UNCTAD. This may be said to have elements of a ‘transformationalist’ perspective, 38 See eg Naomi Klein, No Logo (London, Flamingo, 2000), which does not reject the notion global integration of production as such, but rather calls for stronger regulation, by IGOs, of corporate abuses. By contrast some do reject the very process of global economic integration and wish to reverse it; see Colin Hines, Localization: A Global Manifesto (London, Earthscan, 2000). 39 Jan Aart Scholte, Globalization: A Critical Introduction (Basingstoke, Palgrave, 2000) at 17–18. 40 See V Cable, Globalization and Global Governance (London, RIIA, 1999) ch 7. The ideas of the late Sir James Goldsmith, founder of the UK Referendum Party, perhaps come closest to exemplifying the nationalist perspective: see his book The Trap (London, Macmillan, 1996). Equally, the politics of ethnic identity can act as a spur to anti-globalist perspectives. See for example the effect of the rise of Islamic fundamentalism discussed by Ankie Hoogvelt in Globalization and the Postcolonial World (Basingstoke, Palgrave, 2nd edn, 2001) ch 9, ‘Islamic Revolt’. 41 On the wider issues behind this scepticism, see S Young and AT Tavares, ‘Multilateral Rules on FDI: Do We Need Them? Will We Get Them? A Developing Country Perspective’ 13(1) Transnational Corporations 1 (2004). On the relationship between trade and investment rules in the WTO, see Weiss, ‘Trade and Investment’, ch 6 below.

14

Peter Muchlinski

in that the reality of globalization is accepted and the need for some fundamental reconsideration of its regulatory consequences is required. In relation to investment issues, the fundamental starting point is an acceptance that FDI is, in general, beneficial to national economies, including those of developing countries.42 Thus, on the whole, a policy of liberalization and protection of investors can be welcomed and appropriate obligations in IIAs can be undertaken. On the other hand, such an approach may have to be mitigated in IIAs to allow for the preservation of ‘national policy space’ in the development of national economic policy, and the ‘right to regulate’ economic activity within national borders.43 This is especially the case for developing countries that may have greater difficulties than developed countries in opening up their economies to the full force of global competition. According to UNCTAD, in order to reap the full benefits from FDI, the developing host country may need to supplement an open approach to inward investment with further policies. In particular, it may need positive measures to increase the contribution of foreign affiliates to the host country through mandatory measures such as, for example, performance requirements and through the encouragement of desired action by affiliates through, for example, incentives to transfer technology and to create local R&D capacity. Such policy measures entail a degree of regulation. This may involve some measure of intervention in the freedom of action of the foreign investor and controls over the manner in which the investment can evolve. In this, the host country may encounter an inconsistency between its desired policy goals, as enacted through regulatory measures, and the obligations to protect investors and their investments under the terms of the IIA. From a development perspective this requires a balance to be struck between the legitimate interests of investors to enjoy their investments in a settled, transparent, and predictable investment policy environment and the legitimate interests of the host country to pursue its development goals. This can be achieved through recognition of the need, in an IIA, to preserve a degree of national policy space for the host country and for an acceptance of a ‘right to regulate’ for legitimate policy purposes alongside the host country’s commitments to protect investors and their investments. In addition, an IIA should display a commitment to flexibility for development. In this context, flexibility denotes: an instrument’s ability to serve, and to be adapted to, several differing uses and functions. The flexibility considered here relates to a particular set of objectives, those that concern the promotion of the development of developing countries parties to IIAs, without losing sight of the need for stability, predictability and transparency for investors. More specifically, the function of flexibility is to adapt IIAs to the particular conditions prevailing in developing

42 See World Investment Report 2003, above n 24 at 85–8. The UN Global Compact is also in essence pro investment, see . 43 See World Investment Report 2003, ibid ch V.

Policy Issues

15

countries and to the realities of the economic asymmetries between those countries and developed countries, which act as home to most TNCs.44

Flexibility in IIAs can be approached from four main angles.45 First, IIAs may include preambular statements or general principles referring broadly to development as an overall objective, outlining specific development objectives or introducing the concept of flexibility. Secondly, a degree of special and differential treatment for developing country parties to the agreement may be required, as through different rights and obligations related to the level of development, the limitation of obligations, or the use of separate instruments for certain obligations. Thirdly, substantive provisions can be drafted in a manner that allows for the recognition of special considerations for developing countries. Parties to a treaty can, for example, use a definition of investment protected by the agreement that allows for greater control over certain types of investment by excluding these from the definition or the use of exclusions from non-discrimination provisions, carve out a right to regulate in an expropriation provision, or take a reservation to dispute settlement provisions. Finally, the application of an IIA may allow for variations in the normative force of certain obligations and for the introduction of mechanisms through which development concerns can be articulated, such as intergovernmental commissions and interpretative mechanisms. The above classification of major approaches to the field of international foreign investment law is no more than a guide. Inevitably practice will not conform in pure terms to any particular perspective. Indeed, even the USA and Canada are concerned, in the light of their experiences of litigation under NAFTA, not to allow too much freedom for investors to bring claims that may undermine vital national policy goals. As the work of UNCTAD suggests, the challenge is to develop the law in a manner that ensures the fullest possible benefits from FDI while also allowing for the retention of a degree of national sovereignty in the development and application of economic policy. In addition, as emphasized by the so-called ‘anti-globalization’ movement, private corporations must be accountable for their activities, especially if these are central to the economic development of the communities in which they operate. Finally, it should also be borne in mind that governmental abuses of power which impact adversely on investors and their assets cannot be ignored. Indeed, the issue of ‘good governance’ is in itself a key question underlying the development of international investment law. Thus notions of judicial review of administrative action may well take on a stronger role in this field, as will be further discussed below in relation to enforcement and dispute settlement. 44 UNCTAD, International Investment Agreements: Flexibility for Development (United Nations, New York and Geneva, 2000) at 15. 45 See further UNCTAD, World Investment Report 2003, ch V and UNCTAD, Flexibility for Development, Part Two.

16

Peter Muchlinski

(3) Technical Issues Against the foregoing background, this section of the chapter will now consider the more technical issues of international foreign investment law, dividing the discussion between sources and institutional factors, the development of substantive standards and, finally, enforcement and dispute settlement.

(a) Sources and Institutional Factors The development of this area of international law is significantly influenced by issues pertaining to the sources of international law and of the institutional factors that influence this question. From an historical perspective, it is fair to say that the persistent disagreement between states over the precise form and content of customary law standards relating to the treatment of aliens and their property has ensured that the major source of norms in this field will be found in international treaties and other forms of binding and non-binding instrument. Some international legal publicists have argued that the extensive, and growing, system of IIAs at the bilateral and regional levels has reinforced the normative significance of traditional international legal standards for protection of aliens and their property, and has undermined the call for increased national sovereignty over foreign investors contained, for example, in UN Declarations establishing the New International Economic Order (NIEO).46 Though compelling, this view has itself been subjected to strong criticism, not least because such treaties are the outcome of individual bargaining relationships that cannot act as a source of general legal obligation and there exist too many variations between treaty provisions to show evidence of consensus over the content of the relevant standards.47 Bilateral Investment Treaties (BITs), the most numerous type of IIA, can be said to constitute a special juridical regime designed to restate, in treaty form, international minimum standards of treatment of foreign investors as accepted by the capital-exporting states, and to merge these with established, treaty-based, standards of commercial conduct that do not possess the character 46 See eg FA Mann, ‘British Treaties for the Promotion and Protection of Investment’ 52 BYIL 241 (1981); P Juillard, ‘Les Conventions Bilatérales d’Investissement Conclues par la France’ 2 JDI 274 (1979); id ‘Les Conventions Bilatérales d’Investissement Conclues par la France Avec les Pays n’Appartenant pas à la Zone Franc’ AFDI 760 (1982). For a more recent restatement of this position see: S Hindelang, ‘Bilateral Investment Treaties, Custom and a Healthy Investment Climate—The Question of Whether BITs Influence Customary International Law Revisited’ 5 JWIT 789 (2004), S Schwebel, ‘The Influence of Bilateral Investment Treaties on Customary International Law’ 98 ASIL Proceedings 27–30 (2004). 47 See Sornarajah, above n 1 at 204–8. See too the award in UPS v Canada, para 97 available at .

Policy Issues

17

of customary international law, despite their widespread usage over many centuries, notably, the most-favoured-nation (MFN) standard and the national treatment standard. The result is an integrated system of norms for the delocalized regulation of a bilateral investment relationship between a developed capital-exporting state and a less developed capital-importing state, in a manner conducive to efficient capital accumulation by investors from the capital-exporting state.48 On the other hand, it could be argued that the increased use of BITs between developing countries themselves49 shows that they have an impact upon the legal regime now favoured by the traditional opponents of binding international minimum standards of treatment. Perhaps the key question is what might be gained by elevating treatybased standards to customary law. In effect, it would bind all countries to what may remain contested international minimum standards of treatment, regardless of whether such countries have signed IIAs. This would prevent freedom of choice for countries as to the extent and nature of their commitments in relation to foreign investment law. Given the widespread application of otherwise contested standards as treaty-based obligations, it would appear unnecessary to do so and, in this very sensitive policy area, it could produce an unfavourable political response, retarding economic integration and development. In this connection it can be noted that the NAFTA Free Trade Commission’s Interpretation of July 2001 on NAFTA 1105 (as well as recent US and Canadian BITs, and Free Trade Agreements entered into by these countries and also Mexico) attempt to reduce the most important standard of treatment, fair and equitable treatment, to the international minimum standard under customary international law.50 A further area of concern under this heading is the precise legal status of the instruments from which international investment law may be said to emanate. In the first place, it is not entirely clear how many of the IIAs that have been signed are actually ratified and legally binding. The answer to this question may be central to resolving the issue of whether these agreements show a sufficient consensus to be treated as evidence of customary law. Secondly, many instruments that are commonly referred to as sources of international investment law standards are non-binding, such as, for example, industry codes or the OECD Guidelines for Multinational Enterprises. Thus the field contains not only ‘hard’ but ‘soft law’ sources. As a rough guide, it can be said that ‘soft’ law standards are more common at the level of corporate, industry, NGO or IGO activity, particularly in relation to corporate social responsibility issues, 48 Peter T Muchlinski, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) at 702. 49 See World Investment Report 2003, above n 24 at 89. 50 See NAFTA, Free Trade Commission Clarifications Related to NAFTA Chapter 11, Decision of 31 July 2001, available at ; Art 5(2) of the US–Uruguay BIT of 25 October 2004, 44 ILM 265 (2005); Canada Foreign Investment Protection Agreement Model of 2004 Art 5(2), available at . See too Art 60 of the 2004 FTA between Japan and Mexico and Art 10.4 of the 2003 US–Chile FTA, available at .

18

Peter Muchlinski

while ‘hard’ law standards tend to prevail in IIA practice. This does not, however, lead to the conclusion that these different levels of legal force cannot have significant and, indeed, complementary effects on the development of this field of international law and of corporate responsibility standards in particular. Indeed, the balanced development of substantive standards in this area may depend on such a process. ‘Soft’ law standards are based essentially on moral force, in that the major method of enforcement is through the shame of non-adherence.51 At the international level ‘soft law’ can ‘harden’ into positive law, where it is seen as evidence of emergent new standards of customary international law. For these purposes the origin of the legal principle in a ‘soft law’ instrument, such as a voluntary code of conduct or a non-binding resolution of an international organization, is of little consequence if a consensus develops that the principle in question should be viewed as an obligatory standard by reason of subsequent practice.52 Given that many of the most important international expressions of welfare values tend to be in such form53 the ‘hardening process’ may be of especial importance here. On the other hand, it should not be forgotten that even in ‘hard law’ agreements, provisions concerning controversial social issues have been put into very general, and probably meaningless, hortatory language, simply to show that something has been done, when there is little intent to give these provisions any real legal effect.54 To dismiss voluntary sources of international standards as irrelevant seems to fail to appreciate how formal rules and principles of law emerge. The very fact that an increasing number of non-binding codes are being drafted and adopted in this area suggests a growing interest among important groups and organizations—corporations, industry associations, NGOs, governments, and IGOs—and is leading to the establishment of a rich set of sources from which new binding standards can emerge. No doubt this process can be and is being, criticized as one in which corporate interests are trying to capture the agenda through code making. It is fair to say that non-business NGOs are attempting the same with their codes. The real issue is when and how will all this ‘codification’ turn into detailed legal standards that can act as fully binding benchmarks for the control of unacceptable lapses in corporate conduct at the international level. That is, as

51 The following paragraph is adapted from Peter Muchlinski, ‘Human Rights Social Responsibility and the Regulation of International Business: The Development of International standards by Intergovernmental Organisations’ 3 Non-State Actors and Intl Law 123 (2003) at 128–30. 52 See eg OA Elias and CL Lim, The Paradox of Consensualism in International Law (The Hague, Kluwer Law International, 1998) at 230–2. 53 Ibid. 54 See eg the discussion of Art 19 of the Energy Charter Treaty (environmental aspects) by Thomas Wälde in ‘Sustainable Development and the 1994 Energy Charter Treaty: Between Pseudo-Action and the Management of Environmental Investment Risk’, in F Weiss, E Denters, and P de Waart (eds), International Economic Law with a Human Face (The Hague, Kluwer Law International, 1998) at 223–70; and see T Wälde ‘Non-conventional Views on “Effectiveness”: The Holy Grail of Modern International Lawyers: The New Paradigm? A Chimera? Or a Brave New World in the Global Economy?’ 4 Austrian Review of Intl and European Law 164 (1999).

Policy Issues

19

noted above, an issue of ideological contest, but one which seems to be veering slowly towards an acceptance of some kind of articulated set of minimum international standards for corporate social responsibility as a trade-off for greater corporate freedom in the market.55

(b) Development of Substantive Standards This sub-section will consider some of the major policy issues surrounding the development of substantive standards in international investment law.56 Four areas of concern will be highlighted: first, the ‘core issues’, concerning the protection of investors and their investments; secondly, the role of economic development-related measures that involve explicit development policy implications; thirdly, corporate social responsibility issues; and finally, home country measures and obligations.

(i) ‘Core’ Issues Concerning Investor/Investment Protection Among the core issues in this area are scope and definition, admission and establishment, standards of treatment, including fair and equitable treatment and nondiscrimination, taking of property, and transparency. Each issue will be considered in the light of the need to balance the protection of investors and their assets with the right of the host country to regulate investors and investments and to develop national economic policy. Development considerations are also highlighted as a significant negotiating issue in the international arena.

Scope and Definition IIAs usually commence with a provision that defines the ‘investments’ of the contracting parties which are covered by the treaty.57 More recent agreements tend to favour broad, asset-based, definitions that include not only physical assets, equity and choses in action but also intellectual property rights and contractual concessions.58 The aim is to ensure sufficient flexibility to encompass not only equity but non-equity investments, and to allow for the evolution of new forms of investment 55 See further Muchlinski, ‘Corporate Social Responsibility’, ch 17 below. 56 The most extensive treatment of these issues, in relation to the content of international investment agreements, can be found in the UNCTAD Series on Issues in International Investment Agreements, published between 1999 and 2004. All the papers have been brought together into UNCTAD, International Investment Agreements: Key Issues: Vols I–III (New York and Geneva, United Nations, 2004) on which this sub-section relies significantly (cited below as UNCTAD: Key Issues). 57 This paragraph is based on Muchlinski, above n 48 at 676. See too Schlemmer, ‘Investment, Investor, Nationality, and Shareholders’ ch 2 below. 58 See eg ASEAN Agreement for the Promotion and Protection of Investments, Article 1(3) in UNCTAD, International Investment Agreements: A Compendium Vol II (New York and Geneva, United Nations, 1996) at 294.

20

Peter Muchlinski

between the parties. Furthermore, the notion of direct investment is not taken as the starting point. In place of such definitions, some agreements contain an enterprisebased definition focusing on ‘the business enterprise’ or the ‘controlling interests in a business enterprise’,59 while other agreements take a ‘transaction based’ definition. For example the OECD Code of Liberalization of Capital Movements does not define ‘investment’ or ‘capital’ as such but contains a list of covered transactions in Annex A, including direct investment.60 The definition of ‘investment’ may be limited. Thus some agreements exclude portfolio investment,61 on the ground that it is less stable than direct investment and so should not be given equal protection, or limit protection to investments permitted under the law of the host country, a formulation common in Chinese and ASEAN agreements,62 or investments of a certain size or in specific sectors.63

Admission, the Right of Establishment, and the Right to Control Entry The first point of contact between national FDI policy and foreign investment by MNEs and other investors arises at the border when such investors and their investments seek to enter the host country. Here there exists a policy choice regarding the degree of regulation or openness that the host country might adopt in relation to the admission, establishment, and control of FDI. Under international law, a state has an absolute right to control the admission and establishment of aliens, including foreign investors, on its territory. This right can be qualified through the unilateral action of the host country and/or through international agreement with other countries.64 Thus a state has a free choice as to the degree of open admission and the extent of rights of establishment it sees fit to offer to foreign investors. Equally, a state is free to regulate the entry and establishment of FDI through forms of conditional entry. The economic rationale for granting open admission and rights of establishment is to allow for the efficient allocation of productive resources across countries, through the avoidance of market-distorting policy controls that may serve to discriminate between foreign and domestic investors and/or investors from different home countries.65 On the other hand, controls over entry 59 See eg the Canada–US Free Trade Agreement 1988 cited in UNCTAD: Key Issues, above n 56 at 125. 60 UNCTAD: Key Issues, ibid. 61 See eg the Denmark–Poland BIT Art 1(1)(b) where investment refers to ‘all investments in companies made for the purpose of establishing lasting economic relations between the investor and the company and giving the investor the possibility of exercising significant influence on the management of the company concerned’ quoted in UNCTAD: Key Issues ibid at 123. 62 Ibid at 122–3. 63 Ibid at 125. 64 Note that the US and Canadian BITs and Free Trade Agreements (FTAs) grant a right to admission by extending their national treatment and MFN provisions to ‘establishment’. See Arts 3 and 4 of the US–Uruguay BIT of 2004, and Arts 3 and 4 of the Canadian Model Agreement of 2004, above n 50. See further Gómez-Palacio and Muchlinski, ‘Admission and Establishment’ ch 7 below. 65 See UNCTAD: Key Issues, above n 56 at 146.

Policy Issues

21

and establishment, or conditional entry based on specific requirements that must be observed by the foreign investor, may be motivated by a need to preserve national economic policy goals, national security, public health and safety, public morals, and other essential public policy goals such as environmental or consumer protection. Indeed, some developing countries may wish to retain a degree of control over the admission and establishment of FDI on their territory. This can be explained by a reluctance to open up their domestic markets to potentially damaging penetration on the part of economically dominant foreign firms by reason of an overbroad right of unconditional entry, or as a result of an excessively speedy process of admission that does not allow sufficient time to analyse the potential economic (and possibly social) advantages and disadvantages of the investment in question.66 However, such motives may also be used to justify what are little more than measures designed to insulate inefficient or monopolistic national industries from competition at the cost of consumer welfare and productive efficiency. Thus national policy on FDI may be used for protectionist purposes that may not be in the long-term interests of national economic development. The future role of provisions concerning admission, establishment and the right to control entry lies at the heart of development concerns as they arise in international investment negotiations. Indeed, this issue has already caused controversy among developed countries during the negotiations for the Multilateral Agreement on Investment (MAI).67 More recently, the issue was discussed in the WTO Working Group on Trade and Investment, where the possible use of a GATS-type ‘positive list’ approach to pre-establishment issues has focused attention on the precise architecture that any future investment rules pertaining to this area should adopt.68 Some developing and developed countries, including the EU, expressed their support for this approach while some developed countries suggested that a combined national and most-favoured treatment approach with ‘negative lists’ of exceptions should be preferred. At Cancun, concern over this question was among the major reasons why developing countries decided to oppose the commencement of negotiations in this area as part of the Doha Round.69 Other significant questions in this area concern the scope, speed and nature of liberalizing provisions. Thus, as suggested by the GATS (General Agreement on Trade in Service) approach, the range of sectors or industries to be liberalized can be addressed, the speed of liberalization can be controlled by transitional provisions 66 See further D Conklin and D Lecraw, ‘Restrictions on Foreign Ownership During 1984–1994: Developments and Alternative Policies’ 6(1) Transnational Corporations (1997). 67 On which see further Amarasinha and Kokott, ‘Multilateral Investment Rules Revisited’ ch 4 below. 68 See further WTO, Modalities for Pre-establishment Commitments Based on a GATS-Type Positive List Approach: Note by the Secretariat, WT/WGTI/120 (19 June 2002). 69 See further WTO, Communication of 2 September 2003 from the Permanent Mission of India to the Ministerial Conference Fifth Session Cancun 10–14 September 2003, WT/MIN(03)/W/4 (4 September 2003) at 3, para 2.

22

Peter Muchlinski

that offer specifically agreed lead times for the process to take full effect, and the binding or non-binding nature of commitments towards liberalization of entry and establishment provisions can be considered, for example, by using a ‘best endeavours’ clause that does not commit to a legally binding policy change but allows for a gradual change of attitude without the possibility of creating binding legal rights for investors. Finally, the scope of restrictions on entry and establishment rights may need to be considered further. A particular new issue here may arise in relation to environmental restrictions related to entry, such as, for example, a requirement for an environmental impact assessment of the proposed investment resulting in environmental performance requirements being imposed as a condition of entry.

Standards of Treatment: Non-discrimination, Fair and Equitable Treatment, and Full Protection and Security The principle of non-discrimination is a core standard of protection for investors and their investments in IIAs. It consists of two main elements: the Most-FavouredNation (MFN) standard, which ensures that investors and investments from one country are treated in the same, or no less favourable, manner than like investors/ investments from other countries,70 and the national treatment standard, which ensures that investors and investments from outside the host country are treated in the same, or no less favourable, manner than like investors/investments from inside the host country.71 Thus the non-discrimination standard aims to ensure that all foreign investors and investments are guaranteed at least equality of competitive conditions with other foreign investors/investments and domestic investors/ investments in like situations. In addition, where national FDI policy uses the ‘no less favourable’ standard in the case of national treatment, it is possible to ensure better competitive conditions for foreign as compared to domestic investors. As regards the MFN standard this formulation may permit more favourable treatment for investors/investments from certain countries, though this is usually 70 See further UNCTAD, Most-Favoured-Nation Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) or UNCTAD: Key Issues above n 56, ch 6; OECD, International Investment Law: A Changing Landscape (Paris, OECD, 2005) ch 4 and Acconci, ‘Most-Favoured-Nation Treatment’, ch 10 below. Note too the controversy surrounding the effect of the MFN standard, inspired by the procedural decision in the case of Maffezini v Spain (ICSID Case No. ARB/97/7 decision on objections to jurisdiction 25 January 2000: 16 ICSID Rev–FILJ 212 (2001) as a technique for extending substantive and procedural protection from one investment agreement to another containing less favourable protection standards. See further Jurgen Kurtz, ‘The MFN Standard and Foreign Investment: An Uneasy Fit?’ 6 JWIT 861 (2004); Rudolph Dolzer and Terry Myers, ‘After Tecmed: Most-Favoured-Nation Clauses in International Investment Protection Agreements’ 19 ICSID Rev–FILJ 49 (2004); Dan H. Freyer and David Herlihy, ‘Most-FavouredNation Treatment and Dispute Settlement in Investment Arbitration: Just how “Favoured” is “MostFavoured”?’ 20 ICSID Rev–FILJ 58 (2005); Locknie Hsu, ‘MFN and Dispute Settlement—When the Twain Meet’ 7 JWIT 25 (2006). 71 See further UNCTAD, National Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) or UNCTAD: Key Issues above n 56, ch 5.

Policy Issues

23

achieved by special preferences that have been introduced as an exception to MFN. The principle of non-discrimination may also be enhanced as an aspect of the general standard of fair and equitable treatment, which can be distinguished from MFN and national treatment on the basis that it is an unconditional standard, while the latter are conditional on the existence of other investors/investments, whether foreign or domestic, that are in a like situation to the investor/investment that is protected by the relevant standard.72 It should be noted that many BITs contain separate provisions against arbitrary and/or discriminatory treatment.73 From a development perspective, the issue of non-discrimination is highly contentious, especially in relation to differential treatment between domestic and foreign investors, given that developing host countries may seek to protect the development of indigenous industrial production and service provision in the face of potentially negative competitive pressure from powerful foreign investors. In relation to the development implications of the non-discrimination standard, it is important to distinguish the kinds of measures that might be applied to MFN as opposed to national treatment, as they tend to create different degrees of policy sensitivity, especially as regards the scope, nature, and extent of exceptions to the standard concerned. Thus MFN is less likely to be the subject of exceptions than national treatment, reflecting the fact that host countries generally find it more difficult to treat foreign and domestic investors/ investments equally than to provide for equal treatment among investors from different home countries.74 The most frequent exceptions to the MFN standard relate to international networks of obligations, such as those arising from bilateral tax treaties or membership of regional economic integration groupings, where a degree of preferential treatment for the investors and investments of the other contracting parties is usual. By contrast, national treatment may elicit more exceptions than MFN. These will include certain general exceptions based on national security or public health or morals (which may also apply to MFN treatment), subject-specific exceptions relating to certain fields that require reciprocity of treatment from home countries of investors, such as taxation or intellectual property, or which are excluded for reasons of national policy, such as incentives or public procurement, and industry-specific exceptions which exclude or limit the participation of foreign investors in certain types of activities of industries on the basis of national economic and social policy.75 72 See further UNCTAD, Fair and Equitable Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) or UNCTAD: Key Issues, above n 56, ch 7; OECD, above n 70, ch 3. 73 See UNCTAD, Bilateral Investment Treaties in the Mid-1990s (New York and Geneva, United Nations, 1998) at 55–6. 74 UNCTAD, Most-Favoured-Nation Treatment, above n 70 at 31. 75 See UNCTAD, National Treatment, above n 71 at 43–6. A good example of a national law that uses a range of such exceptions is the Mexican Foreign Investment Act 1993: 33 ILM 207 (1994), discussed in Muchlinski, above n 48 at 202–4. These exceptions are, in turn, reserved from the operation of the non-discrimination provisions of NAFTA in Mexico’s schedule of exceptions to that agreement, as are the corresponding exceptions of the US and Canada.

24

Peter Muchlinski

The MFN and national treatment standards are essentially treaty-based standards. They are covered in most IIAs, principally in relation to the post-entry stage of investment, though the practice in North American bilateral and regional agreements extends these standards to the pre-entry stage as well. There, the approach is to provide for the protection of MFN and national treatment subject to general and country-specific exceptions as described earlier. Similarly, the GATS Agreement protects MFN on this ‘opt-out’ basis. On the other hand, in relation to national treatment, it provides for an ‘opt-in’ by way of an express commitment to extend national treatment to those sectors that a contracting party chooses to open up to full market access.76 As regards exceptions, virtually all regional and inter-regional IIAs contain general national security and public health/morals exceptions to the non-discrimination standard though BITs generally do not.77 The core, development-oriented, issue in this area concerns the extension of non-discrimination to the pre-entry stage of investment. As such it is intimately related to the issue of admission and the right of establishment. Other important, development-oriented issues for the future concern the range and extent of exceptions. Traditionally, in order to retain the maximum effective discretion for regulatory purposes, it has been considered that certain exceptions and qualifications are necessary to the non-discrimination standard. On the other hand, changes in the nature and structure of national markets, and in particular, their increasing integration into global chains of production and distribution puts into question whether high levels of discriminatory regulation are in fact desirable. Hence a balance needs to be sought out between necessary exceptions, based on overriding regulatory requirements, and overbroad ones that may serve to undermine the positive integrating effects of economic openness and may, indeed, be little more than protectionist devices for inefficient national industries and firms. Moving to other important standards of treatment, currently the most important standard, from the perspective of investor protection, is the fair and equitable treatment standard.78 To date, arbitral case law has concentrated on the responsibilities of the host country in its conduct towards the investor. As a result, certain elements of an emergent standard of review of administrative action appear to be taking shape. This standard of review reflects contemporary approaches to good governance. Thus, Tribunals have noted that the original customary international law standard, with its emphasis on outrageous mistreatment of the alien, is no longer sufficient.79 Instead, the correct question is, 76 UNCTAD, National Treatment, above n 71 at 23–5; UNCTAD, Admission and Establishment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) at 20–1. 77 UNCTAD, above n 73 at 86. 78 See further Grierson-Weiler and Laird, ‘Standards of Treatment’ ch 8 below. 79 For example in USA (LF Neer) v Mexico (Neer Claim) (1927) AJIL 555 at 556 such treatment was defined as treatment amounting to an ‘outrage, to bad faith, to wilful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency’.

Policy Issues

25

whether, at an international level and having regard to generally accepted standards of administration of justice, a tribunal can conclude in the light of all the available facts that the impugned decision was clearly improper and discreditable, with the result that the investment has been subjected to unfair and inequitable treatment.80

In the light of this contemporary perspective, it is now reasonably well settled that the standard requires a particular approach to governance, on the part of the host country, that is encapsulated in the obligations to act in a consistent manner, free from ambiguity and in total transparency, without arbitrariness and in accordance with the principle of good faith.81 In addition, investors can expect due process in the handling of their claims82 and to have the host authorities act in a manner that is non-discriminatory and proportionate to the policy aims involved.83 These will include the need to observe the goal of creating favourable investment conditions and the observance of the legitimate commercial expectations of the investor.84 On the other hand, the standard is case specific and requires a flexible approach given that it offers a general point of departure in formulating an argument that the foreign investor has not been well treated by reason of discriminatory or other unfair measures that have been taken against its interests.85 Such case-specific flexibility may require an examination not only of governmental but also of investor conduct in a given case. Such a consideration may be justified by reference to the issue of investment risk. Given the international character of foreign investment it may be said to carry a higher degree of risk than purely domestic investment. Indeed, foreign investment may be characterized as a prime example of high risk–high return investment. Even large multinational enterprises can experience a high level of risk in a host country that is unfamiliar to the firm. Such risk is exacerbated where the country in question is noted for political instability, corruption, and an inefficient system of administration. In these cases it may be especially important for the investor to be able to rely on international standards of treatment, and international systems of dispute settlement, to ensure the full security of its investment. On the other hand, in a market economy, a degree of independent judgment as to the scope of an investment risk will be expected of the investor. Not all investment risks can, or should, be protected

80 Mondev International Ltd v United States, ICSID Case No. ARB(AF)/99/2 award of 11 October 2002: 42 ILM 85 (2003) at para 127. 81 See Tecmed v Mexico, ICSID Case No. ARB(AF)/00/2 award of 29 May 2003 available at or 43 ILM 133 (2004) at paras 154–5. 82 See eg Loewen v United States, ICSID Case No. ARB(AF)/98/3 award of 26 June 2003: 42 ILM 811 (2003). 83 See Loewen v United States ibid; Waste Management Inc v Mexico ICSID Case No. ARB(AF)/00/3 award of 30 April 2004: 43 ILM 967 (2004) at para 98; MTD Equity v Chile, ICSID Case No. ARB/01/7 award of 25 May 2004: 44 ILM 91 (2005) at para 109. 84 Tecmed v Mexico, above n 81 at paras 156–7. 85 Mondev International Ltd v United States above n 80 at para 118 and Waste Management, above n 83 at para 99.

26

Peter Muchlinski

against. This may prove inimical to the efficient functioning of a market economy, where the freedom of economic actors to make informed business judgments lies at the heart of the market mechanism. It is up to the firm to determine the risks and to develop an appropriate strategy to deal with them.86 Any assessment of regulatory fairness will need to be made in the light of this factor. Investor conduct should be considered not only because it may break the chain of causation between the governmental act and the loss to the investor, but as a matter of principle and duty, so as to balance out the emergent duties of the host country to act with proper regard to good regulatory practice.87 Most BITs and other IIAs contain clauses providing for the compensation of the investor for losses due to armed conflict or internal disorder. These do not establish an absolute right to compensation. Rather, they lay down that the investor shall be treated in accordance with the national treatment and/or MFN standard in the matter of compensation. The scope of the host country’s responsibility for such losses should be determined by reference to a ‘due diligence’ standard.88 As noted by the ICSID Tribunal in AMT v Zaire89 the host country is bound to observe an obligation of vigilance in protecting the property of the investor.90 This requires the host country to take measures to ensure the protection and security of the investments in question. An omission to do so can amount to a case of res ipsa loquitur. The fact that the host country may have also failed to protect the investments of investors from third states is irrelevant.91 As to the question of compensation, an interference with full protection and security is not a case of expropriation, but one of loss and damage to property. Thus the method of assessing compensation cannot be assimilated to that used in cases of expropriation. Accordingly, the actual loss, based on the actual market value of the damaged and lost property, taking into account the realities of the political and economic risks faced by the investor in the host country, is the proper approach.92 86 See further Christopher A Bartlett, Sumantra Ghoshal and Julian Birkinshaw, Transnational Management: Text Cases and Readings in Cross-Border Management (Boston, McGraw Hill Irwin, 4th edn, 2004) ch 3. 87 See further Peter Muchlinski, ‘ “Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’ 55 ICLQ 527 (2006). 88 Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3 award of 27 June 1990: 30 ILM 577 (1991). See too Wena Hotels v Egypt ICSID Case No. ARB/98/4 award of 8 December 2000 available at or 41 ILM 896 (2002) at para 84. 89 ICSID Case No. ARB/93/1 award of 21 February 1997, available at or 36 ILM 1531 (1997). See too Wena Hotels v Egypt, ibid, where the seizure of the Claimant’s two hotels, by the Egyptian partner in the investment, was seen to violate the full protection and security standard as Egypt had failed to discharge its duty of vigilance and due diligence in protecting the hotels, despite knowledge of the intention to seize them, and by subsequently failing to restore them to their owners with suitable reparations: see paras 85–95. 90 Ibid at para 6.05. 91 Ibid at paras 6.09–6.10. 92 Ibid at paras 7.13 and 7.16–7.17.

Policy Issues

27

Taking of Property The power of a government to take foreign-owned private property, either into state ownership through nationalization, or into new, usually local, private ownership through expropriation, has a long history. Indeed, major takings of foreign-owned property in the course of the twentieth century, particularly by socialist states, led to the development of certain rules of customary international law that aimed to control the conditions under which such a taking could be lawfully effected.93 These rules are not without controversy. In the past, certain countries have denied the legal validity of international rules in this area, asserting that only national law could determine the legality of a governmental taking of foreign-owned property. Nonetheless, in more recent years certain basic principles have been universally accepted and many countries will refer to these as the legal basis of their national laws and practices.94 They are as follows: the taking should be for a public purpose, it should be non-discriminatory, it should comply with rules of basic due process, and compensation should be payable in the event of a taking. On this last point there is no hard and fast agreement among states as to the appropriate level and method of calculating the compensation payable. Some countries favour a high level of state discretion in this matter, referring to principles of ‘appropriate’ or ‘just’ compensation and using a book value method of valuation, while others, mainly the majorcapital exporting countries, favour a standard of ‘prompt, adequate and effective’ compensation based on actual market values of the property taken.95 Thus the principal regulatory issue in this area is whether, and how far, a national regime for the taking of foreign-owned property, whether located in general compulsory purchase laws, or in specific acts relating to particular firms or industries, conforms to basic international legal standards. In recent years outright nationalizations and mass expropriations of foreignowned property have not been a significant national economic policy, whether in developed or developing countries, though their renewed use cannot be ruled out completely.96 Rather, the dominant trend has been towards privatization and deregulation of state-owned assets with foreign investors often being encouraged to buy those assets. On the other hand, increasing attention has been paid to the possibility of so-called ‘indirect expropriation’ whereby the property in question is subjected to governmental action that results in an, ‘effective loss of management, use or con-

93 UNCTAD, Taking of Property, Series on issues in international investment agreements (New York and Geneva, United Nations, 2000) at 5 or UNCTAD: Key Issues, above n 56, ch 8. See too OECD, above n 70, ch 2. 94 See eg the French nationalization policy of the early 1980s: Muchlinski, above n 48 at 596 n 101. 95 UNCTAD, Taking of Property, above n 93 at 13–14. 96 Ibid at 5–6; E Penrose, G Joffe, and P Stevens, ‘Nationalisation of Foreign Owned Property for a Public Purpose: An Economic Perspective of Appropriate Compensation’ 55 MLR 351 (1992).

28

Peter Muchlinski

trol, or a significant depreciation of the value of the assets of a foreign investor.’97 In other words, the value of the investment is undermined to such an extent by the governmental action as to deprive the investor of the reasonably expected benefits of the investment. This may be as a result of ‘creeping expropriation’, where the economic value of the investment is gradually neutralized by incremental regulatory interference in the investment that falls short of divesting the investor of its legal title in the investment, and of ‘regulatory takings’ which arise out of the exercise of policing powers of the state or from other measures such as those regulating the environment, health, morals, culture, or economy of the host country.98 Here the major problem is to distinguish between a legitimate exercise of governmental discretion that interferes with the enjoyment, or leads to the expropriation, of foreign-owned property and an illegitimate act of unlawful taking. Recent US and Canadian Model BITs explain that non-discriminatory regulatory actions that are designed and applied to effectuate legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute expropriations except in rare circumstances.99 The Canadian model adds that such rare circumstances will exist where ‘a measure or series of measures are so severe in the light of their purpose that they cannot be reasonably viewed as having been adopted and applied in good faith . . . ’100 Both Models add that, in determining whether a regulatory act has an effect equivalent to expropriation, the economic impact of the act (though the mere loss of economic value in itself does not show that the act is an indirect expropriation), the extent of interference with legitimate investmentbacked expectations, and the character of the act are all of significance. In addition, the issue of compensation is key to determining the legality or otherwise of a regulatory taking. It is well settled that any taking of property that is not accompanied by compensation will be unlawful, even if pursued under the general police power of the state (unless it is a taking authorized under lawful sanctions of confiscation). The compensation offered must reflect the actual loss to the investor. Therefore, it may be said that the state’s power to expropriate will be preserved, upon the payment of adequate and effective compensation, in cases where the deprivation of the use and enjoyment of the investor’s property is undertaken for a public purpose, under the authority of law and in a non-discriminatory manner. The measure of compensation will normally be based on the legitimate economic expectations of the investor, as determined in all the circumstances of the case, including the 97 UNCTAD, Taking of Property, above n 93 at 2. See further Reinisch, ‘Expropriation’, ch 11 below. 98 UNCTAD, Taking of Property, above n 93 at 11–12. This has given rise to significant recent international arbitral activity under ICSID and NAFTA. See further JC Thomas, ‘Reflections on Article 1105 of NAFTA: History, State Practice and the Influence of Commentators’ 17 ICSID Rev–FILJ 21 (2002); PG Foy and J Deane, ‘Foreign Investment under Investment Treaties: Recent Developments under Chapter 11 of the North American Free Trade Agreement’ 16 ICSID Rev–FILJ 299 (2001). 99 US–Uruguay BIT 2004 Annex B; Canada Model Agreement Annex B 13.1, above n 50. 100 Ibid.

Policy Issues

29

question whether the investment was in fact a profitable venture that had a real prospect of making the returns hoped for by the investor. Provisions dealing with the taking of property can be expected to continue in future IIAs. Indeed, given the need to determine the proper balance between legitimate regulation and improper interference with private property rights through regulatory acts, such provisions appear to gain importance. They will be central to a fuller understanding, and legal expression, of the ‘right to regulate’ in the context of the development priorities of host countries. The attempt, in the US and Canadian BITs, to define what is meant by a regulatory taking testifies to this. In addition, the possibility that a taking might be justified by reason of necessity has been accepted in principle in the arbitral award of CMS Gas Transmission Co v Argentina.101 Another significant future issue is whether, and how far, IIAs should permit international review of takings by host country authorities: should these be subject to a prior requirement to exhaust domestic remedies or should international review be available as a matter of right? This matter is further discussed in relation to dispute settlement.

Transparency The question of transparency is a relatively recent element to appear in international investment treaties. Indeed, most BITs do not refer to the issue at all. However, more recent agreements have made reference to it.102 Given this recent pedigree, the precise content of transparency provisions is not yet completely settled. On the other hand, certain key issue areas have emerged. These may be said to encompass: the identification of the addressees of the transparency obligation, the scope of the obligation, and, in particular, the extent of its ‘intrusiveness’, that is, the degree to which the obligation demands publicity and disclosure of the relevant information, the mechanisms of implementation, the timing of the required disclosure, and, finally, issues of safeguards and exceptions.103 As to the issue of addressees, the traditional focus of IIAs upon host country obligations may be said to be under challenge. In particular, there may be good grounds 101 ICSID Case No. Arb/01/8 award of 12 May 2005, available at or 44 ILM 1205 (2005). On the facts the argument was held not to have been made out. See however LG&E Energy Corporation v Argentina, ICSID Case No. Arb/02/1 Decision on Liability, 3 October 2006, available at . The tribunal held that Argentina was entitled to take emergency measures, at least for a specific period in which the tribunal found a national emergency to exist. As a result the claimant had to bear the consequences of the measures taken and could not claim compensation for losses sustained as a result of those measures during that period: see paras 226–66. See further Bjorklund ‘Emergency Exceptions: State of Necessity and Force Majeure’, ch 12 below. 102 UNCTAD, Transparency, Series on issues in international investment agreements (New York and Geneva, United Nations, 2004) at 13. See too OECD, International Investment Perspectives (Paris, OECD, 2003) ch 4. See eg the US–Uruguay BIT 2004 Arts 10 and 11, Canada Model Agreement Art 19, above n 50. See further Kotera, ‘Regulatory Transparency’, ch 16 below. 103 UNCTAD, Transparency, above n 102 at 7–12.

30

Peter Muchlinski

for expecting not only the host country to offer clear and transparent information about matters relevant to the investment process and the protection of investors, but also to expect investors themselves to comply fully with obligations of corporate accountability and disclosure as the quid pro quo of doing business in the host country. In other words, the transparency obligation may extend not only to questions of good governance on the part of the state but also to questions of corporate governance and responsibility on the part of investors.104 More difficult is the question of how far an IIA could impose transparency obligations upon the home country.105 According to UNCTAD, it is arguable that transparency provisions of a general character that refer to ‘the Contracting Parties’ or ‘both Contracting Parties’ to the agreement cover home country parties as well. Thus the latter may be bound to make available information on laws and regulations that pertain to investment and/or upon investment opportunities and incentives, where the terms of the agreement so state.106 This may be of some importance in ensuring that the investment promotion policies and rules of the home country are made fully transparent, thereby enhancing their effectiveness as vehicles for transferring capital technology and skills to developing countries in particular, through the means of FDI. As to the content of the transparency obligation, country parties to IIAs will have considerable discretion as to the extent of the disclosure requirement and its level of intrusiveness. Thus general commitments to publish investment policy information will be rather un-intrusive, while an obligation to publish the details of individual administrative decisions would be highly intrusive, as it involves detailed information on individual cases. In the case of corporate disclosure, much will depend on whether the information required is of a kind usually required for the purposes of ensuring the correct application of national company fiscal and prudential regulation laws, or whether a wider agenda of issues encompassing what may be termed ‘social disclosure’ is required.107 Turning to modalities of implementation and timing issues, there is a close correlation between the type of disclosure mechanism adopted and the degree of intrusiveness that results. Thus, consultation over what information to disclose would entail a weaker obligation upon contracting parties than a unilateral obligation to do so. Equally, disclosure could be voluntary or subject to a strict mandatory code. In addition, the timing of the disclosure may affect the scope of the obligation,

104 See further Muchlinski, above n 55. 105 Indeed, some IIA provisions apply exclusively to the host country by referring to the obligation of each party to make publicly available its laws, regulations, and procedures that may affect investment within their national territory, a qualification that can only arise in relation to a host country. See eg, Art 15 of the Finland Model BIT. 106 UNCTAD, Transparency, above n 102 at 14–16. 107 Ibid at 9. See further Muchlinski, above n 48, ch 9.

Policy Issues

31

in that the shorter the period between the governmental act that needs to be disclosed and the date of such disclosure, the greater the extent of the obligation.108 Finally, transparency obligations will need to be balanced by safeguards and exceptions. These will tend to cover the following matters: national security and defence, the requirements of law enforcement and judicial procedure, the need to ensure the freedom to determine policy through confidential deliberations, the protection of discretion in the making of investment decisions through a protection of their confidential nature until the final decision is made, and the requirements of commercial confidentiality.109 In arbitral practice concerning the application of the fair and equitable treatment standard, transparency plays a very important role together with predictability and the protection of the investor’s legitimate expectations.110

(ii) The Development Dimension The development dimension of international investment issues formed a central feature of the Doha work programme. It has already been seen that the ‘core’ investor/ investment protection issues raise development-related questions. In this subsection some further issues will be discussed which all have, as a common theme, the regulation of national economic policy through development-oriented instruments that may impact upon those ‘core’ rights.

Performance Requirements Performance requirements are one class of measures that comes within the generic category of host country operational measures. They are stipulations, imposed on investors by the host government, requiring them to meet certain specified goals with respect to their operations in the host country. These may act as conditions for the entry and establishment of the investor in the host country, they may cover many types of measures,111 they are specifically designed to affect FDI, and they usually apply to the post-entry phase of the investment.112 As such, they represent an act of state intervention in the investor’s economic choice of how to structure the organization and arrange the operation of their investment. They are usually justified on the basis of the host country’s need to minimize the possible disadvantages, and maximize the potential benefits, of the investment in line with its economic and 108 Ibid at 11. 109 Ibid at 11–12. 110 See eg Tecmed v Mexico, above n 81 at paras 154–64. See further C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ 6 JWIT 357 (2005) at 374–80. 111 For example: local content rules, employment requirements, capital requirements, export requirements. For a fuller illustrative list see UNCTAD, Host Country Operational Measures, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001) at 8–9 or UNCTAD: Key Issues, above n 56, ch 14. 112 UNCTAD, Host Country Operational Measures, above n 111 at 10–11.

32

Peter Muchlinski

developmental policies. They are often criticized as an unwarranted interference, through governmental action, in the process of economic decision-making on the part of investors and that they will result in a distortion of that process with detrimental results to productive efficiency.113 This approach has gained some ascendancy with the adoption of the WTO Agreement on Trade Related Investment Measures (TRIMS) which seeks to prohibit certain classes of performance requirements that are seen as being inconsistent with the national treatment obligation and the prohibition against quantitative restrictions in the General Agreement on Tariffs and Trade (GATT).114 Performance requirements have been extensively used, by both developing and developed countries, to further their industrial and investment policy goals.115 Such measures have, in particular, been employed by developing countries to secure the types of investment needed for their development priorities, to protect the balance of payments against distortions caused by profit remittances or payments for goods and services, and to control possible restrictive business practices on the part of foreign firms related to their market power and ownership of technology.116 By contrast, while developed countries have used performance requirements for similar purposes, these countries tend to rely more on incentives, or regulation or restrictive business practices, to achieve such ends. Developing countries may not have sufficient capital reserves or fiscal revenues to be able to offer extensive incentives. Nor do they necessarily have controls over restrictive business practices. Thus they have tended to prefer the use of performance requirements as tools of economic and investment policy. Most IIAs do not cover performance requirements. However, North American bilateral and regional agreements have introduced restrictions and prohibitions on the use of certain types of performance requirements. At the multilateral level, as noted above, the TRIMS Agreement prohibits certain types of trade-distorting performance requirements. In such agreements, performance requirements are dealt with either by way of an outright multilateral prohibition, as in the TRIMS Agreement, or by a prohibition at the bilateral or regional level but not at the multilateral level, as in the above-mentioned North American practice. There then remains a category of performance requirements, such as, for example, a requirement to transfer environmentally sound technology, which are generally not contested in IIAs.117 The major question from a development perspective is whether the current prohibitions in the TRIMS Agreement ought to be maintained or reduced so that 113 See Muchlinski, above n 48 at 259–60. 114 See further UNCTAD, Host Country Operational Measures, above n 111 at 17–26. 115 Muchlinski, above n 49 at 259. 116 See C Raghavan, Recolonisation: GATT, the Uruguay Round and the Third World (London, Zed Books, 1990) at 147–8, UNCTAD, Host Country Operational Measures, above n 111 at 5–6. 117 See for a full discussion ibid at 2–3, 13–14, 17–54.

Policy Issues

33

developing countries can attain greater freedom and flexibility in the conduct of their FDI policy and, in particular, their approach to conditional entry and establishment of foreign investments, or whether they should be increased so as to ensure the least possible freedom for countries to intervene in the economic processes through which FDI is conducted. Other possible issues concern the availability of special and differential treatment for developing country parties to IIAs with, for example, longer phase-out periods for prohibited performance requirements, or possible development exceptions allowing developing country parties to maintain certain performance requirements indefinitely where their vital national economic interests so require.118 Equally the question of whether controls over performance requirements should be linked to controls over the use of investment incentives should be considered, especially given the existing regulatory imbalance in IIAs between provisions that address performance requirements, used principally by developing countries, while at the same time omitting any provisions that would introduce disciplines in the operation of incentives that would predominantly affect developed host countries.

Incentives Incentives are used by governments to attract investment, to steer investment into favoured industries or regions, or to influence the character of an investment, for example, when technology-intensive investment is being sought.119 They can take two major forms, fiscal incentives, based on tax advantages to investors, and financial incentives based on the provision of funds directly to investors to finance new investments, or certain operations, or to defray capital or operational costs. Other types of incentives may not be easy to discern but they can have a positive effect on the overall profitability of an investment. These may include general infrastructure development by the host country, market preferences or preferential treatment on foreign exchange.120 The major issues that incentive policies raise in the context of development concern the practical value of using such techniques as a means of attracting FDI. Where a tax advantage is offered, this will entail the foregoing of revenue by the host country. Where a financial incentive is offered, this will entail a positive application of public funds to the investment in question, thereby preventing the opportunity of those funds being applied to other public purposes. In either case the host country government reduces the amount of public finance available to it for its activities. Consequently, the host country must be sure that the offering of 118 Ibid, at 62–71. 119 UNCTAD, Incentives and Foreign Direct Investment (New York and Geneva, United Nations, 1996) at 1. See too UNCTAD, Incentives, Series on issues in international investment agreements (New York and Geneva, United Nations, 2004) or UNCTAD: Key Issues, above n 56, ch 15. 120 UNCTAD, Incentives and Foreign Direct Investment at 5, UNCTAD, Incentives at 5–7. On the treatment of taxation in investment treaties, see further Wälde and Kolo, ‘Coverage of Taxation under Modern Investment Treaties’, ch 9 below.

34

Peter Muchlinski

tax or financial incentives is actually warranted in economic terms. A further issue concerns competition between countries for FDI through the use of incentives. This may lead to ‘incentive races’ to attract internationally mobile investments. This can be particularly problematic for developing countries that may have limited public finances to be able to compete with sufficiently attractive incentive packages. The use and operation of incentives is generally not covered in IIAs, whether at the bilateral or multilateral levels. The only related policy devices that have received some attention, mainly in North American bilateral and regional treaty practice, are performance requirements. On the other hand, at the regional level the need to curtail the abuse of national incentive policies has been recognized as an important aspect of creating a truly integrated regional economy. The leading example is the EC, which operates controls over market-distorting, anti-competitive state aids to investment under the Treaty of Rome. Only such aids as are listed in Article 87 as being compatible with the creation of a common market are permitted. These relate to: aid having a social character; aid to make good the effects of natural disasters; aid to promote economic development in areas where the standard of living is abnormally low, or where there is serious underemployment; aid to promote an important European interest or to remedy a serious disturbance in the economy of a Member State; aid to facilitate economic activities in certain economic areas, provided that such aid does not adversely affect trading conditions; and aid to promote culture and heritage conservation where this does not adversely affect trading conditions and competition. Clearly there is much in this list that could be of relevance to developing countries, in that many of the permissible criteria for the award of state aid in the EC are development-related criteria, or emergency criteria that may well apply to the economic and social realities of the least developed countries. The major advantage of new multilateral disciplines in this area would be to create a degree of general agreement as to the permissible limits of state aid policy in the investment field. It would thus set some basic ground rules for the operation of incentive regimes that would be as economically efficient as possible, through examining whether a given policy was market distorting, but offering certain public interest exceptions where a degree of such distortion would be tolerated for socioeconomic reasons. Clearly, this would be a significant issue for developing countries as it might help reduce the incidence of market-distorting incentive races which many developing countries would probably never win, while at the same time permitting such countries to offer development-oriented incentives, where these are seen as absolutely essential for the increase of development-friendly FDI into the developing host country concerned. Short of a multilateral arrangement in this field, bilateral arrangements, such as clauses in BITs covering incentives, might be of use, especially if they elicited agreement as to the limitation of levels of incentives and a simplification of types of incentives on offer.121 121 UNCTAD, Incentives and Foreign Direct Investment, above n 119 at 79–80.

Policy Issues

35

Transfer of Technology The transfer of technology continues to be a central concern of developing country economic policy. Access to technology is a foundation of economic growth. However, the presence of adequate and appropriate technology in a national economy is not always possible, given the nature of international markets for technology, which tend to favour developed economies with high levels of corporate research and development.122 In this process, less developed countries will have relatively limited access to technology. They are unlikely to meet all their technological needs from domestic sources, which may not even exist in the least developed economies, and they are therefore more dependent on outside sources of technology than more developed countries. Indeed, in the absence of alternative sources, a majority of developing country technological needs are met by FDI undertaken by MNEs, the leading creators and owners of proprietary technology in global markets.123 This raises the issue of how the technology that is indispensable to economic development can be supplied to such a country. This, in turn, raises at least four sets of related issues: how best to treat proprietary technology; how to encourage technology transfer; how to deal with the competition-related issues that the existence of market power on the part of technology owners creates; whether special host country technology-related measures such as, for example, performance requirements, are needed to deal with certain development priorities related to the transfer and dissemination of technology. IIAs have traditionally remained silent on questions of technology transfer. This means that the range of responsibilities owed by the host country to the investor in relation to their technology is limited to the observance of the standards of protection specified in the agreement, on the basis that the technology comes within the definition of assets that are within the protected subject-matter of the agreement. On the other hand this approach does not include in the agreement any internationally agreed commitments for MNEs, or their home governments, to cooperate in the promotion of the generation, transfer, or diff usion of technology to the host country or to the control of undesirable terms and conditions in technology transfer agreements.124 In the TRIPS Agreement, certain development-oriented provisions have been included. For example, this Agreement contains, in Articles 66 and 67, a duty on the part of home countries to promote the transfer of technology to the least developed county members and to engage in positive programmes of cooperation with the developing and least developed countries in order to implement the substantive terms of the TRIPS Agreement. In addition, the TRIPS Agreement offers

122 UNCTAD, Transfer of Technology (New York and Geneva, United Nations, 2001) at 89–94 or UNCTAD: Key Issues, above n 56, ch 23. 123 UNCTAD, Transfer of Technology, above n 122 at 11–16. 124 Ibid at 95.

36

Peter Muchlinski

transitional provisions allowing developing countries an extended period in which to ensure compliance with the disciplines introduced by the Agreement.125 The introduction of technology transfer issues into future IIAs may be necessary as a means of remedying the continuing imbalances of the international market for technology. Hence it may be desirable further to develop special and differential treatment provisions, for which the TRIPS Agreement offers an initial model, that can address this issue in favour of the interests of developing countries in acquiring effective, appropriate, and affordable technology. At present the TRIPS Agreement offers only rather limited commitments. It may well be that such commitments may need to be extended into full technology transfer policies based on a legally binding commitment to ensure adequate access to technology.126 In this regard the continuing debate over pharmaceutical patent protection and access to essential life-saving medicines in developing countries offers an important case-study.127 In addition, in order to further environmental protection policies it may be necessary to develop further requirements on foreign investors to transfer environmentally sound technology to ensure that developing countries in particular can meet such policy challenges.128

Special and Differential Treatment for Developing Countries The foregoing discussion on technology transfer highlights just one area where claims may be made for special and differential treatment for developing countries in future multilateral investment rules. More generally, development concerns, if taken seriously, will influence the entire process of drafting multilateral investment rules as such. Thus development considerations can be expressed not only through special and differential treatment provisions, but also through the objectives provisions of the IIA, as where the Preamble commits the parties to consider development issues as an essential policy goal behind the entire agreement, a commitment that will be reflected in the use of policy goals stated in the Preamble as an aid to the interpretation of specific obligations in the rest of the agreement. Equally, development considerations can be expressed through the manner in which exceptions to substantive commitments for investor/investment protection are drafted (which explains in part the preference expressed by some developing countries for a GATS-type ‘opt-in’ approach to market access commitments in future multilateral

125 On which see further UNCTAD–ICTSD, Resource Book on TRIPS and Development (Cambridge, Cambridge University Press, 2005) ch 34. 126 See Keith E Maskus, Intellectual Property Rights in the Global Economy (Washington, Institute for International Economics, 2000) at 239–40. 127 See further WTO, Declaration on the TRIPS Agreement and Public Health, WT/MIN (01)/ DEC/2, 20 November 2001. 128 See United Nations Conference on Environment and Development, Rio Declaration, Agenda 21 (New York and Geneva, United Nations, 1993) ch 34. See further UNCTAD, Environment, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001) esp 41–50 or UNCTAD: Key Issues, above n 56, ch 16.

Policy Issues

37

investment rules).129 Finally, the modes of application of such rules can promote development concerns, as where, for example, a commitment to technical assistance for developing country members is given the full force of binding legal obligation rather than being expressed through a non-binding ‘best efforts’ provision.

(iii) Corporate Social Responsibility A third area of concern to the future development of substantive standards in international investment law relates to the perception that new multilateral disciplines in the field of FDI, which are in the main oriented towards greater investor and investment protection, may require an element of reciprocal regulation of corporate responsibility as the quid pro quo for such improved legal treatment. This raises two basic issues: what are the main kinds of provisions that could fall under this general heading and the modalities through which these provisions might be expressed.130 As to the first issue, three areas stand out as being central to corporate responsibility: labour rights, human rights, environmental issues and development, as exemplified in the UN Global Compact131 and other relevant international instruments.132 However, the range of possible issues covered by the idea of corporate social responsibility is vast, ranging from corporate governance as such to fair competition, anti-corruption obligations, consumer protection and ethical business standards, to name but a few.133 If extensive provisions were to be included on all of these issues, multilateral regional or bilateral investment rules would probably be impossible to adopt, let alone apply, given the extensive subject-matter. There would also be the problem of institutional overlap, given that many of these matters are already being dealt with by specialized intergovernmental organizations or other specialist bodies. Thus the drafters of IIAs will have to think very carefully as to how corporate responsibility provisions should appear.

129 See eg Republic of Korea, Communication from Korea: Non-Discrimination and GATS-Type Approach for Investment, WT/WGTI/W/123, 28 June 2002. 130 For a detailed discussion of substantive provisions in IIAs that come under this concept see: Peter Muchlinski, ‘The Social Dimension of International Investment Agreements’, in J Faundez, ME Footer, and JJ Norton (eds), Governance Development and Globalisation (London, Blackstone Press, 2000) at 373; UNCTAD, Social Responsibility Series on issues in international investment agreements (New York and Geneva, United Nations, 2001). See too UNCTAD, World Investment Report 2003, above n 24 ch VI. See further Muchlinski, above n 55. 131 See further . 132 See further UNCTAD, Social Responsibility; on employment and environment: UNCTAD, Employment, Series on issues in international investment agreements (New York and Geneva, United Nations, 2000), UNCTAD, Environment (New York and Geneva, United Nations, 2001); on human rights see International Council on Human Rights Policy, Beyond Voluntarism: Human Rights and the Developing International Legal Obligations of Companies (Versoix, International Council on Human Rights Policy, 2002). Peter Muchlinski, ‘Human Rights and Multinationals—Is there a Problem?’ 77 Intl Affairs 31 (2001), UN Sub-commission on Human Rights, above n 17, D Kinley and J Tadaki, ‘From Talk to Walk: The Emergence of Human Rights Responsibilities for Corporations at International Law’ 44 Va J Int’l L 931 (2004). 133 These additional issues are raised in UNCTAD, Social Responsibility, above n 130.

38

Peter Muchlinski

Given the above-mentioned problems, it is likely that corporate responsibility issues will be dealt with by means that do not seek to offer detailed provisions but, rather, provide for overall commitments to certain standards. This may be achieved in a number of ways. First, a general commitment on the part of the signatory states to further the observance by MNEs of corporate responsibility standards could be included in the Preamble and/or in a specific substantive provision. Equally, where an issue is not yet fully developed, it can be expected that hortatory, best efforts provisions may be used. Secondly, international instruments and agreements that already contain a more extensive treatment of specific social responsibility issues could be incorporated as part of the new investment rules, in the manner that existing international minimum standards of treatment for intellectual property, contained in the Paris and Berne Conventions, were incorporated by reference into the TRIPS Agreement.134 A third possibility would be to follow the practice under NAFTA and use ‘side-agreements’ on specific social issues or to follow the precedent of the negotiations over the ill-fated MAI, where some delegations favoured appending the OECD Guidelines on Multinational Enterprises to the text of that agreement in a non-binding appendix. Whether corporate social responsibility standards will be included in future investment agreements cannot be predicted at this stage. On the other hand, given the extensive concern expressed by civil society groups over the lack of social responsibility provisions in the MAI, it is highly likely that some reference to corporate responsibility will be needed in future international investment arrangements to ensure a balance between corporate rights, as expressed in the investor/investment protection provisions of such instruments, and corporate responsibilities, as expressed in specialized international instruments and national legal standards. The absence of such a balance might endanger the political acceptability of those rules.

(iv) Home Country Measures As noted above, a further new area for international rule-making may arise in relation to the obligations of home countries in the field of foreign investment.135 Such measures could assist in the provision of beneficial FDI for developing countries in particular. This may be achieved through both ‘soft’ and ‘hard’ commitments. In the former category, for example, home countries could provide information related to investment opportunities, training, and skills transfer, encouraging technology transfer and assisted outreach to home-country business groups.136 In the latter 134 See Art 2 TRIPS Agreement. 135 See UNCTAD, Home Country Measures, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001) or UNCTAD: Key Issues, above n 56, ch 22. UNCTAD, World Investment Report 2003, above n 24 at 155–63. 136 World Investment Report 2003, ibid at 161.

Policy Issues

39

category, they may offer financial assistance to outward investors through investment and technology transfer incentives, investment insurance, and other legally binding obligations to promote outward investment. Whether such obligations should be embodied in future international investment rules depends on the willingness of the major home countries to shift what are at present national policies based on full national policy discretion, to the international level where they would be enshrined in treaty provisions. It can be expected that such measures will often be contained in ‘best efforts’ clauses, but even such soft obligations may pave the way for a legal hardening where required. Given the lack of home-country obligations in IIAs to date, such a process would appear to be unlikely at the time of writing.

(c) Enforcement and Dispute Settlement The enforcement of international investment law involves at least two main areas of policy concern. First, how are the norms of such international law to be given effect before national legal systems and secondly, how are international dispute settlement mechanisms to be applied?

(i) International Investment Law and National Law From the foregoing discussion of sources of international investment law at least two main sets of questions arise: what is the effect, in national law, first, of IIA provisions and, secondly, of the increasing number of non-binding instruments that help to develop standards in this field? The effect of an IIA provision within the legal systems of the contracting states depends on the applicable rules of national law concerning the domestic effect of treaties.137 Some states, like the United Kingdom, adopt a dualist approach whereby a treaty can only become a part of English law if an enabling Act of Parliament has been passed. Therefore, an IIA can create no directly effective legal rights within the English legal system without such transforming legislation. To date no such legislation has been passed and IIAs remain purely international obligations.138 Unlike the United Kingdom, a number of countries adhere to the principle that treaties made in accordance with the constitution bind the courts without any specific act of incorporation. Thus, for example, by Article 157 of the Sri Lankan Constitution BITs are given the force of law in Sri Lanka, and no executive or administrative action can be taken in contravention of the treaty,

137 See Muchlinski, above n 48 at 698–9 on which this paragraph draws. 138 But see Occidental Exploration and Production Company v Republic of Ecuador [2005] EWCA Civ 116, 45 ILM 249 (2006) where the Court of Appeal accepted the right of a party to an arbitration brought under a BIT to challenge the jurisdiction of the arbitral tribunal under the UK Arbitration Act 1996 even though the treaty was not incorporated into English law.

40

Peter Muchlinski

save in the interests of national security.139 However, each system must be carefully examined to see whether it imposes additional conditions before the treaty can be invoked as a source of rights under municipal law. Turning to non-binding codes of conduct, such instruments can acquire legal force in private law.140 Private law suits can be brought against the firm or organization adopting a voluntary code by other firms or organizations, consumers, or other members of the community. Such claims may allege that a failure to comply with the code is evidence that the sponsoring firm or organization is not meeting industry standards of conduct and is, therefore, not exercising reasonable care or due diligence. Furthermore, failure to follow the terms of a voluntary code could be evidence of a breach of contract, where such adherence is an express or implied term of the agreement, or of an actionable misrepresentation, as where a firm alleges that its adherence to a code of conduct entitles it to be regarded as qualifying for a governmental standard-setting marque of approval, but where in fact it fails to meet such standards. In such cases, consumers can bring an action if they claim to have been attracted to purchasing the firm’s products or services in the light of such assertions of good conduct. Also the relevant government agency might bring an action for abuse of its certification scheme.141

(ii) Dispute Settlement142 The settlement of disputes between investors and host countries is an issue that is central to national FDI policy, and more broadly to national developmental concerns, in that the availability of effective dispute settlement acts to reinforce the rights of investors and adds to the reduction of investment risk, thereby making the host country more attractive to investors. Accordingly, the host country needs to ensure that such disputes can be effectively resolved. Usually a host country will provide dispute settlement procedures and remedies as a part of the general law of the land. However, investors may perceive host country laws and procedures not to be sufficient as a means for the resolution of disputes with the host country. They may prefer an internationalized approach to dispute settlement. This allows the investor the freedom to choose between national and international dispute settlement mechanisms. The latter usually takes the form of international arbitration between the investor and the host country. This may be ad hoc arbitration, based on an arbitral panel and procedure that is agreed between the investor and the host

139 See Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. ARB/87/3 Award of 27 June 1990 30 ILM 577 (1991). 140 This paragraph draws on Muchlinski, above n 51 at 129. 141 See Government of Canada, Voluntary Codes: A Guide for their Development and Use (Ottawa, March 1998) at 27, also available on ; Kernaghan Webb, ‘Voluntary Initiatives and the Law’, in R Gibson (ed), Voluntary Initiatives: The New Politics of Corporate Greening (Peterborough, Ont, Broadview Press, 1999) at 32–50. 142 The following sub-section draws upon the World Investment Report 2003, above n 24 at 114.

Policy Issues

41

country. In the alternative, there may be an institutional system of international arbitration that can apply to the dispute in question.143 The United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules, adopted by the United Nations General Assembly in 1976, are possibly the most commonly selected ad hoc arbitral system, whereby arbitration procedures are conducted without supervision by any administrative institution. A particular advantage of UNCITRAL arbitration is that it may be cheaper than institutional arbitration since there are no administrative fees to compensate for an institution’s services. Other systems are the Permanent Court of Arbitration (PCA) Optional Rules for Arbitrating Disputes between Two Parties of Which Only One Is a State, the International Chamber of Commerce (ICC) Arbitration Rules, and the Stockholm Chamber of Commerce (SCC) Arbitration Rules. The most important arbitral institution in the field of investment disputes is the International Centre for Settlement of Investment Disputes (ICSID), set up under the auspices of the World Bank. Specific procedural requirements for the use of this system of arbitration are contained in the ICSID Convention. Rules of procedure for arbitration proceedings are also contained in ICSID Rules which are tailored for arbitration with the participation of a government party. Oversight by the ICSID Secretariat and the availability of the institution’s resources and experienced personnel clearly represents a major asset in investment arbitrations, which tend to be complex and involve voluminous submissions and documentation.144 National policies on investor–host country dispute settlement will vary from those that require the exclusive use of national procedures and remedies145 and those that offer free choice between national and international dispute settlement to the investor.146 National investment laws will often expressly permit such internationalization of investment disputes by enshrining investor choice in a specialized dispute settlement provision in the relevant FDI legislation.147 On the other hand, many FDI laws are silent on this issue148 and the investor is thus required to 143 See further Reinisch and Malintoppi, ‘Methods of Dispute Resolution’, ch 18 below. See too Williams, ‘Jurisdiction and Admissibility’, below Ch 22 on the jurisdiction of ICSID. 144 See further C Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001); Christopher F Dugan, Don Wallace, Jr, Noah D Rubins, and B Sabatis, Investor–State Arbitration: The Practice of Investment-Related Dispute Resolution under International Treaties (New York, Oxford University Press, forthcoming). 145 This approach was favoured by Latin American countries and was encapsulated in the so-called ‘Calvo doctrine’. More recently, they have departed from this doctrine in their BITs as well as in the context of Mercosur. See further Maffezini v Spain, above n 70. 146 See Schreuer, ‘Consent to Arbitration’, ch 21 below, van Haersolte-van Hoff and Hoff mann, ‘The Relationship between International Tribunals and Domestic Courts’ ch 23 below, and Yannaca-Small, ‘Parallel Proceedings’, ch 24 below. See further UNCTAD, Dispute Settlement Investor-State, Series on issues in international investment agreements (New York and Geneva, United Nations, 2003) 26–44 or UNCTAD: Key Issues, above n 56, ch 12. 147 See eg the Nigerian Investment Promotion Commission Law 1995, 26. 148 See eg the Federal Law on Foreign Investment in the Russian Federation (9 July 1999): 39 ILM 894 (2000).

42

Peter Muchlinski

use the internal legal remedies available to them under host country law. The same is true of countries that have no specialized FDI laws as such. In these two latter cases international remedies may, however, be available on the basis of the international treaty obligations undertaken by the host country in IIAs to which it is a party. Thus, a dispute settlement clause in a BIT that allows the investor choice between national and international procedures will bind the host country as a matter of international legal obligation. Equally, such an international obligation can be made enforceable before national tribunals where the investment contract between the investor and host country includes a dispute settlement clause that incorporates the latter’s international treaty obligations to allow the use of internationalized systems of dispute settlement. In this way, dispute settlement clauses in IIAs side-step the local remedies requirement and create a presumption that it is inapplicable in the absence of an express provision to the contrary. The issue of remedies (including monetary compensation) has recently emerged as a possible source of concern. The emergence of arbitration-enforceable novel regulatory disciplines such as national treatment, legitimate expectations, denial of justice—has not yet led to a concise and easily manageable body of rules on remedies and compensation. It may thus be useful to develop an approach that takes into consideration the following points: (a) making use of the vast comparative experience of judicial review of domestic administrative action, (b) sequencing conduct-related remedies before final financial remedies, and (c) favouring individualized ways to determine compensation rather than on the basis of standardized methods.149 Related to the issue of award of compensation is the further question of how to ensure compliance and enforcement of awards once they have been made. This is of especial importance given that assets from which compensation may be payable will be located in national legal systems and so national rules and procedures may impact on the ability of the successful claimant to recover their award. To remedy possible shortcomings in national systems of enforcement, institutional systems of arbitration have established their own rules and procedures based on the consent of their members to observe awards. This is by no means a complete solution depending, as it does, on compromises between traditional state immunities from recovery and the need to protect the legitimate expectations of investors that their awards will be complied with and will be enforceable.150 A major issue for future development is the extent to which investor freedom and choice in this field may be allowed to inform the content of dispute settlement clauses, or whether a degree of increased host country control over investment dispute settlement methods is desirable, especially in the light of concerns over the 149 See Wälde and Sabahi, ‘Compensation, Damages, and Valuation’, ch 25 below. 150 See further Alexandroff and Laird, ‘Compliance and Enforcement’, ch 29 below.

Policy Issues

43

scope of the ‘right to regulate’, and also in the light of the possibility that national legal systems can evolve increasingly effective local dispute settlement mechanisms. It would appear that the trend, at least in the case of Western Hemisphere IIAs, is to make international dispute settlement more central and to offer detailed rules on how investor–state disputes should be conducted.151 Given the increased importance of such international dispute settlement, the question arises of the proper limits of arbitral discretion in formulating the issues at hand. Normally it is for the parties to define the nature and scope of their dispute. However, in an environment where the precise nature and meaning of given IIA provisions may be open to multiple interpretations, the possibility that tribunals will themselves take on a more active role in defining the nature of the dispute before them cannot be ruled out.152 Another development-oriented issue that could be more fully addressed concerns the role to be played by the recently established regional dispute settlement centres in certain developing countries. The possibility of including recourse to these centres could be considered in future negotiations, thereby giving a strong injection of support for these initiatives.153 A further new area concerns the extension of dispute settlement mechanisms to third parties who may have a stake in the outcome of an investor–state dispute. This is likely to impact on development concerns where such third parties may be the very individuals or groups that are most directly affected by the development implications of a given investment. For example, where an investor and a host country are in dispute over the application of environmental regulations to the investment in question, local communities affected by the environmental performance of that investment might wish to participate as interested third parties. This can be accommodated through rights of audience before national tribunals in countries where there is a strong tradition of access to justice by interested third party individuals or groups.154 However, where the investor exercises a treaty-based right to international arbitration, interested third parties may have no standing before such a body and will be denied the possibility of a hearing. On the other hand, the most recent US Model BIT allows for the tribunal to accept third party amicus curiae submissions, though this is not general practice outside Western Hemisphere BITs155 as well as the proposed changes to ICSID Rules.156 Other issues of importance 151 See eg the US–Uruguay BIT, 25 October 2004 s B; Canada Model Foreign Investment Protection Agreement 2004 s C, above n 50. 152 See further Cordero-Moss, ‘Tribunal’s Powers versus Party Autonomy’, ch 31 below. 153 See further A Asouzu, International Commercial Arbitration and African States (Cambridge, Cambridge University Press, 2001). 154 See further Delaney and Magraw, ‘Procedural Transparency’ ch 19 below. 155 See eg the US–Uruguay BIT, 25 October 2004 Art 28(3) and Canadian Model Agreement, above n 50, Art 39 which is more detailed than the US provision. 156 Para (2) of ICSID Arbitration Rule 37 would provide as follows: ‘After consulting both parties as far as possible, the Tribunal may allow a person or a State that is not a party to the dispute (hereafter called the “non-disputing party”) to fi le a written submission with the Tribunal. In determining whether to allow such a fi ling, the Tribunal shall consider, among others things, the extent

44

Peter Muchlinski

relate to the need for greater openness and transparency in the international dispute settlement process, the composition and selection of arbitrators, and the need for an appellate mechanism in investment arbitrations.157 In addition issues of national court review of awards, and the procedures for institutional review of awards, have raised problems in recent years.158

Concluding Remarks The preceding discussion has highlighted the actors, ideologies, and major technical questions that may be said to contribute to the development of policy in the field of international foreign investment law. The range of actors has become wider than merely the investor and the host country. Thus the home country may have to take on active obligations in relation to the investor and the investment, corporate investors are being subjected to increasing demands for compliance with good corporate citizenship and governance standards, in return for the benefit of investment protection, while civil society groups and NGOs are increasingly active as monitors of corporate behaviour and as lobbyists for more balanced IIAs that cover obligations for all the main sets of actors. These developments are a direct outcome of increasing global economic integration through the instrumentality of the MNE. As such, they represent a challenge for a new reflexive international law that is capable of acting as a wider underpinning not only for pro-corporate liberalization and reaffirmation of private property rights, but also for the regulation of national policy space and rights of regulation as well as the balancing of commercial and non-commercial values that lie at the heart of a healthy democratic and participatory society.

to which: (a) the non-disputing party submission would assist the Tribunal in the determination of a factual or legal issue related to the proceeding by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties; (b) the non-disputing party submission would address a matter within the scope of the dispute; (c) the non-disputing party has a significant interest in the proceeding.’ 157 See generally ICSID Secretariat, Possible Improvements of the Framework for ICSID Arbitration (ICSID Secretariat, Discussion Paper, 22 October 2004). See further, with respect to the composition of arbitral tribunals, Malintoppi, ‘Independence, Impartiality, and Duty of Disclosure of Arbitrators’, below Ch 20, and, on the issue of an appeal process, see US–Uruguay BIT 2004, above n 50, Annex E, where the parties will consider the setting up of an appellate body or similar mechanism to review awards made under the dispute settlement provisions of the treaty. See further Qureshi, ‘An Appellate System in International Investment Arbitration?’, below Ch 28. Related to this question is whether a doctrine of precedent is emerging in arbitral awards see Schreuer and Weiniger, ‘A Doctrine of Precedent?’, ch 29 below. 158 See Balaš, ‘Review of Awards’, ch 27 below.

Policy Issues

45

Select Bibliography Asouzu, A, International Commercial Arbitration and African States (Cambridge, Cambridge University Press, 2001) Bartlett, C, and Ghoshal, S, Managing across Borders: The Transnational Solution (Cambridge Mass, Harvard Business School Press, 2nd edn, 1998 paperback edn, 2002) ——, and Birkinshaw, J, Transnational Management: Text Cases and Readings in CrossBorder Management (Boston, McGraw Hill Irwin, 4th edn, 2004) Blumberg, P, ‘Asserting Human Rights against Multinational Corporations under United States Law: Conceptual and Procedural Problems’, 50 AJCL 493 (2002) Braithwaite, J, and Drahos, P, Global Business Regulation (Cambridge, Cambridge University Press, 2000) Brownlie, I, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) Cable, V, Globalization and Global Governance (London, RIIA, 1999) Cassese, A, Human Rights in a Changing World (Cambridge, Polity Press, 1994) Conklin, D, and Lecraw, D, ‘Restrictions on Foreign Ownership during 1984–1994: Developments and Alternative Policies’, 6(1) Transnational Corporations (1997) Curren, H, and Morrow, K, ‘International Civil Society in International Law: The Growth of NGO Participation’, 1 Non-state Actors and Int’l Law 7 (2001) Dicken, P, Global Shift (London, Sage Publications, 4th edn, 2003) Dolzer, R, and Myers, T, ‘After Tecmed: Most-Favoured-Nation Clauses in International Investment Protection Agreements’, 19 ICSID Rev–FILJ 49 (2004) Doremus, PN, Keyer, WW, Fanly, LW, and Reich, S, The Myth of the Global Corporation (Princeton, Princeton University Press, 1998) Douglas, Z, ‘The Hybrid Foundations of Investment Treaty Arbitration’, 74 BYIL 150 (2003) Dugan, C, Wallace, D, Rubins, N, and Sabahi, B, Investor–State Arbitration: The Practice of Investment-Related Dispute Resolution under International Treaties (New York, Oxford University Press, forthcoming) Dunning, JH, Multinational Enterprises and the Global Economy (Wokingham, AddisonWesley Publishing, 1993) Elias, OA, and Lim, CL, The Paradox of Consensualism in International Law (The Hague, Kluwer Law International, 1998) Foy, G, and Deane, J, ‘Foreign Investment under Investment Treaties: Recent Developments under Chapter 11 of the North American Free Trade Agreement’, 16 ICSID Rev–FILJ 299 (2001) Fredriksson, T, and Zimny, Z, ‘Foreign Direct Investment and Transnational Corporations’, in UNCTAD, Beyond Conventional Wisdom in Development Policy: An Intellectual History of UNCTAD 1964–2004 (New York and Geneva, United Nations, 2004) Freyer, D, and Herlihy, D, ‘Most-Favoured-Nation Treatment and Dispute Settlement in Investment Arbitration: Just how “Favoured” is “Most-Favoured”?’, 20 ICSID Rev–FILJ 58 (2005) Giddens, A, The Third Way (Cambridge, Polity Press, 1998) Gilpin, R, The Challenge of Global Capitalism (Princeton, Princeton University Press, 2000) Goldsmith, J, The Trap (London, Macmillan, 1996) Government of Canada, Voluntary Codes: A Guide for their Development and Use (Ottawa, 1998)

46

Peter Muchlinski

Held, D, McGrew, A, Goldblatt, D, and Perraton, J, Global Transformations: Politics Economics and Culture (Cambridge, Polity Press, 1999) Hindelang, S, ‘Bilateral Investment Treaties, Custom and a Healthy Investment Climate— The Question of Whether BITs Influence Customary International Law Revisited’, 5 JWIT 789 (2004) Hines, C, Localization: A Global Manifesto (London, Earthscan, 2000) Hoogvelt, A, Globalization and the Postcolonial World (Basingstoke, Palgrave, 2nd edn, 2001) Hurst, D, and Thompson, G, Globalisation in Question (Cambridge, Polity Press, 2nd edn, 1999) ICSID Secretariat, Possible Improvements of the Framework for ICSID Arbitration (ICSID Secretariat, Discussion Paper, 22 October 2004) Ijalaye, D, The Extension of Corporate Personality in International Law (Dobbs Ferry, NY, Oceana, 1978) International Council on Human Rights Policy, Beyond Voluntarism: Human Rights and the Developing International Legal Obligations of Companies (Versoix, International Council on Human Rights Policy, 2002) Josselin, D, and Wallace, W (eds), Non-state Actors in World Politics (Basingstoke, Palgrave Publishers, 2001) Juillard, P, ‘Les Conventions bilatérales d’investissement conclues par la France’, 2 JDI 274 (1979) ——, ‘Les Conventions bilatérales d’investissement conclues par la France avec les pays n’appartenant pas à la zone Franc’, AFDI (1982) 760 Kamminga, M, and Zia-Zarifi, S (eds), Liability of Multinational Corporations under International Law (The Hague, Kluwer Law International, 2001) Kinley, D, and Tadaki, J, ‘From Talk to Walk: The Emergence of Human Rights Responsibilities for Corporations at International Law’, 44 Va J Int’l L 931 (2004) Klein, N, No Logo (London, Flamingo, 2000) Kurtz, J, ‘The MFN Standard and Foreign Investment: An Uneasy Fit?’, 6 JWIT 861 (2004) Leben, C, La Théorie du Contrat d’Etat et l’Evolution du Droit International des Investissements (Leiden, Martinus Nijhoff Publishers, 2004) Lipson, C, Standing Guard: Protecting Capital in the Nineteenth and Twentieth Centuries (Berkeley, Calif, University of California Press, 1985) Mann, FA, ‘British Treaties for the Promotion and Protection of Investment’, 52 BYIL 241 (1981) Maskus, K, Intellectual Property Rights in the Global Economy (Washington, Institute for International Economics, 2000) Muchlinski, P, ‘A Brief History of Business Regulation’, in S Picciotto and R Mayne (eds), Regulating International Business: Beyond Liberalization (Basingstoke, Macmillan Press, 1999) ——, ‘The Social Dimension of International Investment Agreements’, in J Faundez, ME Footer, and JJ Norton (eds), Governance Development and Globalisation (London, Blackstone Press, 2000) ——, ‘Corporations in International Litigation: Problems of Jurisdiction and the United Kingdom Asbestos Case’, 50 ICLQ 1 (2001) ——, ‘Human Rights and Multinationals—Is there a Problem?’, 77 Int’l Affairs 31 (2001) ——, ‘Globalisation and Legal Research’, 37 Int’l Law 221 (2003) ——, ‘Human Rights Social Responsibility and the Regulation of International Business: The Development of International Standards by Intergovernmental Organisations’, 3 Non-state Actors and Int’l Law 123 (2003)

Policy Issues

47

——, ‘ “Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 ICLQ 527 (2006) ——, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) ——, International Investment Perspectives (Paris, OECD, 2003) OECD, International Investment Law: A Changing Landscape (Paris, OECD, 2005) Ohmae, K, The Borderless World (London, Fontana, 1991) ——, The End of the Nation-State (New York, Free Press, 1995) Ortino, F, ‘The Social Dimension of International Investment Agreements’, 7 Int’l Law FORUM du Droit International 243 (2005) Penrose, E, Joffe, G, and Stevens, P, ‘Nationalisation of Foreign Owned Property for a Public Purpose: An Economic Perspective of Appropriate Compensation’, 55 MLR 351 (1992) Raghavan, C, Recolonisation: GATT, the Uruguay Round and the Third World (London, Zed Books, 1990) Republic of Korea, Communication from Korea: Non-discrimination and GATS-Type Approach for Investment (WT/WGTI/W/123, 28 June 2002) Rowlands, I, ‘Transnational Corporations and Global Environmental Politics’, in D Josselin and W Wallace (eds), Non-state Actors in World Politics (Basingstoke, Palgrave Publishers, 2001) Rugman, A, UK Competitiveness and the Performance of Multinational Companies (Report funded by the Economic and Social Research Council (ESRC), September 2002) Sands, P, and Klein, P, Bowett’s Law of International Institutions (London, Sweet & Maxwell, 5th edn, 2001) Scholte, JA, Globalization: A Critical Introduction (Basingstoke, Palgrave, 2000) ——, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) Schreuer, C, ‘Fair and Equitable Treatment in Arbitral Practice’, 6 JWIT 357 (2005) Schwebel, S, ‘The Influence of Bilateral Investment Treaties on Customary International Law’, 98 ASIL Proceedings 27 (2004) ——, The Transnational Capitalist Class (Oxford, Blackwell Publishers, 2001) Sklair, L, Globalization: Capitalism and its Alternatives (Oxford, Oxford University Press, 2002) Snyder, F, ‘Governing Economic Globalisation: Legal Pluralism and EU Law’, in F Snyder (ed), Regional and Global Regulation of International Trade (Oxford, Hart Publishing, 2002) Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) Spiermann, O, ‘Twentieth Century Internationalism in Law’ (inaugural lecture, University of Copenhagen, 20 January 2006) Steiner, H, and Alston, P, International Human Rights in Context: Law, Politics, Morals (Oxford, Oxford University Press, 2nd edn, 2000) Thomas, JC, ‘Reflections on Article 1105 of NAFTA: History, State Practice and the Influence of Commentators’, 17 ICSID Rev-FILJ 21 (2002) UN Conference on Environment and Development, Rio Declaration, Agenda 21 (New York and Geneva, United Nations, 1993) ——, World Investment Report 1992 (New York, United Nations, 1992) ——, Incentives and Foreign Direct Investment (New York and Geneva, United Nations, 1996) ——, International Investment Agreements: A Compendium Vol II (New York and Geneva, United Nations, 1996) ——, Bilateral Investment Treaties in the Mid-1990s (New York and Geneva, United Nations, 1998)

48

Peter Muchlinski

UNCTAD, Admission and Establishment (New York and Geneva, United Nations, 1999) UNCTAD, Fair and Equitable Treatment Series (New York and Geneva, United Nations, 1999) ——, Most-Favoured-Nation Treatment Series (New York and Geneva, United Nations, 1999) ——, National Treatment Series (New York and Geneva, United Nations, 1999) ——, Employment Series (New York and Geneva, United Nations, 2000) ——, International Investment Agreements: Flexibility for Development (United Nations, New York and Geneva, 2000) ——, Taking of Property Series (New York and Geneva, United Nations, 2000) ——, Environment Series (New York and Geneva, United Nations, 2001) ——, Home Country Measures Series (New York and Geneva, United Nations, 2001) ——, Host Country Operational Measures Series (New York and Geneva, United Nations, 2001) ——, Social Responsibility Series (New York and Geneva, United Nations, 2001) ——, Transfer of Technology (New York and Geneva, United Nations, 2001) ——, Dispute Settlement Investor-State Series (New York and Geneva, United Nations, 2003) ——, Incentives Series (New York and Geneva, United Nations, 2004) ——, International Investment Agreements: Key Issues: Vols I–III (New York and Geneva, United Nations, 2004) ——, State Contracts Series (New York and Geneva, United Nations, 2004) ——, Transparency Series (New York and Geneva, United Nations, 2004) ——, World Investment Report 2004 (New York and Geneva, United Nations, 2004) ——, Flexibility for Development (New York and Geneva, United Nations) ——, World Investment Report 2003 (New York and Geneva, United Nations) UNCTAD–ICTSD, Resource Book on TRIPS and Development (Cambridge, Cambridge University Press, 2005) ——, ‘Sustainable Development and the 1994 Energy Charter Treaty: Between Pseudo-Action and the Management of Environmental Investment Risk’, in F Weiss, E Denters and P de Waart (eds), International Economic Law with a Human Face (The Hague, Kluwer Law International, 1998) Wälde, T, ‘Non-conventional Views on “Effectiveness”: The Holy Grail of Modern International Lawyers: The New Paradigm? A Chimera? Or a Brave New World in the Global Economy?’ 4 Austrian Review of Int’l and European Law 164 (1999) Walter, A, ‘Unravelling the Faustian Bargain: Non-state Actors and the Multilateral Agreement on Investment’, in D Josselin and W Wallace (eds), Non-state Actors in World Politics (Basingstoke, Palgrave Publishers, 2001) Walzer, M, (ed), Toward a Global Civil Society (Providence, RI, Berghan Books, 2nd edn, 1998) Waters, M, Globalisation (London, Routledge, 1995) Webb, K, ‘Voluntary Initiatives and the Law’, in K Gibson (ed), Voluntary Initiatives: The New Politics of Corporate Greening (Peterborough, Ont, Broadview Press, 1999) Wolf, M, Why Globalization Works (New Haven and London, Yale University Press, 2004) ——, Declaration on the TRIPS Agreement and Public Health (WT/MIN (01)/DEC/2 20 November 2001) ——, Modalities for Pre-establishment Commitments Based on a GATS-Type Positive List Approach: Note by the Secretariat (WT/WGTI/W/120, 19 June 2002) WTO, Communication of 2 September 2003 from the Permanent Mission of India to the Ministerial Conference Fifth Session Cancun 10–14 September 2003 (WT/MIN(03)/W/4, 4 September 2003) Young, S, and Tavares, AT, ‘Multilateral Rules on FDI: Do We Need Them? Will We Get Them? A Developing Country Perspective’, 13(1) Transnational Corporations 1 (2004)

chapter 2

IN VESTMENT, IN VESTOR, NATIONALITY, AND SHAR EHOLDERS Engela C Schlemmer *

(1) The Definition of ‘Investment’ (a) (b) (c) (d)

National Legislation Bilateral and Other Investment Protection Treaties ‘Investment’ Equal to a Transfer of Capital? ‘Investment’ for Purposes of ICSID

(2) The Definition of ‘Investor’ (a) Nationality of the Investor who is a Natural Person (b) Corporations as Investors—Nationality of a Corporation (c) Shareholders as Investors in their Own Right

Concluding Remarks

ž

51 52 55 58 62 69 70 75 81 86

My thanks go to Christoph Schreuer and Peter Muchlinski for their input.

50

Engela C Schlemmer

The present chapter covers certain basic issues of definition common to all international investment agreements (IIAs). The starting point for understanding the scope of an IIA is the definition of the terms that activate the protection afforded under the agreement. Specifically, such protection usually extends to the ‘investor’ and/or their ‘investment’. The term ‘investor’ is normally defined by reference to the nationality of the investor. In relation to natural persons this should not pose many problems. However, in the context of investment by multinational enterprises (MNEs) such issues acquire additional levels of complexity. For example, what is the nationality of an MNE where it is formed of a network of companies incorporated in various jurisdictions? Can a company owned and controlled by a foreign parent but possessing the nationality of its host country take advantage of the protection of an IIA by reason of its foreign control despite its possession of host country nationality? The term ‘investment’ is usually defined either by reference to the assets that constitute the investment, such as shareholding or contractual rights to profits, or by reference to certain characteristics of the investment, for example whether it is a direct investment made by an enterprise. Equally, what types of assets can be protected under an IIA: should their definition have a connection with a tangible investment or can mere future expectations of profit be protected? This chapter will seek to outline how such questions have been answered in practice. It will review the nature of the various definitions of ‘investor’ and ‘investment’ as found in IIAs and in arbitral practice. The context for such a discussion lies within the process of the development of IIAs, and, in particular, dispute settlement provisions, to which issues of definition are key in determining the enforceability of rights under the agreement for the investor. This has been particularly important in relation to the investor–state dispute settlement process established under the Centre for the Settlement of Investment Disputes between States and Nationals of Other Contracting States (ICSID). Constituted in 1965, this procedure grants a private investor, whether a natural or legal person, the legal capacity to act internationally with reference to qualifying investment disputes.1 The limitation is that the private investor must be a national of a Contracting State and that the other state party to the dispute must also be a Contracting State. There are a number of methods that investors can rely on to ensure that disputes concerning their investment will be dealt with by ICSID, or for that matter, by any other international arbitration tribunal that the parties to the IIA agree to offer as a means of dispute settlement. The investor must ensure that during the negotiations of the investment agreement, the state party to the contract consents to ICSID arbitration or to another form of international arbitration.2 This presupposes that

1 For a brief historical survey of ICSID, see David R Sedlak, ‘ICSID’s Resurgence in International Investment Arbitration: Can the Momentum Hold?’ 23 Penn St Int’l L Rev 147 (2004) 149 ff. 2 One has to remember that the reference to ICSID arbitration is only available if the host state and the home state are both ICSID Contracting States. If only one of the states involved is a Contracting

Investment, investor, shareholders

51

the state and the investor both consider the agreement pertaining to which the dispute resolution provisions were included, as an investment. There are three, possibly four, situations arising out of the source of consent to ICSID arbitration where one will have to determine whether the transaction in the midst of the dispute is indeed an investment. The first of these is if there is a national law dictating special requirements for a transaction in order to be accepted as an investment; secondly, if the investment contract at first glance does not seem like an investment but the contracting parties have determined that their agreement indeed amounts to an investment; and then thirdly, if the transaction is an investment covered by the protection afforded by a Bilateral Investment Treaty (BIT). In this case, the issue arises whether the investment is one covered by the scope and definition provision of the BIT, a situation distinct from that of whether or not the parties have consented to ICSID arbitration under the investment contract. The fourth determination of the meaning of ‘investment’ comes in when the dispute is referred for arbitration under ICSID; this time round, for jurisdictional purposes. The jurisdiction of ICSID and the application of a BIT are not only dependent upon the element of ‘investment’, but also on the element of ‘investor’. Even though an investment is made by an investor, it does not automatically entitle the investor to the protection under a BIT or any other investment treaty. The investor’s right to protection under these treaties is based on his or her nationality. The determination of his, her, or its nationality is done according to specific rules, rules which differ depending on whether the investor is a natural person or a juridical person. Against this background the remainder of the chapter will consider in more detail the meanings of the key definitional terms under IIAs, commencing with the definition of ‘investment’, followed by an examination of the term ‘investor’, in relation to both natural and legal persons. In each case, the general usage of these terms in IIAs will be charted as well as the interpretation given to the terms for the purposes of determining the jurisdiction of ICSID tribunals over investor–state disputes brought before them.

(1) The Definition of ‘Investment’ Th is section considers the defi nition of ‘investment’ under both national laws and international law. The former may be found in national foreign investment laws and the latter in specific IIA provisions. In relation to the latter a core issue is State, then the referral for arbitration could be under the rules of the ICSID Additional Facility. See further Schreuer, ‘Consent to Arbitration’ ch 21 below.

52

Engela C Schlemmer

whether investment is a term limited to transfers of capital or whether a wider range of assets is included. Th is issue has been considered in ICSID arbitral decisions and so these will be studied in some detail. Generally, definitions of investment for the purposes of investment law fall under three broad models. The first is the ‘asset-based’ model, which contains a broad range of specified assets that can be protected under the legislation or agreement in question. This may be contrasted with a ‘transaction-based’ model, which protects the underlying capital transfer rather than the assets owned or controlled by the investor,3 and an ‘enterprise-based’ model, which defi nes the protected investment in terms of the business organization of the investment through an enterprise. Such an approach usually limits the protection afforded to a foreign direct investment made by a foreign-owned and controlled company or other type of enterprise. As will be seen in the following two sub-sections, national foreign investment laws tend to have transaction or enterprise-based approaches to defi nition while most BITs tend towards a broad asset-based defi nition.

(a) National Legislation A significant number of states have foreign investment laws in place which contain a definition of ‘investment’. These investment laws sometimes contain their own definition of investment and very often also contain other requirements that a transaction must comply with in order to be considered an investment or to be entitled to certain benefits or privileges. An example of this is provided by the Namibian Foreign Investment Act of 1992, which provides in section 5 that: (1) For the purposes of this Act, an investment is an eligible investment— (a) if it is an investment, or proposed investment, in Namibia by a foreign national of foreign assets of a value of not less than the amount which the Minister may determine from time to time by notice in the Gazette for this purpose;

3 The best example being the OECD Codes on the Liberalisation of Capital Movements and Invisibles. See Code on the Liberalisation of Current Invisible Operations (OECD/C(61)95) (hereinafter Invisibles Code); Code on the Liberalisation of Capital Movements (OECD/C(61)96) (hereinafter Capital Movements Code). The Codes are regularly updated by Decisions of the OECD Council to reflect all changes in the positions of Members. The updated Codes are periodically republished. Both are available for download at . For background to the Codes see: OECD OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations User’s Guide (Paris, OECD, 2003), available for download at ; Forty Years’ Experience with the OECD Code of Liberalisation of Capital Movements (Paris, OECD, October 2002), summary and conclusions available for download at the above website reference.

Investment, investor, shareholders

53

(b) if it is a reinvestment, or proposed reinvestment, by a foreign national of the profit or proceeds of sale of an enterprise specified in a Certificate, irrespective of the amount of such reinvestment. (2) Where the investment is for the acquisition of shares in a company incorporated in Namibia, the investment shall, notwithstanding that the value thereof is equal to or exceeds the amount determined under subsection (1)(a), qualify as an eligible investment only if— (a) not less than ten per cent of the share capital of the company is held or will, following the investment, be held by the foreign national making the investment; or (b) the Minister is satisfied that the foreign national making the investment is or will be actively involved in the management of the company. (3) Where the investment is for the acquisition of a participating share in an unincorporated joint venture, the investment shall, notwithstanding that the value thereof is equal to or exceeds the amount determined under subsection (1)(a), qualify as an eligible investment only if— (a) not less than ten per cent of the participating share of the joint venture is held or will, following the investment, be held by the foreign national making the investment; or (b) the Minister is satisfied that the foreign national making the investment is or will be actively involved in the management of the joint venture.4

If an investment in Namibia complies with section 5, the investor may apply for a Certificate of Status Investment.5 Once such a Certificate is issued, the holder is entitled to a number of benefits.6 This definition does not offer a full understanding of what is meant by ‘investment’ as such. The Act does not include a definition of 4 See or ICSID, Foreign Investment Laws of the World (Oxford University Press) Vol. VI, Release 2004-2 November 2004. 5 S 6(3) provides as follows: ‘In considering an application for a Certificate of Status Investment, the Minister shall have special regard to: (a) the extent to which the proposed investment is likely to contribute towards Namibia’s development objectives; (b) the extent to which the enterprise in which the proposed investment is to be made will utilize Namibian resources, including labour and natural resources so as to contribute to the economy, by, inter alia: (i) increasing employment opportunities in Namibia; (ii) providing for the training of Namibians; (iii) earning or saving foreign exchange; (iv) generating development in the less developed areas of Namibia; (c) the extent to which the enterprise in which the proposed investment is to be made will contribute to the advancement of persons within Namibia who have been socially, economically or educationally disadvantaged by past discriminatory laws and practices or will facilitate the implementation of policies and programmes aimed at redressing social, economic or educational imbalances in the Namibian society; (d) the extent to which the enterprise in which the proposed investment is to be made will make provision for equal opportunities for women; (e) the impact which the activities of the enterprise in which the proposed investment is to be made is likely to have on the environment and, where necessary, the measures proposed to deal with any adverse environmental consequences’. 6 Inter alia that foreign currency will be available for certain payments (s 8); that disputes will be settled through international arbitration (s 13); etc.

54

Engela C Schlemmer

the term in the interpretation section. However, it is clear that the provision connotes a direct investment of shares in an enterprise constituted as a company or joint venture under Namibian law and is, as such, an enterprise-oriented approach. Similarly section 3 of the Tanzanian Investment Act 1997 defines investment as ‘the creation or acquisition of new business assets, and includes the expansion, restructuring, or rehabilitation of an existing business enterprise’.7 The clear implication is that investments under the Act relate to business assets and business enterprise which is defined as ‘any industry, project, undertaking or business to which this Act applies or an expansion, restructuring, rehabilitation or technical improvement of the industry, project, undertaking or any part of the business, provided that the business enterprise is profit motivated and operated on commercial principles’. Some investment treaties also refer to additional formal requirements that have to be complied with domestically, even though no specific foreign investment legislation exists. In ASEAN, for example, it is required that additional formal requirements be met before a transaction will qualify as an investment. In this case, specific approval in writing and registration is required.8 It was inter alia noncompliance with this requirement that caused the tribunal in Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar to find that it lacked jurisdiction.9 The necessary approval for the investment was granted prior to the signing of the BIT, but there was no later ratification and therefore the investment did not qualify for protection under the treaty. By contrast, some national laws follow the broad asset-based definition of investment. For example, the Albanian Law on Foreign Investments, Law No. 7764 of 2 November 1993, defines ‘foreign investment’ in Article 1(3) as: every kind of investment in the territory of the Republic of Albania owned directly or indirectly by a foreign investor, which consists of: (a) real and personal property, tangible and intangible, or any other kind of property right; (b) a company [and] rights that flow from every form of participation in a company, with shares etc; 7 See ICSID, Foreign Investment Laws of the World (Oxford University Press) Vol IX, Release 99–1 May 1999. Also see Mexico’s Foreign Investment Act of 1993: 33 ILM 207 (1994), which, by Art 2, defines foreign investment as: ‘(a) The participation of foreign investors, in whatever proportion, in the capital of Mexican corporations; (b) Investment made by Mexican corporations with a majority of foreign capital; and (c) The participation of foreign investors in activities and acts contemplated by this Act’. 8 See Art II of the Agreement among the Government of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments Manila, 15 December 1987, which provides ‘This Agreement shall apply only to investments brought into, derived from or directly connected with investments brought into the territory of any Contracting Party by nationals or companies of any other Contracting Party and which are specifically approved in writing and registered by the host country and upon such conditions as it deems fit for the purposes of this Agreement’. (emphasis added; the text of the Agreement can be found at . 9 ASEAN Case No. ARB/01/1 31 March 2003, 42 ILM 540 (2003); this is the first ASEAN arbitration.

Investment, investor, shareholders

55

(c) loans, monetary obligations or obligations in an activity that has economic value and is connected with an investment; (d) intellectual property, including literary, artistic and technical-scientific works, vocal recordings, inventions, industrial projects, designs for integrated circuits, ‘know-how’ trade marks, trade mark designs and trade names; (e) every right recognized by law or contract, and every license or permission given in accordance with the laws.10

This type of provision has many similarities with the asset-based definition provision found in many BITs as will be shown below.

(b) Bilateral and Other Investment Protection Treaties It is the usual practice for BITs to contain definitions of ‘investment’ and a number of arbitration tribunals have been confronted with this as a requirement ratione materiae.11 This is particularly so in the case of ICSID which deserves special consideration in this regard and will be considered in sub-section (d) below. Some agreements take a broad, open-ended, approach to defining what constitutes an investment. For example, Article 1(d) of the US–Honduras BIT defines ‘investment’ to mean ‘every kind of investment’ followed by an illustrative list of what constitutes an investment. The illustrative list refers to a company, stocks and shares, other forms of equity, bonds, debentures and other forms of debt interest in a company; contractual rights, tangible property, intellectual property, and rights conferred pursuant to law, such as licences and permits.12 This is a typical ‘assetbased’ definition and is used in a significant number of BITs.13 These definitions 10 ICSID, Foreign Investment Laws of the World (Oxford University Press) Vol I, Release 95–1, January 1995. See too, for a discussion of ‘foreign investment’ as defined by this law Tradex Hellas SA v Republic of Albania, ICSID Case No. Arb/94/2 24 December 1996, 14 ICSID Review–FILJ 197 (1999); 5 ICSID Rep 47 (2002) at paras 103–131. 11 In a few cases where the existence of an investment was disputed, the tribunal rejected the argument based on the fact that the specific definition of ‘investment’ in the relevant BIT covered the facts of the dispute under discussion. See for eg AMT v Zaire (36 ILM 1531 (1997) ); Fedax v Venezuela (37 ILM 1378 (1998) ). The requirement of ‘investment’ ratione materiae for purposes of establishing the jurisdiction of ICSID is discussed below. 12 See . See also the definition of ‘investment’ in NAFTA and ECT. See further Steven Jarreau, ‘Anatomy of a BIT—the United States–Honduras Bilateral Investment Treaty’ 35 U Miami Inter-Amer LR 429 (2004). Jarreau points out that ‘every kind of investment . . . includes investment consisting or taking the form of any or all of six categories of juridical entities, legal rights and assets’ and that this definition was drafted in terms that would encompass new, yet undeveloped forms of investment. 13 See UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (New York and Geneva, United Nations, 2007) at 7. Another example is provided by the BIT between Jordan and Lebanon. Art 1(1) provides as follows: ‘The term investment means every kind of investment of assets invested in accordance with the laws and regulations of the other contracting party hosting the investment including but not limited to: A. Movable and immovable assets and any property rights

56

Engela C Schlemmer

aim to ensure that the protection of the agreement is not limited to foreign direct investment but can also protect indirect investment by way of a shareholding or debt interest in a company and, in addition, any risk-bearing activity undertaken by the investor which can be diminished in economic values by reason of state intervention in the enjoyment and functioning of that activity. Hence, the need to cover both tangible as well as intangible assets, and direct and portfolio investment.14 Some IIAs will contain narrower definitions, for example those which focus only on a ‘closed list’ of investments.15 The 1998 Framework Agreement on the ASEAN Investment Area, for example, explicitly excludes portfolio investments from its coverage.16 A further significant exception arises where the BIT extends protection connected herewith such as mortgages, pledges and guarantees; B. Bonds, shares and securities in companies ownership; C. Titles and claims to money or right in any obligation to work having financial value; D. Intellectual property including rights relating to publication, patents, trademarks, trade names, industrial designs, commercial secrets, technical manufacturing processes, know-how and goodwill; E. Business privileges granted by law or contract prospecting and discoveries and extraction or exploitation of natural resources, any change in invested funds form shall not have effect in their classification as investment provided that such change shall not contradict the laws and regulations of the contracting party hosting the investment.’ See . See for further examples Art 1(1) Agreement between the Government of the Republic of Chile and the Government of the Kingdom of Denmark concerning the Promotion and Reciprocal Protection of Investments 28 May 1993 (reproduced at ); Art 1(a) Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Republic of Cuba (reproduced at ). 14 This approach is found not only in BITs but also in Free Trade Agreements, some regional agreements, and the Energy Charter Treaty. For example, Art 10.27 of the United States–Morocco Free Trade Agreement defines investment as ‘every asset, that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, . . . forms that an investment may take include: (a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; . . . and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens and pledges.’ See too the Energy Charter Treaty Art 1(6); ASEAN Agreement for Promotion and Protection of Investment Art 1(3): UNCTAD, Scope and Definition, Series on issues in international investment agreements (New York and Geneva, United Nations 1999) at 18–23. 15 See eg NAFTA Art 1139(h), which includes portfolio investment but excludes debt securities of, or loans to, a state enterprise and excludes claims of money that arise solely from commercial contracts for the sale of goods or services across borders, and the extension of credit in connection with commercial transactions: NAFTA 32 ILM 605 (1993) at 647. In addition during the negotiations for a Multilateral Investment Agreement (MAI) there was some resistance to an open definition of investment which included portfolio investment: UNCTAD, Lessons from the MAI, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) at 11. See further Jürgen Kurtz, ‘A General Investment Agreement in the WTO? Lessons from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment’, Jean Monnet Working Paper (6/02 New York, New York School of Law, 2002) 47ff. 16 Art 2 provides as follows: ‘This Agreement shall cover all direct investments other than: (a) portfolio investments; and (b) matters relating to investment covered by other ASEAN Agreements,

Investment, investor, shareholders

57

to any kind of asset provided that ‘the investment has been made in accordance with the laws and regulation of the contracting party receiving it . . . ’.17 Some agreements also restrict protection to investments made in the territory of another contracting party or investment that is owned or controlled by an investor of a contracting party on the territory of the other contracting party.18 From the above it is clear that the making of lists of assets and investment types is common in IIAs. Noah Rubins19 identifies three categories of such lists. He calls them treaties with an ‘illustrative’, an ‘exhaustive’ or a ‘hybrid’ list. The so-called ‘illustrative list’ treaties define investment in very broad terms and then illustrate the scope of their application by furnishing a list, which does not contain a numerus clausus of categories. The above examples of broad asset-based definitions illustrate this approach. Rubins refers to the North American Free Trade Agreement (NAFTA) as an example of a treaty which uses the exhaustive list approach.20 The ‘hybrid list’ has elements of both a broad definition of investment as well as a non-exhaustive list of different forms of investment. The US–Singapore Free Trade Agreement offers an example.21 Such lists are not generally seen as exhaustive unless the treaty so spesuch as the ASEAN Framework Agreement on Services’. See Framework Agreement on the ASEAN Investment Area 8 October 1998, available at . The exclusion of portfolio investments is often due to legitimate concerns regarding the negative consequences of the volatility of such investment flows: see UNCTAD, World Investment Report 1997 (New York and Geneva, United Nations, 1997) ch III. 17 See eg Chile–New Zealand BIT 1999 cited in UNCTAD, above n 13 at 9. Also see Empresas Lucchetti SA and Lucchetti Peru SA v Republic of Peru, ICSID Case No. Arb/03/4 7 February 2005 where the Peru–Chile BIT defines ‘investment’ in Art 1(2) as follows: ‘The term “investment” refers to any kind of asset, provided that the investment was made in accordance with the laws and regulations of the Contracting Party in whose territory the investment was made’ and then a non-exhaustive list of transactions, rights etc, is listed. The award is published at . See too Inceysa Vallisoletana v El Salvador, ICSID Case No. Arb/03/26 Decision on Jurisdiction 2 August 2006. The tribunal held that where the claimant obtained a concession contract through fraud they could not bring a claim for breach of the applicable BIT against the termination of the concession on the ground that the concession was not obtained ‘in accordance with the law’ as required for the protection of the BIT to apply. The ICSID tribunal therefore had no jurisdiction to hear the claim, see . 18 See UNCTAD, above n 13, for examples. 19 See Noah Rubins, ‘The Notion of “Investment” in International Investment Arbitration’ in Norbert Horn (ed), Arbitrating Foreign Investment Disputes (The Hague, Kluwer Law International, 2004) at 292 ff. 20 Above n 15 and Rubins, above n 19 at 293. 21 See Rubins, ibid at 294. The text of the US–Singapore FTA is available at . Art 15.1(13) provides as follows: ‘Investment means every asset owned or controlled, directly or indirectly, by an investor, that has the characteristics of an investment. [Where an asset lacks the characteristics of an investment, that asset is not an investment regardless of the form it may take. The characteristics of an investment include the commitment of capital, the expectation of gain or profit, or the assumption of risk.] Forms that an investment may take include: (a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar

58

Engela C Schlemmer

cifies. Thus, where an illustrative list is used, the categories of covered investments are open to scrutiny on a case-by-case basis. On the other hand, where a hybrid approach is taken, careful reading of the provision is required to ascertain just how much freedom is given to the parties to determine what constitutes a covered investment. Thus where a functional definition of investment is given, only activities and assets that come within it can be covered.

(c) ‘Investment’ Equal to a Transfer of Capital? An interesting aspect that has been raised by recent arbitral tribunals, is whether, for an ‘investment’ to qualify as a foreign investment, a transfer of capital is required. Some commentators have indicated that the distinction between foreign direct investment and portfolio investment, and the resultant question of whether a capital injection is necessary or not, is long outdated.22 Others seem adamant that this is not the case and that in order to have an investment, there should be a transfer of or a movement in capital: thus, that the origin of the capital should be known and that it must clearly transpire that the capital moved across borders. The traditional point of view is that the ‘decisive criteria for the existence of a foreign investment is the nationality of the investor’, the source of the funds being irrelevant. An investment is a foreign investment if it is owned or controlled by a foreign investor. There is no additional requirement of foreignness in terms of its origin or in terms of the currency in which it is made.23 However, in the decision in SGS v Philippines,24 the tribunal reaffirmed the decision in SGS v Pakistan25 where it was stated that an investment was made where there contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to applicable domestic law; and (h) other tangible or intangible, movable or immovable property, and related property rights, such as leases, mortgages, liens, and pledges.’ (One footnote has been included in square brackets, other footnotes have been omitted.) 22 See Aron Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States: Applicable Law and Default Procedure’ in Aron Broches (ed), Selected Essays: World Bank, ICSID and Other Subjects of Public and Private International Law (Boston and Dordrecht, Martinus Nijhoff, 1995) at 205. The issue played a role during the draft ing phase of the ICSID Convention where the argument was raised that the nationality of the investment should play a more important role than the nationality of the investor. The Chairman (Mr Broches) said that he could not see how the Convention could make a distinction based on the origin of the funds (History of the Convention Vol II 261, 397–8); as a result, this aspect was not pursued. See also Christoph Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) at 266. 23 But see Yaung Chi OO, above n 9 at paras 43–5 where the tribunal found that a capital transfer had in fact been made. 24 SGS Société Générale de Surveillance SA v Republic of the Philippines, ICSID Case No. Arb/02/6, 29 January 2004, available at . 25 SGS Société Générale de Surveillance SA v Pakistan, ICSID Case No. Arb/01/13, 6 August 2003, available online at .

Investment, investor, shareholders

59

had been an ‘injection of funds into the territory . . . [of a Contracting State other than the State of nationality of the investor] . . . for carrying out . . . [the activities pertaining the investment]’.26 There is thus a clear indication that the tribunals in these instances were looking for a movement in capital. In the decision in Tokios Tokelės v Ukraine,27 the majority of the tribunal held that since the parties to a BIT have the discretion to determine what they consider to be an investment and what requirements have to be complied with in order for ICSID to have jurisdiction, they cannot read an additional requirement, such as the transfer of capital, into the BIT if none was expressly stated. Thus, if there is no express requirement of funds, or capital to originate in a foreign country or in the other contracting state, the tribunal cannot read that requirement into the BIT: In our view, however, neither the text of the definition of ‘investment’, nor the context in which the term is defined, nor the object and purpose of the Treaty allow such an originof-capital requirement to be implied. The requirement is plainly absent from the text. . . . the origin-of-capital requirement is inconsistent with the object and purpose of the Treaty, which . . . is to provide broad protection to investors and their investments in the territory of either party.28

The tribunal noted that neither the ICSID Convention nor the Ukraine–Lithuania BIT contained a requirement that capital used by an investor should originate in its state of nationality or indeed originate outside the host state. The tribunal said: The Respondent alleges that the Claimant has not proved that the capital used to invest in Ukraine originated from non-Ukrainian sources, and, thus, the Claimant has not made a direct, or cross-border, investment. Even assuming, arguendo, that all of the capital used by the Claimant to invest in Ukraine had its ultimate origin in Ukraine, the resulting investment would not be outside the scope of the Convention. The Claimant made an investment for the purposes of the Convention when it decided to deploy capital under its control in the territory of Ukraine instead of investing it elsewhere. The origin of the capital is not relevant to the existence of an investment.29

They also concluded that the ICSID Convention does not contain any requirement that the investment in issue has to have ‘an international character in which the origin of the capital is decisive’.30 Other international tribunals deciding investment disputes have held that the origin of the capital that goes into an investment is irrelevant for the investment’s 26 Ibid, at para 111, citing SGS v Pakistan at para 136. 27 Tokios Tokelės v Ukraine, ICSID Case No. Arb/02/18, 29 April 2004, available at . 28 Ibid at para 77. 29 Ibid at para 80. 30 Ibid at para 82. The tribunal also referred to the Tradex case (above n 10) where, the tribunal came to a similar conclusion. See also Carlos G Garcia, ‘All the other Dirty Little Secrets: Investment Treaties, Latin America, and the Necessary Evil of Investor-State Arbitration’ 16 Fla J Int’l L 301 (2004) at 309.

60

Engela C Schlemmer

international nature. In Tradex v Albania31 there was a dispute between the parties on the legal relevance of the financial sources of Tradex’s alleged foreign investment in Albania. Tradex claimed that the financial sources of its investment were irrelevant. The tribunal agreed with Tradex on this point and noted that the law that formed the basis for jurisdiction contained a broad definition of investment that did not give room for further conditions.32 The tribunal said: ‘The Tribunal concludes here that the sources from which the investor financed the foreign investment in Albania are not relevant for the application of the 1993 Law’.33 In Olguín v Paraguay,34 the respondent argued that in order to be protected, the funds invested must originate in the country of which the investor is a national. The tribunal found that this requirement was not expressly indicated in the relevant BIT and therefore rejected this argument.35 It follows from the above authorities that the origin of the funds is irrelevant. Whether the affected investments were made from imported capital, from profits made locally, from payments received locally, or from loans raised locally makes no difference to the degree of protection enjoyed. The foreign nature of an investment is determined exclusively by the nationality of the investor that exercises ownership and control. However, the dissenting arbitrator in the Tokios Tokelės case, the tribunal president, Prosper Weil, stated ‘when it comes to ascertaining the international character of an investment, the origin of the capital is relevant, and even decisive’.36 He stated that if the determination of the origin of the capital is not from another country, one cannot speak about an ‘international’ investment. In the same vein then, when applied to BITs, the capital will have to be from a state other than the host state. We thus have two opposing views from tribunals and arbitrators concerning this aspect when dealing with international investments. Vandevelde,37 in turn, in his economic analysis of BITs, states the following: Control, then, is a key element of the rationale for establishing foreign direct investment. Indeed, foreign direct investment may not involve movement of capital at all, but only a shift in control, as acquisition of control could be wholly financed within the host state.38

31 Tradex v Albania, Award, 29 April 1999, above n 10. 32 Ibid at paras 105, 108–11. 33 Ibid at para 111. 34 Olguín v Paraguay, Award, 26 July 2001, 6 ICSID Reports 164. 35 Ibid at para 66 n 9. In Wena Hotels v Egypt, Award, 8 December 2000, 41 ILM 896 (2002) at para 126, Decision on Annulment, 28 January 2002, 41 ILM 933 (2002) at para 54, both the tribunal and the ad hoc committee found the alleged origin of the funds from other investors who were not entitled to benefit from the applicable BIT irrelevant. 36 Tokios case, Dissenting Opinion, para 20; emphasis added. 37 Kenneth J Vandevelde, ‘The Economics of Bilateral Investment Treaties’, 41 Harv Int’l LJ 469 (2000) at 476. 38 Emphasis added.

Investment, investor, shareholders

61

This is a very important statement especially when considering the problem that tribunals are faced with, as can be seen from the cases just referred to. Vandevelde then continues: In contrast to foreign direct investment, portfolio investment, by definition, offers a way to increase return without exercising control over the company in which the investment is made. Foreign portfolio investment also offers mechanisms for risk reduction, particularly through geographic diversification.39

Where one deals with portfolio investments, there is a definite transfer of capital, and as has been pointed out, portfolio investments are sometimes expressly excluded from coverage by a treaty.40 He concludes as follows: In the crudest sense, then, BITs encourage and protect foreign ownership or control of host state assets, whether new or existing. In other words, BITs do not promote the movement of capital, but rather the movement of control over capital. . . . control is often precisely what the foreign investor seeks, both to increase return and decrease risk. Therefore the test of whether a particular asset is protected by the BIT is whether it is of value to a foreign investor, not whether it serves the economic policy of the host or home state.41

If one were to follow Vandevelde’s argument, which sounds very convincing, then the tribunals will have much less difficulty in finding for the existence of international investments. The question that will still remain is whether this is indeed the result that the parties intended when concluding the BIT. Juillard, in his discussion of the freedom of establishment, capital movements and investment makes a statement similar to that of Vandevelde. He says that the freedom of investment and the freedom of movements of capital do not totally coincide with each other, if for no other reason than that all investments do not necessitate a capital movement, i.e., a payment associated with a capital transaction. Freedom of investment and freedom of movements of capital, therefore, should not be considered synonymous.42

Thus the cross-border movement of capital may not be decisive in determining whether an investment exists for the purposes of an IIA. Ultimately, the intention of the contracting parties to the BIT should be followed unless that leads to an absurd result. An easy solution would be to make an express statement in the BIT as to the relevance, or not, of the origin of the capital. It is interesting to note that in two recent 39 Vandevelde, above n 37 at 476. Emphasis added. 40 See in this regard Vandevelde’s following statement: ‘The investment also need not be advantageous to the host state in any other specific way. For example, it may be fi nanced locally, thus bringing no foreign currency into the host state. In fact, the foreign investment may crowd out domestic investment—and the latter may be more likely to purchase local inputs (labor, supplies, machinery, etc.), rather than import them. BITs do not require that the investment result in technology transfer or worker training’ (ibid at 492). 41 Vandevelde, ibid; emphasis added. 42 Patrick Juillard, ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Investment’ 15 ICSID Rev–FILJ 322 (2000) 335; emphasis added.

62

Engela C Schlemmer

Free Trade Agreements between the USA and Singapore and the USA and Morocco, the element of a ‘commitment of capital’ was included in the definition of investment. The relevant parts read as follows: ‘investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk’.43 In the US–Singapore Free Trade Agreement, ‘investment means every asset owned or controlled, directly or indirectly, by an investor, that has the characteristics of an investment’. The footnote following this sentence reads as follows: ‘[w]here an asset lacks the characteristics of an investment, that asset is not an investment regardless of the form it may take. The characteristics of an investment include the commitment of capital, the expectation of gain or profit, or the assumption of risk’.44 Commitment of capital, however, does not require a movement of capital. Taking all of the above into account, one has to conclude that the movement of capital (i.e. the nationality of capital) does not play a role. If that were to be the case, then it must be clearly spelt out in the relevant investment treaties.

(d) ‘Investment’ for Purposes of ICSID Before one can conclude on the issue of investment, there is still one area where the requirement of an ‘investment’ plays an important role and forms the basis of most arbitration tribunals’ decisions, and that is an ‘investment’ as a requirement ratione materiae for purposes of determining the jurisdiction of the ICSID Convention. A provision in an investment contract or BIT, in terms of which investment disputes may or must be submitted to ICSID for arbitration, normally provides the necessary consent that ICSID requires. However, this does not mean that the ICSID tribunal will automatically have jurisdiction; the jurisdictional requirements of ICSID must still be met.45 Article 25(1) of the ICSID Convention provides as follows: The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally (emphasis added).

The determination of ICSID’s jurisdiction thus depends primarily on whether an investment exists, plus compliance with the other requirements. For our purposes, the current focus is purely on what is meant by ‘investment’. This concept 43 Art 10.27 US–Morocco FTA; emphasis added. 44 US–Singapore FTA, above n 21 Art 15.1.13, emphasis added. 45 See Schreuer, above n 22 at 121 paras 80 ff for a discussion of the draft ing history of the Convention with specific reference to the issue of including a defi nition for ‘investment’ or not; also see Sedlak, above n 1 156 ff.

Investment, investor, shareholders

63

is not defined in the Convention.46 The Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States47 states that: (no attempt[48] was made to defi ne the term ‘investment’ given the essential requirement of consent by the parties, and the mechanism through which Contracting States can make known in advance, if they so desire, the classes of disputes which they would or would not consider submitting to the Centre (Article 25(4) ).

It was, however, a deliberate decision not to include a definition of investment in the Treaty ‘for fear that a concrete meaning would limit its scope and raise unnecessary jurisdictional problems’.49 Technically speaking, the absence of a definition should make the determination of the jurisdiction of the Centre easier; the definition of ‘investment’ should depend on the parties’ consent in the separate international investment agreements or in international instruments. But it is quite obvious that this has not been the case. The absence of a definition makes it possible to have a fairly liberal interpretation when it comes to deciding what an investment would be. Since the Convention contains no further indicia as to what an investment could be, arbitrators have resorted to the use of traditional definitions50 as well as to more modern51 definitions of investment. 46 See Georges Delaume, ‘ICSID Arbitration: Practical Considerations’ 1 J Int’l Arb 101, (1984) 116–17 for a general discussion. 47 In para 27; The Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, IBRD, 18 March 1965. 48 See however Schreuer, above n 22 who indicates that there were a number of attempts, none of them successful. See also David A Lopina, ‘The International Centre for Settlement of Investment Disputes: Investment Arbitration for the 1990s’ Ohio State Journal on Dispute Resolution 107 (1988) at 114 for a discussion of the draft ing history of the Convention. 49 Lopina, above n 48 at 114; see further Rubins, above n 19. 50 Lopina, above n 48 at 115, lists the following as examples of traditional forms of investment: ‘concessions, establishment agreements, joint ventures, loans made by private financial institutions to foreign public entities, and arrangements concerning industrial property rights’. He also gives a list of agreements which have become the subject of disputes before ICSID tribunals: ‘(i) the exploitation of natural resources, such as bauxite mining, (Alcoa Minerals of Jamaica/Kaiser Bauxite Company/ Reynolds Jamaica Mines and Reynolds Metals Company v Government of Jamaica ICSID Cases Arb/74/2, 3 & 4) oil exploitation and exploration (AGIP SPA v People’s Republic of the Congo, ICSID Case Arb/77/1; Tesoro Petroleum Corp v The Government of Trinidad and Tobago, Case Conc/83/1), and forestry exploitation (Liberian Eastern Timber Corp (LETCO) v The Government of the Republic of Liberia, Case Arb/83/2); (ii) industrial investments regarding the production of fibers for exports (Adriano Gardella SpA v Government of Ivory Coast, Case Arb/74/1), or of plastic bottles for domestic consumption (Société Ltd Benvenuti & Bonfant v People's Republic of the Congo, Case ARB/77/2), liquefaction of natural gas (Guadalupe v Nigeria, Case Arb/78/1), and the production of aluminum (Swiss Aluminium Ltd (ALUSUISSE) and Icelandic Aluminium Company Ltd (ISAL) v The Government of Iceland, Case Arb/83/1); and, (iii) tourism development in the form of construction of hotels (Holiday Inns/Occidental Petroleum v The Government of Morocco, Case Arb/72/1; AMCO Asia Corp, Pan American Development Ltd and PT Indonesia v Indonesia, Case Arb/81/1), and urban development in the form of housing construction (Société Ouest Africaine des Bétons Industriels (SOABI) v The State of Sénégal, Case Arb/82/1)’ (footnotes have been included in parentheses). This gives a clear indication as to the vast number of transactions that can be and have been considered to be investments. 51 Lopina, above n 48 at 115 ff gives a list of so-called non-traditional forms of investment: ‘profitsharing, service and management contracts, contracts for the sale and erection of industrial plants,

64

Engela C Schlemmer

The arbitral tribunal in CSOB v Slovak Republic52 said the following in this regard: This statement [in the Report of the Executive Directors] also indicates that investment as a concept should be interpreted broadly because the drafters of the Convention did not impose any restrictions on its meaning. Support for a liberal interpretation of the question whether a particular transaction constitutes an investment is also found in the first paragraph of the Preamble to the Convention, which declares that ‘the Contracting States [are] considering the need for international cooperation for economic development, and the role of private international investment therein.’ This language permits an inference that an international transaction which contributes to cooperation designed to promote the economic development of a Contracting State may be deemed to be an investment as that term is understood in the Convention.53

However, an agreement between parties describing their transaction as an investment is not conclusive for determining the jurisdiction of ICSID based on Article 25(1). If, however, the parties do not expressly characterize their transaction as an investment, their acceptance of the Centre’s jurisdiction ‘with respect to the rights and obligations arising out of their agreement therefore creates a strong presumption that they considered their transaction to be an investment within the meaning of the ICSID Convention’.54 The final decision or interpretation lies with the relevant arbitration tribunal, which is not bound by the parties’ express or implied choice.55 The only limiting factor should be the first preambular sentence of ICSID which speaks of ‘the need for international

turn-key contracts, international leasing, arrangements and agreements for the transfer of know-how and technology. Illustrations of non-traditional investment include the construction of a chemical plant on a turn-key basis coupled with a management contract providing technical assistance for the operation of the plant (Klöckner Industrie Anlagen GmbH v The United Republic of Cameroon and Société Camerounaise des Engrais (SOCAME), Case Arb/81/2), a management contract for the operation of a cotton mill (SEDITEX Engineering Beratungsgesellschaft für die Textilindustrie mbH v The Government of the Democratic Republic of Madagascar, Case Conc/82/1), a contract for the conversion of vessels into fishing vessels and the training of crews (Atlantic Triton Company Ltd v The Republic of Guinea, Case Arb/84/1), and technical and licensing agreements for the manufacturing of weapons (Colt Industries Operating Corp, Firearms Div v The Government of the Republic of Korea, Case Arb/84/2).’ (Footnotes have been included in parentheses.) 52 Ceskoslovenska Obchodni Banka AS (CSOB) v The Slovak Republic, ICSID Case No. Arb/97/4, 24 May 1999, 14 ICSID Rev–FILJ 251 (1999). 53 Ibid at para 64. 54 Ibid at para 66. 55 In terms of Art 41(1), ICSID is the ‘judge of its own competence’. Arbitration tribunals have in the past looked at the requirement of ‘investment’ without one of the parties contesting it and in all these cases have come to a positive finding: LETCO v Liberia Decision on Jurisdiction, 24 October 1984 2 ICSID Reports 349; SOABI v Senegal Award, 25 February 1988 2 ICSID Reports 219; see also Schreuer, above n 22 at 126–8.

Investment, investor, shareholders

65

co-operation for economic development56 and the role of private international investment therein’.57 Through the years, specific criteria have been used by ICSID tribunals to determine whether the transactions they were confronted with were indeed investments.58 These criteria with small variations are the following: the existence of a substantial contribution; the project should have a certain duration; participation in the risks of the transaction for both parties; and the operation should be significant for the host state’s development.59 56 This seems to give an indication that the investment should have some positive implication for development; see Schreuer, above n 22 at 125; see also Emmanuel Gaillard, ‘International Arbitration Law, The First Association of Southeast Asian Nations Agreement Award’ NYL J 7 August 2003 at 3, 8; Salini Costruttori SpA & Italstrade SpA v Kingdom of Morocco, Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002) 42 ILM 609 (2003); Omar E García-Bolívar, ‘The Recent Jurisprudence of ICSID on Jurisdiction as of June 2004’ at . In Ceskoslovenska Obchodni Banka AS v The Slovak Republic, above n 52 the following was said: ‘This language permits an inference that an international transaction which contributes to cooperation designed to promote the economic development of a Contracting State may be deemed to be an investment as that term is understood in the Convention’ (paras 64, 73, 76); and in para 88: ‘This undertaking involved a significant contribution by CSOB to the economic development of the Slovak Republic; it qualified CSOB as an investor and the entire process as an investment in the Slovak Republic within the meaning of the Convention’. One will also have to look at the relevant BITs because some of them may also contain a similar provision which would then emphasize this aspect of the decision. See eg the US–Uruguay BIT, 25 October 2005: 44 ILM 268 (2005), the second preambular sentence, which reads as follows: ‘Recognizing that agreement upon the treatment to be accorded such investment will stimulate the flow of private capital and the economic development of the Parties’. The claimant in Joy Mining Machinery Limited v The Arab Republic of Egypt (ICSID Case No. Arb/03/11, 6 August 2004, 44 ILM 73 (2005); settled 16 December 2005) also relied on this aspect (para 40) but to no avail—Joy Mining, para 61. 57 Emphasis added. This seems to be in line with the statement by Aron Broches, above n 22 at 208, where he says that the lack of definition in the Convention ‘leaves a large measure of discretion to the parties . . . this discretion is not unlimited and cannot be exercised to the point of being clearly inconsistent with the purposes of the Convention’ (emphasis added). 58 Fedax NV v Venezuela, Decision on Jurisdiction, 11 June 1997, 31 ILM 1378 (1998) para 43, Salini Costruttori SpA et Italstrade SpA c/ Royaume du Maroc, Decision on Jurisdiction, 23 July 2001, Journal de Droit International 196 (2002) 42 ILM 609 (2003) para 53; SGS v Pakistan, Decision on Jurisdiction, 6 August 2003 para 133 n 113; Joy Mining Machinery Ltd v Egypt, Award on Jurisdiction, 6 August 2004, paras 53, 57, 62; AES Corporation v Argentina, Decision on Jurisdiction, 26 April 2005, para 88; Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005, paras 130–8. 59 These were also the criteria applied by the Tribunal in ASEAN (in their first arbitral award, Yaung Chi Oo Trading Pte Ltd v Government of the Union of Myanmar, ASEAN Case No. Arb/01/1, 31 March 2003, 42 ILM 540 (2003) ) to define ‘investment’. They relied on capital contributions made over a period of time, equipments and supplies shipped from Singapore to Myanmar and paid for from YCO’s resources. See also the tribunal’s report in Salini Costruttori SpA & Italstrade SpA v Kingdom of Morocco Decision on Jurisdiction, 16 July 2001, Journal de Droit International 196 (2002) para 52. The tribunal refers to Gaillard in JDI 1999 292 ff; 30 ILM 577 (1991). It is interesting to note that in two recent Free Trade Agreements, between the USA and Singapore and the USA and Morocco some of these criteria were included in the definition of investment. The relevant parts read as follows: ‘investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics

66

Engela C Schlemmer

Although these basic criteria are generally applied, it cannot be regarded as a numerus clausus. There are a number of instances, involving non-traditional types of investment transactions,60 where one cannot just rely on these criteria in abstracto but has to look at all the circumstances of the case in a flexible manner.61 For instance, in CSOB v Slovakia,62 the contract between the parties merely contained a reference to a BIT (which in turn contained an ICSID clause)63 and, taking all the facts into account, this was considered sufficient amongst the parties to infer that they regarded their agreement as an investment.64 However, certain limits must be observed. As Professor Brownlie has pointed out investments should include only ‘legal entitlements’ and the concept does not extend to ‘mere expectations’.65 In this regard, there have been early instances where pre-investment expenditure was found not to be an investment, as was the case in Mihaly International Corporation v The Democratic Socialist Republic of Sri Lanka.66 Expenditures of this kind are nowadays normally treated as part of an investment. Since the Mihaly award, more and more BITs and other international investment instruments have of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include . . . ’ (Art 10.27 US–Morocco FTA; emphasis added) and Art 15.1.13 of the US–Singapore FTA, above n 21: ‘investment means every asset owned or controlled, directly or indirectly, by an investor, that has the characteristics of an investment 15-1’. Footnote 15-1 reads as follows: ‘Where an asset lacks the characteristics of an investment, that asset is not an investment regardless of the form it may take. The characteristics of an investment include the commitment of capital, the expectation of gain or profit, or the assumption of risk’. (emphasis added). This is also known as the Salini test. See also Jan de Nul NV Dredging International NV v Arab Republic of Egypt, ICSID Case No. Arb/04/13 Decision on jurisdiction, 16 June 2006, para 91. 60 See the list offered by Lopina, above n 48. 61 As Roberto Bruno and Joseph HH Weiler note, ‘this flexibility is important because foreign investment takes continuously new economic and legal forms. Moreover, while it is important that in their request the parties specify out of which investment their dispute has arisen, any definition of investment by the parties would be of little relevance, since it would always be subject to the tribunal’s scrutiny, when it determines whether it has subject matter jurisdiction or not’: ‘Access of Private Parties to International Dispute Settlement: A Comparative Analysis’, Jean Monnet Working Paper No 1397, available at . 62 Ceskoslovenska Obchodni Banka AS v The Slovak Republic, above n 52. 63 Art 7 of the Agreement provided as follows: ‘this Agreement shall be governed by the laws of the Czech Republic and the Treaty on the Promotion and Reciprocal Protection of Investments between the Czech Republic and the Slovak Republic dated November 23, 1992’ (paras 4, 49 of the award). 64 Para 89. See also Liberian Eastern Timber Corporation (LETCO) v Government of the Republic of Liberia, 2 ICSID Rep 343 (1986), 26 ILM (1987) 647; Autopista Concesionada de Venezuela CA v Bolivarian Republic of Venezuela, ICSID Case No. Arb/00/5, Decision on Jurisdiction at 12, 78 (27 September 2001), reprinted in 16 ICSID Rev–FILJ 469, 474, 494 (2001) or where the dispute was submitted to arbitration pursuant to contractual agreement. 65 Separate Opinion Ian Brownlie in CME Czech Republic SA v Czech Republic, Final Award 13 March 2003 at at para 20 (citing Metalclad v United Mexican States, Final Award, para 122). This was said in arguing that the damages that should have been awarded in that case should have been limited to the amount of money actually invested and not to include lost profits—see para 21 and the sources referred to. 66 Decision of 15 March 2002 41 ILM 867 (2002).

Investment, investor, shareholders

67

phrased their definitions of investment in such a way as would include pre-investment expenditure. The US–Singapore FTA currently provides that an investor ‘means a Party or a national or an enterprise of a Party that is seeking to make, is making, or has made an investment in the territory of the other Party . . . ’67 thus broadening the scope of the investment protection to people who are merely seeking to invest. The question whether a construction contract falls under the concept of investment was raised during the drafting phases of the Convention, but it was left open.68 In Salini v Morocco69 this aspect was dealt with in some detail. The dispute arose from the construction of a highway by Italian contractors in Morocco. Morocco argued that the construction contract did not constitute an investment. The tribunal examined the criteria listed above with reference to the facts of the particular case and found that the contract constituted an investment pursuant to the definition of investment in the BIT read together with the definition in Article 25 ICSID Convention.70 In Salini v Jordan71 the dispute arose from a contract for the construction of a dam. The respondent in this case did not object to the tribunal’s jurisdiction based on the fact that the dispute did not arise out of an investment.72 The issue was evidently too clear to provide a basis for a promising challenge. In another case, Fedax NV and the Republic of Venezuela,73 the ICSID tribunal dealt with the question whether promissory notes would qualify as an investment and it was found that in the circumstances of this case, the investment-related promissory notes did indeed qualify as an investment.74 In the more recent decision in Joy Mining v Egypt75 the tribunal had to determine whether the giving of certain performance guarantees amounted to an investment. This time round, even after 67 Art 15.1.17 US–Singapore FTA, above n 21. In the US–Morocco FTA, Art 10.27 provides that an investor is someone who ‘concretely attempts to make, is making, or has made an investment’, thus there is a very small difference between the two definitions (see ). 68 History of the Convention, Vol II, 500. 69 Salini Costruttori SPA and Italstrade SPA v Kingdom of Morocco, above n 56. 70 ‘The construction contract creates a right to a “contractual benefit having an economic value” for the Contractor’—as was referred to in the definition of the BIT. The contractor also had a benefit in terms of ‘right of an economic nature conferred . . . by contract’ as stipulated in the same definition (para 45). Authorization for the construction contract was also obtained as required in the BIT definition. See also Bayindir Insaat Turizm Ticaret Ve Sanayi AS v Islamic Republic of Pakistan, Case No. ARB/03/29 Decision on Jurisdiction, 14 November 2005, available at . 71 Salini Costruttori SpA and Italstrade SpA v The Hashemite Kingdom of Jordan, Decision on Jurisdiction, 29 November 2004 44 ILM 573 (2005). 72 Ibid at para 6. 73 Above n 11 at ILM, 1378. 74 See further the discussion by Raul Emilio Vinuesa, ‘Bilateral Investment Treaties and the Settlement of Investment Disputes under ICSID: The Latin American Experience’ 8 L & Bus Rev Am 501 (2002) at 513. 75 Joy Mining Machinery Limited v Arab Republic of Egypt, ICSID Case No. ARB/03/11, 6 August 2004, 44 ILM 73 (2005); also published at .

68

Engela C Schlemmer

referring to the reasoning in the Fedax case, the tribunal came to a different conclusion. It is doubtful whether this decision is correct. The tribunal’s argument that there was no risk involved and that the period was too short does not appear convincing. It seems as if the tribunal also rejected, albeit not expressly, the requirement set out in the preamble of the ICSID Convention, that an investment should also be aimed at economic development, which, in this case, it definitely was. On the latter point, there is a lively discussion about the requirement of a contribution to the host state’s economic development. In LESI v Algeria, the tribunal found this criterion to be irrelevant.76 By contrast, there are two recent decisions that have found this element decisive for the existence of an investment. In Patrick Mitchell v Democratic Republic of the Congo,77 the ad hoc committee rejected the claimant’s argument that the contribution to economic development was merely a supplementary condition and not an essential element in the definition of an ‘investment’: 33. The ad hoc Committee wishes nevertheless to specify that, in its view, the existence of a contribution to the economic development of the host State as an essential—although not sufficient—characteristic or unquestionable criterion of the investment, does not mean that this contribution must always be sizable or successful; and, of course, ICSID tribunals do not have to evaluate the real contribution of the operation in question. It suffices for the operation to contribute in one way or another to the economic development of the host State, and this concept of economic development is, in any event, extremely broad but also variable depending on the case.

In Malaysian Historical Salvors, SDN, BHD v Malaysia,78 the tribunal reviewed the existing arbitral awards on this issue. It concluded: 123. The Tribunal considers that the weight of the authorities cited above swings in favour of requiring a significant contribution to be made to the host State’s economy. Were there not the requirement of significance, any contract which enhances the Gross Domestic Product of an economy by any amount, however small, would qualify as an ‘investment.’ It also bears noting that in Joy Mining, the value of the bank guarantee had a value of GBP 9.6 million and yet did not qualify as a contribution to the economy of Egypt. Taking into account the entire factual matrix of the case, this feature may be of considerable, even decisive, importance. This is due in part to the Tribunal’s findings that the other features of ‘investment,’ such as risk and duration of contract, only appear to be superficially satisfied on the facts of this case, and not in the qualitative sense envisaged under ICSID practice and jurisprudence. The Tribunal is therefore left only with the contributions made by the Claimant, and has to determine whether these contributions would represent a significant contribution to the host State’s economic development. 124. In unusual situations such as the present case, where many of the typical hallmarks of ‘investment’ are not decisive or appear to be only superficially satisfied, the analysis of the 76 ICSID Case No. Arb/05/03, Decision on Jurisdiction at para 72 (iv), available at . 77 ICSID Case No. Arb/99/7, Annulment Decision, 1 November 2006 at . 78 ICSID Case No. Arb/05/10, Decision on Jurisdiction, 17 May 2007, at .

Investment, investor, shareholders

69

remaining relevant hallmarks of ‘investment’ will assume considerable importance. The Tribunal therefore considers that, on the present facts, for it to constitute an ‘investment’ under the ICSID Convention, the Contract must have made a significant contribution to the economic development of the Respondent.

Thus while there is disagreement on the precise weight to be given to the issue of economic development, tribunals will usually take this criterion into account when determining whether they are faced with an ‘investment’ covered by the ICSID Convention.

(2) The Definition of ‘Investor’ All BITs and other international instruments dealing with investment provide definitions of whom they consider to be investors. The decisive criterion is the nationality of the investor. This is normally apparent from the different bilateral investment treaties which would accord protection to the nationals of the relevant contracting parties. For example, Article 1(c) of the BIT between Australia and Argentina defines ‘investor’ as follows: (i) in respect of Australia: (A) a natural person who is a citizen or permanent resident of Australia; or (B) a company; and (ii) in respect of the Argentine Republic: (A) a natural person who is a national of the Argentine Republic in accordance with its laws on nationality; or (B) a legal person;79 (D) ‘company’ means any corporation, association, partnership, trust or other legally recognised entity that is duly incorporated, constituted, set up, or otherwise duly organised: (i) under the law of Australia; or (ii) under the law of a third country and is owned or controlled, directly or indirectly, by an entity described in paragraph 1(d)(i) of this Article or by a natural person who is a citizen or permanent resident of Australia; regardless of whether or not the entity is organised for pecuniary gain, privately or otherwise owned, or organised with limited or unlimited liability.80 79 By Art 1(e) of the Agreement ‘legal person’ means any entity constituted according to the laws and regulations of the Argentine Republic or having its seat in the territory of the Argentine Republic. 80 Agreement between the Government of Australia and the Government of the Argentine Republic on the Promotion and Protection of Investments, and Protocol (Canberra, 23 August 1995), entry into force: 11 January 1997, Australian Treaty Series 1997 No. 4 available at .

70

Engela C Schlemmer

When looking at this definition, it is clear that a basic distinction is made between natural persons and legal persons and/or companies.81 The determination of nationality on the side of both natural and juridical persons involves distinctive questions.

(a) Nationality of the Investor who is a Natural Person The definition of investor in a bilateral investment treaty must always be read in conjunction with the definition provided in the ICSID Convention if ICSID is to play a role in the dispute settlement process. The mere inclusion of permanent residents in the BIT definition does not automatically extend the jurisdiction of ICSID to such an investor.82 Article 25(2) of the ICSID Convention requires that the individual or private investor that has the advantage of making use of this dispute settlement facility must be a ‘national of another Contracting State’. Article 25(2)(a) reads as follows: 81 Other examples confirm this approach. Thus the BIT between Lebanon and Switzerland defines investor in Art 1 (1) as: ‘(a) natural persons who, according to the law of that Contracting Party, are considered to be its citizens; (b) legal entities, including companies, co-operations, business associations and other organizations, which are established under the law of that Contracting Party, as well as legal entities not established under such law but effectively controlled by nationals or legal entities of that Contracting Party; these criteria also apply to holding and offshore companies’. Available at . The US–Morocco FTA, above n 67, defines an investor in Art 10 para 27 as follows: ‘Investor of a non-Party means, with respect to a Party, an Investor that concretely attempts to make, is making, or has made an investment in the territory of that Party, that is not an investor of either Party; Investor of a Party means a Party or state enterprise thereof, or a national or an enterprise of a Party, that concretely attempts to make, is making, or has made an investment in the territory of the other Party; provided, however, that a natural person who is a dual national shall be deemed to be exclusively a national of the State of his or her dominant and effective nationality’. The BIT between South Africa and Korea defines investor in Art 1(2) in the following terms: ‘The term “investor” means any natural or juridical person who invests in the territory of the other Contracting Party. (a) the term “natural person” means with respect to either Contracting Party, a natural person having the nationality or citizenship of that Contracting Party in accordance with its laws; (b) the term “juridical person” means with respect to either Contracting Party, any entity incorporated or constituted in accordance with, and recognized as a juridical person by its laws, such as public institutions, corporations, foundations, companies, partnerships and associations irrespective of whether their liabilities are limited or otherwise, and whether or not organized for pecuniary profit.’ See . The Multilateral Agreement on Investment Guarantees (MIGA) provides in Art 13 that eligible investors are as follows: ‘(a) Any natural person and any juridical person may be eligible to receive the Agency’s guarantee provided that: (i) such natural person is a national of a member other than the host country; (ii) such juridical person is incorporated and has its principal place of business in a member or the majority of its capital is owned by a member or members or nationals thereof, provided that such member is not the host country in any of the above cases; and (iii) such juridical person, whether or not it is privately owned, operates on a commercial basis’. 82 For a general discussion, see EC Schlemmer, ‘Die nasionaliteit van ’n belegger vir doeleindes van die internasionale beleggingsreg’ TSAR 468 (2006) at 471–6.

Investment, investor, shareholders

71

‘National of another Contracting State’ means: (a) any natural person who had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration as well as on the date on which the request was registered pursuant to paragraph (3) of Article 28 or paragraph (3) of Article 36, but does not include any person who on either date also had the nationality of the Contracting State party to the dispute.

This requirement is also found in every bilateral investment treaty as well as the multilateral investment treaties.83 The reason for this requirement is obvious. The individual’s nationality accords him or her a particular position in international law. Nationality bestows on the individual the benefit of the protection provided by his state in particular circumstances, or as in these cases, the additional right or privilege to be able to refer an investment dispute to an international arbitration tribunal without having to rely on the state for protection or intervention.84 There are no international law principles applicable to the determination of the nationality of a particular individual. This is dependent on the national legislation of the relevant state.85 Article 1 of the 1930 Hague Convention on Certain Questions Relating to the Conflict of Nationality Laws provides the following: It is for each State to determine under its own law who are its nationals. This law shall be recognised by other States in so far as it is consistent with international conventions, international custom, and the principles of law generally recognised with regard to nationality.86

Due to the different nationality laws in existence, it is possible for an individual to have the nationality of more than one state87 or even reside in a state of which he or 83 See the examples in n 81. 84 See generally Schlemmer, above n 82. 85 Subject to small variations, BITs defi ne ‘nationality’ with reference to the parties’ national laws on citizenship. See Rudolph Dolzer and Margrete Stevens, Bilateral Investment Treaties (The Hague, Martinus Nijhoff, 1995) at 31–3; Schreuer, The ICSID Convention: A Commentary, above n 22 at 267–9. In Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt, ICSID Case No. Arb/05/15 Decision on Jurisdiction, 11 April, 2007 (available at ) the tribunal held: ‘153. The Tribunal must determine the nationality of the Claimants. Application of international law principles requires an application of the Egyptian nationality laws with reference to international law as may be appropriate in the circumstances. Both Egyptian law and the practice of international tribunals is that the documents referred to by the Respondent evidencing the nationality of the Claimants are prima facie evidence only. While such documents are relevant they do not alleviate the requirement on the Tribunal to apply the Egyptian nationality law, which is the only means of determining Egyptian nationality.’ 86 1937 League of Nations Treaty Series 4137. Even though this Convention never came into force, it contains the generally accepted position in international law on the issue. 87 One has to be aware of the fact that dual nationality does not grant one automatic diplomatic protection from both states. Nor does the fact that a person has the nationality of a state also mean that he or she can rely on diplomatic protection in all instances. This was clearly seen in the Nottebohm case (Liechtenstein v Guatemala) (1955 ICJ Rep 4). Art 25(2)(a) of the ICSID Convention provides that the individual investor must not be the national of the host state at the same time as being a national of another Contracting State for the purposes of eligibility to bring a claim against that state, see

72

Engela C Schlemmer

she has no nationality.88 This however does not allow the individual to rely on the protection of both states should he or she be in need of such. In the Nottebohm case, the International Court of Justice held that even though a state may decide on its own accord and in terms of its own legislation whether to grant nationality to a specific person, there must be a real connection between the state providing the protection and the national in need of protection.89 This decision indicated that in cases where a state seeks to protect its national against the actions of the state where he or she is habitually resident and has his or her ‘fi xed abode’, the claim can only succeed if the national has a clear and valid connection with the protecting state.90 It is also accepted in international arbitral or judicial proceedings, that when someone challenges the nationality of a person, the international tribunal is competent to adjudicate that matter. Schreuer, above n 22 at 270–1. In a recent ICSID arbitral award, Champion Trading Company and others v Arab Republic of Egypt, ICSID No. Arb/02/9, Decision on Jurisdiction, 21 October 2003 (available at ), it was found that Art 25(2)(a) of the ICSID Convention clearly provides that if a claimant has dual nationality, that is of both the host state and the home state, then he or she is not eligible as a party to an ICSID arbitration. The provision of Art 25(2)(a) was found to be absolute. The ‘real and effective nationality’ requirement does not come into play when one deals with dual nationality in this instance: ‘Article 25 contains a clear and specific rule regarding dual nationals’ (at 16). The Tribunal was of the opinion that a different decision may be necessary in instances where the ‘exclusion of dual nationals could lead to a result which was manifestly absurd or unreasonable’ (at 16). Also see the definition of investor in the US–Morocco FTA, quoted above n 67. 88 It is sometimes found that a treaty extends its rights to permanent residents (see eg the definition of investor in the Australia-Argentina BIT, quoted above n 80). Schreuer, above n 22 at 269, suggests that this extension of treaty rights does not imply or amount to an extension of ICSID’s jurisdiction, as an agreement to treat someone as entitled to protection under the BIT does not create a nationality that does not exist. 89 The 1930 Hague Convention provides the following in Art 5: ‘Within a third State, a person having more than one nationality shall be treated as if he had only one. Without prejudice to the application of its law in matters of personal status and of any conventions in force, a third State shall, of the nationalities which any such person possesses, recognise exclusively in its territory either the nationality of the country in which he is habitually and principally resident, or the nationality of the country with which in the circumstances he appears to be in fact the most closely connected’ (emphasis added). 90 The Nottebohm case contained the following key statement (at 23): ‘According to the practice of States, to arbitral and judicial decisions and to the opinions of writers, nationality is a legal bond having as its basis a social fact of attachment, a genuine connection of existence, interests and sentiments, together with the existence of reciprocal rights and duties. It may be said to constitute the juridical expression of the fact that the individual upon whom it is conferred, either directly by the law or as the result of an act of the authorities, is in fact more closely connected with the population of the State conferring nationality than with that of any other State. Conferred by a State, it only entitles that State to exercise protection vis-à-vis another State, if it constitutes a translation into juridical terms of the individual’s connection with the State which has made him its national.’ This does not play as important a role when one deals with the protection provided in terms of MIGA. Art 13(b) of the Convention establishing the Multilateral Investment Guarantee Agency provides that ‘in case the investor has more than one nationality, for the purposes of Section (a) above the nationality of a member shall prevail over the nationality of a non-member, and the nationality of the host country shall prevail over the nationality of any other member’.(see n 81 above). This is clearly done to provide the national of the member with the protection that is provided by a guarantee in terms of the MIGA and one cannot falter this.

Investment, investor, shareholders

73

In the recent ICSID arbitration Hussein Nuaman Soufraki v The United Arab Emirates,91 the jurisdiction of the Centre was denied based upon the investor’s inability to satisfy the nationality requirement of Article 25(2)(a). Briefly, the facts were the following: The investor claimed that he had dual nationality: that of Italy92 as well as that of Canada.93 He could only institute the action in reliance on the Italy–United Arab Emirates BIT if he was an Italian citizen. This claim was contested by the UAE. The tribunal investigated the investor’s claim of Italian nationality and found that he lost his Italian nationality when he spontaneously acquired Canadian citizenship and established his residence abroad.94 The mere fact that Soufraki could present certificates of nationality only provided prima facie evidence of his nationality.95 He did not comply with the Italian nationality laws and the tribunal found that he lacked the necessary nationality and that the tribunal thus lacked jurisdiction to try the matter. A further line of argument was raised by the UAE, but not taken up by the tribunal, namely, that in instances of more than one nationality, the tribunal has to look at the effective or dominant nationality of the investor.96 A brief reference to Nottebohm and the nationality of convenience was made, but was not considered to be relevant.97 It would have been very useful and interesting had the tribunal considered this aspect of dominant and effective nationality.98 It might have enriched the

91 ICSID Case No. Arb/02/7, 7 July 2004; see also Champion Trading Company, above n 87. 92 He was able to produce two Italian passports and five certificates of Italian nationality. He claims his Italian nationality by right of jus soli and jus sanguinis. Soufraki, above n 91 at para 49. 93 Which he acquired by reason of his naturalization in 1991, about six years prior to the institution of the ICSID arbitration. 94 This is in accordance with Art 8 para 1 of the Italian Law No. 555 of 1912—see Soufraki at paras 24, 52–82. 95 Ibid at para 63; see also Schreuer, above n 22 at 268 para 433, who states: ‘. . . A certificate of nationality will be treated as part of the “documents or other evidence” to be examined by the tribunal in accordance with Art. 43 [of the Convention]. Such a certificate will be given its appropriate weight but does not preclude a decision at variance with its contents.’ 96 Soufraki at paras 42 ff. ‘An alternative argument advanced by the Respondent was that, even if Mr Soufraki should be found by the Tribunal to have been a national of Italy at the relevant dates, his dominant nationality was then not Italian but Canadian and hence his Italian nationality should not be treated as effectively Italian for purposes of an action under the Italy-UAE BIT.’ 97 Ibid at para 45. See too Champion Trading, above n 87, where it was held that Art 25 of the ICSID Convention did not leave room for a test of dominant or effective nationality. This was upheld in Waguih Elie George Siag and Clorinda Vecchi v The Arab Republic of Egypt, above n 85 at para 198. 98 Sinclair makes the following observation in his discussion of the Soufraki case: ‘ . . . at stake is a matter of principle. Investment promotion and protection treaties are designed to create a mechanism of direct recourse to arbitration against a host state, independent of any need for further intervention by the investor’s home state. The bond of nationality appears to have diminished in significance to a mere formality. The construction of this system for the resolution of international investment disputes is worthy and remarkable. Yet, in entering into investment treaties states generally act upon a desire to create favourable conditions for greater investment flows between the Contracting States in the mutual hope that this will increase their prosperity and the prosperity of their nationals. These goals might suggest that as between an investor and the state under whose treaty of protection it seeks to gain

74

Engela C Schlemmer

jurisprudence of ICSID and investment treaty arbitration in general.99 It is noteworthy that even though the tribunal did not consider the decision in Nottebohm, which concerned the acquisition of a nationality ‘in exceptional circumstances of speed and accommodation’, the tribunal makes the following remark: ‘had Mr. Soufraki contracted with the United Arab Emirates through a corporate vehicle incorporated in Italy, rather than contracting in his personal capacity, no problem of jurisdiction would now arise’.100 The ease with which the tribunal suggests a solution which would not have been acceptable in the case of an individual finding a suitable nationality, underlines the inconsistency between the requirements used for the determination of jurisdiction in the case of individuals and those used for juridical persons.101 The tribunal’s clear suggestion that an investor should go ‘nationality hunting’102 or ‘treaty shopping’ by way of establishing a corporate presence in a jurisdiction that has a BIT with the host country, based on the best possible protection that such a BIT can offer, underscores the need for future development in this area or if it is found to be acceptable, to be aware of the doors of opportunity that can open for potential and future investors. In particular, such an approach may encourage nonnationals of any Contracting State to take advantage of the ICSID Convention, by reason of the nationality of the legal person that they have set up in a jurisdiction that offers a BIT with the host country and includes an ICSID dispute settlement clause. This raises issues of how corporate nationality is determined, to which attention now turns.

protection there is the need for a bond of more substance than mere nationality on paper.’ Anthony C Sinclair, ‘Nationality of Individual Investors in ICSID Arbitration’ 6 Int ALR 191 (2004) at 194. 99 Sinclair, ibid at 193. Also see his further exposition on the history of ICSID concerning the position of dual nationals and whether or not the intention really was to exclude them from making use of ICSID. In this connection, the decision of the tribunal in Champion Trading Company, above n 87, is worth noting. The case involved claims made by dual US and Egyptian nationals against Egypt. The claimants had acquired dual nationality on the basis of their father’s Egyptian nationality at the time of their births, which under Egyptian law made them dual US and Egyptian nationals. According to the tribunal: ‘What is relevant for this Tribunal is that the three individual Claimants, in the documents setting up the vehicle of their investment, used their Egyptian nationality without any mention of their US nationality. According to the documents, Dr. Mahmoud Wahba acted in this connection as the legal guardian of his then still minor three children. The mere fact that this investment in Egypt by the three individual Claimants was done by using, for whatever reason and purpose, exclusively their Egyptian nationality clearly qualifies them as dual nationals within the meaning of the Convention and thereby based on Article 25 (2)(a) excludes them from invoking the Convention.’ Soufraki, at 17. 100 Ibid at para 83. 101 Sinclair, above n 98 at 194; Schlemmer, above n 82 474 ff. See the discussion below. 102 Sinclair, above n 98 at 194 n 26: ‘Shopping for treaty protection is indeed a recognised phenomenon. US investors in India are alleged to have adopted this tactic in order to avail themselves of investment treaties concluded by India with Mauritius.’ He also refers to LE Peterson, ‘Bechtel and GE Mount Billion Dollar Investment Treaty Claim against India’ INVEST-SD News Bulletin (26 September 2003), available at .

Investment, investor, shareholders

75

(b) Corporations as Investors—Nationality of a Corporation There is a clear distinction between the way individuals and corporations are treated in international investment law, especially regarding the issue of nationality. A corporate person may have a nationality based on the place of incorporation, or the effective seat of management or principal place of business. As such, the link between the corporation and a particular state may be more tentative than for a natural person. Indeed, the ‘brass plate company’ that is incorporated in one country but which carries out its main operations elsewhere is a common phenomenon in international business. For the purposes of investor protection under an IIA, this may have significant implications. As noted above, incorporation could allow non-nationals of the ICSID Contracting States to benefit from the convention by incorporating in a Convention State. Equally, given the complexity of modern multinational corporate groups, the component companies in the group may each possess different nationalities, raising the prospect of multiple claims. However the most significant matter concerns the nationality of subsidiary companies within the host country. Were the limited doctrine of corporate nationality under international law, as espoused in the Barcelona Traction Case,103 to be applied this would cause considerable problems in relation to the effectiveness of BITs that contain ICSID dispute settlement clauses. Specifically, the ICJ in Barcelona Traction espoused the place of incorporation and principal seat theories of corporate nationality and rejected a control test that would allow for the lifting of the corporate veil between the company and its owners so as to establish the nationality of the latter as the effective nationality of the company. This approach would lead to the result that where foreign investors incorporate a local subsidiary in the host country, they would lose the right to use international institutional arbitration under a body such as ICSID, where the dispute in question arises as a result of the treatment accorded to the subsidiary by the host country. This is because the subsidiary has the respondent state’s nationality. In order to avoid this result, which would in effect remove the most common type of investor–state dispute from ICSID jurisdiction, Article 25(2)(b) of the ICSID Convention provides as follows: ‘National of another Contracting State’ means: (b) any juridical person which had the nationality of a Contracting State other than the State party to the dispute on the date on which the parties consented to submit such dispute to conciliation or arbitration and any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purposes of this Convention. (Emphasis added)

103 Barcelona Traction Light and Power Company Limited (Belgium v Spain) (1970) ICJ Reports 3.

76

Engela C Schlemmer

Two things transpire from a reading of this article: (i), the time at which the required nationality must exist is only on the date on which the parties consent to arbitration,104 and (ii), the parties may agree that if a corporation has the nationality of the host state (which would normally exclude it from initiating proceedings), but it is controlled by foreign nationals, then that corporation will be treated as a national of another Contracting State.105 The concept ‘juridical person’ is not defined in the Convention, but within the context and taking the negotiating history into account, it is fairly certain that it relates to an enterprise with legal personality.106 The nationality of a corporation is also not defined in the Convention.107 As noted above, international law uses two main criteria in order to establish corporate nationality. The widest criterion assigns nationality to the state of incorporation or where the registered office is. A second criterion assigns nationality to the state in which the seat of the corporation is situated, thus the place of central administration or the so-called effective seat.108 In both these instances 104 There is no requirement of continuous nationality as was found to exist in NAFTA in the Loewen case under NAFTA (Loewen Group Inc and Raymond L Loewen v United States of America, Case No. Arb (AF)/98/3 award of 26 June 2003, 42 ILM 811 (2003) ). Here it was stated that in ‘international law parlance, there must be continuous national identity from the date of the events giving rise to the claim, which date is known as the dies a quo, through the date of the resolution of the claim, which date is known as the dies ad quem.’ (para 225). In this case, a former Canadian enterprise was reorganized in terms of US law and became a US corporation. The former Canadian corporation ceded its claim against the USA to a newly created Canadian corporation whose only asset was this claim and the pursuit of this claim its only business. The real beneficiary of the claim, it was found, was an American citizen and the mere fact that the claimant had the requisite nationality at the time the claim arose is of no consequence (see para 225). It seems that due to the fact that the NAFTA Agreement does not contain any reference to the existence of nationality at the time of the resolution of the claim, the tribunal felt that it had to apply customary international law to resolve the question of the need for continuous national identity (para 226). A similar situation has not arisen in the ICSID context. For a general discussion of the case, see Stefan Matiation, ‘Arbitration with Two Twists: Loewen v United States and Free Trade Commission Intervention in NAFTA Chapter 11 Disputes’ 24 U Pa J Int’l Econ L 451 (2003). 105 And it would bring it in line with the economic reality of the investing enterprise as a multinational entity. It also makes it possible for foreign investors who are shareholders of this company to be in a position to make use of the protection offered by an investment treaty. Furthermore, due to the fact that in many instances the capital importing country will prescribe the form that a corporation must take, inter alia requiring that it must be incorporated according to national laws of the host state, the nationality of the corporation will thus exclude it from the benefits of the BIT. 106 See Schreuer, above n 22 at 276 para 459. 107 The Convention does not provide any more guidance as to how the nationality of a corporation should be determined. That is left to the tribunal in the particular circumstances within the context of the particular facts and international instrument involved. According to Aron Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’ 107 Recueil des Cours 361 (1962–111): ‘the parties should be given the widest possible latitude to agree on the meaning of “nationality” and any stipulation of nationality made in connection with a conciliation or arbitration clause which is based on a reasonable criterion’. 108 Judge Jessup (para 39) in his Separate Opinion in Barcelona Traction says: ‘[t]here are two standard tests of the “nationality” of a corporation. The place of incorporation is the test generally favoured in the legal systems of the common law, while the sige social is more generally accepted in the civil law

Investment, investor, shareholders

77

a piercing of the corporate veil is excluded. No allowance is thus made to look at the nationality of the controlling shareholders.109 Schreuer110 refers to the division amongst scholarly opinion on whether any other tests or criteria should be used or permitted for the determination of ‘nationality’ under article 25(2)(b). Delaume111 is very much in favour of using the place of incorporation or siège social as the main criterion whereas Amerasinghe112 is in favour of a more flexible approach; an adequate connection should exist between the juridical person and the state. A reading of ICSID cases shows that the tribunals have adopted more or less uniformly the test of incorporation or seat in determining corporate nationality.113 The majority of the tribunal in the Tokios case stated the following:114 Moreover, ‘[t]he overwhelming weight of the authority . . . points toward the traditional criteria of incorporation or seat for the determination of corporate nationality under Art. 25(2) (b).’ As Professor Schreuer notes, ‘[a] systematic interpretation of Article 25(2) (b) would militate against the use of the control test for a corporation’s nationality.’115

Even though the determination of the nationality of a corporation is not based on control, it is a fact that in many instances, even though the nationality of the corporation may be that of state A, it is in essence being controlled by nationals of state B. Particularly for this reason, it is provided in the Convention that Contracting States may agree on a different nationality than the one that is indicated by applying the criteria mentioned in order to provide for the necessary protection that would otherwise be withheld and that would be contrary to the intention of promoting investments in capital importing countries. Even though ICSID allows the parties to determine the nationality of the corporation according to their own criteria, when one deals with treaty-based arbitration, the starting point for the determination of the nationality of the corporation would be found in the relevant treaty. The Energy Charter Treaty, for example, follows this systems. (See Kronstein, ‘The Nationality of International Enterprises’ 52 Col. LR 983 (1952) ) There is respectable authority for requiring that both tests be met.’ 109 See Schreuer, above n 22 at 277; Vandevelde, above n 37 at n 198; UNCTAD, Scope and Definition, above n 14 at 37–41. 110 Schreuer, above n 22 278 ff and the sources referred to. 111 Georges R Delaume, ‘ICSID Arbitration and the Courts’ 77 AJIL 784 (1983) at 793, 794. 112 Discussed in Schreuer, above n 22 at 278–9 para 464. 113 Schreuer, ibid 279-80 (citing Kaiser Bauxite Company v Jamaica, Decision on Jurisdiction, ICSID Case No. Arb/74/3 6 Jul 1975, 1 ICSID Reports 296 303 (1993); SOABI v Senegal, Decision on Jurisdiction, ICSID Case No. Arb/82/1, 1 August 1984, 2 ICSID Reports 175, 180–81; Amco Asia Corporation and others v Republic of Indonesia (ICSID Case No. Arb/81/1), Decision on Jurisdiction, 25 September 1983, 1 ICSID Reports 389, 396; see also Autopista Concesionada de Venezuela CA v Bolivarian Republic of Venezuela, Decision on Jurisdiction, Case No. Arb/00/5 27 September 2001, 16 ICSID Rev–FILJ 469 (2001) at para 108; these were also cited in the Tokios decision (above n 27) para 43. This is also in line with the provisions of many BITs where the incorporation or seat is usually used separately, or in combination, as the determining factors. See UNCTAD, above n 13 at 15–16. 114 With reference to Schreuer, above n 22 at 281 para 468. 115 Tokios Tokeles, above n 27, citing Schreuer, above n 22 at 279.

78

Engela C Schlemmer

approach and then goes further and provides in Article 17(1) of Annex I to the Final Act of the Energy Charter Treaty that each Contracting Party reserves the right to deny the benefits of the Treaty to a legal entity if citizens or nationals of a third state own or control that entity and if that entity has no substantial business activities in the area of the Contracting Party in which it is organized. As noted above, a juridical person that has the nationality of the host state may, in terms of ICSID Article 25(2)(b),116 on agreement between the parties,117 be treated as a national of another Contracting State because of foreign control.118 The element of ‘foreign control’ has been dealt with extensively by different tribunals.119 The control test is clearly only applied to the circumstances described in the article.120 This includes an inference that the agreement on nationality must be causally connected to the element of foreign control and that, in turn, requires the tribunals to investigate objectively where the control lies. Normally one would use the criterion of ‘control’ to assign the nationality of the corporation to the state whose nationals own or control the corporation. However, Article 25(2)(b) does not use the reference to foreign control to enable the tribunal to assign nationality to the corporation in accordance with the existence or fact of foreign control. The designation of nationality takes place according to the normal criteria of incorporation or seat. Only if that designation assigns the corporation with the nationality of the host state and there is an element of foreign control, may the parties agree that the nationality will be that of the other Contracting State. Due to the existence of the foreign control, the two states agree to treat the corporation as a national of the non-disputing party. The use of the word ‘foreign’ in the qualifying ‘foreign control’ indicates that the controllers may not be nationals of the host state. The following question is whether they may be nationals of any state or merely nationals of Contracting States. Schreuer concludes that a proper interpretation of the Convention and Article 25(2)(b) can only result in a finding that the nationals in control must also be nationals of other Contracting States.121 116 The relevant part of Art 25(2)(b) reads as follows: ‘any juridical person which had the nationality of the Contracting State party to the dispute on that date and which, because of foreign control, the parties have agreed should be treated as a national of another Contracting State for the purpose of the Convention’. 117 This aspect will not be dealt with in detail since it seems as if ICSID tribunals are readily prepared to accept even implicit agreements to this effect. For a more detailed discussion, see Christoph Schreuer, ‘Access to ICSID Dispute Settlement for Locally Incorporated Companies’, in Friedl Weiss, Erik Denters, and Paul de Waart (eds), International Economic Law with a Human Face (The Hague, Kluwer Law International, 1998) at 499–503 and the decisions he refers to. 118 Agreement to this effect is required, but ICSID does not require any specific format that the agreement should take. See Schreuer, ibid at 497–8. 119 See Schreuer, ibid at 504–7 and in The ICSID Convention: A Commentary, above n 22 at 308–12, where he discusses the different cases where the tribunals have examined the actual existence of foreign control as an objective requirement. 120 Tokios, above n 27 para 45. 121 Schreuer, above n 22 at 286 para 482. See also SOABI v Senegal, 1 August 1984, 2 ICSID Rep 182; this view was also supported by the Dissenting Opinion 2 ICSID Rep 288–9, 292.

Investment, investor, shareholders

79

It has become more and more pertinent to look at the aspect of the control of a corporation when one wants to determine its nationality especially for purposes of international investment arbitration. The currently applied test of incorporation requires no real link between the corporation and the state where it is incorporated; the corporate veil conceals the real appearance of the corporation. The test of the seat of the corporation requires something more, whether some activities are taking place and whether the corporation is managed from that particular state; yet still the corporate veil remains untouched. ‘Control’ or ‘ownership’ is the only criterion that requires a real ‘connection’ which can only be determined by lifting the corporate veil.122 This test is not unfamiliar to traditional international law. A control test was applied in cases of enemy aliens, and that thus resulted in the piercing of the corporate veil.123 The question now is whether the time has not come to remove the corporate veil and look at the real owners and controllers of a corporation and assign its nationality accordingly. The real purpose of investment protection is to provide protection for the investors of Contracting States. When these investors are corporations, they should be receiving protection only in those instances where they can effectively be said to be nationals of the relevant Contracting States and not merely that of the Contracting State of convenience. The recent decision in Tokios Tokelės v Ukraine is a prime example of the illogical result that can be achieved if nationality is determined based on the test of incorporation or seat and the reality is ignored. In this case, the claimant was incorporated under Lithuanian law, but 99 per cent of its shares were held by Ukrainian nationals and they comprise two-thirds of its management.124 Ukraine argued that if the tribunal were to find jurisdiction in this case, it would be ‘tantamount to allowing Ukrainian nationals to pursue international arbitration against their own government’ and this would be inconsistent with the object and purpose of the ICSID Convention.125 Ukraine therefore urged the tribunal to pierce the corporate veil and to determine its nationality by looking at the nationality of its predominant shareholders.126 The tribunal refused to do so, stating that,

122 See Vandevelde, above n 37 and also UNCTAD, above n 14 at 37–9. 123 See Barcelona Traction, above n 103 para 59; Schreuer, above n 22 at 277. 124 Above n 27 at para 21. 125 Ibid at para 22. 126 The tribunal stated in para 63, citing the Autopista case (above n 64), that ‘ “arguments of an economic nature are irrelevant” where “the parties have specifically identified” the country of legal establishment “as the criterion to be applied” and “have not chosen to subordinate their consent to ICSID arbitration to any other criteria.” Th is Tribunal, like the tribunal in Autopista, is obliged to respect the parties’ agreement “unless it proves unreasonable.” Far from unreasonable, reference to the state of incorporation is the most common method of defining the nationality of business entities under modern BITs and traditional international law.’ But not once does the tribunal look at the purpose of ICSID in general, it merely looks at the intention of the parties, the wording of the BIT, and Art 25.

80

Engela C Schlemmer

38. Rather, under the terms of the Ukraine-Lithuania BIT, interpreted according to their ordinary meaning, in their context, and in light of the object and purpose of the Treaty, the only relevant consideration is whether the Claimant is established under the laws of Lithuania. We find that it is. Thus, the Claimant is an investor of Lithuania under Article 1(2) (b) of the BIT. 39. We reach this conclusion based on the consent of the Contracting Parties, as expressed in the Ukraine-Lithuania BIT. We emphasize here that Contracting Parties are free to define their consent to jurisdiction in terms that are broad or narrow; they may employ a control-test or reserve the right to deny treaty protection to claimants who otherwise would have recourse under the BIT. Once that consent is defined, however, tribunals should give effect to it, unless doing so would allow the Convention to be used for purposes for which it clearly was not intended.127

The tribunal then says that if they were to use the control-test, they would be limiting ICSID’s jurisdiction and that would be inconsistent with the object and purpose of Article 25(2)(b).128 In light of the set of facts and the whole object and purpose of ICSID, this statement by the majority seems to be inconsistent with that object and purpose.129 The dissenting opinion by the tribunal president, Prosper Weil, seems to be more in line with that object and purpose. He feels that ‘the approach taken by the Tribunal on the issue of principle . . . is . . . at odds with the object and purpose of the ICSID Convention and might jeopardize the future of the institution’.130 One of the main purposes of ICSID is to ‘facilitate the settlement of disputes between States and foreign investors’ with a view to ‘stimulating a larger flow of private international capital into those countries which wish to attract it’.131 Weil emphasizes the fact that ICSID was aimed at the settlement of investment disputes between foreign investors and other states, thus clearly not between states and their own nationals. By not piercing the corporate veil in the current instance, this is indeed the result that was achieved and it does not fall within the scope and objective of the Convention.132 127 Ibid at paras 38–9. 128 Ibid at para 46 ff. 129 The first preambular sentence of ICSID refers to ‘the need for international cooperation for economic development, and the role of private international investment therein’ (emphasis added). 130 Above n 27 at para 1. 131 Report of the Executive Directors on the Convention, para 9, as quoted in the Dissenting Opinion, ibid at para 3. 132 In the SD Myers case, decided under NAFTA, the element of control played an important role in the tribunal’s decision. It did not have an effect on the determination of nationality, but on the determination of investor: Myers (SD) Inc v Canada, NAFTA Arbitration, UNCITRAL Award of 12 November 2000, 40 ILM 1408 (2001). The tribunal found that SD Myers, even though it owned no shares in Myers Canada, was effectively controlled by the same individual and thus allowed the claim. Chris Tollefson, ‘Games without Frontiers: Investor Claims and Citizen Submissions under the NAFTA Regime’ 27 Yale J Int’l L 141 (2002), sums it up: ‘the tribunal rejected this argument on the ground that since the two legal entities were effectively controlled by the same individual, technical arguments with respect to corporate structure should not defeat “an otherwise meritorious claim” ’ (229). This tribunal clearly showed a willingness to look beyond the ‘technicalities’ at the real facts.

Investment, investor, shareholders

81

In the Barcelona Traction case, Judge Jessup, in his Separate Opinion,133 stated the following: the International Court of Justice in the instant case is ‘not bound by formal conceptions of corporation law’. ‘We must look at the economic reality of the relevant transactions’ and identify ‘the overwhelmingly dominant feature’.134 The overwhelmingly dominant feature in the affairs of Barcelona Traction was not the fact of incorporation in Canada, but the controlling influence of far-flung international financial interests manifested in the Sofina grouping.135

At a later stage, he says (albeit in the context of extending diplomatic protection to the corporation) ‘control may constitute the essential link’. This reasoning by the ICJ does not seem to be contrary to what we are dealing with at the moment. The Tokios case has clearly indicated that the strict application of the state of incorporation or seat tests does not reflect the economic realities nor the aim and purpose of investment treaties and thus that the time is ripe to introduce the ‘control test’ for the determination of the nationality of a corporation for purposes of the international law on foreign investment.

(c) Shareholders as Investors in their Own Right It has been accepted in international law that shareholders have a right to seek protection independent from the corporation.136 The decision by the ICJ in the Barcelona Traction case137 which in the past has been held to indicate that shareholders did not have an action for compensation in international law138 except in two specific cases, namely when the shareholder’s direct rights were infringed,139 or if there is a treaty in This is also needed within the ICSID framework, especially in the determination of the nationality of corporations. 133 Above n 103 at n 1. 134 Mr Justice Marshall delivering the opinion of the Court in United States v The Concentrated Phosphate Export Assn Inc et al 89 S Ct, p 361 at pp 366–7, 1968. Note the statement of a leading member of the New York Bar: ‘To give any degree of reality to the treatment, in legal terms, of the means for the settlement of international economic disputes, one must examine the international community, its emerging organizations, its dynamics, and relationships among its greatly expanded membership.’ (Spofford, ‘Third Party Judgment and International Economic Transactions’ 113 Hague Recueil 1964, III, pp. 121–3.)’ (n 1 in Barcelona Traction). 135 Footnote in original, emphasis added. 136 Stanimir A Alexandrov, ‘The “Baby-Boom” of Treaty-Based Arbitrations and the Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction Ratione Temporis’ 4 The Law and Practice of International Courts and Tribunals 19 (2005) at 27. 137 Barcelona Traction Light and Power Company Limited (Belgium v Spain), 1970 ICJ 3. See also the discussion of the case in Paul E Comeaux and N Stephan Kinsella, Protecting Foreign Investment under International Law Legal Aspects of Political Risk (Dobbs Ferry, NY Oceana, 1997) 41 ff. 138 Above n 103 at para 42. 139 Ibid at para 47: ‘It is well known that there are rights which municipal law confers upon the latter distinct from those of the company, including the right to any declared dividend, the right to attend

82

Engela C Schlemmer

international law-making provision for such an instance140 has since been dispelled by ICSID tribunals and the ICJ itself. Barcelona Traction dealt with the diplomatic protection of a company and not with the issue of the protection of shareholders in investment-related cases;141 it did not examine whether international law provided an independent source of rights for shareholders or for their protection. The only matter considered by the ICJ was whether a state could protect its shareholders in a foreign corporation affected by measures of a third state.142 In the subsequent decision in Elettronica Sicula SpA (ELSI)143 the ICJ accepted the protection of foreign shareholders by the state of their nationality against the state of incorporation. This was found even though, in this case, the corporation had the nationality of the host state.144 If one were to look at Barcelona Traction and read it together with the ICSID provision which determines that an investor may not rely on diplomatic protection when it wants to make use of investment protection provided by ICSID, it would mean that shareholders can initiate the dispute settlement mechanisms under ICSID (and BITs or other investment treaties) only in cases of acts by the host state that affect them directly. If the corporation suffers damage, then it (the corporation) must initiate the proceedings; the shareholders in such an instance will only have indirect claims.145 This has been applied consistently by ICSID tribunals and was very eloquently stated in Enron v Argentina: . . . what the State of nationality of the investor might argue in a given case to which it is a party cannot be held against the rights of the investor in a separate case to which the investor is party. This is precisely the merit of the ICSID Convention in that it overcame the deficiencies of diplomatic protection where the investor was subject to whatever political or legal determination the State of nationality would make in respect of its claim.146 and vote at general meetings, the right to share in the residual assets of the company on liquidation. Whenever one of his direct rights is infringed, the shareholder has an independent right of action.’ 140 Ibid at para 90: ‘the protection of shareholders requires that recourse be had to treaty stipulations or special agreements directly concluded between the private investor and the State in which the investment is placed. States ever more frequently provide for such protection, in both bilateral and multilateral relations, either by means of special instruments or within the framework of wider economic arrangements.’ 141 See Barcelona Traction at 46–8. See also Alexandrov, above n 136 at 27 ff. 142 See also Azurix Corporation v Argentine Republic, ICSID Case No. Arb/01/12, 8 December 2003, at para 71 available at . 143 Elettronica Sicula SpA (ELSI) (United States v Italy) Judgment of 20 July 1989 (1989) ICJ Reports 15. 144 ELSI, ibid at 15, 23, 48–82; Dissenting Opinion Judge Oda, 83; see also Alexandrov, above n 136 at 28. See too the latest ICJ decision on this topic: Case concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) Preliminary Objections, 24 May 2007, available at . 145 These principles were also enunciated in the Barcelona Traction, ELSI, and Diallo decisions by the ICJ. 146 Enron Corporation and Ponderosa Assets LP v The Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction (Ancillary claim) 2 August 2004 at para 48 available at . See also LG&E Energy

Investment, investor, shareholders

83

In most instances nowadays, the relevant investment treaties contain a definition of investment that includes a reference to shares, shareholding, or participation in corporations. The position of shareholders as investors is thus certain. This has also been dealt with in this way by ICSID tribunals. The tribunal in Azurix Corporation v Argentine Republic147 came to the following conclusion:148 The issues before this Tribunal concern not diplomatic protection under customary international law but the rights of investors, including shareholders, as determined by treaty, namely, under the BIT. The Tribunal does not find it necessary to resolve the controversy regarding the extent of the right of a State under public international law to protect its nationals who are shareholders in foreign companies.149

There is no doubt that currently in ICSID-related investment arbitrations the shareholder can bring an action (and rely on protection from) against the host state.150 The size of an investment is, as a general rule, not relevant when one deals with investor protection. There is also no requirement that an investor (shareholder) must be a majority shareholder. The percentage of shareholding is never an issue; the mere fact that an investment was made, suffices.151 Article 25 of the ICSID Convention provides that the jurisdiction of the Centre extends to any legal dispute arising directly out of an investment. If the shareholder can indicate that he or she is an investor, he or she would be able to invoke the protection of a BIT or other investment instrument and initiate arbitration proceedings if his or her rights were infringed.152 Nor does the fact that a shareholder is a corporation affect the situation.153 Corporation v Argentine Republic, ICSID Case No. Arb/02/1 30 April 2004 at para 52; GAMI Investments Inc v United Mexican States, NAFTA Final Award, 15 November 2004 at para 30. The tribunal in Camuzzi International SA v The Argentine Republic, ICSID Case No. Arb/03/2 11 May 2005 (paras 138–45) said the following: ‘[diplomatic protection] cannot be considered the general rule in the system of international law presently governing the matter, but as a residual mechanism available when the affected individual has no direct channel in its own right’. 147 Azurix Corporation v Argentine Republic, ICSID Case No. Arb/01/12, 8 December 2003, 43 ILM 262 (2004). 148 See also Alexandrov, above n 136 at 27. 149 Azurix, above n 147 at para 72. 150 See also Suez, Sociedad General de Aguas de Barcelona SA and InterAguas Servicios Integrales del Agua SA v The Argentine Republic, ICSID Case No. Arb/03/17, Decision on Jurisdiction, 16 May 2006, available at . 151 CMS Gas Transmission Co v Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction of 17 July, 2003, 42 ILM 788 (2003); see in general paras 51 ff. 152 See Siemens AG v The Argentine Republic, ICSID Case No. Arb/02/8, 3 August 2004, 44 ILM 138 (2005) at paras 125, 142 and also Azurix Corporation v Argentine Republic, above n 147. 153 See Siemens, para 142. The determination of the nationality of the corporation would obviously play a role, but in the same way as it plays a role in the case of an individual shareholder. In the Siemens case, Siemens was the investor. According to Siemens, its investment consists of: ‘shares, rights of participation in companies and other types of participation’, ‘claims to money that has been used to create economic value or claims to any performance under a contract having an economic value’, ‘intellectual property rights’, and ‘business concessions conferred by public law.’ (para 150).

84

Engela C Schlemmer

One can thus state that it is without doubt that shareholders have standing in ICSID cases. They can state their claims independently and separately from the claims of the corporation and this principle should be applied to all shareholders regardless of the size of the shareholding.154 This has been the position of ICSID tribunals since the decision of the Annulment Committee in Vivendi155 where it was held that ‘whatever the extent of its [the shareholder’s] investment . . . , it was entitled to invoke the BIT in respect of conduct alleged to constitute a breach of substantive protection under the BIT’.156 In the Lanco case,157 Lanco held 18 per cent of shares in a corporation that had obtained a concession from Argentina. Argentina argued that due to the fact that Lanco merely had shareholder equity status, it did not have locus standi; it was not a party to the concession contract. In the BIT, however, the definition of investment included shareholder equity. Nothing required the shareholder to have a majority shareholding or some other controlling share in the administration or management.158 The ICSID tribunal found that the 18 per cent shareholding was enough to constitute Lanco an investor for the purposes of the BIT. [The] Argentina–U.S. Treaty says nothing indicating that the investor in the capital stock has to have control over the administration of the company, or a majority share, thus the fact that LANCO holds an equity share of 18.3 in the capital stock of the Grantee allows one to conclude that it is an investor in the meaning of Article I [of the Treaty].159

On this basis and given the fact that it was also found that Lanco was a party to the contract with Argentina, jurisdiction was found to exist.160 In CMS Gas Transmission Company v The Republic of Argentina,161 CMS was a shareholder in TGN, and the mere fact that it was a minority shareholder did not affect the matter. The defi nition of investment in the BIT did not limit protected investments to majority shares.162 The tribunal investigated the rights of 154 See also Alexandrov, above n 136 at 30. 155 Compañia de Aguas del Aconquija SA and Vivendi Universal v Argentine Republic, ICSID Case No. Arb/97/3, Decision on Annulment, 3 July 2002, 41 ILM 1135. 156 Ibid at para 50; see also Alexandrov, above n 136 at 30. 157 Lanco v Argentina, ICSID Case No. Arb/97/6, Decision on Jurisdiction, 8 December 1998, 40 ILM 457 (2001). See also the discussion by Vinuesa, above n 74 at 517 ff (2002). 158 The tribunal in Lanco said the following (para 10): ‘[A]s regards shareholder equity, the Argentina-US Treaty says nothing indicating that the investor in the capital stock has to have control over the administration of the company, or a majority share’. 159 Ibid. 160 ‘The investment by Lanco is not merely an investment in stock, but also a [c]oncession agreement made by signing with the Government of Argentina, under which certain rights and obligations arise for the investor.’ Ibid at paras 10–19. 161 See above n 151. 162 Art I(1) of the US–Argentina BIT defines ‘investment’ as ‘ . . . every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investments contracts; and includes without limitation: . . . (ii) a company or shares of stock or other interests in a company or interests in the assets

Investment, investor, shareholders

85

shareholders in general international law by referring inter alia to the Barcelona Traction163 decision and the Elettronica Sicula SpA (ELSI)164 decision. In both these instances, there was a fundamental change in the use of applicable concepts of municipal law in an international law context and state practice.165 The tribunal came to the conclusion that international law had developed to such an extent that there was no bar to a shareholder bringing a claim independent from the corporation concerned, irrespective of its being a minority or majority shareholder.166 The tribunal in casu concluded that it had jurisdiction over the matter since CMS had a direct right emanating from the BIT and it did not matter whether there was a licence agreement or something of a similar kind.167 The fact that CMS was a minority shareholder did not detract from this fact. This is a clear confirmation of the decision in Lanco.168 A similar decision was given by the tribunal in Enron v Argentina169 where it was held that ‘[t]he Claimants’ [they were minority shareholders] right to bring an action on their own has been firmly established in the Treaty [the relevant BIT] and there are no reasons to hold otherwise in connection with this dispute. This situation is neither contrary to international law nor to ICSID practice and decisions’.170 The tribunal referred to the other ICSID decisions and upheld ‘the concept that shareholders may claim independently from the corporation concerned, even if those shareholders are not in the majority or in the control of the company’.171 thereof; . . . (v) any right conferred by law or contract, and any licenses and permits pursuant to law’ (emphasis added). 163 Above n 103. 164 Above n 143. 165 Even though the Barcelona Traction decision did not deal specifically with the issue under discussion, the ICJ did not rule out the possibility of extending protection to shareholders in a corporation when it falls outside the context of national law. In the Elettronica Sicula decision (above n 144), the ICJ accepted the protection of shareholders (see also paras 43 ff ). See too Case concerning Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo) Preliminary Objections, General List No 103 ICJ Judgement 24 May 2007 at . 166 CMS, above n 151 at para 48. 167 Ibid at para 65. 168 The tribunal in CMS examined and referred to a number of decisions of other ICSID tribunals which dealt with the protection of shareholders, for eg: Antoine Goetz et consorts v République du Burundi, ICSID Case No. Arb/95/3 Award (10 February 1999) 2004 6 ICSID Rep 5; Asian Agricultural Products Ltd (AAPL) v Republic of Sri Lanka, ICSID Case No. Arb/87/3, Final Award (27 June 1990), 30 ILM 577 (1991) para 95; Emilio Agustín Maffezini v The Kingdom of Spain, ICSID Case No. Arb/97/7, Decision of the Tribunal on Objections to Jurisdiction, 25 January 2000 available at ; Alex Genin, Eastern Credit Limited Inc and AS Baltoil v The Republic of Estonia, ICSID Case No. Arb/99/2 Award (25 June 2001) 17 ICSID Rev–FILJ 395 (2002). See too Vivendi, above n 155. 169 Enron Corporation and Ponderosa Assets LP v The Argentine Republic, ICSID Case No. ARB/01/3, Decision on Jurisdiction (Ancillary claim), 2 August 2004; available at . 170 Ibid at para 27. 171 Ibid at para 39.

86

Engela C Schlemmer

The most recent ICSID case dealing with minority shareholders, Champion Trading Company and others v Arab Republic of Egypt,172 found jurisdiction over the claims of two corporate minority shareholders without even discussing their minority position. This was also the finding of the recent NAFTA UNCITRAL arbitration in GAMI Investments Inc v Mexico.173 A finding of indirect shareholding may increase the possibility of multiple claims. This issue was considered in the Enron case as follows: The Argentine Republic has rightly raised a concern about the fact that if minority shareholders can claim independently from the affected corporation, this could trigger an endless chain of claims, as any shareholder making an investment in a company that makes an investment in another company, and so on, could invoke a direct right of action for measures affecting a corporation at the end of the chain. . . . The Tribunal notes that while investors can claim in their own right under the provisions of the treaty, there is indeed a need to establish a cut-off point beyond which claims would not be permissible as they would have only a remote connection to the affected company. As this is in essence a question of admissibility of claims, the answer lies in establishing the extent of the consent to arbitration of the host State. If consent has been given in respect of an investor and an investment, it can be reasonably concluded that the claims brought by such investor are admissible under the treaty. If the consent cannot be considered as extending to another investor or investment, these other claims should then be considered inadmissible as being only remotely connected with the affected company and the scope of the legal system protecting that investment.174

Thus the key to determining the extent of the chain of claimants is whether the respondent state has given consent to ICSID arbitration for that particular claimant to bring a claim. Much rests, therefore, on the facts of each case.

Concluding Remarks The foregoing discussion has highlighted the major contemporary issues surrounding the definition of the key terms ‘investment’ and ‘investor’ in international investment law. The main questions in relation to the first term have concerned the breadth of the definition of investment and whether all types of investments, be they direct or indirect, be they enterprise-based or contractually based, should be covered or whether narrower definitions that relate the coverage of the IIA more precisely to 172 Champion Trading Company v Egypt, Case No. ARB/02/9, Decision on Jurisdiction, 21 October 2003, at 3 and 18. 173 UNCITRAL (NAFTA) Final Award, 15 November 2004, at para 37, available at . 174 Decision on Jurisdiction, above n 169 at paras 50–2.

Investment, investor, shareholders

87

cross-border capital movements and to foreign direct investment by enterprises rather than individuals should be covered. As to the second term, here issues of ascertainment of nationality are at the core of the legal analysis. The nationality of both natural and legal persons is left mainly to national law and practice, with international law intervening where this causes uncertainty, as in the case of dual nationality of natural persons, or the host country nationality problem for subsidiaries of multinational enterprises incorporated in the host country. A further issue has arisen in relation to the offshore incorporation of companies for the specific purpose of taking advantage of BIT protection in the host country. In this connection, especially after the Tokios Tokelės case, the state of arbitral case-law may not be fully satisfactory. The more straightforward and, perhaps, more prudent way to solve the problem would be to take another look at the tests to be applied in determining corporate nationality. The time seems right to address this issue in detail and to follow the route that has been indicated by so many authors and indeed, also referred to by Jessup in Barcelona Traction: look at the element of control. International law on this point should be made very clear.

Select Bibliography Alexandrov, S, ‘The “Baby-Boom” of Treaty-Based Arbitrations and the Jurisdiction of ICSID Tribunals: Shareholders as “Investors” and Jurisdiction Ratione Temporis’, 4 The Law and Practice of International Courts and Tribunals 19 (2005) Broches, A, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States’, 107 Recueil des Cours 361 (1962–111) ——, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of Other States: Applicable Law and Default Procedure’, in Aron Broches, Selected Essays: World Bank, ICSID and Other Subjects of Public and Private International Law (Boston and Dordrecht, Martinus Nijhoff, 1995) Bruno, R, and Weiler, J, ‘Access of Private Parties to International Dispute Settlement: A Comparative Analysis’, Jean Monnet Working Paper No. 13/97 (New York University, 1997) Comeaux, P, and Kinsella, N, Protecting Foreign Investment under International Law Legal Aspects of Political Risk (Dobbs Ferry, NY, Oceana Publications, 1997) Dolzer, R, and Stevens, M, Bilateral Investment Treaties (The Hague, Martinus Nijhoff, 1995) Delaume, G, ‘ICSID Arbitration and the Courts’, 77 AJIL 784 (1983) ——, ‘ICSID Arbitration: Practical Considerations’, 1 J Int’l Arb 101 (1984) Gaillard, E, ‘International Arbitration Law, The First Association of Southeast Asian Nations Agreement Award’, NYLJ, 7 August 2003 Garcia, C, ‘All the other Dirty Little Secrets: Investment Treaties, Latin America, and the Necessary Evil of Investor–State Arbitration’, 16 Fla J Int’l L 301 (2004) Jarreau, S, ‘Anatomy of a BIT—the United States-Honduras Bilateral Investment Treaty’, 35 U Miami Inter-Am LR 429 (2004)

88

Engela C Schlemmer

Juillard, P ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Investment’, 15 ICSID Rev–FILJ 322 (2000) Kurtz, J, ‘A General Investment Agreement in the WTO? Lessons from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment’, Jean Monnet Working Paper 6/02 (New York, New York School of Law, 2002) Lopina, D, ‘The International Centre for Settlement of Investment Disputes: Investment Arbitration for the 1990s’, Ohio State Journal on Dispute Resolution 107 (1988) Matiation, S, ‘Arbitration with Two Twists: Loewen v United States and Free Trade Commission Intervention in NAFTA Chapter 11 Disputes’, 24 U Pa J Int’l Econ L 451 (2003) OECD, Forty Years’ Experience with the OECD Code of Liberalisation of Capital Movements (Paris, OECD, 2002) ——, OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations User’s Guide (Paris, OECD, 2003) Rubins, N, ‘The Notion of “Investment” in International Investment Arbitration’, in N Horn (ed), Arbitrating Foreign Investment Disputes (The Hague, Kluwer Law International, 2004) Schlemmer, EC, ‘Die nasionaliteit van ’n belegger vir doeleindes van die internasionale beleggingsreg’, TSAR 468 (2006) Schreuer, C, ‘Access to ICSID Dispute Settlement for Locally Incorporated Companies’, in Friedl Weiss, Erik Denters, and Paul de Waart (eds), International Economic Law with a Human Face (The Hague, Kluwer Law International, 1998) Sedlak, D, ‘ICSID’s Resurgence in International Investment Arbitration: Can the Momentum Hold?’, 23 Penn St Int’l L Rev 147 (2004) ——, Sinclair, AC, ‘Nationality of individual investors in ICSID Arbitration’ 6 Int ALR 191 (2004) ——, World Investment Report 1997 (New York and Geneva, United Nations, 1997) ——, Lessons from the MAI Series on issues in international investment Agreements (New York and Geneva, United Nations, 1999) ——, Scope and Definition Series on Issues in International Investment Agreements (New York and Geneva, United Nations, 1999) UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (New York and Geneva, United Nations, 2006) ——, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) Tollefson C, ‘Games without Frontiers Investor Claims andd Citizen Submissions under the NAFTA Regime’, 27 Yale J Int’l L 141 (2002) Vandevelde, K, ‘The Economics of Bilateral Investment Treaties’, 41 Harv Int’l LJ 469 (2000) Vinuesa, R, ‘Bilateral Investment Treaties and the Settlement of Investment Disputes under ICSID: The Latin American Experience’, 8 L & Bus Rev Am 501 (2002)

CHAPTER 3

A PPL IC A B L E L AW Ole Spiermann

(1) Procedural Framework

90

(2) Internationalizing Applicable Law

92

(a) Situating Investment Arbitration (b) Minimum Degree of Internationalization (i) Pacta sunt servanda (ii) Pacta sunt servanda as a Choice-of-Law Principle (Horizontal Approach) (iii) Pacta sunt servanda as Applicable Law (Direct Approach) (iv) Pacta sunt servanda as a Rationale of Applicable Law (Vertical Approach)

(3) Party Autonomy (a) Pacta sunt servanda and Party Autonomy (b) Party Autonomy

92 94 94 96 97 98

99 99 101

(4) Contract Claims

102

(a) ICSID (b) Outside ICSID

103 106

(5) Treaty Claims (a) A Necessary Expansion of Internationalization (b) Role for National Law

Concluding Remarks

107 107 110

116

90

Ole Spiermann

Arbitrations brought by foreign investors against host states have called for legal entrepreneurship, whether the disputes have arisen out of state contracts or treaties for investment protection. For a long time what law to apply has remained a contentious topic. Achievements of arbitral tribunals—the entrepreneurs—are wrapped in the exotic names of particularly early or illustrative cases and repeatedly invoked. When taken together, awards and other decisions may now constitute a basis upon which to erect a ‘system’ secure in its normative basis, with the combined application of national and international law as its foundation stone. If so, the practical implications of controversies over applicable law ought to diminish. This chapter explores the development that has brought international investment law this far. The chapter falls into five sections. As a point of departure, a few aspects of the procedural framework in which arbitral tribunals find themselves are identified, notably the jura novit curia principle (Section 1). This is followed by an overview of different approaches to internationalizing international investment law applicable to claims brought by private investors on the basis of a contract with the host state (Section 2). In this respect, investment arbitration is to be distinguished from international commercial arbitration at large as well as adjudication in national courts. Also, investment arbitration is a field in which the principle of party autonomy, although of indisputable importance, does not reign supreme (Section 3). These more abstract sections are followed by more practical analyses of the law, or legal rules, applicable to contract claims and treaty claims respectively (Sections 4 and 5). It goes without saying that claims based on an investment treaty, a relatively new phenomenon, cannot be resolved in the same way as more traditional claims arising out of an investment contract with the host state.

(1) Procedural Framework Law is applied by arbitral tribunals within their procedural setting from which, as a subject, applicable law cannot be separated. While a tribunal may not rule on questions that are not submitted to it or grant a remedy that is not requested of it (the non ultra petita principle), there is considerable support for the view that, in deciding on claims before it, a tribunal is not bound by the legal grounds and arguments advanced by the parties (the jura novit curia principle).1 Parties may expressly debar a tribunal from resorting to the latter principle, but they seldom do. These principles 1 See eg J-F Poudret and S Besson, Droit comparé de l'arbitrage international (Zurich, Schulthess, 2002) 521–2, 783–5, and 789–90 and also F Perret, ‘Les Conclusions et les chefs de demande dans l’arbitrage international’ ASA Bulletin 7 (1996) and M Kurkela, ‘Jura Novit Curia and the Burden of Education in International Arbitration: A Nordic Perspective’ ASA Bulletin 486 (2003).

Applicable Law

91

of procedure influence the law and legal rules to be applied by arbitral tribunals in various respects. Illustrations have emerged from within ICSID as ad hoc committees established under Article 52 of the ICSID Convention have decided on annulment of awards rendered by arbitral tribunals. An award may be annulled in the event that there has been a serious departure from a fundamental rule of procedure, a ground for annulment that has had a bearing on the non ultra petita and the jura novit curia principles. In Klöckner v Cameroon, the ad hoc committee found that ‘[t]he real question is whether, by formulating its own theory and argument, the Tribunal goes beyond the “legal framework” established by the Claimant and Respondent’.2 Thus, the ad hoc committee suggested that a tribunal could not render its decision ‘on the basis of tort while the pleas of the parties were based on contract’. On the other hand, ‘[w]ithin the dispute’s “legal framework”, arbitrators must be free to rely on arguments which strike them as the best ones, even if those arguments were not developed by the parties (although they could have been)’. In Wena v Egypt, the ad hoc committee adhered to this analysis,3 while in CAA and Vivendi Universal v Argentina another ad hoc committee expressed itself as follows: It may be true that the particular approach adopted by the Tribunal in attempting to reconcile the various conflicting elements of the case before it came as a surprise to the parties, or at least to some of them. But even if true, this would by no means be unprecedented in judicial decision-making, either international or domestic, and it has nothing to do with the ground for annulment. From the record, it is evident that the parties had a full and fair opportunity to be heard at every stage of the proceedings. They had ample opportunity to consider and present written and oral submissions on the issues, and the oral hearing itself was meticulously conducted to enable each party to present its point of view. The Tribunal’s analysis of issues was clearly based on the materials presented by the parties and was in no sense ultra petita. For these reasons, the Committee found no departure at all from any fundamental rule of procedure, let alone a serious departure.4

Leaving aside the potential of the jura novit curia principle, the most important point is the reverse principle, ie, that it is not for a party to criticize a tribunal for confining itself to legal arguments advanced by the parties. Thus, in Mitchell v Congo, the ad hoc committee was explicit that an arbitral tribunal ‘is not, strictly speaking, subject to any obligation to apply a rule of law that has not been adduced’.5 Certainly, there is room for the view that a tribunal should exercise a reasonable 2 Klöckner v Cameroon, Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at para 91. See also Encana v Ecuador, Award, 3 February 2006, at para 156 available at . 3 Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at para 69 n 24. 4 CAA and Vivendi v Argentina, Annulment Decision, 3 July 2002, 6 ICSID Reports 340 at paras 84–5. 5 Mitchell v Congo, Annulment Decision, 1 November 2006, at para 57, available at .

92

Ole Spiermann

degree of self-restraint before availing itself of legal arguments not advanced by a party. Formulation of legal arguments is essentially a party privilege, and over time nobody would profit from awards taking the parties by surprise as if they made up a conjurer’s audience.6 When in CME v Czech Republic the fi nal award was rendered, annulment proceedings had already been instituted in Swedish courts against the preliminary award for reasons of, inter alia, applying international law only. In its final award, the UNCITRAL tribunal found it opportune to observe that ‘[i]n the First Phase of this arbitration the parties exclusively based their arguments on the interpretation of the Treaty in the light of the principles of international law’.7

(2) Internationalizing Applicable Law (a) Situating Investment Arbitration Investment disputes are to be resolved on the basis of law unless the parties have expressly agreed otherwise. In CME v Czech Republic, referring to a provision on applicable law in a bilateral investment treaty, the tribunal stated that ‘the basic mandate of the Treaty obligates the Tribunal to “decide on the basis of law”, which is a self-explanatory confirmation of the basic principle of law to be applied in international arbitration according to which the arbitral tribunal is not allowed to decide ex aequo et bono without authorization by the parties (see Art. 33(2) UNCITRAL

6 On the occasion of the respondent defaulting, different approaches were taken in the Libyan oil arbitrations, see BP v Libya, Award, 10 October 1973, 53 ILR 300 at 313, Texaco v. Libya, Award, 19 January 1977, 53 ILR 420 at para 53 and Liamco v Libya, Award, 12 April 1977, 62 ILR 145 at 151 and 181. The first award might have been going too far. Claimant fi led an application for the tribunal to reopen the proceedings, which ultimately was declined under the applicable procedural law, cf BP v Libya, Decision on Competence, 1 August 1974, 53 ILR 375. 7 CME v Czech Republic, Final Award, 14 March 2003, 9 ICSID Reports 264 at para 400 and see paras 407 and 411. The tribunal’s view is questioned in C Schreuer, ‘Failure to Apply the Governing Law in International Investment Arbitration’ 7 Austrian Rev Int’l and European Law 147 (2002) at 189–92 and Taida Begic, Applicable Law in International Investment Disputes (Utrecht, Eleven International Publishing, 2005) 45–6 and 201. In its Judgment of 15 May 2003, the Svea Court of Appeal found that the arbitral tribunal had not exceeded its mandate by failing to apply the applicable law, its review being far less strict than that exercised by the ad hoc committees in Klöckner v Cameroon and Amco v Indonesia, see 9 ICSID Reports 441 at 497–9.

Applicable Law

93

Arbitration Rules and Art. 17(3) ICC Arbitration Rules)’.8 Article 42(3) of the ICSID Convention is to the same effect.9 In terms of applicable law, the parties’ choice of international arbitration has substantive implications if compared to adjudication before national courts. Arbitral tribunals adopt an approach to applicable law different from most national courts and their choice-of-law processes. Thus, it is commonly held that arbitral tribunals are without a lex fori on the basis of which to choose applicable law. An early example was the award from 1958 in Saudi Arabia v Aramco, in which the tribunal founded this approach on principles of equality between the parties as well as state immunity.10 The view was upheld in subsequent awards (albeit on different grounds),11 and it is now commonplace in international commercial arbitration at large.12 Moreover, in the field of investment arbitration the law and legal rules applied by tribunals is internationalized, at least in part. Lena Goldfields v Soviet Union arose out of a concession agreement from 1925 whereby the Soviet government had granted exclusive rights of exploration and mining in vast areas of Soviet territory. In 1930, the arbitral tribunal accepted in the most sibylline manner the concessionaire’s twofold submission that the laws of the Soviet Union governed ‘all domestic matters in the U.S.S.R.’ and that ‘for other purposes the general principles of law such as those recognized by Article 38 of the Statute of the Permanent Court of International Justice . . . should be regarded as “the proper law of the contract” ’.13 VV Veeder has characterized this instance of internationalizing the applicable law as ‘a gigantic first step for international commercial arbitration, almost equivalent to the caveman’s discovery of fire’.14 At an early point, the choice of international arbitration was seen by many as a reason in itself for internationalizing applicable law,15 and characterizing 8 CME v Czech Republic, Final Award, 14 March 2003, above n 7, at para 403. 9 See CSOB v Slovak Republic, Award, 29 December 2004, at para 52, available at . 10 Saudi Arabia v Aramco, Award, 23 August 1958, 27 ILR 117 at 154–6 and 162. The tribunal was presided over by Georges Sauser-Hall, who had served as rapporteur when, in 1957, the Institut de droit international had adopted a resolution to the effect that ‘[t]he rules of choice of law in force in the state of the seat of the arbitral tribunal must be followed to settle the law applicable to the substance of the dispute’: see Annuaire de l’Institut de droit international (vol 47-II, 1957) 496 and also (vol 44-I, 1952) 571–2 and (vol 48-II, 1959) 264. 11 See eg Sapphire v NIOC, Award, 15 March 1963, 35 ILR 136 at 170, BP v Libya, Award, 10 October 1973, 53 ILR 300 at 326 and Liamco v Libya, Award, 12 April 1977, 62 ILR 145 at 171. 12 Annuaire de l’Institut de droit international (vol 63-I, 1989) 38 and 44. 13 Lena Goldfields Arbitration, 5 Annual Digest 3 (1930) at 3; see also (1950) 36 Cornell L Q 42 at para 22. 14 VV Veeder, ‘The Lena Goldfields Arbitration: The Historical Roots of Three Ideas’ 47 ICLQ 747 at 772 (1998). 15 See eg M Bourquin, ‘Arbitration and Economic Development Agreements’ 15 Bus Law 860 (1959–60) at 867; Schmitthoff in G Kojanec (ed), Les accords de commerce international, (Leiden, 1969) 366; and P Lalive, ‘L’État en tant que partie à des contrats de concession ou d’investissements conclus avec des sociétés privées étrangères’, in UNIDROIT, New Directions in International Trade Law (vol 1, Dobbs Ferry, NY, 1977) 317 at 340.

94

Ole Spiermann

ICSID tribunals as ‘international’ was a key argument in favour of international law being directly available under Article 42(1) of the ICSID Convention.16 Members of an arbitral tribunal supposedly find it less complicated than national judges to satisfy a need for internationalizing applicable law.

(b) Minimum Degree of Internationalization (i) Pacta sunt servanda Bindingness and equality between parties are constituent elements of any contract. A contract would not be a contract if not binding; the principle pacta sunt servanda is, in HLA Hart’s provocative phrase, ‘the minimum content of Natural Law’.17 This principle has also served as a vehicle for internationalizing applicable law in investment arbitration. Back in 1929, the Permanent Court pronounced that ‘it cannot be admitted that when a Government places a foreign loan with a promise of payment having reference to a well-known standard of value, that reference is to be disregarded’.18 Subjecting a contract with a foreign investor in its entirety to the national legal system of the state party would subordinate the investor to the free will of its co-contractor. This has resulted in a need for internationalization. According to one commentator indulging in sources theory, ‘[t]el un sphinx, pacta sunt servanda semble porter l’en-tête de “principe général de droit”, au sens de l’article 38 du Statut, en matière de contrat, avec un corps contenant, en vérité, un principe de droit international en matière de traité’.19 It is not that investment contracts concluded between states and foreign investors derive their legal force from international law. But if contractual rights held by the investor are affected in a way not in conformity with the principle pacta sunt servanda, and national law does not provide an adequate remedy, an arbitral tribunal is likely to resort to law other than national law. The principle pacta sunt servanda serves as an overarching standard against which all aspects of national law, procedural as well as substantive, are to be judged. It is not the aim to render the national law of the host state inapplicable, nor to bring simple breaches of contract

16 ICSID, History of the ICSID Convention—Documents Concerning the Origin and the Formulation of the Convention (vol 2, Washington, ICSID, 1968) 268 and 330. 17 HLA Hart, The Concept of Law (Oxford, Oxford University Press, 2nd edn, 1994) 193. 18 Case concerning the Payment in Gold of Brazilian Federal Loans contracted in France, PCIJ Series A No. 21 (1929) at 116, and see also ibid 111–12, 114–15, 118, and 120, referring to the bondholders ‘that as individuals . . . were powerless as against the Brazilian Government’. This pronouncement points to certain inadequacies in the traditional reading of the parallel judgment in Case concerning the Payment of Various Serbian Loans issued in France, PCIJ Series A No. 20 (1929) at 41–2. 19 LL El-Zein, Les Contrats d‘Etat à l‘épreuve du droit international (Brussels, Bruyant, 2001) 113 and also 126. See also P Leboulanger, ‘Rapport introductif’ Revue de l’arbitrage 617 (2003) at 625.

Applicable Law

95

beyond the confines of this system, but merely to put the parties on an equal footing by balancing the powers of the host state. The critical question is whether, in order to give full effect to their binding character, specific contracts must in part be allocated to international law rather than national law. In some instances, arbitral tribunals may have to inquire whether the host state has misused its sovereign powers whereas in other cases the tribunal may resort to international law for the protection of aliens, or general principles of law. The principle pacta sunt servanda has invited tribunals to bring contractual arguments into play in the course of statutory interpretation, such as legitimate expectations of foreign investors or acquiescence on the part of local authorities.20 Obviously a slogan for intricate legal analysis, it has been said that ‘[p]acta sunt servanda is undoubtedly the basic norm of any system of law dealing with agreements, but the principle speaks on such a high level of abstraction that it affords little or no guidance in the resolution of concrete legal disputes relating to agreements’.21 But in relation to foreign investments applicable law is internationalized not because it is clearer than national law; it is internationalized because national law, whether clear or not, is found to be inadequate. Surely, a desperate lack of principles and rules at international level may bring lawyers to reconsider whether national law is not adequate after all, but only if the need for internationalization is found not to be urgent in the first place. Although perhaps chosen for the lack of better terminology, the principle pacta sunt servanda conveys the basic premise upon which applicable law in this field has been internationalized. The need for internationalization was thrown into relief by early awards in which tribunals claimed to be applying national law only; for close scrutiny usually leads to the conclusion that the applicable law was confined to national law at the price of national law being internationalized.22 Other early arbitral tribunals, set up to resolve disputes arising out of concessions granted to foreign investors, departed from the national law of the host state on the ground that it was insufficient, offering but a lacuna.23 In a sense, this was a convenient technique for a tribunal adopting a 20 See SPP v Egypt, Award, 20 May 1992, 3 ICSID Reports 189 at 211–12, 215, and 222. 21 LB Sohn and RR Baxter, ‘Responsibility of States for Injuries to the Economic Interests of Aliens’ 55 AJIL 545 (1961) at 569. See also eg RY Jennings, ‘State Contracts in International Law’ 37 BYIL 156 (1961) at 175–6, Prosper Weil, ‘Problèmes relatifs aux contrats passés entre un Etat et un particulier’ 128 Recueil des Cours 95 (1969) at 199 and Derek William Bowett, ‘State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach’ 59 BYIL 49 (1988) at 55 (‘such a level of generality as to be misleading . . . and even erroneous’). 22 Eg, Administration of Posts and Telegraphs of Czechoslovakia v Radio Corporation of America, Award, 1932, 30 AJIL 523 (1936) at 530–1, Alsing Trading Company Ltd v Greece, Award, 22 December 1954, 23 ILR 633 at 637–8, 641–3, 645, 649–51, and 656, and Monsieur Y c. l’Etat Y, Award, 1968, 1 ICC Awards 218 at 220 and ICC Award No. 3327, 1981, 1 ICC Awards 433 at 434. See also AGIP v Congo, Award, 30 November 1979, 1 ICSID Reports 306 at 323. 23 Société Rialet v Ethiopia, Award, 15 January 1929, 8 Recueil des décisions des Tribunaux Arbitraux Mixtes 742 at 748 (also referring to party autonomy), Petroleum Development Ltd v Sheikh of Abu Dhabi, Award, September 1951, 18 ILR 144 at 149, Ruler of Qatar v International Marine Oil Company

96

Ole Spiermann

point of view external to the national legal system, yet the imperialist underpinnings were unattractive even at the time.

(ii) Pacta sunt servanda as a Choice-of-Law Principle (Horizontal Approach) Compared to findings of lacunae in national law the private international law doctrine of dépeçage offered a less antediluvian basis for internationalizing applicable law. It was explored in the celebrated award from 1958 in Saudi Arabia v Aramco. Being the holder of a concession, Aramco successfully defended its lifeline from the producing areas in Saudi Arabia to the outside markets against the Saudi Arabian government’s subsequent agreement with a third party for transportation of oil.24 The solution was, in certain respects, to apply general principles of law as part of the proper law of contract. Taking as a basis the so-called state contract between the host state and the foreign investor, the question was in which legal system, or systems, to situate the contract, with general principles of law being open to such a choice in the exact same manner as systems of national law. Under this approach— horizontal in the sense that it reflects a notion of equality, the contract parties being on an equal footing—the principle pacta sunt servanda served as a reason for not, in each and every respect, choosing the national law of the host state (to which a traditional choice of law would presumably lead). As a result, although some system of national law was applied in many respects, certain aspects of the contractual relationship were reserved for general principles of law. These were aspects for which applying the national law of the host state was found possibly to impinge on the principle pacta sunt servanda. No foreign investor engaged in a state contract can be presumed to have abandoned this principle. Internationalization took the form of general principles of law, as distinct from public international law, as a reflection of the contractual, or private international law, rationale, possibly combined with the risk of it being thought eccentric if contracts were subjected directly to public international law.25 Ltd., Award, June 1953, 20 ILR 534 at 544–5 and Saudi Arabia v Aramco, Award, 23 August 1958, 27 ILR 117 at 163 and 168–9. As for more recent examples, see Amco v Indonesia, Award No. 2, 31 May 1990, 1 ICSID Reports 569 at 599 and 604–5, and SPP v Egypt, Award, 20 May 1992, 3 ICSID Reports 189 at 207 and 234–5. 24 Saudi Arabia v Aramco, Award, 23 August 1958, 27 ILR 117 at 165–71 and see also Sapphire v NIOC, Award, 15 March 1963, 35 ILR 136 at 171. 25 As for this latter embodiment of Zeitgeist, see, in particular, Lord McNair, ‘The General Principles of Law Recognized by Civilized Nations’ 33 BYIL 1 (1957) at 6, 10 and 19 and also M Bourquin, above n 15 at 869. Mention should also be made of A Verdross, ‘The Status of Foreign Private Interests Stemming from Economic Development Agreements with Arbitration Clauses’ 9 Österreichische Zeitschrift für Öffentliches Recht und Völkerrecht 449 (1958–9) at 455. Of course, general principles of law are also known to the list of sources in the archaic Article 38 of the Statute of the International Court of Justice, mainly due to the spectre of a non liquet, see O Spiermann, ‘ “Who Attempts too Much Does Nothing

Applicable Law

97

(iii) Pacta sunt servanda as Applicable Law (Direct Approach) Once the principle pacta sunt servanda has been admitted as relevant in deciding when to apply general principles of law, having no bearing on any particular system of national law, it would be a simplification rather than a revolution to apply the principle directly as part of the proper law of contract. Referring to Lena Goldfields v Soviet Union and Saudi Arabia v Aramco, the sole arbitrator in Elf Aquitaine Iran v NIOC inferred that ‘[a] State which has itself entered into an international agreement or has permitted companies or institutions controlled by it to enter into such agreement regulated as lex contractus by recognized principles of international law is not free to change that lex contractus by subsequent legislation’.26 A leading award concerning ‘the fundamental principle of the binding force of undertakings freely concluded’ was delivered in the case publicly known as Company Z and others v State Organization ABC.27 Among several pronouncements in support of the principle pacta sunt servanda, the arbitral tribunal stated: It is superfluous to add that a general principle, universally recognized nowadays in both inter-State relations and international private relations (whether this principle is considered as international public policy, as appertaining to international commercial usages or to recognized principles of public international law and the law of international arbitration or lex mercatoria) would in any case prohibit the Utopian State—even if it had the intention, which is not the case—to repudiate the undertaking to arbitrate which it made itself or which a public organization such as ABC would have made previously.28

Treating pacta sunt servanda as an integral part of ordre public, or mandatory rules, is not the least popular expression of this approach.29 Yet other tribunals have taken internationalization to be a ‘practice’ or ‘usages of trade’ known to and implicity willed by the parties.30

Well”: The 1920 Advisory Committee and the Statute of the Permanent Court of International Justice’ 73 BYIL 187 (2002) at 215–18. 26 Elf Aquitaine Iran v National Iranian Oil Company, Preliminary Award, 14 January 1982, 96 ILR 254 at para 19 and see also para 15 according to which ‘[t]he law chosen in the Agreement as the competent law coincides with the law that, in the absence of the choice of law clause, would have been the proper law of the Agreement’ (this time referring to Sapphire v NIOC). 27 Company Z and others v State Organization ABC, Award, April 1982, (1983) 8 Yearbook of Commercial Arbitration 94 at 114. 28 Ibid 108–9. 29 See E Gaillard, La Jurisprudence du CIRDI (Paris, Pedone, 2004) 383 and S Manciaux, Investissements étrangers et arbitrage entre Etats et ressortissants d‘autres Etats (Dijon, Litec, 2004) 287–8 and 290. See also eg Société des Grands Travaux de Marseille v East Pakistan Industrial Development Corporation, Award 1972, 1 ICC Awards 40 at 44–5 and 47. 30 eg Deutsche Schachtban- und Tiefbohrgesellschaft v United Arab Emirates, Award, 2 ICC Reports 154 at para 18 and Mobil Oil Iran v Iran, Award, 14 July 1984, 16 Iran–US Claims Tribunal Reports 3 at para 81.

98

Ole Spiermann

(iv) Pacta sunt servanda as a Rationale of Applicable Law (Vertical Approach) There is yet another approach to internationalization that reflects public international law, as distinct from private international law. Public international law lays down standards by which to judge actions taken by host states in relation to contracts with foreign investors. The principle pacta sunt servanda forms the bedrock of key principles associated with the international law for the protection of aliens. The standards are external to the contract and distinct from the proper law of the contract. By implication, the question is not so much where to situate the contract, the legal system of the host state being treated as a trivial starting point, but rather to consider to what extent the effects produced by this system should be recognized. It suggests a two-step analysis of first national law and then public international law. Under this approach, national and international law do not have their own, distinct spheres of application; rather, national law has to be applied, if not exhausted, prior to international law. The approach is vertical in the sense that the state is seen as a sovereign who reigns over private subjects, investors included, and the powers of which are curbed by public international law rather than contracts with foreign investors. This approach presupposes the tribunal being situated outside the national legal system of the host state to the effect that the interplay between legal systems is contemplated from the point of view of public international law.31 In 1965, the vertical approach found resonance in the context of the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the ICSID Convention), Article 42(1) of which provides: 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 (including its rules on the conflict of laws) and such rules of international law as may be applicable.

Under the original proposal, in the absence of any agreement the arbitral tribunal should ‘decide . . . in accordance with such rules of law, whether national or international, as it shall determine to be applicable’.32 However, following intense discussions as to whether international law ought to be applicable, the above-mentioned text was adopted as a compromise by a large majority, it being understood that it brought international law ‘into play both in the case of a lacuna in domestic law as well as in the case of inconsistency between the two’.33 31 It also naturally leads to acceptance of the individual as a subject of public international law, see O Spiermann, ‘Individual Rights, State Interests and the Power to Waive ICSID Jurisdiction under Bilateral Investment Treaties’ 20 Arb Int’l 179 (2004) at 183–6. 32 ICSID, History of the ICSID Convention—Documents Concerning the Origin and the Formulation of the Convention (vol. 2, Washington, ICSID, 1968) 41, 157, 214, 259, 322, and 330; see also ibid 630–1. 33 Ibid 804. As for the subsidiary role of international law, see also ibid 800, 984, and 986. In an attempt to play down further the significance of international law, Aron Broches, who as General

Applicable Law

99

Although, as part of the Algiers Accords of 19 January 1981, the Declaration concerning the Settlement of Claims contained an open-ended provision on applicable law in Article 5, it is noteworthy that the Iran–US Claims Tribunal held that this provision ‘contributed, to a greater extent than any other international compact, to the consolidation of the rule of international law that a State has the duty to respect contracts freely entered into with a foreign party’.34 The controversial attempt, in Texaco v Libya, to turn the vertical approach upsidedown may be added as a footnote. Essentially, the sole arbitrator, Professor Dupuy, took public international law as his starting point, as if the concession agreement in question were a treaty,35 whereas national law was seen as a mere residuum, ‘the lex contractus by incorporation’.36 Theoretically, this version of the vertical approach would seem to be unattractive as a legal system termed ‘international’ is a residual system, one that conceptually presupposes national law. By the same token, turning the vertical approach upside-down may not have any practical impact, as exemplified by the pioneering work of Prosper Weil,37 and it has never won much support. International law turned out to be decisive also in the other awards arising out of the Libyan government’s nationalization of oil concessions in the aftermath of the revolution in 1969, although the awards reflected less ambitious approaches.38

(3) Party Autonomy (a) Pacta sunt servanda and Party Autonomy The principle of party autonomy is generally considered to be the bedrock of international commercial arbitration, yet in investment arbitration it often yields to the Counsel of the International Bank for Reconstruction and Development was the principal architect of the ICSID Convention, said that ‘the reference to international law in Article 42 . . . , in reality, comprised (apart from treaty law) only such principles as that of good faith and the principle that one ought to abide by agreements voluntarily made and ought to carry them out in good faith’, ibid 985. 34 Amoco v Iran, Award, 14 July 1987, 15 Iran–US Claims Tribunal Reports 189 at para 177. 35 Texaco v Libya, Award, 19 January 1977, 53 ILR 420 at paras 26, 35, 41–2, and see R-J Dupuy, The Law of the Sea (Leiden, Sijthoff, 1974) at 153–6. The approach was broadly followed in Revere Copper and Brass Inc v Overseas Private Investment Corporation, Award, 24 August 1978, 56 ILR 261 at 271–2. 36 Ibid paras 29 and 50. 37 Weil, above n 21 at 118–19, 158, 173, 184–8, and 191–5. 38 See BP v Libya, Award, 10 October 1973, 53 ILR 300 at 328–9, 348–9, and 354 and Liamco v Libya, Award, 12 April 1977, 62 ILR 145 at 175–6. Out of the three awards, it was Texaco v Libya that was most creative, or incorrect, in applying international law, see 53 ILR 420 at paras 71, 73, and 93–109 as to the effect of a stabilization clause.

100

Ole Spiermann

principle pacta sunt servanda.39 According to Richard Lillich, international law is treated ‘much like a “brooding omnipresence” hovering over international arbitrations: it is there and available for use by arbitrators when they think its invocation necessary to achieve a just resolution of an investment dispute’.40 Although the text of Article 42(1) of the ICSID Convention gives prominence to the principle of party autonomy, commentators have doubted whether an explicit choice of the law of the host state will prevent a tribunal from resorting to public international law.41 In the decision on annulment in Amco v Indonesia, the ad hoc committee stated that ‘[t]he thrust of Article 54(1) and of Article 27 of the Convention [concerning enforcement of awards and waiver of diplomatic protection, respectively] makes sense only under the supposition that the award involved is not violative of applicable principles and rules of international law’.42 It is telling that, in SPP v Egypt, an ICSID tribunal found that the choice of national law did not prevent the tribunal from having recourse to international law, the ground being that national law contained a lacuna.43 Another illustrative award was based on an explicit choice-of-law clause choosing the law of the host state (‘Utopian law’), indeed not an unusual choice. Faced with this clause, the ICC tribunal found that the law chosen was ‘Utopian law, purely and simply’, as opposed to ‘Utopian law “in its evolution”, in other words including future legislative or constitutional provisions which could nullify or paralyze the undertaking to arbitrate’.44 ‘[I]t cannot be accepted’, the tribunal added, ‘that the 39 The general principle of separability of arbitration clauses reflects the same rationale, the termination of the arbitration agreement not being subject to the discretion of only one of the parties, see eg Texaco v Libya, Preliminary Award, 27 November 1975, 53 ILR 393 at paras 16–19 and Liamco v Libya, Award, 12 April 1977, 62 ILR 145 at 178. 40 RB Lillich, ‘The Law Governing Disputes under Economic Development Agreements: Reexamining the Concept of “Internationalization” ’, in RB Lillich and CN Brower (eds), International Arbitration in the 21st Century: Towards ‘Judicialization’ and Uniformity? (Irvington, NY, Transnational Publishers, 1994) 61 at 92. 41 E Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment Disputes’ in Recueil d‘études de droit international en hommage à Paul Guggenheim (Genève, Faculte de Droit, l’Université de Genève, Institut Universitaire des Hautes Etudes Internationales, 1968) 642 at 658 and 660–1, P Feuerle, ‘International Arbitration and Choice of Law under Article 42 of the Convention on the Settlement of Investment Disputes’ 4 Yale Studies in World Public Order 89 (1977) at 105–13, A Broches, ‘Convention on the Settlement of Investment Disputes between States and Nationals of other States of 1965: Explanatory Notes and Survey of its Application’ 18 YB Com Arb 627 (1993) at 669, R Higgins, Problems and Process: International Law and How We Use It (Oxford, Oxford University Press, 1994) 141, C Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) 588, and C Leben, ‘La Théorie du contrat d’État et l’évolution du droit international des investissements’ 302 Recueil des Cours 197 (2003) at 283–4. 42 Amco v Indonesia, Annulment Decision, 16 May 1986, 1 ICSID Reports 509 at para 21. 43 SPP v Egypt, Award, 20 May 1992, 3 ICSID Reports 189 at 207. See also Letco v Liberia, Award, 31 March 1986, 2 ICSID Reports 346 at 358 and CDC v Seychelles, Award, 17 December 2003, 11 ICSID Reports 211 at paras 32 and 43 and CDC v Seychelles, Annulment Decision, 29 June 2005, 11 ICSID Reports 237 at paras 26 and 45. 44 Company Z and others v State Organization ABC, Award, April 1982, 8 YB Com Arbi 94 (1983) at 108.

Applicable Law

101

parties wished or simply accepted that the validity and effectiveness of a contractual clause as fundamental as an arbitration clause should be subject to a sort of condition entirely within the power of one party, the occurrence of which would depend solely on the will of the State of which the public organization party to the said contract and to the undertaking to arbitrate is an instrumentality’. True, the ICC Rules of Arbitration require tribunals to take account of trade usages in all cases, even when the law has been chosen by the parties,45 yet this was hardly the full explanation wrong the tribunal in the case chose to look outside the national law of the host state. One may also refer to BP v Libya, an ad hoc arbitration, in which the sole arbitrator chose to disregard legislation expropriating the foreign investor’s rights under the concession agreement on the view that it constituted ‘an abuse of sovereign power’ and that the parties had not anticipated the choice of principles of Libyan law to include ‘provisions specifically directed against the other Party’.46 There is a strong presumption that the principle pacta sunt servanda is available to an arbitral tribunal for purposes of internationalizing the applicable law, and a presumption that is rebutted only by an explicit choice of national law combined with an unequivocal indication against internationalization.47 Even then, the chosen law would be subject to ordre public. As observed by Böckstiegel, the presumption has been turned upside down so that in more recent time it is presumed that general principles of law, or simply public international law, are applicable.48 As for treaty obligations undertaken by the host state, the parties may be given more leeway if taken to be less fundamental for purposes of internationalization than the principle pacta sunt servanda.

(b) Party Autonomy That said, as demonstrated by Kuwait v Aminoil,49 the principle of party autonomy looms large in investment arbitration. Compared to, for example, the awards in the Libyan oil arbitration cases,50 it is significant that the tribunal in Kuwait v Aminoil did not find it necessary to base the principle of party autonomy on a specific 45 P Bernardini, ‘International Arbitration and A-National Rules of Law’ 15–2 ICC International Court of Arbitration Bulletin 58 (2004) at 61. 46 BP v Libya, Award, 10 October 1973, 53 ILR 300 at 331; see also Texaco v Libya, Award, 19 January 1977, 53 ILR 420 at para 49. 47 Cf IFI Shihata and AR Parra, ‘Applicable Substantive Law in Disputes between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention’ 9 ICSID Rev–FILJ 183 (1994) at 205. 48 K-H Böckstiegel, Der Staat als Vertragspartner ausländischer Privatunternehmen (Frankfurt am Main, Athenäum Verlay, 1971) 106–10 and 115–19. 49 Kuwait v Aminoil, Award, 24 March 1982, 66 ILR 529 at para 2. 50 BP v Libya, Award, 10 October 1973, 53 ILR 300 at 326–7, Texaco v Libya, Award, 19 January 1977, 53 ILR 420 at paras 25–35 (cf ibid para 11) and Liamco v Libya, Award, 12 April 1977, 62 ILR 145 at 171–3.

102

Ole Spiermann

legal system, whether a national legal system or international law. It might simply be a reflection of party autonomy being uncontroversial on a universal basis, or the chosen law may be treated as a basis of the arbitration and the tribunal’s competence not subject to revision. In the context of the Institut de Droit International, considerable majorities carried the first two provisions in its resolution from 1979 concerning the proper law of the contract in agreements between a state and a foreign private person.51 According to Article 1, ‘[c]ontracts between a State and a foreign private person shall be subjected to the rules of law chosen by the parties or, failing such a choice, to the rules of law with which the contract has the closest link’, while, as examples of the proper law for purposes of choice, Article 2 listed ‘one or several domestic legal systems or the principles common to such systems, or the general principles of law, or the principles applied in international economic relations, or international law, or a combination of these sources of law’. There is no sound basis for requiring a connection between the contract and the chosen law.52 Contract practice has seen numerous examples of parties to investment contracts choosing the law of the host state but on the condition that subsequent legislation and changes do not apply to the relationship between the contracting parties. In this way, party autonomy is exercised with respect to the principle pacta sunt servanda, the applicable law being frozen and, of course, to this extent, different from the national law of the host state proper. In Article 3 of its 1979 resolution, the Institut declared its willingness to accept such so-called stabilization clauses: ‘The parties may agree that domestic law provisions referred to in the contract shall be considered as being those in force at the time of conclusion of the contract’. This refers to the power to include stabilization clauses in the investment contract as a means of ensuring that the law in force at the time of the contract remains unaltered for the duration of that contract. In this regard, stabilization clauses constitute an alternative to an explicit choice of public international law or general principles of law rather than a way in which to achieve a more profound, or just different, degree of internationalization.

(4) Contract Claims There has been a surge in international arbitration of investment disputes in recent years thanks to generic offers to this effect made in bilateral investment treaties and also some regional and multilateral treaties. Treaties provide that disputes 51 Annuaire d’Institut de droit international (vol 58-II, 1979) 192–5 and also 72, 82, and 84. 52 Cf Elf Aquitaine Iran v National Iranian Oil Company, Preliminary Award, 14 January 1982, 96 ILR 254 at paras 15 and 17.

Applicable Law

103

between an investor and the host state that have not been amicably settled within a defined period of time may be submitted by the investor to arbitration, ICSID being the favoured forum (side by side with ad hoc arbitration under the UNCITRAL Arbitration Rules). Articles 1116 and 1117 of Chapter 11 of NAFTA and Article 26(1) of Chapter 3 of the Energy Charter Treaty, the two most prominent examples of investment protection in multilateral form, vest investors with the power to bring international arbitration proceedings only in relation to claims based on substantive provisions of the relevant chapter of the treaty. By contrast, many bilateral investment treaties take a broader view, extending the competence of the arbitral tribunal to all disputes arising out of or in connection with an investment. Accordingly, they comprise claims based on a contract with the host state (‘contract’ claims) as well as claims based on substantive provisions in the treaty (‘treaty’ claims). Contract claims are the traditional kind in relation to which the horizontal, direct, and vertical approaches have been developed. This section explores the results so far of applicable law having been internationalized, ensuring that general principles of law, or public international law, have a role. The results have not been uncontroversial. Not so many years ago Pierre Lalive, a member of the ad hoc committee in Klöckner v Cameroon, to be mentioned shortly, observed that ‘too many distinguished public international lawyers seem to have little experience or understanding in problems in choice of law (and conversely, practitioners in domestic, private or commercial law, are too often blind to the practical importance or effectiveness of the Law of Nations)’.53

(a) ICSID Within ICSID, early decisions came out strongly in favour of the vertical approach,54 with the decision of an annulment committee in Klöckner v Cameroon as an early landmark. The case arose out of the construction and management of a fertilizer factory under contracts entered into by Klöckner Industrie-Anlagen GmbH and Cameroon in the early 1970s. In 1981, following a period of unprofitable production, repair, and final shut-down of the factory, Klöckner filed a request for arbitration with ICSID, claiming the balance of the price of the factory. The award of the arbitral 53 P Lalive, ‘Concluding Remarks’, in E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (Hunnington, NY, Juris Publishing, 2004) 297 at 313. 54 See Broches, above n 39 at 668 and Schreuer, above n 39 at 627–31. For early academic contributions pointing in the same direction, see A Broches, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’ (1972) 136 Recueil des Cours 331 at 390 and 392, Lauterpacht, above n 39 at 659–60 and B Goldman, ‘Le Droit applicable selon la Convention de la B.I.R.D., du 18 mars 1965, pour le règlement des différends relatifs aux investissements entre Etats et ressortissants d’autres Etats’, in Investissements étrangers et arbitrage entre Etats et Personnes Privées: La Convention B.I.R.D. du 18 mars 1965 (Paris, 1969) 133 at 151.

104

Ole Spiermann

tribunal was based on the view that, before erecting the factory, Klöckner had failed to disclose relevant information and that, moreover, Klöckner had performed its obligation to erect the factory in an imperfect and only partial manner. On this basis, the arbitral tribunal found that Cameroon was relieved of any further performance of its contractual obligations. In 1985, the award was annulled in its entirety by an ad hoc committee established under Article 52 of the ICSID Convention, relying, inter alia, on a manifest excess of powers due to misapplication of Article 42(1) of the ICSID Convention.55 The arbitral tribunal and the ad hoc committee were in agreement that, in the part of Cameroon in question, a former colony, the relevant national law was French civil law,56 but the ad hoc committee took the view that the arbitral tribunal had failed to apply it. In other words, the ad hoc committee criticized the arbitral tribunal for relying only on general principles of law and public international law (leaving aside extra-legal principles).57 As for Article 42(1) and ‘such principles of international law as may be applicable’, the ad hoc committee held: This gives these principles (perhaps omitting cases in which it should be ascertained whether the domestic law conforms to international law) a dual role, that is, complementary (in the case of a ‘lacuna’ in the law of the State), or corrective, should the State’s law not conform on all points to the principles of international law. In both cases, the arbitrators may have recourse to the ‘principles of international law’ only after having inquired into and established the content of the law of the State party to the dispute (which cannot be reduced to one principle, even a basic one) and after having applied the relevant rules of the State’s law.58

Consequent to this view, an ICSID tribunal could not base its award solely on general principles of law and public international law, despite their immediate appeal in certain matters (as acknowledged under the horizontal approach). The vertical approach adopted in Klöckner v Cameroon was confirmed in Amco v Indonesia, in which another ad hoc committee annulled an award for misapplying Article 42(1). The ad hoc committee was careful to justify ‘the supplemental and corrective role of international law’, and the underpinning vertical approach, by reference to ‘an overall evaluation of the system established by the Convention’, notably the binding character of awards and the obligation to abstain from exercising diplomatic protection.59 Emmanuel Gaillard has suggested a more significant role for international law under Article 42(1) of the ICSID Convention than merely supplementing and 55 The ad hoc committee also found that the arbitral tribunal had failed to deal with questions submitted to it and to state reasons, see Klöckner v Cameroon, Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at paras 144, 151, 157, 164, 171, and 176. 56 See Klöckner v Cameroon, Award, 21 October 1983, 2 ICSID Reports 9 at 59 and Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at paras 121–2. 57 See Klöckner v Cameroon, Decision on Annulment, 3 May 1985, 2 ICSID Reports 95 at paras 122–5, 156, and 159. 58 Ibid para 122. 59 See Amco v Indonesia, Annulment Decision, 16 May 1986, 1 ICSID Reports 509 at paras 20–2.

Applicable Law

105

correcting national law. The suggestion is that international law may be preferable where different from but not in clear conflict with national law (because international law is permissive or optional).60 It amounts to substituting the horizontal approach for the vertical approach in the latter’s main field of application. However, it is worthwhile keeping in mind that public international law is not a legal system in the sense that French or German law is a legal system. Fundamentally, general or customary international law, or the international law of coexistence, is the response to a need, felt by national lawyers, for law that separates and complements the several national legal systems. International law is made up of rules that are themselves correcting and supplementing, in particular if leaving aside treaty law. Thus, the position assumed by the second arbitral tribunal in Amco v Indonesia with respect to the relationship between national and international law following the partial annulment of the first award by the ad hoc committee: Article 42(1) refers to the application of host-state law and international law. If there are no relevant host-state laws on a particular matter, a search must be made for the relevant international laws. And, where there are applicable host-state laws, they must be checked against international laws, which will prevail in case of conflict. Thus international law is fully applicable and to classify its role as ‘only’ ‘supplemental and corrective’ seems a distinction without a difference.61

Under the vertical approach, national law has to be applied, if not exhausted, prior to international law; under the horizontal approach, national and international law have their own, distinct spheres of application. For its part, the second tribunal in Amco v Indonesia would seem to have neglected that, in principle, Indonesian law could offer foreign investors a higher degree of protection than public international law. This was the point stressed in Klöckner v Cameroon, being one of those instances in which a foreign investor looked to the national (French) law of the host state rather than international law for protection, not an entirely unnatural inclination in the heyday of the new economic order promoted by a majority in the General Assembly of the United Nations. As for claims based on state contracts, or national law in general, Klöckner v Cameroon and Amco v Indonesia are persuasive reasons for ICSID tribunals resorting to public international law only once national law has been exhausted.62 60 E Gaillard and Y Banifatemi, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention: The Role of International Law in the ICSID Choice of Law Process’ 18 ICSID Rev–FILJ 375 (2003) at 398. See previously Emmanuel Gaillard’s case notes in (1987) 114 Journal du droit international 135 at 157 and (1991) Journal du droit international 165 at 182–3 and also Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford, Oxford University Press, 2008) 265–71. 61 Amco v Indonesia, Award No. 2, 31 May 1990, 1 ICSID Reports 569 at 580. This observation takes much away from the analysis in WM Reisman, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of Threshold’ 15 ICSID Rev–FILJ 362 (2000) at 371 and 375. 62 See Aucoven v Venezuela, Award, 23 September 2003, at para 102 available at .

106

Ole Spiermann

(b) Outside ICSID Outside ICSID, it might well be that tribunals have a choice between the horizontal and the vertical approach. In CME v Czech Republic, the UNCITRAL tribunal found it to be ‘unpersuasive’ that there is ‘a strict inter-relationship of domestic and international law requiring an arbitral tribunal to follow a certain ranking when applying the law applicable to an investment treaty’.63 The dispute was confined to treaty claims, yet the holding may be of general application. While, in Article 42(1) of the ICSID Convention, reference is made to ‘the law of the Contracting State Party to the dispute (including its rules on the conflict of laws)’, it has been replaced in Article 54(1) of the ICSID Additional Facility Rules (not confined to investment disputes) by ‘the law determined by the conflict of laws rules which it considers applicable’. In the absence of a choice of law by the parties, a tribunal will normally also have to decide what law to apply besides public international law. Pronouncements in the Serbian Loans case are often generalized to the effect that a state contract is presumably governed by the national law of the state party. This may be a reflection of state sovereignty particularly associated with the vertical approach. Allusions to this view are found in awards that restrict jurisdiction under open-ended treaty provisions to treaty claims on the ground that contract claims are not suitable for international jurisdiction,64 and also in the marked difficulties caused to some tribunals by so-called umbrella clauses transforming contract claims into treaty claims.65 True, most general principles of private international law—that would be of immediate relevance if taking a horizontal approach—also point in the direction of the national law of the host state.66 But there is a caveat. Given that investment arbitration is already being internationalized in certain respects due to the principle pacta sunt servanda, it may be considered, at least under the horizontal approach, whether other aspects of the investment relationship should be subjected to law other than national law. ‘Transnational’ law, in the form of trade usages, the UNIDROIT Principles, or a lex mercatoria, may find sympathy with an

63 CME v Czech Republic, Final Award, 14 March 2003, n 7 above at para 410. 64 CAA and CGE v Argentina, Award, 21 November 2000, 5 ICSID Reports 299 at para 55, SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406 at para 161, LESI Dipenta v Algeria, Award, 19 ICSID Rev–FILJ 426 (2005), at para 25; and Occidental Exploration and Production Company v Ecuador, Award, 1 July 2004, at paras 52–7 available at . 65 SGS v Pakistan, Decision on Jurisdiction, 6 August 2003, 8 ICSID Reports 406 at paras 167–73. 66 See eg Société des Grands Travaux de Marseille v East Pakistan Industrial Development Corporation, Award, 1972, 1 ICC Awards 40 at 43, SPP v Egypt, Award of 16 February 1983, 1 ICC Awards 124 at para 49 and Wintershall AG, et al v Qatar, Partial Award, 5 February 1988, (1989) 28 ILM 795 at 802. It is not only unlikely, but impossible, for the most closely related legal system to be a ‘neutral’ system of a third state, cf RH Kreindler, ‘The Law Applicable to International Investment Diputes’, in N Horn and S Kröll (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer Law International, 2004) 401 at 404.

Applicable Law

107

arbitral tribunal resolving a dispute between a state and a foreign investor, perhaps to a higher degree than in international commercial arbitration in general.

(5) Treaty Claims (a) A Necessary Expansion of Internationalization An investor bringing a claim under a treaty containing a provision on applicable law implicitly accepts the choices as they are strings attached to the host state’s consent to international arbitration. On the other hand, as Article 42 of the ICSID Convention has been designed for purposes of contract claims, applying the provision directly and unreservedly to treaty claims involves a strong element of absurdity. In comparison, only a minority of bilateral investment treaties are explicit as to applicable law, and those that contain such provisions always list the substantive provisions of the bilateral investment treaty itself.67 In addition, some treaties list principles or rules of international law, but omit national law; other treaties mention the national law of the host state and contracts between the disputing parties while not referring to international law. According to Article 1131(1) of NAFTA, ‘[a] tribunal established under this Section shall decide the issues in dispute in accordance with this Agreement and applicable rules of international law’.68 Article 26(6) of the Energy Charter Treaty is to the same effect. Even in the absence of a specific treaty provision, it is necessary to resolve treaty claims on the basis of international law. Claimants bringing such treaty claims obviously rely on international law, and there is no way for a competent arbitral tribunal but to apply international law. In CAA and Vivendi v Argentina, the ad hoc committee held: [w]hether there has been a breach of the BIT and whether there has been a breach of contract are different questions. Each of these claims will be determined by reference to its own proper or applicable law—in the case of the BIT, by international law; in the case of the Concession Contract, by the proper law of the contract.69

67 For purposes of illustration, see Eureko v Poland, Partial Award, 19 August 2005, 12 ICSID Reports 335 at paras 91, 126, and 247. 68 It is difficult to subscribe to the judgment of 2 May 2001 of the Supreme Court of British Columbia partially annulling the award of the NAFTA tribunal in Mexico v Metalclad on the ground that the tribunal had interpreted Chapter 11 in the light of provisions in different chapters, cf 5 ICSID Reports 238 at paras 68–76. 69 CAA and Vivendi v Argentina, Annulment Decision, 3 July 2002, 6 ICSID Reports 340 at para 96.

108

Ole Spiermann

The ad hoc committee added in relation to treaty claims: In such a case, the inquiry which the ICSID tribunal is required to undertake is one governed by the ICSID Convention, by the BIT and by applicable international law. Such an inquiry is neither in principle determined, nor precluded, by any issue of municipal law, including any municipal law agreement of the parties.70

Some years later, in MTD, another ad hoc committee simply characterized international law as the lex causae in a case based on a breach of an investment treaty.71 In relation to Article 42 of the ICSID Convention, Aron Broches wrote that an ICSID tribunal will have occasion to apply international law ‘where the subjectmatter or issue is directly regulated by international law, for instance a treaty between the State party to the dispute and the State whose national is the other party to the dispute’.72 To the extent that the host state has undertaken treaty obligations relevant to the dispute, it can be taken for granted that they will be applied directly by an arbitral tribunal, in addition to the overlapping international law for the protection of aliens and the implications derived from the principle pacta sunt servanda. An arbitral tribunal may also apply other international law to the extent relevant. National law, if invoked at all, will be confined to certain incidental and preliminary questions (which, just like factual questions, must be addressed even if jurisdiction is restricted to treaty claims).73 As a result, international and national law gain their own and exclusive fields of application, as under the horizontal approach. The reason is not that the vertical approach has been abandoned. Quite the contrary, it is a consequence of basing claims on treaty, as opposed to contract, this being the privilege of claimant. Even so, tribunals have faced difficulties in justifying the necessary application of international law to treaty claims. In AAPL v Sri Lanka, the first ICSID case in which jurisdiction was based on a bilateral investment treaty, the tribunal gave prominence to substantive rights under the bilateral investment treaty on the ground that the submissions of the parties implied agreement on choice of law to this effect.74

70 Ibid para 102, quoted with approval in Azurix v Argentina, Award, 14 July 2006 at paras 66–7, available at . 71 MTD and MTD v Chile, Annulment Decision, 21 March 2007, at para 72 and see also para 61, available at . 72 Broches, above n 52 at 392. See also G Sacerdoti, ‘Investment Arbitration: Under ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’ 19 ICSID Rev–FILJ 1 (2004) at 25, Virtus Chitoo Igbokwe, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’ 23 J Int’l Arb 267 (2006) at 277–80 and Campell McLachlan, Laurence Shore, and Matthew Weiniger, International Investment Arbitration: Substantive Principles (Oxford, Oxford University Press, 2007) 6–7. 73 See CAA and Vivendi v Argentina, Annulment Decision, 3 July 2002, 6 ICSID Reports 340 at paras 102, 110, and 112, annulling CAA and CGE v Argentina, Award, 21 November 2000, 5 ICSID Reports 299 at paras 78–81. 74 AAP v Sri Lanka, Award, 27 June 1990, 4 ICSID Reports 250 at paras 20 and 38 (cf the Dissenting Opinion appended by Dr Asante, ibid 297–9).

Applicable Law

109

Other tribunals have repeated this argument.75 Tribunals have also justified the sole application of international law by reinterpreting Article 42(1) of the ICSID Convention. In particular, the decision of the ad hoc committee in Wena v Egypt would seem to add lustre to the view, mainly identified with Emmanuel Gaillard,76 that international law may be preferred to national law in cases where there are differences but no clear conflict. As for the doctrinal discussion concerning Article 42(1) of the ICSID Convention, the ad hoc committee held that ‘the circumstances of each case may justify one or another solution’; the following observations were added: What is clear is that the sense and meaning of the negotiations leading to the second sentence of Article 42(1) allowed for both legal orders to have a role. The law of the host State can indeed be applied in conjunction with international law if this is justified. So too international law can be applied by itself if the appropriate rule is found in this other ambit.77

Referring to this pronouncement, the ICSID tribunal in CMS v Argentina stated that recently ‘a more pragmatic and less doctrinaire approach has emerged, allowing for the application of both domestic law and international law if the specific facts of the dispute so justifies’.78 One should have thought that this holding was significant precisely because national and international law were taken to be distinct. To the contrary, the tribunal sought to establish that, with regard to national legislation, the licence in question, and international law, ‘these rules are inseparable’.79 CMS v Argentina found resonance in Enron v Argentina and Sempra v Argentina.80

75 Wena v Egypt, Award, 8 December 2000, 6 ICSID Reports 89 at para 78, MTD and MTD v Chile, Award, 25 May 2004, 12 ICSID 6 at para 87 and ADC and ADC v Hungary, Award, 2 October 2006, at para 290 available at and also MCI Power and New Turbine v Ecuador, Award, 31 July 2007, at paras 217–18 and 252 available at . In CAA and Vivendi v Argentina, the second arbitral tribunal took it that all provisions of the bilateral investment treaty had been agreed to by the parties for purposes of Article 42(1) of the ICSID Convention, see Award, 20 August 2007, at para 8.2.2 available at . The ad hoc committee deciding on annulment in Wena v Egypt based itself on the argument that the treaty was not in derogation or contradiction of Egyptian law, see Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 36 and 45. 76 See above n 60. 77 Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 39–41; see also LG&E v Argentina, Decision on Liability, 3 October 2006, available at at para 96 and Siemens v Argentina, Award, 6 February 2007, available at at para 77. 78 CMS v Argentina, Award, 12 May 2005, 44 ILM 1205 (2005) at para 116. 79 Ibid paras 117–18. 80 Enron v Argentina, Award, 22 May 2007, available at at para 207 and Sempra v Argentina, Award, 28 September 2007, at paras 235–6 available at .

110

Ole Spiermann

Just as in Wena v Egypt, CMS v Argentina, Enron v Argentina, and Sempra v Argentina had to do with alleged breaches of rights conferred by bilateral investment treaties, and all three cases were decided in accordance with the treaty in question, as distinct from national law. In particular, in Enron v Argentina and Sempra v Argentina, the relatively detailed analysis of emergency and liability under Argentine law had no bearing on the result (leaving aside the so-called umbrella clauses).81 In Wena v Egypt, the tribunal had relied on international law in deciding on the compounding of interest, interest being an integral part of the calculation of damages under the well-known formula of prompt, adequate and effective compensation referred to in Article 5 of the bilateral investment treaty in question.82 It would be a misconception in this context to have recourse to principles of national law that are clearly less generous.83 The circumstance that Wena v Egypt and also CMS v Argentina and Sempra v Argentina were confined to treaty claims limits the bearing of the holdings on applicable law; indeed, these are cases falling outside the proper scope of Article 42(1) of the ICSID Convention. This was underlined in Autopista Concesionada v Venezuela, in which the tribunal pronounced as follows: Whatever the extent of the role that international law plays under Article 42(1) (second sentence), this Tribunal believes that there is no reason in this case, considering especially that it is a contract and not a treaty arbitration, to go beyond the corrective and supplemental functions of international law.84

(b) Role for National Law While treaty claims are obviously to be decided on the basis of international law, national law still has a role to play. In Waste Management v Mexico (II), a NAFTA 81 cf Enron v Argentina, Award, 22 May 2007, above n 80, at paras 210–32, 269–77, and Sempra v Argentina, Award, 28 September 2007, above n 80, at paras 241–69, 311–14, 325–32, and 398. 82 Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 52–3 and see also ibid paras 91 and 96. See also Wena v Egypt, Award, 8 December 2000, 6 ICSID Reports 89 at para 118 as well as eg AAP v Sri Lanka, Award, 27 June 1990, 4 ICSID Reports 250 at para 114, Santa Elena v Costa Rica, Award, 17 Feburary 2000, 5 ICSID Reports 157 at para 104, Metalclad v Mexico, Award, 30 August 2000, 5 ICSID Reports 212 at para 128, Middle East Cement v Egypt, Award, 12 April 2002, 7 ICSID Reports 178 at para 174, and Siemens v Argentina, Award, 6 February 2007, above n 77 at paras 395–6. 83 See previously CDSE v Costa Rica, Award, 17 February 2000, 5 ICSID Reports 157 at paras 65–7. This author is aware of only a single decision in which the misconception prevailed, namely the award of the UNCITRAL tribunal in SwemBalt AB v Latvia, Award, 23 October 2000, at paras 45–6 available at . In CAA and Vivendi v Argentina, the second arbitral tribunal found that it could award interest ‘[a]bsent treaty terms or provisions in the governing law to the Contrary’; see Award, 20 August 2007, above n 77, at para 9.2.1. 84 Aucoven v Venezuela, Award, 23 September 2003, above n 60 at para 102. Cf Goetz v Burundi, Award, 10 February 1999, 6 ICSID Reports 5 at para 69.

Applicable Law

111

tribunal the jurisdiction of which is limited to treaty claims found that this limitation ‘does not mean that the Tribunal lacks jurisdiction to take note of or interpret the contract. But such jurisdiction is incidental in character, and it is always necessary for a claimant to assert as its cause of action founded in one of the substantive provisions of NAFTA referred to in Articles 1116 and 1117’.85 In MTD v Chile, involving a series of treaty claims, the ICSID tribunal noted that ‘[t]he breach of an international obligation will need, by definition, to be judged in terms of international law’,86 whereas ‘[t]o establish the facts of the breach’ it may be necessary to ‘consider the contractual obligations undertaken’ as well as to ‘take into account municipal law’.87 This position was upheld by the ad hoc committee as it decided to dismiss the request for annulment of the award in MTD v Chile: As noted above, the lex causae in this case based on a breach of the BIT is international law. However it will often be necessary for BIT tribunals to apply the law of the host State, and this necessity is reinforced for ICSID tribunals by Article 42(1) of the ICSID Convention. Whether the applicable law here derived from the first or second sentence of Article 42(1) does not matter: the Tribunal should have applied Chilean law to those questions which were necessary for its determination and of which Chilean law was the governing law. At the same time, the implications of some issue of Chilean law for a claim under the BIT were for international law to determine. In short, both laws were relevant.88

Some of the facts on the basis of which to resolve international claims have been produced by, and may only be assessed by applying, national law, contractual engagements included. Examples of such ‘preliminary’ or ‘incidental’ questions governed by national law are whether an investment is valid,89 or a contract has been concluded,90 or terminated,91 whether a representative was empowered to act on behalf of the

85 Waste Management v Mexico, Award No. 2, 30 April 2004, 11 ICSID Reports 362, at para 73. 86 MTD and MTD v Chile, Award, 25 May 2004, above n 73 at para 204. 87 Ibid paras 187 and 204, respectively. 88 MTD and MTD v Chile, Annulment Decision, 21 March 2007, above n 69 at para 72. 89 Cf Inceysa Vallisoletana v El Salvador, ICSID Case No. ARB/03/26 Award, 2 August 2006, at para 203 available at (in Spanish) and World Duty Free Company v Kenya, ICSID Case No. ARB/00/7 Award, 4 October 2006, at paras 158–9 and 180–1 (concerning clauses explicitly referring to national laws) available at . A different question is the definition of investment, which is a matter of treaty interpretation governed by international law, see Salini v Morocco, Decision on Jurisdiction, 23 July 2001, 6 ICSID Reports 400 at para 46 and also Bayindir v Pakistan, Decision on Jurisdiction, 14 November 2005, at paras 105–10 available at . See also Z Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ 74 BYIL 151 (2003) at 205–7 and 269, criticizing the decision of the ad hoc committee in Wena v Egypt; but see Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 33 and also 49, 86, 105, and 108. 90 Maffezini v Spain, Award, 13 November 2000, 5 ICSID Reports 419 at paras 89–90. 91 Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at para 33 and Azurix v Argentina, Award, 14 July 2006 at para 258.

112

Ole Spiermann

state,92 or what was the scope of a state organ’s authority,93 or what was the nature of a private entity.94 Further examples may, depending on the exact claim, comprise such issues as environmental impact assessments,95 zoning changes,96 taxation,97 and immigration.98 In CMS v Argentina, the tribunal relied upon national law in deciding on key rights of the investor in relation to the investment, including the currency to be used in calculating tariffs and the conditions for adjusting tariffs.99 Also, a treaty may make explicit reference to national law.100 Deciding ‘preliminary’ or ‘incidental’ questions of national law does not convert the arbitral tribunal into a court of appeal of national proceedings; this is inherent jurisdiction necessary in order to give effect to the investor’s right to international arbitration as well as the object and purpose of most, if not all, investment treaties. Unlike diplomatic protection, treaty claims brought under investment treaties are generally admissible also when local remedies have not been exhausted. This difference is no coincidence, as is demonstrated by Articles 26 and 27 of the ICSID Convention, and the tribunal’s task is adjusted accordingly. The traditional duty of an international court in the context of diplomatic protection, that is, application of international law to ‘facts’, combines with functions reserved, at least prima facie, for national courts had local remedies been exhausted. Brownlie has noted that ‘in cases in which vital issues (whether classified as ‘facts’ or otherwise) turn on investigation of municipal law, the International Court has duly examined such matters’.101 Brownlie mentions examples associated with diplomatic protection such 92 Olguin v Paraguay, Award, 26 July 2001, 6 ICSID Reports 164 at para 65, Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July 2007, at paras 145–6 available at , and Fraport v Philippines, Award, 16 August 2007, at para 394 (referring to ‘a renvoi to national law’) available at . 93 MTD and MTD v Chile, Annulment Decision, 21 March 2007, above n 69 at para 75. 94 LESI–Dipenta v Algeria, Decision on Jurisdiction, 10 January 2005, above n 62 above at para 39. 95 Maffezini v Spain, Award, 13 November 2000, 5 ICSID Reports 419 at paras 66–71 (also referring to obligations under EU law and international law). 96 MTD and MTD v Chile, Award, 25 May 2004, above n 73 at paras 205 and 214 and Generation Ukraine v Ukraine, Award, 16 September 2003, 10 ICSID Reports 240 at para 20.33. 97 Occidental Exploration and Production Company v Ecuador, Award, 1 July 2004, 12 ICSID Reports 59 at para 93. 98 Channel Tunnel Group and France-Manche v United Kingdom and France, Partial Award, 30 January 2007, at para 338 available at . 99 CMS v Argentina, Award, 12 May 2005, above n 78 at paras 127–44 and also eg ibid, paras 198–9 regarding the duration of the licence. 100 See, in relation to Art 1416 of NAFTA, Fireman’s Fund Insurance Company v Mexico, Decision on Jurisdiction, 17 July 2003, 10 ICSID Reports 214 at paras 81–91. In the absence of clear indications to this effect, a presumption against the importance of national law may be based on Art 31(4) of the Vienna Convention on the Law of Treaties, see also ADC and ADC v Hungary, Award, 2 October 2006, above n 75 at paras 290 and 482–3 and Saipem v Bangladesh, Decision on Jurisdiction, 21 March 2007, at para 82 available at . 101 Ian Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) 40.

Applicable Law

113

as the application of nationality laws and the availability of local remedies.102 In investment arbitration, many more aspects of national law are ‘vital’, lest efficiency be impaired. Most treaty claims have a bearing on national law, yet host states can obviously not be allowed to avoid claims simply by contesting the content or application of national law. A comparison of Occidental v Ecuador and EnCana v Ecuador may point to nuances not yet finally settled in arbitral practice. At issue in both cases were decisions of Ecuadorian tax authorities not to refund value added tax paid by foreign oil exploration companies. In Occidental v Ecuador, the application of treaty standards, principally fair and equitable treatment, was preceded by the tribunal deciding on disputed aspects of the contractual basis of the investment, national tax laws, and Andean Community law.103 In comparison, the tribunal in EnCana v Ecuador held that a national statutory act had to be applied by the tribunal until action is successfully taken, in the appropriate forum, ‘to annul the . . . [act] on constitutional grounds or to bring it into line with what are said to be the obligations of Ecuador within the Andean Community’.104 Its jurisdiction being confined to expropriation claims, the tribunal also found that an administrative act was not ‘reviewable’ so long as judicial review in national courts had not been completed, provided the administrative organ had acted ‘in good faith and stands ready to defend its position before the courts’.105 This result was based on a substantive notion of expropriation (and good faith), as distinct from a procedural requirement of exhaustion of local remedies.106 Yet the tribunal echoed the traditional function of an international court supposedly confined to diplomatic protection when holding that ‘[t]he Tribunal cannot pick and choose between different and conflicting national court rulings in order to arrive at a view as to what the local law should be’.107

102 Cf Soufraki v United Arab Emirates, Decision on Annulment, 5 June 2007, at para 28 available at . 103 Occidental Exploration and Production Company v Ecuador, Award, 1 July 2004, above n 97, at paras 93–152. 104 EnCana v Ecuador, Award, 3 February 2006, above n 2, at para 187. 105 Ibid paras 194–5. 106 Ibid para. 200 n 138 responding to the partial dissenting opinion appended by Dr Naón. In the context of diplomatic protection, exhaustion of local remedies is a procedural condition for exercising diplomatic protection, as opposed to a substantive condition for incurring state responsibility, see Phosphates in Morocco Case, PCIJ Series A/B No. 74 (1938) at 28 (the administrative decision in question was ‘a definitive act which would, by itself, directly involve international responsibility’), James Crawford, The International Law Commission’s Articles on State Responsibility (Cambridge, Cambridge University Press, 2002) 23 and Ole Spiermann, International Legal Argument in the Permanent Court of International Justice (Cambridge, Cambridge University Press, 2005) 377–8. 107 EnCana v Ecuador, Award, 3 February 2006, above n 2, at para 200 n 138 (cf ibid, para 93 on the notion of binding precedent under Ecuadorian law). The tribunal summarized its argument by stating that it was not ‘a court of appeal in Ecuadorian tax matters’, see ibid paras 142, 145 and 200 n 138. Similarly, albeit in a different context, the International Court of Justice has recalled that its function ‘is to resolve international legal disputes between States . . . and not to act as a court of criminal appeal’,

114

Ole Spiermann

To the extent applicable, national law is applied in its own context. In Soufraki v United Arab Emirates, the ad hoc committee, relying on judgments of the Permanent Court, held that ‘[a]n international tribunal’s duty to apply Italian law is a duty to endeavour to apply that law in good faith and in conformity with national jurisprudence and the prevailing interpretations given by the judicial authorities’ as well as ‘the State’s “interpretative authorities” ’.108 That said, a tribunal will not be bound by decisions of national courts or other state organs applying national law to the specific case in question.109 From the point of view of international law, the res judicata character of judgments under national law is but ‘one of several factual elements’.110 Assuming that it has jurisdiction, a tribunal is expected to give its own interpretation to sources of national law as well as contract provisions irrespective of forum clauses contained in such instruments.111 National law will be irrelevant to the extent in conflict with public international law, including the principle pacta sunt servanda. In CME v Czech Republic, whether particular administrative decisions were lawful under Czech law became less relevant as the UNCITRAL tribunal found that ‘the Treaty . . . does not allow reversal and elimination of the legal basis of a foreign investor’s investment by just taking the view that an administrative body’s formal resolution, the corner-stone for the security of the investment, was simply wrong’.112 In Siemens v Argentina, the arbitral tribunal found that ‘[t]he fact that the Contract is subject to Argentine law does not mean that it cannot be expropriated from the perspective of public

see Case concerning the Vienna Convention on Consular Relations, ICJ Reports [1998] 248 at para 38 and also eg LaGrand, ICJ Reports [2001] 466 at para 52. 108 Soufraki v United Arab Emirates, Decision on Annulment, 5 June 2007, above n 102, at para 96, referring to Case concerning the Payment of Various Serbian Loans issued in France, above n 18, at 36 and 46–7 and Case concerning the Payment in Gold of Brazilian Federal Loans contracted in France, above n 18, at 124. See also Spiermann, above n 106, 279–82 and Elettronica Sicula SpA, ICJ Reports [1989] 15 at para 62. 109 ICC Award No. 3327, 1981, 1 ICC Awards 433 at 433–4, Amco v Indonesia, Award, 20 November 1984, 1 ICSID Reports 413 at paras 150, 177, and 262, Azinian v Mexico, Award, 1 November 1998, 5 ICSID Reports 272 at para 86, CSOB v Slovakia, Decision, 1 December 2000, 5 ICSID Reports 358 at para 35, Occidental Exploration and Production Company v Ecuador, Award, 1 July 2004, above n 97, at paras 58 and 137 and Fraport v Philippines, Award, 16 August 2007, above n 92, at para 391. Regarding state organs other than courts, see eg SPP v Egypt, Decision on Jurisdiction, 14 April 1988, 3 ICSID Reports 131 at para 60 and Soufraki v United Arab Emirates, Decision on Annulment, 5 June 2007, above n 102, at para 59. 110 Industria National de Alimentos v Peru, Decision on Annulment, 5 September 2007, at para 88 available at . See also Inceysa Vallisoletana v El Salvador, Award, 2 August 2006, above n 89, at paras 214–17. 111 Eg CAA and Vivendi v Argentina, Annulment Decision, 3 July 2002, above n 4, at para 110 and CAA and Vivendi v Argentina, Award, 20 August 2007, at paras 7.3.8–7.3.10 available at . Cf Parkerings-Compagniet v Lithuania, Award, 11 September 2007, at para 316 available at . 112 CME v Czech Republic, Preliminary Award, 13 September 2001, above n 7 at para 467; see also the judgment of 15 May 2003 by the Svea Court of Appeal according to which the tribunal had ‘applied relevant sources of law, primarily international law’, 9 ICSID Reports 441 at 499.

Applicable Law

115

international law and under the Treaty’.113 In Kardassopoulos v Georgia, it was immaterial whether the contractual basis of an investment was void under national law on the ground that the state organs had lacked competence to enter into the contract: ‘a host state cannot avoid jurisdiction under the BIT by invoking its own failure to comply with its domestic law’.114 Standard examples to the same effect are statutory provisions on period of limitation and interest. The award in Wena v Egypt is illustrative in both respects, and particularly in rejecting, on the strength of Article 42(1) of the ICSID Convention, an argument as to the relevance of statutory limitation.115 Similarly, interest cannot be reduced on the basis of national law,116 nor does national law affect the calculation of damages under the well-known formula of prompt, adequate, and effective compensation.117 Further examples of international law trumping national law are provided by the ICSID Convention itself. Article 25 governs matters of jurisdiction and consent, irrespective of national law or Article 42 on applicable law.118 Similarly, the ICSID Arbitration Rules issued pursuant to Article 44 takes precedence over specific provisions in national law, one example being admissibility, relevance, and evaluation of evidence.119 113 Siemens v Argentina, Award, 6 February 2007, above n 75 at para 267. 114 Kardassopoulos v Georgia, Decision on Jurisdiction, 6 July 2007, available at at para 182 and also paras 191–4 referring to SPP v Egypt, Award, 29 May 1992, above n 20, at paras 81–5. See also about this estoppel argument Fraport v Philippines, Award, 16 August 2007, above n 12, at para 346 and the diccenting opinion of Professor Cremodes. 115 Wena v Egypt, Award, 8 December 2000, 6 ICSID Reports 89 at para 107. As for statutory limitation, see also Maffezini v Spain, Award, 13 November 2000, 5 ICSID Reports 419 (2000) at para 93. 116 Middle East Cement v Egypt, Award, 12 April 2002, 7 ICSID Reports 178 at para 174, Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at para 52 and see also ibid paras 91 and 96. See also Wena v Egypt, Award, 8 December 2000, 6 ICSID Reports 89 at para 118 as well as eg AAP v Sri Lanka, Award, 27 June 1990, 4 ICSID Reports 250 at para 114 and Siemens v Argentina, Award, 6 February 2007, above n 75 at paras 395–6. 117 Santa Elena v Costa Rica, Award, 17 February 2000, 5 ICSID Reports 157 at para 104, Metalclad v Mexico, Award, 30 August 2000, 5 ICSID Reports 212 at para 128, Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 52–3, and Siemens v Argentina, Award, 6 February 2007, at paras 349–52 available at . 118 See eg CMS Gas Transmission v Argentina, Decision on Jurisdiction, 17 July 2003, 7 ICSID Reports 494 at para 88, Azurix Corp v Argentina, Decision on Jurisdiction, 8 December 2003, above n 68 at paras 48–50, Camuzzi International v Argentina, Decision on Jurisdiction, 11 May 2005, at para 17, available at , Saipem v Bangladesh, Decision on Jurisdiction, 21 March 2007, above n 96 at para 68, and CMS Gas Transmission v Argentina, Decision on Annulment, 25 September 2007, at para 68 available at . See also CSOB v Slovakia, Decision on Jurisdiction, 24 May 1999, 5 ICSID Reports 335 at para 35, National Grid v Argentina, Decision on Jurisdiction, 20 June 2006, at para 51 available at and Malaysian Historical Salvors v Malaysia, Award, 17 May 2007, at para 65, available at . Cf Wena v Egypt, Annulment Decision, 5 February 2002, 6 ICSID Reports 129 at paras 40–1. Art 42(1) is clearly relevant in deciding whether an arbitration agreement has been breached (this being a contract claim), see Aucoven v Venezuela, Award, 23 September 2003, above n 60 at para 207. 119 In CSOB v Slovak Republic, the tribunal found that Arbitration Rule 34(1), according to which the tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value, prevailed over the standard of proof laid down by Czech law (chosen by the parties), see CSOB v Slovak

116

Ole Spiermann

Concluding Remarks This chapter has sought to analyse the development of the relationship between different systems and rules of law as the applicable law of an investment dispute. As has been shown, there are significant choices to be made in this regard by tribunals, especially in relation to investment agreements or treaties that do not address this issue explicitly. However, even in relation to explicit provisions, such as Article 42 of the ICSID Convention, there is a degree of discretion in the actual interpretation. That said, it appears clear that the internationalization of such disputes has led to a stronger acceptance of international rules as being key to the resolution of investment disputes. That this conclusion should be taken by international tribunals is perhaps not surprising, given that they represent an alternative to direct diplomatic solutions to international disputes. Such tribunals may not be fulfi lling their appointed function should they not be guided by international, as well as national rules, applicable to the dispute before them.

Select Bibliography Begic, T, Applicable Law in International Investment Disputes (Utrecht, Eleven International Publishing, 2005) Bernardini, P, ‘International Arbitration and A-National Rules of Law’, 15–2 ICC International Court of Arbitration Bulletin 58 (2004) Böckstiegel, K-H, Der Staat als Vertragspartner ausländischer Privatunternehmen (Frankfurt am Main, Athenäum Verlag, 1971) Bourquin, M, ‘Arbitration and Economic Development Agreements’, 15 Bus Law 860 (1959–60) Bowett, DW, ‘State Contracts with Aliens: Contemporary Developments on Compensation for Termination or Breach’, 59 BYIL 49 (1988) Broches, A, ‘Convention on the Settlement of Investment Disputes between States and Nationals of other States of 1965: Explanatory Notes and Survey of its Application’, 18 YB Comm Arb 627 (1993) ——, ‘The Convention on the Settlement of Investment Disputes between States and Nationals of other States’, 136 Recueil des Cours 331 (1972) Brownlie, I, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) Crawford, J, The International Commission’s Articles on State Responsibility (Cambridge, Cambridge University Press, 2002) Dupuy, RJ, The Law of the Sea (Leiden, Sijthoff, 1974) Republic, Award, 29 December 2004, above n 9 at para 226. See also Soufraki v United Arab Emirates, Decision on Annulment, 5 June 2007, above n 102, at paras 105–14.

Applicable Law

117

El-Zein, LL, Les Contrats d’Etat à l’épreuve du droit international (Brussells, Bruyant, 2001) Feuerle, P, ‘International Arbitration and Choice of Law under Article 42 of the Convention on the Settlement of Investment Disputes’, 4 Yale Studies in World Public Order 89 (1977) Gaillard, E, La Jurisprudence du CIRDI (Paris, Pedone, 2004) ——, and Banifatemi, Y, ‘The Meaning of “and” in Article 42(1), Second Sentence, of the Washington Convention The Role of International Law in the ICSID Choice of Law Process’, 18 ICSID Rev–FILJ 375 (2003) Goldman, B, ‘Le Droit applicable selon la Convention de la B.I.R.D., du 18 mars 1965, pour le néglement des défferends relatifs aux investissements entire Etats et ressortissants d’autres Etats’, in Investissements étrangers et arbitrage entre Etats et Personnes Privées: La Convention B.I.R.D. du 18 mars 1965 (Paris, 1969) Hart, HLA, The Concept of Law (Offord, Oxford University Press, 2nd edn, 1994) Higgins, R, Problems and Process: International Law and How We Use It (Oxford, Oxford University Press, 1994) History of the ICSID Convention—Documents concerning the origin and the Formulation of the Convention, (vol 2, Washington, ICSID, 1968) Igbokwe, VC, ‘Determination, Interpretation and Application of Substantive Law in Foreign Investment Treaty Arbitration’, 23 J Int’l Arb 267 (2006) Jennings, RY, ‘State Contracts in International Law’, 37 BYIL 156 (1961) Kojanec, G (ed), Les accords de commerce international (Leiden, 1969) Kreindler, RH, ‘The Law Applicable to International Investment Disputes’, in N Horn and S Kröll (eds), Arbitrating Foreign Investment Disputes (The Hague, Kluwer Law International, 2004) Kurkela, M, ‘Jura Novit Curia and the Burden of Education in International Arbitration: A Nordic Perspective’, ASA Bulletin 486 (2003) Lalive, P, ‘Concluding Remarks’, in E Gaillard and Y Banifatemi (eds), Annulment of ICSID Awards (Huntington, NY, Juris Publishing, 2004) ——, L’Etat en taut que partie à des contrats de concession ou d’investissements conclus avec des sociétiés privée étrangères, in UNIDROIT, New Directions in International Trade Law (vol 1, Dobbs Ferry, NY, 1977) Lauterpacht, E, ‘The World Bank Convention on the Settlement of International Investment Disputes’, in Recueil d’études de droit international en hommage à Paul Guggenheim (Genève, Faculté de Droit, l’Université de Genève, Institut Universitaire des Hautes Etudes Internationales, 1968) Leben, C, ‘La Théorie du contrat d’État et l’évolution du droit international des investissements’, 302 Recueil des Cours 197 (2003) Leboulanger, P, ‘Rapport introductif’, Revue de l’arbitrage 617 (2003) Lillich, RB, ‘The Law Governing Disputes under Economic Development Agreements: Reexamining the Concept of “Internationalization” ’, in RB Lillich and CN Brower (eds), International Arbitration in the 21st Century: Towards ‘Judicialization’ and Uniformity? (Irvington, NY, Transnational Publishers, 1994) Manciaux, S, Investissements étrangers et arbitrage entre Etats et ressortissants d’autres Etats (Dijon, Litec, 2004) McLachlan, C, Shore, L, and Weiniger, M, International Investment Arbitration Substantive Principles (Oxford, Oxford University Press, 2007)

118

Ole Spiermann

McNair, Lord, ‘The General Principles of Law Recognized by Civilized Nations’, 33 BYIL 1 (1957) Poudret, J-F, and Besson, S, Droit comparé de l’arbitrage international (Zurich, Schulthess, 2002) Reisman, WM, ‘The Regime for Lacunae in the ICSID Choice of Law Provision and the Question of Threshold’, 15 ICSID Rev–FILJ 362 (2000) Sacerdoti, G, ‘Investment Arbitration: Under ICSID and UNCITRAL Rules: Prerequisites, Applicable Law, Review of Awards’, 19 ICSID Rev–FILJ 1 (2004) Schreuer, C, ‘Failure to Apply the Governing Law in International Investment Arbitration’, 7 Austrian Rev Int’l and European L 147 (2002) ——, The ICSID Convention: A Commentary (Cambridge University Press, 2001) Shihata, IFI, and Parra, AR, ‘Applicable Substantive Law in Disputes between States and Private Foreign Parties: The Case of Arbitration under the ICSID Convention’, 9 ICSID Rev–FILJ 183 (1994) Sohn, LB, and Baxter, RR, ‘Responsibility of States for Injuries to the Economic Interests of Aliens’, 55 AJIL 545 (1961) Spiermann, O, ‘Individual Rights, State Interests and the Power to Waive ICSID Jurisdiction under Bilateral Investment Treaties’, 20 Arb Int’l 179 (2004) ——, International Legal Argument in the Permanent Court of international Justice (Cambridge, Cambridge University Press, 2005) ——, ‘ “Who Attempts too Much Does Nothing Well”: The 1920 Advisory Committee and the Statute of the Permanent Court of International Justice’, 73 BYIL 187 (2002) Veeder, VV, ‘The Lena Goldfields Arbitration: The Historical Roots of Three Ideas’, 47 ICLQ 747 (1998) Verdross, A, ‘The Status of Foreign Private Interests Stemming from Economic Development Agreements with Arbitration Clauses’, 9 Österreichische Zeitschrift für öffentliches Recht und Völkerrecht 449 (1958–9) Weil, Prosper, ‘Problèmes relatifs aux contrats passés entre un Etat et un particulier’, 128 Recueil des Cours 95 (1969)

chapter 4

M U LT I L AT E R A L INVESTMENT RU L E S R E V I S I T E D Stefan D Amarasinha Juliane Kokott *

(1) The Current International Investment Regime

122

(2) Previous Attempts at Negotiating Multilateral Investment Rules

125

(3) Lessons from the WTO Working Group

130

(4) What Could Future Multilateral Investment Rules Look Like?

134

(a) Institutional Setting for Future Negotiations (b) Scope of Multilateral Investment Rules (i) Definition of Investment (ii) Application to Transnational Corporations (iii) Investment Protection (iv) Right of Establishment (v) Performance Requirements, Investment Incentives, and Taxation (vi) Basic Environmental and Labour Standards (vii) Dispute Settlement

Concluding Remarks

135 138 138 139 142 143 145 146 148

151

* The views presented in this chapter are those of the authors and should not be associated with any of their past or present employers. The authors would like to express their sincere thanks to Nicolas Nohlen whose initial assistance made this chapter possible, to Simon Evenett, Milos Barutciski, Margot Salomon, and Todd Weiler for their detailed and thoughtful comments on earlier versions of this chapter, and to Christoph Fischer and Emmanuel Saurat for their careful reading of the final drafts of the chapter.

120

stefan d amar asinha and juliane kokott

Notwithstanding the close links and complementarities between international trade and foreign direct investment, and their importance for international business transactions, there is an imbalance in the extent and intensity of their regulation and liberalization at the multilateral level. The overall conditions of international trade are established through the World Trade Organization (WTO) and the Uruguay Round Agreements. By contrast foreign investment is currently regulated, by and large, through either bilateral or regional agreements. No similar system for the multilateral regulation of foreign investment exists. This is surprising given the significance of foreign investment in the globalizing economy. The term ‘foreign investment’, comprises ‘[t]he transfer of funds or materials from one country (home State) . . . to another country (host State) . . . to be used in the conduct of an enterprise (investor) in that country in return for a direct or indirect participation in the earnings of the enterprise’.1 Foreign Investment can be further divided into FDI and indirect (or portfolio) investment where the element of direct management of the investment by its foreign controller is absent.2 Likewise, the establishment of or transfer of a whole enterprise into another country can also constitute an investment. Foreign investment has become as important as ‘traditional’ trade for international transactions between countries,3 and can contribute directly to the delivery of both goods and (increasingly) services to foreign markets. An investor typically invests abroad for one or more of the following reasons: market access or cost reductions, as well as access to natural resources and export platforms or access to efficiency-enhancing knowledge.4 An enterprise may choose to perform the same or a similar production process in a different country (market access), or split up its production process and localize different stages of the process in different places (cost reductions). In both cases the investor’s ultimate aim is the maximization of profits and shareholder value. From the point of view of the host state, foreign investment may be welcome as it is seen as a very important tool for growth and economic development. Developing countries in particular may hope that the inflow of foreign investment improves their domestic production

1 SA Riesenfeld, ‘Foreign Investment’ in Rudolf Bernhardt and Peter Macalister-Smith (eds), 2 E PIL (Published under the Auspices of the Max Planck Institute for Comparative Public and International Law) (1992–2000) 435. 2 See further M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) 7 ff; J Kurtz, A General Investment Agreement in the WTO? Lessons Learned from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment, Jean Monnet Working Paper 6/02 (2002) at 3; for the purposes of this chapter the general term ‘foreign investment’ shall be used. 3 See for comprehensive data the yearly World Investment Reports of the United Nations Conference on Trade and Development (UNCTAD), available at the UNCTAD website . 4 See eg J Kokott, ‘Interim Report on the Role of Diplomatic Protection in the Field of the Protection of Foreign Investment’ in International Law Association (ILA), Report of the Seventieth Conference, New Delhi (London, ILA, 2002) 259 at 261.

Multilater al investment rules revisited

121

capacity, leading to higher income levels and export growth.5 Needless to say, foreign investors invest not only in developing countries, but more frequently in emerging economies and developed countries, hence also the continued calls from for example Sub-Saharan African countries for increased foreign investment. Even within customs unions such as the European Communities (EC), there is a significant volume of cross-border foreign investment internally, especially from the existing EC member states into those which acceded on 1 May 2004 and 1 January 2007. Against this background, it may be asked whether it is possible to retain a multifaceted and multi-layered system of bilateral and regional agreements, which leads to what some have termed a ‘spaghetti-bowl’ of legal instruments, or whether it is necessary to reform that system by way of multilateral disciplines on foreign investment. This chapter seeks to give an answer to this question. Section 1 sets the scene by examining the current international regulation of foreign investment and discussing previous attempts in the WTO and under the auspices of the OECD to negotiate multilateral rules. Section 2 goes on to identify the main lessons to be learned from the deliberations of the WTO Working Group on Trade and Investment, when it was tasked with considering which issues should be included in any possible WTO-based initiative on foreign investment rules. Section 3 then discusses and offers recommendations for possible future multilateral investment rules which would encompass not merely rights of investors and obligations on the part of host countries, but rather a more comprehensive ‘compact’ comprising pre- and postestablishment aspects of investment, as well as a number of supporting elements regarding the environment, good governance, labour standards and human rights, and the overall conduct of foreign investors. Section 4 offers suggestions for substantive elements and aspects of dispute settlement in addition to the Model International Investment Agreement for Sustainable Development (IIASD Agreement) draft. Finally, Section 5 suggests and concludes that given the existing regulation of foreign investment, future multilateral investment rules would not altogether replace existing investment regulation, but would rather clarify it in some areas and add value in others, including through substantive provisions relating to environmental and labour standards. In coming to their conclusions, the authors draw upon the IIASD Agreement draft submitted for consultation to the International Institute for Sustainable Development in November 2004 as an example of comprehensive rules which go beyond mere 5 See R Chandra, ‘International Law on Foreign Investment’, Seminar on Transnational Enforcement of Environmental Law and International Law on Foreign Investment on 1 May 2004 at the Constitution Club, organized by International Law Association 81 (2004). The UNCTAD webpage notes as follows on the growing importance of foreign investment for developing countries: foreign affi liates of some 64,000 transnational corporations (TNCs) generate 53 million jobs; FDI is the largest source of external finance for developing countries; developing countries’ inward stock of FDI amounted to about one-third of their GDP, compared to just 10 per cent in 1980; one-third of global trade is intra-firm trade: .

122

stefan d amar asinha and juliane kokott

rights for investors and obligations for host countries. The draft reflects a clear trend, namely recognition that foreign investment is not a one-sided equation according to which special rights are bestowed upon the investor and obligations upon the host country, but rather one where foreign investors may also be expected to observe certain standards and obligations. Foreign investors must observe the laws of the host country in the same way as nationals, and those laws must not undercut certain minimum standards. Where national law does not meet such accepted basic human rights or environmental standards, foreign investors should nevertheless observe such standards. Corporate responsibility, the principle of non-intervention in the relations between a state and its own nationals as well as special circumstances in an underdeveloped or powerless host state, may justify limited and exceptional deviations from national treatment (ie foreign investors could be held to a higher standard than their domestic counterparts), in the case of inadequate protection of human rights and the environment. Needless to say, a more precise definition of the standard is wrought with difficulty. In any case, investors cannot be required to observe standards which neither the host country not the home country requires from its nationals.

(1) The Current International Investment Regime Absent a multilateral investment agreement or other comprehensive rules, such as investment provisions in a bilateral Free Trade Agreement, foreign investment is currently covered by Bilateral Investment Treaties (BITs),6 which number more than 2,000 at present.7 BITs, usually, but not exclusively, signed between developed and developing countries, focus mainly on the rights of the foreign investor and on the duties of the host state vis-à-vis the investor and their investment. BITs typically only cover post-investment protection, rather than actual pre-establishment rights for the investor.8 In addition to BITs, the last 17 years have also seen a steady 6 See Kokott, above n 4 at 263 ff. 7 According to the UNCTAD, World Investment Report 2006 (New York and Geneva, United Nations, 2006), at the end of 2005 the total number of BITs was 2,495, with 2,758 double taxation treaties, and 232 other international agreements, bringing the overall total of International Investment Agreements (IIAs) to 5,500 (ibid 26). For an online compilation with search engine of all BITs, see UNCTAD at . 8 The marked exception are the bilateral investment agreements concluded by the USA and Canada which, following the practice of the North American Free Trade Agreement (NAFTA), cover preentry treatment of foreign investors as well. See NAFTA Chapter 11 at 32 ILM 605 (1993). See below

Multilater al investment rules revisited

123

increase in regional agreements between more than two states including provisions on investment,9 just as a number of bilateral trade agreements include a chapter on investment.10 The Energy Charter Treaty is a further example of an agreement which also includes rules on international investment, though in this case located within an inter-regional sector-specific agreement.11 Within the framework of the WTO, two of the so-called Uruguay Round Agreements contain provisions which directly concern foreign investment, namely the General Agreement on Trade in Services (GATS)12 and the Agreement on TradeRelated Investment Measures (TRIMs). However, both agreements deal with foreign investment in a somewhat fragmented manner.13 The GATS sets out, as one of the four so-called modes of delivery of services, ‘the supply of a service: . . . c) by a service supplier of one Member through commercial presence in the territory of any other Member’.14 ‘Commercial presence’ in this context means the actual physical presence within the territory of a WTO member other than that of the service provider and can thus be seen as a significant step forward for investors who are engaged in the provision of services. The GATS Agreement and commitments scheduled for Mode 3 only cover trade in services and not trade in goods, manufacturing, or extraction. However, unlike the BITs, GATS does not focus on the protection of investment and investors, but rather on what is the main purpose of the WTO, that is market access and non-discrimination.15 Another defining characteristic of GATS is that it is a framework agreement which takes a ‘bottom-up’ approach to market at nn 80–8 for more detailed discussion of the right to establishment. See too Gómez-Palacio and Muchlinski, ‘Admission and Establishment’ ch 7 below. 9 NAFTA 32 ILM 289 (1993); the Framework Agreement on the ASEAN Investment Area (concluded under the ASEAN Free Trade Agreement (AFTA); the Colonia Protocol on the Reciprocal Promotion and Protection of Investments within Mercosur, signed on 17 January 1994; and the Buenos Aires Protocol on the Promotion and Protection of Investments Made by Countries that are not Parties to Mercosur, signed on 8 August 1994 (both protocols concluded under the Asunción Treaty Establishing a Common Market between Argentina, Brazil, Paraguay and Uruguay (Mercosur), signed on 26 March 1991); the Treaty on Free Trade between Colombia, Mexico and Venezuela, signed on 13 June 1994. See further UNCTAD, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006). 10 See eg the recently concluded EU–Chile Association Agreement and the EU–Mexico Association Agreement, the text of both available at . See for further examples UNCTAD, above n 9. On US FTAs, see Jeff rey Scott (ed), Free Trade Agreements: US Strategies and Priorities (Washington, Institute for International Economics, 2004). 11 See the Energy Charter Treaty 34 ILM 381 (1995) and see further Thomas Wälde (ed), The Energy Charter Treaty (The Hague, Kluwer Law International, 1996). 12 33 ILM 44 (1994). 13 See also Kurtz above n 2 at 10; Sornarajah, above n 2 at 303; K Sidhu, ‘Die Regelungen von Grenzüberschreitenden Investitionen in der WTO’, 7 Zeitschrift für Europarechtliche Studien (ZEuS) 335, 348 ff (2004). 14 Art I(2)(c) GATS. For more details on the scope of the GATS, see . 15 E Kentin, ‘Prospects for Rules on Investment in the New WTO Round’, 29 LIEI 61, 64 (2002).

124

stefan d amar asinha and juliane kokott

access, and needs to be scheduled by the individual WTO members. Consequently, there are wide discrepancies in terms of the types of services for which WTO members have scheduled Mode 3 commitments. What is noteworthy is the fact that discriminatory barriers facing foreign investors, both pre- and post-entry, tend to be in the services area in sectors such as finance, transport, energy, and telecommunications. As evidence of this, one commentator points to the negative-lists of nonconforming measures under NAFTA Chapter 11 and the preliminary exceptions to the draft of the Multilateral Agreement on Investment (MAI) in which measures relating to these sectors allegedly accounted for more than 80 per cent of the listed non-conforming measures.16 This has also led some commentators to suggest that the most viable road towards meaningful investment liberalization could be through GATS Mode 3, noting also that a review of the TRIMs Agreement would (presumably) apply only to trade in goods.17 The TRIMs Agreement does little more than elaborate and clarify certain aspects of the GATT’s Agreement key provisions regarding national treatment (Art III) and the prohibition on quantitative restrictions (Art XI).18 The agreement does not add to existing GATT rules, but does offer some value-added through the illustrative (ie non-exhaustive) list attached to the Agreement. Like GATTS, the TRIMs Agreement and its broader relevance is limited by the fact that it applies only to one specific area of economic activity, namely trade in goods. From the foregoing it would be wrong to conclude that there is no multilateral regime for foreign investment. Rather, it is a fragmented regime with many different agreements at different levels of detail and complexity, with a variety of contracting parties, some being bilateral, others regional or even multilateral, as in the case of WTO Agreements. The result is that for each pair or group of countries, different investment regimes may apply. Equally, such fragmentation can encourage regulatory competition between different models of international investment agreements (IIAs), creating incentives for ‘treaty shopping’ by foreign investors who seek to enhance their protection even in cases where their own country has not concluded agreements that offer the same level of protection as those used by other countries. Thus there may be significant reasons for moving to a new multilateral investment regime. Before this is considered in detail, it is, first, necessary to examine past attempts at the establishment of a multilateral regime and to discover the reasons behind their failure to date, and secondly, to consider the contribution of the WTO Working Group on the Relationship between Trade and Investment.

16 P Sauve, ‘Scaling Back Ambitions on Investment Rule-Making at the WTO’, 2 JWI 529–36 (2001). 17 P Sauve and C Wilkie, ‘Investment Liberalization in GATS’ in P Sauve and RM Stern (eds), New Directions in Services Trade Liberalization (Washington, DC, Brookings Institution, 2000) at 331–63. 18 See generally P Civello, ‘The TRIMS Agreement: A Failed Attempt at Investment Liberalization’, 8 Minnesota J of Global Trade 97 (1997).

Multilater al investment rules revisited

125

(2) Previous Attempts at Negotiating Multilateral Investment Rules At the launch of the Uruguay Round negotiations in 1986, the USA proposed negotiating stricter disciplines on trade-distorting investment measures and argued that such negotiations should also address other factors which had an impact on investment flows. More specifically, the USA proposed that GATT contracting parties consider the application of the core GATT principles of national treatment (which could entail ‘equality’ between domestic and foreign firms as regards the right to invest in, and run, local operations) and the most-favoured-nation (MFN) treatment (which would place all foreign investors/investment on an equal footing) to foreign investment. The USA’s position found broad support among other developed countries, as opposed to developing countries who not only disputed the permissibility of investment negotiations under the ambit of the GATT, but also insisted that negotiations—if any—would have to address issues relating to transnational corporations, including transfer pricing and restrictive business practices (some of which are also addressed in the non-binding UN ‘Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices’, hereinafter referred to as ‘the 1980 UN Set’).19 The (rather) opposed positions resulted in the negotiations (and the corresponding mandate) being more narrowly focused in scope, that is, restricted to traderelated investment measures. The Ministerial Declaration of 20 September 1986 (the ‘Punta Del Este Declaration’), Section D, established the following mandate for the negotiations: Trade-Related investment measures Following an examination of the operation of GATT Articles related to the trade restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade.

The mandate for the TRIMs negotiations explains why the current agreement does little more than elaborate on GATT Articles III and XI, and despite the fact that Article 9 of the TRIMs Agreement contains a provision according to which the Agreement may be ‘complemented’ by provisions on investment and competition following a review of the operation of the Agreement, no WTO member has so far invoked that provision (quite possibly also as ‘investment’ and ‘competition’ had been singled out as negotiation subjects in their own right). 19 Full text available at .

126

stefan d amar asinha and juliane kokott

Given the lack of progress in terms of negotiating binding multilateral rules on investment under the GATT (the WTO as of 1 January 1995),20 OECD member states in 1995 embarked on a long and winding road towards a multilateral framework of investment rules, later to be referred to as the MAI.21 The driving philosophy was that given the reluctance of developing countries to negotiate under GATT/ WTO, a smaller group of like-minded countries (and their negotiators) could congregate under the auspices of the OECD and negotiate what was intended to be a state-of-the-art investment agreement which upon completion would be open to non-OECD countries, and might one day have served as inspiration (if not an actual blueprint) for a WTO agreement. Non-OECD countries did not take part in the actual negotiations, but were continuously briefed on major developments in the negotiations. With the benefit of hindsight, one may ask whether it was not wrong to exclude from the negotiating table the very countries from which OECD members were looking for access for foreign investment and investment protection.22 Also, one could ask whether the push for the MAI negotiations was not more on the part of WTO and/or trade and investment negotiators, rather than investors who would ultimately be affected by—and benefit from—such rules. Both questions hold lessons for future negotiators and negotiations in terms of prioritizing and balancing negotiations and ensuring relevant support thereof. In 1997, the original deadline for completion of the MAI negotiations came and went, and negotiators were given a one-year extension. A range of NGOs and other groupings had now started directing their attention (and anger) towards the MAI. The NGO opposition, which to a large extent originated in Canada following the Ethyl Corporation dispute under NAFTA,23 ranged from NGOs worried about the potential implications for the environment and labour standards, to organized labour, such as the AFL-CIO, who feared that jobs would move abroad, accompanied by what Ross Perot (referring to NAFTA) had described as a ‘great sucking sound’. The overriding fear was that multinationals would move their operations to jurisdictions where they could pollute with impunity and exploit workers. In October 1997, the French Socialist government stated publicly that it would no longer take part in the negotiations, pointing to irreconcilable differences over certain issues, including a possible ‘cultural exception’ which Canada, France, and others had sought, and which the USA had adamantly opposed.

20 See, however, below as regards the so-called Singapore Issues in the WTO, including investment. 21 For a comprehensive documentation of the negotiation process, see at the OECD’s website ; see also PT Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’, 34 Int’l Law 1033, 1037 ff (2000). The abbreviated name, ie MAI, was to prove a harbinger of things to come. ‘Mai’ in Italian means ‘never’. 22 See Muchlinski, above n 21 at 1039. 23 See further Tony Clarke and Maude Barlow, MAI: The Multilateral Agreement on Investment and the Threat to Canadian Sovereignty (Toronto, Stoddard Publishing, 1997).

Multilater al investment rules revisited

127

In December 1998, the negotiations were finally suspended and remain so to this date. The authors believe that rather than the NGOs having defeated the MAI, it failed for a number of reasons, chief among which were the (overly) ambitious attempt to cover both pre-investment and post-investment in one go, that pre-investment based on a top-down approach led to the submission of provisional exclusions and exemptions documents which for certain countries were extremely bulky, lack of support from industry who found that the text was unclear and that existing BITs provided better protection (despite NGO claims that the agreement was dictated by TNCs), the inability of negotiators to compromise and to deal effectively and credibly with environmental issues and core labour standards (due also to lack of agreement on the substantive content and reach of such standards), lack of clarity as regards the relationship between the MAI, BITs, and the GATS and TRIMs Agreements, and, finally, the fact that some OECD members were adamantly opposed to the notion of according national treatment in respect of the privatization of state-owned enterprises or other assets. The latter is a regrettable characteristic, which still characterizes the policies of certain EU member states, especially in areas of economic activity considered to be ‘strategic’ sectors such as energy and infrastructure. One may also ask whether the ability of EC member states to speak on their own behalf in the MAI negotiations (as opposed to in the WTO where the European Commission speaks on behalf of the European Communities and all its member states) somehow contributed to spoiling the broth. It remains a fact that the EC member states used their speaking powers to the fullest extent and showed little restraint in contradicting the Commission negotiators. However, this would appear to have been no more than one of several contributory factors, rather than a cause in and by itself. To a large extent, it was the lack of ambition and inability or unwillingness to compromise that ultimately caused the negotiations to collapse, rather than the ill-informed and agitated NGOs claiming to have defeated the MAI following their protests in front of the Paris OECD headquarters and their anti-MAI propaganda in leading newspapers.24 That said, some of the NGOs’ concerns were justified and were in fact not too dissimilar from certain specific points raised by some MAI negotiators. The 1998 MAI Negotiating Text25 itself is somewhat of a hotchpotch, which seeks to combine traditional investment protection with more novel mechanisms for pre-investment. In contrast to the bottom-up approach applied by the GATS Agreement (see above), the MAI envisaged a ‘top-down’ approach for pre-investment according to which all sectors of the economy would be covered by the national treatment and MFN disciplines unless explicitly exempted or excluded. These twin 24 For an insightful and refreshing account of the MAI negotiations and the lessons they offer, see EM Graham, Fighting the Wrong Enemy—Antiglobal Activists and Multinational Enterprises, (Washington, Institute for International Economics, 2000). 25 The 1998 MAI Negotiating Text as of 24 April 1998 is available at the OECD’s website at .

128

stefan d amar asinha and juliane kokott

parts, that is pre- and post-investment, would then be bolstered by a robust dispute settlement mechanism allowing for both state–state as well as investor–state arbitration of various forms. Whereas the draft text takes a novel approach as regards pre-investment, there was nothing novel in terms of duties for foreign investors, other than the possibility of somehow associating the OECD Guidelines for Multinational Enterprises with the Agreement. Some have subsequently argued that the incorporation of non-binding guidelines into a binding agreement was contradictory, with some arguing further that such incorporation could risk undermining the existing support and consensus for the guidelines. One may also ask to what extent the proposed incorporation would have been feasible had the Guidelines been made binding and enforceable. Some have argued that the draft agreement was nothing but a pure investor and investment protection instrument which failed to address crucial questions relating to environmental protection and fundamental labour standards.26 Or, put differently, that it may well have been state-of-the-art, but only à la carte, and not as regards important issues such as environmental and labour standards which are increasingly seen as inseparable from the area of foreign investment. The authors can largely agree with that assessment, although the main challenge as regards environment and labour standards where no real consensus exists will be to ensure that they are incorporated and reflected in a substantively meaningful way which, at the same time, does not go as far as to prove divisive and impractical. Others have argued that the negotiating process sorely lacked transparency and that this fed a feeling that the public and interested NGOs were being excluded.27 This criticism, however, is misguided. Nothing about the negotiations as such was secret, but for obvious (and practical) reasons international negotiations take place between sovereign countries who can be held accountable for their positions at the domestic level, be it in parliament, consultations with business and NGOs, or elsewhere. Just as charity begins at home, so does transparency. That being said, however, the experience of the MAI, as well as that of the WTO to some extent, has served to show that initiatives for negotiations within such areas are best launched after an appropriate public airing of their merits and demerits, and driving rationales. As regards the WTO, despite the limited outcome of the TRIMs negotiations, WTO members meeting at ministerial level in Singapore in 1996 decided at the 26 Muchlinski, above n 21 at 1049. Graham, above n 24 at 7, argues that the MAI draft ‘was becoming little more than a codification of existing law, policy and practice among the negotiating countries’. 27 The very active opposition of some NGOs has been regarded by several authors as one of the main reasons for the failure of the MAI; see A Rugman, ‘New Rules for International Investment: The Case for a Multilateral Agreement on Investment (MAI) at the WTO’ in C Milner and R Read (eds), Trade Liberalization, Competition and the WTO (Northampton, Mass, Edward Elgar Publishing, 2002) 176; J Kurtz, ‘NGO’s, the Internet and International Economic Policy Making: The Failure of the OECD Multilateral Agreement on Investment’, 3 Melbourne J Int’l L 213, (2002) 231 ff. See also Muchlinski, above n 21 at 1039 ff; see also D Henderson, The MAI Affair: A Story and its Lessons (London, Royal Institute of International Affairs, 1999) 16.

Multilater al investment rules revisited

129

insistence of developed countries, in particular the EU, to establish working groups to discuss the areas of competition, transparency in government procurement, trade facilitation, and investment (ie the so-called ‘Singapore Issues’). The respective mandates clearly stipulated that the work was to be of an educational nature, rather than aimed at negotiations. At the WTO Ministerial Conference in Doha in 2001, members agreed that negotiations on all four issues would form part of the Doha Development Agenda trade negotiations launched at that time, but would only start after the 2003 Ministerial Conference, and only on the basis of modalities to be decided upon on the basis of explicit consensus.28 However, fundamental disagreement over agriculture in particular, as well as concerns over the implementation of the Uruguay Round Agreements, caused a certain group of developing countries to rally against the Singapore Issues during the 2003 WTO Ministerial Meeting in Cancún, arguing that they could not accept negotiations on any of the four issues despite the agreement reached in Doha two years earlier. The Cancún Ministerial ended in acrimony and prompted much soul-searching among most WTO members. The first to break the post-Cancún silence was (then) US Trade Representative Robert Zoellick, who in a letter circulated on 11 January 2004 stated that he would prefer to drop the topic of investment in the WTO and also referred more broadly to the Singapore Issues as ‘distractions’.29 The EU had also indicated flexibility on the Singapore Issues,30 and this flexibility was confirmed in a letter of 9 May 2004 from (then) Trade Commissioner Pascal Lamy and Agricultural Commissioner Franz Fischler. As regards the Singapore Issues, the 9 May letter made clear that the EU acknowledged that trade facilitation was the most likely candidate to be negotiated, whereas the remaining three issues would need to be dealt with in the WTO on some other basis. Eventually, a formula of ‘1 + 3’ emerged as the solution for the Singapore Issues, that is, trade facilitation would be negotiated within the so-called Single Undertaking, whereas the remaining three issues would be dealt with on another basis, possibly through a continuation of the working groups in ‘study mode’. Beyond a mere continuation of the working groups in ‘study mode’ lies the more contentious question of the scope and likelihood (if any) of future WTO negotiations on the Singapore Issues generally, and on investment in particular. Would possible future WTO agreements be plurilateral or multilateral? If plurilateral, what would then constitute ‘critical mass’? On what basis would negotiations take place? The elements listed in the relevant parts of the Doha Declaration or something different? What would be the level of ambition of the agreements? 28 The texts of the various Ministerial Declarations emerging from these meetings are available at . 29 The letter is available at: . 30 See Press Notice of the Commission of 26 November 2003, available at ; in which the Commission proposes to ‘show flexibility’ on the ‘Singapore Issues’.

130

stefan d amar asinha and juliane kokott

(3) Lessons from the WTO Working Group To date, the three WTO working groups dealing with the so-called ‘Singapore Issues’, including the one on investment, remain inactive. They have no Chairs and their mandate, if any, remains unclear. However, the issue of multilateral investment rules remains as relevant as ever, also in terms of its implications for and interlinkages with the multilateral trading system. Based on the reports of the Working Group on the Relation between Trade and Investment (WGTI),31 this section highlights the perspectives of developed/home countries on one side and developing/ host countries on the other as regards multilateral investment rules in order to highlight the issues to be addressed in future multilateral investment rules in order to make them broadly acceptable. It should be noted, however, that the traditional distinction between developed/home countries and developing/host countries is in a state of flux. Companies from developing countries such as Brazil, China, and India are increasingly investing abroad. The traditional developed (home)/developing (host) country dichotomy has now been further muddled by the fact that developed countries have increasingly become targets of investor disputes (that is as host countries) and are therefore becoming more concerned with their own defensive interests. As regards investment protection, some industrialized countries have been in favour of multilateral investment rules. From an historical perspective, as noted above, the USA’s attempts to launch broader investment negotiations during the Uruguay Round were met with suspicion and outright hostility from developing countries.32 That said, the developed countries have argued that the current web of BITs makes it very difficult for investors to assess their rights under the various agreements. As regards ‘market access’ (or pre-investment), they have been seeking more extensive investor rights than the current system provides for. More specifically, they have advocated a right to admission of investment and establishment. Developed countries have argued that multilateral investment rules could help overcome the deficiencies of the ‘current patchwork of bilateral, regional, sectoral and few multilateral rules of investment’33 by establishing a framework of

31 WTO Working Group on the Relationship between Trade and Investment, established at the first Ministerial Meeting in Singapore in 1996. The Doha Ministerial Declaration clearly spells out the mandate of this working group, WTO Doc No. WT/MIN(01)/DEC/1, p 5, at paras 20–2, see above n 28. 32 See T L Brewer and S Young, The Multilateral Investment System and Multinational Enterprises (Oxford, Oxford University Press, 1998) 122; see also Kurtz, above n 2 at 9. 33 Cf B Ferrarini, ‘A Multilateral Investment Framework: Would it be Justifiable on Economic Welfare Grounds?’, 58 Aussenwirtschaft 491 (2003) at 494.

Multilater al investment rules revisited

131

transparent, stable, and predictable rules.34 It has also been argued that this would not only be of benefit to investors, but also to host countries, which would benefit from an increase in the inflow of foreign investment. Such an increase could offer vast benefits to host states, not only in terms of capital, but also in associated transfer of know-how and technology, creation of jobs, and competition and innovation, which may be accelerated. Needless to say, other factors also affect investment flows, including intellectual property protection, infrastructure, and the overall regulatory environment. At a more general, institutional, level it has been argued that host countries could also gain from investment, which could help induce positive changes to their existing institutions and economic systems, and increased transparency, just as they may be less prone to state-created distortions and corruption;35 in other words, good governance would somehow be promoted and flow from foreign investment. Developing countries (when host to inward foreign investment) have traditionally favoured the system of the current BITs. These countries are familiar with the BITs and believe that they send a sufficiently strong and clear signal to foreign investors that regulatory reforms will not be reversed and that foreign investment is welcome (and protected). What is ironic is the fact that the BITs contain a number of the features that these countries have objected to in the WTO, including far-reaching investor–state dispute settlement mechanisms. Within the WGTI, India was the most active and vocal opponent of WTO negotiations on investment,36 and it was also chiefly at the insistence of Indian negotiators that the ‘modalities to be agreed upon explicit consensus’ language was added to the Doha mandates of each of the four Singapore Issues. Although some developing countries/emerging economies such as Brazil and Malaysia did express some support for a ‘GATS-type’ approach to investment (ie bottom-up, as opposed to the top-down approach of the MAI), India’s position can nevertheless be regarded as broadly representative of the concerns of many developing countries.37 Opponents of multilateral investment rules have argued that the current system of international rules on investment and unilateral measures provides all the necessary legal foundations for international investment to take place, while at the same time allowing host countries the necessary flexibility to regulate investment in furtherance of their domestic development objectives. According to these countries, multilateral 34 For an extensive Agenda of the European Union on international investment see ; see also the EU’s submission to the WGTI, WTO Doc No. WT/WGTI/W/110. 35 See Ferrarini, above n 33 at 494. 36 Working Group on the Relation between Trade and Investment, WT/WGTI/M/9, Report on the Meeting of 3 June 1999, at para 56; WT/WGTI//M/12, Report on the Meeting of 11 October 2000, at para 23. 37 Cf B Ferrarini, ‘A Multilateral Framework for Investment?’ in SJ Evenett (ed), The Singapore Issues and the World Trading System: The Road to Cancun and Beyond (Berne, Swiss State Secretariat of Economic Affairs/World Trade Institute, 2003) ch I at 27.

132

stefan d amar asinha and juliane kokott

investment rules would have the effect of limiting the scope for government intervention to an extent that is considered incompatible with the imperatives of economic growth and development. Furthermore, these countries question whether multilateral investment rules would lead to significantly higher investment flows.38 Opponents, in particular India, have argued that overly ambitious multilateral investment rules would restrict the ability of governments to react flexibly to economic crises and to pursue normal regulatory policies pursuant to their legitimate national interests.39 One may of course ask whether this ‘loss of sovereignty’ (or ‘domestic policy space’ as it is frequently labelled) is fundamentally different from what is the result of BITs or even more traditional trade liberalization within the WTO, such as tariff bindings. Despite the opposition by India (and shared by other WTO members), it is noteworthy that, for example, Indian companies are increasingly investing abroad and that this may help soften the Indian stance on this issue given time. Whereas the hawkish line is pushed by certain ministers and ministries, as well as certain Indian businesses with strong vested interests that prefer maintaining the status quo, the interests of competitive and outward-looking Indian businesses may eventually hold sway. Similarly, the same group of inward-looking businesses will be opposing the implementation of effective competition legislation, fearing that this would lead to increased competition and thereby the undoing of their privileged position. A telling example of the tension within the Indian business community (and very likely that of other emerging economies) could be observed in the run-up to the Cancún Ministerial conference. The main Dutch, German, and Indian business federations adopted a joint statement in which they voiced support for negotiations on the Singapore Issues, including investment. The Indian government was less than enthused by the support expressed by the Confederation of Indian Industry (CII)— especially when confronted with the statement at the Cancún Ministerial.40 In the view of the authors it is hardly surprising that investors from emerging economies themselves harbour some concerns about the treatment their own investments will be subject to. Dubai Ports’ bid for P&O’s US port operations and the Chinese company CNOOC’s bid for UNOCAL are but two recent examples of treatment which, in the eyes of these investors and their home countries, may be seen as anything but fair and even-handed. It seems undeniable that multilateral investment rules would establish a more uniform international system compared to the current web of BITs. The conclusion of a multilateral agreement could establish a more transparent and predictable set 38 Ferrarini, above n 33 at 494. 39 A Böhmer, ‘The Struggle for a Multilateral Agreement on Investment—An Assessment of the Negotiation Process in the OECD’, 41 German YB Int’l Law 267, 268 (1998); Ferrarini above n 37, at 27; Kentin, above n 15, at 66. 40 See . The release of the statement forced CII to disassociate itself and to say that it had been misquoted.

Multilater al investment rules revisited

133

of rules and thereby likely create a more stable environment for investment.41 It is generally perceived that this leads to a growth in investment flows to developing countries.42 It is, however, less clear whether it also leads to higher welfare in the host countries,43 especially in the absence of measures to eliminate distortions of market forces. Some have argued that one advantage of a multilateral agreement as compared to the current web of BITs is that any future negotiations would be more closely monitored by the public, and NGOs, and civil society more broadly, which might have a more direct impact on the negotiating process and thereby the final rules. While such an ‘inclusive process’ could provide more legitimacy to multilateral investment rules than the conclusion of a BIT by two countries, in terms both of process and result,44 it raises a range of issues regarding not only the practicalities of such a process, but also more fundamental questions about whether the involvement of NGOs and civil society is not better done at the domestic level by the countries who are the actual participants in the negotiations and before their negotiating positions and objectives are finalized. That said, a greater degree of civil society consultation (ie involving traditional NGOs, as well as business and industry) has become an integral and widely accepted part of the process. One further advantage of negotiations within the WTO relates to the bargaining power of developing countries. Where these countries would only enjoy limited bargaining power in one-on-one negotiations (such as negotiations on a BIT), they could form alliances with other WTO members with similar interests. By doing so, developing/host countries could protect their interests better than in a purely bilateral setting where they tend to be ‘regime-takers’, and might be capable of extracting concessions in other areas from the demandeurs of a multilateral agreement, possibly through the threat of being ‘regime-breakers’. So far, home countries have generally displayed interest in further liberalizing FI through multilateral rules, whereas host countries have been reluctant and have stressed their right to regulate access of foreign investment (FI) themselves.45 While these perspectives may appear contradictory, the authors believe they can eventually be bridged. Much will depend not only on the content of the actual investment rules, but also on the broader surrounding landscape, including institutional anchorage (if any) of the rules, dispute settlement mechanisms, trade-offs, and corresponding concessions, etc. 41 See AV Ganesan, ‘Developing Countries and a Possible Multilateral Framework on Investment: Strategic Options’, 7(2) Transnational Corporations 1, 14 (1998). 42 See ibid. 43 See Ferrarini, above n 33 at 513. 44 On different kinds of legitimacy, cf J Kokott, ‘Sind wir auf dem Wege zu einer Internationalen Umweltorganisation’ in JA Frowein, K Scharioth, I Winkelmann, and R Wolfrum (eds), Verhandeln für den Frieden, Liber amicorum Tono Eitel (Heidelberg, Springer Verlag, 2003) 381, 408 ff. 45 For a comprehensive analysis of arguments put forward by both developed and developing countries in the WGTI, see Ferrarini, above n 37 at 16 ff.

134

stefan d amar asinha and juliane kokott

(4) What Could Future Multilateral Investment Rules Look Like? While the authors firmly believe that there is a strong case to be made for a comprehensive approach to investment, they also believe that this must be framed within a broader context of good governance and in a manner which duly takes into account the legitimate interests of developed countries, developing countries, and investors alike. Those interests indeed converge, as minimum standards regarding labour and environment are (or should be) global concerns and, hence, the traditional ‘them versus us’ thinking makes little sense. Such a progressive approach would require a rebalancing as regards the current primary focus of international investment rules of strong investor protection, so as to also include support for sustainable development, the environment, and other issues. This would not be at the expense of investor protection, but would rather be a broadening of the substantive areas to address. As discussed above, the MAI negotiations failed due to a variety of factors, most of which were related to its design and the unwillingness of OECD members to compromise and make the concessions necessary to render the MAI the state-of-the-art agreement sought. The experiences of the MAI and the history of the WTO WGTI reports make it clear that any future multilateral investment rules have to take a number of issues duly into account in order to be acceptable to a sufficiently broad constituency. One major question is whether an agreement should be a ‘stand-alone’ agreement as was envisaged for the MAI, or whether it should be institutionally anchored somewhere, like the WTO. This question is central as it opens up a plethora of related questions such as secretariat support, dispute settlement mechanisms, enforceability of awards, and possible retaliatory measures. Leaving the stand-alone/institutional anchorage issue aside, the draft text of the MAI can serve as a starting point for establishing certain guidelines for a future multilateral investment framework. Whereas the MAI draft had its fair share of shortcomings, flaws, and unanswered questions, this does not in any way suggest that negotiators had failed on all fronts. Some of the approaches in draft were both logical and appropriate and could be maintained in a future agreement, as argued further below. As regards the remainder of the draft, that nevertheless provides valuable lessons for the negotiators of any future agreement, although, of course, the draft text in a number of respects merely sets out different options, rather than taking any definitive stance. In addition to the MAI draft text, major inspiration can be drawn from the recent proposal for a Model International Agreement on Investment for Sustainable Development (IIASD Model Agreement)46 presented by the International Institute for 46 For the IIASD Model Agreement as of April 2006 see: .

Multilater al investment rules revisited

135

Sustainable Development. The draft counterbalances a number of the shortcomings of the MAI draft and illustrates how a multilateral investment agreement might pursue different aims rather than merely strengthening an investor’s rights in the host state. Below, the key questions to be addressed by any future multilateral investment agreement are discussed in more detail. One key question negotiators ought to ask themselves is what should be the guiding principles for their negotiations. One commentator has suggested that there are five guiding principles for investment regulation/liberalization:47 (1) promoting a more secure, predictable, and transparent environment in which to plan and operate cross-border investments; (2) ensuring greater protection for investors and their investments; (3) promoting the progressive liberalization of barriers restricting the entry and conduct of foreign firms in domestic markets; (4) reducing or eliminating measures that distort trade and investment decisions and reduce allocative efficiency; and (5) developing credible institutions and rules for solving potential disputes. While agreeing fully with all five prescriptions, which may appear self-evident, but nevertheless warrant repetition, the authors would suggest that they should be complemented by the following: (6) ensuring adequate consideration for environmental issues, core labour standards and other related issues; (7) ensuring that the relationship between the agreement and other related international instruments is clarified. As discussed in further detail below, these two additional prescriptions would serve to help avoid some of the pitfalls of the MAI, as well as ensuring balanced rules which adequately reflect the legitimate interests of both investors and the host country.

(a) Institutional Setting for Future Negotiations The MAI was negotiated among OECD members only and lacked the direct participation of those developing countries and emerging economies which were expected to sign up after its conclusion, for example Brazil, China, India, and South Africa. As already discussed, the reasons for the failure of the MAI were legion and the boisterous statements by NGOs that they somehow brought down the agreement are grossly inaccurate. However, the negative experience of the MAI, including the non-inclusive negotiating process, is likely to have seriously damaged the prospect

47 Sauve, above n 16 at 529–30.

136

stefan d amar asinha and juliane kokott

of the OECD becoming a negotiating forum for multilateral investment rules for the foreseeable future. That brings us to the WTO, which would seem a more appropriate place for negotiating and concluding multilateral investment rules.48 Given the close relationship between international trade and foreign investment, it would seem logical to address both issues under the auspices of the same institution. What is more, the WTO is the only international organization with a proven track-record of negotiating and effectively enforcing binding, multilateral rules. As discussed above, the WTO has (or at least had) a Working Group with a mandate to study the relationship between trade and investment.49 The ‘great bargain’ argument, which is often put forward as the ‘raison d’être of the WTO’50 and which is of special significance for developing countries, also points to the WTO as the more appropriate place for negotiating multilateral investment rules.51 A broader agenda of trade and trade-related issues under negotiation would allow for important trade-offs, which (ideally) will enable all WTO members to return home with some of their priorities met. Finally, the consensus-based nature of the WTO would help ensure that all members have an effective say in the negotiations and could be in a position to influence the design of any rules, unlike the situation over the MAI negotiations. If multilateral investment rules were to be negotiated in the WTO, the experience of the MAI offers a number of lessons for negotiators as regards the substance of such rules. In addition to key issues such as the definition of ‘investment’ and ‘investor’ (see below) as well as a top-down versus bottom-up approach, negotiators would need to clarify the relationship between any new WTO rules and the TRIMs and GATS Agreements, just as it would have to be decided whether access to the WTO dispute settlement system should be strictly limited to WTO members, or whether investors would also somehow be allowed to bring cases against host WTO members.52 Also, one may consider whether it might not make sense also to address competition-related aspects of investment, if rules were negotiated in the WTO. The experience from the WTGI and the corresponding Working 48 See eg Ganesan, above n 41 at 3 and 30 ff.; P-T Stoll and F Schorkopf, WTO—Welthandelsordnung und Welthandelsrecht (Cologne, Heymanns Verlag, 2nd edn, 2002) 247. 49 See above n 31. Furthermore, WTO members decided in 2001 at the Ministerial Conference in Doha to commence negotiations on an MAI. The Doha Declaration says that ‘negotiations will take place after the Fift h Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations’, WTO Doc No. WT/MIN(01)/DEC/1, p 5, at paras 20–2; ‘explicit consensus’ means that any of the WTO members could veto the inclusion. 50 B Hoekman and K Saggi, ‘Multilateral Disciplines for Investment-Related Policies?’, Paper presented at the conference ‘Global Regionalism’, Instituto Affari Internazionali, Rome, 8–9 February (1999) at 18. 51 As Ferrarini correctly points out, the ‘great bargain’ argument implies somehow that there is not much to gain for developing countries from multilateral investment rules, see above n 33 at 508. 52 The WTO dispute settlement system is an intergovernmental dispute settlement system and does not at present allow claims to be brought by private parties.

Multilater al investment rules revisited

137

Group on the Relationship between Trade and Competition Policy (WGTCP) shows that a number of developing countries were reluctant to assume investment obligations, especially as regards pre-investment, fearing that transnational corporations (TNCs) would wipe out nascent domestic industries. While these countries privately acknowledged that the answer to any abuse of dominance by TNCs would be domestic competition provisions, some countries felt the adoption and enforcement of such a law was not supported politically and would prove too costly. As a result, they chose to reject WTO negotiations on both investment and competition altogether. What is more, the WGTI and WGTCP conducted their meetings in splendid isolation from one another, and it begs the question whether it might not have made sense to discuss the linkages between investment and competition in a more holistic manner. In the event that the WTO is chosen as the institutional home for future investment rules, the question arises whether these would be truly multilateral rules, that is, binding upon all WTO members, or rather in the form of some plurilateral agreement or arrangement. In addition to the existing plurilateral agreements of the WTO,53 the fourth and fift h GATS protocols relating to basic telecommunications services (as well as the so-called ‘reference paper’) and financial services were not signed up to by the entire WTO membership. The decisive criterion here was to achieve ‘critical mass’ calculated not in terms of a simple head-count of WTO members, but rather in the percentage of trade covered. For the fourth protocol 69 members and 91 per cent of trade was covered. For the fift h protocol 70 members and 95 per cent of trade was covered. If a plurilateral investment agreement was negotiated in the WTO, what would then constitute the ‘critical mass’ required to make such negotiations worthwhile? If merely based on FDI flows, an agreement between industrialized countries might constitute critical mass in terms of volume and value, but such an agreement would not include major developing countries and emerging economies, nor Sub-Saharan Africa, and might also be said to resemble the MAI set-up too closely in terms of initial participants. One option could be a formula combining several factors including origin and destination of FDI. That said, however, the failure of the WTO Ministerial Conference at Cancún, as well as the current state of the Doha Development Round of WTO trade negotiations, make the fate of investment rules in the WTO highly uncertain, to say the least. One alternative to the WTO could be to use the International Centre for Settlement of Investment Disputes (ICSID) as the institutional anchor of future multilateral investment rules. It is widely agreed that ICSID has the requisite expertise in investment disputes, in particular between developed and developing country parties. However, that would still leave open the question of the actual 53 Although traditionally hailed as a truly multilateral organization, there are certain WTO agreements that are plurilateral in nature. These agreements are contained in Annex 4 of the Results of the Uruguay Round of Multilateral Trade Negotiations.

138

stefan d amar asinha and juliane kokott

negotiations of such rules . Would they be supported by the ICSID Secretariat, as was the case with the MAI negotiations and the OECD Secretariat? Would the Secretariat be likely to have the expertise necessary to effectively support negotiations on such a scale? If not, would they be free-standing negotiations, and, if so, what would be the realistic likelihood of success? Yet another alternative forum for negotiations on multilateral investment rules could be UNCTAD. UNCTAD does have significant experience in issues relating to foreign investment, just as the UNCTAD 1980 Set contains a number of elements, which, if properly updated and ‘operationalized’, could help make multilateral investment rules more palatable to certain developing countries. Chapter D of the 1980 UNCTAD Set sets out ‘Principles and Rules for Enterprises, including transnational corporations’ relating to their conduct and business practices. However, UNCTAD admittedly does not have a track-record of negotiating and enforcing multilateral rules and could be viewed by some parties as being too dogmatic and anti-Western. This shortcoming might suggest that the issue could be taken up jointly by UNCTAD and the WTO, possibly along with the other Singapore Issue of competition, thereby also drawing upon some of the further elements contained in the 1980 UN Set, suitably modified to take account of current investment conditions.

(b) Scope of Multilateral Investment Rules (i) Definition of Investment The question of the scope of multilateral investment rules centres mainly on the definition of ‘investment’. Under the 1998 MAI draft, as well as under NAFTA,54 the definition of ‘investment’ is very wide, even including portfolio investment.55 A broad, asset-based approach was favoured by developed countries, and most BITs apply a broad definition of investment.56 Although accepted in BITs, the exact definition of ‘investment’ was one of the issues which contributed to the failure of the MAI,57 as some host states do not support an overly broad definition of ‘investment’. 54 NAFTA Art 1139. 55 See the MAI Negotiating Text (1998), above n 25 at 11, Ch 2 Art 2: ‘Investment means every kind of asset owned or controlled, directly or indirectly, by an investor’; also the term ‘investor’ was approached broadly: ‘Investor means a natural person having the nationality of, or who is permanently residing in, a Contracting Party in accordance with its applicable law or a legal person or any other entity constituted or organized under the applicable law of a Contracting Party . . .’. 56 See Schlemmer, ‘Investment, Investor, Nationality, and Shareholders’ ch 2 above and R Dolzer and M Stevens, Bilateral Investment Treaties (The Hague, Martinus Nijhoff, 1995) at 26; I Madalena, ‘Foreign Direct Investment and the Protection of the Environment: The Border between National Environmental Regulation and Expropriation’, 12 European Env L Rev 70, 71 (2003). A broad assetbased definition of investment was also favoured by the USA in the context of the WGTI. See eg WT/ WGTI/W/142 at 2. 57 Muchlinski above n 21 at 1040 ff.

Multilater al investment rules revisited

139

Developing countries particularly—but also some OECD members—have traditionally insisted on the right to regulate investment which is of a less permanent nature than foreign direct investment, for example portfolio investment,58 and numerous developing countries seek to use investment policies as a tool to promote legitimate social, economic, and environmental goals to which they have committed by ratifying human rights treaties. Also, it was generally agreed among developing countries that a broad definition of ‘investment’ called for appropriate safeguard provisions.59 The rationale for the inclusion of portfolio investments is not obvious, as portfolio investments usually do not require long-term planning and far-reaching dispositions by investors. The discontinuation and withdrawal of portfolio investments will almost certainly be easier and faster than with direct investment and hence less in need of protection. In accordance with the IIASD Model Agreement, it is recommended that portfolio investment and other intangible objects such as contracts should not be covered— as a priority—by the definition of foreign investment in any future multilateral investment rules. One solution could be separate rules (possibly in the form of a side agreement or protocol) according to which a smaller number of signatories would extend the investment definition (and thereby the ensuing protection) to portfolio investment, contracts, and the like.

(ii) Application to Transnational Corporations Traditionally, public international law is derived from sovereign states and state practice and applies to states, rather than corporations and individuals. While international rights and duties of international organizations and individuals have received some recognition under public international law, the same is not yet completely true for TNCs, and in the area of human rights the lacuna continues to receive widespread attention.60 However, a simmering change has become apparent as regards non-state actors in the area of international economic relations, and the impact they have on a variety of non-economic areas. Some now recognize TNCs, which are concluding investment contracts with states, as partial subjects of international law.61 Given the significant role of TNCs in international economic 58 See UNCTAD, Lessons from the MAI, Series on Issues in International Investment Agreements, (New York and Geneva, United Nations, 1999) at 11, available at the UNCTAD website, . 59 Ibid. 60 EA Duruigbo, Multinational Corporations and International Law: Accountability and Compliance Issues in the Petroleum Industry (Ardsley, NY, Transnational Publishers, 2003) 189 ff (2003); Sornarajah, above n 2 at 55; I Seidl-Hohenveldern, The Corporation in and under International Law (Cambridge, Grotius Publications, 1987). 61 See RJ Dupuis, Arbitrator, Texaco v Lybia, 17 ILM 1 ff (1978); G van Hecke, ‘Contracts between States and Foreign Private Law Persons’, 1 EPIL 814 ff (1992); further references at K Doehrung, Völkerrecht (Heidelberg, Müller Verlag, 2004) 297 ff.

140

stefan d amar asinha and juliane kokott

relations, the need for certain responsibilities and duties on their part becomes not only logical, but also justified.62 If states are capable and willing to confer specific rights and benefits upon TNCs, for example through the adoption of traditional BITs, trade liberalization, and international protection of intellectual property rights, surely the logical corollary would be to ensure that TNCs observe specific obligations on TNCs as well?63 In particular, there is a widely held opinion among academics that a duty of human rights protection should also apply to TNCs in order to achieve fuller and wider realization of human rights.64 Admittedly, there are numerous international codes of conduct and other soft law instruments, some of which have been drafted by—or with the participation of—TNCs.65 The Draft UN Code of Conduct on Transnational Corporations already recognized that ‘the pervasive role of transnational corporations in the world economy requires the formulation of guidelines for their conduct’.66 However, the Code was never fully adopted, partly due to the North–South divide and the (then) Cold War. On 13 August 2003 the UN Sub-commission for the Promotion and Protection of Human Rights approved the ‘Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights’,67 which can be seen as a significant step towards involving business in international standard setting.68 The Norms are based on international human rights law69 and existing norms relating to TNCs and other business enterprises such as the ILO 62 For example, the recently established post of UN Special Representative of the Secretary-General on Human Rights and Transnational Corporations and Other Business Enterprises was mandated to focus initially on addressing the ‘sphere of influence’ and complicity with regard to human rights and these non-state actors, Commission on Human Rights Res 2005/69, para 1(c). 63 One example of an international instrument placing obligations on businesses operating abroad is the OECD Anti-Bribery Convention. Admittedly, this agreement is ratified and implemented by the signatories rather than TNCs, but nevertheless illustrates the application of certain obligations for businesses operating abroad by adoption of the necessary domestic legislation. See . 64 See eg S Deva, ‘Human Rights Violations by Multinational Corporations and International Law: Where From Here?’, 19 Conn J Int’l Law 1 (2003); see also SR Ratner, ‘Corporations and Human Rights: A Theory of Legal Responsibility’, 111 Yale LJ 443, 461 (2001). Ratner argues that ‘a system in which the State is the sole target of international legal obligations may not be sufficient to protect human rights’. 65 See also J Kokott ‘Soft Law Standards under Public International Law, A Contribution on the Effects of the Transformation of International Law on the Sources of International Law’ in P Nobel (ed), International Standards and the Law (Berne, Staempfli, 2005). 66 The United Nations Codes of Conduct on Transnational Corporations, UN Centre on Transnational Corporations, UN Doc ST/CTC/SER.A/4 at 1 (1988), 23 ILM 626 (1984). 67 UN Doc E/CN.4/Sub.2/2003/12/Rev.2 (2003). 68 See for a comprehensive analysis C Hillemanns, ‘UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with regard to Human Rights’, 10 German Law Journal No. 10 (1 October 2003), available at . 69 In particular the Universal Declaration of Human Rights, GA Res 217A (III), UN Doc A/810 at 71 (1948); the International Covenant on Civil and Political Rights, GA Res 2200A (XXI), 21 UN GAOR Supp (no. 16) at 52, UN Doc. A/6316 (1966), 999 UNTS 171; and the International Covenant on Economic, Social and Cultural Rights, GA Res 2200A (XXI), 21 UN GAOR Supp (no. 16) at 49, UN Doc A/6316 (1966), 993 UNTS 3.

Multilater al investment rules revisited

141

Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy,70 the OECD Guidelines for Multinational Enterprises,71 the United Nations Global Compact,72 and the Draft United Nations Code of Conduct on Transnational Corporations.73 The Norms are intended to evolve (eventually) into a binding set of rules for TNCs. While the specific content of the Norms themselves are the subject of some disagreement, there is considerable and increasing agreement that rules in the area of human rights that directly bind TNCs are overdue, and the Norms are generally viewed as an important and timely contribution to those ends. However, as the former Commission for Human Rights did not adopt the Norms, it remains to be seen whether its successor body, the Human Rights Council, will meaningfully advance this agenda.74 It should be recalled that one of the criticisms of the MAI draft was the apparent imbalance between investor rights and responsibilities. The draft text did not contain any binding language on the responsibilities of investors regarding the environment, labour standards, and human rights, but merely a voluntary code of conduct.75 Hardly a state-of-the-art agreement by any reasonable measure. The sphere of influence of an investor may vary depending on the nature of the investment, with the extractive industry most frequently singled out as an area more likely to have an impact on certain human rights, including the rights of indigenous peoples. Future multilateral investment rules could also seek to take into account how foreign investors ‘can contribute to a form of growth conducive to the right to development’ given that ‘[T]here is no automatic relationship between the arrival of foreign investors in a country and the human rights-driven development of that country: even where the TNCs concerned respect the full range of labour rights, environmental standards, and human rights which their activity could potentially affect, there is no certainty that their presence in the country will contribute to that country moving towards the full realization of human rights of all its population’.76 70 ILO Doc GN 204/4/2 (1978), 17 ILM 422 (1978). 71 OECD Doc DAFFE/IME(2000)20 (2000), 40 ILM 236 (2001). 72 Information available at . 73 See above n 67. 74 See also the ‘Interim report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises to the United Nations Economic and Social Council’, E/CN.4/2006/97 of 22 February 2006 (hereinafter referred to as the Ruggie Report). The Special Representative, John Ruggie, states (para 61) that ‘[u]nder customary international law, emerging practice and expert opinion increasingly do suggest that corporations may be held liable for committing, or for complicity in, the most heinous human rights violations amounting to international crimes, including genocide, slavery, human trafficking, forced labour, torture and some crimes against humanity’. See too UNCTAD, World Investment Report 2007 (New York and Geneva, United Nations, 2007) Part II. 75 The non-binding OECD Guidelines for Multinational Enterprises, above n 71, were annexed to the draft agreement. 76 See O De Schutter, ‘Transnational Corporations as Instruments of Human Development’, in Phillip Alston and Mary Robinson (eds), Human Rights and Development—Towards Mutual Reinforcement (Oxford, Oxford University Press, 2005) 403 at 405. Noteworthy initiatives in the extractive sector include the ‘Extractive Industries Transparency Initiative’. For the principles and criteria, see

142

stefan d amar asinha and juliane kokott

The inclusion of certain binding obligations on the part of investors in future multilateral investment rules requiring investors to observe a set of minimum standards in certain areas, would not only be fair and reasonable, but also in keeping with the prevailing sentiments and trends in international law. Such minimum standards could also importantly help prevent a ‘race to the bottom’ among host countries that may otherwise feel they have to engage in a constant lowering of environmental and labour standards in order to attract foreign investment. In addition, the inclusion of such obligations would also be likely to make multilateral rules more palatable to certain countries, and would address NGO concerns in this area, as well as those of the UN’s Special Representative on human rights and transnational corporations, among others. The IIASD Model Agreement contains an entire section on Foreign Investor Obligations and Duties. The authors would argue that, as a starting point, drafters of future multinational rules on investment should focus on core labour standards and certain environmental requirements, including the ‘polluter pays principle’. That is not to say that other human rights do not warrant attention, but negotiators should focus on what the traffic can bear, and on what would constitute a reasonable balance between more general rights and obligations of the broadest possible relevance and application in terms of investors. Certain areas of foreign investment, including the extractive industry, are likely to warrant emphasis on other types of obligations upon TNCs, such as those correlated with the rights of indigenous peoples, the rights to food and health given the possible environmental impact of an investment, and a range of civil rights, for example, the right to security of the person, given the frequent involvement of private military companies acting on their behalf in the protection of their investment.77 A key benefit of placing a number of direct obligations upon TNCs would be that it provides a mechanism for holding companies accountable in instances where the host state is either unwilling or unable to do so. While one might ask whether assisting the host country in monitoring and enforcing certain standards and principles might not be a feasible way forward, one must bear in mind that this would require an obligation for home countries (and their relevant agencies) to commit actual time and resources. The extent of time and resources needed would be difficult to gauge and would be certain to meet with resistance from the home country agencies in question. What is more, such enforcement assistance would provide no effective tool in instances where the host country is unwilling to take action.

(iii) Investment Protection The investment protection provisions contained in BITs, the MAI draft, and the DIIASD Model Draft on International Investment for Sustainable Development are . See also ‘Business and Human Rights: Policy Commitments and Disclosure in the Extractive Sector’, published by the International Business Leaders Forum, available at . 77 See IIASD Model Agreement, above n 46 Part 3 (Arts 13–20).

Multilater al investment rules revisited

143

rather similar in wording. The usual standards for protection are national and MFN treatment, as well as fair and equitable treatment. As regards expropriation, the old controversy between minimum standard and national treatment appears to have been settled in favour of minimum standard. In order to be lawful, expropriations must meet the following criteria: for a public purpose, on a non-discriminatory basis, in accordance with due process of law and on payment of prompt and convertible compensation at fair market value. This standard on its face is similar to that of many Western Constitutions. The term ‘expropriation’ usually covers direct as well as indirect (or creeping) expropriation and nationalization.78 That reflects the current stage of customary international law in the field of property protection of non-nationals. The MAI draft text went somewhat further in its general treatment clause by also prohibiting any action by a host state that would have the effect of a state seizure of assets or which would otherwise deprive the investor of ‘enjoyment, maintenance and use’ of the investment.79 NAFTA experience shows that such broad investor protection provisions may have negative (and unwarranted) consequences, namely a proliferation of claims brought by investors against legitimate regulatory measures that somehow had an impact on their economic activities, often referred to as regulatory takings.80 Any future multilateral investment rules should aim at striking a careful balance between investment protection and legitimate regulatory objectives of host countries, both as regards the actual wording of the investment protection clauses and, perhaps even more importantly, with regard to any dispute settlement mechanism.

(iv) Right of Establishment As discussed above, the MAI draft aimed at according national and most-favourednation treatment with regard to both pre- and post-establishment obligations.81 With such a right to establishment, the MAI sought to go beyond the majority of existing BITs. While the authors can certainly agree that national treatment and MFN are the most effective means by which to ensure equality of treatment in terms of

78 Drawn from Art 9 IIASD Model Agreement, above n 46, but common in all kinds of investment treaties. See further Reinisch ‘Expropriation’ Ch 11 below. 79 See the MAI Negotiating Text (1998) above n 25 at p 57, Chapter IV, the ‘General Treatment’ provision. 80 The most well-known case is Ethyl Corporation v Canada, 24 June 1998 (Jurisdiction Phase), UNCITRAL, 38 ILM 708 (1999). Ethyl Corporation, a US-based TNC, used the NAFTA provisions to claim damages against the Canadian government for banning the import of a gasoline additive, MMT, which is a dangerous toxin. The ban was on health, safety, and environmental grounds; see for further case-law n 99 below. For a commentary on a number of NAFTA disputes, see M Barutciski, ‘In the Eye of the Beholder: A Commentary on Investor Protection under NAFTA’, in Alan S Alexandroff (ed), Investor Protection in the NAFTA and Beyond: Private Interest and Public Purpose (Ottawa, CD Howe Institute, Policy Study 44, The Border Papers, 2006) 61. 81 MAI Negotiating Text (1998) above n 25 at p 13, Chapter III.

144

stefan d amar asinha and juliane kokott

multilateral trade,82 the question remains whether and if so to what extent it should also be applied in the pre-establishment phase of foreign investment. The MAI draft adopted a top-down approach according to which the provisions of the agreement would apply to all economic sectors and laws of the host state, unless somehow excluded or exempted, be it specifically or by virtue of one or more of the general exceptions envisaged in the draft.83 The top-down approach of the MAI draft proved especially problematic with respect to the rights of entry for investors provided under the text,84 and resulted in a number of the so-called like-minded OECD members submitting an exorbitant number of (preliminary) exceptions to the proposed agreement,85 Exceptions which in many cases went far beyond those lodged with respect to the OECD Code on Capital Movements.86 As regards the WTO as a possible forum for international investment rules, the question arises whether such rules should be based on a top-down approach as with the MAI, or a bottom-up approach, as under GATS, which allows WTO members discretion to open up specific sectors only as and when they feel ready to do so. The IIASD Draft Agreement suggests what appears to be a reasonable compromise between the two, that is, a bottom-up approach as regards pre-establishment and a top-down approach as regards post-establishment rights. While future multilateral investment rules need not create unlimited rights of establishment for investors in a potential host state, parties wishing to list sectors for which they do allow foreign entrants should be able to list these in an annex to the agreement. Sectors listed in the annex ‘shall then be covered by the provisions of this agreement including for the establishment and acquisition of an investment’.87 Applying a bottom-up approach to pre-establishment seems logical, as foreign investment (leaving aside portfolio investment which would not be covered) has to do with more than just free movement of goods, but may also imply cross-border movement of natural persons and various activities in the host state. The authors 82 Kurtz points, however, to the ‘fundamental differences’ between applying non-discriminatory standards in the trade rather than in the investment field, see Kurtz, above n 2 at 49. 83 MAI Negotiating Text (1998) above n 25 at pp 77 ff, Chapter VI. 84 Requiring national treatment already in the pre-establishment phase, the provisions within the 1998 MAI Negotiating Text provided investors a de facto right of entry into the host state and, thus, went beyond the majority of the existing BITs. 85 See Kurtz, above n 27 at 229. 86 See the OECD Code of Liberalisation of Capital Movements and the Code of Liberalisation of Current Invisible Operations, available at . 87 See IIASD Model Agreement, above n 46 Art 4(E). Note also that in the Energy Charter Treaty this issue was dealt with by having a separate agreement on the extension of investor and investment protection to the pre-entry stage. To date that agreement has not entered into force. See Energy Charter Treaty Art 10(4), above n 11. See further Energy Charter Treaty Secretariat (1998), Draft Supplementary Treaty to the Energy Charter Treaty, available at .

Multilater al investment rules revisited

145

favour the approach taken by the IIASD Draft Agreement, as it would allow developing countries to decide for themselves when to extend pre-establishment rights to certain sectors in light of their overall developmental and industrial policy objectives.

(v) Performance Requirements, Investment Incentives, and Taxation The MAI draft included provisions regarding performance requirements which to some extent mirrored those contained in the TRIMs Agreement, that is a ban on local content requirement and other requirements which would violate a national treatment obligation and place conditions on the entry or existence of foreign investment. In a number of respects, the disciplines on performance requirements went further than the TRIMs Agreement. However, the MAI draft failed to address two other important issues which have a direct impact on foreign investment, namely investment incentives and taxation. Investment incentives will typically be benefits and sweeteners, whether in cash or in kind, used by governments to attract foreign investors and investment. Frequently, incentives are used to counterbalance performance requirements88 and may cause investors to accept these as part of an overall package comprising both performance requirements and incentives. The main argument against the use of investment incentives is that they may lead to foreign investment going to areas where it is less efficient than would otherwise have been the case, and may ultimately prove a waste of government funds as the local benefits derived from the foreign investment are off-set (or even more than off-set) by the cost to the government of providing the incentive.89 Both performance requirements and incentives are often linked to the industrial policy objectives of a given country, and attempts at limiting their application may often meet staunch resistance. While incentives are disciplined within the European Communities through the applicable state aid disciplines, trade-distorting incentives have yet to be more explicitly disciplined under the WTO Agreements on Subsidies and Countervailing Measures, although there would seem to be ample scope for doing so. It would be advisable for future multilateral investment rules to address not only performance requirements, but also issues relating to taxation and investment incentives. Admittedly, when dealing with countries with a federal structure such as Canada and the USA it may prove difficult to ensure a sufficient degree of discipline for the sub-federal entities. However, that should not prevent the formulation of disciplines at the federal level, which may—eventually—be extended to the subfederal level. 88 Graham, above n 24 at 63, notes that OECD countries also use the combination of performance requirements and incentives. 89 Ibid.

146

stefan d amar asinha and juliane kokott

(vi) Basic Environmental and Labour Standards It is clear that one of the contributing factors to the failure of the MAI was the inability of negotiators credibly and effectively to address the issue of environmental and labour standards.90 Such standards are logical within the new public international law order which aims at creating an objective order, rather than a mere network of reciprocal obligations between states.91 While it may prove unrealistic to agree on more precise substantive standards due to lack of consensus, the authors believe that the creation of soft law standards could serve at least two important objectives, one being to lay the foundations of an eventual substantive, binding standard, the other being their contribution to a sense of corporate responsibility, thereby also creating greater expectations as regards the behaviour of investors. The MAI draft text did not initially include any provisions on labour or environmental standards. Partly in response to extensive lobbying by NGOs and trade unions, some more general language was included in the preamble92 and an additional labour and environment clause93 was proposed. Furthermore, the MAI draft (of 1998) required states not to lower existing environmental and labour standards.94 In addition to this, the non-binding OECD Guidelines for Multinational Enterprises95 were annexed to the draft text. With its very limited provisions on environment and labour standards, the MAI proved incapable of adequately addressing the interlinkages between foreign investment, the environment, and labour standards.96 Although the draft text recognized the existence of some core rights concerning environmental and labour standards, it created no binding obligations for states or investors with respect to those rights. In this regard, the MAI draft (of 1998) lagged far behind other existing international regimes with respect to the treatment of labour rights.97 Likewise, the majority of current BITs contain only marginal (if any) provisions on environmental protection and labour standards. The same is true of Chapter 11 of NAFTA dealing with investment.98 90 See Ferrarini, above n 37 at 12; N Bernasconi-Osterwalder, ‘International Legal Framework on Foreign Investment—Background Paper’ in Seminar on Transnational Enforcement of Environmental Law and International Law on Foreign Investment on 1 May 2004 at Constitution Club, organized by International Law Association 69, 70 (2004); Muchlinski above n 21 at 1050. 91 Cf J Kokott, ‘Naturrecht und Positivismus im Völkerrecht, Sind wir auf dem Wege zu einer Weltverfassung?’ in C Meier-Schatz and R Schweizer (eds), Recht und Internationalisierung, Fg. Zum Juristentag 2000 in St. Gallen (2001) 3 ff. 92 See the 1998 MAI Negotiating Text, above n 25, at p 7, Preamble; there was, however, never consensus among OECD members that language on the environment should appear even in the Preamble. 93 Ibid at p 56 esp n 129. 94 Ibid at p 54, the ‘not lowering labour and environmental standards’ clause. 95 OECD Doc DAFFE/IME above n 71. 96 See L Compa, ‘The Multilateral Agreement on Investment and International Labor Rights: A Failed Connection’, 31 Cornell Int’l LJ 683, 685 ff (1998). 97 For a comprehensive analysis, see ibid at 687 ff. 98 NAFTA Art 1114 allows merely for environmental measures which are ‘otherwise consistent’ with the provisions of Chapter 11.

Multilater al investment rules revisited

147

Additional problems may arise for domestic environmental protection and labour standards in the host State under multilateral investment rules. On the one hand, existing BITs as well as NAFTA Chapter 1199 accord investors protection against expropriation and measures tantamount to expropriation by the host state. In the area of environmental protection this means that an investor may claim compensation where environmental regulation substantially affects the economic value of foreign investors’ property. In the past, some investors have explored such claims as a useful instrument to shield themselves from regulatory measures that would otherwise have an economic impact on their activities.100 Already the mere threat of litigation may deter certain governments from adopting legitimate measures protecting the environment and human health. On the other hand, investors have a legitimate interest in legal certainty and adequate protection. A certain internationalization of basic standards could help both sides and would not necessarily affect investor protection adversely. Existing BITs, NAFTA, and the MAI draft do not contain adequate provisions on basic environmental protection and labour standards. What is more, overly broad and unqualified investment protection provisions in international investment agreements can have negative effects on domestic measures aimed at protecting the environment or establishing minimum labour standards. This is where future multilateral investment rules provide an opportunity to bring about positive change. In addition to ensuring more predictable and stable conditions for foreign investment, the establishment of certain minimum standards binding on states and transnational corporations,101 is a strong argument for negotiating multilateral investment rules which could establish valuable additional rules on foreign investment and the activities of foreign investors. Establishing an international system to ensure respect for fundamental rights is a one-sided interest of neither industrialized countries nor of developing countries, but rather a common, public interest. Future multilateral investment rules present countries with an opportunity to incorporate provisions dealing with environmental protection and core labour standards. In this respect, such rules could help ensure that international investment regulation is coherent with international law in other areas. Moreover, today it could also prove essential to the legitimacy of future multilateral investment rules, at least as regards public opinion in OECD countries, but not necessarily more broadly. However, it has to be taken into account that more lax environmental and labour standards often count among the most important competitive advantages 99 NAFTA Art 1110. 100 See eg Metalclad v The United Mexican States, 30 August 2000, ICSID Case No. Arb(AF)/97/1, 40 ILM 35 (2001); Técnicas Medioambientales Tecmed, SA v United Mexican States, 29 May 2003, Award, ICSID Case No. Arb(AF)/00/2; Methanex v United States, 7 August 2002 (1st Partial Award), UNCITRAL; SD Myers, Inc v Canada, NAFTA Arbitration, 40 ILM 1408 (2001); see also in general Madalena above n 56 at 71. 101 See above sub-section (ii).

148

stefan d amar asinha and juliane kokott

of developing countries.102 Establishing certain international minimum standards could help prevent the risk of a race to the bottom, but at the same time also reduce these advantages. Consequently, environmental and labour standards should be of a more basic and fundamental nature as developing countries have a legitimate interest in competing (within reasonable limits) for foreign investment by offering favourable investment conditions, but not at the expense of basic human rights or the environment.103 Future multilateral investment rules should use a combination of certain binding minimum standards as regards core labour standards and the environment, combined with an obligation for signatories not to lower their standards in any of these areas in an attempt to attract foreign investment.

(vii) Dispute Settlement The MAI draft contained provisions on state-to-state and investor-to-state dispute settlement procedures.104 BITs and other international investment treaties such as NAFTA Chapter 11 allow recourse to arbitration not only for the signatory states but also for investors. Practically all BITs as well as NAFTA confer direct rights on investors to bring claims against signatory states (and investors have frequently done so). Excluding investor–state dispute settlement from future multilateral investment rules would be a ‘clear step backwards’ and would send a negative signal to investors.105 Putting forward the argument that the WTO does not allow trader–state dispute settlement misses the point entirely. Dispute settlement under the WTO is fundamentally different in the sense that it deals with challenges to measures of a systemic nature affecting a range of traders, such as a law, regulation, or practice, whereas investment dispute settlement will typically deal with specific steps taken which affect an individual investor and his investment, such as expropriation of an investment or discriminatory treatment against an investor and/or investment. However, negotiators of any future multilateral investment rules might also consider whether states should not also be allowed to bring certain claims against investors for violations of binding rules, for example on environmental and labour standards. Such a procedure could enhance the enforceability of investors’ obligations under 102 Experience from the WTO has also shown that attempts to include core labour standards as an issue for negotiation met with fierce resistance from developing countries. 103 See eg Report of the UN Working Group on the Right to Development, UN Doc. E/CN.4/2006/26, para 59: ‘The right to development implies that foreign direct investment (FDI) should contribute to local and national development in a responsible manner, that is, in ways that are conducive to social development, protect the environment, and respect the rule of law and fiscal obligations in the host countries. The principles underlying the right to development, as mentioned above, further imply that all parties involved, i.e. investors and the host countries, have responsibilities to ensure that profit considerations do not result in crowding out human rights protection . . .’. 104 MAI Negotiating Text (1998), above n 25 at 63 ff, Chapter V. 105 See R Geiger, ‘Regulatory Expropriations in International Law: Lessons from the Multilateral Agreement on Investment’, 11 NYU Env LJ 94, 105 (2002–3).

Multilater al investment rules revisited

149

the rules and would provide an important and effective instrument for corporate accountability.106 Moreover, it might be considered whether citizens who are somehow directly affected by the actions or inactions of an investor should have the right to bring claims against states and investors.107 This might be the case for employees who believe the minimum labour standards are not being observed, or neighbours who suffer from activities which do not meet environmental standards. Under the IIASD Model Agreement, arbitration proceedings may only be initiated by investors against host states and not vice versa. However, the draft does suggest that a host State may raise breaches of the agreement ‘as an objection to jurisdiction in an investor state proceeding initiated by an investor’. ‘A significant breach of an obligation . . . may vitiate the jurisdiction of a Tribunal’.108 Whether that would be enough to ensure the proper balance between rights and obligations (and their enforceability) is an open question. The MAI draft provided for no fewer than three separate proceedings for investors in dispute resolution.109 NAFTA too provides alternative arbitration options for investors.110 Future multilateral investment rules do not have to confine dispute settlement to one single body, but it would seem desirable that the options to be made available are based on either the WTO Dispute Settlement Understanding (DSU) and/or on key aspects and principles of UNCITRAL, ICC, and ICSID arbitration. These mechanisms are familiar to most and have proven effective. The incorporation of comprehensive investment rules in the WTO would logically suggest the use of the WTO dispute settlement system.111 Some may argue that investment disputes are fundamentally different from trade disputes and that WTO panellists and the members of the Appellate Body normally do not possess the requisite expertise for such disputes. However, there are already examples of the general DSU rules being supplemented by dispute settlement rules specific to a WTO Agreement, such as the possibility of consulting subsidy experts under the Agreement on Subsidies and Countervailing Measures.112 What is more, WTO panels and Appellate Body are already dealing with disputes involving a number of

106 Needless to say, however, just as investors may bring abusive claims against states, so too may states do so against investors. This calls for careful craft ing of any such dispute settlement mechanisms. 107 Such claims by individuals were then likely to take place at a national level, but special international dispute settlement mechanisms may also be provided. 108 IIASD Model Agreement, above n 46, Art 19. 109 See MAI Negotiating Text (1998), above n 25 at 70–6, Chapter V. D. Art 2: the three options were the ICSID, the UN Committee on International Trade Law (UNCITRAL) and the International Chamber of Commerce (ICC). 110 NAFTA Article 1120 offers ICSID and UNCITRAL arbitration. 111 See Sect 4(a) above; for proponents of the WTO as the right forum for multilateral investment rules see above n 48. 112 Art 24.3 calls for the establishment of a Permanent Group of Experts who may be requested to assist a dispute settlement panel.

150

stefan d amar asinha and juliane kokott

very detailed, technical aspects such as sanitary and phytosanitary measures and intellectual property rights. The track-record of WTO dispute settlement shows a high rate of compliance with the rulings of the panels and Appellate Body. An obvious advantage of WTO dispute settlement is the possibility of retaliation or cross-retaliation against a noncompliant WTO member following the expiry of the reasonable period for implementation of the rulings and recommendations of the Dispute Settlement Body of the WTO.113 However, given the purely intergovernmental nature of the WTO, and the prospective nature of WTO dispute settlement remedies as compared with the backward-looking nature of traditional investment arbitration, the introduction of investor–state dispute settlement provisions in any future investment rules would entail a fundamental change to the WTO dispute settlement system.114 This should, however, not necessarily be seen as a decisive argument against multilateral investment rules in the WTO. On the contrary, the inclusion of such rules in the WTO could serve as a first step towards gradually opening the dispute settlement process to private parties in specific and narrowly defined areas, possibly on the basis of an actionis principle limiting claims by investors to certain pre-determined categories.115 Another viable venue for investment dispute settlement is ICSID. The ICSID system provides well-functioning facilities for conciliation and arbitration of disputes between member countries and investors who qualify as nationals of other member countries. The advantage of ICSID dispute settlement lies primarily in the fact that ICSID already has long-standing experience in handling investor–state disputes. The 1998 MAI draft allowed ICSID arbitration as one option for investors.116 However, ICSID does not require open hearings or public access to documents or decision and according to some, the lack of transparency in ICSID proceedings gives investors strong lobbying powers.117 A possible revision of the ICSID procedures in the area of transparency could help enhance the acceptance and legitimacy of ICSID rulings and would be desirable. The IIASD Model Agreement provides for a ‘Dispute Settlement Body’, which resembles a re-engineered WTO Dispute Settlement Body according to the draft. Proceedings before the proposed Dispute Settlement Body shall be open to the 113 See in particular Art 22 of the DSU. 114 It should be noted that before the Cancún Ministerial the USA floated the idea of allowing investor–state dispute settlement for a future WTO investment agreement. Some have (perhaps cynically) noted that this was a deliberate attempt on the part of the USA to kill off the prospect of negotiations. 115 See generally for possible improvements of the WTO dispute settlement system, D McRae, ‘What is the Future of WTO Dispute Settlement?’, 7 JIEL 3 (2004); E-U Petersmann, ‘WTO Negotiators Meet Academics: The Negotiations on Improvements of the WTO Dispute Settlement System’, 6 JIEL 237 (2003). 116 See above n 109. 117 Bernasconi-Osterwalder, above n 90 at 73.

Multilater al investment rules revisited

151

public, and the process shall be open to the submission of amicus curiae briefs.118 Apart from that, the IIASD Model Agreement is not overly innovative and does not, as discussed above, provide for claims by States or affected citizens against investors.

Concluding Remarks Regardless of the answer to the ‘when’ and ‘where’ questions relating to future comprehensive multilateral investment rules, the authors firmly believe that they will inevitably be the subject of forthcoming negotiations and, hence, the long and winding road will have led to a result. The question of which result will by definition depend to a large extent on the ‘when’ and ‘where’, just as it will depend on the development between now and then as regards BITs and other agreements dealing with foreign investment. As noted above, these authors do not believe in a ‘big bang’ theory according to which comprehensive multilateral investment rules will do away with all other existing rules in one fell swoop. Rather, a future agreement could be of a horizontal and general nature, which could also clarify certain issues, for example, the relationship between GATS Mode 3, TRIMs, and BITs, be it through incorporation by reference, creation of a ‘hierarchy of norms’, or other means, as well as adding substantive rules to the existing body of such rules, for example, as regards environment and core labour standards. Finally, an agreement could also break new ground by not only placing actual obligations on investors, but also allowing host countries and affected parties to seek effective enforcement of these obligations. If an agreement accomplishes what is described above, that would constitute a significant—and positive—step forward in terms of ensuring that the law on foreign investment adequately reflects the current trends in terms of subjects of international law and increased accountability of TNCs when acting abroad as foreign investors. As with Genesis, even those discarding Big Bang theory will have to admit that the Earth has evolved tremendously since then. So too should—and could—the law on foreign investment.

Select Bibliography Barutciski, M, ‘In the Eye of the Beholder: A Commentary on Investor Protection under NAFTA’, in AS Alexandroff (ed), Investor Protection in the NAFTA and Beyond: Private 118 Cf Art 43 IIASD Model Agreement, above n 46.

152

stefan d amar asinha and juliane kokott

Interest and Public Purpose (Ottawa, CD Howe Institute, Policy Study 44, The Border Papers, 2006) Böhmer, A, ‘The Struggle for a Multilateral Agreement on Investment—An Assessment of the Negotiation Process in the OECD’, 41 German YB Int’l L 267 (1998) Brewer, TL and Young, S, The Multilateral Investment System and Multinational Enterprises (Oxford, Oxford University Press, 1998) Civello, P, ‘The TRIMS Agreement: A Failed Attempt at Investment Liberalization’, 8 Minnesota J of Global Trade 97 (1997) Clarke, T and Barlow, M, MAI: The Multilateral Agreement on Investment and the Threat to Canadian Sovereignty (Toronto, Stoddard Publishing, 1997) Compa, L, ‘The Multilateral Agreement on Investment and International Labor Rights: A Failed Connection’, 31 Cornell Int’l LJ 683 (1998) De Schutter, O, ‘Transnational Corporations as Instruments of Human Development’, in P Alston and M Robinson (eds), Human Rights and Development—Towards Mutual Reinforcement (Oxford, Oxford University Press, 2005) Deva, S, ‘Human Rights Violations by Multinational Corporations and International Law: Where From Here?’, 19 Conn J Int’l Law 1 (2003) Dolzer, R, and Stevens, M, Bilateral Investment Treaties (The Hague, Martinus Nijhoff, 1995) Duruigbo, EA, Multinational Corporations and International Law: Accountability and Compliance Issues in the Petroleum Industry (Ardsley, NY, Transnational Publishers, 2003) Ferrarini, B, ‘A Multilateral Framework for Investment?’ in SJ Evenett (ed), The Singapore Issues and the World Trading System: The Road to Cancun and Beyond (Berne, Swiss State Secretariat of Economic Affairs/World Trade Institute, 2003) ——, ‘A Multilateral Investment Framework: Would it be Justifiable on Economic Welfare Grounds?’, 58 Aussenwirtschaft 491 (2003) Ganesan, AV, ‘Developing Countries and a Possible Multilateral Framework on Investment: Strategic Options’, 7 Transnational Corporations 1 (1998) Geiger, R, ‘Regulatory Expropriations in International Law: Lessons from the Multilateral Agreement on Investment’, 11 NYU Env LJ 94 (2002–3) Graham, EM, Fighting the Wrong Enemy—Antiglobal Activists and Multinational Enterprises (Washington, Institute for International Economics, 2000) Henderson, D, The MAI Affair: A Story and its Lessons (London, Royal Institute of International Affairs, 1999) Kentin, E, ‘Prospects for Rules on Investment in the New WTO Round’, 29 LIEI 61 (2002) Kokott, J, ‘Interim Report on The Role of Diplomatic Protection in the Field of the Protection of Foreign Investment’, in International Law Association (ILA), Report of the Seventieth Conference, New Delhi (London, ILA, 2002) ——, ‘Sind wir auf dem Wege zu einer Internationalen Umweltorganisation’, in JA Frowein, K Scharioth, I Winkelmann, and R Wolfrum (eds), Verhandeln für den Frieden, Liber amicorum Tono Eitel (Heidelberg, Springer Verlag, 2003) ——, ‘Soft Law Standards under Public International Law, A Contribution on the Effects of the Transformation of International Law on the Sources of International Law’, in P Nobel (ed), International Standards and the Law (Berne, Staempfli, 2005)

Multilater al investment rules revisited

153

Kurtz, J, ‘A General Investment Agreement in the WTO? Lessons Learned from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment’, Jean Monnet Working Paper 6/02 (2002) ——, ‘NGO’s, the Internet and International Economic Policy Making: The Failure of the OECD Multilateral Agreement on Investment’, 3 Melbourne J Int’l L 213 (2002) McRae, D, ‘What is the Future of WTO Dispute Settlement?’, 7 JIEL 3 (2004) Madalena, I, ‘Foreign Direct Investment and the Protection of the Environment: The Border between National Environmental Regulation and Expropriation’, 12 European Env L Rev 70 (2003) Muchlinski, PT, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’, 34 Int’l Law 1033 (2000) Petersmann, E-U, ‘WTO Negotiators Meet Academics: The Negotiations on Improvements of the WTO Dispute Settlement System’, 6 JIEL 237 (2003) Ratner, SR, ‘Corporations and Human Rights: A Theory of Legal Responsibility’, 111 Yale LJ 443 (2001) Riesenfeld, SA, ‘Foreign Investment’, in R Bernhardt and P. Macalister-Smith (eds), 2 EPIL 435 (Amsterdam Elsevier, 1992–2000) Rugman, A, ‘New Rules for International Investment: The Case for a Multilateral Agreement on Investment (MAI) at the WTO’, in C Milner and R Read (eds), Trade Liberalization, Competition and the WTO (Northampton, Mass, Edward Elgar Publishing, 2002) Sauve, P, ‘Scaling Back Ambitions on Investment Rule-Making at the WTO’, 2(3) JWI 529 (2001) ——, and Wilkie, C, ‘Investment Liberalization in GATS’, in P Sauve and RM Stern (eds), New Directions in Services Trade Liberalization (Washington DC, Brookings Institution, 2000) 331 Seidl-Hohenveldern, I, The Corporation in and under International Law (Cambridge, Grotius Publications, 1987) Sidhu, K, ‘Die Regelungen von grenzüberschreitenden Investitionen in der WTO’, 7 Zeitschrift für Europarechtliche Studien (ZEuS) (2004) Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2004) Stoll, P-T and Schorkopf, F, WTO—Welthandelsordnung und Welthandelsrecht (Cologne, Heymanns Verlag, 2nd edn, 2002) van Hecke, G, ‘Contracts between States and Foreign Private Law Persons’, 1 EPIL 814 (1992) Wälde T (ed), The Energy Charter Treaty (The Hague, Kluwer Law International, 1996)

CHAPTER 5

I N T E R AC T IO N S BE T W E E N INVESTMENT AND NONI N V E S T M E N T O B L IG AT IO N S Moshe Hirsch *

(1) Principles of Public International Law

157

(2) International Investment Jurisprudence

163

(a) (b) (c) (d)

SD Myers v Canada SPP v Egypt Santa Elena v Costa Rica TECMED v Mexico

(3) Emerging Principles in International Investment Law (a) (b) (c) (d)

Relevance of Non-investment Treaties Voluntary/Non-voluntary International Obligations The Parties’ Motivations Chronological Sequence of Obligations and Available Information (e) Least Restrictive Measures (f) Sharing the Burden and Measure of Compensation

Concluding Remarks

163 166 168 170

173 173 174 175 176 177 177

178

* I am grateful to Christopher Schreuer, Andrea Bjorklund, and Thomas Walde for valuable comments on earlier drafts. Thanks to Yehuda Herbst for valuable research assistance.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

155

The current wave of increasing investor–state arbitrations under international investment agreements1 is accompanied by a growing overlap between international investment law and international rules derived from other domains of international law. The increasing interaction between investment obligations and environmental, human rights2 or other international obligations brings to the fore a host of questions regarding the relationships between these spheres of international law.3 International investment tribunals have long applied some general rules of public international law (mainly the law of treaties4 as well as rules of state responsibility) but this chapter focuses on the interrelationships between inconsistent substantive standards of behaviour prescribed by international investment law and other branches of international law. This chapter addresses questions relating to the impact of non-investment international obligations in the sphere of international investment law.5 Such questions may arise not only before investment tribunals but also in other international fora, such as the European Court of Human Rights, which has already rendered several decisions regarding foreign investors’ rights.6 The development of regulatory rules that apply to overlapping spheres necessitates striking a balance between the competing rules and aims that lie at the heart of different domains of international law. Consequently, the question of which tribunals will shape the balancing principles may well be of major importance. 1 As reported by UNCTAD, the number of investor–state arbitrations under international investment agreements grew rapidly in recent years, peaking with at least 42 cases launched in the first 11 months of 2005: UNCTAD, Latest Developments In Investor-State Dispute Settlement, IIA Monitor No. 4 (2005) (UNCTAD/WEB/ITE/IIT/2005/2) available at . However, in 2006, 29 new claims were brought, the lowest number of known claims since 2000. This brings the cumulative total of known treaty-based cases to at least 259 by the end of 2006, though this may reflect a change of venue away from the International Centre for Settlement of Investment Disputes (ICSID), which has a public register of cases, towards private arbitration: UNCTAD, Investor-State Dispute Settlement and its Impact on Investment Rulemaking (New York and Geneva, United Nations, 2007) at 7. 2 On the interaction between international human rights and BITs, see, eg Luke Eric Peterson and Kevin R Gray, ‘International Human Rights in Bilateral Investment Treaties and in Investment Treaty Arbitration’ (April 2003), . 3 On the interactions among various international investment agreements, see OECD, Relationships between International Investment Agreements (OECD, Paris, 2004). 4 On the application of the 1969 Vienna Convention on the Law of Treaties by investment tribunals, see Christopher Schreuer, ‘Diversity & Harmonization of Treaty Interpretation in Investment Arbitration,’ 3 Transnational Dispute Management (April 2006), available at . 5 For a discussion on the interactions between the WTO agreements and multilateral environmental treaties, see Michael Trebilcock and Robert Howse, The Regulation of International Trade (London and New York, Routledge, 3rd edn, 2005) at 507–48; Mitsou Matsushita, Thomas Schoenbaum, and Petros Mavoroidis, The World Trade Organization: Law, Practice and Policy (Oxford, Oxford University Press, 2nd edn, 2006) at 785–830; John H Jackson, William Davey, and Alan Sykes, Legal Problems of International Economic Relations (St Paul, Minn, West Group, 2002) at 1006–26. 6 See eg the case of James v United Kingdom at nn 91–3 below.

156

mOSHE HIRSCH

The possible overlap of investment and non-investment obligations, as well as the potential involvement of more than one international institution, is well illustrated in the amicus brief submitted by the Quechan tribe in the ongoing NAFTA litigation between Glamis and the USA.7 Glamis argues that the US and Californian authorities adopted regulatory measures designed to prevent customary open-pit mining methods and block the development of the Glamis mining claims. Glamis argues that the US government, through California’s regulation, has expropriated, or taken, its property in violation of the NAFTA provisions. The Quechan tribe argues that the territory upon which Glamis would have dug its mine is located within the tribe’s sacred areas, and that the US measures are justified under international customary law as well as several treaties. The Quechan people contend that their indigenous rights, which are threatened by possible approval of the Glamis claim, are protected by international instruments, inter alia, the 1966 International Covenant on Civil and Political Rights, the 1972 UNESCO Convention on World Cultural Heritage, the ILO Convention on Indigenous and Tribal Peoples, and the Inter-American Convention on Human Rights.8 As to the possibility that the NAFTA tribunal may rule in favour of Glamis (and that the implementation of this ruling will violate the Quechan people’s rights), the Quechan tribe threatens to file a petition with the Inter-American Commission of Human Rights against the USA.9 It is noteworthy that the interrelationships between international investment and non-investment obligations are not necessarily contradictory. Legal rules deriving from these international spheres often complement and reinforce each other. As 7 See on this dispute, Alison A Ochs, ‘Glamis Gold Ltd.—A Foreign United States Citizen? NAFTA and its Potential Effects on Environmental Regulations and the Mining Law of 1872’, 16 Colorado J Int’l Env L & Policy 495 (2005); Judith Wallace, ‘Corporate Nationality, Investment Protection Agreements, and Challenges to Domestic Natural Resources Law: The Implications of Glamis Gold’s NAFTA Chapter 11 Claim’, 17 Georgetown Int’l Env L Rev 365 (2005). 8 Non-Party Submission, Glamis Gold Ltd v United States of America, Submission of the Quechan Indian Nation, Nature of the Cultural Resources and Sacred Places at Issue in Claim, at 8–9, available at . The Inter-American Court of Human Rights ruled in the Case of the Awas Tingni Community v Nicaragua that the American Convention on Human Rights includes the right of indigenous peoples to the protection of their customary land and resources tenure. The Court held that Nicaragua violated the property rights of the Awas Tingni Community by granting to a foreign firm a concession to log within the Community’s traditional lands and by failing to otherwise provide adequate recognition and protection of the Community’s customary tenure. S James Anaya and Claudio Grossman, ‘The Case of Awas Tingni v. Nicaragua: A New Step in International Law of Indigenous Peoples’, 19 Arizona J Int’l and Comp L 1 (2002). 9 Non-Party Submission, Glamis Gold Ltd v USA, above n 8 at 15. The USA is not a party to the American Convention on Human Rights but the Inter-American Commission of Human Rights is an organ of the Organization of American States. As such, the Commission was granted authority (in 1965) to examine private communications alleging violation of human rights. Since 1980, the Inter-American Commission has heard several complaints against the USA alleging violations of the American Declaration of the Rights and Duties of Man, the American Convention of Human Rights, and of the customary law of human rights. Lori F Damrosch, Louis Henkin, Richard Crawford Pough, Oscar Schacter and Hans Smit, International Law (St Paul, Minn, West, 4th edn, 2001) at 670–1.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

157

discussed below, international investment tribunals may in some cases interpret international investment treaties’ provisions in the light of non-investment treaties. Finally, even where investment and non-investment rules are clearly inconsistent, this conflict may lead not only to a normative determination of which rule trumps the other. Additional legal consequences of such incompatibility may arise with regard to the appropriate remedies (particularly regarding the amount of compensation) or the burden of proof. Encountering inconsistent rules derived from international investment and other branches of international law, tribunals and specialists may draw upon rules included in two legal tool-kits that clarify the interactions of obligations in the interface area: the first set of rules has been developed in the sphere of public international law and the second set of rules emerges from decisions of international investment tribunals. Sections 1 and 2 will examine these sets of distinctive rules.

(1) Principles of Public International Law Public international law includes a coherent body of rules that regulates inconsistencies among international legal rules. International norms that are considered as jus cogens (peremptory norms)10 prevail over all other inconsistent rules of international law.11 Article 53 of the 1969 Vienna Convention on the Law of Treaties (Vienna Convention) further establishes that such a conflicting treaty is void.12 The superior normative status of jus cogens rules13 was recently confirmed by the European Court 10 Art 53 of the Vienna Convention defines rules of jus cogens as follows: ‘For the purposes of the present Convention, a peremptory norm of general international law is a norm accepted and recognized by the international community of States as a whole as a norm from which no derogation is permitted and which can be modified only by a subsequent norm of general international law having the same character’. Vienna Convention on the Law of Treaties 8 ILM 679 (1969). 11 Art 53 of the Vienna Convention, above n 10; Robert Jennings and Arthur Watts, Oppenheim’s International Law (London, Longman, 9th edn, 1996) 7–8; Damrosch et al, above n 9 at 105–6. 12 ‘A treaty is void if, at the time of its conclusion, it confl icts with a peremptory norm of general international law’. Vienna Convention on the Law of Treaties, above n 10. For an extensive analysis of this article, see Alexander Orakhelashvili, Peremptory Norms in International Law (Oxford, Oxford University Press, 2006) at 133–204. 13 See also Conclusions 32–3 of Conclusions of the work of the Study Group on the Fragmentation of International Law, 2006, Adopted by the International Law Commission at its 58th session, in 2006, and submitted to the General Assembly as a part of the Commission’s report covering the work of that session (A/61/10, para 251). The question regarding which rules of international law are considered jus cogens is not settled. The prominent examples that are mentioned in the International Law

158

mOSHE HIRSCH

of Justice (First Instance) in regard to the relationship between certain fundamental human rights (which are considered as peremptory norms) and the provisions of the United Nations Charter: 226. [ . . . ] jus cogens, understood as a body of higher rules of public international law binding on all subjects of international law, including the bodies of the United Nations, and from which no derogation is possible. [ . . . ] 230. International law thus permits the inference that there exists one limit to the principle that resolutions of the Security Council have binding effect: namely, that they must observe the fundamental peremptory provisions of jus cogens. If they fail to do so, however improbable that may be, they would bind neither the Member States of the United Nations nor, in consequence, the Community.14 (Emphasis added)

Unless peremptory rules of international law are involved, Article 103 of the United Nations Charter provides that the Charter’s provisions prevail over other incompatible treaties.15 The special status of the UN Charter’s provisions was affirmed by the International Court of Justice’s decision in the Lockerbie case regarding the relationship between Article 25 of the Charter and the 1971 Montreal Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation: 39. Whereas both Libya and the United Kingdom, as Members of the United Nations, are obliged to accept and carry out the decisions of the Security Council in accordance with Article 25 of the Charter; . . . and whereas, in accordance with Article 103 of the Charter, the obligations of the Parties in that respect prevail over their obligations under any other international agreement, including the Montreal Convention.16 (Emphasis added)

Commission’s Commentary on Article 53 are the unlawful use of force contrary to the principles of the UN Charter, a treaty contemplating the performance of any other act criminal under international law, and a treaty contemplating or conniving at the commission of acts, such as trade in slaves, piracy, or genocide. Yearbook of the International Law Commission (1966, Vol II(2) ) 247–8. See also Dinah Shelton, ‘Normative Hierarchy in International Law’, 100 AJIL 297–319 (2006); DJ Harris, Cases and Materials on International Law (London, Sweet & Maxwell, 6th edn, 2004) 856–8; Damrosch et al, above n 9, at 532–7. 14 Case T-315/01 Kadi v Council of the European Union. See also Case T-253/02 Ayadi v Council of the European Union, at paras 116, 146; Yusuf v Council and Commission of the European Union, at para 277. 15 Art 103 of the UN Charter provides as follows: ‘In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail’. See also Art 30(1) of the Vienna Convention, above n 10. See also Conclusion 34 of the work of the Study Group on the Fragmentation of International Law, 2006, above n 13. 16 Case Concerning Questions of Interpretation and Application of The 1971 Montreal Convention Arising from the Aerial Incident at Lockerbie (Libyan Arab Jamahiriya v United Kingdom), Request for the Indication of Provisional Measures, Order 14 April 1992 (1992) ICJ Reports 3. The European Court of Justice has also accepted the primacy of the UN Charter’s provision over legal obligations arising from treaties establishing the European Union: ‘It has to be added that, with particular regard to Article 307 EC and to Article 103 of the Charter of the United Nations, reference to infringements either of fundamental rights as protected by the Community legal order or of the principles of that legal order cannot affect the validity of a Security Council measure or its effect in the territory of the

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

159

International investment tribunals have extensively cited various provisions of the Vienna Convention but they have not resorted yet to Articles 30 or 53 regarding the primacy of the rules of jus cogens or UN Charter provisions over investment treaties. Still, these well-known principles of public international law may be invoked by parties to future investment disputes. This is particularly true with regard to host states that may attempt to justify the infringement of investors’ rights by invoking their obligation to protect international human rights within their jurisdiction. Since some fundamental human rights are protected by peremptory rules of international law as well as the UN Charter,17 recognizing the superior status of these rules may require future investment tribunals to subject some provisions included in investment treaties to these higher principles of public international law (eg with regard to the prohibition of racial discrimination). The primacy of some international human rights over investment obligations may be invoked not only by host governments but also by foreign investors18 or some NGOs. Thus, for instance, individual investors may invoke the superior status of the above rules with regard to their right to property as well as regarding their right to fair trial. Allegations regarding a conflict between these fundamental human rights and international treaties were given serious consideration by the European Court of Justice (First Instance) in the Kadi case.19 Still, it is important to note that while the normative superiority of rules of jus cogens is not disputed in international law jurisprudence, international tribunals have demonstrated a cautious approach and declined to pronounce any treaty void because of conflict with peremptory norms. Where rules of jus cogens or UN Charter provisions are not involved, different rules regulate the relationships between inconsistent rules of international law. Where the incompatible rules derive from different sources of international law (eg treaty rules v general principles of law), an embedded hierarchy is apparent: treaty and customary rules are regarded as primary sources of international law,20 general

Community . . . ’. Kadi case, above n 14 at para 224. See also Ayadi case, above n 14 at para 116; Yusuf case, above n 14 at para 231. 17 See eg Arts 55 and 56 of the UN Charter. See also, Kadi case, above n 14 at para 228; Damrosch et al, above n 9 at 591–3. 18 The investor in the Biloune case argued that the host government breached the investment agreement and violated his human rights, and claimed damages for both violations. The tribunal ruled that while these human rights violations may be relevant in considering the particular investment dispute, the tribunal lacked jurisdiction to address these violations as an independent cause of action. The tribunal explained: ‘This Tribunal’s competence is limited to commercial disputes arising under a contract entered into in the context of Ghana’s Investment Code. As noted, the Government agreed to arbitrate only disputes “in respect of” the foreign investment. Thus, other matters—however compelling the claim or wrongful the alleged act—are outside this Tribunal’s jurisdiction.’ Biloune v Ghana, 95 ILR 183, 213 (1993). 19 Kadi case, above n 14 at paras 231–3. 20 Jennings and Watts, above n 11 at 24, 36.

160

mOSHE HIRSCH

principles of law are viewed as complementary rules,21 and the judicial decisions and writings of authors are considered as subsidiary sources of international law.22 Consequently, where a legal rule derives from either treaty or custom, it will generally prevail over rules derived from other sources of international law. A more frequent and difficult question arises where the different international rules arise from customary23 and treaty law. Such a contradiction may arise, for instance, where a rule included in an investment treaty is inconsistent with a customary rule regarding environmental protection. Under international law, generally, treaty and custom have equal weight,24 and inconsistencies are regulated by three interrelated principles: (i) lex specialis derogat generali, that is, a specific rule prevails over a general one; (ii) lex posterior derogate priori, that is, a later rule prevails over a prior one; (iii) respecting the parties’ intentions, that is, where the parties intend to replace a rule deriving from one source of international law with another rule included in another source of law (eg replacing a customary rule with a treaty rule), the rule preferred by the parties will prevail.25 The latter principle is illustrated by Article 16 of the 2004 US Model BIT that explicitly regulates the relationship between investors’ rights under the investment treaty and other contracting parties’ international obligations:26 Non-Derogation: This Treaty shall not derogate from any of the following that entitle an investor of a Party or a covered investment to treatment more favorable than that accorded by this Treaty: 1. laws or regulations . . . 2. international legal obligations of a Party . . . .27 (Emphasis added)

Similar regulatory principles apply where the inconsistent rules are included in the same source of international law. Thus, where rules emanating from two (or more) treaties are incompatible, the specific treaty trumps the general one.28 Additional rules regarding the relationships between conflicting treaties are elaborated in 21 Ibid at 40. See also Christoph Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) at 614–16. 22 Art 38(1)(d) of the Statute of the ICJ; Jennings and Watts, above n 11 at 41–2. 23 On the application of international customary law to investment disputes, see Schreuer, above n 21 at 612–13. 24 Damrosch et al, above n 9 at 109. 25 Conclusions 5, 10, and 24 of the work of the Study Group on the Fragmentation of International Law, 2006, above n 13; Damrosch et al, above n 9 at 109. 26 Art 13 of this Model BIT indicates, though in more obscure fashion, that the investment treaty should not derogate from internationally recognized labour rights. 27 Treaty between the Government of the United States of America and the Government of [Country] Concerning the Encouragement and Reciprocal Protection of Investment, 2004, . The term ‘international obligation of a party’ certainly includes obligations derived from international customary law. 28 Paul Reuter, Introduction to the Law of Treaties (London, Kegan Paul International, 1995) at 132–3.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

161

Article 30 of the Vienna Convention. If the two treaties address a subject-matter of a comparable degree of generality, and the parties’ preference in favour of one of the treaties is expressed in the treaty, Article 30(2) directs us to accept the normative order as specified by the contracting parties.29 Thus, for instance, Article 103 of the NAFTA reflects the parties’ intention regarding the relationships between this treaty and the GATT30 (and other agreements): 1. The Parties affirm their existing rights and obligations with respect to each other under the General Agreement on Tariffs and Trade and other agreements to which such Parties are party. 2. In the event of any inconsistency between this Agreement and such other agreements, this Agreement shall prevail to the extent of the inconsistency, except as otherwise provided in this Agreement.31 (Emphasis added)

Similarly, the Energy Charter Treaty,32 the Canadian,33 and US34 model BITs include several provisions that explicitly set out the relationships between investment agreements and other treaties.35 Equally, where the conclusion of a later treaty by the same parties indicates that the contracting parties intended to terminate the prior treaty, Article 59 of the Vienna Convention provides that the prior treaty shall be considered as terminated.36 Where the conflicting treaties do not indicate any precedence, and all the parties to the earlier treaty are parties also to the later treaty, and the earlier treaty is not terminated under Article 59, Article 30(3) of the Vienna Convention applies the lex posterior principle and accords precedence to the later treaty.37 The most intricate question arises where the parties to the two conflicting treaties are not identical; for example, one party is a contracting party to both treaties and 29 Art 30(2) of the Vienna Convention provides as follows: ‘When a treaty specifies that it is subject to, or that it is not to be considered as incompatible with, an earlier or later treaty, the provisions of that other treaty prevail’. 30 On the relationship between the NAFTA and WTO, see Frederick Abbott, ‘The North American Integration and its Implications for the World Trading System’, in Joseph Weiler (ed), The EU, the WTO and the NAFTA: Towards a Common Law of International Trade? (Oxford, Oxford University Press, 2000) 169, 177–93. 31 North American Free Trade Agreement (NAFTA), 32 ILM 289 (1993). 32 See Art 16 of the Energy Charter Treaty, 34 ILM 360 (1995). 33 See eg Annex III of the Canadian Model BIT (regarding the most-favoured principle) and Arts 9(1) and 10(4)(3) of this Model BIT, available at . 34 See eg Arts 13 and 16 of the US Model BIT, above n 27. 35 For additional examples, see OECD, above n 3 at 9–10. 36 Art 59(2) of the Vienna Convention provides that a treaty is terminated, inter alia, where the provisions of the two treaties are so far incompatible and these treaties are not capable of being applied at the same time. 37 Art 30(3) of the Vienna Convention provides as follows: ‘When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation under article 59, the earlier treaty applies only to the extent that its provisions are compatible with those of the latter treaty’. See also Reuter, above n 28 at 132.

162

mOSHE HIRSCH

the other party is a contracting party to only one of them. Article 30(4)(b) of the Vienna Convention provides that: (b) as between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations.

This rule does not set a preference ordering between the incompatible treaties and it does not absolve the contracting party that undertook inconsistent treaty obligations from its obligation to comply with both treaties. This provision leaves the latter party with the choice regarding which treaty to honour and which to breach, and as hinted at in Article 30(5),38 this party is likely to incur international responsibility vis-à-vis the injured party.39 The trigger to the application of the above regulatory rules necessitates a prior determination that the rules deriving from different treaties or sources of international law are inconsistent. Such a determination depends to a significant extent on the interpretation given to the international rules involved; whether they are reconcilable or not. A softer approach that avoids setting hierarchical order between the different legal rules lies in the harmonious interpretation of the relevant treaties. Such an approach strives to interpret one treaty in light of the other treaty or international customary rules. Article 31(3) of the Vienna Convention, which sets out the general principles of treaty interpretation, provides as follows: 3. There shall be taken into account, together with the context: . . . (c) any relevant rules of international law applicable in the relations between the parties.40

It is noteworthy that while the resort to harmonious interpretation of the international rules involved may often avoid the determination of which rule overrules the other, the result is largely similar; in both cases one rule is applied to the particular disputed issue and the other is excluded.41 International investment tribunals frequently resort to various articles of the Vienna Convention but they have not invoked the above regulatory rules, including Articles 30 or 53. This practical disregard may appear even more puzzling in light of the fact that contemporary international investment law does not include a coherent 38 Art 30(5) of the Vienna Convention: ‘Paragraph 4 is without prejudice to article 41, or to any question of the termination or suspension of the operation of a treaty under article 60 or to any question of responsibility which may arise for a State from the conclusion or application of a treaty the provisions of which are incompatible with its obligations towards another State under another treaty’. 39 See also, Reuter, above n 28 at 133–4. 40 On this method of interpretation, see Campbell McLachlan, ‘The Principle of Systematic Integration and Article 31(3)(c) of the Vienna Convention’, 54 ICLQ 279 (2005); International Law Commission, Report on the Work of its Fifty-Seventh Session (2 May to 3 June and 11 July to 5 August 2005, General Assembly, Official Records, 60th Session, Supplement No. 10(A/60/10)) 214–20. 41 Art 1131(1) of the NAFTA also suggests this method of interpretation; See Meg Kinnear, Andrea K Bjorklund, and John FG Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (The Hague, Kluwer Law International, 2006).

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

163

body of rules in this sphere. (The reasons for this intriguing phenomenon will be discussed in the Concluding Remarks below.) The current situation of unawareness may well be changed in the future with regard to some fundamental human rights that are recognized as jus cogens rules under public international law. Parties involved in investment litigation are more likely to invoke the superior status of peremptory norms as a justification for non-compliance with investment obligations. Such arguments are also likely to be raised in the amicus briefs of NGOs. A second set of regulatory rules that may apply to inconsistent international investment and non-investment obligations emerges from a series of decisions of investment tribunals. These decisions are analysed in Section 2.

(2) International Investment Jurisprudence Some questions relating to incompatible international investment and non-investment rules were discussed in several investment awards.42 Unlike the above rules of public international law, contemporary international investment law does not offer a systematic set of rules to be applied to such questions. International investment tribunals that encountered such questions have tended to address these questions in a sporadic manner. Consequently, this section examines these investment awards separately and seeks to trace some systematic principles that emerge from this jurisprudence.

(a) SD Myers v Canada43 This is the most prominent arbitral decision that dealt with inconsistent investment and non-investment treaties. The claimant, SD Myers (‘the firm’), is a US corporation based in Ohio (approximately 100 km south of the US/Canadian border). The firm specialized in the process of polychlorinated biphenyl (PCB) remediation. In order to 42 As noted above, this chapter addresses the interactions between international non-investment international rules and investment law. For a comprehensive examination of the interactions between public health measures (under both domestic and international laws) and international investment law, see Marcos Orellana, ‘Science, Risk, and Uncertainty: Public Health Measures and Investment Disciplines’ Study prepared in the context of the 2004 Hague Academy Seminar on International Investment Law (September 2005). 43 SD Myers v Canada, 40 ILM 1408 (2001).

164

mOSHE HIRSCH

eliminate highly toxic PCBs from the environment, they must be disposed of either through a process of thermal destruction or by chemical processing. Following a decision of the OECD in 1973, the USA and Canada banned future production of PCBs and they also effectively banned the export of PCB waste (but they allowed the export of this product to each other).44 In 1986, Canada and the USA concluded the Transboundary Agreement on Hazardous Waste, which contemplated the possibility of cross-border activity, recognizing that the long common border engendered opportunities for a generator of hazardous waste to benefit from using the nearest appropriate disposal facility.45 In 1989, Canada acceded to the Basel Convention, which deals with international traffic in PCBs and other hazardous wastes. The USA signed but had not ratified the Convention by the relevant time. This global Convention prohibits the export and import of hazardous waste from and to states that are not contracting states46 unless such movement is subject to bilateral, multilateral, or regional agreement.47 Following the signing of the Basel Convention, but before it came into force, the Canadian Federal and provincial ministers responsible for the environment agreed that the destruction of PCBs should be carried out to the maximum extent possible within Canadian borders.48 In 1990, the firm began its attempts to obtain the necessary approval to import equipment containing PCB wastes into the USA from Canada. At that time, the firm became one of the prominent operators of the PCB disposal industry in the USA and it knew it could compete successfully against the Canadian hazardous waste disposal industry. In 1993, Myers Canada was incorporated under the Canadian Business Corporation Act. The Canadian Minister of the Environment stated in 1995 that the Canadian position is ‘that the handling of PCBs should be done in Canada by Canadians’.49 In 1996, following a discussion in Canadian governmental agencies and a lobbying campaign by the Canadian PCB disposal industry, the Canadian environmental agencies issued orders that banned commercial export of PCB for waste disposal. The Canadian–US border was closed for cross-border movement of PCBs for a period of approximately 16 months.50 The firm argued that Canada, by its above orders, breached its obligations under Chapter 11 of the NAFTA, and Canada argued that the firm’s construction of Chapter 11 was inconsistent with its other international obligations, including the Basel Convention and the Transboundary Agreement, and that these treaties prevailed over Chapter 11 obligations.51 Following a review of the evidence, the tribunal 44 Ibid at paras 88–101. 45 Ibid at para 103. 46 Art 4(5) of the Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and their Disposal, 28 ILM 657 (1989). 47 Art 11 of the Basel Convention. See Myers v Canada, above n 43 at para 107. 48 Ibid at para 108. 49 Ibid at para 116. 50 Ibid at paras 118–24. 51 Ibid at para 150.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

165

concluded that Canada’s policy was shaped to a great extent by the desire to protect and promote the market share of enterprises that would carry out the destruction of PCBs in Canada, and that were owned by Canadian nationals.52 The tribunal stated that the Canadian orders favoured Canadian nationals over non-nationals.53 The tribunal examined in detail the relationship between the NAFTA and other international agreements. It cited two of NAFTA’s provisions that instruct the tribunal to apply, inter alia, the rules of international law.54 Following a discussion of Article 31 of the Vienna Convention (regarding treaty interpretation), the tribunal turned to review other international agreements to which the parties adhered. It noted that the 1986 Canada–USA Transboundary Agreement recognized the possibility of achieving both economic efficiencies and the effective management of hazardous waste by cross-border shipments.55 The tribunal also examined the Basel Convention and noted that Article 11 of the Convention expressly allows the parties to enter into bilateral or multilateral agreements for the cross-border movement of waste, provided that these agreements do not undermine the Basel Convention’s rules regarding environmentally sound management.56 The tribunal mentioned that the NAFTA’s drafters took into account that some earlier environmental treaties would prevail over the specific rules of the NAFTA and cited its Article 104: Article 104: Relation to Environmental and Conservation Agreements 1. In the event of any inconsistency between this Agreement and the specific trade obligations set out in: a) the Convention on International Trade in Endangered Species . . . b) the Montreal Protocol on Substances that Deplete the Ozone Layer . . . c) the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal . . . such obligations shall prevail to the extent of the inconsistency, provided that where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement. (Emphasis added)

The tribunal emphasized that even if the Basel Convention were ratified by the NAFTA parties, still, Canada could not be presumed to use it to violate the NAFTA 52 Ibid at para 162. 53 Ibid at para 193. As to the environmental motive, the tribunal found that there was no such reason for introducing the ban, and in so far as there was an indirect environmental objective (keeping the Canadian industry strong in order to assure continued disposal facility), it could have been achieved by other measures. Ibid at para 195. 54 Ibid at paras 197–8. Art 102(2) of the NAFTA provides as follows: ‘The Parties shall interpret and apply the provisions of this Agreement in the light of its objectives set out in paragraph 1 and in accordance with applicable rules of international law’. Art 1131(1) of the NAFTA instructs the tribunal ‘ to decide the issues in dispute in accordance with [the] Agreement and applicable rules of international law’. See on this provision, Kinnear et al, above n 41. 55 Myers v Canada, above n 43, at paras 205–9. 56 Ibid at para 213.

166

mOSHE HIRSCH

provisions because of the limitation mentioned at the end of the above provision.57 The tribunal concluded its analysis with the following statement regarding the interrelationships between NAFTA’s investment provisions and the Basel Convention: . . . where a state can achieve its chosen level of environmental protection through a variety of equally effective and reasonable means, it is obliged to adopt the alternative that is most consistent with open trade. This corollary is also consistent with the language of the case law arising out of the WTO family agreements.58 (Emphasis added)

The Myers case illustrates the cautious approach undertaken by investment tribunals that face arguments regarding inconsistency between investment and non-investment rules. The tribunal scrutinized whether the investment treaty’s provisions are indeed in conflict with the non-investment obligations arising from the Basel Convention and found that such a contradiction does not exist in reality. The tribunal’s application of Article 104 of the NAFTA is consistent with the rule embodied in Article 30(2) of the Vienna Convention that directs us to accept the normative order as specified by the contracting parties. The tribunal also inquired into the motivation that led Canada to issue the relevant orders and it concluded that the real intention was discriminatory. The Myers award also indicates that even where the host state genuinely faces inconsistent international investment and non-investment obligations, its margin of discretion regarding the specific governmental measure is restricted. As the tribunal stated in this decision, where compliance with the non-investment obligation can be achieved through a variety of equally effective means, the host state is required to adopt the course of action that is most consistent with its international investment obligations, that is, the measure that generates minimum harm to foreign investors.

(b) SPP v Egypt59 Unlike the Myers case, the tribunal’s decision in SPP v Egypt involved apparently contradictory obligations undertaken by the host government in the investment agreements and those arising from international treaty. A series of agreements were signed by SPP and Egyptian agencies during 1974–75, under which the investor undertook to develop tourist complexes at the Pyramids area near Cairo and at Ras El Hekma on the Mediterranean coast. During 1976–77, Egypt’s authorities approved the development and construction plans that were submitted by SPP, and 57 Consequently, the tribunal stated that ‘If one of such alternatives were to involve no inconsistency with the Basel Convention, clearly this should be followed’ ibid at para 215. 58 Ibid at para 221. 59 SPP (ME) v Egypt, 19 YB of Comm Arb 51 (1994).

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

167

the construction began in mid-1977.60 The project encountered political opposition in Egypt in late 1977 and the opponents of the project claimed that it posed a threat to undiscovered antiquities.61 In a series of measures adopted by Egyptian agencies during 1978, the relevant area was declared as ‘public property (Antiquity)’ and the previous approvals of the project were cancelled.62 SPP did not challenge Egypt’s right to cancel the project, but it claimed that the cancellation amounted to an expropriation of its investment for which it was entitled to compensation under both Egyptian law and international law.63 As to the question of the applicable law under Article 42 of the ICSID Convention,64 Egypt argued that international law rules can be applied only in an indirect manner, through rules incorporated into the Egyptian law, such as treaties ratified by Egypt and particularly the 1972 UNESCO Convention for the Protection of the World Cultural and Natural Heritage.65 The tribunal ruled in that respect that the UNESCO Convention is relevant since it binds Egypt on the international level.66 Consequently, Egypt contended that the entry into force on 17 December 1975 of the UNESCO Convention ‘made it obligatory, on the international plane, to cancel the Pyramids Oasis Project’.67 SPP argued that Egypt ratified the Convention in early 1974 and thus was aware of its terms when it approved the Pyramids project. SPP further claimed that only nine months after the project was cancelled, Egypt itself nominated the relevant area for inclusion in the World Heritage list under Article 11 of the UNESCO Convention.68 The tribunal examined the UNESCO Convention’s provisions and noted that the World Heritage Committee registers protected property only following a request submitted by the contracting parties.69 The tribunal emphasized that the relevant obligation was not externally imposed on the government of Egypt but rather 60 Ibid at paras 58–61. 61 Ibid at para 62. 62 Ibid at paras 63–5. 63 Ibid at para 158. 64 Art 42(1) of the ICSID Convention provides as follows: ‘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 (including its rules on the conflict of laws) and such rules of international law as may be applicable.’ On this provision, see Schreuer, above n 21 at 549–643; Moshe Hirsch, The Arbitration Mechanism of the International Center for the Settlement of Investment Disputes (The Hague, Kluwer-Nijhoff Publishers, 1993) at 109–53. On applicable law in the law on foreign investment, see Ole Spiermann, ch 3 above. 65 SPP v Egypt, above n 59 at para 76. 66 The tribunal stated in that respect: ‘Nor is there any question that the UNESCO Convention is relevant: the Claimants themselves acknowledged during the proceedings before the French Cour d’Appel that the Convention obligated the Respondent to abstain from acts or contracts contrary to the Convention’. Ibid at para 78. See also Schreuer, above n 21 at 611–12. 67 SPP v Egypt, above n 59 at para 150. 68 Ibid at para 153. 69 Ibid at para 151. Art 11 of the Convention provides: ‘Every State Party to this Convention shall, in so far as possible, submit to the World Heritage Committee an inventory of property forming part of

168

mOSHE HIRSCH

resulted from Egypt’s voluntary activities.70 The tribunal later scrutinized the chronological order of events and concluded that Egypt’s international obligations under the Convention entered into force only after the investment agreements were concluded and after the various permits were issued by Egypt.71 All these findings led the tribunal to reject Egypt’s arguments regarding inconsistency between its obligations under the investment agreements and its obligation under the international Convention. As in the Myers case, facing arguments regarding inconsistent international obligations, the SPP tribunal found it necessary to examine carefully whether the government’s actions that breached the investment agreement were genuinely motivated by the desire to comply with the non-investment treaty. An analysis of the UNESCO Convention led the tribunal to the conclusion that the cancellation of the investment project was not externally imposed on Egypt but rather resulted from Egypt’s voluntary actions.72 This part of the SPP decision indicates that where the non-investment obligation is externally imposed on a party to an investment agreement, this factor is likely to be taken into account by investment tribunals. The tribunal also carefully examined the time sequence of the conflicting obligations; the investment agreements and the international treaty. An examination of the chronological order demonstrated that the international obligation entered into force only after the investment agreements were concluded and after the various permits were approved by Egypt.

(c) Santa Elena v Costa Rica73 This arbitral award focused on the obligation of and measure of compensation in cases of expropriation motivated by international non-investment obligations.74 In 1970, a group of investors (mainly from the USA) formed the Santa Elena corporation in Costa Rica, with the intention of purchasing the property known as Santa Elena, in order to develop it as a tourist resort and residential community. After acquiring the cultural and natural heritage, situated in its territory and suitable for inclusion in the list provided for in paragraph 2 of this Article . . . ’. 70 Ibid at para 154. 71 The tribunal stated in this respect: ‘The Tribunal’s determination that the Claimants’ activities on the Pyramids Plateau would have become internationally unlawful in 1979, but not before that date, has significant consequences in other respects which are discussed below (paragraphs 192–193)’. Ibid at para 157. 72 Involuntary international obligations may arise, for instance, from some resolutions of the UN Security Council or some rules of international customary law. 73 Santa Elena v Costa Rica, 15 ICSID Review–FILJ 169 (2000). 74 On this case, see also Charles N Brower and Jarrod Wong, ‘General Valuation Principles: The Case of Santa Elena’, in Todd Weiler (ed), International Investment Law and Arbitration (London, Cameron May, 2005) at 747.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

169

the property, the investors proceeded to design a land development programme and undertook various financial and technical analyses. On 5 May 1978 the government of Costa Rica issued an expropriation decree for the property, citing conservation objectives regarding the flora and fauna in the region. The investors did not object to the expropriation but contested the amount of compensation offered by the government.75 Consequently, the tribunal’s decision focused on the measure of compensation to be paid to the investors.76 As to the impact of the environmental concerns that motivated the expropriation on the duty of compensation, the tribunal stated: While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose, and thus may be legitimate, the fact that the property was taken for this reason does not affect either the nature or the measure of compensation to be paid for the taking. That is, the purpose of protecting the environment for which the property was taken does not alter the legal character of the taking for which adequate compensation must be paid. The international source of the obligation to protect the environment makes no difference.77 (Emphasis added)

The tribunal refused to examine the evidence submitted by Costa Rica concerning its international obligations to preserve the confiscated property.78 As to international obligations regarding environmental protection, the tribunal added: Expropriatory environmental measures—no matter how laudable and beneficial to society as a whole—are, in this respect, similar to any other exproriatory measures that a state may take in order to implement its policies: where property is expropriated, even for environmental purposes, whether domestic or international, the state’s obligation to pay compensation remains.79 (Emphasis added.)

This arbitral award relates to the obligation of compensation following expropriation as well as the measure of compensation for expropriation. Unlike the tribunals’ awards in the Myers and SPP cases, which examined in detail the relevant non-investment treaties, the tribunal here categorically refused to examine the evidence concerning the host state’s obligation under international non-investment law. The tribunal emphasized that the source of the environmental obligation that motivated the expropriation, whether domestic or international, does not alter the government’s duty to compensate the investor. Similarly, the host state’s international obligations do not affect the amount of compensation. These sweeping statements of the Santa Elena tribunal do not necessarily reflect the current law regarding expropriation of

75 Santa Elena v Costa Rica, above n 73 at paras 15–21. 76 Ibid at para 55. 77 Ibid at para 71. 78 The tribunal stated in n 32: ‘For this reason, the Tribunal does not analyze the detailed evidence submitted regarding what the Respondent [government of Costa Rica] refers to its international legal obligation to preserve the unique ecological site that is the Santa Elena Property’. Ibid at para 171. 79 Ibid at para 72.

170

mOSHE HIRSCH

foreign investors’ property.80 And if these statements reflect the existing law, the question is whether these unequivocal rulings are relevant only to expropriatory measures or also to violations of other investors’ rights (such as national treatment or fair and equitable treatment). The text of the Santa Elena award, the sweeping language of the above statements regarding the non-relevance of states’ international obligations, as well as other decisions of investment tribunals,81 point out that that the scope of these broad statements is confined to expropriations. This is particularly true with regard to the measure of compensation, for which tribunals generally have a much larger measure of discretion.82

(d) TECMED v Mexico83 The TECMED case does not directly involve international non-investment obligations but the decision cites with approval the above central statement of the tribunal in the Santa Elena case and clarifies its content. In addition, the TECMED decision sheds light on several factors that are highly relevant to the conflict between investment and non-investment obligations on the international level. At the heart of the dispute was the decision of Mexico’s environmental agency not to renew the permit of the Spanish investor to operate a landfill of hazardous waste, citing, inter alia, environmental factors. The investor argued that this governmental measure violated 80 The recent Saluka and Methanex awards suggest that states are not bound to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt nondiscriminatory regulations aimed to promote the general welfare. The arbitral tribunal in the Saluka case stated as follows: ‘262. In the opinion of the Tribunal, the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are “commonly accepted as within the police power of States” forms part of customary international law today’. Saluka v the Czech Republic (Partial Award, 17 March 2006), . The Methanex tribunal states in that regard: ‘7. . . . But as a matter of general international law, a nondiscriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation’. Methanex v USA (Final Award on Jurisdiction and Merit, 3 August 2005), Part IV, Chapter D, para 7, ; 44 ILM 1343 (2005). On the rules applying to expropriation of foreign investors’ property, see Reinisch, ch 11 below. 81 As is further clarified in the TECMED case (see next sub-section), the context of this blanket refusal of the tribunal to examine the international legal obligation seems to lie in the severe consequences of expropriation on investors. 82 See further Wälde and Sabahi, ‘Compensation, Damages, and Valuation’, ch 26 below. See also the TECMED tribunal’s statement that arbitral tribunals may consider general equitable principles when considering the issue of compensation. TECMED v Mexico, 43 ILM 133, para 184 (2004) and see the references therein. See also John Gotanda, ‘Recovering Lost Profits in International Disputes’, 16 Georgetown J Int’l L 1 (2004). 83 TECMED v Mexico, above n 82.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

171

the conditions on which it made its investment as well as the 1996 BIT between Spain and Mexico84 and that it constituted an expropriation.85 Mexico contended that its environmental agency’s decision arose from the negative attitude of the local community with regard to the way the investor performed its task.86 Mexico argued that this decision is a legitimate regulatory action in the sensitive sphere of environmental protection and that it does not amount to an expropriation.87 When the tribunal examined whether the Mexican decision not to renew the permit was a measure equivalent to an expropriation under Article 5(1) of the BIT, the tribunal stated: After reading Article 5(1) of the Agreement and interpreting its terms according to the ordinary meaning to be given to them (Article 31(1) of the Vienna Convention), we find no principle stating that regulatory administrative actions are per se excluded from the scope of the Agreement, even if they are beneficial to society as a whole—such as environmental protection—particularly if the negative economic impact of such actions on the financial position of the investor is sufficient to neutralize in full the value, or economic or commercial use of its investment without receiving any compensation whatsoever. It has been stated [in the Santa Elena case] that: ‘Expropriatory environmental measures—no matter how laudable and beneficial to society as a whole—are . . . similar to any other expropriatory measures . . . . ’88 (Emphasis added)

This paragraph cites the central statement from the Santa Elena decision in the context of the severe damage incurred by investors because of expropriation. This statement reinforces the above conclusion that the Santa Elena tribunal’s sweeping refusal to examine the non-investment treaty is confined to the particular context of expropriation.89 Following this statement, the TECMED tribunal turned to consider whether the decision undertaken by the Mexican agency was reasonable and proportional with respect to its goals. The tribunal emphasized here the allocation of costs between the local population and the foreign investor: [I]t should be also considered that the foreign investor has a reduced or nil participation in the taking of the decisions that affect it, partly because the investors are not entitled to exercise political rights reserved to the nationals of the states, such as voting for authorities that will issue the decision that affect such investors.90

And regarding the particular vulnerability of foreign investors to bear an excessive share of the burden involved in the realization of public aims, the tribunal cited with approval the Judgment of the European Court of Human Rights in James v UK. The requisite balance will not be found if the person concerned has had to bear: 84 85 86 87 88 89 90

Ibid at para 40. Ibid at para 41. Ibid at para 49. Ibid at para 97. Ibid at para 121. See the discussion of the Santa Elena case at Sect 2(c) above. TECMED v Mexico, above n 82 at para 122.

172

mOSHE HIRSCH

an individual and excessive burden91 . . . . Especially as regards a taking of property effected in the context of a social reform, there may well be good grounds for drawing a distinction between nationals and non-nationals as far as compensation is concerned. . . . non-nationals are more vulnerable to domestic legislation: . . . although a taking of property must always be effected in the public interest, different considerations may apply to nationals and nonnationals and there may well be legitimate reason for requiring nationals to bear a greater burden in the public interest than non-nationals.92 (Emphasis added.)

This citation93 highlights the fundamental difference between foreign investors and the host state’s population, both with regard to the investors’ reduced ability to influence the relevant measure that harms their interests as well as their particular vulnerability to domestic measures. These differences suggest that the host state’s population should bear a greater share of costs involved in the implementation of domestic measures.94 The TECMED tribunal carefully examined whether the investor had the knowledge of—or could reasonably foresee—the domestic regulations that would eventually lead to the closure of the landfill. The tribunal concluded that, at the time when the investment was made, the investor had no reason to doubt the lawfulness of the landfill’s location and that it was not negligent upon analysing the legal issues related to the landfill’s location.95 As to the opposition of some groups in Mexico to the location of the landfill, the tribunal ruled that the investor could not have reasonably foreseen this factor and its effects.96 The tribunal linked this finding regarding the investor’s knowledge and its legitimate expectations to the principle of fair and equitable treatment that was also included in the Mexican–Spanish BIT.97 The tribunal observed that this principle requires the host state to act in a consistent and transparent manner, so that the investor knows beforehand all rules and regulations that will govern its investment, in order to be able to plan its investment.98 Applying this principle to the relevant facts, the tribunal concluded that the investor could reasonably have trusted, on the basis of existing agreements, and the good faith principle, that the permit to operate the landfill would continue.99 Consequently, the tribunal ruled that the Mexican 91 James and Others v The United Kingdom, [1986] European Court of Human Rights 2 (21 February 1986) at para 50. 92 Ibid. 93 This statement of the European Court of Human Rights was cited with approval by the Azurix tribunal, see Azurix v Argentina (2006) at paras 311–12. 94 See also Thomas Wälde and Abba Kolo, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’, 50 ICLQ 811 (2001) at 845. 95 TECMED v Mexico, above n 82 at para 141. 96 Ibid at para 149. 97 According to Art 4(1) of the BIT, ‘Each Contracting Party will guarantee in its territory fair and equitable treatment according to international law, for the investments made by investors of the other Contracting Party’. As cited in TECMED v Mexico, ibid at para 152. 98 Ibid at para 154. 99 Ibid at para 161.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

173

agency’s measure was not consistent with the fair and equitable principle that was prescribed by Article 4(1) of the BIT.100 The tribunal’s statements regarding the knowledge and reasonable expectations of the investor (which are protected by the fair and equitable principle) may be of major importance to the relationships between investment and non-investment obligations. Applying the above principle to inconsistent international obligations leads to emphasizing the knowledge and reasonable expectations of investors regarding non-investment obligations at the time the investment was made.

(3) Emerging Principles in International Investment Law As discussed above, international investment tribunals that encountered arguments regarding inconsistencies between international investment and non-investment rules have not drawn on the public international law principles that address such questions. While investment tribunals frequently resort to various provisions of the Vienna Convention on the Law of Treaties, they have not referred in such cases to Articles 30 or 53 that lay out detailed rules regarding inconsistent treaties.101 Investment tribunals have opted to develop their own rules in a sporadic manner and have not attempted to lay out a coherent set of regulatory principles, thus providing specific answers to the particular questions that arise in each case. This section aims to discuss in a systematic manner some general principles that arise from this non-systematic jurisprudence. It is noteworthy to emphasize here that the following analysis is based on four arbitral awards and they do not establish binding precedents. These considerations led us to trace ‘emerging principles’ arising from these decisions and not setting out definitive rules in this complicated sphere.

(a) Relevance of Non-investment Treaties Most investment tribunals that faced arguments regarding inconsistencies between investment obligations and non-investment treaties did not hesitate to examine carefully the non-investment treaty’s provisions. The detailed examination of 100 Ibid at para 166; see also at paras 167–74. 101 Though, as discussed in Sect III(1) some part of the Myers award is consistent with the rule embodied in Art 30(2) of the Vienna Convention.

174

mOSHE HIRSCH

non-investment instruments aimed to find whether the relevant international instruments contradicted each other. This approach was undertaken by the tribunals in the Myers and SPP cases.102 This rule is subject to two exceptions regarding compensation for expropriation and the tribunal’s substantive jurisdiction. The tribunal in Santa Elena categorically refused to examine the host state’s obligations under non-investment treaties. But, as analysed in Sections 2(c) and (d), this sweeping position of the Santa Elena tribunal is confined to the obligation of the host state to compensate foreign investors for expropriated property.103 The TECMED award, which cites this statement of the Santa Elena tribunal, clearly shows that the context of the Santa Elena tribunal’s blanket refusal to examine the international legal obligation lies in the severe consequences of expropriation for investors. This conclusion is also confirmed by the Siemens award in which the tribunal rejected Argentina’s argument that following the jurisprudence of the European Court of Human Rights, the compensation for expropriation should be reduced.104 A similar approach was undertaken by tribunals that faced arguments regarding non-investment obligations in the context of their jurisdiction. The tribunals in the Biloune and Channel Tunnel cases refused to inquire into human rights treaties and explained that their jurisdiction is limited to disputes arising from the relevant investment instruments or state legislation.105 Consequently, it is possible to conclude that facing arguments regarding incompatible investment and non-investment obligations deriving from international law, investment tribunals are required to examine the source of the relevant noninvestment obligation (eg treaty or customary law) and determine whether such an inconsistency exists. This rule does not apply to the duty of the host state to compensate investors for expropriated property or to the measure of compensation for expropriation as well as the substantial jurisdiction of the relevant tribunals.

(b) Voluntary/Non-voluntary International Obligations A determination that investment and non-investment obligations are inconsistent does not necessarily justify non-compliance with investment duties. Where the host 102 See eg the statement of the SPP tribunal regarding the relevance of the 1972 UNESCO Convention: ‘Nor is there any question that the UNESCO Convention is relevant . . . ’. SPP v Egypt, above n 59 at para 78. 103 As discussed above, the sweeping statements of the Santa Elena tribunal regarding the duty of compensation do not necessarily reflect the current law regarding expropriation of foreign investors’ property. See Sect 2(c). 104 Siemens v Argentina (2007), para 354 available at . 105 Biloune v Ghana, above n 18 at para 213. The Channel Tunnel Group Limited v United Kingdom and France, Partial Award, 30 January 2007, at paras 151–3, available at .

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

175

state voluntarily undertook the non-investment international obligation after the obligation vis-à-vis the investor had been undertaken, the host state would not be absolved from its investment obligation. This rule arises from the SPP case where the tribunal emphasized that Egypt’s obligation under the UNESCO treaty was not externally imposed on the host state but rather resulted from its own voluntary activities.106 This award indicates that if the non-investment obligation is externally imposed on a party, investment tribunals will be more inclined to take the nonvoluntary obligation into account, either with regard to the determination of such party’s legal obligations or regarding the appropriate remedy (eg measure of compensation). Obviously, this rule will not apply to non-binding international rules (eg recommendations of international bodies).

(c) The Parties’ Motivations The Myers tribunal examined not only the relevant international instruments but also the motivation that led Canada not to comply with its investment obligations. The tribunal found that the real motivation in this case was discriminatory. A similar approach was undertaken by the tribunals in the SPP107 and the International Bank of Washington108 cases. In light of the examinations made by investment tribunals of the normative consistency/inconsistency between the involved international obligations, as well as the host state’s genuine intention, a question arises regarding the relationship between these two factors. It is clear that where the relevant international obligations are consistent and the government’s genuine intention is discriminatory (as found in the Myers case) the non-investment treaty cannot justify violation of investment obligations. The more difficult question, however, arises where the international obligations involved are inconsistent but the real intention of the party that breaches its investment obligation is discriminatory. Is the normative inconsistency alone sufficient to justify the violation of the investment treaty? In light of the importance of the prohibition against discrimination of foreign investors in international 106 See Sect 2(b). 107 The tribunal’s analysis of the facts regarding Egypt’s choice of sites to be protected under the UNESCO Conventions seems to trace the genuine intentions of Egypt. See SPP v Egypt, above n 59 at para 154. 108 The tribunal in this case also dealt with conservation measures (regarding forestry but not arising from international treaty). The crucial question in this case was whether the forestry decrees issued by the Dominican Republic agencies, which interrupted the investor’s operations, amounted to expropriatory action. As in the Myers case, the tribunal carefully examined the facts regarding the host state’s intention and concluded that the relevant ‘regulations were aimed at a genuine concern with forestry conservation, and not discriminatory in application . . . ’. International Bank of Washington v OPIC, 11 ILM 1216 (1972) at 1227. The tribunal concluded that the government’s conservation measures were not expropriatory actions.

176

mOSHE HIRSCH

investment law (the national treatment principle),109 it seems that if the decision to breach the investment obligation is significantly tainted by discriminatory motive, this factor alone is sufficient to render the breach unlawful.

(d) Chronological Sequence of Obligations and Available Information The SPP tribunal scrutinized the chronological order of the inconsistent obligations involved and concluded that Egypt’s obligation under the UNESCO Convention entered into force after the investment obligations were undertaken vis-à-vis the investor. Consequently, the tribunal rejected Egypt’s contentions regarding inconsistent obligations.110 A careful examination of the TECMED case, as well as general principles of international investment law, however, reveals that the earlier obligation does not automatically prevail over later obligations. The ‘critical date’ is the time when the investment obligation was undertaken, and this stage is closely linked to the available information at that date. The TECMED tribunal carefully inspected whether the investor had the knowledge of (or could reasonably forecast) the environmental regulations that would eventually lead to the termination of its activities. As other investment tribunals have done, the TECMED tribunal linked this factor to the principle of fair and equitable treatment.111 This analysis indicates that where the non-investment treaty entered into force after the investment obligation was made, and the investor did not have the information regarding the future international obligation (and could not reasonably forecast this future obligation) at that time, investment tribunals will be inclined to protect the investor’s legitimate expectations at this critical period. The need to enable foreign investors to adopt informed decisions on whether to commit their capital in a 109 On the national treatment principle in international investment treaties and its ramifications, see eg UNCTAD, World Investment Report 2003, FDI Policies for Development: National and International Perspectives (New York and Geneva, United Nations, 2003) at 102; M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) at 233–6; Peter T Muchlinski, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) ch 16. 110 See Sect 2(b). 111 See eg Metalclad v Mexico, 40 ILM 36, at paras 76 and 99 (2001); Pope & Talbot v Canada (Award in respect of damages) available at . On the principle of fair and equitable treatment, see Sornarajah, above n 109 at 235–6, 332–9; Muchlinski, above n 109, and see ch 1 above, Wälde and Sabahi, above n 82. On the role of legitimate expectations and legal certainty in international investment law, see Thunderbird v Mexico, at paras 74–5, available at ; and see the comprehensive analysis of this topic in the Separate Opinion, at 17–43, available at ; Saluka v Czech Republic, above n 80, at paras 300–8, 420–5; Andreas Lowenfeld, International Economic Law (Oxford, Oxford University Press, 2002) at 475–6.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

177

particular host state112 justifies this conclusion. Equally, where the investor knew about the existing non-investment obligation (or could reasonably expect the emergence of the future non-investment obligation), the inclination would be to protect the host state’s interest to comply with its international obligations.

(e) Least Restrictive Measures Where a host state encounters inconsistent obligations and is allowed to comply with its non-investment obligation, its measure of discretion regarding the specific course of action vis-à-vis the investor is limited. As the Myers tribunal ruled (following Art 104 of the NAFTA), the host state is bound to choose the alternative that is the least inconsistent with its investment obligations. Thus, if one of the alternative options available to the host state under the non-investment treaty does not involve a breach of the investment obligations, the state is obliged to adopt that alternative. And where all alternatives involve some breach of investment obligations, the host state must choose the course of action that generates the least harm to the investor’s interests.

(f) Sharing the Burden and Measure of Compensation Questions regarding the appropriate division of costs involved in compliance with non-investment obligation may arise at various stages of litigation, and particularly when the tribunal assesses the quantum of compensation. Where the host state violates its investment obligations in order to comply with international non-investment obligations, which party should bear the costs involved? The Santa Elena decision indicates that where expropriation or taking is involved, the fact that the property was expropriated because of international obligations does not affect the measure of compensation. As discussed above, these sweeping statements of the Santa Elena tribunal do not necessarily reflect the current law regarding expropriation of foreign investors’ property.113 Where the investor’s rights are breached by non-expropriatory measures (eg discriminatory actions), less dichotomist divisions are possible. Generally, the amount of compensation to be paid by the host state may be affected by various circumstances, and investment tribunals have a significant measure of discretion in this sphere. Thus, for instance, the amount of compensation could be reduced where both the host state and the foreign investors did not know and could not reasonably 112 Wälde and Kolo, above n 94 at 819. 113 See Sect 2(c).

178

mOSHE HIRSCH

forecast at the time of the investment agreement the future emergence of new and binding international obligations. But even in such cases, some basic features that characterize investment relations suggest that in most cases the host states will have to bear a significant share of the costs involved. Generally, where the general population of the host state draws the main benefit from compliance with non-investment obligations, it is desirable that the host state bears a considerable portion of the costs of compliance.114 In addition, as the TECMED tribunal emphasized, foreign investors generally have a reduced or nil participation in the political decision-making processes that affect their investments. This feature is also valid with regard to the extent of the influence of investors on a national decision whether to join a particular treaty, or the measure of their influence on the emergence of international customary rules. These asymmetric relationships115 suggest that in many cases the host state would have to bear a considerable or significant part of the costs involved in compliance with non-investment obligation.

Concluding Remarks The accelerated proliferation of international investment agreements, the growing number of treaties in other international domains, and the increase of investor– state arbitrations enhance the prospects of overlap between investment and noninvestment obligations. The interactions between international-investment and non-investment obligations may be controlled by two main sets of rules: the relatively well-developed principles of public international law or the nascent body of rules emerging from international investment jurisprudence. As analysed in Section 2, investment tribunals have generally not resorted to the relevant principles of public international law. This practical disregard for the regulatory rules of general international law stands in stark contrast to the extensive reliance of investment tribunals on other rules of the Vienna Convention on the Law of Treaties. This current unawareness of investment tribunals may well change in the future with regard to fundamental human rights that are recognized in public international law as jus cogens rules. Parties involved in investment litigation (including NGOs) are

114 See Wälde and Kolo, above n 94 at 845–6. 115 On additional asymmetric features of investment relations, see Thomas W. Wälde, International Investment Law: Key Issues, Report of the 2004 Research Seminar on International Investment Law 12 ff. (Hague Academy of International Law, September 2005).

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

179

likely to invoke the superior status of peremptory norms as a justification for noncompliance with investment obligations. The reasons for the divergence between international-investment and public international law116 may lie, inter alia, in the different aims of the branches of international law involved as well as in the distinctive characteristics of investment relations. While the regulatory rules of public international law in this sphere are quite neutral regarding the branches of international law concerned, investment tribunals generally strive to advance the basic goal of investment law, primarily increasing the flow of foreign investments. Public international law accords preference to fundamental human rights and rules related to international peace and security (via the concept of jus cogens and Art 103 of the UN Charter) but investment tribunals hardly deal with such superior norms of international law. The second factor that may explain the divergence relates to the fundamentally different features of investment relations. While the underlying assumption of public international law is sovereign equality, the legal relationships between host states and foreign investors are clearly asymmetric. Host states are in a superior position to influence the content of the domestic law and the relevant norms of international law (particularly with regard to treaties).117 These structural differences (and others) have led investment tribunals to grant precedence to the contractual or consensual rules that have been agreed upon by host states and investors. Following the contractual stage, and during most stages of the implementation of the investment agreement, the superior position of the host state regarding influence upon the content of both domestic and international law is glaring. Consequently, investment tribunals are inclined to emphasize the obligations included in the investment agreement and the circumstances prevailing at this critical stage, such as the information available to both parties in this phase.118 As analysed in the preceding sections, investment tribunals have addressed arguments regarding inconsistencies between the investment agreement and noninvestment law in a very cautious (and even suspicious) manner. Thus far, no investment tribunal has absolved a host state from its investment obligations, or significantly reduced its responsibility to compensate the injured investor in such cases.119 116 For an extensive discussion on the divergence between investment law and international human rights and environmental laws, see Moshe Hirsch, ‘Confl icting Obligations in International Investment Law: Investment Tribunals Perspective’ in Y Shany and T Broude (eds), Sovereignty, Supremacy, Subsidiarity: The Shifting Allocation of Authority in International Law (Oxford, Hart, forthcoming). On the wider question regarding the autonomous or integrationist interrelationships between international economic law and other branches of international law, see Moshe Hirsch, ‘Rethinking the Table of Contents of International Law: Social Theory and Normative Implications for International Economic Law’, Paper submitted to the Institute for International Law & Justice Colloquium, NY University School of Law (April 2005). 117 See eg Hirsch, above n 64 at 133–4. 118 Foreign investors’ legitimate expectations may also derive from the host state’s legislation and such expectations may also deserve legal protection. 119 For a criticism of this approach to investment tribunals, see M Sornarajah, ‘The Clash of Globalizations and the International Law on Foreign Investment’ (The Norman Paterson School of

180

mOSHE HIRSCH

The nascent principles that emerge from investment tribunals’ jurisprudence do not form a coherent and comprehensive body of rules that clarify the relationships between investment and non-investment obligations. The contemporary treatment of these questions by investment tribunals is rather scattered and the law in this sphere is still in a formative period. Future investment awards and investment treaties may have to further clarify the legal rules applying to this intricate sphere of international investment law, especially in the face of the possibility, alluded to above, of increased argumentation about the primacy of non-investment obligations in given cases.

Select Bibliography Abbott, Frederick, ‘The North American Integration and its Implications for the World Trading System’, in J Weiler (ed), The EU, the WTO and the NAFTA: Towards a Common Law of International Trade? (Oxford, Oxford University Press, 2000) Anaya, SJ, and Grossman, C, ‘The Case of Awas Tingni v. Nicaragua: A New Step in International Law of Indigenous Peoples’, 19 Arizona J Int’l & Comp L 1 (2002) Brower, CN and Wong, J, ‘General Valuation Principles: The Case of Santa Elena’, in T Weiler (ed), International Investment Law and Arbitration (London, Cameron May, 2005) Damrosch, Lori F, Henkin, Louis, Pough, Richard Crawford, Schacter, Oscar, and Smit, Hans, International Law (St Paul, Minn, West, 4th edn, 2001) Gotanda, John, ‘Recovering Lost Profits in International Disputes’, 16 Georgetown J Int’l L 61 (2004) Harris, DJ, Cases and Materials on International Law (London, Sweet & Maxwell, 6th edn, 2004) Hirsch, Moshe, The Arbitration Mechanism of the International Center for the Settlement of Investment Disputes (The Hague, Kluwer-Nijhoff Publishers, 1993) ——, ‘Rethinking the Table of Contents of International Law: Social Theory and Normative Implications for International Economic Law’, Paper submitted to the Institute for International Law & Justice Colloquium, NY University School of Law (April 2005) ——, ‘Conflicting Obligations in International Investment Law: Investment Tribunals Perspective' in Y Shany and T Broude (eds), Sovereignty, Supremacy, Subsidiarity: The Shifting Allocation of Authority in International Law (Oxford, Hart, forthcoming) Kinnear, Meg, Bjorklund, Andrea K, and Hannaford, John FG, Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (The Hague, Kluwer Law International, 2006) McLachlan, Campbell, ‘The Principle of Systematic Integration and Article 31(3)(c) of the Vienna Convention’, 54 ICLQ 279 (2005) Matsushita, Mitsou, Schoenbaum, Thomas, and Mavroidis, Petros, The World Trade Organization: Law, Practice and Policy (Oxford, Oxford University Press, 2nd edn, 2006) International Affairs, Ottawa, 2002), available at ; Orellana, above n 42.

iNVESTMENT AND NON-INVESTMENT OBLIGATIONS

181

Muchlinski, P, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) Ochs, Alison A, ‘Glamis Gold Ltd.—A Foreign United States Citizen? NAFTA and its Potential Effects on Environmental Regulations and the Mining Law of 1872’, 16 Colorado J. Int’l Env. L. & Policy 495 (2005) OECD, Relationships between International Investment Agreements (Paris, OECD, 2004) Orakhelashvili, Alexander, Peremptory Norms in International Law (Oxford, Oxford University Press, 2006) Orellana, Marcos, ‘Science, Risk, and Uncertainty: Public Health Measures and Investment Disciplines’, Study prepared in the context of the 2004 Hague Academy Seminar on International Investment Law (September 2005) Reuter, Paul, Introduction to the Law of Treaties (London, Kegan Paul International, 1995) Schreuer, C, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) Shelton, Dinah, ‘Normative Hierarchy in International Law’, 100 AJIL 297 (2006) Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2004) Trebilcock, Michael, and Howse, Robert, The Regulation of International Trade (London and New York, Routledge, 3rd edn, 2005) Wälde, Thomas and Kolo, Abba, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’, 50 ICLQ 811 (2001) Wallace, Judith, ‘Corporate Nationality, Investment Protection Agreements, and Challenges to Domestic Natural Resources Law: The Implications of Glamis Gold’s NAFTA Chapter 11 Claim’, 17 Georgetown Int’l Env L Rev 365 (2005)

chapter 6

T R A DE A N D INVESTMENT* Friedl Weiss

(1) Historical Background

183

(2) Abortive Multilateral Approaches: OECD and WTO Experience

188

(3) Investment under WTO Agreements

192

(a) (b) (c) (d) (e) (f)

The GATS The TRIPS Agreement The TRIMS Agreement Agreement on Government Procurement (AGP) Agreement on Subsidies and Countervailing Measures (SCM) Dormant WTO Multilateralism

(4) Investment Provisions in Regional Free Trade Agreements (RTAs) (a) Proliferation of RTAs (b) NAFTA Chapter 11 as a Model?

192 196 199 204 205 206

207 207 209

(5) Back to the Future: A Possible Framework for a WTO Investment Agreement

216

Concluding Remarks

219

* The author gratefully acknowledges having received valuable comments on a draft of this chapter from Mark Koulen, Stefan Amarasinha, and Pia Acconci.

Tr ade and Investment

183

International economic law, however defined, necessarily reflects relevant domestic practice of states and their changing role in the economy.1 Against the background of globalization, the evolution of international trade and investment law, not surprisingly, largely mirrors the evolution of other branches of state practice, including its seemingly inexorable tendency towards greater integration, moving from bilateral treaty practice towards regional and multilateral arrangements of shared common principles, objectives, standards, and disciplines.2 Consequently, the hitherto separate orders of trade and investment increasingly intersect and interact,3 both with one another and with those governing issues directly affecting peoples’ lives: human rights, labour standards, health, environmental, and developmental policies. Thus, it is appropriate to take stock of the current situation of intersections and interactions between international trade and investment law, at different levels of integration. This chapter, therefore, seeks first to trace the history, and to provide a summary survey, of the ongoing parallel evolution of bilateral and plurilateral approaches to investment and trade; it provides, secondly, an examination of investment-related provisions in various WTO Agreements and of investment provisions and case-law under Regional Free Trade Agreements (RTAs); and thirdly, it analyses a number of building blocks for a possible future WTO-based Investment Agreement.

(1) Historical Background As a general pattern in international relations, wars, or periods of conflict or ideological turmoil, invariably lead to distrust and the cessation of or severe restrictions in inter-state relations, including trade and commercial relations. Once peace is 1 For recent doctrinal reflections on international economic law see JH Jackson, CR Reitz, JP Trachtman, and S Zamora, in 17/1 Univ Pa J Int Econ L (1996) 17–67; RA Cass, ‘Economics and International Law’, 29 Intl L & Politics (1997) 473 ff. 2 Friedl Weiss, ‘The WTO and the Progressive Development of International Trade Law’, 29 Netherlands YB Intl L (1998) 71–117 at 73; M Koulen, ‘Foreign Investment in the WTO’, in EC Nieuwenhuys and MMIA Brus (eds), Multilateral Regulation of Investment (The Hague, Kluwer Law International, 2001) 181–203. 3 The concept of TRIMS (trade-related investment measures) reflects recognition of the impact of FDI (foreign direct investment) policies on trade flows; that of IRTMS (investment-related trade measures) is the converse dimension of this relationship, UNCTAD, International Investment Agreements: Key Issues (New York and Geneva, United Nations 2005) vol III, ch 25, ‘Investment-Related Trade Measures’, 113 at 122.

184

Friedl Weiss

restored, confidence returns and cooperation, even integration and orderly peaceful dispute settlement, will be established or re-established, and institutionalized. Indeed, a pattern of relevant practice to that effect can be observed at least since the Hague Peace Conferences 1899–1907.4 Suffice it to mention, inter alia, the League of Nations, the Bretton Woods institutions, and European regional integration; and in the field of peaceful dispute settlement, the Permanent Court of Arbitration,5 the Permanent Court of International Justice, and the mixed claims commissions and mixed arbitral tribunals after World War I, and, more recently, international courts and tribunals, such as the ICJ and international institutional arbitration, including that of ICSID, the Iran–United States Claims Tribunal, and, to some extent, the United Nations Compensation Commission.6 International trade and investment, considered complements not substitutes by economists, have for a considerable time coexisted side by side, as separate concerns and based on separate rules, sometimes in the same international agreement. For example, some of the typical pre-World War I bilateral so-called FCN Treaties (Friendship, Commerce, and Navigation)7 contained rules on establishment next to trade rules and dispute settlement arrangements, including arbitration clauses.8 The settlement of investment-related disputes in post-1945 FCN treaties rather uniformly proceeded from bilateral mechanisms such as consultations or diplomacy to third-party mechanisms, typically submission to the International Court of Justice. Likewise, the abortive Havana Charter of the International Trade Organization (ITO) of March 1948, once described as ‘the high watermark in the post-1945 world of liberal and social democratic thinking in the field of international economic relations’,9 contained separate provisions on trade and investment.10 It should be noted, however, that the investment provisions of the Charter were quite weak, from a liberal economic perspective. The Havana Charter was generally based on the recognition that a stable, non-discriminatory international trading system could be better achieved 4 Conventions for the Pacific Settlement of Disputes of 29 July 1899, and 18 October 1907; for pre-World War I arbitration agreements, see H Wehberg, ‘Vierzig ständige Schiedsverträge’, 7 Zeitschrift für Völkerrecht (1913) Suppl 2. 5 Josef Kohler, ‘Die Stellung des Haager Schiedshofes’, 7 Zeitschrift für Völkerrecht (1913) 113 ff. 6 Karl-Heinz Böckstiegel, ‘Internationale Streiterledigung vor neuen Herausforderungen’, in Ulrich Beyerlin, M Bothe, R Hofmann, and EU Petersmann (eds), Recht zwischen Umbruch und Bewahrung, Festschrift für Rudolf Bernhardt (Berlin and New York, Springer Verlag, 1995) at 671 ff. 7 See Robert R Wilson, United States Commercial Treaties and International Law (New Orleans, Hauser Press, 1960). See also R Dolzer and C Schreuer, Principles of International Investment Law (Oxford, Oxford University Press, 2008) at 17 ff. 8 See Hans Wehberg, ‘Die Schiedsgerichtsklausel in deutschen Handelsverträgen’, 7 Zeitschrift für Völkerrecht (1913) at 153 ff. 9 G Schwarzenberger, ‘The Principles and Standards of International Economic Law’ 89 Recueil de Cours (1966); C Wilcox, A Charter for World Trade (New York, Macmillan, 1949); W Adams Brown, The United States and the Restoration of World Trade (Washington, The Brookings Institution, 1950). 10 See United Nations Conference on Trade and Employment, Final Act and Related Documents (1948) Art 12 on International Investment for Economic Development and Reconstruction.

Tr ade and Investment

185

through a single set of legally binding and enforceable multilateral rules and disciplines than through numerous bilateral trade agreements. But when it failed to come into being in 1950, the ‘residual’ GATT made no attempt to deal with foreign investment issues until the mid-1950s.11 At the same time, during the 1960s and 1970s most developing countries (DCs), as well as a number of developed countries—for example, France, Canada, Australia—considered foreign direct investment (FDI) through multinational companies (MNCs) to constitute economic colonialism and exploitation and the MNCs as a threat to their economic sovereignty and national security. When rates of expropriation of FDI in DCs increased,12 developed states searched for ways of protecting their investors. By the end of the 1970s DC policies towards FDI began to shift. Having largely secured control over their natural resources, DCs no longer pursued large-scale expropriation of FDI. And when, due to the debt crisis of the 1980s, the supply of finance to heavily indebted DCs was much reduced, FDI became a more desirable source of foreign capital and DCs began to adopt policies to attract and retain FDI and to take unilateral steps to liberalize restrictions on the entry and operation of FDI.13 Once the interests of DCs had shifted, host and home countries sought to protect their respective interests by entering into bilateral, regional, and multilateral investment-related agreements.14 It was only when irrefutable empirical data became available showing the central role of investment flows in the ongoing integration of the world economy that awareness grew of economic, institutional, and regulatory linkages between investment and trade.15 Thus, after World War II multilateral treaties, such as the GATT, and certain regional arrangements on customs unions and free trade areas (RTAs) emerged, including multilateral systems for the settlement of trade disputes between them.16 The ongoing

11 A 1955 Resolution adopted by the GATT Contracting Parties recognized that an increase in investment capital flows, particularly into developing countries, would help attain the objectives of the GATT and recommended that parties enter into negotiations towards the conclusion of bilateral and multilateral agreements on, inter alia, the security of foreign investment and the transfer of earnings derived from investment; a proposal by Germany to insert rules on establishment in the GATT was not accepted, GATT BISD, 3rd supplement (1955) 48–49; Koulen, above n 2 at 183. 12 Thomas L Brewer and Stephen Young, The Multinational Investment System and Multinational Enterprises (Oxford, Oxford University Press, 1998) at 53. 13 UNCTAD, World Investment Report 1999: Foreign Direct Investment and the Challenge of Development (New York and Geneva, United Nations, 1999) at 115, see table IV.1 charting changes in national regulation of FDI in various developed and developing countries from 1991 to 1998. 14 Marie-France Houde and Katia Yannaca-Small, ‘Relationships between International Investment Agreements’, Working Papers on International Investment No. 2004/1, OECD, May 2004. 15 The direction and distribution of two-thirds of global trade is influenced by the location of transnational corporations (TNCs) based on FDI decisions; note UNCTAD, above n 3 at 113. 16 There are more than 172 RTAs in force. Those containing rules on investment usually include provisions on the right to establish a presence in other countries covered by the RTA, and protection principles found in BITs. OECD, Regionalism and the Multilateral Trading System (Paris, OECD, 2003) at 65.

186

Friedl Weiss

proliferation17 of intergovernmental arrangements on foreign investment on the other hand has led to an increasingly dense and diverse web of overlapping instruments, including bilateral (BITs),18 regional,19 sectoral,20 and multilateral instruments,21 and non-binding initiatives22 which differ considerably in legal characteristics, scope, and subject-matter, undermining policy coherence and giving rise to risks of confusion, interpretative uncertainties,23 and legal conflicts. 17 The total number of all types of International Investment Agreements (IIAs) for the promotion and protection of investment, including double taxation treaties, exceeds 5,200, see UNCTAD, ‘Systemic Issues in IIAs’, IIA Monitor No. 1 (2006) 1. 18 There are approximately 2,300 BITS in force today; UNCTAD, ‘South-South Investment Agreements Proliferating’, IIA Monitor No. 1 (2005), International Investment Agreements (2006), 1; IIA Monitor No. 2 (2005), 1; for a comprehensive discussion, see Rudolf Dolzer and Margarete Stevens, Bilateral Investment Treaties (The Hague, Nijhof Publishers, 1995); UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rule Making (New York and Geneva, United Nations, 2007). 19 Investment rules are increasingly included in bilateral, regional, interregional, and plurilateral Preferential Trade and Investment Agreements (PTIAs), eg the Agreements of the European Community and of EFTA countries with Central and Eastern European countries, those of American countries based on the NAFTA model. Some integrate rules on foreign investment into a broader framework on economic cooperation and integration—such as EC, NAFTA, the European Energy Charter—others only cover foreign investment, eg the OECD Code of Liberalisation of Capital Movements (1961) and of Current Invisible Operations (1961), the Colonia Protocol on the Promotion and Reciprocal Protection of Investments in MERCOSUR, and the non-binding APEC Investment Principles (November 1994); see WTO, Annual Report 1996, vol I, Special Topic: Trade and Foreign Investment (Geneva, 1996) 63 ff and UNCTAD, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006). 20 eg 1994 Energy Charter Treaty which in Part III provides for the liberalization of investment restrictions and investment protection in the energy sector, 33 ILM (1995) 381. 21 Convention on the Settlement of Investment Disputes, ICSID (1965), Convention Establishing the Multilateral Investment Guarantee Agency, MIGA (IBRD, 1985), Guidelines on the Treatment of Foreign Direct Investment (World Bank Group, 1992). 22 UNGA Res 1803 (XVII) on Permanent Sovereignty over Natural Resources (1962), UNGA Res 3201 (S-VI), Declaration on the Establishment of a New International Economic Order (1974), UNGA Res 3281 (XXIX), Charter of Economic Rights and Duties of States (1974), UNGA Res 35/63, The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (1980); Declaration on International Investment and Multinational Enterprises, OECD, 21 June 1976, as amended 2000. 23 eg uncertainty over whether Art 2101 NAFTA on general exceptions excludes the applicability of Art XX GATT to investment-related measures has prompted litigants to plead the non-applicability of Art XX GATT; similarly, the Marvin Feldmann v Mexico tribunal (ICSID Case No. Arb(AF) 99/1 award of 26 December 2002, 18 ICSID Review–FILJ 488 (2003) left the question unanswered whether Art 1102 NAFTA requires national treatment to be accorded to foreign investors. See FG Rojas, ‘The Notion of Non-discrimination in Art.1102 NAFTA’, Jean Monnet Working Paper 05/05, NYU School of Law, 7, 25. See also the different ‘readings’ of Art 1105(1) NAFTA by investors, governments, and tribunals; Todd Weiler, ‘Saving Oscar Chinn: Non-Discrimination in International Investment Law’, in Todd Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (London, Cameron, May 2005) 557 at 578; on the difficulty of applying MFN treatment to investment see Maffezini v Kingdom of Spain, ICSID Case No. Arb/97/7, Decision on Objections to Jurisdiction, 25 January 2000, 40 ILM 1129 (2001).

Tr ade and Investment

187

However, despite several efforts made after World War II,24 little attention was given to investment issues at the multilateral level until the mid-1980s, apart from unsuccessful attempts by the USA to include investment in the Tokyo Round of multilateral negotiations (1973–9) and a survey of trade-damaging investment performance requirements and incentives in GATT’s work programme 1982. Nonetheless, the non-tariff barrier agreements of the Tokyo Round such as on subsidies, technical standards, and government procurement, though primarily for cross-border movement of goods, may in many cases also be relevant to the competitive conditions facing foreign investors. As a result of these developments, there are no binding multilateral instruments containing comprehensive substantive rules on foreign investment.25 Existing binding multilateral instruments—for example the OECD Liberalisation Codes and the GATS—are narrow in scope and only establish a few substantive norms.26 Conversely, those which do contain substantive norms are non-binding, for example, the OECD Guidelines on Multinational Enterprises of 1976. It was only during the Uruguay Round of multilateral trade negotiations in the mid-1980s that the USA again put forward a proposal for a comprehensive agreement on investment in the GATT.27 Although this initiative was resisted by DCs and again failed, the Uruguay Round introduced an ‘investment’ dimension in multilateral trade rules, obligations imposed on governments of WTO members with respect to the treatment of foreign nationals or companies in their jurisdiction, especially in the General Agreement on Trade in Services (GATS). Other Uruguay Round Agreements which comprise an ‘investment’ dimension are the Agreements on Trade-Related Aspects of Intellectual Property Rights (TRIPS), on Trade-Related Investment Measures (TRIMS), on Government Procurement (GPA), and on Subsidies and Countervailing Measures (SCM).28

24 Cf the Resolution on International Investment for Economic Development adopted by the GATT Contracting Parties at the 1955 GATT review conference; see also the 1967 OECD Draft Treaty on the Protection of Foreign Property, OECD Publication No. 232081/Nov.1967, reproduced in 7 ILM 117 (1968). 25 The multilateral approach is discussed by Jeswald W Salacuse, ‘Towards a New Treaty Framework for the Direct Foreign Investment’, 50 Air L & Commerce 969 (1985) at 1005. 26 See eg the OECD Code of Liberalisation of Capital Movements (amended 14 October 2005) under which OECD members have accepted legally binding obligations; the Code’s efficacy though is limited by numerous reservations made by each of the members. 27 The proposed text covered a wide range of areas, including technology transfer requirements, restrictions on the transfer of profits, controls on foreign exchange flows, government reviews of foreign investment performance and nationalization, see the text in GATT Doc No. PREP.COM (86)/ W/35 (11 June 1986), and Terence P Stewart (ed), The GATT Uruguay Round: A Negotiating History, Vol I (The Hague, Kluwer Law International, 1993). 28 It should be noted, however, that the TRIMS and SCM Agreements do not impose obligations with respect to the treatment of foreign nationals or companies within a jurisdiction only as regards goods.

188

Friedl Weiss

(2) Abortive Multilateral Approaches: OECD and WTO Experience In 1995 OECD countries attempted, and by 1998 had already abandoned, negotiations on the drafting of a comprehensive GATT-type MAI going beyond the coverage under the WTO Agreements on TRIMs and the GATS which would have been open to non-OECD Member States.29 At the first WTO Ministerial Conference in Singapore in 1996, the EU and Canada proposed creating a Possible Multilateral Framework on Investment (PMFI) modelled upon the MAI under the auspices of the WTO. But a negotiating mandate was opposed by DCs, apprehensive about a potential loss of regulatory sovereignty. As a compromise, a Working Group on the Relationship between Trade and Investment (WGTI) was established in the WTO to study the issue and eventually to recommend the desirability, if any, of a multilateral framework on investment within WTO’s ambit.30 At the Fourth WTO Ministerial Conference held in Doha in November 2001, the EU, supported by other industrialized countries, again raised the investment issue and equally unsuccessfully at the Fift h Ministerial Meeting held in September 2003 in Cancun.31 The Doha Ministerial Declaration provided for the launch of negotiations on trade and investment after the Fift h WTO Ministerial Conference at Cancun ‘on the basis of a decision taken, by explicit consensus, at that session on the modalities of negotiations’.32 Evidently, as in bilateral and regional investment agreements, it was envisaged to address not only the limited trade-related issues such as those in the TRIMS Agreement, but a broader range of purely investment-related issues.33 It was 29 Documents relating to the MAI negotiations can be found at ; for a discussion of the MAI and its objectives, see Rainer Geiger, ‘Towards a Multilateral Agreement on Investment’, 31 Cornell Int LJ 467 (1998). 30 Decision of the Ministerial Conference of December 1996, WT/WGTI/1/Rev.1. Members submitted numerous proposals for discussion, the widest being that of the USA: ‘For a number of reasons, investment agreements must have a broad, open-ended definition that includes all types of investment, including portfolio investment. Long-standing US practice is to have the broadest definition of investment, covering both direct and portfolio investment’, WT/WGTI/W/142, 16.9.2002 (02–4893); the EU declared that ‘a [Multilateral Investment Framework] would certainly benefit developing countries in particular by improving the legal security, transparency and credibility of their domestic framework’, ibid (02–826). Nonetheless, it is noteworthy that the USA was a strong opponent of a multilateral agreement on investment in the WTO. 31 For more details see Amarasinha and Kokott, ‘Multilateral Investment Rules Revisited’, ch 4 above and Peter T Muchlinski, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) ch 17. 32 Doha Ministerial Statement of 14 November 2001, WT/MIN(01)/DEC/1, para 20. 33 Ibid: ‘Recognizing the case for a multilateral framework to secure transparent, stable and predictable conditions for long-term cross-border investment, particularly foreign direct investment, that will contribute to the expansion of trade . . .’.

Tr ade and Investment

189

further agreed that the issue of pre-establishment rights only on a positive list basis34 should be included as one of the most salient modalities and that the objective was ‘long-term cross-border investment’, a phrase undoubtedly designed to exclude short-term portfolio investment.35 Despite significant differences in the positions of the USA, Japan, and the European Communities, efforts were made by certain leading developed countries to initiate negotiations. While there was vehement resistance by certain DCs, notably by India and Malaysia, some other opponents of negotiations, such as Thailand, took a more nuanced position. Yet others, in particular Chile, Costa Rica, Korea, Mexico, were actually active supporters of negotiations. DCs advanced several reasons for their opposition to negotiations towards a multilateral investment framework. The first is that since the implementation of existing agreements already involved a considerable burden for them, they were not prepared to address additional rule-making in a new field. Secondly, a core of DCs insisted that investment policy was under the control of national governments and should, therefore, remain outside the framework of the WTO. A key argument of a number of DCs, notably India, was that to the extent that treaty-based protection of investors was necessary, the existing network of BITs already provided that protection. They argued, thirdly, that the study of investment issues should be conducted under the auspices of UNCTAD, that is, in the context of development as a whole.36 Fourthly, they pointed out that none of the developed members ever blindly welcomed foreign investment or pursued free investment policies. Instead they had all imposed strict regulation of foreign investment, including entry restrictions ranging from simple entry bans with respect to certain sectors to conditional entry regarding access to others (eg ceilings on foreign ownership, local content,—performance and technology transfer requirements) as well as informal mechanisms that prevented hostile acquisitions and takeovers by foreign investors. In other words, there was never a ‘one-size-fits-all’ approach to FDI regulation.37 A fift h and somewhat ambivalent reason is that although DCs are aware of the need for and importance of attracting investments for their economic development, they also seek to restrict investments from foreign companies in order to develop their own domestic industries. Lastly,

34 A GATS-type positive list approach is a specific method by which countries undertake obligations in an investment agreement. It is based on the basic premise that signatories to an agreement enumerate or list those industries or measures in respect of which obligations are to be undertaken. This approach can be seen as a first step towards further liberalization by adding further sectors to the positive list, which, moreover, are often associated with a clause envisaging future liberalization of investment, see eg the EC–Chile RTA; on the top-down negative-list approach see also n 134 below. 35 Para 22 of the Doha Ministerial Statement on the Relationship between Trade and Investment. 36 In May 1996 UNCTAD-IX had given UNCTAD such a mandate. 37 On which see further M Wilkins, The History of Foreign Investment in the United States to 1914 (Cambridge, Mass, Harvard University Press, 1989) at 150–68. The recent proliferation of RTAs seems to confirm this more generally, Raquel Fernandez and Jonathan Portes, ‘Returns to Regionalism: An Analysis of Non-traditional Gains from Regional Trade Agreements’, 12(2) World Bank Econ Rev (1998) 197 at 217.

190

Friedl Weiss

DCs take the view that investment-related rule-making through the WTO does not necessarily guarantee an increase in investment. As a result of the failure of both multilateral initiatives, that of the MAI and of a WTO-based investment agreement, the level of multilateral liberalization and integration of cross-border trade and investment in goods and services will remain that achieved in the mid-1990s, except for a few regional agreements. Of course, the above-mentioned Uruguay Round Agreements, most notably the GATS and the TRIMS, have been designed to ensure that trade is promoted, but not to govern investment as such. Otherwise, trade and investment continue to develop under separate rules for the time being, the latter through a still growing number of bilateral investment treaties (BITS) and through regional and sub-regional38 Investment Agreements. Still, consensus appears to exist that trade liberalization, successfully pursued since the 1960s, must be complemented by comparable liberalization of investment, for at least three reasons. In the first place, because it would appear impossible to draw a conceptually satisfactory line between trade and investment; secondly, because the concept of ‘investment’ can no longer be restricted to the classical notion of direct investment, since a great many modern forms of investment— division of production, sub-contracting, leasing, licensing—comprise a strong trade component; and thirdly, because of the sheer complexity arising from the provision of the MFN clause in some 2,300 BITs. Companies, moreover, need stable, transparent, and predictable rules for their operations,39 regardless of whether their activities are classified as trade or investment. Furthermore, advocates of a multilateral framework of rules confidently point out that, in the long run, its chief advantages—legal certainty, reduced costs of information gathering, and increase of investment flows to DCs—will induce a more favourable climate for negotiations. Generally, globalization and related ‘one-world’ views signal a new intellectual climate that appears to favour integrating, or re-integrating (Havana Charter) separate concerns, whether through standard setting or case-law. It involves both the integration of the interdependent sectoral world orders of trade, investment, and monetary relations inter se40 38 See eg the 1997 Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC), an agreement on sub-regional cooperation between India, Bangladesh, Sri Lanka, Nepal, and Bhutan, as well as Myanmar and Thailand, aiming at a free trade pact including investment by 2017; see also the Subregional Investment Working Group (SIWG) of the Greater Mekong Subregion (GMS), a 1992 sub-regional development cooperation programme assisted by the Asian Development Bank which was entered into by Cambodia, the People’s Republic of China, Lao People’s Democratic Republic, Myanmar, Thailand, and Vietnam. 39 See IBRD, Report on Global Prospects 2003. 40 On ‘neutrality’ of globalization, see Friedl Weiss, ‘Globalisation through WTO Integration: Neither Friend nor Foe, From the Board’, 30(2) LIEI (2 2003) at 95–102; for alarmist predictions see eg William Greider, One World, Ready or Not: The Manic Logic of Global Capitalism, (New York, Simon & Schuster, 1997) and John Gray, False Dawn: The Delusions of Global Capitalism (London, Granta Books, 1998) (world is unprepared for devastation through globalization); George Monbiot, Captive State: The Corporate Takeover of Britain (London, Macmillan, 2000) (combination of state weakness and corporate power threatens democracy and greater inequality); fervent neo-liberal supporters are

Tr ade and Investment

191

and social concerns41 such as human rights and environmental protection and development based on the integrative concept of sustainable development.42 Such ‘embedded liberalism’,43 requires the balancing of competing public values of, on the one hand, economic efficiency through progressive liberalization, and paramount domestic public policy objectives, such as the protection of human and workers rights, and of environmental and developmental concerns, on the other.44 Still it is recognized, even by some DCs, that the WTO is the best forum for pursuing multilateral investment rules. In fact, WTO-based negotiations would enable DCs to negotiate a ‘bottom-up’ approach45 that could take some of their special concerns into account while ensuring coherence and consistency between trade and investment policies.46 Pending greater advances towards these goals, one must deal with the complexity of international investment regulation which is due to fragmentation, specialization, possible overlap and development of different regulatory approaches47 and regimes, including their case-law,48 and with the related problems of possible ‘forum and treaty shopping’. Thus, it is appropriate to take stock of the current situation of international investment law at different levels of integration. This, it is hoped, will permit an assessment as to whether and to what extent the traditional regulatory segregation between trade

John Micklethwaite and Adrian Wooldridge A Future Perfect: The Challenge and Hidden Promise of Globalisation (New York, Crown Business, 2000). 41 Friedl Weiss, ‘Trade and Labor I’ ch 59, in Patrick FJ Macrory, Arthur E Appleton, Michael G Plummer (eds), The World Trade Organisation: Legal, Economic and Political Analysis, vol II (New York, Springer Verlag, 2005) 571–95 at 578; Peter T Muchlinski, ‘The Social Dimension of International Investment Agreements’ in Julio Faundez, Mary E Footer, and Joseph J Norton (eds), Governance, Development and Globalisation (London, Blackstone Press, 2000) 373. 42 See Nico Schrijver and Friedl Weiss (eds), International Law and Sustainable Development: Principles and Practice (The Hague, Martinus Nijhoff Publishers, 2004); Friedl Weiss, Paul de Waart, and Eric Denters (eds), International Economic Law with a Human Face (The Hague, Kluwer Law International, 1998). 43 John G, Ruggie, ‘International Regimes, Transactions, and Change: Embedded Liberalism and the Post-War Economic Regimes’, 36 Intl Org 379 (1982). 44 Friedl Weiss, ‘The Limits of the WTO: Facing Non-trade Issues’, in G Sacerdoti, J Bohanes, and A Yanovich (eds), The WTO at 10: The Role of the Dispute Settlement System (Cambridge, Cambridge University Press/WTO, May 2006). 45 A ‘bottom up’ or positive-list approach is one whereby countries would choose which investments would be covered by the agreement. 46 See the Declaration on the Contribution of the WTO to Achieving Greater Coherence in Global Economic Policymaking of 15 December 1993. 47 A recent UNCTAD Study on International Investment Agreements in Services identifies three different approaches to services IIAs, see UNCTAD, International Investment Agreements in Services, Series on International Investment Policies for Development (New York and Geneva, United Nations, 2005) at 18. 48 A variety of standards—eg those of MFN, national treatment, rights of establishment—are being interpreted under the WTO dispute settlement system and in a growing number of investor–state arbitrations, both under ICSID, including its Additional Facility, and before other arbitration fora, cf. UNCTAD, ‘Latest Developments in Investor-State Dispute Settlement’, IIA Monitor No. 4 (2005).

192

Friedl Weiss

and investment might in the near future give way to greater integrative tendencies converging towards multilateral regimes for both.

(3) Investment under WTO Agreements As mentioned above, some WTO Agreements refer to foreign investment, directly or indirectly. Some, namely the AGP, the GATS, and the TRIPS Agreement, impose obligations on WTO Members with respect to the entry and treatment of foreign persons and enterprises or to the protection of their property rights. Others, the TRIMS and the SCM Agreements, operate indirectly by merely restricting the ability of Members to apply investment incentives or to influence the operations of foreign investors.49

(a) The GATS The GATS has no general rules on investment. The concept ‘investment’ appears only in two GATS provisions.50 The scope of the GATS ratione materiae is derived from the essential attributes of a service transaction which is circumscribed by reference to the concept of ‘trade in services’. This definition encompasses the movement of factors of production, including investment and labour, as well as of consumers, the operation of foreign suppliers as well as imports. It is, therefore, much broader than the commonly used statistical concept of transactions between residents and non-residents of a country.51 The GATS concept of ‘trade in services’ is defined, somewhat tautologically, as the supply of a service from one Member country to another, within one Member country to service consumers of any other, that is, to foreigners, and in another Member country through either ‘commercial presence’, that is legal presence in the form of subsidiaries, branches, or agencies, or through the ‘presence of natural persons’. Thus, ‘trade in services’ is essentially determined by four modes of supply 49 T Brewer and S Young, ‘Investment Issues at the WTO: The Architecture of Rules and the Settlement of Disputes’, 1 JIEL 457 (1998). 50 Article XVI(2)(f) GATS on Market Access; Annex on Financial Services. 51 On the GATS, see generally Friedl Weiss, ‘The General Agreement on Trade in Services’, 32 CMLRev 1177 (1995).

Tr ade and Investment

193

of a service. These are defined on the basis of the origin of the service supplier and consumer and by the degree and type of their territorial presence when the service is delivered. Investment through FDI is only covered by the third mode of supply, that of ‘commercial presence’.52 Furthermore, the GATS commitments only apply to industries in respect of which Members have explicitly agreed to open their markets to foreign providers of services. The core GATS principles of MFN treatment, market access, and national treatment do not relate directly to FDI. Yet FDI in the sector of trade in services falls under the GATS regime rather than under that of the TRIMS Agreement. Barriers to FDI in services are, therefore, covered for the first time in a binding multilateral agreement which could have a potentially significant impact on these barriers. Thus, the GATS is unique in that it contains the only set of multilateral binding rules for FDI in services53 and a framework for multilateral liberalization of FDI without focusing on FDI, let alone investment protection as such, as is the case in bilateral and regional agreements.54 The GATS rules also apply to FDI in the financial sector, in particular to regulation in the banking sector.55 But the investment provisions of the GATS, essentially those on ‘commercial presence’, are subsidiary to its provisions on liberalization of trade in services, and are designed to avoid hidden protectionism and to protect investments that are an integral part of services such as banking. These investment provisions are subject to restrictions to safeguard the balance of payments (Article XII) and to general exceptions (Article XIV). Ironically, while focusing on trade in services, the GATS achieved liberalization of FDI in the banking sector at the same time as negotiators avoided FDI rules in the context of the TRIMS. Some opponents of the abortive MAI saw the GATS as a new MAI and insisted that the GATS must allow governments to regulate foreign investors and other service providers to fully protect public health and safety, consumers, the environment, and workers’ rights. Such anxieties seem misplaced, however, since the preamble to the GATS expressly recognizes ‘the right of Members to regulate, 52 ‘Commercial presence’ means any type of business or professional establishment, including through: (i) the constitution, acquisition, or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office, within the territory of a Member for the purpose of supplying a service, Art XXVIII(d). 53 ‘Investment in enterprises located in one country but effectively controlled by residents of another country’; ‘FDI occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage that asset. The management dimension is what distinguishes FDI from portfolio investment in foreign stocks, bonds and other financial instruments’, WTO, above n 19. 54 On the shift of FDI to services, mirroring the preceding shift from trade in goods to trade in services see, UNCTAD, above n 47. 55 See GATS Annex and Second Annex (30.6.05) on Financial Services, and the Understanding on Commitments in Financial Services (13.7.97); for other relevant sectoral instruments see Waldemar Hummer and Friedl Weiss, ‘Vom GATT ‘47 zur WTO ‘94’, Dokumente zur alten und zur neuen Welthandelsordnung, (1997) 1071–84; Lazaros E Panourgias, Banking Regulation and World Trade Law, GATS, EU and ‘Prudential’ Institution Building (Oxford, Hart Publishing, 2006).

194

Friedl Weiss

and to introduce new regulations, on the supply of services within their territories in order to meet national policy objectives . . .’ Of all WTO Agreements, the GATS addresses investment issues most directly through defining four so-called modes of supply of services (Art I:2). All modes of supply of services are subject to both the general obligations and disciplines of the GATS, essentially MFN treatment, and to its negotiated specific commitments, Market Access (Article XVI) and National Treatment (Article XVII). Market Access and National Treatment apply, however, only where specific commitments have been undertaken. Of these modes of supply, Mode 3, ‘commercial presence’,56 consists of a significant legal presence in form of subsidiaries, branches, or agencies in a foreign territory of any other member.57 While proximate to the concept of a ‘right of establishment’,58 it only involves that amount of cross-border movement of capital necessary to effectively supply a service to foreign customers, which is likely to vary from sector to sector. Commercial presence, the investment provision of the GATS, though akin to FDI, is narrower than the asset-based approach commonly found in International Investment Agreements (IIAs) of both developed and developing countries,59 though possibly broader than some DCs would prefer to see included in a potential multilateral agreement. The GATS applies to the supply of services, particularly ‘to measures by Members affecting trade in services’ (Article I:1 GATS).60 Under Article II GATS members have a general MFN obligation to treat services and service providers of other members in all sectors in the same way, in respect of ‘any measure covered by this agreement’.61 According to the Appellate Body of the WTO (AB), the obligation to accord ‘treatment no less favourable’ imposed by

56 See n 52 above. 57 For the purposes of the defi nition of commercial presence in the GATS, a juridical person is (i) ‘owned’ by persons of a member if more than 50 per cent of the equity interest in it is beneficially owned by persons of that member; (ii) ‘controlled’ by persons of a member if such persons have the power to name a majority of its directors or otherwise to legally direct its actions; (iii) ‘affi liated’ with another person when it controls, or is controlled by, that other person; or when it and the other person are both controlled by the same person. Art XXVIII(n) GATS; see further Weiss, above n 51. 58 Qualified ‘rights’ of establishment are mostly granted in bilateral and regional treaties, but have never been accepted multilaterally, see Art 12(1)(c)(ii) of the Havana Charter. See further GómezPalacio and Muchlinski, ‘Admission and Establishment’ ch 7 below. 59 See UNCTAD, above n 47 at 20; Art 1139 NAFTA contains a very broad definition which includes equity, debt security of enterprises, loans, an interest in an enterprise, real estate, or other tangible or intangible property, etc; it received an even broader interpretation in Pope & Talbot, which deemed even an ‘ability’ to export under an export control regime, namely access to the US market, to constitute ‘a property interest’, para 96 of the Interim Award. 60 Two legal questions have been identified by the Appellate Body of the WTO: whether there is ‘trade in services’ in the sense of Art I:2; and whether the measure at issue ‘affects’ such trade in services within the meaning of Art I:1; see Canada—Autos, WT/DS139/AB/R, WT/DS142/AB/R, para 155. 61 ‘With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than that it accords to like services and service providers of any other country’, Art II(1) GATS.

Tr ade and Investment

195

Article II GATS is unqualified and, therefore, includes de facto as well as de jure discrimination.62 The MFN treatment, consequently, restricts Members from providing relatively more favourable treatment to investors from one or more countries, but does not refer to incentives that are applied equally to all sources of FDI. However, under paragraph 2 of Article II members have the right to make derogations which are not conditional upon showing exceptional circumstances such as a threat to national security63 or a danger to public health. These exceptions, which were negotiated during the Uruguay Round, are in principle not to exceed a period of ten years. Measures so maintained inconsistently with the MFN obligation of paragraph 1, however, must be listed in and meet the conditions of the Annex on MFN Exemptions. The GATS, like the GATT, also provides for a specific MFN exception for public procurement (Art XIII). This broad approach towards an MFN exception is explained by the fact that the scope of the GATS itself is very broad, as it generally covers any measure of a member affecting trade in services, including a service provided through ‘commercial presence’, that is, FDI.64 Indeed, as was held by the Appellate Body in EC—Bananas III, ‘article I:3(b) of the GATS provides that “services” includes any service in any sector except services supplied in the exercise of governmental authority’ (emphasis added).65 Although, as has been seen, economists consider international trade and investment complements, not substitutes, both are generally regarded as two substantially different ways of supplying a foreign market. The question then arises as to whether MFN in trade in services could be extended to investment. Since the GATS notion of ‘trade in services’ is very broad indeed and may thus include commercial presence in the host country, it would seem that MFN in trade would encompass investment as well.66 By contrast to the general MFN obligation, national treatment in the GATS, being based on the principle of ‘progressive liberalization’, is a specific, negotiated commitment applicable only in sectors in which commitments have been made. National treatment is to be accorded in respect of all measures (taken by central, regional, or local governments and authorities and by non-governmental bodies exercising powers delegated to them by all governmental bodies) affecting the supply of services in a given sector and mode of supply located within the territory of a member and subject to sectoral and other specific limitations, as particularized in a member’s schedule of specific commitments. This means treating all services and service suppliers of any other member in a non-discriminatory manner, that is no

62 EC—Bananas III, WT/DS27/AB/R, paras 233–4. 63 eg the US Exon-Florio amendment—a law that authorizes the US President to suspend foreign takeovers of US firms that are deemed to threaten vital national security interests—does not violate the GATS. 64 UNCTAD, above n 3, vol I 2004, at 200. 65 WT/DS27/AB/R, para 220. 66 UNCTAD, above n 3, vol I 2004, at 204.

196

Friedl Weiss

less favourably,67 irrespective of nationality or ownership, securing for them equal opportunities to compete. It is noteworthy that, as with the MFN obligation, it matters not whether equal opportunities for foreign service suppliers to compete in a domestic market are the result of formally identical or different treatment, as any form of discrimination, whether direct or indirect, de jure or de facto is prohibited.68 Measures ‘affecting’ the supply of services by a service supplier could be investmentrelated or generally result from other domestic regulation. Accordingly, such practices as the screening of FDI proposals or the application of net economic benefit tests or of national interest criteria cannot be maintained unless equally applied to domestic investment proposals. However, in practice, the impact of the GATS is limited because barriers to commercial presence and to FDI in many sectors are not covered by the GATS. This is due to the fact that Members have chosen not to include those sectors in their schedules of specific commitments.69 And for those sectors where they have made some commitments, they have listed restrictions on market access or national treatment with respect to commercial presence. Indeed, in many instances these restrictions are listed as ‘unbound’ or exempt. But restrictions listed against other modes of service delivery can also affect the scope for and viability of commercial presence. For example, restrictions on the temporary movement of people can be particularly important, where an enterprise seeks to employ experienced staff from its foreign headquarters to help establish a commercial presence. Most countries retain restrictions on the temporary movement of persons, with the degree of restriction ranging from visa requirements through to complete bans on foreign persons providing some services.

(b) The TRIPS Agreement Globalization also implies potential conflict between different regulatory systems. For instance, national legislation on patent protection may of itself constitute a discriminatory non-tariff measure.70 It is in order to minimize, control, or manage potential conflict arising from such divergence that states enter into a variety of 67 The GATS standard of ‘no less favourable’ treatment, applied to both the MFN and national treatment obligations, is most commonly used in IIAs; for examples see UNCTAD, above n 3 vol I 2004, at 176. 68 Art XVII paras 2 and 3 GATS. 69 For instance, only 5 of 122 GATS signatories have list postal services; only 16 higher education; only 23 hospital services; only 29 list wholesale and retail trade, Joel P Trachtman, ‘Lessons for the GATS from Existing WTO Rules on Domestic Regulation’, in Aaditya Matoo and Pierre Sauve (eds), Domestic Regulation and Service Trade Liberalisation (Washington, World Bank, Oxford University Press, 2003) at 57–82. 70 See eg the indicative lists of non-tariff measures submitted to the Uruguay Round Negotiating Group on Non-Tariff Measures by Canada in November 1988 (MTN.GNG/NG2/W/234) and by the Nordic countries (MTN.GNG/NG2/W/32) and Switzerland (MTN.GNG/NG2/W/33) in May 1989; cf also Art 40(1) TRIPS.

Tr ade and Investment

197

formal and informal arrangements. International treaties on principles and rules of conduct for state activities normally reflect domestic state practice common to all or most of the contracting parties. Certain treaties, however, are clearly more inspired by and reflect more closely the practice of some of the contracting parties rather than that of the majority. The TRIPS Agreement constitutes such a multilateral treaty. It is one based on a particular version of the ‘rule of law’, by and large that applicable in developed countries. Although there is considerable antecedent bi- and multilateral treaty practice on industrial and intellectual property rights (IIPRs),71 the subject-matter, as is well known, became a matter for multilateral negotiations in the Uruguay Round only upon the insistence of industrially advanced countries (IACs), especially the USA.72 DCs were at first extremely reluctant to enter into such negotiations as there was scarcely any common ground between them and IACs, in economic philosophy, objectives, or regulatory tradition.73 Leading DCs, for instance, considered it inappropriate to establish within the framework of the GATT any new rules and disciplines pertaining to standards and principles concerning the availability, scope, and use of intellectual property rights. They took the view that IPR protection has no direct or significant relationship with international trade since the patent,74 trade mark,75 and copyright systems76 have not been conceived for the purpose of promoting international trade. Accordingly, some concluded that any trade-impeding 71 Multilateral Agreements include: Paris Convention for the Protection of Industrial Property (WIPO) (1883, as revised and amended 1979); Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods (WIPO) (1891, as revised and amended; Additional Act 1967); Lisbon Agreement for the Protection of Appellations of Origin and their International Registration (WIPO) (1958, as revised and amended); Treaty on Intellectual Property in respect of Integrated Circuits (WIPO) (1989); Berne Convention for the Protection of Literary and Artistic Works (WIPO) (1886, as completed, revised, and amended); Universal Copyright Convention (UNESCO) (1952, as revised); Geneva Convention for the Protection of Producers of Phonograms against Unauthorized Duplication of their Phonograms (WIPO, in cooperation with ILO and UNESCO for matters relating to their respective fields of competence) (1971); Brussels Convention Relating to the Distribution of Programme-Carrying Signals Transmitted by Satellite (UNESCO and WIPO) (1974). Regional or bilateral Free Trade Agreements (FTAs) include: NAFTA 1992; EFTA–Turkey FTA 1991; EFTA– Bulgaria FTA 1993; FTA between Colombia, Venezuela, and Mexico 1994; Mexico–Costa Rica FTA 1994. 72 GATT Doc MTN.GNG/NG11/W/14 Rev.1 of 17.10.1988, reprinted in Friedrich-Karl Beier and Gerhard Schricker (eds), GATT or WIPO? New Ways in the International Protection of Intellectual Property (Weinheim, VCH Verlagsgesellschaft, 1989) 187 ff. 73 Examples of concurrent and subsequent regional or bilateral treaty practice: NAFTA 1992; Mercosur; EFTA–Turkey Free Trade Agreement (FTA) 1991; EFTA–Bulgaria FTA 1993; FTAs between Switzerland and Estonia, Latvia and Lithuania 1993; FTA between Colombia, Venezuela, and Mexico 1994; Mexico–Costa Rica FTA 1994. 74 Basic purpose: to promote inventive activity, not trade. 75 Basic purpose: to help distinguish the goods of one manufacturer from those of another in the market-place and to protect the public against confusion and deception. 76 Basic purpose: to give protection to copyright in literary, dramatic, musical, or artistic work, cinematographic fi lms, etc.

198

Friedl Weiss

or distorting effects, for example those due to restrictive and anti-competitive practices of the patent owners and to other features of the patent system,77 are merely incidental. They also expressed the fear that a worldwide system of IPR protection would hamper their access to affordable technology and impede their development.78 Consequently, they emphatically rejected any idea of integrating the TRIPS Agreement into the GATT itself which, they claimed, had played only a peripheral role in this area precisely because substantive issues of IPRs are not germane to international trade.79 On the other hand, IACs were content with the integration of the substantive standards of the major IPR treaties into the TRIPS Agreement.80 In the end, the deadlock in IPR negotiations was overcome through a combination of allowing DCs and Least Developed Countries more transitional time for achieving higher standards of IPR protection81 and of concessions in other areas, notably textiles and apparel trade. Titles of international treaties, whether they masquerade idiosyncratically as protocols, charters, covenants, or under any other official label, usually somehow identify the subject-matter of the instrument concerned. They make it obvious that some deal with hazardous waste and others with boundary delimitations or tariffs. The TRIPS Agreement is different in this respect. It only obliquely designates as its object ‘trade-related aspects’ of IPRs. This notion reflects both the complementary nature of the agreement and its links to the GATT. In substance, the TRIPS Agreement establishes uniform minimum standards for the global trading system. Without actually using the term ‘minimum standard’, it stipulates that Members ‘shall not be obliged to, implement in their domestic law more extensive protection than is required by this Agreement . . . ’ .82 In a purely formal sense, all treaties appear in relation to one another to be independent self-sufficient contractual arrangements. Often, however, treaties are interrelated in complex ways, such as, for instance, where they cover the same subject-matter or are entirely or partly entered into by the same parties or where 77 Basic elements are: definition of an invention, patentable and non-patentable inventions, product versus process patents, duration of a patent, exclusive rights of a patent owner, commercial working, compulsory licensing, restrictive business practices, revocation of patents etc. 78 Friedl Weiss, ‘TRIPS in Search of an Itinerary: Trade Related Intellectual Property Rights and the Uruguay Round Negotiations’ in Giorgio Sacerdoti (ed), Liberalisation of Services and Intellectual Property in the Uruguay Round of GATT (Fribourg, Switzerland, University Press, 1990) 87 at 95 ff. 79 For references on advocacy for and eventual abandonment of this idea see Thomas Cottier ‘Intellectual Property in International Trade Law and Policy: The GATT Connection’, 47(1) Aussenwirtschaft (1992) at 99n 78. 80 Art 1(3) TRIPS. 81 Arts 65(2) and 66(1) allow any developing country Member and Least-Developed Country members five and ten years respectively for implementation (except of Arts 3, 4, and 5) following the date of entry into force of the Agreement Establishing the WTO; Art 70(8) grants such members an even longer delay where they need to introduce patent protection for pharmaceutical and agricultural chemical products commensurate with their obligations under Art 27. 82 Art 1(1) TRIPS.

Tr ade and Investment

199

they have an ancillary or supplementary character. Indeed, as a former member of the International Law Commission observed, ‘the main reason behind many treaties is another treaty.’83 The TRIPS Agreement is a typical example of such an agreement. It is conditioned by other treaties in respect of all of its major components. In fact, regarding basic principles, substantive rules, dispute settlement rules, and even institutional arrangements, the TRIPS Agreement is explicitly or implicitly bound up with other treaties, including the GATT. As for the importance of the TRIPS Agreement for investment, it should be noted that an increasingly important share of the assets of multinational enterprises consists of intangible assets and that virtually all modern investment agreements containing standards for the promotion and protection of foreign investment include IPRs within the definition of investment.84 It is clear that the TRIPS Agreement has a bearing on FDI in that the definition of IPR rights and compliance with international standards and procedures constitute part of the framework within which foreign investment takes place. Less certain, however, is the impact of the Agreement on the flow of foreign investment. While FDI flows may increase as a result of a more reliable legal environment and a better investment climate, lack of IPRs may also encourage FDI. A firm that seeks access to a market where IPRs are not adequately enforced may have to rely on FDI to ensure control over proprietary information. Similarly, lack of adequate IPR protection may also increase FDI in marketing activities that partially substitute the enforceability of knowledge by establishing closer ties with consumers. However, DCs were made to accept and believe that for the purpose of economic development it was necessary for them to attract a greater flow of FDI along with advanced technology.

(c) The TRIMS Agreement The Agreement on Trade-Related Investment Measures, one of the Uruguay Round agreements, constitutes a codification of GATT Panel case-law under GATT Articles III and XI. To that extent, it may be described as the first modest multilateral effort to discipline government-imposed investment restrictions.85 It stems from concern on the part of capital-exporting countries about the potential trade-restricting and distorting effects of performance requirements imposed by host countries eager to channel and maximize the contribution of liberalized FDI to their development.86 83 Paul Reuter, Introduction to the Law of Treaties (London and New York, Pinter, 1989) at 100. 84 Michael Gestrin and Alan Rugman, ‘Rules for Foreign Direct Investment at the WTO: Building on Regional Trade Agreements’, ch 50 in Macrory et al above n 41, vol II 313 at 315. 85 See Catherine Curtiss, ‘Agreement on Trade-Related Investment Measures: A Five-Year Review’, Comp L YB Int’l Bus 233 (2003). 86 Martha Lara de Sterlini, ‘The Agreement on Trade-Related Investment Measures’, ch 10 in Macrory et al, above n 41, Vol I 437, 439.

200

Friedl Weiss

The Uruguay Round negotiations towards the conclusion of the TRIMS Agreement, though opposed by DCs,87 were triggered by a 1984 GATT Panel Report, the FIRA Panel Report, which determined that GATT rules were applicable to certain investment measures inasmuch as they affected trade. In ruling on a complaint by the USA, the Panel noted there was no basis, under the terms of Article III GATT, to consider whether foreign investors were adversely affected by obligations imposed on them under the Canadian Foreign Investment Review Act (FIRA). It examined written purchase and export undertakings under the FIRA submitted by investors regarding the conduct of the business they were proposing to acquire or establish, conditional on approval by the Canadian government.88 The Panel was sympathetic to the Canadian government’s desire to ensure that Canadian goods and suppliers would be given a fair chance to compete with imported products, but looked at the substance of the measure notwithstanding the absence of an express GATT provision on purchase requirements.89 It held that the purchase requirement applied to foreign investors did not stop short of this objective but tipped the balance in favour of Canadian products, affecting the trade interests of all contracting parties and impinging upon their rights in breach of Article III:4 GATT.90 In so deciding, the Panel rejected Canada’s argument that Article III GATT should be read in light of the explicit recognition in the Havana Charter of a government’s right to lay down requirements with respect to investment. Thus, the FIRA Panel highlighted the limitations of the GATT with respect to disciplines on investment restrictions. The TRIMS Agreement, consequently, recognizes that certain investment measures distort trade and that these distortions are not consistent with GATT principles. Indeed, export subsidies, import entitlements, and local content rules, manufacturing requirements (which require that certain components be domestically manufactured), to name but a few, directly affect the volume of trade, and in some cases the composition of trade. For example, local content requirements mean that imports are treated less favourably than domestic inputs, in breach of the national treatment obligation in Article III GATT. Likewise, trade-balancing requirements which restrict the quantity of imported goods that can be used if an MNC does not meet its export target, violate the national treatment obligation. Incentives geared towards attracting FDI, such as tax incentives, may also influence trade flows in that they can persuade firms to favour FDI rather than exports as a method of foreign market penetration. The TRIMS Agreement constitutes a rather modest attempt to clarify the application of the GATT rules on national treatment and on the prohibition of quantitative 87 Brazil and India maintained that investment was outside the GATT’s competence, while other DCs feared broad market access for foreign firms; see Report to the General Council, Working Group on the Relationship between Trade and Investment, WT/WGTI/1/Rev.1 (1997). 88 L/5504, adopted 7 February 1984, 30S/140. 89 See, however, Article 1106 NAFTA. 90 Above n 88, 30S/166–7 paras 6.3, 6.5.

Tr ade and Investment

201

restrictions upon these investment measures. Examples of measures explicitly prohibited by the TRIMS Agreement are local content requirements (violation of Art III:4 GATT), foreign exchange restrictions (violation of Art XI:1 GATT), tradebalancing requirements (violation of Art XI:1 GATT) and export restrictions (domestic sales requirements, violation of Article XI:1 GATT). Overall, the TRIMS Agreement is short and somewhat opaque. It does not directly regulate foreign investment, nor deal with the question of whether or how foreign investment may enter a country or how it is treated there. Its coverage is rather more narrowly focused on government measures in the area of investment that are deemed to have restrictive and distorting effects on trade in goods (Art 1), but it leaves the legal status of others uncertain. It therefore only covers regulations and requirements imposed on foreign investors that directly impinge on international trade flows,91 but does not prohibit all of the means by which governments can regulate investment in the production of goods. Its central concern is discriminatory treatment of imported and exported products related to local production and, particularly, on two linked concerns of investors, the ability to operate free from ‘local content’ requirements and to use imported parts and materials. Issues related to the liberalization and protection of investment are outside the scope of the disciplines of the TRIMS Agreement. Also excluded are investment incentives and many performance requirements, in particular export performance requirements which are not included in the Illustrative List at Annex 1 to the TRIMS Agreement,92 as well as services (GATS), export subsidies (SCM), and, arguably, technology transfer—licensing—and joint venture requirements. The central provision is Article 2(1) TRIMS, which prohibits trade-distorting investment measures that are inconsistent with, respectively, the national treatment obligation and the prohibition of quantitative restrictions of GATT Articles III and XI. Pursuant to the TRIMS Agreement, members are required to notify the WTO Council for Trade in Goods of their existing TRIMS which are inconsistent with the agreement.93 These must be eliminated within two, five, and seven years from the entry into force of the WTO Agreement by developed, developing and leastdeveloped country members respectively (Art 5.2), subject to a possible extension of the transition period if the notifying member developing or least-developed country member can demonstrate particular difficulties in eliminating them in a timely fashion (Art 5.3). In short, the TRIMS Agreement does not involve any new rules or disciplines and is far less comprehensive than many other investment provisions, including 91 The TRIMS does not define ‘investment’ and ‘investor; it is, thus, nationality neutral. 92 The TRIMS does not provide a definition of TRIMS, but its illustrative list provides examples of laws, regulations, and policies considered to be TRIMS and deemed to violate GATT Arts III and XI. This general list approach leaves ambiguity as to whether non-listed TRIMS which violate Arts III and XI GATT are prohibited. 93 By February 2006, 27 members have notified such measures, mostly local content requirements for the automotive and agricultural sectors.

202

Friedl Weiss

non-binding ones such as those of the Asia-Pacific Economic Cooperation Forum or the World Bank Guidelines. Nevertheless, the TRIMS Agreement has created specific obligations that influence global investment decisions, some of which have already been enforced in WTO panel rulings.94 Still, the TRIMS Agreement has been involved in only four dispute settlement cases95—never invoked on its own, but only in conjunction with other WTO provisions, mostly Article III GATT.96 Only in one case, Indonesia—Autos, was a panel finding, inter alia, made under the TRIMS Agreement.97 In examining complaints by Japan, the EC and the USA, the panel found that the term ‘investment measures’ is ‘not limited to measures taken specifically in regard to foreign investment’ and that while the TRIMS Agreement is not as such concerned with internal tax advantages or subsidies, these internal measures could, nonetheless, be tied to a local content requirement which is a principal focus of the TRIMS Agreement.98 The Panel then examined the Illustrative List of TRIMS annexed to the TRIMS Agreement and found that in order to benefit from the tax advantages and customs duty benefits under the local content requirements of the 1993 and 1996 Indonesian car programmes, as referred to in item 1(a) of the list, a foreign producer was required to purchase and use Indonesian parts and components. It also found particularly that the lower duty rates constituted ‘advantages’ within the meaning of the chapeau of the Illustrative List and constituted a violation of Article 2.1 of the TRIMS Agreement.99 In coming to that conclusion, the Panel developed a four-step analysis. It first decided that the Indonesian measures were ‘investment measures’ since the relevant car programmes had ‘investment objectives and investment features’.100 It determined, secondly, that the measures were ‘trade-related’ since, in its view, local content requirements ‘by definition, always favour the use of domestic products over imported products, and, therefore, affect trade’.101 Thirdly, it found the measures to be in violation of Article 2.1 of the TRIMS Agreement because the tax and customs benefits available to investors were contingent upon the purchase and use of particular

94 P. Sauvé, ‘A First Look at Investment in the Final Act of the Uruguay Round’, 28 JWT 5 (1994). 95 Report of the Appellate Body (AB), European Communities—Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R (1997); Report of the Panel, Indonesia—Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS5/R, WT/DS59/R, and WT/DS64/R (1998); Report of the WTO Panel, Canada—Certain Measures Affecting the Automobile Industry, WT/DS139/R and WT/DS142/R (2000); Report of the WTO Panel, India—Measures Affecting the Automotive Sector, WT/DS146/R and WT/DS175/R (2001). 96 Also Art XI GATT, several provisions of the TRIPS and GATS Agreements and of the Agreement on Subsidies and Countervailing Measures. 97 Indonesia—Certain Measures Affecting the Automobile Industry, WT/DS54/R, WT/DS5/R, WT/ DS59/R, and WT/DS64/R (1998). 98 Ibid para 14.73. 99 Ibid paras 14.91, 15.1. 100 Ibid para 14.80; and see Curtiss, above n 85, at 252. 101 Indonesia Autos, above n 97 para 14.82.

Tr ade and Investment

203

products of domestic origin listed as item 1(a) of the Illustrative List of TRIMS.102 Lastly, it found lower duty rates to be ‘clearly advantages’ within the meaning of the chapeau of the Illustrative List and that ‘a simple advantage conditional upon the use of domestic goods is considered to be a violation of Article 2 of the TRIMS Agreement even if the local content requirement is not binding as such’.103 As to the relationship of the TRIMS Agreement with the SCM Agreement and Article III GATT respectively, the panel noted that two agreements may be applicable to a single legislative act and therefore overlap in coverage, yet have different foci and impose different types of obligations.104 Thus, while the SCM Agreement (Art 3.1(b) prohibits granting of a subsidy contingent upon the use of domestic over imported goods (import substitution subsidy), the TRIMS Agreement prohibits the requirement to use domestic goods as such.105 In relation to Article III GATT, on the other hand, the TRIMS Agreement was described as having an autonomous legal existence so that even if either of the two sets of provisions were not applicable, the other would remain applicable.106 The TRIMS Agreement is still controversially debated by WTO members, especially by some DCs and LDCs in the Committee on Trade-Related Investment Measures. In their view, the TRIMS Agreement establishes uniform obligations for all members and does not take account of structural inequalities and disparities in levels of development, technological capabilities, or social, regional, and environmental conditions among them, nor does it incorporate a meaningful development dimension. Thus, it lacks clauses for special and differential treatment which would permit them to use TRIMS flexibly to address their specific economic, social, financial, technological, environmental, and regional development objectives. These WTO members doubt that there is conclusive empirical evidence that TRIMS, a priori, have trade-restricting and distorting effects. They also emphasize that certain TRIMS are needed to offset trade-distorting effects of certain corporate behaviour.107 In view of these positions and of the scrapping from the Doha Round of any negotiations towards a multilateral, WTO-based framework for investment,108 trade and investment distortions might best be tackled by maintaining TRIMS

102 Ibid para 14.88. 103 Ibid paras 14.89, 14.90. 104 Ibid para 14.52. 105 Ibid para 14.50. 106 Ibid para 14.62. 107 De Sterlini, above n 86 at 475. 108 Para 20 of the 1996 Singapore Ministerial Declaration provided that any decision to launch negotiations on investment disciplines in the WTO would require explicit consensus. This was reiterated in para 20 of the 2001 Doha Ministerial Declaration which, somewhat cryptically, envisaged that ‘negotiations will take place after the Fift h Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus’ towards a multilateral framework to secure transparent, stable, and predictable conditions for long-term cross-border investment, particularly foreign direct investment, that will contribute to the expansion of trade.

204

Friedl Weiss

disciplines, possibly broadened so as to encompass other investment measures with trade-distorting effects. Still, the TRIMS Agreement represents a step forward in ensuring that members are all subject to the same rules respecting the use of certain investment-related performance requirements and that disputes involving investment issues can be settled through the WTO dispute settlement system. Undoubtedly, the TRIMS Agreement has also prompted WTO members to identify and describe their investment measures, and to re-assess and, if need be, modify their investment regimes. In any event, in July 2004 investment was removed from the Doha negotiating agenda and, due to the suspension of the Doha Round by the summer of 2006, there are currently no prospects for resuming these discussions even through the Working Group on the Relationship between Trade and Investment (WGTI). In the long run, however, multilateral agreement on disciplines for other forms of investment measures appears desirable and inevitable.

(d) Agreement on Government Procurement (AGP) With the exception of those relatively few WTO members which have adhered to the plurilateral AGP,109 all WTO members are entitled to exempt government procurement from market access rules. The AGP prohibits discrimination not only against foreign products and suppliers but also against locally established suppliers on the basis of their degree of foreign affiliation and ownership. Another investmentrelated aspect of the AGP is laid down in Article XVI AGP according to which procuring entities ‘shall not, in the qualification and selection of suppliers, products or services, or in the evaluation of tenders and award of contracts, impose, seek or consider offsets’.110 Attempts at making the GPA obligatory for all WTO members have been strongly opposed. But pressure by the USA and other WTO members seems to have succeeded in securing wider future acceptance of the GPA.111

109 See Annex 4 to the WTO Agreement; as a plurilateral agreement it is one of only two agreements in the WTO system which are not obligatory for all WTO members. 110 Offsets are defined in a footnote to this provision as ‘measures used to encourage local development or improve the balance-of-payments accounts by means of domestic content, licensing of technology, investment requirements, counter-trade or similar requirements’. 111 The current AGP, which entered into force on 1 January 1996, had 28 signatories (ie 28 countries had signed and ratified the agreement prior to that date) under Art XXIV:1 of the Agreement. Since then, nine countries have become subsequent parties to the Agreement, either by completing accession procedures according to Article XXIV:2 (these are Hong Kong, China, Iceland, Liechtenstein, Netherlands with respect to Aruba, and Singapore) or by becoming members of the European Communities (these are Estonia, Latvia, Lithuania, and Slovenia). Therefore, 37 WTO members are currently parties to the AGP. Nine WTO members are currently negotiating for accession to the GPA: Albania, Bulgaria, Georgia, Jordan, the Kyrgyz Republic, Moldova, Oman, Panama, and Chinese Taipei.

Tr ade and Investment

205

The text of the GPA comprises non-market access provisions which promote transparency—detailed provisions on how procurement is to be conducted—and market access provisions which could be said to promote fairness to the extent that they provide GPA contracting parties with the possibility to foster social justice requiring some form of protection forming part of their respective domestic political consensus.112 Critics point out that at least three of its provisions restrict the ability of governments to use procurement in ways that help the environment, labour, and economic development. These are national treatment—restricting governments from giving preference to local over foreign producers of goods or providers of services; MFN—restricting governments from discriminating against government purchases from signatories;113 and technical specifications.114 The 1996 Singapore WTO Ministerial Meeting agreed to ‘establish a working group to conduct a study on transparency in government procurement practices taking into account national policies, and . . . to develop elements for inclusion in an appropriate agreement’.115 The aim of the Working Group was to determine whether a new transparency framework agreement could take the place of the GPA so as to further broaden the scope of participation in liberalization of procurement markets. However, on 1 August 2004, the WTO General Council decided to discontinue further transparency negotiations. This has been welcomed by those, including many DCs and some NGOs, who suspect that such transparency framework agreement would herald a first step towards giving multinational corporations from other member countries the right to compete against local companies for vital contracts.

(e) Agreement on Subsidies and Countervailing Measures (SCM) The SCM Agreement is relevant to investment issues inasmuch as a number of investment incentives are covered by the broad definition of a subsidy being either prohibited outright or actionable if they cause adverse effects to other WTO members.116 Subsidies contingent on either export performance or the use of domestic over 112 See John Linarelli, ‘The WTO Agreement on Government Procurement and the UNCITRAL Model Procurement Law: A View from Outside the Region’, 1 Asian J WTO & Intl Health L & Policy (2006) 61 at 78. 113 See eg the challenge by the EU and Japan against a Massachusetts government purchasing law which penalized companies doing business with Burma’s brutal military dictatorship. 114 See eg the US federal ban on government purchases of products made using child labour or in ways that harm endangered animals or the environment, which could probably be challenged under GPA rules as ‘unnecessary obstacles to international trade’. 115 See WT/MIN(96) (13 December 1996) ) para 26; 36 ILM 218 (1997). 116 Art 1 SCM defines a subsidy as a financial contribution by a government or any public body within the territory of a member whereby a benefit is conferred.

206

Friedl Weiss

imported goods are prohibited.117 Also covered are ‘specific subsidies’ granted by host governments only to specific businesses or industries as an incentive to attract investment, for example, tax breaks. Until 2000 these could be non-actionable if they met all of the conditions provided in paragraphs 2(a), 2(b), or 2(c) of Article 8 SCM Agreement.118 Under certain conditions, therefore, assistance for research activities conducted by firms, or by higher education research establishments on a contract basis with firms, as well as to disadvantaged regions within the territory of a Member and towards adapting of facilities to new environmental requirements imposed by law was deemed non-actionable.119 Now such types of subsidies will only be permitted if they conform to the requirements of the SCM Agreement. Because the SCM Agreement only deals with the granting of subsidies related to trade in goods, it does not cover all investment incentives.

(f) Dormant WTO Multilateralism Time and again, after failed attempts to conclude multilateral trade—or investment—agreements, bilateralism and various forms of regionalism have sprouted, by default as it were. As for trade, this trend is likely to continue, and possibly to accelerate after the near certain failure of the Doha Round of multilateral negotiations. Already the Sutherland Report dedicated an entire chapter to the erosion of the principle of non-discrimination within the world trading system, mainly blaming the ‘spaghetti bowl’ of customs unions, common markets, regional and bilateral free trade areas, and other preferences and trade deals. The Report states that 50 years after the founding of GATT, MFN is no longer the rule, but rather the exception.120 Regional integration efforts and arrangements have likewise proved effective in attracting FDI. They offer a larger potential market to investors, contribute to macroeconomic and political stability, often involve regulatory reforms favourable to foreign investors, and facilitate harmonization and enforcement of standards and regulations. Yet it is recognized, though by no means universally, that in the long run, a multilateral framework of rules can further contribute to improvements in the investment climate. It could help create a stable, predictable, and transparent environment for investment, enhance business confidence, and thereby promote growth of FDI flows to DCs, conditions which will not only promote foreign investment but also stimulate domestic investment. Despite past and present failures of the 117 Art 3.1 SCM. 118 It should be noted, however, that Art 8 SCM is no longer applicable. 119 Art 8.2 SCM. 120 Consultative Board to WTO Director-General Supachai Panitchpakdi, The Future of the WTO: Addressing Institutional Challenges in the New Millennium (WTO January 2005), available at , the ‘Sutherland Report’, at 19.

Tr ade and Investment

207

multilateral standard-setting approach to investment regulation, the WTO is still regarded as the best forum for pursuing the multilateral track, even by a number of DCs. Lastly, a WTO approach would also ensure coherence between an investment agreement and other WTO agreements, as well as, due to their interdependence, consistency between trade and investment policies.

(4) Investment Provisions in Regional Free Trade Agreements (RTAs) (a) Proliferation of RTAs At first, regional arrangements consisted predominantly of large free trade areas such as NAFTA, MERCOSUR, or AFTA, the ASEAN free trade area. In recent years, however, bi- and mini-lateral projects have become more prominent. While BITs have become the most widely used instrument for investment protection at the submultilateral level, some RTAs and plurilateral agreements also deal with investment issues going beyond existing provisions on investment at the WTO, in substance or objectives. In fact, countries are increasingly incorporating investment, the traditional domain of BITs, in RTAs121 and even the most modest RTA rules on investment comprise some kind of provision on the right of establishment, which does not exist at all in WTO Agreements. These are commonly referred to as WTO-plus.122 Essentially, RTAs allow member states to adopt and implement non-most-favourednation (MFN) trade and investment measures advantageous to enterprises operating within the region and discriminatory against imports from firms located outside it.123 These Preferential Trade and Investment Agreements (PTIAs) contain, inter alia, commitments either to liberalize, protect, and/or promote investment flows between the parties.124 In terms of economic efficiency and hence welfare 121 This is why the number of new BITs has been receding since the mid-1990s, while that of RTAs with substantive investment provisions has been rising; see Molly Lesher and Sébastien Mirodout, ‘Analysis of the Economic Impact of Investment Provisions in Regional Trade Agreements’ (OECD Trade Policy Working Paper No. 36, 11 July 2006) 6. 122 Gestrin and Rugman, above n 84, at 316. 123 Investment provisions of RTAs do not necessarily entail discrimination against outsiders. This will, to an important degree, depend upon the definition of corporate nationality. If it is based on the principle of the incorporation of a foreign-owned company, the latter could simply be incorporated under the laws of one of the RTA parties and enjoy the benefits of the RTA. 124 See UNCTAD, ‘Recent Developments in International Investment Agreements’, IIA Monitor No. 2 (2005) at 10.

208

Friedl Weiss

creation they are seen by economists as ‘second-best’, that is, inferior to multilateral MFN-based trade. They also constitute a significant investment-related trade measure (IRTM)125 as they tend to attract FDI from enterprises established in nonMember countries seeking to gain a ‘level-playing field’ within the regional trade area. Furthermore, the proliferation of RTAs enlarges the potential FDI impact of these IRTMs.126 RTAs, however classified,127 have at least two attractive features in common, flexibility and selectivity. These permit more or less homogeneous contracting states to share similar approaches to investment issues and to succeed with their negotiations where cultural and legal diversity at the multilateral level would prevent a fruitful outcome or even negotiations. Thus, a liberal domestic investment regime may prompt the conclusion of ambitious RTAs with ‘a broad definition of investment, disciplines on TRIMs that go beyond the Illustrative List in the WTO’s TRIMS agreement, and binding dispute settlement mechanisms’.128 For instance, NAFTA signatories recently concluded bilateral agreements based almost entirely on provisions of NAFTA’s Chapter 11, which has become a ‘model RTA investment chapter’. While most RTAs containing investment rules129 aim, as do WTO rules, at 125 Broad categories of IRTMs are: market access restrictions (tariffs, QRs, regional free trade agreements, rules of origin, anti-dumping regulations, etc); market access development preferences (GSP, Lomé, etc); export promotion devices (export promotion zones, taxation measures, export financing); export restrictions (export controls); see UNCTAD, International Investment Agreements: Key Issues, ch 25. Investment-related Trade Measures, above n 3 at 112. 126 Ibid at 115. 127 Gestrin and Rugman (above n 84 at 316 ff ) distinguish four categories: (1) RTAs with a focus on the right of establishment and the free movement of capital, eg the EC, the Europe Agreements, the Treaty Establishing the Caribbean Community (1973) as amended 1997; the 1981 Treaty Establishing the African Economic Community; the Treaty Establishing the Common Market for Eastern and Southern Africa, COMESA (1993); the Revised Treaty of the Economic Community of West African States, ECOWAS (1993) and the Treaty Establishing the Economic and Monetary Union of West Africa (1996). (2) RTAs building on treatment and protection principles typically found in BITs which go beyond issues relating to establishment and the free flow of capital, such as the North American Free Trade Agreement, NAFTA (1994), and a number of Free Trade Agreements modelled upon it, eg Canada–Chile (1997), Mexico–Singapore (2000), the revised EFTA (so-called Vaduz) Convention (2001), as well as RTAs with BIT-like investment provisions, but without their strict enforcement standards, eg Asia-Pacific Economic Cooperation, APEC and its Non-Binding Investment Principles (1994). Others, such as the Fourth ACP (Lomé) Convention contain merely general principles—eg fair and equitable treatment of foreign investment—but envisage more specific regulation through negotiated bilateral agreements of contracting parties. (3) RTAs which focus more on development than on the more efficient international allocation and use of capital, eg the MERCOSUR Protocol of 1994 on Promotion and Protection of Investments from third countries, granting parties discretion as to whether to grant national and MFN treatment to established investments of third country investors. (4) RTAs aiming at fostering cooperation between fi rms of member states, eg the Uniform Code on Andean Multinational Enterprises. 128 Ibid at 322. 129 Examples of North–North RTAs with investment provisions include the EC, the European Economic Area (EEA), EFTA since 2002, Europe Agreements EC–Bulgaria and EC–Romania, US, Canadian, and Mexican RTAs, Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP); examples of South–South RTAs include CARICOM, MERCOSUR, ASEAN, COMESA; examples of North–South RTAs include NAFTA, Canada–Chile, EC–Mexico,

Tr ade and Investment

209

enhanced economic efficiency, some RTAs are geared towards development, especially the promotion of local enterprise. With respect to investment liberalization, PTIAs have typically followed two main approaches. According to one, based on the NAFTA model, actual liberalization is subject to a list of country exceptions (negative list approach).130 The second, which has for instance been followed in several PTIAs concluded respectively by the EC and ASEAN with third countries, is aimed at the progressive abolition of restrictions to the entry, establishment, and operation of investment. In any event, such proliferating and apparently convergent treaty practice regarding investment provisions in RTAs—whether through bilateral side investment treaties, or through BITS—may lead to their plurilateralization and eventually to the emergence of some kind of international standard. Such apparent convergence is all the more important in view of the fact that, unlike in RTAs on trade, most investment provisions in BITs and NAFTA-based RTAs are non-preferential, granting third country investors the same rights as those located in the RTA area.

(b) NAFTA Chapter 11 as a Model? There are several reasons justifying a brief summary analysis of Chapter 11 of NAFTA before assessing any future prospects for a WTO investment agreement. First, NAFTA Chapter 11 clearly contains by far the most comprehensive and detailed rules on FDI of all treaties to date, though it does not go as far as the EC Treaty with respect to the right of establishment and the free movement of capital. Secondly, since drafters of the MAI significantly have drawn inspiration from its provisions, it is likely that negotiators of any future WTO agreement are bound to appraise its impact carefully and critically, even though it was clear in WTO discussions on investment that any WTO agreement on investment would not be based on the NAFTA model but rather on that of the GATS; that it would not have dealt with investment protection; and that it would have provided for a positive list approach to market access commitments. Thirdly, the many recent investor arbitral challenges—mostly based EFTA–Singapore, EC–Morocco (Arts 33–5 and 50), EC–Chile (Art 21, titles III V, Annexes VII, VIII, X, XIV), EC–South Africa (Trade Development and Cooperation Agreement, TDCA, Arts 33–34, 52, etc). see Lesher and Mirodout n 121 above at 44 ff. 130 In adopting the so-called negative list approach, an alternative to the GATS-type positive list approach (see n 34 above), signatories agree on general obligations that will apply to all industries and sectors, following which they list industries and sectors that will be exempted from those obligations. All listed industries and sectors remain restricted until removed from the list, ie only those not listed are covered by the agreement. A negative list approach often characterizes situations in which few sectors are excluded or only a few limitations reported and allows for the automatic inclusion of new sectors in the agreement; see eg Art 2/4 of the Services Protocol to the Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA).

210

Friedl Weiss

on ICSID’s additional facility rules—brought under Chapter 11 against regulatory measures adopted by NAFTA states—may provide useful material and insights for re-framing the delicate relationship between a prospective WTO investment agreement and regulatory autonomy. More generally, an analysis of even a small sample of such arbitral case-law will permit an empirically more objective assessment of the potential advantages or otherwise of following the Chapter 11 approach as a model for a WTO investment agreement. Of all possible host state discriminatory regulatory measures, Chapter 11 aims particularly at subjecting to its disciplines preand post-admission restrictions. Far fewer of its provisions seek to limit the use of investment incentives. The scope of application of Chapter 11, one of NAFTA’s central components, is set out in Article 1101. It provides that all Chapter 11 disciplines apply to measures of NAFTA states relating to both ‘investors’ and ‘investments’. Furthermore, disciplines regarding performance requirements (Art 1106) and environmental measures (Art 1114) are applicable to all investments, including domestic and investments from non-NAFTA countries. Article 1139 NAFTA, as was mentioned above, contains a very broad, asset-based definition of ‘investment’ that goes beyond FDI and which has been stretched further by certain arbitral awards. Thus, unlike the GATS, it includes portfolio investment—equity security—without any percentage limitation on ownership, and also includes beneficial ownership of the underlying interest.131 However, there are also limiting factors. One stems from the definition of investment by reference to an exhaustive list of interests that would qualify as ‘investment’. Others operate as limiting factors within the definition of certain listed interests.132 By contrast, the MAI definition of investment was based on a non-exhaustive list of interests. Liberalization from national investment restrictions is mainly pursued through the application of non-discriminatory standards of treatment.133 Following US BIT practice, investors enjoy the better of national and MFN treatment. Uniquely, relevant NAFTA disciplines also cover the pre-admission phase as well as the postadmission situation of established investments in a NAFTA state. In accordance with NAFTA’s top-down approach, the liberalization commitments cover all economic sectors and national laws of NAFTA states, unless these are specifically exempted through negative lists of non-conforming measures.134 This strict approach differs 131 Lit (e) of the definition of investment includes ‘an interest in an enterprise that entitles the owner to share in income or profits of the enterprise’. 132 Lit (d) only covers intra-firm debt flows of a relatively long-term duration or intra-enterprise loans of at least three years’ maturity, thereby excluding short-term debt; see also limitations in lits (h), (i), and (j) of Art 1139. 133 Articles 1102–4, 1106 NAFTA. 134 A ‘top-down’ or negative list approach requires countries to negotiate a reservation for a particular investment or measure. The requirement to negotiate as opposed to just listing its exceptions places potentially considerable pressure on countries; NAFTA follows the top-down negative list approach but does not require the negotiation of such listing, cf Art 1108 NAFTA on reservations and

Tr ade and Investment

211

from the somewhat hybrid approach open to WTO members which can make either horizontal, all-encompassing commitments to the national treatment obligation in Article XVII GATS (as well as to market access), covering all sectors, or commitments in only particular sectors. Owing to this measure of discretion allowed WTO members, scheduled liberalization commitments under the GATS have hitherto been rather modest. In addition to imposing non-discriminatory standards of treatment, NAFTA liberalization commitments also encompass the prohibition on the use of certain performance requirements by NAFTA states. These include, for example, technology transfer requirements which, by contrast, are not expressly covered by the TRIMS Agreement (Art 1106(f)). Although provisions for investment protection have featured for a long time in BITs of developing host states, their incorporation in multilateral instruments is still resisted by them.135 However, despite a dramatic decline of instances of direct FDI expropriation in DCs, the NAFTA Agreement includes very strong guarantees of investment protection, including an obligation to pay compensation.136 Short of outright direct expropriation, other regulatory measures ‘tantamount to nationalization or expropriation’ may have an incremental impact on an investor comparable to direct expropriation, amounting to ‘indirect expropriation’. Indeed, a number of investors have challenged seemingly normal regulatory measures in Chapter 11 arbitration proceedings as being ‘tantamount to nationalization’.137 Additional protection is available under Article 1105 which provides investors with a minimum standard of treatment ‘in accordance with international law, including fair and equitable treatment and full protection and security’. That is to say that even if a NAFTA state treats foreign and domestic investors equally, an arbitral tribunal may find that the actual treatment violates the international law standard. Consensus is, however, lacking on the exact standard required. Consequently, and in the absence of NAFTA textual guidance on the interpretation of the ambivalent terms used in Article 1105, investors have resorted to arbitral challenges of regulatory measures under this provision as an alternative to a challenge based on Article 1110. Although the NAFTA Agreement does not directly restrict the use of investment incentives despite their discriminatory aims and distorting effects, Article 1114 NAFTA nonetheless seeks to limit the ability of NAFTA states to engage in a proverbial regulatory ‘race to the bottom’ by lowering their health, safety, and environmental standards as an investment inducement. This provision though is a far cry exemptions, Annexes I–IV; for a description of the bottom-up or positive list approach, see also n 34 above. 135 See T Guzman, ‘Why LDCs Sign Treaties that Hurt them: Explaining the Popularity of Bilateral Investment Treaties’, 38 Va J Int’l L (1998) 639. 136 Art 1110(1). 137 See August Reinisch, ‘Expropriation’, ch 11 below; Thomas Wälde and Abba Kolo, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’, 50 ICLQ (2001) 811 at 819 ff and Muchlinski, above n 31 ch 15.

212

Friedl Weiss

from the much broader general exception of Article XX GATT and the abundant WTO Panel and Appellate Body case-law struggling to interpret it consistently.138 Apart from this, NAFTA arbitral case-law has considered directly the meaning of the main standards of treatment—national, MFN, fair and equitable.139 This has given rise to certain links and analogies with WTO arbitral decisions. National treatment seeks to ensure equality of competitive opportunities for both national and international investors, the so-called ‘level playing field’. While the national treatment standard has primarily originated in trade treaties, it has become one of the main general standards used to secure a certain level of treatment for FDI in host countries. As a relative standard, contingent upon the treatment given to other investors and their investments,140 in most BITS it typically applied to investors only after they had entered a host country, that is, only to the post-establishment phase of an investment. However, more recent IIAs have extended it to the pre-establishment phase of an investment, which goes beyond its use in Article III GATT.141 Direct investor–state dispute resolution procedures offer investors a convenient process through which to enforce commitments made by state signatories of investment agreements. By contrast, individual traders benefit only indirectly from the removal or trade barriers when WTO members comply with their obligations under covered agreements in compliance with rulings of the intergovernmental WTO system of dispute settlement. It has taken the GATT/WTO system of multilateral rules and adjudication some time to shed the preposterous tag once artificially affi xed to them by certain academic writers of being a ‘self-contained regime’ isolated, if not shielded, from international law.142 However, in its more recent dispute settlement practice, the wider international law context is increasingly recognized, if not yet openly embraced. Thus, as is common practice worldwide, panels and the Appellate Body have, at least for the purpose of interpretation of WTO covered agreements, referred to 138 See WTO Appellate Body, Repertory of Reports and Awards, 1995–2004 (Cambridge, Cambridge University Press, 2005) at 163–76. 139 IIA standards regularly at issue also include: scope of coverage, defi nitions of investors and investments, admission and establishment commitments, host country operational measures, transfer of funds, and the taking of property. 140 UNCTAD, above n 3 161–89 at 161. 141 Ibid at 162, 163. 142 In a seminal article which triggered a controversial debate over the last decade, Pieter-Jan Kuyper expressed the view that the WTO ‘has moved decisively in the direction of . . . ..a self-contained regime’: see ‘The Law of GATT as a Special Field of International Law’, 25 Netherlands YB Intl L (1994) 227 at 252; for an important attempt at a refutation of this position see Joost Pauwelyn, Conflict of Norms in Public International Law. How WTO Law Relates to Other Rules of International Law (Cambridge, Cambridge University Press, 2003) at 316 and passim; most recently, Bruno Simma and Dirk Pulkowski appear to have ended the debate for the time being, concluding a brief analysis of the WTO dispute settlement system with the view that ‘arguably, not even the WTO is completely decoupled from the secondary rules governing the consequences of breaches under general international law’: 17 EJIL (2006) 483 at 523.

Tr ade and Investment

213

international law sources extrinsic to the WTO, including decisions of other international courts and tribunals. Customary international law, as has been highlighted on several occasions, provides the normative background to the operation of a special regime,143 as is also confirmed in WTO case law.144 As one WTO dispute settlement panel pointed out, customary international law applies generally to the economic relations between WTO Members. Such international law applies to the extent that the WTO treaty agreements do not ‘contract out’ from it. To put it another way, to the extent that there is no conflict or inconsistency, or an expression in a covered WTO agreement that implies differently, we are of the view that the customary rules of international law apply to the WTO treaties and to the process of treaty formation under the WTO.145

Admittedly, such references have been relatively sparse and cautious and apparently have not so far included the examination of overlapping treaty issues146 or references to the case-law of investment arbitration tribunals. Conversely, some of the latter have, in appropriate cases, deemed it instructive to follow the reasoning employed in the well-settled case-law of WTO dispute settlement bodies. In one such case, SD Myers, Inc v Government of Canada,147 the tribunal interpreted Article 1102 NAFTA on national treatment which bars discrimination, by a state or province, against foreign investors and their investments with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. Each party is required to accord investors and investments of another party ‘treatment no less favourable than it accords in like circumstances to its own investors’ or their investments. In its Article 102(2) NAFTA provides internal guidance for its interpretation by obliging the parties to interpret and apply the provisions of the Agreement in the light of its objectives set out in paragraph 1 and in accordance with the applicable rules of international law, that is, the Vienna Convention on the Law of Treaties.148 In interpreting the phrase ‘like circumstances’, the Tribunal followed longestablished GATT/WTO case-law in finding that national treatment—in the 143 Case concerning the Right of Passage over Indian Territory (Prel Objections) (Portugal v India) (1957) ICJ Reports 125, Case concerning the Gabcikovo-Nagmymaros Project (Hungary v Slovakia) (1997) ICJ Reports 7. 144 AB Report, United States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/ DS58/AB/R, adopted on 6.11.1998; AB Report, EC—Measures concerning meat and meat products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted on 13.2.1998. 145 Panel Report, Korea—Measures Affecting Government Procurement, WT/DS163/R, p 183, para 7.96. 146 In the case of Mexico—Tax Measures on soft drinks and other beverages, the AB declined to examine NAFTA provisions as well as PCIJ case-law, AB Report WT/DS308/AB/R, 6.3.2006. 147 40 ILM (2001) 1408. See also discussion in Jürgen Kurtz, ‘A General Investment Agreement in the WTO? Lessons from Chapter 11 NAFTA and the OECD Multilateral Agreement on Investment’ Jean Monnet Working Paper 6/02, NYU School of Law. 148 Pope and Talbot, Interim Award, paras 65–8.

214

Friedl Weiss

investment area—encompasses both de jure and de facto discrimination, that is, a measure which is on its face discriminatory, as well as in its practical effect. The tribunal found that an evidently non-discriminatory ban on all exports of certain hazardous waste from Canada, that is, whether by domestic or foreign investors, was nonetheless de facto discriminatory and thus in breach of the national treatment obligation, as it ‘created a disproportionate benefit for nationals over non-nationals’.149 Yet, somewhat inconsistently, the tribunal failed to apply its own test to the facts. Instead it conjured up another test, protectionist intent on the part of the Canadian government, to establish a breach of Article 1102, rather than environmental grounds. This approach is questionable, particularly in light of the evolution of relevant GATT/ WTO case-law grappling with ‘intent’ to ascertain national treatment. Initially, an un-adopted GATT Panel Report150 introduced the so-called ‘aims and effects’ test for determining ‘likeness’ of products under GATT Article III.151 Subsequently, however, a WTO panel firmly rejected the ‘aims and effects’ theory as irrelevant, with respect to both the national treatment standards on internal taxation of Article III:2 of the GATT 1994152 and the ‘treatment no less favourable’ standard in Article XVII GATS.153 Although the tribunal in SD Myers recognized that, while important, protectionist intent is not necessarily decisive on its own for a breach of Article 1102 NAFTA, it failed to consider, let alone follow, the long-standing GATT/WTO rejection of ‘intent’ inherent in the discarded ‘aims and effects’ approach. It is noteworthy, however, that it was perhaps because the ‘disproportionate benefit’ test has no corresponding equivalent in GATT/WTO case-law on GATT Article III on national treatment that it was promptly rejected in the later case of Pope and Talbot brought against Canada.154 A different approach to the determination of a possible breach of Article 1102 on national treatment was taken in a separate opinion by one of the arbitrators. In order to establish a proper balance between regulatory autonomy and the liberalization and protection provisions of NAFTA, the arbitrator sought to interpret the phrase ‘in like circumstances’ in Article 1102 NAFTA in light of GATT/WTO case-law on GATT Article XX containing GATT’s general ‘public value’ exceptions. However, the use of the phrase ‘in like circumstances’ as a basis for a respondent government’s justification of legitimate regulatory measures with limited effects on free trade and investment goals, though perhaps imaginative, appears somewhat contrived in so far as it transplants GATT’s model of a general exception trumping all other 149 Ibid at 1437. 150 GATT Panel Report, US—Taxes on Automobiles, 11.10.1994, DS31/R, paras 5.8 ff. 151 ‘This test originated in the text of Art.III:1 GATT according to which internal taxes or charges or other regulations ‘should not be applied to imported or domestic products so as to afford protection to domestic production.’ 152 WTO Panel Report, Japan—Alcoholic Beverages II, WT/DS58/R, WT/DS10/R, WT/DS11/R, adopted 1.11.1996, para 6.16. 153 WTO Appellate Body Report, EC—Bananas III (Ecuador), WT/DS27/AB/R, para 241. 154 In the Matter of an Arbitration under Chapter 11 of the NAFTA between Pope & Talbot Inc and the Government of Canada, Award on the Merits of Phase 2, paras 43–72.

Tr ade and Investment

215

GATT provisions to Article 1102 NAFTA. It is also problematic since GATT/WTO case-law is both abundant and far from ‘settled’. Several interpretative issues arising from GATT/WTO case-law should in fact be mentioned in this context. Generally, in the case US—Gasoline, the AB established that Article XX GATT is subject to a two-tiered analysis which involves ‘first, provisional justification by reason of characterization of the measure under XX(g);155 second, further appraisal of the same measure under the introductory clauses of Article XX’.156 In EC—Asbestos, the AB emphasized that ‘Article XX(b)157 allows a Member to “adopt and enforce” a measure, inter alia, necessary to protect human life or health, even though that measure is inconsistent with another provision of the GATT 1994’. It also held that GATT Articles III:4 and XX(b) are distinct and independent provisions, each to be interpreted on its own. Under Article III:4, consequently, evidence relating to health risks may be relevant in assessing the competitive relationship in the market-place between allegedly ‘like’ products. On the other hand, the same or similar evidence serves a different purpose under Article XX(b), namely that of assessing whether a member has a sufficient basis for adopting or enforcing a WTO-inconsistent measure on the grounds of human health.158 In any case, a measure in question would only be justified if there is ‘no alternative measure that would achieve the same end and that is less restrictive of trade than a prohibition’.159 In Methanex, another case involving a key ruling on national treatment, a Canadian company challenged Californian regulations on gasoline additives and, as in SD Myers, sought to base its case for breach of the national treatment obligation of Article 1102 on an alleged protectionist intent or purpose pursued by the Californian measures. By further claiming that a breach of Article 1102 would of itself ground a breach of Article 1005 NAFTA, which defines the minimum standard of treatment by reference to both customary and treaty-based international law, Methanex also suggested that the ‘like product’ analysis and the specific exceptions to free trade disciplines thereto available in the GATT/WTO framework of trade law should also be applied to the Chapter 11 analysis. This view was expressly rejected by the tribunal. It declined to be bound by the trade law analysis, based on different language in trade and investment provisions in NAFTA and in trade law and investment law more generally.160 The tribunal also stated that the like circumstances test 155 Art XX(g) deals with the general exception of measures ‘relating to the conservation of exhaustible natural resources’. 156 United States—Standards for Reformulated and Conventional Gasoline, AB Report WT/DS2/ AB/R, 22. 157 Article XX(b) provides a general exception for measures ‘necessary to protect human, animal or plant life or health’. 158 EC—Measures Affecting Asbestos and Asbestos-Containing Products, AB Report WT/DS135/ AB/R, para 115. 159 Ibid para 172. 160 See comment by Howard Mann, ‘The Final Decision in Methanex v United States: Some New Wine in Some New Bottles’, IISD, August 2005, pp. 4–5 (available at ).

216

Friedl Weiss

necessitated a comparison of the foreign investor to those most closely comparable domestically, which meant comparing Methanex, as a manufacturer of methanol, to other US-based manufacturers of methanol and not, as Methanex suggested, to manufacturers of all or any other gasoline additives. By thus interpreting the notion of ‘in like circumstances’ more narrowly, the tribunal avoided some of the confusion still implicit in the ‘accordion-like’161 approach to the like products test in trade law.

(5) Back to the Future: A Possible Framework for a WTO Investment Agreement Based on the above summary survey of the ongoing parallel evolution of bilateral and plurilateral approaches to investment and trade, and on salient NAFTA features and linkages between them in pertinent case-law, it might be appropriate to assemble some elementary building blocks for a possible future WTO Investment Agreement, taking account of positions adopted by WTO members in the WGTI.162 While the position of DCs has undergone considerable refinement since the days of the Havana Charter and continues to elude any generalizations, with respect to both investment as such and its multilateral regulation, most DCs still consider liberalization of investment restrictions an inherently politically sensitive process fraught with multiple uncertainties.163 Therefore, a WTO Investment Agreement would need to strike a balance between the benefits expected to result from increased liberalization and investment flows and the likely retention by some DCs of restrictive measures whether for political or developmental reasons.164 Some consideration of corporate obligations must also be part of that balance. The fact that through its provisions on ‘commercial presence’ the GATS already includes establishment as a mode of supply on which commitments can be made may weaken the case for 161 WTO Panel Report, Japan—Alcoholic Beverages II, above note 152, paras 8.5 and 8.6. 162 See Note by the WTO Secretariat on Scope and Definitions: ‘Investment’ and ‘investor’, WT/ WGTI/W/108, 21 March 2002. 163 For an insightful discussion of the complexities of past negotiations perceived as a zero-sum game yielding either full liberalization or full protectionism, see Peter T Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Lessons for the Regulation of International Business’, in Ian Fletcher, Loukas Mistelis and Marise Cremona (eds), Foundations and Perspectives of International Trade Law (London, Sweet and Maxwell, 2001) 114 at 129–31. 164 Kurtz, above n 147 at 58–60.

Tr ade and Investment

217

negotiating a stand-alone investment agreement in the WTO as a priority. It might also be argued that once substantial further progress has been achieved regarding liberalizing trade in goods and services on a non-discriminatory basis, including market access through establishment in (non-tradable) services, it will become much clearer whether the potential benefits of such an agreement on general rules on investment policies would justify launching multilateral negotiations. At the same time, there would seem to be several reasons not to follow the NAFTA model of Chapter 11 as a ‘binding’ precedent. One is because its strong provisions on liberalization (notwithstanding ample scope for country- and sector-specific reservations and exceptions), protection, and dispute settlement somewhat anachronistically reflect preoccupation with excessive protectionism and hostile expropriatory conduct of newly independent DCs during the bygone days of the Cold War era. On the other hand, as recent measures in Russia, Bolivia, Ecuador, and Venezuela have shown, expropriation and forced re-negotiation of contracts are by no means just things of the past. Other factors are the equally outdated, broad, and undefined coverage of NAFTA provisions such as on ‘Minimum Standard of Treatment’ (Art 1105) and on ‘Expropriation’ (Art 1110),165 as well as the ongoing difficulties in dealing with the issue of regulatory autonomy. Contemporary foreign investors would seem to be more interested in securing entry and freedom of operation in host states rather than guarantees of investment protection. Furthermore, the lessons of the ‘MAI experience’, particularly the vociferous opposition of certain NGOs should be heeded. Thus, negotiations would need to be transparent, based on clear principles and objectives, and should also accommodate the legitimate concerns of NGOs, particularly linkages between investment and such matters as environmental protection and labour standards. Such an approach would also reconnect with that of the Havana Charter, with its socio-economic frame for liberalizing regulatory policies. Certain building blocks may need to be put into place to achieve these balancing goals. First, the scope of investment will need to be clarified. Evidently, the definition of investment will determine the scope of operation of the WTO Investment Agreement as a whole. In its report on the scope and definition of the basic concepts of ‘investment’ and ‘investor’, the WGTI had analysed the nature and function of both narrow and broad definitions of investment.166 It pointed out that most IIAs take as their starting point a broad, asset-based definition covering both direct and 165 The case of Metalclad addressed, inter alia, the issue of creeping expropriation of investment in the context of public welfare regulation but the arbitration tribunal declined to ‘decide or consider the motivation or intent of the adoption’ of the environmental measure in issue and instead considered only the scale of impact of a challenged measure on investment: ‘Thus, expropriation under NAFTA includes not only open, deliberate and acknowledged takings of property . . . but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if not necessarily to the obvious benefit of the host state’, Metalclad v Mexico, ICSID Case No. ARB(AF)/97/1 award of 30 August 2000, 40 ILM 36 (2001) para 103. 166 Above n 162.

218

Friedl Weiss

indirect forms of FDI (ie FDI and portfolio investment) and identified three aspects as advantages of a broad definition, namely flexibility, compatibility with existing BITS, and forward-looking adaptability to the evolution of new hybrid forms of investment. The particular advantage for DCs of a broad definition going beyond FDI would be the possibility of gaining further concessions from developed countries on matters of interest to them, such as on disciplines on the use of investment incentives.167 It also recognized that, in today’s global economy, the distinction between FDI and foreign portfolio investment has become increasingly difficult to make since both can play an important role in providing foreign exchange and financing capital formation in host countries; and that the exclusion of portfolio capital from coverage would inhibit the growth of all international investment including FDI, especially to DCs, since successful FDI depends upon a range of associated capital flows, including some forms of short-term capital.168 On the other hand, the WGTI also found that the advantages of a narrow definition restricted to traditional FDI were also limited and have not been accepted by all. Considering, however, that DCs are unlikely to accept coverage of short-term and often speculative capital flows such as portfolio investment, a narrower definition than that of NAFTA and the MAI should be envisaged or the coverage limited to FDI. Alternatively, a broader definition going beyond FDI could include a list of assets from an exhaustive list on which consensus could be reached. Secondly, it is accepted that both main non-discrimination standards—MFN and national treatment—should form the bedrock of the WTO Investment Agreement. But no agreement seems to exist as to which national regulatory standards these should apply to. For example, should liberalization provisions apply to some or all de jure discriminatory measures, including pre-admission restrictions? Should the use of investment incentives be restricted? Likewise, should the agreement also deal with the problem of de facto discriminatory measures which, while not discriminatory to foreign investors as such, may have some incidental adverse impact upon them? As has been mentioned above, the entry of foreign investors is inherently politically sensitive so that a WTO Investment Agreement might simply exclude MFN and national treatment from the pre-admission phase of the investment. Alternatively, a GATS-like bottom-up approach to scheduling commitments on pre-establishment matters could be chosen which would allow host states significant discretion in the selection of national economic sectors to be open to the entry of foreign investors. Post-admission restrictions, on the other hand, are usually motivated and designed so as to optimize economic benefits from foreign investment and should, therefore, be modelled upon the stricter top-down liberalization approach of NAFTA. Under 167 DCs, however, were sharply divided on the issue of whether an investment agreement would need to deal with the issue of investment incentives. 168 Above n 162 para 54.

Tr ade and Investment

219

this approach all economic sectors and national laws would be subject to liberalization, unless a WTO member exempts specific measures by submitting a list of such measures. Thirdly, disciplines governing the use of investment incentives and performance requirements, both forms of preferential treatment of foreign investors, may be difficult to come by. Although this is the area of the largest potential gains for DCs,169 the absence of such disciplines from NAFTA and the MAI would seem to signal continuous resistance from certain, though not from all, OECD countries. On the other hand, developed WTO members might seek an extension of the list of performance requirements subject to the TRIMS Agreement. Such a constellation might provide negotiators with a set of intra-issue linkages for accommodating both strategic interests. Indeed, a ‘Grand Bargain’ could consist of some disciplines on the use of investment incentives against further commitments on limiting the use of performance requirements.170 Investment protection, lastly, should be attuned to the main interest of foreign investors which, as mentioned before, is to gain entry and freedom of operation in a host state. A WTO Investment Agreement, therefore, should focus on what it is best suited to, liberalization rather than protection, in view also of the difficulties associated with the broad NAFTA standards of protection on minimum standard of protection (Art 1105) and on expropriation (Art 1110). Finally, the settlement of disputes could squarely be based on present WTO dispute settlement procedures.171 In fact, their application to investment disputes might limit some of the more troublesome NAFTA Chapter 11 challenges to regulatory measures by certain investors. But the inclusion of some investor–state dispute resolution procedures might, nonetheless, be desirable and, though in principle politically sensitive for many DCs, might form part of a package of carefully crafted provisions acceptable to all WTO members.

Concluding Remarks In economic terms, it would appear incontrovertible that maintaining an everincreasing network of RTAs, alongside multilateral rules, produces an overall decrease in economic welfare. Interested enterprises expect stable, predictable 169 Some DCs, however, would only agree to negotiate on investment in the WTO on condition that incentives be excluded from the scope of the negotiations. 170 Kurtz, above n 147 at 62. 171 See generally, UNCTAD, above n 3, Vol I, ch 11, Dispute Settlement: State-State, 315–45.

220

Friedl Weiss

multilateral framework conditions, regardless of whether their transactions involve trade or investment. In legal terms, the proliferation of RTAs among WTO members creates a complex system of competing international rights and obligations. The consequence of this complex economic system may be to the detriment of economic welfare. Small, developing countries may see value in liberalizing within regional trade arrangements as a means of working their way into the harsher competitive realities of the global economy. MERCOSUR is one example of such a grouping. However, the development of complex networks of investment relations and regulatory regimes places developing countries in a weaker position than does a multilateral framework. Speaking at the 2001 World Economic Forum in Davos, South Africa’s former Trade Minister, Alec Erwin, stressed that the increase in trading costs due to RTAs are particularly burdensome for small corporations and traders, and hence developing countries,172 a cautionary tale that may equally apply to investment provisions of RTAs. RTAs, nevertheless, may enable countries to address issues that the multilateral system is ill-equipped or unable to address due to the vast and varying nature of WTO membership. The Sutherland Report also argues against the injection of ‘nontrade’ objectives into RTAs, stating that ‘if such requirements cannot be justified at the front door of the WTO they probably should not be encouraged to enter through the side door’.173 At the end of the day, are RTAs the proper place to address these ‘investment and’ issues? From the standpoint of economic rationale, RTAs appear to be an undesirable occurrence, although undoubtedly more so regarding trade than investment. With this in mind, could it be said that the field of politics, with all its resulting problems, has eclipsed that of sound trade and investment policy? What is needed is a return to the founding precept of the world economic order: the multilateral MFN principle. This would end the legal fragmentation RTAs represent and strengthen the credibility of the multilateral institutions. If the current situation is allowed to persist, we run the risk of a return of the Hobbesian vision of international society, ‘and the life of man—nasty, brutish and short’.

Select Bibliography Beier, Friedrich-Karl, and Schricker, Gerhard (eds), GATT or WIPO? New Ways in the International Protection of Intellectual Property (Weinheim, VCH Verlagsgesellschaft, 1989) Böckstiegel, ‘Karl-Heinz, ‘Internationale Streiterledigung vor neuen Herausforderungen’, in Ulrich Beyerlin, M Bothe, R Hofmann, and EU Petersmann (eds), Recht zwischen

172 Sutherland Report 22. 173 Ibid at 23.

Tr ade and Investment

221

Umbruch und Bewahrung, Festschrift für Rudolf Bernhardt (Berlin and New York, Springer-Verlag, 1995) Brewer, T, and Young, S, ‘Investment Issues at the WTO: The Architecture of Rules and the Settlement of Disputes’, 1 JIEL 457 (1998) Brown, W Adams, The United States and the Restoration of World Trade (Washington, The Brookings Institution, 1950) Cass, RA, ‘Economics and International Law’, 29 Int’l L & Politics (1997) Cottier, Thomas, ‘Intellectual Property in International Trade Law and Policy: the GATT Connection’, 47 Aussenwirtschaft 99 (1992). Curtiss, Catherine, ‘Agreement on Trade-Related Investment Measures: A Five-Year Review’, Comp L YB Int’l Bus 233 (2003) Dolzer, R, and Schreuer, C, Principles of International Investment Law (Oxford, Oxford University Press, 2008) Fernandez, Raquel, and Portes, Jonathan, ‘Returns to Regionalism: An Analysis of Nontraditional Gains from Regional Trade Agreements’, 12(2) World Bank Econ Rev 197 (1998) Gestrin, Michael, and Rugman, Alan, ‘Rules for Foreign Direct Investment at the WTO: Building on Regional Trade Agreements’, in Patrick Macrory, Arthur E Appleton, and Michael G Plummer (eds), The World Trade Organisation: Legal, Economic and Political Analysis, Vol II 313 (New York, Springer Verlag, 2005) Gray, John, False Dawn: The Delusions of Global Capitalism (London, Granta Books, 1998) Greider, William, One World, Ready or Not: The Manic Logic of Global Capitalism (New York, Simon & Schuster, 1997) Guzman, T, ‘Why LDCs Sign Treaties that Hurt them: Explaining the Popularity of Bilateral Investment Treaties’, 38 Va J Int’l L 639 (1998) Houde, Marie-France, and Yannaca-Small, Katia, ‘Relationships between International Investment Agreements’, Working Papers on International Investment No. 2004/1, OECD, May 2004 Hummer, Waldemar, and Weiss, Friedl, ‘Vom GATT ’47 zur WTO ’94’, Dokumente zur Alten and zur Neuen Welthandelsordnung (1997) Kohler, Josef, ‘Die Stellung des Haager Schiedshofes’, VII Zeitschrift für Völkerrecht 113 (1913) Koulen, M, ‘Foreign Investment in the WTO’, in EC Nieuwenhuys and MMIA Brus (eds), Multilateral Regulation of Investment 181 (The Hague, Kluwer Law International, 2001) Kurtz, J, ‘A General Investment Agreement in the WTO? Lessons from Chapter 11 NAFTA and the OECD Multilateral Agreement on Investment’, Jean Monnet Working Paper 6/02, NYU School of Law Kuyper, Pieter Jan, ‘The Law of GATT as a Special Field of International Law’, 25 Netherlands YB Int’l L 227 (1994) Lesher, Molly, and Mirodout, Sébastien, ‘Analysis of the Economic Impact of Investment Provisions in Regional Trade Agreements’ (OECD Trade Policy Working Paper No. 36, 11 July 2006) Linarelli, John, ‘The WTO Agreement on Government Procurement and the UNCITRAL Model Procurement Law: A View from Outside the Region’, 1 Asian J WTO & Int’l Health L & Policy 61 (2006) Mann, Howard, ‘The Final Decision in Methanex v. United States: Some New Wine in Some New Bottles’, IISD, August 2005

222

Friedl Weiss

Micklethwaite, John, and Wooldridge, Adrian, A Future Perfect: The Challenge and Hidden Promise of Globalisation (New York, Crown Business, 2000) Monbiot, George, Captive State: The Corporate Takeover of Britain (London, Macmillan, 2000) ——, ‘The Social Dimension of International Investment Agreements’, in Julio Faundez, Mary E Footer, and Joseph J Norton (eds), Governance, Development and Globalisation (London, Blackstone Press, 2000) ——, ‘The Rise and Fall of the Multilateral Agreement on Investment: Lessons for the Regulation of International Business’, in lan Fletcher, Loukas Mistelis, and Marise Cremona (eds), Foundations and Perspectives of International Trade Law (London, Sweet and Maxwell, 2001) Muchlinski, P T, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd ed, 2007) OECD, Regionalism and the Multilateral Trading System (Paris, OECD 2003) Panourgias, Lazaros E, Banking Regulation and World Trade Law, GATS, EU and ‘Prudential’ Institution Building (Oxford, Hart Publishing, 2006) Pauwelyn, Joost, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge, Cambridge University Press, 2003) Reuter, Paul, Introduction to the Law of Treaties (London and New York, Pinter, 1989) Rojas, FG, ‘The Notion of Non-discrimination in Art.1102 NAFTA’, Jean Monnet Working Paper 05/05, NYU School of Law Ruggie, John G, ‘International Regimes, Transactions, and Change: Embedded Liberalism and the Post-War Economic Regimes’, 36 Int’l Org 379 (1982) Salacuse, Jeswald W, ‘Towards a New Treaty Framework for the Direct Foreign Investment’, 50 J Air L & Commerce 969 (1985) Sauvé, P, ‘A First Look at Investment in the Final Act of the Uruguay Round’, 28 JWT 5 (1994) Schrijver, N, and Weiss, F (eds), International Law and Sustainable Development: Principles and Practice (The Hague, Martinus Nijhoff Publishers, 2004) Schwarzenberger, G, ‘The Principles and Standards of International Economic Law’, 89 Recueil de Cours (1966) Sterlini, Martha Lara de, ‘The Agreement on Trade-Related Investment Measures’, in Macrory et al 2005, Vol I, p 437 Stewart, Terence P (ed), The GATT Uruguay Round: A Negotiating History, Vol I (The Hague, Kluwer Law International, 1993) Trachtman, Joel P, ‘Lessons for the GATS from Existing WTO Rules on Domestic Regulation’, in Aaditya Matoo and P Sauve (eds), Domestic Regulation and Service Trade Liberalisation (Washington, World Bank, Oxford University Press, 2003) Wälde, Thomas, and Kolo, Abba, ‘Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law’, 50 ICLQ 811 (2001) Wehberg, Hans, ‘Die Schiedsgerichtsklausel in deutschen Handelsverträgen’, 7 Zeitschrift für Völkerrecht (1913) at 153 ——, ‘Vierzig ständige Schiedsverträge’, 7 Zeitschrift für Völkerrecht (1913) Suppl 2 Weiler, Todd, ‘Saving Oscar Chinn: Non-discrimination in International Investment Law’, in T Weiler (ed), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law 557 (London, Cameron May, 2005)

Tr ade and Investment

223

——, ‘Trade and Labor I’, in Macrory et al 2005, Vol II, p 571 ——, ‘TRIPS in Search of an Itinerary: Trade Related Intellectual Property Rights and the Uruguay Round Negotiations’, in G Sacerdoti (ed), Liberalisation of Services and Intellectual Property in the Uruguay Round of GATT 87 (Fribourg, Switzerland, University Press, 1990) ——, ‘The General Agreement on Trade in Services’, 32 CMLRev 1177 (1995) ——, ‘The WTO and the Progressive Development of International Trade Law’, 29 Netherlands YB Int’l L 71 (1998) Weiss, Friedl, ‘Globalisation through WTO Integration: Neither Friend nor Foe, From the Board’, 30(2) LIEI 95 (2003) ——, ‘The Limits of the WTO: Facing Non-trade Issues’, in G Sacerdoti, J Bohanes and A Yanovich (eds), The WTO at 10: The Role of the Dispute Settlement System (Cambridge, Cambridge University Press/WTO, May 2006) ——, Waart, Paul de, and Denters, Eric (eds), International Economic Law with a Human Face (The Hague, Kluwer Law International, 1998) Wilcox, C, A Charter for World Trade (New York, Macmillan, 1949) Wilkins, M, The History of Foreign Investment in the United States to 1914 (Cambridge, Mass, Harvard University Press, 1989) Wilson, Robert R, United States Commercial Treaties and International Law (New Orleans, Hauser Press, 1960)

This page intentionally left blank

P a r t II

S U B S TA N T I V E ISSUES

This page intentionally left blank

chapter 7

A DM I S S IO N A N D E S TA B L I S H M E N T Ignacio Gómez-Palacio Peter Muchlinski *

(1) Admission, Establishment, and Market Access

229

(2) Policy Considerations: Host Country and Investor Interests

232

(3) Rights of Admission and Establishment under National Investment Laws

236

(4) Rights of Admission and Establishment under IIAs (a) The Controlled Entry Model (b) The Full Liberalization Model (c) Other Approaches (i) The GATS-type ‘Positive List’ Approach (ii) The EC-type ‘Right to Establishment’ (iii) Regional Industrialization and Admission and Establishment

239 240 242 245 245 247 250

(5) Balancing Admission and Establishment and Regulatory Discretion

250

Concluding Remarks

256

* Professor Gómez-Palacio is an External Advisor to the Ministry of Foreign Affairs on matters of private international law. Founding Partner of Gómez-Palacio of Asociados. Arbitrator in NAFTArelated cases. Former Senior Consultant at the Centre on Transnational Corporations at the UN . The authors wish to extend their gratitude to Mr Donald McCarthy for his editing work and useful commentaries.

228

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

The admission of investments and the ‘right of establishment’ concern each country’s sovereign right to regulate the entry of foreign direct investment (FDI). This right is based on the state’s control of its territory, which carries the attendant right to exclude aliens from that territory. That right is absolute and can only be restricted by international agreement. Thus, this is an area of law in which positive investor rights of entry and establishment arise by way of an exception to the general rule of international law. As a result, states have a wide discretion over whether and how far to admit investors into the national economy and market. The admission of FDI has a significant impact on the national and regional economy and other matters of concern for the country. According to UNCTAD, states have sought to control the entry and establishment of foreign investors as a means of preserving national economic policy goals, national security, public health and safety, public morals and serving other important issues of public policy . . . . Therefore, such controls represent an expression of sovereignty and of economic self-determination, whereby Governments will judge FDI in the light of the developmental priorities of their countries rather than on the basis of the perceived interests of foreign investors.1

At the same time, as noted in the introductory chapter, the process of globalization is putting pressure on host countries to provide an ‘open door’ to foreign investors, resulting in an overall trend towards liberalization of admission and establishment conditions. For example, the UNCTAD World Investment Report 2005 notes that, in 2004, a total of 271 measures were adopted by 102 economies of which the vast majority (87) tended to make conditions more favourable for foreign companies to enter and to operate.2 Equally, countries that seek to encourage foreign investment may restrict their wide area of discretion through international treaties, by the inclusion of a clause embodying rights of entry and establishment for foreign investors.3 However, in more recent years, this trend has been challenged. While the general trend towards further liberalization has continued in 2005–6 in Latin America, more restrictive laws have been passed in a number of countries, mainly in the natural resources sector, as in Venezuela, Chile and Bolivia, or as a result of economic emergency measures, as in the case of Argentina.4 Equally, Russia has introduced sectoral restrictions,5 while Thailand has also proposed a more restrictive

1 UNCTAD, Admission and Establishment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999). 2 UNCTAD, World Investment Report 2005 (New York and Geneva, United Nations, 2005) at 22. 3 See further Ibrahim FI Shihata, ‘Recent Trends Relating to Entry of Foreign Direct Investment’ 9 ICSID Rev–FILJ 47 (1994). 4 See UNCTAD, World Investment Report 2006 (New York and Geneva, United Nations, 2006) at 23–5. 5 See Federal Law on Foreign Investment in the Russian Federation, 9 July 1999: 39 ILM 894 (2000). ‘Russia to Set Controls on Foreign Investment’, Financial Times, 3 March 2006, p 6. ‘Russia Restricts Foreign Bids’, Financial Times, 11 February 2005, p 1.

Admission and Establishment

229

foreign investment law.6 Among developed countries, concern over foreign takeovers has also become more commonplace especially in the EU member countries.7 Accordingly, there is now a degree of unease over a ‘backlash’ towards uncontrolled admission and establishment by foreign investors and talk of a ‘new protectionism’ among politicians.8 Thus it should not be assumed that a more open approach to admission and establishment conditions is here to stay, even where international agreements appear to protect it. Against this background, the present chapter will outline the major legal and policy issues that the development of rights to admission and establishment raise under international law. The chapter begins with an assessment of the meaning of the terms ‘admission’ and ‘establishment’ as well as the related term ‘market access’. It goes on to consider various interests of the host country and the investor that inform the development of legal responses in this field. It continues with a review of the major trends in admission and establishment provisions in national laws and in international investment agreements (IIAs). As regards the international dimension, this study relies to a great extent on the significant work done in this regard by UNCTAD and seeks to update that work in the light of more recent developments.9 Finally, by way of conclusion, it will seek to relate the foregoing discussion to the wider policy issues raised in the introductory chapter.

(1) Admission, Establishment, and Market Access At the outset, these three concepts need to be distinguished. They are often used interchangeably. This is apt to lead to confusion as to the precise scope of the right of an investor to enter and to do business in the host country, where such a right is 6 Thailand, The Ministry of Commerce, The Foreign Business Act Amendment: A Brief Explanation, 19 January 2007, available at and ‘Thais may Redraw Law on Foreign Ownership’ Financial Times, 28 December 2006, at 5. 7 See further Peter T Muchlinski, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) at 410–12. 8 See eg the speech of Nicolas Sarkozy reported in Martin Arnold, ‘Sarkozy Aims to Block Foreign Takeovers’, FT.Com, 29 March 2007, available at . 9 See UNCTAD, above n 1 and UNCTAD, World Investment Report 2003 (New York and Geneva, United Nations, 2003) ch IV. Professor Muchlinski is the author of the manuscript that forms the basis of the 1999 UNCTAD study. See too Thomas Pollan, The Legal Framework for the Admission of FDI (Utrecht, Eleven International Publishing, 2006), which also seeks to update the UNCTAD analysis.

230

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

actually granted. Admission is not the same as establishment or market access. They all refer to distinctive ways in which an investor can interact with the host country. The key to understanding these differences lies in the duration of the proposed investment. FDI is generally looked upon as creating a long-term relationship between the investor and the host state and it is coupled with the notion of a lasting interest, in part influenced by the realities of the ongoing presence of the investor. However where FDI is seen as a short-term commitment, then a clear separation can be made, between the right of admission—which deals only with the right of entry, that is, the rules set for admission—and the right of establishment—which deals with the way the activity of the investor will take place over the duration of the investment and also with the protection of the type of presence that may be permitted.10 Following from the above, where the investor seeks a short-term presence in the host country market, temporary admission may be sufficient for the duration of a specific project or transaction. Where the investor seeks a longer-term investment, then some form of more permanent admission would be required. Here a distinction can be made between a permanent right of market access and a right to permanent establishment. The former will allow the investor to do business in the host state, but without the grant of a right to set up a permanent business presence. Market access rights may be sufficient where the investor is primarily involved in regular crossborder trade in goods or services, or where business is carried out by way of electronic transactions, obviating the need for a permanent presence in the host state.11 Where some form of permanent business presence is preferred by the investor, a full right of establishment may be required. According to UNCTAD, this ensures that a foreign national, whether a natural or legal person, has the right to enter the host state and set up an office, agency, branch or subsidiary (as the case may be) possibly subject to limitations justified on grounds of national security, public health and safety or other public policy grounds . . . Thus the right to establishment entails not only a right to carry out business transactions in the host state but also the right to set up a permanent business presence there.12 10 Patrick Juillard, in response to Dr Ibrahim Shihata’s article on FDI entry (see above n 4), addresses the differences between ‘freedom of establishment’, ‘freedom of capital movement’ and ‘freedom of investment’: Patrick Juillard, ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Investment’, 15 ICSID Rev–FILJ 322 (2000). While this chapter identifies these concepts as ‘rights’, Juillard addresses them as ‘freedoms’, and, further, concentrates on the concept of ‘freedom of investment’. In his view, this concept is problematic. First, it depends on what is defined as ‘investment’ for which there is no accepted single definition. Secondly, the word ‘investment’ appears in many international instruments with differing purposes. See further Schlemmer, ch 2 above. Juillard also warns of the dangers of reading these concepts as interchangeable, though they do have correlations, as will be discussed further below. In the present authors’ opinion, whether one refers to ‘rights’ or ‘freedoms’ in this context makes little difference in practice. Where an international agreement, or national law, offers investors the ability to enter and/or to become established in the national market, whether this is described as a ‘right’ or ‘freedom’ appears to be of little legal consequence. 11 See UNCTAD, above n 1 at 12. 12 Ibid.

Admission and Establishment

231

The right of establishment takes a number of different forms, from investing through a representative office, to the use of an agency or branch, or the incorporation of a subsidiary. These generally have different tax and other regulatory consequences which the investor will need to consider when determining the form that the investment will take. In addition, under certain national laws the legal form of the establishment will be mandated. Thus, for example, Ghana requires the incorporation of a local company as part of the registration process for the investment.13 In addition, the right may be made subject to certain legal obligations on the investor and/or the investment. In particular, the host country may impose performance requirements as a condition of entry.14 More recently the practice has emerged, particularly in relation to major infrastructure and utility projects, to organize the investment by way of public private partnership (PPP) arrangements.15 Furthermore, the right of establishment may be supplemented with access to investment incentives.16 The policy reasons for such variations and adaptations of the right to establishment will be considered in Section 2 below. The right of establishment is in essence a non-discrimination standard. Depending on the nature and scope of any applicable IIA, this right will require equality of treatment between different foreign investors under the most-favoured-nation standard (MFN) and as between foreign and domestic investors under the national treatment standard. As will be seen below, certain IIAs extend these non-discrimination standards to the pre-entry stage, thereby ensuring equality of competitive conditions for market entry and establishment. At this stage, the non-discrimination standard protects the foreign investor against wasting costs and alternative investment opportunities in the hope of securing access to the host state market, only to find its way barred by reason of preferential treatment for domestic, or other foreign, investors. Once the investment is established, all IIAs will protect its subsequent treatment in accordance with the non-discrimination standard.17 Regarding the interaction between the concepts of admission, establishment, and market access, it follows from the above that where the investment is short-term, and does not require a significant commercial presence in the host country, a right of admission will suffice. For example, a portfolio investment in a local company 13 See Ghana Investment Promotion Centre Act 1994 (Act 478 of 1994) ss 21, 22, available at . 14 On the nature and definition of performance requirements and their treatment under international investment agreements, see UNCTAD, Host Country Operational Measures, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001). See too UNCTAD, Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries (New York and Geneva, United Nations, 2003) chs II-V covering Chile, India, Malaysia, and South Africa. 15 See further Michael B Likosky, Law Infrastructure and Human Rights (Cambridge, Cambridge University Press, 2006) ch 2. 16 See further UNCTAD, Incentives, Series on issues in international investment agreements (New York and Geneva, United Nations, 2004) and Muchlinski, above n 7 at 219–26. 17 On ‘standards of treatment’, including ‘national treatment’ and ‘most favoured nation treatment’, see Todd Griersen-Weiler and lan laird, ch 8 below.

232

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

may not require the investor to set up a permanent establishment in order to make the investment or to oversee its operation. Equally, where the investor is mainly concerned with the cross-border provision of goods and/or services, a right of admission will be necessary, as where the investor needs permission to trade in the national market or to enter a licensing or distribution agreement with a local enterprise, but without the need for a permanent establishment. Arguably, this is not in fact a proper case of investment but of trade. Nonetheless, it is proper to include this example as investment and trade are often complementary techniques employed by multinational enterprises (MNEs) as part of their market entry strategies.18 However, where a long-term direct investment is made, involving not only the transfer of capital into the host country but also the transfer of productive assets that remain under the control of the investor, then the rights of admission and establishment need to work together to ensure the effective initiation of the investment. Indeed, much will depend also on the scope of the definition of investments which the national law or IIA, which grants rights of admission and establishment, applies. Thus a broad assetbased definition will cover most types of investment, regardless of the need for permanent establishment or even actual commercial presence in the host country, while narrower definitions, focused on the nature of the enterprise undertaken in the host country, may restrict these rights only to investments undertaken through a permanent establishment involving actual commercial presence in the host country.19

(2) Policy Considerations: Host Country and Investor Interests The investor and the host country (together with the active or passive position of the investor’s government) enter, from the outset, into a relationship with the potential 18 Indeed, some of the recent investment cases under the NAFTA may be seen as essentially trade cases concerning discriminatory denial of market access opportunities. See eg SDMyers v Canada UNCITRAL Award of 12 November 2000, available at or 40 ILM 1408 (2001) and Pope and Talbot v Canada, Award on the Merits of Phase 2, 10 April 2001, available at . 19 See further Schlemmer, ch 2 above; UNCTAD, Scope and Definition (New York and Geneva, United Nations, 1999) and UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Rulemaking (New York and Geneva, United Nations, 2007) at 7–13. It is common to exclude certain assets from the benefits of an agreement, such as short-term contracts or portfolio investment. This can be performed by narrowing the definition to cases of direct investments only.

Admission and Establishment

233

for a clash of conflicting interests. Both parties seek the highest possible revenues and benefits. Both the investor and the host state are in need of something the other party possesses. The investor holds capital, technical knowledge, distribution channels, and the like. The host state has infrastructure, geographic position, natural resources, technical skills, low-cost labour, or an attractive domestic market. The point of entry is the moment when these specific negotiating advantages will serve to inform the bargaining process between the investor and the host country. The outcome of that process will to a large extent determine the nature of the admission and/or establishment rights that the investor will enjoy. In this context, the priorities of the host country stem from the fact that, regardless of its level of economic development, inward direct investment may be needed to supply new capital, technology, goods or services that no locally based firm can supply at equivalent or lower cost.20 Thus, host states will generally encourage the entry of firms that can bring these factors into the economy.21 However, host states will wish to guard against some of the difficulties that can result if inward direct investment is permitted. These may involve concerns over the ‘crowding out’ of local competitors faced with the presence of more efficient foreign firms, the need to encourage technological and other ‘spillovers’ from the foreign investor to local firms, the building of local linkages to the investment and the general effects of the investment on jobs, exports, and longer-term economic development.22 Thus, conditions may be imposed on the entry of a foreign firm. These may relate to the legal form that the local enterprise must take, the level, if any, of local ownership in the new enterprise, and any performance requirements that the enterprise must fulfil, regarding, for example, import levels, technology and skills transfer, job levels, export levels, or long-term investment strategy. Alternatively, foreign firms may be prohibited completely from certain sensitive sectors of the host economy or permitted to invest only through joint ventures with a local partner. Apart from entry requirements, the host may impose measures to ensure adequate revenue from the investment by way of taxation. It will also normally subject the local affiliate of the MNE to the general system of business regulation in force within the host state, including competition, company, labour, and intellectual property law. By contrast, the interests of the investor will depend to a large extent on the motives underlying the decision to invest in the host country in question.23 To understand this point more fully, it is necessary to distinguish four different types of international investment: natural resource-seeking, market-seeking,

20 This paragraph is adapted from Muchlinski, above n 7 at 85–6. 21 See World Investment Report 2003, above n 9 at 86–8. 22 See generally UNCTAD, World Investment Report 1999 (New York and Geneva, United Nations, 1999) Part Two, ‘Foreign Direct Investment and the Challenge of Development’. 23 The following paragraphs are adapted from Muchlinski, above n 7 at 31–2.

234

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

efficiency-seeking, and strategic asset-seeking investment.24 The first is strongly based on locational factors as the distribution of natural resources is uneven across countries and regions. However, other locational factors, such as infrastructure development and regulatory conditions, may affect the firm’s decision to invest. Here the extent of the need to access the resource deposit will be key in determining the relative bargaining power between the host country and the investor. If the need on the part of the investor is high, then the host country will have a strong position from which to impose conditions for entry and establishment. On the other hand, the investor will have a strong position given its control over extractive technology and access to global distribution systems for the resource in question. Market-seeking investment aims to supply a significant foreign market through local production or service provision that replaces importation. The investment may grow over time and in turn begin to export to third markets where the location offers strategic trade advantages to the MNE. It may also change in nature and composition as the life cycle of the product evolves. Here the MNE will be in a strong bargaining position where demand for its products or services is high and cannot be met by local provision alone. On the other hand, the host country can hold out for favourable terms of entry given its ability to exclude the investor from the market, assuming that it has not committed itself to any treaty-based rights of entry and establishment concluded with the home country of the MNE. Efficiency-seeking FDI aims to enhance the competitiveness of the firm by allowing for a more cost-effective cross-border integration of production. It has the effect of increasing intra-firm trade as it involves a rationalization of the MNE’s operations and increased specialization at the affi liate level. In the contemporary investment climate, the key efficiency-enhancing locational advantages appear to be knowledge driven, rather than the low wage advantages that earlier theories identified.25 Where a host country possesses such advantages, it is unlikely to bar the entry of foreign investors who may enhance the knowledge, specific advantages of the host country in this regard. In addition, where the efficiency factor consists of low wages, the possibility of new employment being brought into the economy by foreign investors is likely to lead to an ‘open door’ policy. The history of the economic development of the so-called ‘Asian Tiger’ economies is the best example of this trend. Finally, strategic asset-seeking investment enhances competitiveness by accessing the knowledge-based assets of the investment location. This can be done by establishing new plants, or by acquisition of, or alliance with, local firms. The key 24 See Alan Rugman and Alain Verbeke, ‘Location Competitiveness and the Multinational Enterprise’, in Alan M Rugman and Thomas L Brewer, The Oxford Handbook of International Business (Oxford, Oxford University Press, 2003) 150 at 158–60, on which this paragraph draws. 25 See Rugman and Verbeke, above n 24. This is not to say that low wages are irrelevant in investment decisions. Much depends on the nature of the industry involved. More mature low technology industries will still see wage differentials as an important locational factor.

Admission and Establishment

235

factor is for the MNE to tap into the local innovation system and thereby enhance its technological efficiency. This may lead to the establishment of R&D facilities outside the home country. Again this situation is likely to lead to an ‘open door’ approach as the mutual gains for the host country and the investor may be considerable, especially if R&D is relocated to the host. Such investment is more likely to occur in developed host countries, though some newly industrializing countries are now also becoming favoured locations. As the structure of international production changes, in certain industries a process of ‘fragmentation’ of production is observable.26 This arises as a result of MNEs taking advantage of differences in production and communication costs and skills to relocate processes and functions across countries. This has allowed some developing countries without a strong R&D base to leapfrog to production in high-technology industries such as electronics.27 As a consequence, these countries have been able to attract R&D investment to take advantage of the need to locate such activities close to the site of production and of locally educated science-trained personnel who can be employed for R&D functions in new technologies even in the absence of industrial experience.28 Examples include Singapore and more recently China. However, the vast majority of developing countries are not in a position to achieve this as they lack the required local capabilities.29 The effects of such investment choices by MNEs have tended towards the creation of FDI ‘clusters’ around locations offering the correct mix of locational advantages for the enhancement of firm competitiveness. The major practical effect of this process has been the increasing global integration of production between localized innovation clusters, allowing for possible spillovers of knowledge across borders between such clusters.30 In addition, this has given rise to policy developments that concentrate on the enhancement of the attractiveness of a location as an innovation cluster, whether through incentives and performance requirements or through wider support policies such as infrastructure improvement and training and skills enhancement.

26 This paragraph is adapted from Muchlinski, above n 7 at 434. 27 UNCTAD, above n 2 at 109. 28 Ibid. 29 Ibid at 111–16. UNCTAD has drawn up an ‘Innovation Capability Index’ which ranks countries according to their capability in absorbing R&D activity. The weakest regions are South Asia, in particular Pakistan and Sri Lanka, and Sub-Saharan Africa. See further ibid ch IV for more detailed analysis of R&D investment trends in developing countries. 30 See Rugman and Verbeke, above n 24 at 171–2. See too Peter Dicken, Global Shift: Reshaping the Global Economic Map of the 21st Century (London, Sage Publications, 5th edn, 2007) ch 8, Saskia Sassen, ‘The Locational and Institutional Embeddedness of the Global Economy’, in George A Berman, Matthias Herdegen and Peter L Lindseth, Transatlantic Regulatory Co-operation: Legal Problems and Political Prospects (Oxford, Oxford University Press, 2000) 47. Sassen notes that this process also creates centres of command and control around the main financial centres of the world.

236

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

(3) Rights of Admission and Establishment under National Investment Laws As noted in the introduction to this chapter, most national laws relating to FDI have tended towards a liberalization of investment conditions, including rights of admission and establishment. However, even in the most open economies controls and restrictions on entry by foreign investors will be found. In particular, many countries will seek to protect vital national interests by means of such restrictions. Thus, restrictions on foreign participation will be common in the areas of defence, strategic sectors such as transport and utilities, and in culturally or socially sensitive sectors such as the media or tourism.31 Such sensitive sectors may be specifically identified in national FDI laws by means of recognizing them in negative or positive lists. The former approach lists sectors excluded from foreign participation. For example, under the Nigerian Enterprises Promotion (Repeal) Decree of 1995,32 a non-Nigerian may invest and participate in the operation of any enterprise in Nigeria, except the petroleum industry or industries included in the ‘negative list’ in section 32 of the Decree.33 The latter approach lists sectors open to such participation. This was the approach taken in older investment control laws such as the earlier Nigerian Enterprises Promotion Acts passed in

31 See David Conklin and Donald Lecraw, ‘Restrictions on Foreign Ownership during 1984–1994: Developments and Alternative Policies’, 6(1) Transnational Corporations 1 (1997). On US restrictions, see Phillip I Blumberg, Kurt A Strasser, Nicholas L Georgakopoulos, and Eric J Gouvin, Blumberg on Corporate Groups (New York, Aspen Publishers, 2nd edn, 2005) vol 4. ch 152. US Federal laws restrict foreign investment in the following sectors: public broadcasting and telecommunications, coastal and internal shipping, internal air traffic (though liberalization is being considered), minerals exploitation on public lands, and atomic energy. Until recently state banking laws prohibited alien ownership or control of banks, although Washington State still maintains such restrictions. See too US, Canadian, and Mexican reservations to the North American Free Trade Agreement: 32 ILM 605 at 704–80 (1993) For example, current restrictions prohibit more than a 25 foreign holding of voting stock in a US airline: Federal Aviation Act 1958 Pub L No. 85–726 72 Stat 766 (1958) 49 USC ss 40101 ff (2003). 32 Decree No. 16 of 16 January 1995, see ICSID, Investment Laws of the World Vol. VI (Dobbs Ferry, NY, Oceana Publications) Release 2001–1 Nigeria (June 2001) or the Nigerian Investment Promotion Commission (NIPC) website at . 33 Ibid ss 17, 18. In addition, the screening requirements of the old legislation were abolished and replaced with a registration requirement: see s 20 as amended by s 4 of Decree No. 32 of 30 September 1998 (available in ICSID, ibid or the NIPC website, ibid). However, a foreign investor must incorporate a local company in accordance with Nigerian companies’ legislation to obtain a valid registration: s 19 as amended by s 3 of Decree No. 32. The industries included in the negative list under s 32 are: arms production, production and dealing in narcotic and psychotropic drugs, production of military and paramilitary wares and accoutrement, and ‘such other items as the Federal Executive Council may, from time to time, determine’. The NIPC website lists only the fi rst two in the list.

Admission and Establishment

237

1972, 1977, and 1989.34 The Thai Foreign Business Act also uses a system of negative and positive lists.35 However, this approach is no longer followed by most national FDI laws, which tend to have a simplified registration procedure and no sectoral controls. The delimitation of the scope of admission and establishment for foreign investors is a first step in a country’s position vis-à-vis the right of entry of FDI, one which varies depending on many factors that relate to its size, economy, population, geographical location, and the like. Such restrictions may in turn be echoed in applicable IIAs. For example, in the US and Canadian model BITs, negative lists of exclusions will form part of the agreement and will serve to define the scope of the right of entry and establishment guaranteed under the non-discrimination provisions of the agreement.36 More recently, cultural exceptions are increasingly becoming a topic of concern, with some countries making exceptions to foreign investment in such industries under not only national laws but also IIAs.37 On the other hand, as will be noted below, most BITs do not have a positive right of entry and establishment coupled with a negative list of exceptions. Rather, the prevailing approach in such agreements is to make admission and establishment subject to the requirements of the local law of the host country. Apart from sectoral restrictions, national laws may place limits on foreign shareholdings in national companies,38 or require the investor to enter into a compulsory joint venture with domestic state agencies or entrepreneurs.39 Furthermore, 34 Nigerian Enterprises Promotion Act 1972 (No. 4 of 1972) [1972] Official Gazette Fed Rep Nig 123 A11 (Supp Part A); Nigerian Enterprises Promotion Act 1977 (No. 3 of 1977); Nigerian Enterprises Promotion Act 1989 (No. 54 of 1989) [1989] Official Gazette Fed Rep Nig 76 A809 (Supp Part A); CAP 303 Laws of the Federation of Nigeria Vol 23 (rev edn, 1990). For analysis of the 1972 and 1977 Decrees see: S Megwa, ‘Foreign Direct Investment Climate in Nigeria: The Changing Law and Development Policies’ 21 Colum J Transnat’l L 487 (1983); O Osunbor, ‘Nigeria’s Investment Laws and the State’s Control of Multinationals’, 3 ICSID Rev–FILJ 38 (1988); TJ Biersteker, Multinationals, the State, and Control of the Nigerian Economy (Princeton, Princeton University Press 1987). For the background to the 1989 Act see: Nigerian Federal Ministry of Industries, Industrial Policy of Nigeria (Policies, Incentives, Guidelines and Industrial Framework) (January 1989) 41–5. 35 Foreign Business Act BE 2542 (1999); see . 36 An example of this approach can be shown in the US–Republic of Azerbaijan BIT (signed in 1997, following the 1994 US prototype BIT). The USA sets the following areas as exceptions from national treatment and most-favoured-nation treatment: fisheries; air and maritime transport, and related activities; banking, securities, and other financial services; and one-way satellite transmissions of Direct-to-Home (DTH) and Direct Broadcast Satellite (DBS) television services and of digital audio services. The Republic of Azerbaijan establishes the following areas as exceptions from national treatment and most-favoured-nation treatment: banking, securities, and other financial services. See too Canada–Costa Rica BIT 1998: both in UNCTAD 2007, above n 19 at 23. 37 For example, Mexico’s concern for education as a cultural matter influenced its reservation on national treatment in NAFTA (Annex I-M-25). The cultural exception proposed in the draft Multilateral Agreement on Investment (MAI) was one of the unresolved issues that led to the eventual breakdown of the negotiations: see PT Muchlinski, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ 34 Int’l Law 1033 at 1048 (2000). 38 See further Muchlinski, above n 7 at 184–91. 39 Ibid at 201–13. Mexico’s position in certain sectors under NAFTA, such as fishing on the high seas, coastal fishing, and fresh water fishing, whereby the reservation establishes: ‘with respect to an

238

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

regulations regarding the right of admission and establishment may introduce a discretionary ‘screening’ mechanism.40 ‘Screening laws’ involve the case-by-case review of proposed foreign investments by a specialized public authority in the host country that is charged with the task of establishing whether or not a given proposal is in accordance with the economic and/or social policies of the host state. ‘Screening’ procedures are often established in association with restrictive regimes regulating the ownership and control of foreign investments. On the other hand, ‘screening’ may be used as the sole technique of regulation, unaccompanied by any statutory requirements concerning permissible limits of foreign ownership and/or control, and be aimed only at ensuring official scrutiny and approval of proposed investments. In many cases, the ‘screening’ process will empower the reviewing authority, or the minister or government department to which it is answerable, to impose operational conditions, usually referred to as performance requirements, upon the investor as the price for approval. These may include requirements concerning local sourcing of inputs, export requirements, local personnel employment quotas, and capital requirements. The latter are illustrated under Chile Decree Law 600 Foreign Investment Statute.41 Where such requirements produce trade-distorting effects, they may fall foul of the WTO Agreement on Trade Related Investment Measures (TRIMs), which requires WTO members to prohibit certain types of performance requirements that have such effects. The TRIMs Agreement identifies two groups of TRIMs that offend GATT 1994 in an Illustrative List that is annexed to the Agreement. The first consists of TRIMs that offend the national treatment principle in Article III(4). These TRIMs either require the purchase or use by an enterprise of locally produced products or impose import restrictions on the enterprise that relate the amount of imports

enterprise established or to be established in the territory of Mexico . . . investors of another Party or their investments may only own, directly or indirectly, up to 49 percent of the ownership interest in such an enterprise’. See Mexico Foreign Investment Law 1993 Art 7. See further Muchlinski, above n 7 at 202–4. 40 See Muchlinski, ibid at 201–2, on which the next paragraph is based. 41 ‘Foreign investment authorizations shall be evidenced in a contract executed by means of a public deed and subscribes, on the one part, by the President of the Foreign Investment Committee on behalf of the Chilean State should the investment require the agreement of said Committee or, should this not be applicable, by the Executive vice-president and, on the other part, by the persons contributing the foreign capital, hereinafter called “foreign investors” to all effects of this Decree Law. The contracts shall state the term within which the foreign investor may bring in the capital. This term shall not exceed 8 years for mining investments and 3 years for all others. The Foreign Investment Committee, however, by unanimous agreement of its members, may extend this limit up to twelve years in the case of mining investments, when previous exploration is required, depending on their nature and estimated duration thereof; in the case of investments in industrial and non-mining extractive projects for amounts not less than US$ 50,000,000—United States dollars or its equivalent in other foreign currencies—the Committee may extend the term up to eight years when the nature of the project so requires it.’ Art 3 (published in the Official Gazette on 16 December 1993), available at .

Admission and Establishment

239

permitted to the volume or value of local products exported by it.42 Secondly, the TRIMs Agreement lists other TRIMs that are equivalent to quantitative restrictions prohibited by Article XI(1) of the GATT. These include: restrictions on the importation by an enterprise of products used in or related to its local production whether generally or in proportion to the amount that it exports; the achievement of such import restrictions by limiting the enterprise’s access to foreign exchange; export requirements whether specified in relation to certain products, the volume or value of products, or as a proportion of local production.43 The ‘screening’ of foreign investments is one of the most widely used techniques for controlling the entry and establishment of MNE’s in host states.44 This approach has been favoured by states that welcome foreign-owned and controlled investments, but which are concerned about the loss of economic sovereignty or adverse economic consequences that may accompany such investments in particular cases. Both economically advanced and developing countries have adopted ‘screening laws’. More recently, some countries, particularly in Africa, have been replacing screening laws with laws that require only the registration of the foreign investment in the appropriate legal form, coupled with a possible minimum capital investment requirement.45

(4) Rights of Admission and Establishment under IIAs It has already been noted that, under general international law, states have the unlimited right to exclude foreign nationals and companies from entering their territory. There is no international standard requiring states to adopt an ‘open door’ to inward direct investment.46 On the other hand, states are free to set the limits of permissible entry in their national laws as they see fit. Thus states are free to agree to provisions in IIAs securing access to their territory by investors from another 42 TRIMS Agreement Art 2. and Annex para 1. 43 Ibid Art 2 and Annex para 2. 44 See further M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) ch 3. 45 See eg the Nigerian Decree of 1995 cited at n 32 above and Ghana Investment Promotion Centre Act 478 of 29 August 1994: ICSID, Investment Laws of the World (Dobbs Ferry, NY, Oceana, Oxford University Press) Vol III Release 95–3 (June 1995), also available at . 46 JP Laviec, Protection et Promotion des Investissements: Etude de Droit International Economique (Paris, Presses Universitaires de France, 1985) at 77.

240

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

contracting party. In this regard, two main models of agreements are emerging: a ‘controlled entry’ model that reserves the right of the host state to regulate the entry of foreign investments into its territory and a ‘full liberalization’ model that extends the non-discrimination standard (both national treatment and most-favoured-nation (MFN) treatment) in the agreement to the pre-entry stage of the investment.47 While these models remain the most significant in contemporary treaty practice, certain other approaches, highlighted by UNCTAD in its leading study, need to be considered. These emerge from the approach to market access taken in the WTO GATS Agreement, the treatment of the right to establishment in the European Community (EC), and the use of regional industrialization devices in economic integration agreements among groups of certain developing countries.48

(a) The Controlled Entry Model This approach preserves in full the host country’s right to regulate the admission and establishment of foreign investors in accordance with its laws and regulations. This position basically relies on the affirmation of state sovereignty over economic decision-making. It may be an adequate solution for governments uncertain about the benefits of an ‘open door’ approach to admission and establishment. Countries vary in their willingness to protect domestic and infant industries and entrepreneurs. Natural resources and land may be subject to controls and restrictions. Government and private monopolies may be protected (especially in the case of countries dependent on a single natural resource). Thus, there may be significant policy reasons for retaining full discretion over entry and establishment in various sectors.49 The majority of BITs follow a ‘controlled entry’ approach. Therefore, the application of the treaty to an investment is made conditional on its being approved in accordance with the laws and regulations of the host state.50 For example, the 47 Muchlinski, above n 7 at 676–8. 48 UNCTAD, in its study on Admission and Establishment, above n 1, identifies five models of admission and establishment clauses: investment control, which corresponds to the controlled entry approach in the text, selective liberalization, based on the GATs-type ‘opt-in’ sectoral liberalization approach, the regional industrialization programme approach, based on certain developing country regional integration agreements, the mutual national treatment approach of the EU, and the combined national treatment MFN approach, which corresponds to the full liberalization approach in the text. See too Pollan, above n 10 at ch 4 who uses a modified version of the UNCTAD classification. 49 See UNCTAD 1999, above n 1 at 38–9. 50 See examples cited in UNCTAD 2007, above n 19 at 21–2. See too Asian African Legal Consultative Committee (AALCC) Model BIT ‘Model A’ Art 3, which states inter alia that ‘[e]ach Contracting Party shall determine the mode and manner in which investments are to be received in its territory’. ‘Model B’ is more restrictive of investor’s rights of entry in that its Art 3 makes the screening of investment proposals by the host country a mandatory treaty requirement, see 23 ILM 237 (1984) or UNCTAD, International Investment Agreements: A Compendium Vol III (New York and Geneva, United Nations, 1996) at 115.

Admission and Establishment

241

Jamaica Model BIT states, in Article 2.2 that ‘[e]ach Contracting Party shall admit such investments subject to its laws and regulations’.51 Similarly the Indonesian Model BIT asserts, in Article II:1 ‘Either Contracting Party shall encourage and create favourable conditions for investors of the other Contracting Party to invest in its territory, and shall admit such capital in accordance with its laws and regulations’.52 Similar provisions may be found in some regional agreements concluded between groups of developing countries.53 The effect of such provisions is twofold: first, they allow the host country to apply its foreign investment admission and screening procedures and to determine whether the proposed investment is suitable for admission, and to place such conditions upon entry as are required under national laws; secondly, they allow for the application of differential treatment as between different foreign investors and domestic and foreign investors in accordance with discriminatory provisions in national laws and regulations that apply at the point of entry.54 This is because the non-discrimination standard applies only to post-entry treatment in BITs adopting the controlled entry approach.55 Historically, the controlled entry model was favoured by the developing countries that supported the adoption of the New International Economic Order (NIEO) in the 1970s. A significant early example was the Andean Foreign Investment Code, contained in Decision 24 of the Commission of the Cartagena Accord of 21 December 1970.56 The Andean Code introduced a restrictive screening and technology transfer control regime for the regulation of foreign investments in the sub-region. The consensus upon which the original Code was based proved to be fragile and short-lived, with a number of the member countries distancing themselves from its terms in

51 Available at . 52 Available at . 53 See eg Agreement between the Caribbean Community (CARICOM), acting on behalf of the Governments of Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St Kitts and Nevis, Saint Lucia, St Vincent and the Grenadines, Suriname, and Trinidad and Tobago, and the Government of the Republic of Costa Rica: ‘1. Each Party shall encourage and create favourable conditions in its territory for investments of the other Party, and shall admit such investments in accordance with its laws and regulations. 2. Once a Party has admitted an investment in its territory, it shall provide, in accordance with its laws and regulations, all necessary permits related to such investments.’ Art X.03. UNCTAD, International Investment Agreements: A Compendium Vol. XIV (New York and Geneva, United Nations, 2005) at 203. 54 UNCTAD 2007, above n 19 at 21–2. 55 The non-discrimination standard consists of the most-favoured-nation standard (MFN), which ensures no less favourable treatment as between foreign investors of different nationalities and the national treatment standard, which ensures no less favourable treatment as between domestic and foreign investors. See further Todd Grierson Weiler and lan A Laird, ch 8 below. 56 The full title of the Code is ‘The Common Regime of Treatment of Foreign Capital and of Trademarks, Patents, Licences, and Royalties’. An English translation appears in 11 ILM 126 (1972). The final amended version of Decision 24, as of 30 November 1976, appears in 16 ILM 138 (1977). The following paragraph is taken from Muchlinski, above n 7 at 657–8.

242

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

their national laws and policies.57 In the circumstances, Decision 24 was becoming a dead letter. It had to be fundamentally revised. The result was Commission Decision 220.58 This Decision substantially liberalized the terms of Decision 24.59 Decision 220 was replaced by Decision 291 in 1991.60 This effectively abandoned any common policy on foreign investment. As regards standards of treatment, by Article 2 of Decision 291, ‘foreign investors shall have the same rights and obligations as pertain to national investors, except as otherwise provided in the legislation of each Member Country’. Thus it is now for the national laws of each Member Country to determine the extent to which foreign investors shall be admitted. A similar preference for the controlled entry model was evident in UN instruments that emerged from the NIEO debates. Thus, United Nations General Assembly Resolution 3281 (XXIX) the Charter of Economic Rights and Duties of States, preserves national discretion in dealing with foreign investment.61 Equally, the Draft United Nations Code of Conduct on Transnational Corporations recognized the need for controls based on considerations of economic and social development.62

(b) The Full Liberalization Model This approach offers the best access to markets, resources, and opportunities for multinational enterprises and other foreign investors interested in the locational advantages of the host country.63 It allows for investment decisions to be made on 57 See S Horton, ‘Peru and ANCOM: A Study in the Disintegration of a Common Market’, 17 Texas Int’l LJ 39 (1982) at 45–7; Comment: ‘Chile’s Rejection of the Andean Common Market Regulation of Foreign Investment’, 16 Colum J Transnat’l L 138 (1977); ‘Introductory Note’ to the Venezuelan Foreign Investment and Licensing Regulations and Related Documents of 1986–7 by John R Pate, 26 ILM 760 (1987). 58 English version 27 ILM 974 (1988). For analysis, see A Preziosi, ‘The Andean Pact’s Foreign Investment Code Decision 220: An Agreement to Disagree’, 20 U Miami Inter-Am L Rev 649 (1989); JL Esquirol, ‘Foreign Investment: Revision of the Andean Foreign Investment Code’, 29 Harv Int’l LJ 169 (1988). 59 Art 33. 60 Andean Commission: Decision 291—Common Code for the Treatment of Foreign Capital and on Trademarks, Patents, Licenses and Royalties: 30 ILM 1283 (1991). 61 ‘Each state has the right: (a) to regulate an exercise authority over foreign investment, within its national jurisdiction in accordance with its laws and regulations and in conformity with its national objectives and priorities. No State shall be compelled to grant preferential treatment to foreign investment.’ United Nations General Assembly Resolution 3281 (XXIX) the Charter of Economic Rights and Duties of States Art 2(2) (adopted on 12 December 1974) available at . 62 ‘States have the right to regulate the entry and establishment of transnational corporations including determining the role that such corporations may play in economic and social development and prohibiting or limiting the extent of their presence in specific sectors.’ Draft United Nations Code of Conduct on Transnational Corporations Art 47 available at . 63 UNCTAD 1999, above n 1 at 41.

Admission and Establishment

243

purely economic grounds as it obviates the existence of discretionary regulatory mechanisms that may prohibit entry or offer it only on conditions that reduce the overall value of the investment to the investor. This approach offers combinednational-treatment/most-favoured-nation-treatment to investors at the pre-entry stage. This allows foreign investors to choose the best of these treatments. The benefits are significant in that the competitive conditions for all investors, whether foreign or domestic, are equalized. However, as noted in relation to national FDI laws, IIAs espousing the full liberalization approach will also use a negative list of exceptions. A significant consequence of this technique is that all sectors not included in the negative list (ie where FDI is allowed to invest) remain permanently open. It is not possible to claw back open sectors into controlled entry. Thus IIAs taking this approach involve a ‘standstill’ on further controls over inward FDI. Such an approach is particularly favoured in the practice of NAFTA64 in certain Free Trade Agreements (FTAs)65 with investment provisions and in the bilateral 64 ‘Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments’ (Art 1102.1). This treatment is also granted to ‘investments’ (Art 1102.2). Art 1103 provides most-favoured-nation treatment, again to investors and investments, further stating in Art 1104 a guarantee to apply the better of said treatments. ‘Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to investors of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments’ (Art 1103.1). This treatment is also granted to ‘investments’ (Art 1103.2). ‘Each Party shall accord to investors of another Party and to investments of investors of another Party the better of the treatment required by Articles 1102 and 1103’ (Art 1104). ‘Articles 1102, 1103, 1106 and 1107 do not apply to: (a) any existing non-conforming measure that is maintained by (i) a Party at the federal level, as set out in its Schedule to Annex I or III, (ii) a state or province, for two years after the date of entry into force of this Agreement, and thereafter as set out by a Party in its Schedule to Annex I in accordance with paragraph 2, or (iii) a local government; (b) the continuation or prompt renewal of any nonconforming measure referred to in subparagraph (a); or (c) an amendment to any non-conforming measure referred to in subparagraph (a) to the extent that the amendment does not decrease the conformity of the measure, as it existed immediately before the amendment, with Articles 1102, 1103, 1106 and 1107. 2. Each Party may set out in its Schedule to Annex I, within two years of the date of entry into force of this Agreement, any existing non-conforming measure maintained by a state or province, not including a local government. 3. Articles 1102, 1103, 1106 and 1107 do not apply to any measure that a Party adopts or maintains with respect to sectors, sub-sectors or activities, as set out in its Schedule to Annex II. 4. No Party may, under any measure adopted after the date of entry into force of this Agreement and covered by its Schedule to Annex II, require an investor of another Party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective. 5. Articles 1102 and 1103 do not apply to any measure that is an exception to, or derogation from, the obligations under Article 1703 (Intellectual Property—National Treatment) as specifically provided for in that Article. 6. Article 1103 does not apply to treatment accorded by a Party pursuant to agreements, or with respect to sectors, set out in its Schedule to Annex IV. 7. Articles 1102, 1103 and 1107 do not apply to: (a) procurement by a Party or a state enterprise; or (b) subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance.’ NAFTA Art 1108. See . 65 These tend to involve NAFTA signatories but also more recently occur between developing nonNAFTA countries: Examples include FTAs between Canada–Chile, Mexico–Singapore, Mexico–El

244

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

investment treaty practice of the USA and Canada.66 For example, the US–Uruguay BIT of 25 October 2004 states, by Article 3(1): Each Party shall accord to investors of the other Party treatment no less favourable than it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.67

This is followed by Article 3(2), which extends the same protection to investments, and Article 4(1) and (2) which cover, respectively, the MFN protection of investors and investments. These provisions make entry to the host state subject to the principle of non-discrimination, and, to that extent, represent a restriction on the host state’s sovereign power to regulate the entry of foreign investors. However, the application of this principle is subject to the right of the host state to exclude certain sectors from foreign investment.68 Therefore, the US Model accepts restrictions on entry, provided they are applied in a manner that does not discriminate against US investors.69 Under the Russian Federation–US BIT, the contracting states agreed that, for a period of five years, the Russian Federation would be able to require permission for large-scale investments that exceed the threshold amount in the Russian Federation Law on Foreign Investments of 4 July 1991, provided that this power was not used to limit competition or to discourage investment by US companies and nationals.70 The extension of full non-discrimination protection to the pre-entry stage is not without its problems. Indeed, this was one of the issues that helped to stall the negotiations over the MAI.71 Establishment is also covered in the draft Supplementary Agreement to the Energy Charter Treaty (ECT). Given the policy-sensitive nature of natural resource extraction, particularly its relation to the inherent right of peoples to enjoy and utilize fully and freely their natural wealth and resources,72 the negotiations on the ECT did not result in the adoption of a full right of establishment. Salvador, Guatemala, and Honduras; US–Vietnam on Trade Relations, the New Zealand–Singapore Agreement on a Closer Economic Relationship, and the Singapore–Japan New Age Economic Partnership Agreement, all available at and see UNCTAD 2007, above n 19 at 79. See too Pollan above n 9 at 82–5. 66 On Canada see UNCTAD 2007, above n 19 at 24–25. 67 44 ILM 268 (2005) at 217, also available at . 68 See ibid Art 14(2). 69 Note JE Pattison’s discussion of the US–Egypt BIT in this respect: Pattison, ‘The United StatesEgypt Bilateral Investment Treaty: A Prototype for Future Negotiation’, 16 Cornell Int’l. 305 (1983) at 318–19. Pattison is critical of the broad exclusion of industries from the treaty which, in his opinion, created a substantial void in the protection offered. The current version of this treaty retains these exceptions: US–Egypt BIT Supplementary Protocol of 11 March 1986 para 3, available at . 70 US–Russian Federation BIT 17 June 1992, Protocol para 4(a), 31 ILM 794 at 810 (1992). 71 See Muchlinski, above n 37 at 1041–3. 72 See Art 47 of the International Covenant on Civil and Political Rights.

Admission and Establishment

245

Instead, an interim solution was arrived at. Thus Article 10(2) of the ECT has established a non-legally binding ‘best efforts’ clause for contracting parties to grant foreign investors non-discriminatory treatment concerning the making of their investments. In addition, Article 10(5) introduces a ‘standstill’ on new restrictions for foreign investors and a commitment progressively to reduce remaining restrictions (‘rollback’). Furthermore, Article 10(6) allows the contracting parties to make at any time a legally binding voluntary commitment to grant foreign investors nondiscriminatory treatment with regard to the making of an investment. Moreover, Article 10(4) provides for negotiations on the extension of the non-discrimination principle to the pre-establishment phase by means of a Supplementary Treaty. These negotiations began in 1995. Negotiations were suspended in 2002, pending the outcome of discussions over a multilateral framework on investment in the WTO, but have not been resumed.73

(c) Other Approaches As noted in the introduction to this section, apart from the two main models of admission and establishment provisions in contemporary IIAs, three further approaches were identified by UNCTAD in its study of admission and establishment provisions in IIAs.74 These arise from regional economic integration agreements, including the EC Treaty, and the WTO GATS Agreement. Thus they represent specific legal responses to particular policy goals, resulting in distinctive types of admission and establishment regimes. Each is examined in turn.

(i) The GATS-type ‘Positive List’ Approach The General Agreement on Trade in Services (GATS) contains a right of establishment.75 By Article I thereof, trade in services is defined as the supply of a service inter alia through the commercial presence of a service supplier of one member in the territory of any other member.76 Furthermore, by Article XXVIII(d) ‘commercial 73 See further the Energy Charter Treaty Secretariat (1998), Draft Supplementary Treaty to the Energy Charter Treaty, available at . 74 See UNCTAD 1999, above n 1. 75 GATT Doc MTN/FA II-A1B; 33 ILM 44 (1994), available at . Th is section is taken from Muchlinski, above n 7 at 253–4. The same approach to market access in services has been adopted in The Economic Partnership, Political Coordination and Cooperation Agreement between the European Community and its Member States of the One Part and the United Mexican States of the Other Part (2000) Title II ‘Trade in Services’, Chapter I ‘General Provisions’, Article 4 ‘Market Access’ available at . 76 Ibid Art 1(c).

246

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

presence’ is defined as meaning ‘any type of business or professional establishment, including through (i) the constitution, acquisition or maintenance of a juridical person, or (ii) the creation or maintenance of a branch or a representative office within the territory of a Party for the purpose of supplying a service’. This definition is consistent with the existence of a right of establishment. Such a right will exist where a member of the GATS makes specific commitments on market access under Article XVI of the GATS. Article XVI goes on to state that, in sectors where the member undertakes market access commitments, it is prohibited from imposing certain listed limitations on the supply of services, unless it expressly specifies that it retains such limitations. These limitations include measures that would affect access through inter alia direct investment. Thus, in the absence of express reservation, the member cannot restrict or require specific types of legal entity or joint venture through which a service could be provided, nor impose limits for the participation of foreign capital drawn up in terms of limits on maximum foreign shareholding or total value of individual or aggregate foreign investment.77 The wording of Article XVI makes clear that the receiving state is entirely free in determining the extent of its market access commitments, and that it may expressly reserve powers to limit the mode of supply; there is no general obligation to remove all barriers concerning the entry and establishment of service-providing firms. Each member of GATS is obliged to do no more than set out the specific market access commitments that it is prepared to undertake in a schedule drawn up in accordance with Article XX of the GATS. Thereafter, members shall enter into subsequent rounds of negotiations with a view to achieving progressively higher levels of liberalization.78 This approach has been termed the ‘GATS-type positive list’ or ‘bottom-up’ approach to investment liberalization. It contrasts with the NAFTA-style ‘negative list’ or ‘top down’ approach, which was described earlier, and which is also used in the OECD Liberalisation Codes.79 There is a continuing debate over which approach 77 Ibid Art XVI (2)(e)-(f). 78 Ibid Art XIX(1). 79 Code on the Liberalisation of Current Invisible Operations (OECD/C(61)95) (hereinafter Invisibles Code); Code on the Liberalisation of Capital Movements (OECD/C(61)96) (hereinafter Capital Movements Code). The Codes are regularly updated by Decisions of the OECD Council to reflect all changes in the positions of Members. The updated Codes are periodically republished. The current editions at the time of writing are Invisibles Code (September 2004) and Capital Movements Code (October 2005), to which all subsequent references pertain. Both are available at . For background to the Codes see: OECD, OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations User’s Guide (Paris, OECD 2003), available at ; Forty Years’ Experience with the OECD Code of Liberalisation of Capital Movements (Paris, OECD, October 2002), summary and conclusions available for download at the above website reference. In 1984, the Capital Movements Code was extended to include the right of establishment. Thus Annex A continues: ‘The authorities of the Members shall not maintain or introduce: Regulations or practices applying to the granting

Admission and Establishment

247

is better. Countries committed to progressive liberalization argue that a positive commitment to liberalization, coupled with a ‘negative list’ of exceptions, is more likely to result in actual liberalization of entry and establishment conditions. On the other hand, developing countries, in particular, have favoured the GATS-type approach on the ground that it allows for a more considered and gradual process of liberalization, which the ‘negative list’ approach does not, as this requires an ex ante determination of which sectors should be excluded from the pressures of open competition with foreign investors. Such a calculation may be impossible to make at the time of entering into an international agreement, especially for a country with limited resources to assess the competitive condition of its economic sectors. By contrast, the ‘positive list’ approach does not put immediate pressure on the country to make choices as to exclusions from rights of entry and establishment. Rather, the host country can wait and see which of its sectors evolves to a position where it can be opened to competition from foreign investors.80 Thus, by adopting this approach, the GATS stops short of guaranteeing rights of establishment in all cases, and leaves a wide margin of discretion to the members. Indeed, a blanket abolition of national controls over services would have been impossible to negotiate. Consequently, a slower, progressive approach to liberalization has been adopted by all the participating states.

(ii) The EC-type ‘Right to Establishment’ This is referred to by UNCTAD as the ‘mutual-national-treatment model’.81 This approach is directed towards providing special treatment to FDI originating in a given region. It is a component in the process of creating an integrated single regional market. National treatment is granted to all investors belonging to the member countries. The benefits are akin to those of global-market liberalization, but are obviously limited to a given region. In relation to the operations of companies or firms, Article 48 of the EC Treaty provides: Companies or firms82 formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the

of licences, concessions, or similar authorisations, including conditions or requirements attaching to such authorisations and affecting the operations of enterprises, that raise special barriers or limitations with respect to non-resident (as compared to resident) investors, and that have the intent or the effect of preventing or significantly impeding inward direct investment by non-residents’. 80 See further World Investment Report 2003, above n 9 at 148–9; UNCTAD, International Investment Agreements: Flexibility for Development, Series on issues in international investment agreements (New York and Geneva, United Nations, 2000) at 60–4. 81 UNCTAD 1999, above n 1 at 22–6. The following paragraphs are taken from Muchlinski, above n 7 at 243 and 245. 82 Art 48 goes on to define ‘companies or firms’ as ‘companies or firms constituted under civil or commercial law, including co-operative societies, and other legal persons governed by public or private law, save those which are non-profit making’.

248

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

Community shall, for the purposes of this chapter, be treated in the same way as natural persons who are nationals of Member States.

The right of establishment, as it applies to companies and firms, includes, ‘the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 48,83 under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the chapter relating to capital’.84 Article 55 of the EEC Treaty extends Article 48 to the provision of services, ensuring that companies can also benefit from the freedoms accorded in that area to natural persons. Article 48 suggests two possible routes into another member state: first, the establishment of a new company, or the transfer of an existing company, from one member state to another, known as ‘primary establishment’; secondly, the establishment of an office, branch, or subsidiary in another member state, termed ‘secondary establishment’.85 In each case, the member states must not impose obstacles to the freedom of establishment such as for example, differential tax treatment or other advantages, that are granted to local investors but not to those from another member state. Where a company seeks to enter a host member state through secondary establishment methods, it must show a real and continuous link with the economy of a member state to qualify as a beneficiary of this right.86 Thus entry into a mere contractual arrangement in the host member state will not suffice in the absence of an established place of business.87 However, more recent case-law from the ECJ accepts that a company can be set up in any member state, regardless of whether it pursues economic activity there, even if the main purpose of such establishment is to avoid more onerous regulatory requirements in the member state where the economic activity is actually carried out.88 The only circumstances where this will not 83 See above n 82. 84 EC Treaty Art 43. 85 See R v HM Treasury, ex p Daily Mail and General Trust plc [1989] 1 All ER 328 at 343 d–g per Advocate-General Darmon. 86 See General Programme for the Abolition of Restrictions on Freedom of Establishment, OJ sp edn 2nd Series IX p 7 Title I; Case 79/85 Segers [1986] ECR 2375; [1987] 2 CMLR 247. 87 See Foulser and another v MacDougall (Her Majesty’s Inspector of Taxes) [2003] 1 CMLR 1079 (English High Court ChD) at paras 78–9. 88 See Centros Ltd v Erhvervs-OG Selskabsstyrelsen, Case C-212/97 [1999] 2 CMLR 551. Two Danish nationals had incorporated a company in England, but carried on the substantive business of the company in Denmark. The Danish authorities refused to register the Danish branch of the company on the ground that this arrangement sought to circumvent Danish rules concerning the paying up of a minimum capital, as would be required of a principal establishment. The ECJ held that this was in breach of Arts 43 and 48 even though the Danish authorities argued that the regulatory requirements were necessary to protect creditors and other contracting parties. See for analysis: Anne LooijsteijnClearie, ‘Centros Ltd—A Complete U-Turn in the Right of Establishment for Companies?’, 49 ICLQ 621 (2000). See too Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd, Case C-167/01 [2005] 3 CMLR 937; Uberseering BV v Nordic Construction Company Baumanagement GmbH (NCC), Case C-208/00 [2005] 1 CMLR 1.

Admission and Establishment

249

be allowed is where the establishment in another member state is designed improperly to circumvent the national legislation of the country in which the business in fact operates, or where some fraud or abuse is involved.89 This development allows for a degree of regulatory arbitrage for investors between the company, and other laws, regulating establishment in the EU member states. It is clear from Articles 48 and 55 of the EC Treaty that the right to establishment and the right to provide services in another member state can only be enjoyed by a company formed in accordance with the law of a member state and having its registered office, central administration, or principal place of business within the Community. This is wide enough to cover the EC-based subsidiaries of non-EC parent companies. However, the EC Treaty does not guarantee these rights to companies that have no legally recognized EC presence in the sense of Article 48. Therefore, it is not possible for, say, a US- or Japanese-based company to invoke the EC Treaty if it is denied access to the economy of a member state whether for the purpose of establishing a place of business or for the provision of cross-border services. In the absence of a common Community policy on inward investment from outside the EC, individual member states retain discretion over their policy towards investors from outside the EC.90 In general, the member states of the EC espouse an ‘open door’ to non-EC investors, so there should be little real disadvantage to such investors. Other regional economic organizations have also followed the EC-type right of establishment model, though there is no developed case-law as in the EC to interpret the scope and content of these provisions.91 Examples include The Treaty Establishing the Caribbean Community (CARICOM Treaty),92 The Agreement on Arab Economic Unity (AEU Agreement—1964),93the ECOWAS Revised Treaty of 1993,94 and the ASEAN Framework Agreement on the ASEAN Investment Area of 1998.95 89 Centros, ibid at para 24. 90 A common inward investment policy can be adopted under Art 57 of the EC Treaty. Such a policy was advocated by Art III.217 of the Draft Treaty Establishing a Constitution for Europe (Luxembourg, Office for Official Publications of the European Communities, 2003). For analysis see Joachim Karl, ‘The Competence for Foreign Direct Investment—New Powers for the European Union?’, 5 JWIT 413 (2004). See now the Treaty of Lisbon Art 2(158) creating a new Art 188C of the EC Treaty, giving the Community exclusive competence in foreign investment: OJ [2007] C306/91 or . 91 See UNCTAD 1999, above n 1 at 24–25. 92 See the Revised CARICOM Treaty 2001 Chapter Three ‘Establishment, Services Capital and Movement of Community Nationals’ at . 93 It provides for ‘. . . freedom of movement of persons and capital . . . and exercise of economic activities . . . for nationals of member States; and seeks economic unity among Arab League States’ (Art 1), available at . 94 Arts 3(2) and 55 which commit member states to the removal of obstacles to the right to establishment within five years of the creation of a customs union between them: . 95 This commits the member states to the introduction of full national treatment for investors from the region by 2010 subject to the exceptions provided for in the Agreement (Art 4(6) ), available at .

250

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

(iii) Regional Industrialization and Admission and Establishment The process of progressive regional industrialization within regional groupings of developing countries has produced a commonly pursued policy directed at establishing a supranational form of business organization, the purpose of which is to augment regional economic development. Under this model, two or more members of a region establish an MNE and mutually grant special rights of admission and establishment, such as national treatment. First initiated by the Agreement on Andean Sub-Regional Integration, the ‘Cartagena Agreement’,96 this model benefits from greater know-how and capital resources, reducing nationalism in favour of economies of scale, which can serve larger markets. Theoretically, it relies on production factors readily available to the MNE in the region (which is not always the case). According to Article 1(f) the Cartagena Agreement, ‘For the purposes of this Code, an Andean Multinational Enterprise shall be a company fulfilling the following requirements: The sub-regional majority of the capital must be reflected in the technical, administrative, financial and commercial management of the company in the judgment of the corresponding national competent entity’.97 Similarly, the Community Investment Code of the Economic Community of the Great Lakes Countries (CEPGL—1982) provides a scheme for the promotion of joint and community enterprises enjoying the freedom to form and invest capital in the territory of a member state.98 A similar policy has been followed in the Agreement for the Establishment of a Regime for CARICOM Enterprises (CARICOM—1987).99

(5) Balancing Admission and Establishment and Regulatory Discretion The preceding discussion has shown that at the level of both national laws and international agreements, there is considerable variation in the nature and extent of 96 Decision 292 of the Commission of the Cartagena Agreement (1991). The Andean Pact entered into force as of October 1969. 97 See . 98 Community Investment Code of the Economic Community of the Great Lakes Countries (CEPGL—1982) entered into force 4 October 1987, see UNCTAD, International Investment Agreements: A Compendium Vol II (New York and Geneva, United Nations, 1996) 251. 99 The idea behind CARICOM is the establishment of a single market and economy among its members. Other examples are the Protocol Amending the Treaty Establishing the Caribbean Community (Protocol III: Industrial Policy—1999); and the Revised Treaty of the Economic Community of West African States (Revised ECOWAS Treaty—1993), available at .

Admission and Establishment

251

rights of admission and establishment for foreign investors. As noted in the introduction to this chapter, while the dominant trend in national laws has been towards liberalization, this is now showing signs of some revision, with a minority of countries beginning to reconsider the extent to which they are willing to give investors a free rein in their country. This affects not only the question of how investors are going to be treated upon entry but also how much freedom of action they will enjoy after entry. The latter will depend to a great extent on the manner in which host countries conduct their admission and establishment policies, as these will, to a large extent, determine the scope of the investors’ post-entry freedom of action. At the international level, while the majority of IIAs still retain a controlled entry approach, the full liberalization model is gaining ground, especially in bilateral FTAs with investment provisions. The question arises: given the gradual acceptance of pre-entry rights of non-discriminatory admission and establishment, how far will such international developments control developments under national laws? The acceptance of a positive right of entry and establishment under an IIA or FTA with investment provisions is, in effect, a restriction of state sovereignty in the field of admission of aliens and results in a voluntary exclusion of national regulatory discretion. This assumes that the free entry of any investor is desirable and so does not require control. Such a policy outcome is not necessarily for the best in all cases. For example, the proposed takeover, in 2006, of the UK’s biggest gas supplier, Centrica, the owner of British Gas, by the Russian state-controlled gas monopoly, Gazprom, raised concerns in government circles.100 It led the then Secretary of State for Trade and Industry, Alan Johnson, to consider passing a statutory instrument under section 58 of the Enterprise Act 2002 to control bids in the energy supply industry that might threaten energy security.101 This revelation prompted a critical response from Gazprom, which threatened to divert supplies to other customers, and made the Secretary of State appear inconsistent as he had been a vocal critic of other EC member states that had sought to control foreign bids.102 The matter was put to rest by the then Prime Minister, Tony Blair, who pledged that any future bid by Gazprom would be handled in the normal way by the independent competition authorities.103 This case has prompted significant discussion over the real limits of a commitment to liberalization in relation to foreign takeovers of UK firms. That concerns over Gazprom were aired should come as no surprise. On New Year’s Day 2006, Russia suspended gas supplies to the Ukraine. Earlier, Vladimir Putin, the Russian President, removed the old management and brought in his own supporters, making

100 101 102 103

The next two paragraphs are adapted from Muchlinski, above n 7 at 415–16. ‘Centrica Threat Led to Rethink on Mergers’, Financial Times, 17 April 2006, p 1. ‘Gazprom in Threat to Supplies’, Financial Times, 20 April 2006, p 1. ‘Gazprom Block over Centrica Ruled Out’, Financial Times, 26 April 2006, p 1.

252

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

the company even closer to the heart of the Russian state.104 Whether Gazprom acts as a truly independent commercial entity may be open to question. In such circumstances, it may be unwise to consider any bid purely on economic grounds. The case of Gazprom gives rise to a wider issue. Might it not be relevant to take into account the economic, social, and political culture from which foreign investors come? Companies from authoritarian or undemocratic states, or those from corrupt states, with little or no tradition of corporate accountability and transparency, may bring with them a tradition of bad corporate practice which may undermine effective and open regulation. Surely there is a case for some form of review of these practices in the public interest, especially in relation to bids in sensitive sectors. The narrow logic of market efficiency can appear very inadequate when it comes to such questions, questions that are central to the efficient and honest administration of a market economy. It may be easier to review this matter at the stage of entry than allowing the investor to benefit from open entry and live with the possibility of corporate malpractice thereafter. Equally, social issues, such as employment effects and regional effects, have not lost their importance and, as noted earlier, certain cultural industries may warrant protection. It may be the case that, in practice, some kind of ‘public interest’ review needs to occur.105 The political pressure for this may become irresistible in the future. A second concern arising from the effect of admission and establishment guarantees in IIAs is that such a commitment binds future governments that did not sign the IIA or FTA in question to uphold rights of admission and establishment even if such an ‘open door’ approach is not seen to be in the public interest by subsequent administrations. This raises the question of responsiveness to changes in national policy and whether general controls over pre-entry discretion over admission and establishment are ultimately legitimate, especially where that change of policy is sanctioned by popular approval. In this connection, it is necessary to bear in mind the nature of national procedures for the conclusion of international treaties and whether IIAs in particular have been adopted in accordance with the required constitutional procedures. In some countries, BITs are given the force of national law. For example, by Article 157 of the Sri Lankan Constitution, BITs are given the force of law in Sri Lanka, and no executive or administrative action can be taken in contravention of the treaty, save in the interests of national security.106 However, in many countries, IIAs are only binding as international legal obligations. This 104 See Arkady Ostrovsky, ‘Energy of the State: How Gazprom Acts as a Lever in Putin’s Power Play’, Financial Times, 14 March 2006, p 13. Terry Macalister, ‘Gazprom: No Bid for British Gas Owner Yet’, The Guardian, 27 April 2006, p 27. 105 See Barry J Rodger, ‘UK Merger Control Policies: The Public Interest and Reform’ 21 ECLR 24 (2000); Larry Elliott, ‘This Takeover Free-for-All is just Not Delivering the Goods’, The Guardian, 30 March 2006, p 33. 106 See Asian Agricultural Products Ltd v Republic of Sri Lanka, Case No. Arb/87/3, Final Award, 21 June 1990, 30 ILM 577 at 632 (1991).

Admission and Establishment

253

raises the possibility that a conflict could arise between the market-opening provisions of an IIA and inconsistent subsequent laws that seek to control admission and establishment. This raises the further question of whether existing legal approaches to admission and establishment offer a good policy choice for host countries. In this regard, retaining the controlled entry approach may prove more satisfactory from the perspective of preserving a state’s right to regulate admission and establishment. It has the virtue of preserving national policy space by making entry and establishment conditional on the processes of national law as applied at the pre-entry stage. Here the applicable IIA does not seek to control state sovereignty over admission of aliens and defers to national law and practice. That said, the controlled entry model is at odds with the push towards liberalization and market access rights that is a logical concomitant of the rise of global production chains operated by multinational enterprises, which was highlighted in the introductory chapter. There is little doubt that the full liberalization approach is better suited to these imperatives. It opens up the host country to investment and allows for a reduction of regulatory barriers to entry and establishment, thereby making the decision to invest a more efficiency-led decision which tends to enhance economic welfare. This is particularly the case in the contemporary economy where technical change is faster, internationally integrated production systems are the norm, and FDI is the dominant form of technology transfer.107 However, there may be good policy reasons for restricting the entry of foreign investors for a number of reasons.108 First, in a developing country context, it may be necessary to protect infant domestic entrepreneurship against overwhelming foreign competition which could drive local entrepreneurs into less complex activities or to those with lower foreign presence, perhaps by selling local facilities to foreign entrants. Of course, it is necessary not to over-protect and risk creating a permanently uncompetitive local industry, but, with attention being paid to this issue, a degree of protection may result in highly competitive new local industries, as in the case of the Republic of Korea or Taiwan. Secondly, local firms may be better at deepening local technological knowledge, disseminating it within the host economy and creating local spillover effects, given a greater commitment to their country than foreign investors might show. Thirdly, foreign investors may be ‘footloose’ and their activities may need to be carefully scrutinized on entry to ensure that their investment will last and make an enduring contribution to the local economy. Finally, foreign investors may need to be controlled as a result of their tendency to respond to outside factors, such as international markets, parent company decisions, and home country concerns. Such concerns should not be overstated and they have been used to justify protectionist policies in host countries which act to the detriment of consumers and to 107 See UNCTAD, World Investment Report 2003, above n 9 at 107. 108 Ibid at 104–5, on which the following account draws.

254

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

the development of an efficient economy. However, they are not unreal concerns. Thus, the question remains how to ensure a balance between rights of admission and establishment and rights to regulate if a positive commitment to the extension of such rights has been made by the host country in an IIA. A number of alternatives present themselves. First, the full liberalization model already contains an exception device in the form of the negative list. Its merits relative to the selective liberalization approach of the GATS-type positive list mechanism have already been discussed briefly above. Here the effects of the negative list approach on national policy space will be considered. The major result of this approach is to exclude the non-discrimination standard at the pre-entry stage from a pre-selected list of sectors. This will have the effect of freezing the negative list and preventing other sectors from being added unless all other parties consent.109 It may also discourage the progressive liberalization of listed sectors as the political cost of doing so may be too great at the national level. So, paradoxically, a negative list may act as a de facto brake on progressive liberalization. It also carries with it the risk, as noted earlier, of omitting sectors that the host country did not feel needed protection at the time of the conclusion of the treaty. Subsequent changes in market conditions or political circumstances could then demand a degree of protection which would be unlawful under the treaty. Thus, the negative list approach may be inflexible in its results and could lead to a backlash against the treaty if it is perceived as an illegitimate restriction on the right of the host country government to respond to changed circumstances and to control foreign entry into an open sector. A final risk is that too many sectors are excluded and so the commitment to liberalization in the treaty is weak or effectively non-existent. In this regard, as noted above, the positive list approach may in fact give more flexibility as it does not require an ex ante analysis of the competitive situation of major sectors of the economy but allows for a gradual liberalization of those sectors deemed sufficiently competitive to be exposed to competition from foreign investors. Secondly, even where a sector is subject to full rights of admission and establishment, certain exclusions based on public policy and national security concerns could be included in the IIA or FTA in question. For example US BITs contain an exception which allows a party to take measures to protect its essential security interests or to apply measures with respect to maintenance or restoration of international peace and security.110 The Canadian model is notable for the inclusion of a general exceptions clause protecting the rights of the contracting parties to regulate in the fields mentioned by its terms. The clause follows the general pattern of Article XX GATT 1994 by listing areas in which regulation is consistent with the provisions of the BIT and adds a ‘chapeau’ requiring such regulation not to be arbitrary, discriminatory, or a disguised restriction on trade and investment. The exception covers, 109 Pollan, above n 9 at 200. 110 See US–Uruguay BIT, above n 67 Art 18.

Admission and Establishment

255

among other things, public policy, health, and prudential regulation.111 Less certain is whether national economic interests can justify the exclusion of rights of entry and establishment. The World Bank Guidelines on the Treatment of Foreign Direct Investment assert: Without prejudice to the general approach of free admission recommended in Section 3 above, a State may, as an exception, refuse admission to a proposed investment: (a) which is considered, in the opinion of the State, inconsistent with clearly defined requirements of national security; or (b) which belongs to sectors reserved by the law of the State to its nationals on account of the State’s economic development objectives or the strict exigencies of its national interest.112

111 Canada Agreement for the Promotion and Protection of Investments 2004 Art 10: ‘General Exceptions 1. Subject to the requirement that such measures are not applied in a manner that would constitute arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: (a) to protect human, animal or plant life or health; (b) to ensure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement; or (c) for the conservation of living or non-living exhaustible natural resources. 2. Nothing in this Agreement shall be construed to prevent a Party from adopting or maintaining reasonable measures for prudential reasons, such as: (a) the protection of investors, depositors, financial market participants, policy-holders, policy-claimants, or persons to whom a fiduciary duty is owed by a financial institution; (b) the maintenance of the safety, soundness, integrity or financial responsibility of financial institutions; and (c) ensuring the integrity and stability of a Party’s financial system. 3. Nothing in this Agreement shall apply to non-discriminatory measures of general application taken by any public entity in pursuit of monetary and related credit policies or exchange rate policies. This paragraph shall not affect a Party’s obligations under Article 7 (Performance Requirements) or Article 14 (Transfer of Funds). 4. Nothing in this Agreement shall be construed: (a) to require any Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; (b) to prevent any Party from taking any actions that it considers necessary for the protection of its essential security interests (i) relating to the traffic in arms, ammunition and implements of war and to such traffic and transactions in other goods, materials, services and technology undertaken directly or indirectly for the purpose of supplying a military or other security establishment, (ii) taken in time of war or other emergency in international relations, or (iii) relating to the implementation of national policies or international agreements respecting the non-proliferation of nuclear weapons or other nuclear explosive devices; or (c) to prevent any Party from taking action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. 5. Nothing in this Agreement shall be construed to require a Party to furnish or allow access to information the disclosure of which would impede law enforcement or would be contrary to the Party’s law protecting Cabinet confidences, personal privacy or the confidentiality of the financial affairs and accounts of individual customers of financial institutions. 6. The provisions of this Agreement shall not apply to investments in cultural industries. 7. Any measure adopted by a Party in conformity with a decision adopted by the World Trade Organization pursuant to Article IX:3 of the WTO Agreement shall be deemed to be also in conformity with this Agreement. An investor purporting to act pursuant to Section C of this Agreement may not claim that such a conforming measure is in breach of this Agreement.’ 112 The World Bank Guidelines on the Treatment of Foreign Direct Investment in UNCTAD, International Investment Agreements: A Compendium Vol I (New York and Geneva, United Nations, 1996) at 249.

256

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

Such an exception is not normally found in IIAs. In relation to the full liberalization approach, any sectors so reserved under national laws should be entered into the negative list. This was the approach taken, for example, by Mexico when concluding the NAFTA. Its schedules reflect closely the restrictions and exclusions of foreign investors contained in the 1993 foreign investment law.113

Concluding Remarks The preceding discussion has shown that the international legal principles applicable to rights of admission and establishment ultimately depend on an exercise of state discretion: only where the host country agrees by way of a treaty obligation will such rights come into existence. There is no customary international law right of entry and establishment. Furthermore, the continuing dominant trend in IIA practice has been to retain a controlled entry model and not to extend positive rights of entry and establishment. On the other hand, there are sound policy reasons why a host country may wish to open up its economy and to reinforce this by way of binding international obligations. Indeed, a rising trend in recent years has been towards the conclusion of such obligations in IIAs. These include BITs concluded with Western hemisphere countries and bilateral FTAs with investment provisions. This may indicate where future policy developments lie. Indeed, it could be said that the main reason for the continued dominance of the controlled entry model is inertia. Many agreements following this approach were concluded some years ago, mainly with European capital-exporting countries. They have not yet been replaced. More recent agreements, such as those with the USA or Canada, which did not conclude BITs until the 1980s, or the recent FTAs may therefore be a better indication of current practice in the field. That said, the recent moves towards more restrictive national laws and regulations, could, if more widely adopted, lead to a reinforcement of the controlled entry approach. Thus, the future development of this area of international investment law is not as settled as might be imagined.

113 On which see Muchlinski, above n 7 at 202–4. However, the relationship between the Mexican foreign investment law and NAFTA is more complex than it seems. NAFTA itself referred to the 1973 Mexican FDI law, which was repealed on 28 December 1993 when the 1993 law came into force. NAFTA came into force on 1 January 1994. The 1993 law has been amended in 1995, 1996, 1998, 1999, and 2006 so as to liberalize specific sectors of the economy to allow for FDI participation.

Admission and Establishment

257

Select Bibliography Biersteker, TJ, Multinationals, the State, and Control of the Nigerian Economy (Princeton, Princeton University Press, 1987) Blumberg, Phillip I, Strasser, Kurt A, Georgakopoulos, Nicholas L and Gouvin, Eric J, Blumberg on Corporate Groups (New York, Aspen Publishers, 2nd edn, 2005) Conklin, David, and Lecraw, Donald, ‘Restrictions on Foreign Ownership during 1984–1994: Developments and Alternative policies’, 6(1) Transnational Corporations 1 (1997) Dicken, Peter, Global Shift: Reshaping the Global Economic Map of the 21st Century (London, Sage Publications, 5th edn, 2007) Esquirol, JL ‘Foreign Investment: Revision of the Andean Foreign Investment Code’, 29 Harv Int’l LJ 169 (1988) Horton, S ‘Peru and ANCOM: A Study in the Disintegration of a Common Market’, 17 Texas Int’l LJ 39 (1982) at 45–7 Juillard, Patrick, ‘Freedom of Establishment, Freedom of Capital Movements, and Freedom of Investment’, 15 ICSID Rev–FILJ 322 (2000) Karl, Joachim, ‘The Competence for Foreign Direct Investment—New Powers for the European Union?’, 5 JWIT 413 (2004) Laviec, JP, Protection et Promotion des Investissements: Etude de Droit International Economique (Paris, Presses Universitaires de France, 1985) Likosky, Michael B, Law Infrastructure and Human Rights (Cambridge, Cambridge University Press, 2006) Looijsteijn-Clearie, Anne, ‘Centros Ltd—A Complete U-Turn in the Right of Establishment for Companies?’, 49 ICLQ 621 (2000) Megwa, S ‘Foreign Direct Investment Climate in Nigeria: The Changing Law and Development Policies’, 21 Colum J Transnat’l L 487 (1983) ——, ‘The Rise and Fall of the Multilateral Agreement on Investment: Where Now?’ 34 Int’l Law 1033 (2000) at 1048 Muchlinski, Peter T, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) Osunbor, O ‘Nigeria’s Investment Laws and the State’s Control of Multinationals’, 3 ICSID Rev–FILJ 38 (1988) Pattison, JE ‘The United States-Egypt Bilateral Investment Treaty: A Prototype for Future Negotiation’, 16 Cornell Int’l J 305 (1983) Pollan, Thomas, The Legal Framework for the Admission of FDI (Utrecht, Eleven International Publishing, 2006) Preziosi, A ‘The Andean Pact’s Foreign Investment Code Decision 220: An Agreement to Disagree’, 20 U Miami Inter-Am L Rev 649 (1989) Rodger, Barry J, ‘UK Merger Control Policies: the Public Interest and Reform’, 21 ECLR 24 (2000) Rugman, Alan, and Verbeke, Alain, ‘Location Competitiveness and the Multinational Enterprise’, in Alan M Rugman and Thomas L Brewer (eds), The Oxford Handbook of International Business (Oxford, Oxford University Press, 2003) Sassen, Saskia, ‘The Locational and Institutional Embeddedness of the Global Economy’, in George A Berman, Matthias Herdegen, and Peter L Lindseth (eds), Transatlantic Regulatory Co-operation: Legal Problems and Political Prospects (Oxford, Oxford University Press, 2000)

258

iGNACIO GóMEZ-PALACIO AND PETER MUCHLINSKI

Shihata, Ibrahim FI, ‘Recent Trends Relating to Entry of Foreign Direct Investment’ 9 ICSID Rev–FILJ 47 (1994) Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) ——, International Investment Agreements: A Compendium Vol II (New York and Geneva, United Nations, 1996) ——, World Investment Report 1999 (New York and Geneva, United Nations, 1999) UNCTAD, Admission and Establishment, Series on issues an international investment agreements (New York and Geneva, United Nations, 1999) ——, International Investment Agreements: Flexibility for Development, Series on issues in international investment agreements (New York and Geneva, United Nations, 2000) ——, Host Country Operational Measures, Series on issues in international investment agreements (New York and Geneva, United Nations, 2001) ——, World Investment Report 2003 (New York and Geneva, United Nations, 2003) ——, World Investment Report 2006 (New York and Geneva, United Nations, 2006)

chapter 8

S TA N DA R D S OF T R E AT M E N T Todd J Grierson-Weiler Ian A Laird

(1) Two Standards—Comparative and Absolute

261

(2) Treaty Standards versus Customary International Law Standards

264

(3) The Minimum Standard of Treatment and the Principle of Good Faith

272

(a) (b) (c) (d)

Detrimental Reliance upon Legitimate Expectation Regulatory Fairness Abuse of Authority Sowing Seeds of Convergence?

(4) National Treatment and MFN Treatment (a) Prudence and Good Faith in National Treatment (b) More Convergence: Good Faith and Non-discrimination

275 277 284 287

290 290 296

(5) One Standard or Two? A New Balancing Act

299

Concluding Remarks

301

260

Todd grierson-Weiler and ian a laird

The interpretation of international law, especially treaty law, can be a difficult task at the best of times. Practitioners in the international investment law field do not differ from those in other disciplines seeking certainty in the construction of the law. This quest for certainty has led some to seek out, or even to draw, bright lines in international law doctrine, regardless of whether such lines should, or actually do, exist. However, as one tribunal recently lamented in respect of the interpretation of one such treaty provision: [It is] not easy to define the exact dividing line, just as it is not easy in twilight to see the divide between night and day. Nonetheless, whilst the exact line may remain undrawn, it should still be possible to determine on which side of the divide a particular claim must lie.1

Perhaps having spent too much time in that morning twilight, we believe that we may have glimpsed our own pattern in the jurisprudence of recent NAFTA and investment treaty awards. Ever cautious about drawing our own lines, we admit that this pattern may not deliver us from uncertainty, but it may at least provide some understanding as to how cases are actually being decided. Of course, any theory that can explain seemingly divergent approaches to similar treaty provisions is a potential route from the unknown to the known. Whether they should be decided in such a way will be for others to judge. The pattern we have noted is that of an apparent convergence in the interpretation of the minimum (or ‘fair and equitable’) and ‘non-discrimination’ standards of treatment found in most investment protection treaties, the multilateral Energy Charter Treaty, and the NAFTA. The convergence appears to have been based upon a tribunal’s analysis of the legitimacy of the expectations enjoyed by an investor with respect to investments covered under an investment protection treaty.2 The investor expects to receive treatment in accordance with an underlying conception of regulatory fairness, regardless of whether that concept is grounded in one or more differently formulated treaty provisions. Indeed, much has been written recently about standards of treatment applicable in investment treaty arbitration.3 There was a time when most treaty arbitrations between investors and states either primarily or exclusively concerned the expropriation of investments. Today, while expropriation remains a fundamental element 1 Methanex v U.S., Partial Award, 7 August 2002 (UNCITRAL) para 139, available at . 2 The NAFTA, however, appears to go further than a bilateral investment treaty in terms of the protection it offers for non-discrimination, not only offering protection for foreign investment, but also protection for investors operating in like circumstances throughout the North American Free Trade Area. 3 The most recent and best examples are R Dolzer, ‘Fair and Equitable Treatment: A Key Standard in Investment Treaties’, 39 Int’l Law 87 (2005); C Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’, 6 JWIT 357 (2005); S Fietta, ‘Expropriation and the “Fair and Equitable” Standard: The Developing Role of Investors’ “Expectations” in International Investment Arbitration’, 23(5) J of Int’l Arb 375 (2006); S Schill, ‘Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of Law’, IILJ Working Paper 2006/6.

Standards of Treatment

261

of many claims, it no longer travels alone. Today, international investment law arbitrations also include claims for two broad categories of state responsibility: nondiscrimination and fair and equitable treatment. It is these two categories of treatment owed by states to investors to which this chapter is devoted. A recent bilateral investment treaty award, Saluka v Czech Republic, may be demonstrative of this trend. Saluka was a classical non-discrimination award that was not based upon a non-discrimination provision, such as national treatment, because one was missing from the treaty. The tribunal based its findings for the successful claimant upon the treaty’s minimum standard of treatment provision instead. Did the Saluka tribunal simply prove the old adage that bad facts can make for bad law, or was its decision a shift towards doctrinal consolidation between the concept of non-discrimination and the minimum standard of treatment? If consolidation was the objective, the tribunal is not alone. Some time ago, and certainly prior to the current surge of interest in international investment law, Professor FA Mann identified this kind of fate for the minimum standard:4 . . . it is submitted that the right to fair and equitable treatment goes much further than the right to most-favored-nation and to national treatment . . . so general a provision is likely to be almost sufficient to cover all conceivable cases, and it may well be that provisions of the Agreements affording substantive protection are not more than examples of specific instances of this overriding duty.5

The goal of this chapter is not to argue that protection from non-discrimination has been subsumed in the minimum standard of treatment, or that all forms of nondiscrimination are now part and parcel of the minimum standard of treatment recognized under customary international law. It is merely to note that, as a matter of doctrine, it is becoming increasingly difficult to discern any difference between the ways in which non-discrimination and minimum standard provisions are actually being interpreted and applied.

(1) Two Standards—Comparative and Absolute Traditionally, non-discrimination and the minimum standard of treatment obligations could be easily distinguished through the ways in which tribunals typically 4 Cited at SD Myers Inc v Canada, First Partial Award, 13 November 2000 (UNCITRAL) 40 ILM 1408 (2001) at para 266. 5 Ibid at para 265, citing FA Mann, ‘British Treaties for the Promotion and Protection of Investments’, 52 Brit YB Int’l L 241 (1981).

262

Todd grierson-Weiler and ian a laird

applied them. Non-discrimination, which is most commonly manifested in the national treatment and most-favoured-nation (MFN) treatment standards found in investment instruments, involves a comparative test—whereby the claimant is required to identify a comparator (either a national or another foreigner) in receipt of better treatment than it has received from the respondent state. If the claimant succeeds in making this prima facie case, a strategic burden falls upon the respondent state to explain why the treatment received was that which was properly deserved. It could do so by demonstrating that the treatment received was actually not better; that the comparison drawn by the claimant was untenable; or that a valid (ie reasonable and non-discriminatory) reason existed for the differential treatment claimed. The ‘minimum standard of treatment’ is the other standard commonly employed in international investment instruments, most often under the appellation of ‘fair and equitable treatment’. Indeed, this particular expression, ‘fair and equitable’, is now commonly seen as encapsulating the level of minimum ‘treatment’ now required under both customary international law and under the majority of the world’s almost 2,500 trade liberalization and investment protection treaties.6 However, others, in particular state respondents to treaty claims, say that ‘fair and equitable treatment’ is a discrete and objective treaty standard, a form of lex specialis found in many, but not all, such agreements—and that it is not necessarily representative of the kind of treatment required of a state under customary international law. Regardless of which argument is preferred, the test is essentially the same: a claimant must demonstrate that the treatment it has received fell below the ‘floor’ established by the international law standard (whether imposed under customary international law or by treaty). There is usually no need to identify a comparator as the standard is absolute; the question to be determined is—effectively—whether the treatment received was ‘fair and equitable’ in the circumstances.7

6 For the latest figures on the number of BITs, see UNCTAD, ‘The Entry into Force of Bilateral Investment Treaties (BITs)’ IIA Monitor No. 3 (2006), available at . 7 As explained below, a tribunal will not apply its own, subjective view of whether treatment was ‘fair and equitable’. Rather, its appraisal must be informed by the treaty text and applicable rules of international law. The Saluka tribunal reiterates a point made by numerous other tribunals that the circumstances of the case are critical for an assessment under the standard: at para 285: ‘There is agreement between the parties that the determination of the legal meaning of the “fair and equitable treatment” standard is a matter of appreciation by the Tribunal in light of all relevant circumstances: Saluka BV v Czech Republic UNCITRAL Rules Partial Award Permanent Court of Arbitration 17 March 2006 available at . As the tribunal in Mondev has stated, “[a] judgment of what is fair and equitable cannot be reached in the abstract; it must depend on the facts of the particular case”.’ Mondev International Ltd v USA, Award, 11 October 2002 (ICSID Case No. ARB(AF)/99/2), 42 ILM 85 (2003) at para 304: ‘[The] expectations [of the investor], in order for them to be protected, must rise to the level of legitimacy and reasonableness in light of the circumstances ‘(emphasis in original). The same conclusion of the fact-dependent nature of fair and equitable treatment was made by the MTD tribunal. See MTD Equity Sdn Bhd & MTD Chile SA v Chile (Republic of ), Award, 25 May 2004 (ICSID Case No. ARB/01/7) 44 ILM 91 (2005) at para

Standards of Treatment

263

These two standards—one comparative and one absolute—can be found in the vast majority of investment protection treaties.8 Sometimes they are combined in a single treaty provision. More often, however, they can be found in two or three provisions covering: MFN treatment; national treatment; and the minimum standard of treatment. A prominent example of these standards, in use, can be found in the following excerpt from Article X of the Energy Charter Treaty (ECT), a multilateral treaty provision entitled ‘Promotion, Protection and Treatment of Investments’: (1) Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party. (2) Each Contracting Party shall endeavour to accord to Investors of other Contracting Parties, as regards the Making of Investments in its Area, the Treatment described in paragraph (3). (3) For the purposes of this Article, ‘Treatment’ means treatment accorded by a Contracting Party which is no less favourable than that which it accords to its own Investors or to Investors of any other Contracting Party or any third state, whichever is the most favourable. ... (7) Each Contracting Party shall accord to Investments in its Area of Investors of other Contracting Parties, and their related activities including management, maintenance, use, enjoyment or disposal, treatment no less favourable than that which it accords to Investments of its own Investors or of the Investors of any other Contracting Party or any third state and their related activities including management, maintenance, use, enjoyment or disposal, whichever is the most favourable.

These paragraphs of ECT Article X explicitly call for the comparison of treatment received by investors and their investments with that received by other investors and investments, local or otherwise. They also articulate an absolute (ie minimum) standard of treatment in requiring: ‘fair and equitable treatment’; ‘most constant 109, and see Waste Management, Inc v Mexico (No. 2), Award, 30 April 2004 (ICSID Case No. ARB (AF)/00/3), 43 ILM 967 (2004) (‘Waste Management II’) at paras 99, 118. 8 UNCTAD, Fair and Equitable Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999). Also see UNCTAD, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006) at 99–106; For further details about the national and MFN treatment standards in relation to investment, see UNCTAD, National Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) and UNCTAD, Most-Favoured-Nation Treatment (New York and Geneva, United Nations, 1999).

264

Todd grierson-Weiler and ian a laird

protection and security’ (also referred to as ‘full protection and security’ in some agreements); and by prohibiting the impairment of an investment by means of unreasonable or arbitrary measures. As described in more detail below, such articulation is common and need not necessarily impact upon the manner in which the minimum standard is formulated in any given case.

(2) Treaty Standards versus Customary International Law Standards Like the vast majority of bilateral investment protection treaties, none of the absolute standards found in the ECT explicitly refers to customary international law. Nonetheless, there is evidence that these absolute standards do have their genesis in custom. The roots of these standards can be found in the same doctrinal sources— that is, the mixed claims commissions of the early 20th century—that inspired universal human rights instruments concluded by the middle of that century. Moreover, in recent years, some treaty parties have themselves indicated that there exists a relationship between that which is required of them under customary international law and the standards to which they agree in treaties which—unlike customary international law—are capable of enforcement by investors before an arbitral tribunal. For example, the NAFTA parties have interpreted that the ‘minimum standard of treatment’ provision found in the NAFTA (Art 1105, which requires ‘treatment in accordance with international law, including fair and equitable treatment and full protection and security’) represents the current manifestation of the customary international law minimum standard.9 Even more recent versions of the provision similarly suggest that minimum standard provisions are reflective of customary international law. For example, the model treaty provision for Canada’s investment protection treaty states: Article 5—Minimum Standard of Treatment 1. Each Party shall accord to covered investments treatment in accordance with the customary international law minimum standard of treatment of aliens, including fair and equitable treatment and full protection and security.

9 NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions (NAFTA Free Trade Commission, 31 July 2001), available at .

Standards of Treatment

265

2. The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ in paragraph 1 do not require treatment in addition to or beyond that which is required by the customary international law minimum standard of treatment of aliens. 3. A determination that there has been a breach of another provision of this Agreement, or of a separate international agreement, does not establish that there has been a breach of this Article.10

Even more explicitly, the current model treaty provision for US treaties states, in a footnote, that the provision ‘shall be interpreted in accordance with’ an annex whose provisions have been excerpted below: Article 5: Minimum Standard of Treatment 1. Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security. 2. For greater certainty, paragraph 1 prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to covered investments. The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights. The obligation in paragraph 1 to provide: (a) ‘fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world; and (b) ‘full protection and security’ requires each Party to provide the level of police protection required under customary international law. ... Annex A—Customary International Law The Parties confirm their shared understanding that ‘customary international law’ generally and as specifically referenced in Article 5 [Minimum Standard of Treatment] and Annex B [Expropriation] results from a general and consistent practice of States that they follow from a sense of legal obligation. With regard to Article 5 [Minimum Standard of Treatment], the customary international law minimum standard of treatment of aliens refers to all customary international law principles that protect the economic rights and interests of aliens.11

It becomes apparent from a cursory reading of these provisions, however, that they do not lend themselves easily to simple conclusions about what kind of state conduct—in the abstract—falls below the floor they set, whether as a matter of treaty law or customary international law. Questions outnumber answers. Would not a measure determined as ‘arbitrary or discriminatory’ violate any objective assessment of that which is ‘fair and equitable’? What else might ‘fair and equitable treatment’ include, apart from an apparent prohibition against denials of justice or failure to 10 Canada’s 2003 Model Foreign Investment Promotion and Protection Agreement (FIPA), available at . 11 United States Model Bilateral Investment Treaty (BIT) (2004), available at .

266

Todd grierson-Weiler and ian a laird

accord due process (and what is the difference between the former and the latter)? Is the term ‘due process’ intended in a procedural sense, a substantive sense, or both? Moreover, many of the expropriation provisions found in investment protection treaties indicate that state responsibility is incurred when due process is denied during a taking of property. Surely this cannot mean that denials of due process do not constitute a breach of the minimum standard unless a taking is involved. And if it is accepted, as many commentators do, that the obligation to provide full, fair, and effective compensation for expropriation is a matter of customary international law, is it really necessary to include the, by now, rather ubiquitous expropriation provision in treaties that already contain a minimum standard provision? The arbitrary taking of an investment without payment of compensation is widely accepted as a violation of customary international law, regardless of whether an expropriation provision exists in the agreement granting arbitration—so why bother with such a provision if a minimum standard clause is already included? Traditionally, investment treaty arbitrations focused on state liability for the taking of investments, both by means of direct expropriation (including nationalization) and through indirect means (including creeping expropriation by taxation and indirect expropriation by regulation). Until recently, virtually no case-law existed outside of the GATT and WTO context concerning the MFN or national treatment standards, and very little case-law existed with respect to minimum standards of treatment within the context of modern, economic regulation.12 The advent of NAFTA Chapter 11 arbitration, which emerged at almost the same time as anti-globalization activism was gaining steam through the astute use of Internet communications, led to a collective re-awakening amongst both lawyers and the international business community with respect to the potential use of both expropriation and non-expropriation standards of investment protection. Such activism—aimed at the very existence and potential use of investment arbitration— may well inadvertently have contributed to an enhanced awareness of these provisions and their subsequent use, just at a time when more and more such provisions were being employed in an increasing number of investment protection treaties. Meanwhile, increasing worldwide capital flows—and some inopportune political upheaval and currency crises—have continued to present investors with greater opportunities for their use. Accordingly, over the past seven years the world has witnessed a relative explosion of new cases13—testing many of the absolute and comparative investment protection 12 In 1981, when he wrote his article, Dr Mann observed that the ‘fair and equitable treatment’ and ‘full protection and security’ standards, despite being frequently included in BITs, have ‘. . . hardly ever been judicially considered’. Mann, above n 5 at 243. Certainly that remained the case until late 2000 when the SD Myers NAFTA award (above n 4) led a wave of new decisions on the fair and equitable treatment standard. 13 The numerous awards listed at is a simple and graphic demonstration of this growth. See UNCTAD, ‘Latest Developments in Investor-State Dispute

Standards of Treatment

267

standards found in investment protection treaties for the first time, with only limited guidance derived from related fields of international law (such as GATT/WTO law or the jurisprudence of standing tribunals such as the European Court of Human Rights). The potential for conflicting decisions, or otherwise mangled doctrine, exists in the fact that most of the tribunals established under investment protection treaties do not observe strict rules of stare decisis, nor are they required to, and are populated by practitioners with varied professional backgrounds.14 In stark contrast to the system of appeals established under the WTO framework, the ability to exercise doctrinal control over the reasoning of awards issued by investment treaty tribunals is almost non-existent, given the high standards of judicial review in place for most systems of dispute settlement (such as the ICSID or those found under the New York Convention).15 Accordingly, even if a tribunal incorrectly applied a treaty provision with which it was more familiar, such as the expropriation obligation, there would be little opportunity for the error to be corrected upon review. With the typical expropriation provision specifically including concepts such as discrimination and due process in its terms, it is also not surprising that the potential exists for blurring the lines between expropriation and other standards of treatment.16 The difference between the MFN, national treatment, and minimum standard obligations and an expropriation provision, in application, is supposed to be that compensation will typically be required under the expropriation provision only if it can be proved that the state conduct in question constituted an effective taking of the investment in question. In other words, an expropriation cannot typically be found unless ‘substantial deprivation’ with the investment has been proved.17 In contrast, MFN treatment, national treatment, and minimum standard of treatment Settlement’, IIA Monitor No. 4 (2006), available at . The total cumulative number of known treaty-based arbitrations increased to a new peak of 255 by the end of 2006, with the majority of those claims launched after 2000. 14 The question of apparently contradictory decisions by arbitral panels has generated a great deal of discussion concerning the need for more consistency in investment arbitration, for example by adopting some form of appellate mechanism. See the BIICL Investment Treaty Forum 2004 discussion on ‘Appeals and Challenges to Investment Treaty Awards: Is it Time for an International Appellate System?’ in Federico Ortino, Audley Sheppard, and Hugo Warner (eds), Investment Treaty Law (London, British Institute of International and Comparative Law, 2006), available at ; Also see: I Laird and R Askew, ‘Finality versus Consistency: Does Investor-State Arbitration Need An Appellate System?’, 7 J Appellate Practice and Process 101 (2006). 15 See Balaš, ch 27 below, for a more detailed discussion of this topic. 16 Jan Paulsson made a similar observation with respect to the development of the customary principle of denial of justice: see Jan Paulsson, Denial of Justice in International Law (Cambridge, Cambridge University Press, 2005) at 10–11. 17 See Pope & Talbot, Inc v Canada, Interim Award, 26 June 2000 (UNCITRAL) at paras 96–105. The requirement for a substantial deprivation has also been recognized by more recent tribunals, such as LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentine Republic (LG&E), Decision on Liability, 3 October 2006 (ICSID Case No. ARB/02/1) at paras 190–1, 199 (citing Pope & Talbot at paras 100–2), Azurix Corp v Argentine Republic, Award, 14 July 2006 (ICSID Case

268

Todd grierson-Weiler and ian a laird

provisions (or combinations thereof) are not supposed to be concerned with the level of interference alleged—only the nature and quality of that interference.18 Accordingly, overlap is bound to exist between obligations where the alleged deprivation is substantial enough to trigger the obligation to compensate for taking and those that apply to all interference above a practical, de minimus level.19 This is not the only potential overlap, however. For example, according less favourable treatment to a claimant than another comparable investor, in the absence of sufficient regulatory justification, can certainly be considered neither fair nor equitable, or perhaps even ‘arbitrary’ or ‘discriminatory’ impairment (if necessary), and recent arbitration awards, such as that of the Saluka tribunal, bear this out.20 In other words, a ‘fair and equitable treatment’ provision can be construed broadly enough to cover all of the obligations in most conceivable investment disputes. Bearing in mind that there are almost 2,500 investment treaties currently in existence, with more free trade agreements with various types of investment protections included, and that there are variations between many of them in respect of their structure and content, it would be understandable if ad hoc tribunals arbitrating different disputes under different treaties might, from time to time, be faced with a case that cries out for one type of provision when only another is available. How can one find any consistency in available standards when there is only limited consistency between and amongst treaty provisions? In this respect, the WTO Appellate Body and the International Court of Justice remind us of the principle of effectiveness in treaty interpretation.21 It is not No. ARB/01/12) at para 322, and EnCana v Republic of Ecuador (EnCana), Award, 3 February 2006 (UNCITRAL) at para 174. 18 This has been the subject of great debate before NAFTA Chapter 11 tribunals, and more recently before BIT tribunals, concerning whether the minimum standard must meet a threshold of ‘egregiousness’ or bad faith. The recent awards of the tribunals in Saluka above n 7 at n 18, 34, 38, 41, Azurix, above n 17 at para 372, and LG&E, above n 17, at para 129, have effectively disposed of this question, holding that the customary international standard has evolved and that bad faith is not a requirement of the fair and equitable standard. 19 This has been seen in a very practical manner by the way that investors have made their claims under the headings of multiple treaty obligations. Moreover, given the considerable expense of launching and maintaining an arbitration against a state, and the reality of old-fashioned litigation risk, it is likely that few individual claimants would come forward unless the harm suffered crossed a threshold several times that of the expected costs of the dispute. 20 Saluka, above n 7, at para 461, concluded that a breach of the non-impairment standard with respect to arbitrariness and non-discrimination ‘does not therefore differ substantially from a violation of the “fair and equitable treatment” standard’. Similarly, the tribunal held that a deprivation could also be considered an impairment, if it was also unreasonable and discriminatory. However, since the tribunal ruled that there was no deprivation under Art 5 of the Treaty, the expropriation provision, there could not be a deprivation on this ground as well. See Saluka at paras 468–70. 21 ‘. . . One of the corollaries of the “general rule of interpretation” in the Vienna Convention is that interpretation must give meaning and effect to all the terms of the treaty. An interpreter is not free to adopt a reading that would result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.’ See United States—Standards for Reformulated and Conventional Gasoline, Report of the Appellate Body, 29 April 1996 (WT/DS2/AB/R). The principle of effectiveness (ut res magis valeat

Standards of Treatment

269

permitted, under the applicable rules of treaty interpretation in customary international law, to accord an interpretation to treaty text that renders portions of the text redundant, absurd, or inutile. This principle is why the focus of an expropriation analysis must stay on the question of whether substantial interference exists. If the interference involved is less than an actual or de facto taking, other treaty standards should be applied instead (whether the absolute kind, or the comparative). The difficulty arises because these various other standards can be construed in such a way as to overlap significantly, particularly in cases where the most appropriate provision just so happens to be missing from the subject treaty. For example, the tribunal in Saluka appears to have attempted to shoehorn what would typically be a national treatment fact pattern into a fair and equitable treatment standard treaty provision. This is not a problem, however, of claimants or tribunals necessarily stretching the ambit of investment protection provisions beyond a meaning reasonably borne by their terms. It is rather a problem of textual indeterminacy and excessive drafting overlap (which, in turn, is the likely by-product of intended redundancy on the part of cautious treaty drafters). The solution to this potential interpretative quandary is not to construe investment treaty provisions so as to require only a minimal level of governmental responsibility, placing them in distinct and separate silos, thereby attempting to reduce the potential overlap. Nor should the solution be to adopt a malleable, subjective approach to the construction of treaty provisions so as to meet the facts of any seemingly ‘deserving’ case. The solution would better lie in the recognition that all of these provisions are essentially aimed at the same type of regulatory mischief, regardless of whether one adopts a comparative or absolute analysis of the regulatory fairness that should be achieved. With respect to the various variations of minimum standard provisions found in investment treaties today, it is not particularly helpful to construe ‘fair and equitable treatment’ as merely a euphemism for an obligation that imposes state responsibility only for certain types of conduct that violate arcane norms of customary international law concerning the ‘treatment of aliens’.22 Neither is it helpful to simply confirm that ‘fair and equitable treatment’ is simultaneously both a treaty standard and a customary international law standard. These approaches do little to elaborate quam pereat), as a maxim of treaty interpretation, has been recognized by the Permanent Court of Justice and the International Court of Justice. See Case Concerning the Factory at Chorzów (1927) PCIJ Series A, Vol 2, no. 8 22; South West Africa (Ethiopia v South Africa; Liberia v South Africa), Judgment of 21 December 1962 (Preliminary Objections), 1962 ICJ 319, 582 (Dissenting Opinion of Judge Van Wyk). 22 A notion rejected uniformly by NAFTA tribunals. As noted by the tribunal in Waste Management II: ‘Both the Mondev and ADF tribunals rejected any suggestion that the standard of treatment of a foreign investment set by NAFTA is confined to the kind of outrageous treatment referred to in the Neer case, i.e. to treatment amounting to an “outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency”.’ Waste Management II, above n 7 at para 93.

270

Todd grierson-Weiler and ian a laird

upon the breadth and depth of the obligation, in application in any individual case. At best, where the treaty standard is linked by government officials to custom, whether before or after the launch of an arbitration, the signal being transmitted is that the one making the link believes that a level of deference to government decision-making is owed by the tribunal.23 There are various ways to express inclusion of the minimum standard within the scope of a free trade or investment protection treaty,24 and the frequency of such expression has indeed led some commentators and tribunals to conclude that its ubiquity demonstrates state practice establishing the current shape and form of the customary norm.25 While each treaty provision must certainly be analysed with respect to its specific terms, in good faith and within the context of the particular treaty in question, the best way to encapsulate the general meaning of the minimum standard is to note that it requires ‘fair and equitable treatment’ of states vis-à-vis covered investments. Principles of international law and international law doctrine (including the work of the most highly qualified publicists and jurists— both in reasons for decision and in drawing general conclusions about customary law and treaty law) will continue to inform the analysis of such provisions,26 as required under Article 31(3)(c) of the Vienna Convention on the Law of Treaties (‘Vienna Convention’). Terms such as ‘discriminatory’ and ‘arbitrary’ impairment, or ‘due process’— when found in a minimum standard provision—may assist in providing context for what that standard requires in any given treaty (whether the provision includes the magic words ‘fair and equitable treatment’ or otherwise). These terms may also

23 The cynic might observe that the level of deference envisaged by the one making the link between the treaty standard and custom is often just enough to ensure that the particular claim at issue fails without systematically hollowing out the obligation—should it be required for future offensive use by one’s own investor. This exact scenario played out in the NAFTA context with the final result being the Free Trade Commission Note of Interpretation on 31 July 2001. For a historical recounting of this period and the related NAFTA awards, see I Laird, ‘Betrayal, Shock and Outrage—Recent Developments in NAFTA Article 1105’, in Todd Weiler (ed), NAFTA: Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley NY, Transnational Publishers, 2004) at 49. 24 For a comprehensive collection of provisions, see UNCTAD, International Investment Instruments: A Compendium (New York and Geneva, United Nations 1996–2005) Vols I–XIV, available at ; UNCTAD, Fair and Equitable Treatment, above n 8. 25 For example, Judge Stephen Schwebel has noted the importance of the minimum standard as part of the fabric of laws, regulations, norms, and practices regulating state responsibility and foreign direct investment. See S Schwebel ‘The Influence of Bilateral Investment Treaties on Customary International Law’, 5(2) TDM 5–6 (2005) (‘when BITs prescribe treating the foreign investor in accordance with customary international law, they should be understood to mean the standard of international law embodied in the terms of some two thousand concordant BITs. The minimum standard of international law is the contemporary standard’); also see Mondev International Limited v USA, above n 7 at para 117; CME Czech Republic BV v Czech Republic, Award, 14 March 2003 (UNCITRAL) (CME) at paras 497–8. 26 ADF Group, Inc v United States of America, Final Award, 9 January 2003 (ICSID Additional Facility), 18 ICSID Rev–FILJ 195 (2003) at paras 39, 89; Mondev, above n 7 at para 121.

Standards of Treatment

271

demonstrate, on a more systematic basis, the kind of conduct that treaty parties now acknowledge as being covered under the customary international law minimum standard. So too can doctrinal developments (found in the work of learned commentators and the reasons for decision of respected international tribunals involving similar provisions) assist tribunals in their interpretative duties when dealing with any one particular minimum standard provision. As Professor Weil has written, ‘the standard of “fair and equitable treatment” is certainly no less operative than was the standard of “due process of law,” and it will be for future practice, jurisprudence and commentary to impart specific content to it’.27 The NAFTA Tribunal in ADF Group v United States of America explained that the requirement to accord fair and equitable treatment does not allow a tribunal to adopt its own idiosyncratic standard but ‘must be disciplined by being based upon State practice and judicial or arbitral case law or other sources of customary or general international law’.28 Perhaps the tribunal in Waste Management encapsulated the process of interpretation best, in articulating a minimum standard, when it stated: The search here is for the Article 1105 standard of review, and it is not necessary to consider the specific results reached in the cases discussed above. But as this survey shows, despite certain differences of emphasis a general standard for Article 1105 is emerging. Taken together, the S.D. Myers, Mondev, ADF and Loewen cases suggest that the minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety—as might be the case with a manifest failure of natural justice in judicial proceedings or a complete lack of transparency and candour in an administrative process. In applying this standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant.29

Of course, the project of applying a minimum standard provision in any given case will, of necessity, be highly contextual.30 We have not reached the point at which it could be confidently stated that sufficient jurisprudence exists to explicate the gamut of factual situations for which the obligation may be relevant. As such, all that can be said with any degree of certainty about the application of the minimum standard in any given case is that the same adjudicatory exercise will likely be performed— regardless of whether the provision is formulated as a customary or treaty standard. The question is what kind of treatment a reasonable investor was entitled to expect

27 P Weil, ‘The State, the Foreign Investor, and International Law: The No Longer Stormy Relationship of a Ménage à Trois’, 15 ICSID Rev–FILJ 401 (2000) at 415. 28 ADF, above n 26 at para 184. See also at para 119. 29 Waste Management II, above n 7 at para 98. 30 Ibid at 99.

272

Todd grierson-Weiler and ian a laird

from the state and its designates, recalling that international law recognizes the autonomous right of a state to regulate in the interests of domestic public policy.

(3) The Minimum Standard of Treatment and the Principle of Good Faith As recognized by commentators and recent tribunals, a unifying theme in understanding the regulatory floor available to all foreign investors under the minimum standard of fair and equitable treatment is the international law principle of good faith.31 From this fundamental principle of international law, three theories of liability emerge—all of which can be seen in the major legal systems of the world, but none of which appears to be integrated wholesale from any particular domestic one. The three theories of liability are: (1) detrimental reliance upon legitimate expectation; (2) regulatory transparency; and (3) freedom from arbitrariness or caprice in discretionary decision-making, or in short, ‘abuse of authority’. As an elemental principle in the ordering of relations between states, good faith provides the glue that holds the international order together. Section 711 of the Third Restatement of the Foreign Relations Law of the United States grounds the principle of good faith in state responsibility, providing that ‘a state is responsible under international law for injury to a national of another state caused by an official act or omission that violates . . . a personal right that, under international law, a state is obligated to respect for individuals of foreign nationality’.32 And as the ICJ noted in the Anglo-Norwegian Fisheries case: 31 As noted by Schreuer, above n 3 at 384: ‘Arbitral Tribunals have confirmed that good faith is inherent in fair and equitable treatment’; Dolzer, above n 3 at 91: ‘Indeed, the substance of the standard of fair and equitable treatment will in large part overlap with the meaning of a good faith clause in its broader setting, with one significant aspect embracing the related notions of venire contra factum proprium and estoppel’. A number of recent awards have recognized the good faith element of fair and equitable treatment, including: Tecnicas Medioambientales Tecmed, SA v Mexico, Award, 29 May 2003 (ICSID Case No. ARB (AF)/00/2), 43 ILM 133 (2004), (Tecmed) at paras 153–4, Waste Management II, above n 7 at para 138, MTD, above n 7 at para 109, Saluka, above n 7 at para 303. 32 Commentary (e) to s 711 confirms that ‘a juridical person of foreign nationality also enjoys some protection, for instance, against denials of procedural justice’ and that ‘for a juridical person, such violations would normally result in economic injury and fall within clause (c)’, Note that clause (c) provides that responsibility attaches for acts that unreasonably interfere with ‘a right to property of other economic interest that, under international law, a state is obligated to respect for persons, natural or judicial, of foreign nationality, as provided in section 712’.

Standards of Treatment

273

The principle of good faith requires that every right be exercised honestly and loyally. Any fictitious exercise of a right for the purpose of evading either a rule of law or a contractual obligation will not be tolerated. Such an exercise constitutes an abuse of the right, prohibited by law.33

In its Merits Award, the ICSID tribunal in AMCO Asia v Indonesia went so far as to determine that good faith is a substantive principle upon which an investor could base its claim. The tribunal concluded that an investor should be entitled: . . . ‘to realize the investment, to operate it with a reasonable expectation to make profit and to have the benefit of the incentives provided by law without suffering the arbitrary exercise of a right which would prevent such enjoyment’.34 NAFTA and investment treaty tribunals have consistently determined that the ‘applicable rules of international law’ are the customary international law rules of treaty interpretation, which have been codified in Articles 31 and 32 of the Vienna Convention. Similar language can be found in numerous other BITs and bilateral trade treaties. Professor Schreuer has added that, regardless of whether the contract or treaty is silent as to choice of law or provides a mixed choice of law clause, ICSID tribunals have inevitably employed the customary international law rules of interpretation and substantive international law principles when rendering their awards.35 In fact, he goes as far as to state that international law principles can find their way into a tribunal’s deliberations even when the contract or compromis contains a clause purporting to oust international law as being applicable to any given dispute. Moreover, it is common for both treaties and internationalized contracts between states and individuals to include ‘international law’ (or some textual variant thereof) as part of the applicable law (possibly substantive but at least almost always interpretative). Sir Eli Lauterpacht has remarked that tribunals, owing to their very nature as international bodies, are entitled to dispose of matters on the basis of the applicable rules of international law.36 Others have agreed, although they have not gone so far as to suggest that substantive international law should ‘trump’ domestic law in the event of a conflict between them.37 Nonetheless, a more recent tribunal, of 33 Anglo-Norwegian Fisheries Case (1951) ICJ Reports 116 at 142. 34 AMCO Asia v Indonesia, 1 ICSID Reports, 377 at 490 and 493. See also the Sapphire Award (1963) 35 ILR 136 at 181. 35 C Schreuer, ‘Article 42 of the ICSID Convention’, 60 AJIL 892 (1996); Art 42 of the ICSID Convention, 4 ILM 532 (1965), sets out the governing law for a tribunal constituted under the ICSID Convention Rules, which is necessary given that the choice of law may not always be set out in the contract or compromis. 36 E Lauterpacht, ‘The World Bank Convention on the Settlement of International Investment Disputes’, Recueil d’etudes de Droit International en Hommage a Paul Guggenheim Ignaz (Geneva, Faculté de Droit l’Université de Genéve, Institut Universitaire des Hautes Etudes Internationales, 1968) 642 at 658–62. A similar conclusion was reached by Seidl-Hohenveldern, citing: ‘General Principles of Law as Applied by the Conciliation Commission Established under the Peace Treaty with Italy of 1947’, 53 Am J Int’l L 853 (1959) at 872. 37 See eg O Chukwumerije, ‘International Law and Article 42 of the ICSID Convention’, 14 J Int’l Arb 79 (1997) at 95–101; or IFI Shihata and A Parra, ‘Applicable Substantive Law in Disputes between

274

Todd grierson-Weiler and ian a laird

which Professor Lauterpacht was a member, has concluded that ‘international law must prevail’ to the extent that there may be some inconsistency between applicable domestic and international norms.38 Relying upon the negotiating history of the ICSID Convention, Schreuer concludes that its reference to ‘applicable international law’ was intended by its drafters to mean the relevant principles and rules to be derived from Article 38(1) of the Statute of the ICJ, with ‘allowance being made for the fact that Article 38 was designed to apply to inter-State disputes’.39 Such ‘international law’ could obviously be derived from the fundamental principles of international law set out in Article 38(1)(c),40 customary international law, or ‘the large and rapidly growing numbers of BITs and multilateral treaties dealing with investment . . . .’41 Of course, any such principles may play only an interpretative role when specific treaty standards were in dispute, but both in their absence and in cases where the treaty norm is rather amorphous (as are most minimum standard provisions), international law principles would arguably remain relevant as substantive norms to be applied to the specific facts of the case at hand. As noted by the NAFTA tribunal in GAMI Investments, the role of a tribunal in applying a minimum standard provision is: . . . to appraise whether and how pre-existing laws and regulations are applied to the foreign investor. It is no excuse that regulation is costly. Nor does a dearth of able administrators or a deficient culture of compliance provide a defence. Such is the challenge of governance that confronts every country. Breaches of NAFTA are assuredly not to be excused on the grounds that a government’s compliance with its own law may be difficult. Each NAFTA Party must to the contrary accept liability if its officials fail to implement or implement regulations in a discriminatory or arbitrary fashion.42 States and Private Parties: The Case of Arbitration under the ICSID Convention’, 9 ICSID Rev–FILJ 183 (1994) at 191–5. 38 Compañia del Desarrollo de Santa Elena, SA v Republic of Costa Rica (Santa Elena), Final Award, 15 (2000) ICSID Rev–FILJ 169 at 191; Rectification 15 (2000) ICSID Rev–FILJ 205. 39 C Schreuer, The ICSID Convention: A Commentary (Cambridge, Cambridge University Press, 2001) at 609–10. 40 Ibid at 609 and 615–16; Schreuer notes the interesting case of Klőckner v Cameroon, Decision on Annulment, 2 (1985) ICSID Rep 121, in which a tribunal was castigated by the annulment panel for having essentially applied a principle of French contract law to the dispute, as if it were a fundamental principle of international law, without having parsed the evidence which would have been necessary to make such a finding of law. 41 C Schreuer, above n 39 at 610–11. 42 GAMI Investments, Inc v Mexico, NAFTA/UNCITRAL Tribunal, Final Award, 15 November 2004, 44 ILM 545 (2005) at para 94. The tribunal was cautious, however, to add four comments clarifying its understanding of what does, and does not, constitute a breach of the minimum standard of treatment: (1) the failure to fulfi l the objectives of administrative regulations without more does not necessarily rise to a breach of international law; (2) a failure to satisfy requirements of national law does not necessarily violate international law; (3) proof of a good faith effort by the government to achieve the objectives of its laws and regulations may counter balance instances of disregard of legal or regulatory requirements; and (4) the record as a whole—not isolated events—determines whether there has been a breach of international law.

Standards of Treatment

275

(a) Detrimental Reliance upon Legitimate Expectation Detrimental reliance may be understood as the ‘flip side’ of the equitable maxim that one should not be permitted to profit from one’s own wrongdoing. It is also a corollary principle of good faith. ‘Detrimental reliance’ reflects the perspective of the claimant, as alleged victim, while the maxim represents the kind of finding that the respondent must avoid. Of course, the nature and scope of this concept will be much better defined in the domestic context, in which a sufficient number of cases have been brought so as to permit such clarity to take hold. Nonetheless, an evergrowing number of investment treaty claims promise to fi ll that void,43 including International Thunderbird Gaming v Mexico,44 LG&E v Argentina,45 and Saluka v Czech Republic.46 In his monograph on the principle of good faith, JF O’Connor discusses how the concept of detrimental reliance (as embodied in the estoppel rule) has arisen in PCIJ cases such as Case Concerning the Temple of Preah Vihear (Cambodia v Thailand) and the ICJ’s North Sea Continental Shelf cases, demonstrating how state responsibility could attach where a state of affairs, later repudiated, results in detrimental 43 One such interesting award is the MTD award (above n 7), which contains a long recitation of the facts (at paras 116–78) of what was essentially an overlapping contract and negligent misrepresentation claim. As has become increasingly more common in European and North American jurisdictions, businesses have used the tort of negligent misrepresentation to overcome, or complement, a contractual claim. The MTD award is just an extension of that practice in the BIT context, and thus the tribunal’s ultimate decision—to discount considerably the successful detrimental reliance claim based upon its evaluation of the sophistication and the claimant and the quality of its due diligence work made before entering the relevant concession agreement—should not operate in the same manner as a regulatory detrimental reliance claim, where no contract with the state or a state entity is involved. See also Metalclad Corp v Mexico, Award, 30 August 2000 (ICSID Case ARB(AF)/97/1) 40 ILM 36 (2001) at paras 88–9. 44 International Thunderbird Gaming v. The United Mexican States, Award, 26 January 2006 (UNCITRAL) at para 147, available at . At n 7, the tribunal cited Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (Cambridge, Cambridge University Press, Grotius Classic Reprint Series, 2007) at 123 ff; Jörg Müller, Vertrauenssschutz im Völkerrecht (Heidelberg, Max Planck Institut, 1971); E Zoller, La Bonne Foi en Droit International Public (Paris, Editions Pedone, 1977); F Orrego Vicuña, ‘Regulatory Authority and Legitimate Expectations’, 5 Intl Law Forum, 188 at 193 (2003); Nuclear Test Case (1974) ICJ Reports 253 at 268. 45 LG& E, above n 17 at paras 127–30. The tribunal specifically relied upon Tecmed, above n 31 at para 154, MTD, above n 7 at para 114; Occidental Exploration and Production Company v Ecuador, Final Award, 1 July 2004 (LCIA Case No. UN3467) at para 185, available at ; CMS Gas Transmission Co v Argentina (ICSID Case No. ARB/01/8, Award, 12 May 2005) 44 ILM 12305 (2005) at para 279; Waste Management II, above n 7 at para 98. 46 Saluka, above n 7 at paras 302–3. After taking into account the ordinary meaning, context, and object and purpose of the treaty, the Saluka tribunal concluded that the standard of fair and equitable treatment was closely tied to the notion of legitimate expectations ‘. . . which is the dominant element of the standard’. The tribunal relied upon the holdings in: Tecmed, above n 31 at para 154, Waste Management II, above n 7 at para 98, Occidental, above n 45 at para 183, and CME, above n 25 at para 155.

276

Todd grierson-Weiler and ian a laird

reliance.47 Professor Cheng has even more clearly articulated how the principle of good faith operates to avoid circumstances of detrimental reliance: The protection of good faith extends equally to the confidence and reliance that can reasonably be placed not only in agreements but also in communications or other conclusive acts from another State. If State A has knowingly led State B to believe that it will pursue a certain policy, and State B acts upon this belief, as soon as State A decides to change its policy— although it is at perfect liberty to do so—it is under a duty to inform State B of this proposed change. Failure to do so, when it knows or should have known that State B would continue to act upon this belief, gives rise to a duty to indemnify State B for any damage it may incur. What the principle of good faith protects is the confidence that State B may reasonably place in State A.48

While not finding such a breach in the case before it, the ADF tribunal noted that detrimental reliance is a legitimate ground of complaint under Article 1105, by stating that ‘any expectations that the Investor had with respect to the relevancy or applicability of the case law it cited were not created by any misleading representations made by authorized officials . . .’49 And in the case of Wena Hotels v Egypt, the tribunal similarly held that senior government officials breached the standard of fair and equitable treatment by providing assurances to the investor purporting to safeguard its investment and then failed to act upon them when it became imperilled— thus leaving the investor in the lurch.50 Dr Mann similarly concluded that a state fails to accord fair and equitable treatment when it does not observe an obligation it undertook with respect to that investor or its investment.51 In its Award, the LG&E tribunal usefully summarized the features of the legitimate expectation element of fair and equitable treatment as follows: It can be said that the investor’s fair expectations have the following characteristics: they are based on the conditions offered by the host State at the time of the investment; they may not be established unilaterally by one of the parties; they must exist and be enforceable by law; in the event of infringement by the host State, a duty to compensate the investor for damages arises except for those caused in the event of state of necessity; however, the investor’s fair expectations cannot fail to consider parameters such as business risk or industry’s regular patterns.52

What future tribunals must do with this growing group of cases and opinions on detrimental reliance is to articulate exactly how the concept should work going forward. Should it be sufficient for an investor to prove that its reliance on an official statement is enough to establish state responsibility, so long as there is merely some 47 JF O’Connor, Good Faith in International Law (Aldershot, Dartmouth, 1991) at 92–3. 48 Cheng, above n 44 at 137. 49 ADF, above n 26 at para 189. 50 Wena Hotels Ltd v Egypt, ICSID Case No. ARB/98/4, Final Award, 8 December 2000, 41 ILM 896 (2002) at paras 85–7. 51 Mann, above n 5 at 59–60. 52 LG&E, above n 17 at para 130.

Standards of Treatment

277

loss tied to it? That reliance must be adjudged reasonable in the circumstances and causally connected to the alleged loss. It should also be based upon a specific statement made to the alleged victim. Absent other indicia of a state’s failure to provide a transparent and predictable regulatory and investment climate, as described below, reliance upon an official statement made in the abstract might not be deemed to have been ‘reasonable’ upon objective review.

(b) Regulatory Fairness States do not merely owe the obligation to honour their treaty obligations in perfect good faith to each other, they owe this obligation generally, as members of the international community, to any individuals who derive rights or benefits from the international legal order they have created. Without the promise of good faith, the international legal order would be little more than a house of cards, upon which no certainty of individual economic activity could be built. This is what the WTO Appellate Body meant when it spoke of the legitimate expectations created in that particular legal order by its members. However, as the Panel in US—Section 301 WTO case so eloquently noted, these treaty obligations are not undertaken solely by states for the direct benefit of states; they are undertaken by states for the benefit of their nationals—both individually and through communal undertakings such as corporations, partnerships, and other business associations.53 The principle of good faith thus operates to mandate regulatory fairness and transparency in a manner not dissimilar from the way in which it mandates responsibility for detrimental reliance. Rather than involving responsibility for a specific promise to a specific investment, the obligation to provide a transparent and predictable regulatory environment is a general promise made to international investors at large. It is as deserving of protection as the specific promise because it is a foundational element of the investment decision, and thus a fundamental precursor of national economic development.54 Thus, the concept of detrimental reliance can be seen to be operating in virtually any investment treaty, whether its provisions promise ‘fair and equitable treatment’ or merely treatment in accordance with ‘international law’ or ‘the customary international law minimum standard of treatment for the treatment of aliens’ or even just ‘the principles of international law’.55 This is because it 53 United States—Section 301–310 of the Trade Act of 1974, Panel Report WT/DS152/R (22 December 1999) at para 7.67. 54 See eg OECD, Report on Regulatory Reform: Synthesis Report (Paris, OECD, 1997) at ; Robert Wolfe, ‘Regulatory Transparency, Developing Countries, and the Fate of the WTO’, ; and OECD Financial, Fiscal and Enterprise Affairs Directorate (DAF), Transparency for FDI (January 2003), available at . 55 The concepts of regulatory fairness and transparency (or perhaps ‘regulatory certainty’ or ‘regulatory due process’) may obviously be grounded in a concept such as ‘fair and equitable treatment’.

278

Todd grierson-Weiler and ian a laird

flows from basic norms of equity and fair dealing that are common to international law and to most domestic legal systems. Although a more thorough examination is beyond the scope of this chapter, there is certainly support for the proposition that regulatory transparency is now a requirement of customary international law. It appears in both the preambular and substantive language of most international economic treaties, including the WTO Agreements to which a critical mass of the world’s states have agreed. The principle of transparency has also been addressed by the WTO Appellate Body. In US—Underwear, the Appellate Body described how the principle of transparency finds expression in GATT Article X:2,56 in which it noted that the principle of transparency is also related to the fundamental international law principle of due process. The transparency principle also appears in the soft law of regulatory codes promulgated by such organizations as the OECD and APEC.57 It would accordingly not be difficult to conclude that the customary international law requirement of ‘fair and equitable treatment’, taken within the context of an impugned regulatory action which has allegedly harmed an individual economic actor, involves ensuring the presence of a transparent and predictable regulatory environment. This kind of thinking can be seen in the award in Occidental Exploration and Production Company v Ecuador: Although fair and equitable treatment is not defined by the Treaty, the Preamble clearly records the agreement of the parties that such treatment ‘is desirable in order to maintain a stable framework for investment and maximum effective utilization of economic resources.’ The stability of the legal and business framework is thus an essential element of fair and equitable treatment. The Tribunal must note in this context that the framework under which the investment was made and operates has been changed in an important manner by the actions adopted by the SRI. It was explained above that the Contract has been interpreted by the SRI in a manner that ended up being manifestly wrong as there is no evidence that VAT reimbursement was ever built in to Factor X. The clarifications that OEPC sought on the applicability of VAT by means of the ‘consulta’ made to the SRI received a wholly unsatisfactory and thoroughly vague answer. The tax law was changed without providing any clarity about its meaning and extent and the practice and regulations were also inconsistent with such changes.

If ‘fair and equitable treatment’ is now accepted as a requirement of customary international law, as increasingly appears to be the case, then regulatory transparency is required of all states—with the only question in a given case being whether a state which has failed to provide such treatment can be held to account by an individual through recourse to an applicable BIT. 56 United States—Restrictions on Imports of Cotton and Man-made Fibre Underwear, WT/DS24/ AB/R, 10 February 1997, at 21. 57 See eg OECD, Recommendation of the Council of the OECD on Improving the Quality of Government Regulation, OCDE/GD(95)95, 15 September 1995, available at ; and APEC, Leaders’ Statement to Implement APEC Transparency Standards, 27 October 2002 and 21 October 2003, available at .

Standards of Treatment

279

Various arbitral tribunals have recently insisted on the need for this stability. The Tribunal in Metalclad held that the Respondent ‘failed to ensure a transparent and predictable framework for Metalclad’s business planning and investment. The totality of these circumstances demonstrate a lack of orderly process and timely disposition in relation to an investor of a Party acting in the expectation that it would be treated fairly and justly . . .’ It is quite clear from the record of this case and from the events discussed in this Final Award that such requirements were not met by Ecuador. Moreover, this is an objective requirement that does not depend on whether the Respondent has proceeded in good faith or not.58

The Tecmed tribunal similarly made no secret of the connection it saw between the principle of good faith and a state’s obligation to provide foreign nationals with a transparent regulatory environment. Its elucidation of that connection was impressive, and therefore deserving of full recital: The Arbitral Tribunal considers that [the Treaty’s minimum standard provision], in light of the good faith principle established by international law, requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment. The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations. Any and all State actions conforming to such criteria should relate not only to the guidelines, directives or requirements issued, or the resolutions approved thereunder, but also to the goals underlying such regulations. The foreign investor also expects the host State to act consistently, i.e. without arbitrarily revoking any preexisting decisions or permits issued by the State that were relied upon by the investor to assume its commitments as well as to plan and launch its commercial and business activities. The investor also expects the State to use the legal instruments that govern the actions of the investor or the investment in conformity with the function usually assigned to such instruments, and not to deprive the investor of its investment without the required compensation. In fact, failure by the host State to comply with such pattern of conduct with respect to the foreign investor or its investments affects the investor’s ability to measure the treatment and protection awarded by the host State and to determine whether the actions of the host State conform to the fair and equitable treatment principle. Therefore, compliance by the host State with such pattern of conduct is closely related to the above-mentioned principle, to the actual chances of enforcing such principle, and to excluding the possibility that state action be characterized as arbitrary; i.e. as presenting insufficiencies that would be recognized ‘. . . by any reasonable and impartial man,’ or, although not in violation of specific regulations, as being contrary to the law because: . . . (it) shocks, or at least surprises, a sense of juridical propriety. The Arbitral Tribunal understands that the scope of the undertaking of fair and equitable treatment under Article 4(1) of the Agreement described above is that resulting from an autonomous interpretation, taking into account the text of Article 4(1) of the Agreement according to its ordinary meaning (Article 31(1) of the Vienna Convention), or from 58 Occidental, above n 45 at paras 183–6. See also MTD, above n 7 at paras 109–15.

280

Todd grierson-Weiler and ian a laird

international law and the good faith principle, on the basis of which the scope of the obligation assumed under the Agreement and the actions related to compliance therewith are to be assessed. If the above were not its intended scope, Article 4(1) of the Agreement would be deprived of any semantic content or practical utility of its own, which would surely be against the intention of the Contracting Parties upon executing and ratifying the Agreement since, by including this provision in the Agreement, the parties intended to strengthen and increase the security and trust of foreign investors that invest in the member States, thus maximizing the use of the economic resources of each Contracting Party by facilitating the economic contributions of their economic operators. This is the goal of such undertaking in light of the Agreement’s preambular paragraphs which express the will and intention of the member States to ‘ . . . intensify economic cooperation for the benefit of both countries . . . ’ and the resolve of the member States, within such framework, ‘ . . . .to create favorable conditions for investments made by each of the Contracting Parties in the territory of the other . . . ’.59

Similarly, as the Occidental tribunal noted within the context of its case: The Tribunal is of the opinion that in the instant case the Treaty standard is not different from that required under international law concerning both the stability and predictability of the legal and business framework of the investment. To this extent the Treaty standard can be equated with that under international law as evidenced by the opinions of the various tribunals cited above. It is also quite evident that the Respondent’s treatment of the investment falls below such standards. The relevant question for international law in this discussion is not whether there is an obligation to refund VAT, which is the point on which the parties have argued most intensely, but rather the legal and business framework meets requirements of stability and predictability under international law. It was earlier concluded that there is not a VAT refund obligation under international law, except in the specific case of the Andean Community law . . . but there is certainly an obligation not to alter the legal and business environment in which the investment has been made. In this case it is the latter question that triggers a treatment that is not fair and equitable.60

In comparison with the awards in Tecmed and Occidental, the earlier Metalclad tribunal was much less discursive in making its finding on regulatory transparency. On the other hand, only the Metalclad tribunal was dealing with a treaty that explicitly included ‘transparency’ as one of the ‘principles and rules’ which must guide the interpretation of its provisions.61 The tribunal appropriately discussed transparency in its analysis of the NAFTA’s minimum standard provision, and commented upon manifestation of the transparency principle elsewhere in the NAFTA text.62 Its conclusions were accordingly very similar to those quoted above: 59 Tecmed, above n 31 at paras 154–6. 60 Occidental, above n 45 at paras 190–1. 61 NAFTA Art 102(1). 62 This was the primary ground for Mexico’s successful review of a portion of the tribunal’s award. With the support of an intervention from the government of Canada, counsel for Mexico was fortunate enough to find a local review judge who apparently misunderstood the customary international law approach to treaty interpretation adopted by the tribunal, and thus failed to understand the meaning

Standards of Treatment

281

Prominent in the statement of principles and rules that introduces the Agreement is the reference to ‘Transparency’ (NAFTA Article 102(1) ). The Tribunal understands this to include the idea that all relevant legal requirements for the purpose of initiating, completing and successfully operating investments made, or intended to be made, under the Agreement should be capable of being readily known to all affected investors of another Party. There should be no room for doubt of uncertainty on such matters. Once the authorities of the central government of any Party . . . become aware of any scope for misunderstanding or confusion in this connection, it is their duty to ensure that the correct position is promptly determined and clearly stated so that investors can proceed with all appropriate expedition in the confident belief that they are acting in accordance with all relevant laws.63

The investment experience of Metalclad clearly did not meet this rather unassuming standard. One can choose not to accept the testimony provided by Metalclad’s witnesses about whether they were provided with specific assurances about the regulation of their facility by the three levels of Mexican government. One can assume that no assurances were given at all and still conclude that minimum international law standards of fairness and equity were not met in this case. The reason is simple: even in the absence of any abuse of authority on the part of municipal officials and the (apparently) improper assurances of federal officials, the fact remains that Metalclad demonstrated prudence and caution in establishing and attempting to expand its investment in Mexico. Its reasonableness was met with a litany of unforeseen (and reasonably unforeseeable) regulatory impediments. It obtained federal and state permits, but discovered new opposition. It entered into lengthy negotiations and finally agreed upon the terms of a convenio with federal officials, only to find further state and municipal intransigence. In sum, the tribunal concluded: In addition, Metalclad asserted that federal officials told it that if it submitted an application for a municipal construction permit, the Municipality would have no legal basis for denying the permit and that it would be issued as a matter of course. The absence of a clear rule as to the requirement or not of a municipal construction permit, as well as the absence of any established practice or procedure as to the manner of handling applications for a municipal construction permit, amounts to a failure on the part of Mexico to ensure the transparency required by [the] NAFTA.64

Such transparency was owed by Mexico to Metalclad and COTERIN, as a positive obligation, because it is a manifestation of the principle of good faith, which plays a major part in the ‘international law’ that NAFTA Article 1131(1) mandates shall be part of the governing law of the Agreement. Mexico and the other NAFTA parties actually agreed, as set out in NAFTA Article 102(1), to have the principle of transparency guide the interpretation of provisions such as its minimum standard of treatment provision. They also agreed to be bound by transparency-enhancing provisions of a minimum standard of treatment provision contained within an international economic treaty. See Todd Weiler, ‘Metalclad and the Government of Mexico: A Play in Three Parts’, 2 JWI 685 (2001). 63 Metalclad, above n 43 at para 76. 64 Metalclad, Award, ibid at para 88.

282

Todd grierson-Weiler and ian a laird

elsewhere in the NAFTA and in other international economic agreements, as well as in soft law generated in such fora as the OECD and APEC. Accordingly, it should have come as no surprise that Mexico was held accountable for failing to provide the kind of transparent regulatory environment that Metalclad was entitled to expect. The concept of legitimate expectation appears to be moving from its more narrow application, in detrimental reliance cases involving a specific promise by state officials not honoured with damages resulting, to an application regarding the entirety of the regulatory experience, where transparency, predictability, the rule of law and non-discrimination are the promise that induces reasonable reliance. A recent example of this approach can be found in the award of the Tribunal in Saluka: 301. Seen in this light, the ‘fair and equitable treatment’ standard prescribed in the Treaty should therefore be understood to be treatment which, if not proactively stimulating the inflow of foreign investment capital, does at least not deter foreign capital by providing disincentives to foreign investors. An investor’s decision to make an investment is based on an assessment of the state of the law and the totality of the business environment at the time of the investment as well as on the investor’s expectation that the conduct of the host State subsequent to the investment will be fair and equitable. 302. The standard of ‘fair and equitable treatment’ is therefore closely tied to the notion of legitimate expectations which is the dominant element of that standard. By virtue of the ‘fair and equitable treatment’ standard included in Article 3.1 the Czech Republic must therefore be regarded as having assumed an obligation to treat foreign investors so as to avoid the frustration of investors’ legitimate and reasonable expectations. As the tribunal in Tecmed stated, the obligation to provide ‘fair and equitable treatment’ means: ‘to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment.’ Also, in CME, the tribunal concluded that the Czech authority breached its obligation of fair and equitable treatment by evisceration of the arrangements in reliance upon which the foreign investor was induced to invest. The tribunal in Waste Management equally stated that: ‘In applying [the fair and equitable treatment] standard it is relevant that the treatment is in breach of representations made by the host State which were reasonably relied on by the claimant.’ 303. The expectations of foreign investors certainly include the observation by the host State of such well-established fundamental standards as good faith, due process, and nondiscrimination. And the tribunal in OEPC went even as far as stating that ‘[t]he stability of the legal and business framework is thus an essential element of fair and equitable treatment.’ . . . [however] . . . 305. No investor may reasonably expect that the circumstances prevailing at the time the investment is made remain totally unchanged. In order to determine whether frustration of the foreign investor’s expectations was justified and reasonable, the host State’s legitimate right subsequently to regulate domestic matters in the public interest must be taken into consideration as well. As the S.D. Myers tribunal has stated, the determination of a breach of the obligation of ‘fair and equitable treatment’ by the host State ‘must be made in the light of the high measure of deference that international law generally extends to the right of domestic authorities to regulate matters within their own borders.’

Standards of Treatment

283

306. The determination of a breach of Article 3.1 by the Czech Republic therefore requires a weighing of the Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s legitimate regulatory interests on the other.65

In other words, legitimate expectation, closely tied with the principles of transparency and predictability, has become the centrepiece of legal analyses under investment protection treaties. As noted by the LG&E tribunal: . . . the stability of the legal and business framework in the State party is an essential element in the standard of what is fair and equitable treatment. As such, the Tribunal considers this interpretation to be an emerging standard of fair and equitable treatment in international law.66

This statement is as true for the ‘fair and equitable treatment’ obligation as it is for any other BIT provision. To be sure, the Saluka tribunal qualified its analysis as being directed to a ‘fair and equitable treatment’ treaty standard, rather than the customary international law version of the standard.67 However, it also noted that the difference between the two expressions of this standard ‘may be more apparent than real’, affecting no more than the tipping point at which conduct is considered unfair or inequitable (where the tribunal suggests that violation of the customary norm may require worse treatment than that which would breach the treaty-based version).68 The CME tribunal stated that the relationship between fair and equitable treatment and regime stability ‘is not different from the [customary] international law minimum standard’.69 The CMS tribunal came to the same conclusion, in respect to both an investor’s expectation of legal stability being based upon fair and equitable treatment and to the notion of that standard being required under customary international law.70 Most recently, the same view was reflected by the Azurix tribunal: . . . the minimum requirement to satisfy [the fair and equitable treatment standard] has evolved and the Tribunal considers that its content is substantially similar whether the terms are interpreted in their ordinary meaning, as required by the Vienna Convention, or in accordance with customary international law.71 65 Saluka, above n 7 at paras 301–6. 66 LG&E, above n 17 at para 125, citing in support CMS, above n 45 at para 274; Occidental, above n 45 at para 183; Metalclad, above n 43 at para 99 (‘Mexico failed to ensure a transparent and predictable framework for Metalclad’s business planning and investment’). 67 Saluka, n 7 above at para 294. 68 Saluka, ibid at para 291: ‘Whatever the merits of this controversy between the parties may be, it appears that the difference between the Treaty standard laid down in Article 3.1 and the customary minimum standard, when applied to the specific facts of a case, may well be more apparent than real. To the extent that the case law reveals different formulations of the relevant thresholds, an in-depth analysis may well demonstrate that they could be explained by the contextual and factual differences of the cases to which the standards have been applied’. 69 See also Occidental, n 45 above at para 190. 70 CME, n 25 above at 290. 71 Azurix, n 17 above at para 361. Reliance was placed on Tecmed, above n 31 at para 155, on this point.

284

Todd grierson-Weiler and ian a laird

(c) Abuse of Authority From the perspective of the investor, the promise of ‘fair and equitable treatment’, or the prohibition found in some BITs against discriminatory or arbitrary interference, also amounts to a guarantee of freedom from arbitrariness or caprice in discretionary decision-making. A customary international law formulation of the same freedom, conferred as a right in the treaty context, is the prohibition against abuse of authority (or abus de droit). Professor Bin Cheng devoted an entire chapter of his renowned treatise on the principles of international law to the manner in which the doctrine of abuse of rights rises, as understood in international law generally, from the general international law principle of good faith. He summarized his view of the doctrine as follows: [D]iscretion must be exercised in good faith, and the law will intervene in all cases where this discretion is abused. . . . Whenever, therefore, the owner of a right enjoys a certain discretionary power, this must be exercised in good faith, which means that is must be exercised reasonably, honestly, in conformity with the spirit of the law and with due regard to the interest of others . . . .The exercise of a right—or a supposed right, since the right no longer exists—for the sole purpose of causing injury to another in thus prohibited. Every right is the legal protection of a legitimate interest. An alleged exercise of a right not in furtherance of such interest, but with the malicious purpose of injuring others can no longer claim protection of the law.72

Georg Schwarzenberger alternatively argued that since the theory of abuse of rights was so well-ensconced in the principle of good faith and in the customary international law minimum standard of treatment of aliens, it was not even necessary to refer to it as a separate standard—except for the ‘hard core’ of the theory. He considered the hard core to include: ‘the arbitrary or unreasonable exercise of rights or powers within the exclusive jurisdiction of States’. Schwarzenberger accordingly stated that arbitrariness in any form is—or ought to be—abhorrent to homo juridicus; his whole professional outlook is dominated by the attitude that, in the eyes of the law, equal situations require equal remedies.73 In other words, whether one refers to the concept as ‘abuse of right’, ‘abuse of authority’, ‘abuse of discretion’, or a failure to provide ‘fair and equitable treatment’, international law prohibits state officials from exercising their authority in an abusive, arbitrary, or discriminatory manner. The tell-tale sign of the kind of state conduct which attracts such liability is an apparently arbitrary, capricious, and/or overtly discriminatory governmental action which causes damage to a foreign investment. If state officials can demonstrate that the decision was actually made in an objective and rational (ie reasoned)

72 Cheng, above n 44 at 132–4 and 122. 73 Georg Schwarzenberger, International Law and Order (London, Stevens, 1971) at 89–90 and 99–100.

Standards of Treatment

285

manner, they will defeat any claim made under this standard. If they cannot, the arbitrary conduct must be remedied.74 The award in Occidental v Ecuador demonstrates how evidence of arbitrariness often becomes proof of a breach of the international minimum standard itself, rather than proof of the kind of improper state conduct which actually underlies the breach: The Tribunal in Lauder, interpreting an equivalent but differently drafted provision of the pertinent investment treaty, resorted to the definition of ‘arbitrary’ in Black’s Law Dictionary, where it is held to mean ‘depending on individual discretion; . . . founded on prejudice or preference rather than reason or fact . . . . In the context of the present dispute, the decisions taken by [the Internal Revenue Service] SRI do not appear to have been founded on prejudice or preference rather than on reason or fact.’ . . . the SRI was confronted with a variety of practices, regulations and rules dealing with the question of VAT. It has been explained above that this resulted in a confusing situation into which the SRI had the task of bringing some semblance of order. However, it is that very confusion and lack of clarity that resulted in some form of arbitrariness, even if not intended by the SRI.75

In fact, the Occidental tribunal accepted that that there was likely no intent to discriminate against the claimant, observing that officials were acting in a very ‘professional’ and ‘good faith’ manner.76 As the tribunal observed in Loewen v USA, the law has advanced such that it is no longer necessary to establish ‘bad faith’ or discriminatory intent, on the part of state officials, in order to prove breach of the international law minimum standard of treatment.77 Of course, one way to guard against arbitrariness and discrimination in governmental decision-making is to promote transparency. The principles work hand in glove to improve the quality of regulatory decision-making, as was noted by the tribunal in Waste Management v Mexico.78 The Metalclad award is one of two NAFTA awards to have included a finding of state responsibility for a breach of the international minimum standard based upon what was arguably a theory of abuse of rights. In other words, both tribunals determined that the arbitrariness that met the investors and their investments was intentional—although neither of them was explicit in making the finding.79 In the other award, Pope & Talbot v Canada, the tribunal chastised Canada for the actions 74 Saluka, above n 7 at para 307. 75 Occidental, above n 45 at paras 162–3. 76 Occidental, ibid at paras 172 and 177. 77 The Loewen Group, Inc and Raymond L Loewen v United States of America (ICSID Case No. ARB(AF)/93/3, 26 June 2003) 42 ILM 811 (2003) at para 132. 78 Waste Management II at para 98, cited above at n 7. 79 In fact, it is very difficult to find an investment claims tribunal award explicitly founded upon the theory. This is because most underlying treaty language includes additional terms such as a guarantee of ‘fair and equitable treatment’ or a prohibition against arbitrary, unreasonable or discriminatory conduct. However, if the minimum standard, as memorialized in the various treaty provisions available, only promises ‘treatment in accordance with international law’ it may be necessary to rely upon general principles and customary international law norms to attribute some meaning to these provisions.

286

Todd grierson-Weiler and ian a laird

of an official who appeared to have misrepresented his regulatory authority in order to harass and harm a foreign investment, stating: Briefly, the Tribunal found that when the Investor instituted the claim in these proceedings, Canada’s Soft wood Lumber Division changed its previous relationship with the Investor and the Investment from one of cooperation in running the soft wood lumber regime to one of threats and misrepresentation. Figuring in this new attitude were assertions of non-existent policy reasons for forcing them to comply with very burdensome demands for documents, refusals to provide them with promised information, threats of reductions and even termination of the Investment’s export quotas, serious misrepresentations of fact in memoranda to the Minister concerning the Investor’s and the Investment’s actions and even suggestions of criminal investigation of the Investment’s conduct. The Tribunal also concluded that these actions were not caused by any behaviour of the Investor or the Investment, which remained cooperative until the overreaching of the SLD became too burdensome and confrontational. One would hope that these actions by the SLD would shock and outrage every reasonable citizen of Canada as they did shock and outrage this Tribunal.80

Similarly, the Metalclad tribunal found that the minimum standard contained within NAFTA Article 1105 (which, as explained above, is arguably representative of the minimum standard provisions contained within almost 2,500 other investment protection treaties) was breached by the unacceptable conduct of the Municipality of Guadalcazar: The denial [of the construction permit] was issued well after construction was virtually complete and immediately following the announcement of the Convenio providing for the operation of the landfi ll. Moreover, the permit was denied at a meeting of the Municipal Town Council of which Metalclad received no notice, to which it received no invitation, and at which it was given no opportunity to appear. ... The Tribunal therefore finds that the construction permit was denied without consideration of, or specific reference to, construction aspects or flaws of the physical facility. Moreover, the Tribunal cannot disregard the fact that immediately after the Municipality’s denial of the permit it fi led an administrative complaint challenging the Convenio. The Tribunal infers from this that the Municipality lacked confidence in its right to deny permission for the landfi ll solely on the basis of the absence of a municipal construction permit. ... The actions of the Municipality following its denial of the municipal construction permit, coupled with the procedural and substantive deficiencies of the denial, support the Tribunal’s finding, for the reasons stated above, that the Municipality’s insistence upon and denial of the construction permit in this instance was improper.81

The tribunal’s finding of liability appears to have been premised on a finding of arbitrary and capricious conduct for which Mexico was unable to provide a 80 Pope & Talbot v Canada, NAFTA/UNICTRAL Tribunal, Award on Damages, 31 May 2002, at para 68. 81 Metalclad, above n 43 at paras 90–7.

Standards of Treatment

287

plausible explanation (other than to argue that the municipality was acting within its jurisdictional discretion). However, there is a sense that the tribunal saw the municipality as exercising its authority for an improper purpose, and not merely in an ultra vires manner. As the ICJ noted in the ELSI case, while a determination that state conduct was unlawful under local law can be a ‘valuable indication’ of a breach of treaty prohibitions against arbitrariness or unreasonableness, such a determination ‘without more’ will not attract state responsibility.82 That ‘something more’ was obviously found in the Metalclad case; where the municipality was found to have gone out of its way to shut COTERIN down, even though it appeared to know that it was acting beyond its legal authority in doing so.

(d) Sowing Seeds of Convergence? The more interesting question arising from this is—how is one able to prove that elusive ‘something more’, in the absence of harmful intent, or some sort of threshold of egregiousness? Given that tribunals have acknowledged that bad faith and intent to harm are not required to establish a breach of the fair and equitable treatment standard, it may well be that the test will evolve as follows: (1) claimant establishes a prima facie case of apparent arbitrariness or discriminatory conduct with serious consequences; and (2) respondent provides evidence which mitigates or explains the conduct which resulted in such arbitrariness or discrimination. If a prima facie abuse of authority has been established, as was arguably the case in Metalclad, the strategic burden on the respondent will be high. This kind of approach was adopted by the Tribunals in Nykomb v Latvia, Saluka, and LG&E. The Nykomb tribunal concluded that the claimant established a prima facie case that the Polish government was honouring its obligations to pay a certain tariff rate to local energy companies but not to Nykomb, despite the similarities of their contracts. It also established that the respondent failed to prove its argument that its decision to pay different tariffs was justified, concluding that the decisions were made in a manner that violated the treaty’s ‘fair and equitable treatment’ and ‘discriminatory impairment’ standards.83 The Saluka tribunal similarly found that the claimant established a prima facie case that a local bank, which it controlled, was not given as favourable treatment as other similarly situated banks because its bank did not receive a bail-out package for its bad debts, as the others had. It found that: ‘State conduct is discriminatory [in the sense of it breaching “fair and equitable treatment” and “discriminatory

82 Elettronica Sicula SpA (ELSI) (US v Italy), (1989) ICJ Reports 14 at para 74. 83 Nykomb Synergistics Technology Holding AB v Latvia, Award, 16 December 2003 (Energy Charter Treaty/ SCC) at 37–8.

288

Todd grierson-Weiler and ian a laird

impairment” standards, when] (i) similar cases are (ii) treated differently (iii) and without reasonable justification’.84 The tribunal further found that the Czech government’s excuse that it was not obliged to assist a bank under foreign control, as opposed to those state enterprises it did control, was not a reasonable justification and that the government’s assistance programme therefore breached the expectation of even-handedness deservedly expected by the claimant as a foreign investor in the Czech banking sector. In the final part of its award, the tribunal describes its decision in a manner that, if one were unaware of the absence of a national treatment provision in the BIT, and ignored the reference to the fair and equitable treatment obligation, one could readily assume was summarizing a breach of national treatment: The Respondent has violated the ‘fair and equitable treatment’ obligation by responding to the bad debt problem in the Czech banking sector in a way which accorded IPB differential treatment without a reasonable justification. The Big Four banks were in a comparable position regarding the bad debt problem. Nevertheless, the Czech Republic excluded IPB from the provisioning of financial assistance. Only in the course of CSOB’s acquisition of IPB’s business during IPB’s forced administration was considerable financial assistance from the Czech Government forthcoming. Nomura (and subsequently Saluka) was justified, however, in expecting that the Czech Republic would provide financial assistance in an evenhanded and consistent manner so as to include rather than exclude IPB. That expectation was frustrated by the Respondent. The Tribunal finds that the Respondent has not offered a reasonable justification for IPB’s differential treatment.85 (Emphasis added.)

As the test was described by the LG&E tribunal: In the context of investment treaties, and the obligation there under not to discriminate against foreign investors, a measure is considered discriminatory if the intent of the measure is to discriminate or if the measure has a discriminatory effect.86 (Emphasis added.)

In its holding of discrimination, the LG&E tribunal indicated no intent on the part of Argentina; rather it relied on the fact that the effect of the measures was patently discriminatory.87 What is notable about the LG&E, Saluka, and Nykomb awards is that these tribunals employed what was in fact a comparative non-discrimination standard within the context of a minimum standard provision. While the Saluka tribunal attempted to distinguish its findings from those that might be required under customary international law, by noting that it was dealing with an autonomous treaty provision, its attempt was a classic example of ‘a distinction without a difference’.88 This is especially true given the extent to which the Saluka tribunal explains its 84 Saluka, above n 7 at para 313. 85 Saluka, ibid at para 498. 86 LG&E, above n 17 at para 146. 87 LG&E, ibid at para 148. 88 A difference the Saluka tribunal itself acknowledged ‘may be more apparent than real’: Saluka, above n 7 at para 291. See also both Azurix, above n 17 at para 361 and LG&E, above n 17 at paras 125–7 in support of this point that the treaty and customary law standards are effectively the same.

Standards of Treatment

289

findings as being based as much on the principle of good faith (ie legitimate expectation) as on some sort of autonomous standard of fairness or even-handedness.89 The discrimination test employed by these two tribunals is the same comparative one that would be used in an MFN or national treatment analysis under the provisions of the NAFTA, the ECT, or many other investment protection treaties. Why was it used in application of a fair and equitable treatment standard clause? The Saluka tribunal employed its test because there was simply no more suitable provision in the applicable treaty, the Czech Republic–Netherlands BIT. Unlike many other trade and investment treaties, this treaty makes reference to ‘more favourable’ treatment only in respect of the guarantee of ‘full security and protection’ under Article 3(3) and the application of subsequent treaty provisions under Article 3(5). The Nykomb case is even more striking, given the availability of a national treatment provision in the ECT. Had the traditional customary international law test for an absolute prohibition on discrimination been employed in the Saluka or LG&E cases, it would have been necessary for the claimants to prove that government officials had embarked on a course of conduct calculated to disadvantage the claimant because of its nationality.90 Instead, it was only necessary to prove a prima facie case of less favourable treatment having been received—shifting the burden to the respondent to prove why such treatment was justified. The tribunals distinguished their ‘fair and equitable treatment’ provisions from those allegedly based upon the somehow more narrow customary international law version—so that they could interpret ‘discrimination’ on a comparative and effects basis (even though the term ‘discriminatory impairment’ could be argued as connoting an absolute test rather than a comparative analysis of more or less favourable treatment). Certainly it is neither substantively ‘fair’ nor ‘equitable’—in the ordinary sense of these terms—for a foreign-controlled investment bank, as occurred in Saluka, to be forced to suffer the same financial and regulatory conditions faced by its locally controlled competitors without being granted the same kinds of favourable bailout conditions being granted to them. In terms of ensuring equality of competitive opportunity, a singular objective of national treatment, such treatment is indeed ‘discriminatory’. But if this is what ‘discriminatory impairment’ and ‘fair and equitable treatment’ mean within the context of this treaty, should these provisions not have the same meaning in other treaties with the same language? Should not investors subject to other treaties be permitted the legitimate expectation of being provided even-handed and consistent treatment in comparison with other like investors? 89 Saluka, ibid at paras 303, 499. 90 The traditional customary international test was described by the LG&E tribunal (n 17 above), although it did not apply it, at para 146: ‘As stated in the ELSI Elettronica Sicula SpA case (United States of America v Italy), ICJ Report 1989 RLA 56 at 61–2 (20 July 1989), in order to establish when a measure is discriminatory, there must be (i) an intentional treatment (ii) in favor of a national (iii) against a foreign investor, and (iv) that is not taken under similar circumstances against another national’.

290

Todd grierson-Weiler and ian a laird

A case could be made that if the Saluka tribunal’s analysis was borrowed for the interpretation of an identical ‘fair and equitable treatment’ provision in a treaty that also contained a national treatment provision, the result would be more than just unavoidable overlap between the two provisions. Rather, the result of construing the ‘fair and equitable treatment’ provision as connoting a comparative treatment obligation would be to render the treaty’s national treatment provision inutile, contrary to the principle of effectiveness in treaty interpretation.91 This concern is at least partially mitigated if one treats the Saluka and Nykomb awards as being rightly decided on an arbitrariness test rather than a customary international law discrimination test. The counter-case could be made by pointing to the example of the overlap between the typical BIT expropriation provision and the minimum standard or international law standard provision. There would be little argument that the prohibition of expropriation without compensation is an established obligation under customary international law. Many BITs have available both the treaty prohibition against expropriation without compensation and a minimum standard provision, which would clearly include the customary standard as well. The same risk of overlap exists, yet treaty drafters have not seen this as being problematic. This is where ‘belt and suspenders’ treaty drafting meets the principle of effectiveness head on, but does not create a practical conflict.

(4) National Treatment and MFN Treatment (a) Prudence and Good Faith in National Treatment Thus far, we have only a clutch of NAFTA awards addressing the meaning of a ‘proper’ national treatment or MFN provision (outside of the recent BIT cases involving MFN provisions within the context of allegedly more favourable treatment being granted in subsequent treaties). Virtually no other awards are publicly 91 See eg Argentina—Safeguard Measures on Imports of Footwear (2000), WTO Doc WT/DS121/ AB/R at para 81 (Appellate Body Report). See also: Korea—Definitive Safeguard Measure on Imports of Certain Dairy Products (2000), WTO Doc WT/DS98/AB/R at para 81 (Appellate Body Report). It may also be added that this may blur the distinction between the ‘absolute’ standard of fair and equitable treatment and the ‘relative’ standards of MFN and national treatment, which may involve different standards of protection; on which see further: UNCTAD, Fair and Equitable Treatment, above n 8 at 46–8.

Standards of Treatment

291

available addressing what ‘treatment no less favourable’ means outside of the GATT/ WTO and NAFTA context.92 With its Second Partial Award on the Merits, the Pope & Talbot tribunal articulated a simple and compelling analysis for Article 1102, which is equally applicable to Article 1103.93 This analysis, which appears to have been followed consistently by other tribunals, contains three basic elements: (1) identification of the relevant subjects for comparison; (2) consideration of the relative treatment each comparator receives; and (3) consideration of whether any factors exist that justify any deviation in the treatment. The Pope & Talbot test is based upon a simple, but often overlooked, premise: that treaty protection for investors and their investments is equivalent to the establishment of an in rem right possessing a quasi-constitutional character. The holder of such a right, granted by treaty, is entitled to a certain standard of treatment as against all other comparable actors. In this sense, the fact of Pope & Talbot’s nationality is only required to establish its entitlement to the right. It is not germane to a finding of liability with respect to its exercise. Provisions such as NAFTA Articles 1102 and 1103 call for a comparison to be made between the investor invoking its right and somebody else. The Pope & Talbot tribunal started its analysis of these provisions by explaining just who that might be. Basing its reasoning on GATT jurisprudence and international treaty sources, such as the 1993 OECD Declaration on National Treatment for Foreign-Controlled Enterprises, the Pope & Talbot tribunal concluded that a comparison should generally be made between the claimant, and/or its investment, and any other domestic investors or investments operating in the same business or economic sector.94 There may be cases where the comparison is drawn more widely—for example, where an investor uses the MFN provision to seek the benefit of a more favourable treaty obligation accorded to a non-NAFTA investor by a NAFTA party in a different treaty.95 Nonetheless, the normal situation will involve commercial competitors receiving different treatment under the same measure, sometimes permitting counsel to call competition law analysis in aid of the comparison he or she would like the tribunal to adopt. 92 In addition to the recent Champion case (Champion Trading Company, Ameritrade International, Inc, James T Wahba, John B Wahba, Timothy T Wahba v Egypt, ICSID Case No. ARB/02/9, Award, 27 October 2006, available at ) one rare example is the lesser known RFCC v Morocco case (ICSID Case No ARB/00/6, Award of 22 December 2003, 20 ICSID Rev–FILJ 391 (2005) ), which resulted in a French-language award, where the tribunal appeared to state that proof of discriminatory intent was required to satisfy that treaty’s seemingly comparative national treatment test, but subsequently concluded that such intent could be found in the substance of the treatment received, even if not explicitly stated as being intended to harm the foreign participant in the local market. 93 Pope & Talbot v Canada, Award on the Merits of Phase 2, 10 April 2001, at 9–37. 94 Ibid at 35. 95 See eg Emilio Agustin Maffezini v The Kingdom of Spain, Case No. ARB/97/7, 25 January 2000, 16 ICSID Rev–FILJ 212 (2001) Decision of the Tribunal on Objections to Jurisdiction, at para 56. See also Pope & Talbot, Inc v Canada, Damages Award, above n 80 at para 62, n 54.

292

Todd grierson-Weiler and ian a laird

For the Pope & Talbot tribunal, identifying the comparators was relatively simple: the investment enterprise produced a commodity which was indistinguishable from that which was made by other enterprises throughout North America. Accordingly, the appropriate comparators would be additionally defined by the scope of the measure. As the government of Canada imposed the measure, any softwood lumber producer operating in Canada could serve as a comparator. As Pope & Talbot alleged that producers in Quebec and the unlisted provinces were receiving better treatment, it would be those producers against which the treatment received by the investment would be compared. In Feldman v Mexico, the tribunal started with a similar premise, stating that the applicable ‘universe’ of comparable investors and investments was composed of those businesses engaged in the purchase and reselling of cigarettes, rather than a wider group which could have included manufacturers (apparently because the comparison was agreed as between the parties to that dispute).96 In US—Trucking, a NAFTA Chapter 20 Panel compared any Canadian- or American-owned trucking business desirous of serving the contiguous USA (outside of a small zone adjacent to the Mexican border) with similarly interested Mexican firms (albeit on a hypothetical basis).97 The ADF tribunal similarly determined that the point of comparison under Article 1102(2) was between steel products held by the investor (a steel fabricator) and steel products held by domestic investors with respect to their potential use in a highway project. It based its comparison on steel goods because they constituted ‘inventory’ which could be considered an ‘investment’ under the broad definition contained in NAFTA Article 1139.98 The tribunal also compared firms operating in the steel fabrication business as its ‘universe’ of comparable investors under Article 1102(1). In the Myers v Canada case, the tribunal compared would-be competitors in the Canadian market for the destruction of PCB wastes.99 To date, only one investment treaty tribunal has departed from this approach. In Loewen v USA, the tribunal incorrectly concluded that there was no valid basis for comparison between a Canadian company—which the tribunal found had been denied justice in a Mississippi court—and the US competitor which was unjustly enriched as a result of the terribly flawed court proceedings (which the competitor had

96 Marvin Feldman v United Mexican States, Final Award, 16 December 2002 (ICSID Case No. ARB(AF)/99/1) 18 ICSID Rev–FILJ 488 (2003) at para 70. 97 It did so for both the NAFTA’s investment and trade-in-services provisions. The Panel could engage in such speculation because, similar to the practice established in the GATT/WTO, a claim can be made under Chapter 20 without any allegation of loss (which is required of investors under Arts 1116(1) and 1117(2) ). See United States—In the Matter of Cross-Border Trucking Services, Panel Report, USA-MEX-98-2008-01, 6 February 2001, at para 247. 98 ADF, above n 26 at para 72. 99 SD Myers, above n 4 at para 251.

Standards of Treatment

293

commenced against Loewen).100 It is quite arguable that the tribunal erred because the competition between these two would-be comparators was clearly evidenced in the nature of the civil suit filed by one against the other. This is not to say that opposing litigants should generally be regarded as ‘like’ (simply by virtue of their being in court together), but that the facts of the Loewen case supported such a finding.101 Regarding the issue of more or less favourable treatment, the Pope & Talbot tribunal began by noting that two of the primary objectives of the NAFTA (contained within Art 102(1) ) are to ‘promote conditions of fair competition and to increase substantially investment opportunities’ in the Free Trade Zone. Historically, WTO jurisprudence established a similar understanding that the goal of non-discrimination obligations is generally to provide effective equality of competitive opportunities.102 Accordingly, the investor or investment is entitled to the best level of treatment available to any other domestic investor or investment operating in like circumstances. This comparison is not limited to an evaluation of whether the treatment being received is substantially similar; rather, it focuses on the result of the treatment received.103 A similar conclusion was reached earlier by the SD Myers tribunal, noting that—while evidence of intent is certainly helpful—it is by no means necessary for a finding that Article 1102 has been breached.104 As also noted above, the Pope & Talbot tribunal’s analysis of the factors involved in considering ‘treatment’ received reflects the particularly individualized character of claims brought under investment protection treaties. Unlike the average WTO case, where one or more members may be arguing a case for the benefit of numerous economic operators, an investment protection treaty case is personal. The aggrieved investor can only make a claim if it has suffered a loss as a result of an alleged breach. The tribunal should not be concerned with how other operators have been treated. It does not matter to the investor if most foreigners have fared comparatively better than locals under the measure, or if there are locals who are receiving the same less favourable treatment. The investor is not concerned with macro-policy results. It is concerned strictly with its own loss, made compensable under the treaty.

100 Loewen, above n 77 at para 119 (re: denial of justice) and para 140 (re: national treatment comparators). 101 In most cases, a denial of justice claim is more properly brought under Art 1105. See T Weiler, ‘Dodging Bullets: A First Look at the Final Award in Loewen & the Loewen Group v. U.S.A.’, 4 JWI 659 (2003). 102 See eg United States Section 337 of the Tariff Act of 1930, 7 November 1989, 36 GATT BISD 345 (1990); World Trade Organization Appellate Body, Japan Taxes on Alcoholic Beverages, WT/DS8/ AB/R, WT/DS10/AB/R, WT/DS11/AB/R at 6 (4 October 1996); World Trade Organization Appellate Body, Korea Taxes on Alcoholic Beverages, WT/DS75/AB/R, WT/DS84/AB/R at 43 (18 January 1999); World Trade Organization Panel, Canada–Certain Measures Affecting the Automotive Industry, WT/ DS139/R, WT/DS142/R at 10.78 (31 January 2000). 103 See eg Pope & Talbot above n 93 at para 63. 104 Myers, above n 4 at paras 252–4.

294

Todd grierson-Weiler and ian a laird

In SD Myers, the measure effectively prohibited the investor and its investment from participating in the Canadian PCB market for what amounted to 14 months. The measure banned the export of PCB wastes from Canada. The best treatment available to Myers’ competitors was unfettered access to that market (because only Myers’ business model called for the ultimate destruction of those PCB wastes outside of Canada). To the consumer, the service provided by Myers and its competitors was identical: the removal of a serious environmental liability from their lands. Because the comparison is focused upon ensuring a competitive equality of opportunities, the consumers’ perspective is accordingly the most relevant. In Champion, the difference in treatment alleged was receipt of government funds as part of the widespread bail-out of the state-owned participants in the cotton trading business. In US—Trucking, a state-to-state arbitration involving the NAFTA’s investment provisions, the difference in treatment focused upon the eligibility of competitors to qualify for environmental testing which was required in order to participate in the US market. Canadians and Americans were permitted to apply for certification to haul goods around the USA. Mexicans were precluded from applying (allegedly because Mexican trucking firms, on the average, possessed poor environmental records fostered by allegedly weaker Mexican environmental regulations and enforcement). The measure was determined to be faulty specifically because it did not afford individual Mexicans the same opportunity to qualify as was offered to American and Canadian competitors.105 In Pope & Talbot, the difference in treatment was determined to be the entitlement of the investment’s competitors in Canada to ship lumber to the USA while paying lower, or no, export fees than those being paid by Pope & Talbot under the measure at issue.106 In ADF, the difference in treatment brought about by the measure was the ability of ADF’s competitors to participate in a construction project from which it was being precluded. However, the ADF tribunal determined that ADF failed to provide ‘specific evidence concerning the comparative economics of the situation’ in order to prove that its competitive position was actually disadvantaged, vis-à-vis US-based steel fabricators as a result of its exclusion from the construction project.107 This finding appears reminiscent of the WTO Appellate Body’s ruling in Canada—Autos.108 The Feldman case provides a better example of how treatment should be considered between appropriately defined comparators. Feldman had successfully proved that his investment was subjected to an audit process that was not imposed on similarly situated domestic competitors.109 Furthermore, his investment was not granted 105 US—Trucking, above n 96 at para 254. 106 Pope & Talbot, above n 93 at para 85. 107 ADF, above n 26 at para 74. 108 The similarity is likely due, in part, to the fact that the ADF tribunal was chaired by a former WTO Appellate Body judge. 109 Feldman, above n 96 at para 75.

Standards of Treatment

295

all of the same tax rebates that his local competitors received during the relevant years.110 Accordingly, Feldman established a prima facie case of discrimination by showing that a foreigner was not receiving as favourable treatment as that which was being received by local competitors.111 It was not necessary for Feldman to prove that he was receiving less favourable treatment because he was a foreigner. It was not necessary for him to provide a comparative economic analysis of how he fared, as an investor, vis-à-vis his competitors (although some economic analysis will generally be required to prove damages in most national treatment cases, under free trade treaties, investment protection treaties, and hybrids such as NAFTA Chapter 11112). Feldman only needed to prove that he was a foreigner receiving inferior treatment to that being enjoyed by a comparable investment.113 It was fairly clear that if his competitors did not suffer from the same audits and enjoyed more rebates, Feldman was comparatively disadvantaged. Once a prima facie breach of a non-discrimination provision has been established, the burden shifts to the respondent government to explain why the difference in treatment is justified.114 If the government can prove that the treatment was different because the comparators were truly not in like circumstances, it will have justified the measure.115 This is the third prong of the Pope test. It is based upon two tenets: prudence and the fundamental international law principle of good faith. The tenet of ‘prudence’ applies to the interpretation of national treatment and MFN treatment provisions because both are missing something which is commonly shared by their WTO cousins: exemption provisions which import a rule of reason to the application of the comparative treatment obligations: GATT Articles I and III have Article XX, and GATS Articles II and XVII have Article XIV, and the wealth of jurisprudence flowing from their interpretation. The kinds of non-discrimination provisions found in investment treaties, or even the NAFTA hybrids, do not normally contain such clear exemption language, as described below. One could presume from this state of affairs that investment treaties are not intended to exempt any measure from their ambit. Adopting such an approach, however, would require one to abandon the WTO and its acquis as interpretative aids, because wherever there is an obligation not to discriminate, logic dictates that there will be a rule of reason to ensure that justifiably differential regulatory treatment shall not be discouraged. Accordingly, tribunals have prudently adopted an approach to the meaning of ‘like circumstances’ which permits them to save 110 Ibid. 111 Ibid. 112 NAFTA Chapter 11 is a hybrid because it appears to provide national treatment and MFN treatment for investors, under Arts 1102(1) and 1103(1), without any limitation on where the investment is made in the Free Trade Area established under NAFTA Art 101. 113 Feldman, above n 96 at paras 75–6. 114 See Pope & Talbot, above n 93 at paras 35–6. 115 See eg Pope & Talbot, ibid at paras 35–6; and US—Trucking, above n 96 at paras 68–9.

296

Todd grierson-Weiler and ian a laird

governments from being forced to compensate investors for justifiable regulation. By ‘justifiable’ one means that a reason exists for the measure which is not itself discriminatory and reasonably chosen and applied in the circumstances. Given that prudence has required tribunals to find a ‘like circumstances exception’ in the text of Article 1102 (and, presumably, Art 1103), something else must aid them in giving substance to their discovery. This is where the principle of good faith is called into action, and where the fair and equitable treatment standard, in particular the principle of abuse of authority, converges again with national treatment.

(b) More Convergence: Good Faith and Non-discrimination The WTO Appellate Body has explicitly noted how the introductory paragraph of GATT Article XX is a manifestation of the principle of good faith.116 In truth, the entire provision qualifies in this regard. Article XX provides a specific list of reasons why an otherwise discriminatory measure might nonetheless be justified, if applied in an appropriate manner. However, it also provides, much like GATS Article XIV and various other provisions found in the NAFTA Chapters and WTO Agreements on Sanitary and Phyto-Sanitary Measures and Technical Barriers to Trade, that a measure saved by its listed justifications is not applied in an arbitrarily or unjustifiably discriminatory manner. What future tribunals must do is determine exactly how to apply the ‘like circumstances exception’ in a principled and consistent manner. Given that WTO decision-makers often attract considerable criticism for their interpretation of plainly written exemptions, the task required of investment treaty tribunals (in the absence of any written guidelines) will be no less formidable. For example, in its award the Pope tribunal suggested that it would look for a ‘reasonable nexus’ between the measure and a ‘rational, non-discriminatory’ policy goal, in order to determine whether a prima facie breach may turn out to be justified.117 It did not expand upon its choice of words, and its consideration of the issue did not provide any strong indication of whether ‘reasonable nexus’ to a ‘rational’ policy goal can be distilled into merely inquiring as to whether the measure was ‘reasonable’ (and accordingly non-discriminatory) in the circumstances. Is the correct test whether a government’s alleged policy goals are ‘reasonable’ in relation to the risk identified and the avenues chosen to address it, or must the measure (as 116 United States—Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, 12 October 1998, at para 158. 117 Pope & Talbot Inc v Canada, above n 93 at paras 78–9: ‘Differences in treatment will presumptively violate Article 1102(2), unless they have a reasonable nexus to rational government policies that (1) do not distinguish , on their face or de facto, between foreign owned and domestic companies, and (2) do not otherwise unduly undermine the investment liberalizing objectives of the NAFTA’.

Standards of Treatment

297

applied) only be rationally connected to a legitimate policy goal to survive international scrutiny? The WTO exemptions suggest a possible way forward, effectively determining that different types of policy goals call for different tests. When the justification is based upon environmental policy (Art XX(g) ), perhaps it is sufficient for the measure to be ‘related’ to the stated goal and not applied in a manner that is arbitrarily discriminatory or which acts as a disguised barrier to equal opportunity. For health measures (Art XX(b) ), perhaps the measure should be ‘necessary’ to achieve the stated goal, and not applied in a manner that is arbitrarily discriminatory or which acts as a disguised barrier to equal opportunity. Should future tribunals follow the lead of these WTO provisions, jurisprudence would be available to support them. The existing NAFTA jurisprudence is of only little assistance in this regard. In Myers and US—Trucking, the environmental justifications were flat-out rejected (in the former because all of the evidence pointed to discriminatory intent at the highest levels of government;118 and in the latter because the measure was manifestly out of proportion to the alleged risk). The Champion, ADF and Loewen tribunals did not get this far, but in Pope, the test seemed to be reduced to a simple hunt for a reasonable explanation for otherwise discriminatory results, no matter how nontransparent such justifications seem to be in application. The Feldman tribunal did not get this far either, but for a very different reason. It was faced with a respondent government that simply refused to provide the evidence necessary to rebut the prima facie proof of a discriminatory measure. As the Feldman majority noted, an international tribunal is entitled to draw an adverse inference concerning the facts at issue where a respondent refuses to provide sufficient evidence to the contrary.119 The tribunal looked to the international law standard stated by the Appellate Body of the WTO: . . . various international tribunals, including the International Court of Justice, have generally and consistently accepted and applied the rule that the party who asserts a fact, whether the claimant or respondent, is responsible for providing proof thereof. Also, it is a generally accepted canon of evidence in civil law, common law and, in fact, most jurisdictions, that the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a claim or defence. If that party adduces evidence sufficient to raise a presumption that what is claimed is true, the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption.120

The Feldman tribunal found that the claimant had established a prima facie case that it had been treated in a different and less favourable manner than several Mexicanowned cigarette resellers, and the respondent had failed to introduce any credible 118 Myers, above n 4 at para 162. 119 Feldman, above n 96 at para 73. 120 Ibid, quoting the WTO Appellate Body in United States—Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R, 23 May 1997, at 14 (emphasis added).

298

Todd grierson-Weiler and ian a laird

evidence into the record to rebut a presumption that its reason for this lack of disclosure was that the evidence available to it would not have been beneficial for its case.121 Accordingly, in the face of silence from the Mexican government regarding why it was treating Feldman and his domestic competitors differently, a majority of the tribunal concluded that Mexico had breached its obligation to provide equal national treatment to Feldman pursuant to Article 1102.122 The tribunal in Thunderbird v Mexico has also provided an award on the national treatment standard, but its analysis was not particularly helpful in developing the interpretation of the standard. The three-pronged test was seemingly adopted, with a finding that it was not required for the claimant to prove that it received less favourable treatment for reasons of nationality.123 However, it inexplicably concluded that a prima facie case of more favourable treatment had not been made out by the claimant—even though the claimant had demonstrated how its facilities remained closed while various others remained open (for various reasons). The tribunal appears to have collapsed the second and third prongs of the test, confusing its acceptance of Mexico’s justification for the difference in treatment with the issue of whether a difference had been established in the first place.124 Accordingly, it lies for future investment treaty tribunals to elaborate the full import of the third prong of this test, attempting to find a balance between achieving the promise of appropriate protection of an investor or its investment from the respondent state, without jeopardizing the right to regulate. The issue is more delicate because it does not involve a taking; by definition, it involves a lesser interference which has caused loss or damage. It is naturally easier to justify awarding damages for the near-total deprivation of investment rights, in the application of a truly non-discriminatory measure of general effect, than it must be to award damages for some lesser deprivation.125 For this reason, one might expect to see tribunals either implicitly or explicitly importing ‘rules of reason’ or ‘proportionality tests’ 121 Ibid, ‘In case a party adduces some evidence which prima facie supports his allegation, the burden of proof shifts to his opponent’. Id at para 73 n 38; quoting Asian Agricultural Products Limited v Republic of Sri Lanka, 5 ICSID Rep 245, 272 (1990). 122 Ibid at 78. Such a finding is welcome, given that the alternative would have been to reward Mexico for failing fully to participate in the evidence-gathering process. Since it is practically impossible for an ad hoc international tribunal to compel a sovereign country to comply with a discovery request, the drawing of adverse inferences is one of the few ways where a tribunal can preserve the equality of the parties to arbitration, as required under NAFTA Art 1115. 123 Thunderbird, above n 44 at 177. 124 Ibid at paras 178–83. 125 Note that the focus of the NAFTA expropriation provision, Art 1110(1), is on an investment made in the territory of another party, which is also a narrower form of protection than the breadth of protection offered under Arts 1102 and 1103, which presumably includes investors acting in their own right, arguably anywhere in the Free Trade Area established under NAFTA Art 101. Unlike many BIT provisions, NAFTA Art 1101(1) does not limit the ambit of the chapter’s protection to ‘investors with investments in the territory of another NAFTA Party’. Early drafts of the Chapter contained such language (see ), but the territoriality requirement appears to have been excised from the final draft.

Standards of Treatment

299

from other streams of international jurisprudence—or simply continuing to make further use of the legitimate expectation concept—in order to find the appropriate balance that fully recognizes the regulatory and business context within which the investor and/or its investment have operated.

(5) One Standard or Two? A New Balancing Act As this cursory review of the jurisprudence demonstrates, the work of some recent ad hoc investment and trade treaty tribunals appears to have coalesced around a single theme—legitimate expectations—in order to analyse government treatment received by claimant investors. It is not difficult to understand why this phenomenon is taking place: the professional pool from which tribunal members are drawn is still relatively small and tightly knit; the provisions are very similar across treaty platforms and the terms used in them are sufficiently broad or amorphous so as to be capable of overlapping, if not nearly identical, constructions (eg ‘arbitrary’ versus ‘fair and equitable’ versus ‘discriminatory’ versus ‘no less favourable’). This coalescence is not limited to the minimum standard and comparative standards of discrimination either. Increasingly, one is seeing tribunals and treatydrafters attempting to accommodate recognition of regulatory sovereignty (the so-called ‘police power’) in their application of the customary international law test of full, fair, and effective compensation for indirect expropriation—by employing concepts such as ‘investment-backed expectations’ and ‘acquired rights’ to discuss when an investment whose value has been effectively destroyed is deserving of a damages award. How the use of these concepts differs from the use described above, for cases of less-than-substantial interference, may be difficult to discern. Under the banner of legitimate expectation, some semblance of order is finally emerging from the chaos that could be expected from the ad hoc arbitration of sometimes vague and overlapping provisions found in almost 2,500 investment and trade treaties. With an increasing number of sad stories being presented to them by investors, perhaps our small cadre of arbitrators are unintentionally groping towards a single, albeit ill-defined, standard of regulatory treatment that is largely based upon the international law principle of good faith, as manifested in the present guise of ‘legitimate expectations’. To paraphrase the Waste Management II tribunal, what we are collectively searching for here is an international standard of review for the regulatory treatment of foreign nationals (participating as investors in a host state, a free trade area,

300

Todd grierson-Weiler and ian a laird

or a common market, as the case may be).126 What we need to do in order to bring some semblance of order and consistency to the work of the tribunals called upon to review such treatment is to ascertain the basket of legal concepts, or regulatory indicators, which will assist them in determining the nature of the foreign investor’s expectations against which treatment should be adjudged. The enterprise of articulating this unified standard of investment protection naturally involves the task of balancing investment-backed expectations with the sovereign right of states to protect the interests of their citizens. This is a theme taken up by a number of recent tribunals.127 In recognition of fundamental human rights protected under international law, the value of the exercise of state sovereignty, in any given case, could be either tempered or enhanced by an awareness of whether the citizens of the respondent State enjoy sufficient civil and political rights so as to assume that they actually had some say as to the policies alleged to have been adopted by the official who claims that such adoption is in the public interest. The following list of factors required in this act of balancing could include, but would not be limited to: • the level of deprivation, as contrasted against the value and means of investment; • the nature and quality of the connection drawn between a valid regulatory goal and the means employed to obtain it; • the relative sophistication and level of awareness of the claimant concerning the regulatory environment and the likelihood of potential changes to it; • the reasonableness or prudence of the investor in making and maintaining the investment;128 • the relative transparency of the regulatory environment generally and the impugned decision-making process in particular; • the absence or presence of due process or procedural fairness in the regulatory environment generally and the impugned decision-making process in particular; 126 Waste Management II, above n 7 at para 98. 127 In reliance on statements of the tribunal in SD Myers v Canada, the Saluka tribunal underscored that the determination of a breach of the fair and equitable treatment requires a balanced approach to the interests of the disputing parties by ‘. . . a weighing of the Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s legitimate regulatory interests on the other’. See Saluka, above n 7 at paras 305–6. As noted by the SD Myers tribunal, above n 4 at para 263: ‘The Tribunal considers that a breach of Article 1105 occurs only when it is shown that an investor has been treated in such an unjust or arbitrary manner that the treatment rises to the level that is unacceptable from the international perspective. That determination must be made in the light of the high measure of deference that international law generally extends to the right of domestic authorities to regulate matters within their own borders’. Also, other tribunals have reflected this type of balancing process in their awards, for example: LG&E, above n 17 at para 162; Azurix, above n 17 at paras 386, 393; MTD, above n 7 at para 196. 128 On which, see further Peter Muchlinski, ‘ “Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 ICLQ 527 (2006).

Standards of Treatment

301

• the nature of the decision-making process in question (judicial, legislative, or administrative); and • the absence or presence of an improper purpose in making the impugned decision (including, but not limited to, discrimination on the basis of nationality or some other form of intentional, bad faith, or sectarian prejudice). In order to prove its claim for damages under this apparently unified (or at least coalescing) standard of review, it appears that the burden falls upon the claimant to prove that the jurisdictional basis of making the claim has been satisfied (such as proof of investment; nationality; existence of a qualifying dispute, etc, as the treaty requires) and that the investment was made and operated with a reasonable/legitimate expectation that the undertaking was in keeping with local laws, customs, or practices (or specific state assurances). Once the bona fides of qualification under the treaty were established by the claimant, it would be entitled to expect to enjoy a basket of rights, including: due process, transparency, and non-discrimination. The particular wording of a treaty provision would still explain how and why these particular rights would be enjoyed, in context. With the investor having established the existence of a legitimate expectation to be treated in a fair and equitable manner (connoting both the substantive and procedural elements of such fairness), the burden would shift to the respondent state to demonstrate either why the expectation was not reasonably held, or how the standards of protection rightfully expected had not been breached. Characterization of the type of measure impugned by the claimant would naturally have an impact on this balancing exercise—with more deference being shown, for example, to the final outcome of a reputable judicial system in terms of procedural fairness than that which might be shown to a legislative decision alleged to have discriminatory effect. Similarly, the capricious decision of an administrative official whose discretion was not subject to the serious prospect of domestic judicial review would be less deserving of deference than the considered decision of a legislative body forced to balance competing interests in regulating an industry known to generate deleterious externalities in respect of the public interest.

Concluding Remarks To be clear, it is not the authors’ intent to advocate the overthrow of the existing treaty models, which contain seemingly discrete provisions that grant investors compensation for breaches of most-favoured-nation treatment, national treatment,

302

Todd grierson-Weiler and ian a laird

the expropriation norm, and some form of minimum standard of treatment. Rather, the purpose of this chapter has been to recognize that there can be considerable confusion in the growing number of cases in which concepts such as ‘nondiscrimination’, ‘fair and equitable treatment’, and ‘legitimate expectation’ have been used to the same end, but in so many different ways. All that is proposed here is to attach a label to something that currently has no name. There appears to have evolved what can now be called a single standard of regulatory treatment, based upon the legitimate expectation of investors to enjoy access to rights of transparency, due process, and non-discrimination in a host country or in a free trade area, as the case may be. Is there more to this convergence of tribunals finding liability on the basis of what is effectively a single standard of regulatory treatment? Perhaps we are indeed witnessing a more extraordinary development: that is, the inclusion of a comparative standard of non-discrimination in the customary international law minimum standard of treatment. It is already accepted that bad faith is not a requirement of the modern minimum standard of fair and equitable treatment—and thus intent becomes less important than effect in the minimum standard analysis. Further, and in a manner that would have pleased Dr Mann, recent tribunals have experienced little difficulty in considering ‘fair and equitable treatment’ as an obligation of substantive fairness that includes a prohibition against non-discrimination. If increasingly fewer tribunals draw distinctions between custom and treaty, in respect of the fair and equitable standard, the proposition may indeed attract more adherents. In the meantime, with the accession of the principle of legitimate expectation as a ‘dominant element’ of the fair and equitable treatment standard—a consensus appears to be forming about the importance of representations made to investors, implicit and explicit. Similarly, consensus appears to be forming in respect of the proportionality principle, which tribunals see as common to each of the standards of expropriation, fair and equitable, and national treatment. The effect of such consensus is that it encourages tribunals to balance both the alleged reliance of the investor against the policy rationale for impugned state conduct—regardless of the treaty standard at issue. Yet formalism in treaty interpretation may still prevail. Treaties are still most often drafted with the full panoply of obligations intact—redundant though they may increasingly be. Nonetheless, if we do seek to shed more light on—and thereby bring greater discipline to—the ever-growing number of awards being rendered in this field, we must recognize the doctrinal shift under way. In the jurisprudence of investment protection treaties, a single standard of regulatory treatment has been developing. It is based upon a good faith analysis of investment expectations and the reasonable protection of regulatory policy space. ‘Standard of treatment’ or ‘standards of treatment’—time will tell.

Standards of Treatment

303

Select Bibliography Cheng, Bin, General Principles of Law as Applied by International Courts and Tribunals (Cambridge, Cambridge University Press, Grotius Classic Reprint Series, 2007) Chukwumerije, O, ‘International Law and Article 42 of the ICSID Convention’, 14 J Int’l Arb 79 (1997) Dolzer, R, ‘Fair and Equitable Treatment: A Key Standard in Investment Treaties’, 39 Int’l Law 87 (2005) Fietta, S, ‘Expropriation and the “Fair and Equitable” Standard: The Developing Role of Investors’ “Expectations” in International Investment Arbitration’, 23(5) J of Int’l Arb 375 (2006) Laird, I, ‘Betrayal, Shock and Outrage—Recent Developments in NAFTA Article 1105’, in T Weiler (ed), NAFTA: Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (Ardsley NY, Transnational Publishers, 2004) ——, and Askew, R, ‘Finality versus Consistency: Does Investor-State Arbitration Need An Appellate System?’, 7 J Appellate Practice and Process 101 (2006) Lauterpacht, E, ‘The World Bank Convention on the Settlement of International Investment Disputes’, in Recueil d’études de Droit International en Hommage a Paul Guggenheim (Geneva, Faculté de Droit de l’Universitaire de Genéve, Institut Universitaire des Hautes Etudes Internationales, 1968) Mann, FA, ‘British Treaties for the Promotion and Protection of Investments’, 52 Brit YB Int’l L 241 (1981) Muchlinski, Peter, ‘ “Caveat Investor”? The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55 ICLQ 527 (2006) Müller, Jöerg, Vertrauenssschutz im Völkerrecht (Heidelberg, Max Planck Institut, 1971) O’Connor, JF, Good Faith in International Law (Aldershot, Dartmouth, 1991) Ortino, Federico, Sheppard, Audley and Warner, Hugo (eds), Investment Treaty Law (London, British Institute of International and Comparative Law, 2006), available at

Paulsson, Jan, Denial of Justice in International Law (Cambridge, Cambridge University Press, 2005) Schill, S, ‘Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of Law’, IILJ Working Paper 2006/6 Schreuer, C, ‘Article 42 of the ICSID Convention’, 60 AJIL 892 (1996) ——, ‘Fair and Equitable Treatment in Arbitral Practice’, 6 JWIT 357 (2005) Schwarzenberger, Georg, International Law and Order (London, Stevens, 1971) Schwebel, S, ‘The Influence of Bilateral Investment Treaties on Customary International Law’, 5(2) TDM 5–6 (2005) Seidl-Hohenveldern, Ignaz, ‘General Principles of Law as Applied by the Conciliation Commission Established under the Peace Treaty with Italy of 1947’, 53 Am J Int’l L 853 (1959) Shihata, IFI, and Parra, A, ‘Applicable Substantive Law in Disputes between States and Private Parties: The Case of Arbitration under the ICSID Convention’, 9 ICSID Rev–FILJ 183 (1994) UNCTAD, Fair and Equitable Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999)

304

Todd grierson-Weiler and ian a laird

——, National Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) ——, Most-Favoured-Nation Treatment (New York and Geneva, United Nations, 1999) ——, International Investment Instruments: A Compendium (New York and Geneva, United Nations 1996–2005) Vols I-XIV, available at . ——, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006) Vicuña, F Orrego, ‘Regulatory Authority and Legitimate Expectations’, 5 Intl Law Forum, 188m 193 (2003) Weil, P, ‘The State, the Foreign Investor, and International Law: The No Longer Stormy Relationship of a Ménage à Trois’, 15 ICSID Rev–FILJ 401 (2000) ——, ‘Metalclad and the Government of Mexico: A Play in Three Parts’, 2 JWI 685 (2001) Weiler, T, ‘Dodging Bullets: A First Look at the Final Award in Loewen & the Loewen Group v U.S.A.’, 4 JWI 659 (2003) Wolfe, Robert, ‘Regulatory Transparency, Developing Countries, and the Fate of the WTO’, available at . Zoller, E, La Bonne Foi en Droit International Public (Paris, Editions Pedone, 1977)

chapter 9

C OV E R AG E OF TA X AT ION U N DE R MODE R N INVESTMENT T R E AT I E S * Thomas W Wälde Abba Kolo **

(1) The Political and Economic Dynamics of Tax-related Investment Disputes

308

(2) An Overview of the History of Taxation

314

* This is the third study in the ongoing research programme led by Professor Wälde on tax and international investment and oil-gas-energy disputes. The earlier ones are Thomas Wälde, ‘Renegotiating Previous Governments’ Privatization Deals: The 1997 UK Windfall Tax on Utilities and International Law’, 19 Northwestern J Int’l Law & Bus 405 (1999) (with Abba Kolo); T Wälde and G Ndi, ‘Stabilising International Investment Commitments’, 31 Texas Int’l LJ 215 (1996). Future work will focus on a detailed application of the main investment treaty disciplines (indirect expropriation; national treatment; fair and equitable treatment; umbrella clauses) to tax-related disputes and special tax disputes in the oil, gas, energy, and mining sectors. This chapter also incorporates presentations made by Wälde on tax disputes in the oil and gas industry in Calgary (May 2006), at an IBA Conference in Rome (April 2006), and an IBA conference in Prague (October 2005). ** The authors gratefully acknowledge the helpful comments and assistance provided by Devashish Krishan, Markus Perkams, Arno Gildemeister, Knut Olson, and many other colleagues in the preparation of earlier drafts of this chapter; but they bear no responsibility for the contents of the final product.

306

Thomas w wÄlde and abba kolo (3) General Scope of Coverage of Tax under Investment Treaties (a) A Definitional Problem? (b) Types of Taxes Covered

(4) Application of Substantive Investment Obligations to Tax Matters (a) National Treatment and Most-Favoured-Nation Treatment (b) Application of the Fair and Equitable Treatment Obligation to Tax Matters (FET) (c) Capital Transfer and Taxation: Withholding Taxes (d) Taxation and Investment Agreement/Authorization

317 317 320

324 325 328 331 336

(5) Taxation and Expropriation—Tax ‘Filter/Veto’

341

(6) Recent Arbitral Jurisprudence on Expropriatory Taxation

347

(7) The ‘Tax Filter’: Joint Tax Consultation or Joint Tax Veto as Limitation on the Expropriatory Tax Discipline

352

(8) Taxation and Transparency

354

Concluding Remarks

357

The purpose of this chapter is to provide an overview of the different ways of treating taxation in modern investment treaties and the underlying policies and tensions reflected in the variations of treaty regulation of tax disputes. We have to note that unlike in the 1970s when the main issues were expropriation and transfer pricing by multinational enterprises (MNEs),1 at present, the economic role of the state has changed from direct intervention to an indirect rule. It is no longer the exercise of public ownership or direct commands to supervised private operators, but the manipulation of the levers of economic, environmental and fiscal regulation which are the main instruments to influence the economic environment. Direct public

1 This is demonstrated by the OECD Guidelines for Multinational Enterprises of the 1976 Declaration on International Investment and Multinational Enterprises and the Draft United Nations Code of Conduct on Transnational Corporations of 1983. Annex 1 to the OECD Guidelines 1976. Reprinted in P Kunig, N Law, and W Meng (eds), International Economic Law: Basic Documents (Berlin, Walter de Gruyter, 1989) at 559 ff. For the 2000 version of the OECD Guidelines on Taxation, see and the UN draft Code of Conduct, para 34, reprinted in Kunig, et al, ibid at 565 ff. For commentary on the underlying issues surrounding the negotiations of the Code of Conduct, see UNCTC, The Code of Conduct on Transnational Corporations, 22 ILM 177 (1983); SK Asante, ‘The Concept of Good Corporate Citizen in International Business’, 4 ICSID Rev–FILJ 1 (1989); N Horn (ed), Legal Problems of Code of Conduct for Multinational Enterprises (The Hague, Kluwer, 1980). Whereas the draft code of conduct on MNEs urges foreign investors not to engage in tax avoidance, the World Bank Guidelines of 1992 avoid blaming foreign investors. Rather, they urge host states not to use tax incentives in order to attract foreign investment unless the state felt doing so is necessary, in which case the same advantages should be extended to domestic investors in similar circumstances. See Art III(9) of the Guidelines.

taxation and modern investment treaties

307

ownership has transformed itself into the ‘regulatory state’.2 Therefore, it is the regulatory function of the state and how it impacts on foreign investment that is most relevant. It is the ability of the state to use its taxing, environmental, labour and social regulatory authority, at times at the behest of dominant domestic political and financial groups, adversely to affect the economic interests of the foreign investor that is at the root of many if not most contemporary investment disputes. The classic ‘expropriation’ dimension of political risk has mutated into a regulatory and fiscal risk. Subtle use of the ‘screws’ of regulatory and tax regulation available to government and, in particular, their application to specific cases make it much harder to detect the abuse of government powers against foreign investors that underlies modern investment treaty disciplines. Recent tax-related arbitral awards and some of the pending ones together with the highly publicized Yukos case indicate the growing importance of tax disputes between foreign investors and host states and the increasing reliance by foreign investors on investment treaties for protection.3 The provisions on tax in some of these treaties are in the process of being invoked by investors, disputed by governments, and thus form the foundation of an emerging international jurisprudence on tax-related investment disputes. This explains the objective of this study. Section 1 sets the scene for the discussion, placing tax-related investment disputes in the political and economic context. It argues that under the current regulatory state, in which the function of the state has retreated from that of controlling the ‘commanding heights’ of the economy to regulation, the tendency for the state to use tax instruments to ‘squeeze’ foreign investors or for protectionist purposes is very attractive. Despite the strides made over the years in achieving greater protection for the rights of the foreign investor through investment treaties (particularly via the investor–state dispute settlement process), nevertheless, most states are unwilling to 2 For a discussion of the ‘regulatory state’ character of investment disputes, see Thomas Wälde, New Aspects of Investment Law (Leiden, Nijhoff Publishers, 2006); T Wälde and W Wouters, ‘State Responsibility in a Liberalised World Economy: State, Privileged and Sub National Authorities under the 1994 Energy Charter Treaty, an Analysis of Articles 22 and 23’, 27 Neth YB Int’l L 143 (1996). 3 The main tax-related cases founded on BITs are: Marvin Feldman v Mexico, Award of 16 December 2002, 18 ICSID Rev–FILJ 488 (2003); Occidental Exploration & Production Co v Republic of Ecuador, Final Award, London Court of International Arbitration, Administrative Case No. UN 3467. Final Award; Goetz and Others v Republic of Burundi, ICSID Case No. ARB/95/3, issued on 10 February 1999, 5 ICSID Report 1; and Link-Trading Joint Stock Co v Moldova, Final Award of 18 April 2002; EnCana Corporation v Republic of Ecuador, LCIA Case No. UN 3481 (February 2006); Corn Products International Inc v Mexican States, and Archer Daniels Midland Co. & Tate Lyle Ingredients Americas, Inc v United Mexican states respectively; Grand Rivers Enterprises Six Nations, Ltd et al, v USA; Enron Corporation & Ponderosa Assets LP v The Argentine Republic, all available at or at . Older cases raising tax issues—Borne v Thailand, Philipps v Norway, Tesoro v Trinidad and Tobago, Power and Traction Finance v Greece, the three Jamaican bauxite cases before the ICSID (before settlement), Petrola v Greece, a not-identified investor against a Libyan client; a not identified US oil company against an African state, a European oil company against an African state—have been reviewed in the very instructive study by S Manciaux, ‘Changement de legislation fiscale et arbitrage international’ now available at the Transnational Dispute Management (TDM) website ().

308

Thomas w wÄlde and abba kolo

agree to submit their fiscal policy to international judicial and quasi-judicial scrutiny. Section 2 provides an overview of the history of taxation. It shows that just as in modern times,4 taxation was absolutely crucial for the survival of the princely states and most rulers jealously guarded their taxing powers. But it also illustrates how the tax instrument was used by the then rulers/states not only as a source of revenue to defend their states against external (and internal) threats but also to ‘secure implicit transfer of wealth and power between interest groups’.5 Section 3 discusses the general scope of coverage of tax under investment treaties. It examines how tax is defined in some of the treaties and the shortcomings of those definitions, the type of taxes covered under the treaties and the underlying issues and tensions surrounding such coverage. Section 4 discusses, in an overview perspective, the applicability of core substantive investment protection provisions to tax and the underlying issues and tensions surrounding them. Section 5 examines the treaty formulations on expropriatory taxation and transparency and the policy reasons for the new trend in those areas. Section 6 goes on to consider arbitral jurisprudence on expropriatory taxation. Section 7 discusses joint tax consultation as a means of limiting expropriatory tax measures. Finally, Section 8 deals with taxation and transparency.

(1) The Political and Economic Dynamics of Tax-related Investment Disputes In past periods of major political and social upheavals, nationalization—that is the formal expropriation of large swathes of foreign-owned industries—was frequent. This is at present no longer (or, at least, not yet) current practice. The ideological movement of socialism and the combination of nationalist with socialist, stateoriented ideological features, then frequent in developing countries and in particular after de-colonization, typically resorted to large-scale nationalizations.6 4 On the significance of tax to the modern welfare state, see OECD, Tax and the Economy, OECD Tax Policy Series No. 06 (OECD, 2001), available at: ; S James and C Nobles, The Economics of Taxation: Principles, Policy and Practice (Harlow, Princeton Hall/FT, 7th edn, 2004–5) at 7–10; H. Patomaki, Democratising Globalisation: The Leverage of the Tobin Tax (London, Zed Books, 2001) at 194–5. 5 These words were used by Richard Epstein in his analysis of the political economy of taxation in the context of the USA, which we think is of universal relevance; see Bargaining with the State (Princeton, Princeton University Press, 1995) at 145. 6 I Seidl-Hohenveldern, Internationales Konfisckations und Enteignungsrecht (Tübingen, de Gruyter, 1952); N Girvan, Corporate Imperialism: Conflicts and Expropriation—Transnational

taxation and modern investment treaties

309

But the cycles of foreign investment have not disappeared: promotion to obtain foreign investment, privatization, and then mounting dissatisfaction with what is seen as foreign control and its exploitation in domestic politics, followed by revocation of rights once necessary to encourage investment, but now seen as excessive, no longer necessary and often as corrupt, followed by decline of investment, economic stagnation, dissatisfaction with state-owned enterprises and a renewal of the cycle.7 The use of taxation—not necessarily only to service the ever present and pressing needs of government and politics—inscribes itself into such a cycle. It offers itself as a less conspicuous way of revoking incentives that in an earlier phase of the cycle were considered necessary without head-on confrontation with international business, investors’ home states, and the legal framework of investment protection that has evolved over the last 20 years. Squeezing foreign investors by taxation is less conspicuous; the abuse of government power inherent in such tax squeezes is, in the light and darkness of fiscal complexity, much harder to identify than, say, a tangible, formal, un-compensated expropriation. Using tax can constitute a ‘velvet’ revocation of contractually conceded investment incentives, and it can be escalated up to the level of what is the economic equivalent of a direct expropriation.8 It is a more sophisticated way of assault on foreign investors’ proprietary positions that is harder to scrutinize. It is also a method that was used, and is being used, in situations where the state aims, often with private and state actors closely intermeshed, to destroy the economic foundation of foreign (or of disliked national) groups, sometimes in a power struggle or for ethnic discrimination reasons, but wishes to camouflage the deployment of legal machinery under the control of the state by an apparently and seemingly at least formally correct application of legal rules and procedures.9 Corporations and Economic Nationalism in the Third World (New York, ME Sharpe Inc, 1978); S Neff, Friends but not Allies (New York, Columbia University Press, 1990); T Anderson, Multinational Investment in Developing Countries: A Study of Taxation and Nationalisation (London, Routledge, 1991); S Kobrin, ‘Foreign Enterprise and Forced Divestment in LDCs’, 34 Int’l Org 65 (1980). For an account of the ideological cycle between state control and liberalization of the economy in both developed and developing countries post-World War II, see D Yergin and J Stanislaw, The Commanding Heights: The Battle between Governments and Market Place that is Remaking the World (New York, Simon & Schuster, 1998). 7 K Vandevelde, ‘The Political Economy of the Bilateral Investment Treaty’, 92 AJIL 621 (1998) at 621–3; Amy Chua, ‘The Privatisation-Nationalisation Cycle: The Link between Markets and Ethnicity in Developing Countries’, 95 Col L Rev 223 (1995). 8 This is exemplified by the imposition of ‘windfall’ taxes and coerced renegotiation of the fiscal regime governing investment agreements (usually by a subsequent government) when the private (especially foreign) investor is making what is perceived by the host state to be excessive profits. T Wälde and A Kolo, ‘Renegotiating Previous Governments’ Privatization Deals: The 1997 UK Windfall Tax on Utilities and International Law’, 19 Northwestern J Int L & Bus 405 (1999); T Daintith and I Gault, ‘Pacta Sunt Servanda and the Licensing and Taxation of North Sea Oil Production’, 8 Cambrian L Rev 27 (1977); S Zorn, ‘Unilateral Action by Oil-Producing Countries: Possible Contractual Remedies of Foreign Petroleum Companies’, 9 Fordham Int’l LJ 63 (1985–6). 9 From 1917 onwards, the US government, mainly through its ambassadors in Mexico, protested against Mexican post-revolutionary attempts to make the mining rights of US investors meaningless;

310

Thomas w wÄlde and abba kolo

Nobody will question that states, to ensure their survival in the external (security) and internal (welfare) dimensions need to possess and exercise effective tax powers; this is even more so as globalization, accompanied by easier re-deployment of capital and regulatory and fiscal competition, makes it more difficult for governments to capture tax potentialities, nowhere more so than from companies headquartered abroad.10 The investor’s home state—traditionally its chief protector both through diplomatic protection and through its contribution to international investment protection regimes—will be much more ambivalent about providing defence against host state tax claims than against outright expropriation. The home state itself battles with the need to raise taxes from ever-changing sources to satisfy everrising domestic political expectations in the face of a much more volatile, internationally fluid tax base undermined by internal corporate transactions, the risk such attempts were dressed up as retroactive legislation restricting the scope of mining rights or exploiting tax power—see S Randall, United States Foreign Oil Policy since World War I: For Profits and Security (Montreal, McGill-Queens Native and Northern Series, McGill-Queen’s University Press, 2nd edn, 2005), in particular at 51–8. See also the cases, mainly pre- and post-World War II, surveyed by GC Christie, ‘What Constitutes a Taking of Property under International Law’, 38 BYIL (1962) at 307. ‘Aryanisation’, in Nazi Germany, used similar legally camouflaged procedures for taking or squeezing out Jewish ownership; see Saul Friedländer, Nazi Germany and the Jews, Vol I (1933–9) (New York, Harper Collins, 1977); Harold James, The Deutsche Bank and the Nazi Economic War against the Jews (New York, Cambridge University Press, 2001) at 61; the famous Barcelona Traction Case (1970) ICJ Reports 3 involved manipulation of foreign exchange restrictions—prohibition on transferring—foreign exchange to pay debt accumulated by General Franco’s protégé Juan March—to contrive a bankruptcy which then allowed Juan March, with the support of Spanish judicial and governmental authorities, to purchase Barcelona Traction on the cheap—see the excellent (non- or less-legal) case study recently re-published on TDM 2006 (John Brooks, Annals of Finance I and II). The ICJ in the end declined jurisdiction; arguably, together with the ELSI case (USA v Italy) (1989) ICJ Reports 14, both decisions confirmed that the ICJ and inter-state litigation was not a suitable method for resolving investment disputes and thus helped to bring about direct, treaty-based investor–state arbitration as we know it now. The method—a legally camouflaged expropriation covered by superficially correct-looking legal procedures creating a squeeze on the foreign investor—has arguably inspired the takeover, in 2004, by the Russian government of Russian (and partly foreign-owned) oil company Yukos; its techniques—exorbitant tax bills imposed in a way that singles out Yukos, combined with a rapid-fire auction at a fraction of the market value to the benefit of state-owned company Rosneft—look like a script copied from Juan March’s strategy to take over Barcelona Traction. There is a special section on TDM (above n 3) with an increasing number of expert opinions and analyses of the Yukos case. 10 Globalization enhances capital mobility and since the taxing power of states is territorial, states are constrained in using their tax power to net such mobile capital. See, M Webb, ‘Global Markets and State Power: Explaining the Limited Impact of International Tax Competition’, in M Stephen (ed), Globalisation and its Discontents (New York, Praeger, 2000) 113; D Swank, Global Capital, Political Institutions and Policy Changes in Developing Welfare States (Cambridge, Cambridge University Press, 2002) ch 7; R Citron, ‘The Future of Tax in the 21st Century: A Practitioner’s Perspective’, BTR 161, 162 (2002); S Picciotto, International Business Taxation: A Study in the Internationalization of Business Regulation (New York, Quorum Books, 1992) at 309; A Easson, Taxation of Foreign Direct Investment: An Introduction (The Hague, Kluwer, 1999) at 156–7. On the other hand, some commentators have argued that the increasing percentage of tax revenue as against non-tax receipts to GDP among OECD member countries suggests that globalization has not seriously undermined the capacity of states to impose taxes. See, M Wolf, ‘Does Globalisation Render States Impotent?’, BTR 537 (2000).

taxation and modern investment treaties

311

of redeployment of capital, and tax competition. This ambivalence of the capitalexporting and economically dominant home states about providing far-reaching and effective treaty protection against tax squeezes comes through very conspicuously in the ‘forward-backward, extension but restriction, protect, but only so far’ character of virtually all bilateral and multilateral investment protection treaties and their special tax procedures, which we analyse in this study. Investment protection treaties are not the only international law instrument available to deal with tax-related investment disputes. There is a well-established practice of intergovernmental tax treaties in the form, primarily, of double-taxation treaties and to some extent also more recently of tax cooperation agreements.11 These treaties, however, do not deal with the type of investment disputes at issue where investors allege the abuse by host governments of their taxation powers; they deal, rather, with either exchange of information between tax authorities to combat tax evasion or develop jointly instruments against undesirable tax avoidance. In the main, however, they try to avoid double taxation by the coordination of tax rules by the two governments. There has been, most recently, an effort in the OECD to develop arbitration as an intergovernmental method to resolve tax treaty disputes.12 The working document so far available is curious: in some ways, it seems to touch the issue of taxrelated investor disputes by providing a method (right?) to individuals (presumably including foreign investors) to initiate an intergovernmental arbitration procedure. But the concern of almost total government control is reflected in the exclusion of the individual as a claimant and party to the process; the working draft also requires the individual to give up recourse to national courts or other procedures (presumably investment treaty-based arbitration). Tax arbitration is between the tax authorities of the two governments. There is no guarantee—comparable, for example, to the strong enforcement guarantees of the ICSID Convention and the Energy Charter Treaty—that the host state would comply with an award in case it loses the case. On the basis of the current proposal, the investor would lose its tax-related investment arbitration right under investment treaties by having recourse to a much weaker 11 Klaus Vogel et al, Double-Taxation Conventions (London, Kluwer, 3rd edn, 1999); the OECD Committee on Fiscal Affairs and the related OECD secretariat services monitor and analyse developments, . 12 OECD, Report on Improving Mechanisms for the Resolution of Tax Treaty Disputes (Paris, OECD Centre for Tax Policy and Administration, February 2006), available at . A US–Germany Protocol (signed on 1 June 2006) to amend the 1989 US–Germany Tax treaty, which was recently sent to the US Senate for approval, does contain, for the first time, a provision for mandatory arbitration of certain, tax disputes which the two government officials are unable to resolve through negotiation. See Kevin Rowe, ‘How the New Protocol has Changed the U.S.–Germany Tax Treaty’, (July/August, 2006). For a wider discussion of the interface between arbitration and tax see the papers presented at a CREDIMI/Dijon colloquium in Rev de l’Arbitrage (2001), 371–88 (summarized by JP Le Gall); also Le Gall, ‘Fiscalité et arbitrage’, Rev de l’Arbitrage (1994), 3–38 and 253–78. The emphasis here has been rather on commercial arbitration cases, though Dr Manciaux’s recent paper presented at the 2001 CREDIMI colloquium provides a first study focused on investment disputes and tax.

312

Thomas w wÄlde and abba kolo

intergovernmental procedure (comparable to the one available in investment treaties) with little influence and little solid chance of compliance. Authoritative commentators have, properly, described the mutual agreement procedure under most tax treaties as unsatisfactory. According to Park and Tillinghast: The task of resolving disagreement on the treaty interpretation falls either to national courts or to the joint efforts by the tax administrations to work out differences on a voluntary basis. Neither alternative is wholly satisfactory. Judicial proceedings lack political neutrality and yield inconsistent results. And the process of mutual agreement among competent fiscal authorities is fraught with delays and uncertainty.13

In our opinion, the OECD tax arbitration proposal would therefore, not substantially enhance the legal position of the taxpayer vis-à-vis the state nor provide him with an effective mechanism of resolving some of the most important tax-related investment disputes. The proposal seems to aim for a result (legal instrument) similar to the European Arbitration Convention, perhaps with a much broader scope of application than the Convention. The European Arbitration Convention provides for arbitration of transfer pricing disputes between the member states.14 However, even this Arbitration Convention did not go far enough in safeguarding the rights of the taxpayer. Apart from its limited scope of application (only to transfer pricing disputes), it does not give the taxpayer any right as a party to the dispute and the tax authority has discretion over whether or not to take up the taxpayer’s complaint (‘if the complaint appears to it to be well-founded’). Constitutional15—or international law16—controls on taxation have never been very effective. As a learned commentator said, ‘existing legal rules have not been 13 W Park and D Tillinghast, Income Tax Treaty Arbitration (Amersfoort, Sad Fiscale & Financiele Vitgerers, 2004) 8; Vogel et al, above n 11 at 1364–77; A Jones et al, ‘The Legal Nature of the Mutual Agreement Procedure under the OECD Model Convention (pt. 1)’, BTR 333, 337 (1979); M Zuger, ‘Mutual Agreement and Arbitration Procedures in a Multilateral Tax Treaty’, in M Lang et al (eds), Multilateral Tax Treaties: New Developments in International Tax Law (London, Kluwer Law International, 1998) 155, 183; R Green, ‘AntiLegalistic Approaches to Resolving Disputes between Governments: A Comparison of the International Tax and Trade Regimes’, 23 Yale J Int’l L 79 (1998) at 99 and authorities cited in n 95 therein; E Bruggen, ‘ “Good Faith” in the Application and Interpretation of Double Taxation Conventions’, BTR 25 (2003). 14 L. Hinnekens, ‘The European Tax Convention and its Legal Framework (pt 1 & 2)’, BTR 132 and 272 (1996); Zuger, above n 13 at 165–7; C Wallace, The Multinational Enterprise and Legal Control: Host State Sovereignty in an Era of Economic Globalisation (The Hague, Martinus Nijhoff, 2002) 944; Green, above n 13 at 99–100, 103; JM Henckaerts, ‘International Arbitration and Taxation—The EC Arbitration Convention for Transfer Pricing Disputes’, 10 J Int’l Arb (1993) 111–19. 15 Even in a constitutionalized country such as the USA, the constitutional limitation on taxation (such as contained in the fi ft h amendment which curtails the state’s eminent domain power) has rarely been successfully invoked by taxpayers, although the decision of the US Supreme Court in Eastern Enterprises v APFEL and Commissioner of Social Security, 524 US 498, 118 S Ct 2131 does suggest such a possibility. See R Epstein, Takings: Private Property and the Power of Eminent Domain (Cambridge, Mass, Harvard University Press, 1985); id, ‘Taxation, Regulation and Confiscation’, 20 Osgoode Hall LJ 433 (1982); C Massey, ‘Takings and Progressive Rate Taxation’, 20 Harv JL & Pub Policy 85 (1996). 16 A Albrecht, ‘Taxation of Aliens under International Law’, 29 BYIL 145 (1952); Easson, above n 10; Fiona Beveridge, The Treatment and Taxation of Foreign Investment under International Law (Manchester, Manchester University Press, 2000) 64–77.

taxation and modern investment treaties

313

effective in curbing the fiscal appetites of governments’.17 But external disciplines on taxing powers have grown, both in constitutional law18 and in international law, primarily through jurisprudence of the European Court of Justice and the European Court of Human Rights.19 The budding discipline on unfettered taxing powers in investment (and trade) law imprint itself into this trend. The quite limited disciplines investment treaties impose on governments with respect to tax do not aim at the same high level of integration which, for example, the European Union has achieved and continues to develop. While, in EU law, the same tensions as in investment treaties exist between national sovereignty and international controls, the development and enforcement of international disciplines have gone much further. They are represented in the main by the European Commission and the European Court of Justice. Without an easy analogy possible, one cannot, however, ignore the increasingly rich jurisprudence by the European Court of Justice; it is in particular the application of non-discrimination rules and the progress towards an integrated single market which are the guiding principles

17 See Comment, Constitutional Constraints on Governmental Taxing Power, in 2 Wirtschaftspolitische Blaetter (1989) with reliance on G Brennan and T Buchanan, ‘Towards a Tax Constitution for Leviathan’, J of Public Economics 8 (1977). 18 eg the German Federal Constitutional Court decision of 22 June 1995 (B Verfg 2 Bv/37/91) in which it held that the impugned wealth tax was unconstitutional because it was discriminatory and violated the principle of equal sharing. In the USA the main constitutional limitation comes from the application of the Interstate Commerce Clause (Art 1 s 8, cl 3 of the US Constitution), which seeks to establish a common market among the states by prohibiting obstacles (including taxation) to interstate economic transactions, see Epstein, Bargaining with the State, above n 5 at 129–44; D Coenen and W Hederstein, ‘Suspect Linkages: The Interplay of State Taxing and Spending Measures in the Application of Constitutional Anti-discrimination Rules’, 95 Mich L Rev 2167 (1997); W Anderson, Taxation and the American Economy: An Economic, Legal and Administrative Analysis (New York, Prentice Hall, 1951); R Sedler, ‘The Negative Commerce Clause as a Restriction on State Regulation and Taxation: An Analysis in Terms of Constitutional Structure’, 31 Wayne L Rev 886 (1985). 19 On some of the latest tax-related jurisprudence of the ECJ, see Case C-196/04 Cadbury Schweppes v Commissioners of Inland Revenue (judgment of 12 September 2006); Case C-446/03, Marks & Spencer v HM Inspector of Taxes (judgment of 13 December 2005); Case C-334/02, Commission v France [2004] ECR I-12229; Case C-319/02, Manninen, Decision of 7 September 2004; D Oliver ‘Tax Treaties and the Market-State’, 56 Tax L Rev 587 (2002–3); L Hinnekens, ‘The Search for the Framework Conditions of the Fundamental EC Treaty Principles as Applied by the European Court to Member States’ Direct Taxation’, 11 EC Tax Rev 112 (2002); Wallace, above n 14, at ch XV; J Schuch, ‘Bilateral Tax Treaties Multilaterialised by the EC Treaty’, in Lang et al (1998), above n 13 at 35; D Sandler, Tax Treaties and Controlled Foreign Company Legislation (The Hague, Kluwer, 1998); B Terra and P Wattel, ‘The EC Court’s Attempts to Reconcile the Treaty Freedoms with International Tax Law’, 33 CML Rev 223 (1996); E Keeling and A Shipwright, ‘Some Taxing Problems Concerning Non-discrimination and the EC Treaty’ 20 Euro L Rev 580 (1995). On the jurisprudence of the ECHRR, see Jasiuniene v Lithuania, no. 41510/98; Wasa Liv Omsesidigt, et al v Sweden, 10 EHRR 132 (1988); Eko-Elda Avee v Greece, Case No. 10162/02 (judgment of 9 March 2006); Weissman v Romania, Case No. 63945/00 (judgment of 24 May 2006); PM v United Kingdom, Case No. 6638/03 (judgment of 17 July 2005); Darby v Sweden, 13 EHRR 774; P Baker, ‘Taxation and the European Convention on Human Rights’, BTR 211 (2000).

314

Thomas w wÄlde and abba kolo

here.20 Behind the application of the ‘freedom of movement’ rule in the EC Treaty is a concept that is very close to the ‘national treatment’ principle one finds throughout modern investment treaty practice.21 The tax-related jurisprudence of the ECJ (as possibly also the European Court of Human Rights) is therefore the closest one gets to a comparable method of international disciplines on fiscal conduct by national authorities, apart from the equally relevant jurisprudence of the WTO dispute institutions.22 These avenues of more in-depth comparative investigation will, however, have to be left to subsequent research efforts.

(2) An Overview of the History of Taxation Taxation has been in existence ever since the beginning of settled human civilization. It may have started as a tribute to the religious priest for services such as interpreting the ‘terror and mysteries of nature’.23 Recorded history abounds with instances of the taxation instrument being adopted by kings, rulers, and emperors as a source of revenue to wage wars and to pay for other royal expenditures. The Egyptian Pharaohs levied tax on cooking oil and they used special officials (scribes) to collect it.24 A war tax (eisphora) used to be levied by the Greeks whenever the security of the state was threatened.25 The Romans levied taxes (portoria) on imports and exports, an inheritance tax to cater for retired servicemen. A 4 per cent sales tax for slaves 20 Although, in principle, sovereignty over direct taxation remains with member states of the EU, yet in practice both national and tax treaties of the member states must be compatible with EC law. Thus, in Case C-35/98, Staatssecretaris van Financien v Verkooijjen [2000] ECR I-4071, para 32, the Court noted that ‘It must be borne in mind at the outset that, although direct taxation falls within their competence, the member states must nonetheless exercise that competence consistently with community law’. Case 270/83, a Voirfiscal [1986] ECR 273, para 26; Cases C-397/98 and C-410/98, Metallegesellschaft & ors [2001] ECR I-1727; Case C-311/97, Royal Bank of Scotland [1999] ECR 1–2651, para 19; Case C-319/02, Manninen [2004] ECR 1–7477, para 19. 21 Note here Joseph Weiler’s view of the comparability of national treatment principles in WTO and EU law, ‘Epilogue: Towards a Common Law of International Trade’ in J Weiler (ed), The EU, the WTO, and the NAFTA (Oxford, Oxford University Press, 2000) at 201, 230, 231. 22 S Zarilli, ‘Domestic Taxation of Energy Products and the Multilateral Trading System’, OGEL (2004) at ; R Quick and C Lau, ‘Environmentally Motivated Tax Distinctions and WTO Law: The European Commission’s Green Paper on Integrated Product Policy in Light of the “Like Product-” and “PPM-” Debates’, 6 JIEL 419 (2003). 23 B Sabine, A Short History of Taxation (London, Butterworths, 1980) at p i; C Metzger, ‘Brief History of Income Tax’, 13 ABA J 662 (1927). 24 ‘A History of Taxation’, . 25 Ibid.

taxation and modern investment treaties

315

and 1 per cent for other items was introduced by Julius Caesar.26 During the Mauryan Empire in India, taxes were collected from professionals such as musicians or actors, on sale of goods and livestock and on land. These taxes were levied because it was widely believed that ‘from the treasury, comes the power of government’.27 In medieval times, military adventurism and the need to defend the princely state were the major capital projects that required the participation and contribution of every member of the society. As one commentator puts it: ‘Early modern Europe experienced what one could describe as a pre industrial arms race in which fiscal strength was as essential to military power as advances in strategy and technology’.28 The main reason for colonial expansion was not only to secure export markets and raw materials for the metropolitan state but also to control trade through tariffs. For example, the English Staple Act of 1663 provided that exports to British colonies must be channelled through England, thereby adding to their cost and rendering them uncompetitive as against English goods. In effect, the law served as a tariff.29 Thus, security of the state and its economic survival was the main reason used to justify new taxes or increases in taxes by the then rulers; justification for the need to pay for wars and service debts incurred during wars and to maintain the economic viability of the state was presented to the public by state officials. Countries with a superior capacity to levy taxes and manage public debt achieved a significant longterm political and military advantage, as was the case for example in Britain.30 In addition, being a public good, defence of the state was also viewed as defence of the individual’s property rights. This is evident, for example, from ancient tax laws and judicial pronouncements by courts in France and America respectively.31 26 Ibid. 27 ‘History of Taxation Pre-1922’, at . 28 M Kwass, Privileges and the Politics of Taxation in Eighteenth Century France (Cambridge, Cambridge University Press, 2000) 33. 29 Under the British Navigation Act 1660, certain goods, such as sugar, indigo, and tobacco produced in its colonies were to be exported through Britain thereby enabling the British merchants to serve as middlemen and earn more profits. 30 W Bernstein, The Birth of Plenty: How the Prosperity of the Modern World was Created (New York, McGraw-Hill, 2004) 357 quotes the famous link Bishop Berkeley made between finance and England’s military success against Napoleon. 31 The Preamble of the French ‘Capitation’ declaration of 1695 opened as follows: ‘Since the glory of our reign, has excited against us the envy of a part of the powers of Europe, and committed them to form a league to make war unjustly against us . . . . We hope to make known to all Europe that the strengths of France are inexhaustible when they are well managed, and that we have a certain resource in the heart of our subjects, and in the zeal that they have for the service of their king, and for the glory of the French Nation. With much confidence, we have decided in order to put ourselves in a position to sustain the expenses of war for as long as the blindness of our Enemies leads them to refuse peace, to establish a general Capitation.’ Cited by Kwass above n 28 at 43–4. Similarly, in their letters to Americans, some of the key architects of the American Constitution strenuously defended the power of the federal government to levy taxes as an essential element of nationhood. See Federalist Letter

316

Thomas w wÄlde and abba kolo

Notwithstanding the public presentation of taxes as an absolute necessity for the survival of the state, taxes were sometimes resisted when the taxpayers viewed them as too onerous or unfair. The resistance took various forms; from the legal (such as petitioning or appealing to the ruler against excessive taxes and assessments),32 to extra-legal means. For example, in ad 60, Boudicca, the Queen of Anglia led a revolt against the excesses of corrupt tax officials of the Roman Empire in the British Isles, and in the 11th century, Lady Godiva was able to persuade her husband, Leofric, Earl of Mercia, to reduce the tax burden of the people of Coventry when she agreed to ride naked through the streets of the town.33 Perhaps most importantly, the Magna Carta (1215) was the outcome of a reaction to an attempt by King John arbitrarily to impose the ‘Scutage’ tax on all landowners in Britain, and the ‘so-called Glorious Revolution’ of 1688 was a reaction to King James II’s imposition of taxes without parliamentary approval. It brought to an end the notion of the divine right of the king to rule and replaced it with a constitutional monarch subject to the powers of parliament.34 The two events probably marked the beginning of modern constitutional limitations on the taxing powers of the king/state and protection of private property in Britain and Western Europe. Resistance against excessive taxes was a significant element among the reasons for the French and American Revolutions. In both cases, the battle cry was ‘no taxes without representation’.35 Thus, constitutional limitations on the power of the state to tax were entrenched in both countries following the revolutions and are now found in many other national constitutions and, to a lesser extent, in supranational laws such as the EU, ECHR, GATT/WTO, Double Taxation Treaties and Investment Treaties. The above narrative of a short history of taxation has contemporary relevance in quite a number of ways. First, it illustrates how the princely state saw the power to tax as absolutely essential for the survival of the state and the need to preserve it as a sovereign right or prerogative. For example, the loss of the power to veto legislation by the House of Lords in a political power tussle over taxation in 1908 and the political shrewdness exhibited by Gladstone in packing a parliamentary select committee on taxation with his supporters in order to influence the outcome of No. 30 of 28 December 1787, available at . And in one of the early tax cases decided by the US Supreme Court, the Court rationalized the power of the government to levy taxes thus: ‘The power to tax is the one great power upon which the whole national fabric is based. It is as necessary to the existence and prosperity of the nation as the air he breathes is to the natural man. It is not only the power to destroy but also the power to keep alive.’ Nicol v Ames, 173 US 509, 515 (1899). 32 Kwass above n 28 at ch 3. 33 See . 34 Tax History Museum, at . 35 Kwass, above n 28; A Rabushka, ‘The Colonial Roots of American Taxation, 1607–1700’, Policy Rev 61 (2003). The Columbia Encyclopaedia (6th edn, 2004) at 46641. Moreover, it is widely accepted by historians that resistance against excessive and/or arbitrary taxes during colonial times helped to fan the flames of movements for independence in several colonial territories.

taxation and modern investment treaties

317

a proposed tax reform in the 1860s36 are, to some extent, similar to modern-day government tactics in trying to maintain control over tax matters nationally (using domestic legislation) and internationally (through treaties). Secondly, it does suggest the need to have some form of external control or discipline over the taxing powers of the state to curb arbitrariness and protect private property, which is essential for wealth creation, otherwise personal initiative is dampened.37 The contemporary disciplines imposed on the taxing power of the state by national constitutions and supranational instruments have their precursors in the various protests and rebellions against taxes witnessed in the past. Thirdly, the cosy relationship between rulers or politicians and those who are able to influence the political process might find expression in the tax laws and/or assessments.38 In other words, the use of the tax instrument by the state to favour certain groups (usually domestic investors) and to disadvantage others who have no leverage over the political process has a very long history.

(3) General Scope of Coverage of Tax under Investment Treaties (a) A Definitional Problem? Although it is very common to find the definition of key terms in the definition section of an investment treaty which conveys the contracting parties’ legislative intentions,39 none of the treaties we have come across in the course of working on this chapter contains a working or substantive definition of tax. This omission empowers its definition to evolve over time. For example, one important issue is distinguishing a ‘tax’ from ‘fees’, that is payments for an, often obligatory, public service. In energy/ resource-related disputes, the definitional issue is even more acute as some countries, in particular the USA, distinguish between the ‘tax’ that is paid, on profits or sales, as a general contribution for being allowed to do business in the host state, on 36 HM Revenue & Customs: Gladstone vs. Disraeli, at . 37 Epstein above n 5 at 78–9; T. Miceli, Economic Approach to Law (Stanford, Calif, Stanford University Press, 2003) ch 6. 38 Epstein, above n 5 at 84–5; J Sundber, ‘The High Tax Society: A Pilot Study from Sweden’, 29 ICLQ 452 (1980). 39 For example, terms such as ‘investment’, ‘territory’, ‘dispute’, ‘transfer’ ‘investment agreement’ are usually defined either in a broad or restrictive manner, and such definitions assist tribunals in the interpretation of the treaties.

318

Thomas w wÄlde and abba kolo

one hand, and, on the other, special levies (often called ‘royalties’) which are presumed to be paid for the special privilege of getting access to the subsoil resources owned by the state.40 Such royalties are sometimes paid as a percentage of the gross value of production extracted, but, confusingly, they are also sometimes formulated as an additional, profit, or profitability-based tax.41 It is therefore open to debate whether such taxes on ‘mineral rent’42 representing a sort of sale of subsoil resources by government to investors can be subsumed under the investment treaty term ‘tax’.43 According to the Oxford English Dictionary, ‘tax’ is a ‘compulsory contribution to the support of government levied on persons, property, income, commodities, transactions, etc, now at fi xed rates, mostly proportional to the amount on which the contribution is levied’. If one adopts this impression and regards tax as ‘a compulsory unrequited payment to the government’, the question arises whether the term includes national insurance contributions,44 payment for access to transit facilities for energy products, penalties or surcharge levied by the tax authorities for late payment or submission of tax returns, for making false declarations, security, educational or similar levies paid by natural resources companies in volatile countries or in developing countries. As investment treaties usually do not provide for a definition of taxation, it typically falls to an arbitral tribunal to determine what is a tax. This question is important in investor–state arbitration not only for establishing the jurisdiction of an arbitral 40 This issue underlies US foreign tax credit rules for the oil industry and has led to significant litigation before the US tax courts; see Martin M Van Brauman and Clifford A Mangano, ‘Resource Rent Taxation as a Basis for Petroleum Tax Policy by Foreign Governments and its Relationship to U.S Foreign Tax Credit Policy and Tax Law’, 20 JENRL 19–52 (2000). 41 R Garnaut and A Clunies Ross, Taxation of Mineral Rents (Oxford, Clarendon Press, 1983); James Otto (ed), Mineral Taxation (The Hague, Kluwer, 1994); the concept of the ‘resource rent tax’ as a special tax, arguably representing the value of access to the state-owned subsoil resources, has been the subject of a large-value recent international plus domestic arbitration which is confidential in nature and so cannot be reported. 42 The issue of appropriateness of mineral rent has deeper issues related to foreign investment. As noted by one Indian commentator: ‘The ownership of natural resources such as the electromagnetic spectrum and sites for dams and harbours vests in the people and their government. The resource rent is defined as the difference between market price and the efficient costs of exploitation of the particular resource at a particular time and place. The resource rent depends on scarcity of the resource and its quality. Resource rent tax systems and auctioning procedures have been designed to extract the highest proportion of such resource rent to the government. If these are effective, there is no reason to discriminate between FDI and domestic investment in production or use of such resources and consequently to put FDI limits on the former.’ Arvind Virmani, Foreign Direct Investment, Occasional Policy Paper, April 2004, . 43 There are arguments in favour, mainly that the objective of stability and security of investment terms underlying all modern investment treaties suggests a wide, and not a restricted, notion of tax. For a resource investor, the stabilization of such special resource taxes is arguably even more important than the stability of taxes that are incumbent on everybody. 44 Unlike classical taxes such as on income, national insurance contributions are payments for benefits to be derived later. Nonetheless, it is compulsory just like income tax in many jurisdictions. See James and Nobles, above n 4 at 11.

taxation and modern investment treaties

319

tribunal, but also in determining whether the cumulative rate of taxes amounts to confiscation of property.45 In our opinion, when a question arises as to whether or not a measure is a tax, one should look at the substance of the measure rather than its form.46 It is the effect of the measure on the investment rather than the name given to it by the host government that matters the most. If the measure has the effect of neutralizing the investment or rendering it unviable, then it becomes irrelevant whether it is called an environmental tax, social security contribution or penalty, or any other name,47 unless the contrary is provided for by the treaty.48

45 In fact, such a question was raised by Argentina in the Enron case, in which it contended that the total taxes imposed by the provinces were within the range of 1–2 of the total contract value, the rest being penalties and interests which, it argued, were not taxes. On the other hand, the claimant argued that all the assessments, including the penalties and interest should be regarded as taxes, the cumulative effect of which amounted to indirect expropriation of the investment. According to the tribunal, that question will be determined at the merit stage of the case. Enron v Argentina, Decision on Jurisdiction, 14 January 2004 above n 3 at paras 27–30. A similar question might arise should the recent backdated tax assessments (with the possibility of 250 fine plus penalties for late payment) by Venezuela on oil companies become an international legal dispute between the companies and the government. See Damon Vis-Dunbar and Luke Eric Peterson, ‘Investors Eye Legal Options as Venezuela Moves to Control Heavy Oil Projects’ in IISD, Investment Treaty News (ITN), 2 March 2007, at . For example, in the tax prosecution by the Russian government in 2004 against Yukos, back-tax claims were multiplied by the use of penalties and interest charges up to close to 100 of total sales (ie not net profits) over a three-year period, while payment of such tax claims was made impossible (taking a leaf from the Barcelona Traction case) by seizure of the shares Yukos would have needed to sell to pay the tax claims; see: P Clateman et al, on TDM, above n 3; Leutheusser-Schnarrenberger, Report of special rapporteur for Council of Europe, on TDM, ibid. 46 We note the distinction between types of form requirements endorsed by the arbitral tribunal in the case of Waste Management v United Mexican States (I) (ICSID Case No. Arb(AF)/98/12) Decision on Jurisdiction, 2 June 2000, 40 ILM 56 (2001) para 22: ‘A distinction has traditionally been drawn between so-called ad substantiam or ad solemnitatem and ad probationem formalities. The former are those that require a class of legal act in order to exist or come into being. In their case, form is substance, in that the transactions, dealings or acts do not exist as such, unless they are executed in the legally regulated form. The ad probationem form is only required as evidence of legal transactions, dealings or acts. It in no way conditions the effectiveness of legal acts, other than in the sense of being thoroughly “legitimated”, whereby it is established that it may only be proved by means of the legally prescribed form.’ Seen this way, a measure must comply with ad substantiam form in order to qualify as a tax. 47 This point is derived, by analogy, from the decisions of domestic courts in some countries such as Germany and the USA. For example, in the Re Special Turnover Tax case, Case I 62/69A (1973) CMLR 687 at 690, the German Finanzgericht Dusseldorf held that the tax agency cannot impose a retroactive duty on an export contract by describing the levy as a turnover tax rather than a duty. What matters is the substance of the levy rather than its label. US courts have also taken a similar position in respect of taxes imposed by state governments in violation of the US Commerce Clause. See Coenen and Hellerstein, above n 18. 48 One such example is the express stipulation in some treaties excluding customs duties from being regarded as taxes. Another is provided in Art 16(6) of the Canada Model BIT (2004), , which vests in the tax authorities of the two parties the right to decide within a six month period, whether a disputed measure is a taxation measure, failing which a tribunal seized of the matter would decide.

320

Thomas w wÄlde and abba kolo

The OECD and UN Model Double Taxation Conventions provide for an alternative approach which looks at the domestic laws of the host state.49 The problem with such an approach is that it would enable a host state intentionally to change its tax laws in order to legitimate an otherwise abusive tax campaign. That would lead to uncertainty in the legal regime, the very problem sought to be solved by investment treaties.50

(b) Types of Taxes Covered Some investment treaties provide for a distinction between direct and indirect taxes by restricting the application of some of the treaty obligations only to indirect taxes, but subject questions relating to direct taxes to double taxation treaties.51 Treaties 49 Art 3(2) of each of these Conventions provides that in the absence of a definition of a term by the treaty, the term shall have the meaning given to it under the domestic law of the country to apply the treaty unless the context requires otherwise. B Arnold and M McIntyre, International Tax Primer (The Hague, Kluwer Law International, 2nd edn, 2002) 114. 50 A look at the preamble to any modern investment treaty would reveal that the main objective in signing the treaty is to create a predictable commercial framework for business planning and investment. From the foreign investor’s perspective, that means greater security and predictability backed by the investor–state dispute settlement, in dealing with host governments. See T Weiler, ‘Foreign Investment and the United States: You Can’t Tell the Players without a Score Card’, 37 Int’l Law 279, 303 (2003); C Brower and L Steven, ‘Who Then Should Judge?: Developing the International Rule of Law under NAFTA Chapter 11’, 2 Chi J Int’l L193 (2001); J Byrne ‘NAFTA Dispute Resolution: Implementing True Rule-Based Diplomacy through Direct Access’, 35 Texas Int’l L J 415 (2000). 51 The distinction between both types of taxes is not easy either: see Barry Larking, IBFD International Tax Glossary 2005, at which gives the following definitions of direct and indirect tax: ‘There is no generally accepted distinction between a direct and indirect tax. John Stuart Mill gave the following definition: “A direct tax is one which is demanded from the very persons who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another.” The distinguishing feature may therefore be said to be whether the taxpayer is or is not the person on whom the economic burden of the tax is expected to fall. In this respect, a tax may be said to be direct either in the sense of assessment or collection. Thus, income tax is generally assessed directly on the taxpayer but collection is becoming increasingly indirect (e.g. by way of withholding). An important distinguishing feature of direct taxes is sometimes said to be their capacity to take into account the circumstances of individual taxpayers. This suggests there may also be a relation between indirect taxes and “in rem” taxes, the latter not generally taking into account personal circumstances. Another approach (adopted by the United Nations in its System of National Accounts) bases the distinction on whether the tax is levied at regular intervals on sources of income such as employment or property (direct taxes), or on producers in respect of the production, sale, etc. of goods and services, which they charge to the expenses of production (indirect taxes). A common accepted (if not comprehensive) distinction may be made on the basis of whether the tax is a tax on income (including capital gains and net worth (direct)’, or on consumption (indirect). Indirect taxes are considered to be one of the oldest sources of government revenue. Examples of taxes generally regarded as indirect include value added tax, sales tax, excise duties, stamp duty, services tax, registration duty and transaction tax. While gift tax, death duties and property tax are generally considered direct taxes, some forms of death duties may be considered as an indirect tax.’

taxation and modern investment treaties

321

that contain such a distinction include: the ECT, NAFTA, and US FTAs. Each of these investment treaties carves direct taxation measures out of the substantive investment protection obligations of national and most-favoured-nation treatment but allows (by implication) for application of these treaty obligations to what may be regarded as indirect taxes. Thus NAFTA Article 2103(1) states: ‘Except as set out in this Article nothing in this Agreement shall apply to taxation measures . . .’ It then goes on to provide for the exceptions in Article 2103(4)(b) which states that the national treatment (NT) and most-favoured-nation (MFN) standards shall apply to ‘all taxation measures other than those on income, capital gains, or on the taxable capital of corporations, taxes on estates, inheritances, gifts and generation-skipping transfers . . .’.52 These provisions suggest that the NT and MFN disciplines shall apply to all other taxes apart from the stated ones or ‘substantially similar taxes’ (under Art 21(7)(b) ECT). The question is: why did the parties exclude these types of taxes under the respective treaties? The US government position is that tax matters generally are excluded from the country’s investment treaties ‘based on the assumption that tax matters are properly covered in bilateral tax treaties’, or ‘should be dealt with in bilateral tax treaties’.53 To some extent, this is correct in that Articles 1, 2, and 4 of the Revised UN (2000) as well as the OECD Model Double Taxation Conventions (on which most countries’ double taxation treaties are based) state that the Convention applies to taxes on income and capital and to ‘any identical or substantially similar taxes’ imposed by the parties. Under Article 2 of each of these Conventions, income and capital taxes include those imposed on ‘total income, on total capital, or on elements of income or of capital, including taxes on gains from alienation of moveable or immovable property, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation’.54 One possible reason why tax matters are better dealt with in a focused treaty is the need to coordinate treaty provisions with domestic taxation legislation. Thus, in the USA, procedures for the negotiation and ratification of tax treaties are somewhat different from those followed in the case of other types of treaty.55 One should bear in mind that the reference to double 52 Art 21(3) ECT; Art 21.3(4)(b) . Draft Central American Free Trade Area Agreement (similar provisions are found in other US FTAs) see (DR-CAFTA); Art 21(2) US–Uruguay BIT: see 44 ILM 265 (2005) or . 53 See the explanatory notes to the US–Ukraine BIT (1996), US–Georgia BIT (1994) and other contemporaneous treaties available at: . 54 Reprinted in UNCTAD, International Investment Instruments: A Compendium, vol VI, available at . 55 While most US treaties are negotiated primarily by the US State Department, tax treaties are negotiated primarily by the International Tax Counsel of the US Treasury Department with State Department assistance. For ratification, in addition to the traditional Senate Foreign Relations Committee, tax treaties are examined by the House Committee on Ways and Means and the Senate Finance Committee. See R Avi-Yonah, ‘International Tax as International Law’, 57 Tax L Rev 483

322

Thomas w wÄlde and abba kolo

taxation treaties essentially means that the effective protection by direct investor– state arbitration in investment treaties56 is, in double tax treaties, replaced by various forms of what is essentially diplomatic protection. These, at best, allow the two tax authorities to engage in a collegial dialogue.57 The current OECD discussions concern the possible introduction of arbitration, but only in the form of intergovernmental arbitration, with a weak role for the foreign investor. From an investor perspective, it would be very disadvantageous if the introduction of such forms of inter-state arbitration became a reason for either not extending, or even for restricting, the limited coverage of tax under modern investment protection treaties. Parties to an investment treaty wish to provide a reasonable level of protection for their investors by levelling the playing field between domestic and foreign investors and by according foreign investors a direct right of action against host states. Nevertheless, none of the parties is prepared or willing to surrender its rights of taxation, or subject them to scrutiny by international tribunals under the searchlight of investment disciplines such as indirect expropriation, national treatment (NT), most-favoured-nation treatment (MFN), and fair and equitable treatment (FET). This is partly because most capital exporting countries, especially the OECD members, rely heavily on direct taxes to meet their budgetary requirements, particularly the financing of the substantially expanded welfare state—itself at present the major source of political opposition to economic and financial reform. Surveys conducted by the OECD among its member countries reveal that since 1965 the ratio of tax to GDP of most members of the organization has been rising, with the bulk of the tax revenue coming from income taxes, taxes on goods, and social insurance contributions—with taxes and related levies accounting for up to about 40 per cent of GDP in most European members of the organization. Because of such dependence on taxes, it is not surprising that most of these countries severely limit the scope of coverage of tax from their investment treaties, essentially only to in extremis situations such as confiscatory taxation.58 (2004). The central role of the Treasury Department in the negotiation of tax treaties is probably the same across many countries including the UK. See R Bartlett, ‘The Making of Double Taxation Agreements’, BTR 76 (1991). 56 Modern investment treaty arbitration essentially vests in the private foreign investor the right directly to challenge the actions of the host state before an international tribunal just as it would under domestic administrative law, with the former exercising a disciplinary role over the latter. See G Van Harten and M Loughlin, ‘Investment Treaty Arbitration as an Aspect of Global Administrative Law’, 17 Euro J Int’l L 121 (2006); T Wälde, ‘Investment Arbitration as a Discipline of Good Governance’, in T Weiler (ed), NAFTA: Investment Law and Arbitration (Ardsley, NY, Transnational Publishers, 2004). 57 However, some US tax treaties, following a precedent established in the 1989 treaty with Germany, include provisions allowing the competent authorities of the treaty countries to resolve disputes with respect to interpretation of treaties through arbitration. These provisions are also provided for in the US treaties concluded with France, Ireland, Kazakhstan, Mexico, and the Netherlands. See further . 58 On the results of the surveys, see, P van den Nor and C Heady, ‘Surveillance of Tax Policies: A Synthesis of Findings in Economic Surveys’ (OECD Economic Department Working Paper No.

taxation and modern investment treaties

323

Moreover, in addition to raising revenue for the state, many countries use taxation to achieve other social and political objectives, such as redistribution of wealth, support for domestic industry, or equalization of regional differences.59 Subjecting this right to international judicial scrutiny would be seen as surrendering a country’s fiscal sovereignty to an unelected and unaccountable body60 rather than to national parliaments which are accountable to the public, that is, much more subject to the influence of domestic pressure groups. In other words, subjecting the taxing powers of the parties to an independent tribunal might undermine state sovereignty and curtail the states’ discretion over tax policy.61 This point is buttressed by the provision in most investment treaties which states that nothing in the treaty shall affect the rights and obligations of a party under any tax convention; it is usually provided that, in the event of inconsistency between the investment treaty and any such tax convention, the convention shall prevail to the extent of the inconsistency.62 The underlying rationale or policy reason for the primacy of tax conventions over investment treaties is not only because tax conventions are more specific to tax than investment treaties (and so should, by virtue of the lex specialis rule of interpretation, prevail over the more general investment treaties) but also because tax

303, 2001); OECD, ‘Tax and the Economy: A Comparative Assessment of OECD Countries’, Tax Policy Studies No. 6; J Owens, ‘Tax Reform: An International Perspective’, Presentation at OECD Conference, San Francisco, 31 March 2005, all of which are available at: ; James and Nobles, above n 4, at 146–8. 59 European Commission, Tax Policy in the European Union (Luxemburg, 2000), available at: . 60 The Declaration of the Rights of Man, approved by the French National Assembly on 26 August 1789, provides in Art 13 that: ‘A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means.’ This provision in this revolutionary document squarely places taxation within the domestic realm. 61 Park and Tillinghast, above n 13 at 11; Wallace, above n 14 at 884. Even the USA, which champions openness in international trade and investment together with strong legal protection for foreign investors, seemed unwilling, during the Uruguay Round on trade negotiations, to accept international judicial scrutiny of its taxing powers. See Green, above n 13 at 103. This is evident from the long legal battle it has had with the EU over its export tax subsidies law, which culminated in a 2002 WTO decision in Appellate Body Report, US Tax Treatment for Foreign Sales Corporations, WT/DS 108/AB/ RW (14 January 2002), available at ; Y Brauner, ‘International Trade and Tax Agreements may be Coordinated, but Reconciled’, 25 Va Tax Rev 251 (2005). 62 Art 21.3(2) DR-CAFTA, above n 52; Art 21(4) US Model BIT (2004) above n 52; Art 2103(2) NAFTA ; Art 21 and Art 16(1) Canadian Model BIT above n 48. Another pointer towards this reluctance of the member countries to part with their fiscal sovereignty is the treatment of tax in the OECD-initiated (and never completed) Multilateral Agreement on Investment (MAI), in which only the transparency and expropriation disciplines were made to apply to tax matters; this caution again was due to concern over tax sovereignty (in other words, the strong resistance of national tax authorities against international accountability). UNCTAD, International Investment Agreements: Key Issues, Vol II (New York and Geneva, United Nations, 2004) 216, available at: .

324

Thomas w wÄlde and abba kolo

conventions do not constrain the taxing powers of the contracting parties as much as investment treaties might do.63 In addition to the above limitation of tax treaties, questions of expropriation and capital transfers are rarely (if at all) covered in tax treaties even between countries that have not entered into a parallel BIT.

(4) Application of Substantive Investment Obligations to Tax Matters This section discusses to what extent the substantive investment protection principles of national treatment, most favoured nation, fair and equitable treatment, full protection and security, and currency transfers apply to tax matters and some of the policy issues and tensions surrounding them. A preliminary issue worth mentioning is arbitrability: can treaty-based (or other) tribunals decide over tax issues which are at the core of state sovereignty? In domestic tax law, tribunals are as a rule not empowered to decide on tax issues—though they may have to deal with tax issues that constitute ‘legal facts’ relevant in deciding other issues, in particular contract issues (eg allocation of the burden and risk of paying tax among contract parties).64 But it is no longer disputed that foreign investors and governments can agree—by contract or through consent by way of investment treaty—that tax issues can be adjudicated by arbitral tribunals.65 It would be against good faith and ‘venire contra factum proprium’ if a state first consented to arbitrate such disputes and then later turned around and questioned the validity of its consent. States do have the power to qualify their own public policy as subject to arbitration.

63 For instance, although tax conventions contain provisions on non-discrimination, nevertheless, the enforcement mechanism is not as favourable to private individuals (who are usually the actual victims of the discriminatory measures) as the investor–state dispute settlement procedure obtainable under most investment treaties. Under most tax treaties (eg Art 25 of the UN Model Tax Convention), any alleged violation of the treaty by a party in respect of an individual can only be addressed through the mutual agreement procedure involving the tax officials of the parties or by the domestic courts of the offending state with all its attendant shortcomings. 64 Le Gall, ‘Fiscalite et arbitrage’, above n 11, 3–38 and 253–78. 65 Manciaux, above n 3 at 4 ff; two cases affirming this have been cited by E Gaillard, ‘L’arbitrabilité des litiges fiscaux dans les investissements internationaux’, Rev Prat Dr Ent (1999) 42–3; Amco Asia v Indonesia, Decision on Jurisdiction of 10 May 1988, 3 ICSID Rev–FILJ 166 (1988); 27 ILM 1281 (1988) at paras 122–7.

taxation and modern investment treaties

325

(a) National Treatment and Most-Favoured-Nation Treatment These two standards are mentioned together in the same clause or in different but closely related clauses of an investment treaty. They oblige each party to accord to investors of the other party treatment not less favourable than that accorded to its investors or to that accorded to any third state investors who are in the same circumstances, whichever is more favourable to the investor concerned. However, with regard to tax matters, most investment treaties provide, as one of the exceptions to the NT and MFN treatment standards, that none of the contracting parties is obliged to extend to investors of the other contracting party tax advantages or privileges granted to investors of a third state by virtue of a tax treaty or any arrangement relating wholly or mainly to taxation,66 or any domestic legislation relating wholly or mainly to taxation.67 In other words, if a contracting party accords special advantages to investors of any third state by virtue of an agreement on the avoidance of double taxation, it shall not be obliged to accord such advantages to investors of the other contracting party.68 The UK Model BIT goes further to deny investors of the other contracting party tax privileges granted to nationals or third state investors under domestic legislation of the host state.69 This means that the NT and MFN provisions of the treaty apply to tax matters but they cannot be used as a basis for extending to investors of either party tax benefits or advantages granted by either 66 Art 3(6) China–Netherlands BIT (no date); Art 3(4) Germany Model BIT (1998); Art 7 UK Model BIT (1991); Art 4 Netherlands Model BIT (1997); Art 21(3)(a) and (7)(a) ECT; Art 21.3(4)(c) above n 52 DR-CAFTA; Art 2103(4)(c), above n 52 NAFTA, above n 62; Art 4 Denmark Model BIT (no date); Art 3(4) Japan–Turkey BIT (1992); Art 4 Korea–Bolivia BIT (1996). BITs available at . 67 Art 7 of the UK–Argentina BIT (1990) states that the national treatment and the most-favourednation treatment standards shall not be construed so as to oblige one contracting party to extend to the nationals or companies of the other the benefit of any treatment, preference, or privilege from any international agreement or arrangement relating wholly or mainly to taxation or any domestic legislation relating wholly or mainly to taxation. See also Art 4(1)(b) Brazil–Finland BIT (1995); Art 4(3) Lithuania–Kuwait BIT (no date); Art 7 UK–Angola BIT (2001); Art 2(4) Kazakhstan–Turkey BIT (1992); Art 4 India Model BIT (1992); Art 7 UK–Vanuatu BIT (2003); Art 3(3)(b) Saudi Arabia– Malaysia BIT (2000); Art 3(2)(b) Egypt–Malaysia BIT (1997); Art 7 Korea–Nigeria BIT (1997); Art 3(3) Chile–UK (1996); Art 3(5) Korea–Saudi Arabia BIT (2002); Art IV(3) Indonesia–China BIT (1994); Art 3(3) Italy–Tanzania BIT (2001); Art 3(2)(b) Malaysia–Ghana BIT (no date); Art 3(3) Italy–Philippines BIT (1988). In fact, the Italy–Tanzania BIT makes specific reference to incentives granted to domestic investors by Tanzania ‘in order to stimulate the creation of local industries’, which should not be regarded as inconsistent with the national treatment standard. However, Tanzania undertook to progressively eliminate them. This gives an idea as to the rationale behind most of the exceptions listed herein. See . 68 Art 4(4) Swiss Federation Model BIT (1986–95), see UNCTAD, International Investment Agreements: A Compendium at . 69 Art 7 of the 2005 Model BIT did not depart from the same article of the 1991 version. See UNCTAD, ibid.

326

Thomas w wÄlde and abba kolo

party to third state investors pursuant to a double taxation agreement or any domestic legislation of the party. The underlying policy objective for such a provision is to try to strike a balance between the core obligations of non-discrimination and fiscal sovereignty of state parties to negotiate new treaties, and enact new legislation, that would provide for better or more favourable treatment for third state or domestic investors without breaching the NT and MFN obligations owed to a contracting party under an investment treaty. This enables parties to an investment treaty to take advantage of changing economic and political circumstances and negotiate or legislate for tax benefits to third state or domestic investors without fear of violating their treaty obligations. It also reflects the much lower level of economic integration aimed at bilateral investment treaties as compared to the much higher level aimed at and largely now achieved by the EU treaties.70 Another policy reason for such an exception is to avoid upsetting previous deals struck between the foreign investor and the host state so as not to permit the investor to ‘obtain benefits which he did not obtain through the quid pro quo of negotiations such as lower tax terms in energy licenses and related agreements’.71 The UK Model BIT, which exempts from the NT and MFN treatment tax benefits granted to third state investors or nationals under domestic legislation, is aimed at providing maximum discretion to the contracting parties in tax matters as it enables them to grant privileges to third state investors or their nationals not only under a tax treaty but also under domestic legislation. It leaves, however, tax measures under the coverage of the investment treaty when the issue is discrimination between nationals and (usually) their foreign competitors, both when such discrimination is explicitly contained in and ascertainable in the regulatory regime and when—as may be most relevant in practice—it is rather to be found in the application of tax law. This involves difficult comparisons between the factual situation of the domestic comparator—in a ‘like situation’ with the foreign investor, identification of a relevant ‘difference in actual treatment’, and examination of possibly legitimating reasons for such different treatment.72 Special problems can again arise with respect to natural resources/energy concession and related contracts. These will often provide a project-specific fiscal regime, incorporating both special rules 70 See further BJM Terra and P Wattel, European Tax Law (The Hague, Kluwer Law International, 4th edn, 2005). 71 T Wälde, ‘International Investment under the 1994 Energy Charter Treaty’, in T Walde (ed), The Energy Charter Treaty (The Hague, Kluwer Law International, 1996) 251, 287. 72 It is in the area of discrimination that one finds similarities between investment treaties, GATT rules (Art III), European Convention on Human Rights (Art 14), freedoms provisions of the EC Treaty, and Article 24 of the OECD Model Tax Treaty. Although these treaties differ in detail, they all share the same underlying objective, which is: to prevent unreasonable discrimination between domestic and foreign investors of goods and services; and they all apply to both direct and indirect discrimination. For an overview of the application of national treatment, see Grierson-Weiler and Laird, ch 8 above.

taxation and modern investment treaties

327

for general taxation and for the component of the fiscal regime which can be seen as the equivalent of a ‘price’ for access to the subsoil resource. If such contracts are incorporated into legislation and the BIT exempts an explicit legislative special tax regime, then it seems difficult to raise an NT/MFN claim. But even if they are not incorporated in legislation, it is not easy to argue that the NT/MFN standard should be applied, in effect exporting a specially negotiated quid-pro-quo deal responding to the characteristics of a resource project to other projects. Even if one were to apply the NT/MFN test in general, most efforts to ‘export’ a specific project deal embodied in a concession-type contract (production-sharing/ licence, etc) would stumble either at the comparability (or ‘likeness’) test or at the next ensuing phase of search for criteria that can legitimate different treatment.73 In addition to the exclusion of the NT and MFN obligations in respect of tax advantages or privileges granted to investors of a third state pursuant to a tax treaty or economic union arrangement (eg the EU), a few other investment treaties also provide that the NT and MFN obligations do not apply to two specific situations. The first concerns any taxation measure aimed at ensuring ‘equitable’ and ‘effective’ imposition or collection of taxes and that does not arbitrarily discriminate against an investor (goods or services) of another contracting party or (arbitrarily restrict benefits accorded under the investment treaty).74 This provision gives host states and their tax agencies maximum discretion in enacting tax laws, regulations, and taking other relevant measures aimed at enhancing collection of taxes without violating the NT and MFN obligations. Whether or not a taxation measure adopted by a host state is ‘equitable’ or ‘effective’ depends on the circumstances of each case. The second case concerns a non-conforming provision of any pre-existing taxation measure,75 including the continuation or prompt renewal of a non-conforming provision of any existing taxation measure76 and an amendment to a non-conforming provision of any existing taxation measure to the extent that the amendment does not decrease its conformity, at the time of the amendment, with any of those articles.77 These provisions seek to preserve any existing tax laws and regulations or measures which are otherwise inconsistent with the treaty. As with any other exceptions in treaties, these provisions enable the parties to maintain certain tax measures that are inconsistent with the treaties but which are considered too important to 73 For the difficulty, at times, of deciding discrimination where it is not apparent from the text of the tax law, see H Gribnau (ed), Legal Protection against Discriminatory Tax Legislation: The Struggle for Equality in European Tax Law (The Hague, Kluwer Law International, 2003). 74 See NAFTA Art 2103(4)(g) above n 62; ECT Art 21(2)(b), (3)(b) above n 52; DR-CAFTA Art 21.3(4) (g), above n 54 and similar provisions in US FTAs; Panama–Taiwan FTA Art 20.06(5)(VI). 75 NAFTA Art 2103(4)(d) above n 64; DR-CAFTA Art 21.3(d) above n 64; Art 21(2)(d) US Model BIT (2004) above n 52. 76 NAFTA Art 2103(4)(e) above n 64; DR-CAFTA Art 21.3(e) above n 64; Article 21(2)(e) US Model BIT (2004) above n 52. 77 NAFTA Art 2103(4)(f) above n 64; DR-CAFTA Art 21.3(f) above n 64; Article 21(2)(f) US Model BIT (2004) above n 52.

328

Thomas w wÄlde and abba kolo

give up. They legitimate tax measures which otherwise would be unlawful under the treaty. However, the provisions do not seem to give the parties the freedom to enact new non-conforming tax measures, possibly because of the distortion they might cause in terms of competition. They are comparable to the ‘stand-still’ obligations in international trade law; they do not allow new restrictions, but immunize existing restrictions from the treaty disciplines. To sum up: in current BIT practice, there is, at times, application of the national treatment and most-favoured-nation standard, but there are frequent exceptions, mainly to avoid the export of special tax arrangements per double taxation treaty, by regional economic integration (ie mainly EU), and by legislation and by special project agreement. The main field of application of both standards is probably in situations where a government, accidentally or, more likely, intentionally discriminates between domestic investors with strong political influence on the one hand and on the other hand foreign investors, often in competition with domestic investors.78 Other scenarios will be—as currently under litigation in several cases—application of otherwise general and non-discriminatory tax rules in such a way as to intentionally damage a foreign investor, for example, discriminatory ways of interpretation, of tax auditing, or tax prosecution. In these cases, a factually detailed comparison has to be made between the situations—in fact and practice—of comparable domestic investors with the situation of foreign investors targeted by tax enforcement measures.79

(b) Application of the Fair and Equitable Treatment Obligation to Tax Matters (FET) An important element of foreign investment protection is the obligation of BIT partners to accord ‘fair and equitable treatment’ to each other’s investors in their 78 That was the situation in the Feldman v Mexico case (ICSID Case No. Arb(AF)/99/1) Award of 16 December 2002, 18 ICSID Rev–FILJ 488 (2003) or . The Feldman case illustrates the point that it is important for an arbitral tribunal or court adjudicating a claim of discriminatory taxation to embark on a critical analysis of the tax law and/or its enforcement to discover whether formal neutrality in treatment between different taxpayers might in fact hide different effects upon the parties, ie whether it reflects ‘raw political power of parochial interests as opposed to the pursuit of some public value’. See, W Twyman Jr, ‘Justice Scalia and Facial Discrimination: Some Notes on Legal Reasoning’, Va Tax Rev 103, 118 (summer 1998); Epstein, above n 5 at 134–6. Although this method of interpretation involves the exercise of a high level of discretion by the adjudicating authority (and so might sometimes lead to contradictory decisions), nevertheless, it is an important approach to the interpretation of tax laws that has been adopted by the ECJ in numerous cases: eg, Case 302/86, Commission v Denmark [1988] ECR 4607; Case 145/88, Torfaen Borough Council v B & Q Plc [1989] ECR 765; Case 205/84, Commission v Germany (Re Insurance services) [1986] ECR 3755; Beveridge, above n 16 at 121–2. 79 That is, for example, the allegation made by partly foreign owned Russian oil company Yukos in its case before the European Court of Human Rights and by its shareholders in an Energy Charter Treaty-based case against Russia. Discrimination by way of tax auditing and assessment is also alleged in other, cases pending in 2006.

taxation and modern investment treaties

329

respective territories. However, by generally excluding tax matters from coverage under an investment treaty, the obligation of fair and equitable treatment is prevented from being applied to tax matters.80 But where there is no general exclusion of tax matters under the treaty or where only the NT and MFN were explicitly excluded from application to tax matters,81 or in some other way, limited in their application to tax matters, there will be no presumption of exclusion of the FET obligation. Rather, the presumption would be that the parties intended the FET obligation to apply by virtue of both the restrictive and effective rules of interpretation of treaties.82 Some investment treaties expressly provide for the application of the FET to tax matters, while others exclude it together with other substantive investment protection provisions. For example, Article X(1) of the US–Ecuador BIT (1993) states: ‘With respect to its tax policies, each Party should strive to accord fairness and equity in the treatment of investment of nationals and companies of the other Party’.83 Similarly, Article 19 of the Japan–Korea BIT (2002) states:

80 For example: NAFTA Art 2103(1) states in part: ‘Except as set out in this Article nothing in this Agreement shall apply to taxation measures’, above n 62; ECT Art 21(1), above n 52: ‘Except as otherwise provided in this Article, nothing in this treaty shall create rights or impose obligations with respect to taxation measures of the contracting parties’; Art V Basic Agreement on ASEAN Industrial Joint Ventures (1987): ‘The provisions of this Agreement shall not apply to matters of taxation in the territory of the contracting parties’; Art 19(1) Japan–Vietnam BIT (2003): ‘Nothing in this Agreement shall apply to taxation measures except as expressly provided for in paragraphs 2, 3, and 4 of this Article’; Article 4(1), Chapter VII, US–Vietnam Agreement on Trade Relations (2000): ‘No provisions of this Agreement shall impose obligations with respect to tax matters, . . . ’ Except where otherwise stated, such formulations would have the effect of excluding all the substantive treaty obligations including the FET from being applied to tax matters. See . 81 eg Art 3 of the France–Uganda BIT imposes the general obligation of FET on the parties, while Art 4 contains the NT and MFN obligations. However, a proviso to Art 4 states: ‘The provisions of this article do not apply to tax matters’. This suggests that other relevant obligations such as FET (Art 3) shall apply to tax matters; otherwise the parties could have excluded it as well. See . 82 eg Art 4(4) of Belgo-Luxemburg Model BIT (no date) states: ‘The provisions of this Article [NT and MFN] do not apply to tax matters’. UNCTAD, International Investment Instruments: A Compendium, vol II, 271, available at . A restrictive interpretation of this article would mean that it should not be read so as to extend the exclusion of FET from being applied to tax matters, otherwise it will render the FET provision of the treaty ineffective, which might not be what the parties intended. And under the principle of restrictive interpretation, exemptions or exception clauses of a treaty are to be interpreted narrowly so as not to defeat the purpose of the treaty, while other terms are to be interpreted in a manner that enhances their effectiveness. This seems to be implicit from the decision of the tribunal in Occidental v Ecuador, Administered Case No. UN 3467 Decision of 1 July 2004, at paras 64–70. H. Lauterpacht, ‘Restrictive Interpretation and the Principle of Effectiveness in the Interpretation of Treaties’, 26 BYIL 48 (1949). 83 For similar formulations, see Art X US–Latvia BIT (1995); Art VI US–Poland BIT (1990); Art XI US–Kazakhstan BIT (1992); Art XI US–Armenia BIT (1992); Art 2(4) Lithuania–Kuwait BIT; see . Adjudicated so far in Occidental v Ecuador, above n 82, and El Paso International Company v Argentina, ICSID Case No. Arb/03/15, Decision on Jurisdiction, 27 April 2006; see ; Pan American Energy LLC and BP Argentina Exploration Company v Argentina, ICSID Case No. Arb/03/13, Decision on Preliminary

330

Thomas w wÄlde and abba kolo

1. Nothing in this Agreement shall apply to taxation measures except as expressly provided in paragraphs 2, 3, and 4 of this Article. 2. Articles 1 [Definitions], 3 [NT in access to justice], 7 [Transparency], 10 [FET and Expropriation], 22 [Sub-national authorities] and 23 [Date of commencement of the Treaty] shall apply to taxation measures.84

In interpreting the above provision of the US–Ecuador BIT, the arbitral tribunal in Occidental v Ecuador held that the standard of treatment required by the article is not devoid of legal significance. ‘It involves an obligation on the host state that is not different from the [substantive] obligation of fair and equitable treatment . . . even though this article had been couched in less mandatory terms.’ Accordingly, the article involves a commitment that cannot be ignored by the parties in the implementation of their tax policies.85 This interpretation relies on the US government’s Explanatory Note to the treaty which stated that the article ‘exhorts both countries to provide fair and equitable treatment to investors with respect to tax policies’.86 Enron v Argentina—chaired by the same president of the tribunal—confirmed that holding, with a clarification that seems to suggest that if a claimant makes a credible expropriation claim at the stage of establishing jurisdiction, then the

Objections, 27 July 2006, paras 132–4 (‘Pan American’). 84 See also Article 19 Japan–Vietnam BIT (2003) at . 85 Occidental v Ecuador, above n 82 at para 70; Enron v Argentina, ICSID Case No. Arb/01/3, Decision on Jurisdiction of 14 January 2004, at para 65. However, the Pan American v Argentina tribunal expressed its doubt over such an interpretation. See above n 83 at paras 132–4. 86 See US government Explanatory Note attached to the US–Ecuador BIT, available at: .Interpreting the ‘strive to accord’ language as a normal, mandatory obligation is a significant step which the tribunal has not explained in detail. Essentially, such language can be seen as being purely exhortatory and aspirational, but devoid of legal meaning, if it can be interpreted strictly on its ‘plain meaning’, ie that there is an obligation of sorts (‘should’), but of a quite flexible and not very specific character (‘strive to accord’). Wälde has in another context suggested a plain meaning approach to the pre-investment obligations of the Energy Charter Treaty (Art 10(2), but these are quite different from the Ecuador–US BIT, formulated clearly as legally binding obligations (‘shall’), though then, in the description of the specific substantive scope of the obligation expressed by ‘shall’, in the much more ‘mellow’ way of the US–Ecuador BIT: ‘endeavour to accord’ (Art 10(2) and ‘limit to a minimum’ and ‘progressively remove’ (Art 10(5) ECT). For an early analysis of these provisions, see T Wälde, ‘International Investment under the 1994 Energy Charter Treaty’, 29 JWT 5 (1995). Such language, combining an ‘obligatory’ (‘shall’) and a ‘fluid’ or ‘mellow’ element—‘endeavour to accord’—is sometimes called ‘soft law’. But such denomination contributes virtually nothing to an elucidation of the specific meaning. The Occidental v Ecuador tribunal’s reading of ‘should strive to accord’ as legally binding seems, so far and at least in investment jurisprudence, very far-reaching: ‘An obligation . . . not different from the fair and equitable treatment obligation . . . though the obligation . . . is admittedly ‘less mandatory’. We are here at the borderline of legally binding language and mere exhortatory language, which is often used in treaty negotiations as a compromise—to raise an issue, satisfy not overly careful home office reporting requirements, but not stipulate a clearly binding obligation.

taxation and modern investment treaties

331

otherwise excluded disciplines (fair and equitable treatment, national treatment) are fully applicable.87

(c) Capital Transfer and Taxation: Withholding Taxes Transfer of capital in the form of profits, dividends, royalties, interests on loans, etc by foreign investors is a vital element in the transnational investment process.88 From the foreign investor’s perspective, the essence of investing its money and taking on the risk associated with the foreign investment is to seek for greater returns on the capital invested. Hence, the average foreign investor will want an assurance from the host state that it will be able to repatriate the revenues, profits, and proceeds of the investment to meet external commitments.89 To an extent, this view is shared by the investor’s home state as it might want the proceeds of the investment to be repatriated for its own economic reasons. Hence, both the foreign investor and its home state will be keen to secure and protect the right to repatriate capital. On the other hand, host states, in particular those with a weak and volatile economy exposed to domestic and global financial risk, have an interest in profits being reinvested in the local economy; they will often view repatriation as detrimental to their economy as it leads to a drain on the country’s foreign exchange.

87 Enron v Argentina, above n 85 at para 66. A similar conclusion was reached by the tribunal in the Pan American v Argentina case, above n 83 at para 136. Occidental v Ecuador and Enron v Argentina must therefore be seen as examples of a broad view of obligations jurisdictional and even more so a ‘broad’ view of the substantive investment treatment obligations applicable by tax, very much in contrast to the EnCana v Ecuador award, which must be seen as a very restrictive application of the expropriation discipline, even retroactively and even with respect to an in effect fully economic deprivation of existing tax rights of the investor (see above n 3). 88 See also Art VI(1) of the 1992 World Bank Guidelines at . Th is is because capital, especially private investment, goes where it can make a profit (rather than where it is needed) to the benefit of its shareholders, wherever they may be (through repatriation). Thus, exchange control regulations tend to inhibit cross-border trade and investment. C Manduna ‘An Evaluation of the Capital Controls Debate: Is there a Case for Controlling Capital Flows in the SACU-US Free Trade Agreement?’ Tralac Working Paper No. 8/2003, available at ; M Desai, C Foley, and J Hines Jr, ‘Capital Controls, Liberalisations, and Foreign Direct Investment’, 19 The Review of Financial Studies 1433 (2006). For this reason and in order to promote international trade and investment, Art VIII(2) of the IMF Agreement states that no member ‘shall, without the approval of the Fund, impose restriction on the making of payments and transfers for current international transactions’. See also Art XI GATS which places an obligation on a member country not to impose ‘restrictions on international transfers and payments for current transactions relating to its specific commitments’. D Siegel, ‘Legal Aspects of the IMF/WTO Relationship: The Fund’s Articles of Agreement and the WTO Agreements’, 96 AJIL 561, 598–607, 617–20 (2002). 89 Peter T Muchlinski, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) at 690–1; Wälde, in Wälde (ed), above n 71 at 303; Wallace, above n 14 at 430.

332

Thomas w wÄlde and abba kolo

Indirect repatriation, for example by transfer pricing, will affect the tax base of the host state.90 Central Bank officials and domestic investors might also view capital transfer as a source of fiscal instability or a sign of the preferential treatment accorded to foreign investors over their domestic counterparts, a treatment which is resented by domestic investors.91 The issue harks back to the time when the convertibility relating to the pre-World War I gold standard had abolished and been replaced by a complex system of foreign exchange and repatriation regulations; while these were gradually abolished in OECD and EU countries under the influence of the various freedom of capital transfer rules, they persisted in many developing countries throughout the 1980s. The acid test of liberalized repatriation rules comes during a national (or regional) financial crisis (such as 1998 in Asia and Russia, 2001–2 in Argentina); then, the treaty-based repatriation guarantees become both relevant, but also difficult, if not impossible for the host state to comply with.92 90 See UNCTAD, Transfer Pricing, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999)—highlighting in particular OECD work on transfer pricing. Some economists have argued that transfer pricing is more likely to be used by multinational firms located in countries with exchange controls and high tax rates than by those located in liberalized economies with lower tax rates. See Desai et al, above n 88 at 1449–57. 91 On the other hand, exchange controls might raise interest rates and invariably the cost of capital, especially for local investors (who rely more on domestic sources of capital than their foreign counterparts). See Desai et al, ibid; contrast with C Neely, ‘An Introduction to Capital Controls’, Federal Reserve Bank of St Louis Review, November/December 1999, available at . 92 The Russian financial crisis in 1998 could have given rise to non-repatriation claims, but none was raised (at least not in public). However, there was a claim against Russia regarding its domestic bonds, which raised foreign exchange issues. The claim is briefly referred to on the Freshfields’ website: ; Gruslin v Malaysia, ICSID award, 27 November 2000, ICSID Reports, p 483, raised the issue as a result of the Asian/ Russian financial crisis in 1998, but the tribunal denied jurisdiction. Fireman’s Fund v Mexico, ICSID Case No. Arb(AF)/02/01, preliminary decision 17 July 2003, available at , involves a claim in which the claimant’s application to be included in a bond restructuring plan on the same terms as local currency-denominated bond-holders was rejected by the Mexican authorities. Some of the current BIT claims against Argentina allege that Argentina breached free transfer provisions—eg Pan American v Argentina, above n 83; ENRON v Argentina, above n 85; Gas Natural v Argentina, ICSID Case No. Arb/03/10, Decision on Jurisdiction of 17 June 2005, of all which hold that claimants had demonstrated prima facie that they haved been adversely affected by the measures complained of (including foreign exchange restrictions). In CMS Gas Transmission Co v Argentina ICSID Case No. Arb/01/8, Award of 12 May 2005, 44 ILM 1205 (2005), the tribunal rejected Argentina’s contention and held that the claimant had a right to a tariff calculated in dollars and converted into pesos, notwithstanding the fact that the Convertibility Law had been repealed by Argentina (at paras 136–8). On the other hand, in Morris v OPIC, award of 3 December 1987 (27 ILM 487 (1987)) the claimant’s demand for a better (official) exchange rate was rejected by the tribunal. The few cases decided by the Iran–US Claims Tribunal on the subject suggest that host states enjoy a high margin of appreciation, with the foreign investor having to prove that the restrictions were disproportionate to the exigency of the situation. See Hood Corp v Iran, 7 Iran–USCTR 36; SeaLand Service, Inc v Iran, 6 Iran–USCTR 149; Schering Corpn v Iran, 5 Iran–USCTR 361; Dallal v Iran, 3 Iran–USCTR 10.

taxation and modern investment treaties

333

These conflicting interests are usually balanced in the capital transfer provisions of investment treaties. Thus, a typical transfer clause in an investment treaty would provide for free transfer of capital in convertible currency subject to some exceptions such as reasonable and non-discriminatory delay in the event of balance of payments difficulties or currency crises and subject to withholding tax.93 For example, Article 6 of the UK–Russia BIT (1992) guarantees capital transfer ‘subject to the right of each contracting party in exceptional balance of payment difficulties and for a limited period to exercise equitably and in good faith powers conferred by its laws’,94 relating to specific situations and subject to its tax laws. This is similar to the new India–Singapore Model Agreement which contains an exemplary way of resolving the dilemma between the impracticability of paying in a time of pervasive financial crisis and the investor’s legitimate concerns; Article 6.6 of the Agreement essentially sets up a system of consultation guided by compliance with the IMF Agreement and the principle of ‘least-restrictiveness’.95 Article 14 of the ECT96 obliges each party to guarantee to each other’s investors the freedom of transfer into and out of its territory. These include capital, returns on loans repayment, interest, earnings, remuneration, proceeds from sale, or liquidation of business and the like. In order to forestall the possibility of a host state manipulating the exchange rate to the detriment of an investor, the ECT provides that the exchange rate should be the market rate if it exists or the rate applied to inward investment or the rate used for IMF Special Drawing Rights. However, additional restrictions might be placed by a host state to protect the rights of creditors or to comply with its capital market laws and regulations.97 And more importantly for our present purposes, Article 21(6) of the ECT states that the freedom of transfers guaranteed under section 14 ‘shall not limit the right of a contracting party 93 OECD, Policy Framework for Investment (Paris, OECD, 2006) 26–7. 94 For an illustration of how the wordings are couched, see Art 15 Framework Agreement on the ASEAN Investment Area 1998; Art 6 UK–Argentina BIT (1990), while allowing for restriction in exceptional balance of payments difficulties, states that the restriction should not exceed a maximum period of three years during which the investor should have the opportunity to invest the capital in a manner that would maintain its real value; Art 6(4) China Model BIT; Art 6(5) Peru Model BIT. See . 95 Surprisingly, the reference to the principle of non-discrimination (available in the 2003 India model agreement) has been dropped, perhaps on the grounds that it is mentioned elsewhere (Art 6.11) in the agreement. See the Comprehensive Economic Cooperation Agreement between the Republic of India and the Republic of Singapore 29 June 2005, available at . 96 One needs to bear in mind that the ECT does not provide an ‘economic & financial force majeure clause’. It is an open question if such a clause can and should be read into the Treaty; see Wälde, above n 86. 97 Similar provisions are found in Art 10.28(4) DR-CAFTA, above n 52; Art 11(4) Chile–Korea FTA (2003) available in UNCTAD International Investment Agreements: A Compendium, Vol XII at ; Art 14 Canada Model BIT (2004), above n 48; Art IX(3) Canada–South Africa BIT ; Art 7 US–Uruguay BIT, 25 October 2004, 44 ILM 265 (2005).

334

Thomas w wÄlde and abba kolo

to impose or collect a tax by withholding or other means’. The phrase ‘or by other means’ leaves the door wide open for a host state to decide on the type of taxes to impose on capital transfers. The question is if governments can use the instrument of withholding taxes (legitimate and accepted in principle under the BIT repatriation rules), to achieve in effect the equivalent of an otherwise prohibited restriction on repatriation. For example, they might levy a withholding tax with such conditions and at such a level beyond what is normal practice so that it is impossible, or financially very unattractive, for an investor to repatriate its earnings.98 International investment law usually takes a ‘material’ approach in such matters and looks towards the economic reality and not the legal form, in particular if the legal form is used to disguise the economic reality and intention. If the effect is therefore equivalent to a restriction on repatriation and the rate and modalities of the withholding tax way out of the ordinary, then it should be examined under the repatriation guarantee of the applicable investment treaty.99 Indeed, the imposition of currency repatriation restrictions on an investment (in law or in practice) could possibly amount to an expropriation of specific legal and contractual rights of the investor if it renders the investment worthless; such as where, as a result of the restriction, the investor is unable to meet its external debt obligations or pay its shareholders, resulting in bankruptcy or a complete run-down of the share price of the company. The more so if the ‘trapped’ funds cannot be reasonably reinvested in the host state economy so as to cover such losses.100 Similar provisions (to Art 14 ECT) are found in many other investment treaties including the 1996 US–Ukraine BIT which provides in Article IV(3) that the freedom of transfer does not derogate from the right of either party to maintain laws and regulations ‘imposing income taxes by such means as a withholding

98 Alternatively, a host state might, in law and in principle, permit repatriation but in practice place administrative obstacles (eg the requirement to complete foreign exchange application forms which are not made readily available to all investors, providing insufficient or no foreign exchange to commercial banks, giving wide discretion to the central bank to approve or reject foreign exchange applications, introducing an unreasonable burden or undue delay in the approval process) to the process so as to make it impossible to effect capital transfers. Such were some of the arguments made by the American claimants before the Iran–US Claims Tribunal in the cases cited in n 92 above. 99 According to FA Mann, ‘[a]n international tribunal . . . “is entitled to be satisfied that the . . . law is a genuine foreign exchange law . . and is not a law passed ostensibly with that object, but in reality with some object not in accordance with the usage of nations”, or, in other words, is not abusive’. The Legal Aspects of Money (4th edn, 1982) 482, quoted by Holtzmann (Dissenting and Concurring Opinion) in Sea-Land Service, Inc v Iran, 6 Iran–USCTR 149 at 209. 100 See the dissenting opinion of Mosk in Schering v Iran, above n 92 at 381 (noting that whether exchange restrictions constitute a taking under international law is ‘dependent upon such factors as whether such restrictions are non-discriminatory, whether such restrictions are justified on bona fide economic grounds and whether such restrictions, in effect, extinguish a foreign national’s enjoyment and use of its currency’); and that of Holtzmann in Dallal v Iran, above n 92 at 17–33 and in Sea-Land Service v Iran, above n 99 at 207–12; P Cameaux and N Kinsella, Protecting Foreign Investment under International Law: Legal Aspects of Political Risk (Dobbs Ferry, NY, Oceana Publications, 1997) 15.

taxation and modern investment treaties

335

tax’.101 Some investment treaties do not expressly use the words ‘withholding tax’ but subject the right of transfer to the contracting parties’, ‘laws, regulations and policies’; this expression could be regarded as broad enough to include taxes and other fiscal measures.102 However, there are many investment treaties which do not contain such restrictions on the freedom of transfer. For example, Article 5 of the Kazakhstan–Netherlands BIT simply states that each contracting party ‘shall guarantee that payments relating to an investment may be transferred’, without providing for any exceptions relating to taxes or other conditions or circumstances such as those stated above.103 The question is: do such provisions forbid restrictions on freedom of transfer through taxes or during balance of payment difficulties, or should the provisions be construed as subject to a host state’s right to impose taxes under customary international law?104 The 101 Art 7(1) India–Kazakhstan BIT (1996) states: ‘Each party shall permit all funds of an investor of the other contracting party related to an investment in its territory to be freely transferred, without unreasonable delay, and on a non-discriminatory basis, subject to fulfi lment of tax obligations by the investor’. See also Art 6 Germany–Hong Kong BIT (1996); Art IV US–Romania BIT (1995); Art IV US Ecuador BIT (1993); Art 5 Germany–Bolivia BIT (1987); Art 5 Germany–Bosnia and Herzegovina BIT (2001); Art 6 Germany–China BIT (2003); Art 6 Germany–Nigeria BIT (2000); Art 5 Germany–Soviet Union [Russia] (1989); Art 6 of the Malaysia–Saudi Arabia BIT (2000), which states that the right of transfer can only be exercised ‘after all taxes and obligations have been met’ by the foreign investor. See . 102 Art6(1) China–Kuwait BIT (1985); Art 6(1) Malaysia–Kazakhstan BIT (1996); Art 6 Italy–Korea BIT; Art 6(1) Egypt–Malaysia (1997); Art 6(1) Malaysia–Ghana BIT (no date); Art VII China–Indonesia (1994); Art VIII Italy–Philippines (1988); ‘Transfers as stipulated in articles 4, 5, 6 and 7 shall be made without undue delay, in accordance with their respective national laws and regulations and consistent with their obligations with the IMF, after the performance of the fiscal burdens . . .’ Art 6(1) Italy— Bangladesh BIT (1990); ‘Each contracting party shall guarantee that after investors have complied with all their fiscal obligations, as well as all relevant administrative procedures, they may transfer the following abroad . . . .’ Art 6(1) Italy–Mongolia BIT (1993); Art 6(1) Italy–Tanzania (2001). See . 103 See also Art 6 UK–Mozambique BIT (2004); Art 5 Protocol of Colonia for the Promotion and Reciprocal Protection of Investment in Mercusor; Art 4 Germany–Bangladesh BIT (1981); Art IV Turkey–Kazakhstan BIT (1992); Art 7 Korea–Kazakhstan BIT (1996); Art 5 Netherlands–Venezuela BIT; Art 6 UK–Bulgaria BIT (1988); Art 6 Chile–UK BIT (1996); Art 7 Germany–India BIT (1995); Art 6 UK–Soviet Union BIT (1989); Art 7 Lithuania–Kuwait; Art 6(1) Germany–Mexico BIT (no date); Art 7 India Model BIT (2003); Art 6(1) Argentina–Korea BIT (1994), but Art 6(2) adds further that the restrictions imposed by a party ‘shall not impair the substance of the rights set forth in this Article’. Presumably, this obliges the parties not to defeat the essence of the transfer through burdensome restriction, such as by imposing prohibitive taxes that would effectively render the freedom to transfer unrealizable. 104 It is an internationally accepted practice that when faced with balance of payments problems, states use exchange controls as a means of ameliorating the problem. Such a policy is sanctioned by Art VI(3) of the IMF Agreement. J Gold, ‘ “Exchange Contracts’, Exchange Control, and the IMF Articles of Agreement: Some Animadversions on Wilson, Smithett & Cope Ltd v. Terruzzi’, 33 ICLQ. 777, 778–81 (1984). However, the important question is whether the IMF Articles of Agreement are indicative of customary international law and whether they will prevail over an inconsistent but specific treaty commitment as reflected in these BITs? Similar questions were raised by Holtzmann in his Dissenting Opinion in Dallal v Iran, above n 92 at 19 but he declined to answer the questions because, according to him, they were not raised nor argued by the parties to the case.

336

Thomas w wÄlde and abba kolo

use of the words ‘may be transferred’ could be viewed as suggesting some element of discretion for the host state to impose restrictions on transfers when necessary, such as during balance of payments difficulties. Could such an interpretation be extended to cover imposition of taxes or would that be regarded as inconsistent with a party’s obligations under the treaty, which states ‘it shall guarantee’ capital transfer? In other words, does the obligation to ‘guarantee’ capital transfer exclude the imposition of taxes by a host state as that would amount to a breach of the guarantee? The question is if the use of the words ‘shall guarantee’ capital transfer means an absolute guarantee of transferability and if the governments have agreed to thereby forfeit their right to impose and collect taxes on capital transfers. After all, it is a sovereign right to impose taxes and a limitation of tax sovereignty should be read into investment treaties only with prudence. But then, the use of tax powers can be engineered in effect to achieve the equivalent of the otherwise prohibited restriction on repatriation; if the tax measures achieve such a threshold, then they should be seen as again controlled by the repatriation guarantee, which aims at a material, and not only formal, prohibition of state measures achieving in effect and materially a restriction on repatriation.

(d) Taxation and Investment Agreement/Authorization More often than not, before a foreign investor undertakes any substantial business activity in a host state, it must obtain either the consent or authorization of the host government (ie where the government has no direct interest in the business to be undertaken, such as the development of a housing estate for commercial purposes or a manufacturing plant) or sign an investment agreement with the host state or its state enterprise if the state has a direct interest in the commercial activity (eg, the development of the country’s natural resources or infrastructure, such as an airport, water, or electricity project).105 Such investment agreements or authorizations 105 Under Art 1 [Definitions] of the US–Uruguay BIT (2004), above n 97, an investment agreement is defined as ‘a written agreement . . . between a national authority of a party and a covered investment or an investor of the other party, on which the covered investment or investor relies in establishing or acquiring a covered investment other than the written agreement itself, that grants rights to the covered investment or investor: (a) with respect to natural resources that a national authority controls, such as for the exploitation, extraction, refi ning, transportation, distribution, or sale; (b) to supply services to the public on behalf of the party, such as power generation or distribution, water treatment or distribution, or telecommunication; or (c) to undertake infrastructure projects, such as the construction of roads, bridges, canals, dams or pipelines, that are not for the exclusive or predominant use and benefit of the government’. (See also Art 1 para 8 of Italy–Jordan BIT (1996) 8—‘Investment agreement’ means an agreement between a Contracting Party (or its Agencies or Instrumentalities) and an investor of the other Contracting Party concerning an investment. See ). Art 1 of the US–Uruguay BIT further states that: ‘An investment authorisation means an authorisation that the foreign investment authority of a party grants to a covered investment or an investor of the other party.’ By footnote 5, the term ‘written agreement’ does not include (a) a unilateral act of an

taxation and modern investment treaties

337

sometimes contain provisions on the tax obligations of the foreign investor. Essentially, the investor—and its financial sponsors—will want to ensure that the fiscal regime (originating from central and sub-national governments) does not throw up unwelcome surprises once the investment has been made. Most tax-related contractual commitments will therefore be a variation on the theme of the tax stabilization clause.106 In the event of a dispute over an alleged breach of the tax provisions of an investment agreement or authorization by the host state, a question arises as to whether such a tax-related dispute is excluded from the investor–state dispute settlement provision of the investment treaty. The question whether a dispute relating to a tax stabilization guarantee would fall under a tax carve-out or not can only be determined by a close analysis of the treaty at issue, the factual context, the role of a tax carve-out and the existence of an ‘umbrella clause’ in the treaty. In the case of a total carve-out of tax matters from the treaty’s disciplines, the foreign investor would either have to seek recourse in the domestic courts of the host state or try to persuade its home state to invoke any available dispute settlement procedure of an available double taxation arrangement. However, some investment treaties expressly subject an alleged breach of the tax provisions of an investment agreement or authorization to the investor–state dispute settlement provisions of the treaty. For example, Article 21.3(6) DR-CAFTA states: Articles 10.7 [expropriation] and Article 16 [submission of a claim to arbitration] shall apply to a taxation measure alleged to be an expropriation or a breach of an investment agreement or authorisation.107 administrative or judicial authority, such as a permit, licence, or authorization issued by a party solely in its regulatory capacity, or a decree, order, or judgment, standing alone; and (b) an administrative or judicial consent decree or order. For tax purposes, one has to ask if this explanatory note would exclude documents such as ‘consent letters’ or ‘rulings’ issued by tax authorities from being relied upon by a private investor as creating an implied contractual relationship between a taxpayer and the tax authorities. The issue cannot be investigated here in greater depth. If such agreements are part of a main investment agreement, they would be covered—see also on the role of side-letter and ancillary agreements as part of an overall integrated investment arrangement, Holiday Inns v Morocco, 51 BYIL 123 (1980). Such legal instruments short of acquiring the quality of a formal agreement, will play a role in the assessment of the existence of a ‘Legitimate Expectation’ of the investor; see Wälde’s Separate Opinion in the NAFTA award International Thunderbird Gaming Corporation v Mexico, UNCITRAL Rules, Award of 26 January 2006 at . 106 Wälde and Ndi above n *; M Kantor, ‘International Project Finance and Arbitration with Public Sector Entities’, 24 Fordham Intl LJ 1122 (2001). The main case relating to a tax stabilization clause is Revere Brass and Copper v OPIC (relating to a Jamaican imposition, by legislation, of an additional bauxite levy (‘royalty’) against a contractual stabilization clause: 17 ILM 1321 (1978). Stabilization clauses were also at issue in the three Jamaican bauxite cases before the ICSID (but later settled): John Schmidt, Alcoa v Jamaica, in 17 Harv Intl LJ 90 (1976); on other cases (Petrola Hellas v Greece, Power and Traction Finance v Greece): see Manciaux, above n 3 at n 34–7; also Agip v Congo, ICSID Arb/77/1 21 ILM 726 (1982). 107 See n 52 above. Other US BITs that contain similar provisions include: Art IX US–Albania (1995); Art XIII US–Jordan (1997); Art XIV US–Croatia (1996); Art XIII US–Uzbekistan (1994); see

338

Thomas w wÄlde and abba kolo

This means that, notwithstanding the general carve-out of tax matters from the substantive obligations of the treaty, nonetheless, where the taxation measure is alleged to be expropriatory or to constitute a breach of an investment agreement or investment authorization, such a claim is subject to the investor–state dispute settlement procedure. Any objection by the host state against an arbitral tribunal assuming jurisdiction over the matter on the ground that it is tax matter and so excluded from the treaty is unlikely to be sustained. This is because such a provision forms one of the exceptions to the general exclusion of tax matters under the treaty. Two tribunals, Occidental v Ecuador and EnCana v Ecuador, headed by most respected international tribunal presidents and international law scholars, have recently grappled with the issues. In Occidental v Ecuador, the main issue was the interpretation of Article X(2) of the US BIT.108 Ecuador contended that by virtue of that article all taxation matters were excluded from the investor–state dispute settlement provisions except for three specifically mentioned situations. That contention was rejected by the tribunal. It held that to accept Ecuador’s argument would have the effect of rendering such an important article in the treaty meaningless, which would not be what the parties intended at the time of the agreement. According to the tribunal: [The] Respondent’s view that all matters of taxation are exempted from dispute settlement under the Treaty, with the exception of the specific categories mentioned in Article X, is not persuasive. Even if certain matters could still be covered by this Article and thus not make it meaningless, as argued by the respondent, that interpretation would nonetheless constrain it to a quite marginal application. This is evidently not what the parties intended in placing an Article of such importance in a Treaty which is brief indeed.109

The Occidental tribunal relied on two lines of reasoning to establish its jurisdiction: the first was that the VAT refund dispute was closely associated with an ‘investment agreement’ (here: the ‘participation agreement’ between Occidental and Ecuador); the dispute focused on the question of whether the ‘factor X’ used to calculate . 108 Occidental v Ecuador, above n 82. The relevant part of Art X(2) states: ‘ . . . the provisions of this Treaty, and in particular Article VI [investor–state arbitration] and VII [state–state dispute settlement], shall apply to matters of taxation only with respect to the following: (a) expropriation, pursuant to Article III; (b) transfers, pursuant to Article IV; or (c) the observance and enforcement of terms of an investment agreement or authorization as referred to in Article VI (1) (a) or (b) to the extent they are not subject to the dispute settlement provisions of a Convention for the avoidance of double taxation between the two Parties, or have been raised under such settlement provisions and are not resolved within a reasonable period of time’. For similar formulations, see also, Art XII(2)(c) US–Argentina BIT (1991); Art XI US–Armenia BIT (1992); Art XI US Kazakhstan BIT (1992); Art XI US–Kyrgyzstan BIT (1994); Art XI(2)(c) US–Zaire BIT (1983); Art X(2)(c) US–Ukraine BIT (1996), available at . 109 Above n 82, para 68.

taxation and modern investment treaties

339

Occidental’s financial participation assumed VAT reimbursement or not.110 Thus, the general tax carve-out would not apply according to Article X(2)(c) of the BIT. This gives a wide interpretation to this Article; a narrow one would have required that the core of the dispute focused on Article X(2)(c)—for example, breach of a tax stabilization clause. But the tribunal’s position is in our eyes not unreasonable as the tax dispute cannot be understood without the reductionist Ecuadorean interpretation of the investment agreement.111 It was, however, less persuasive when the tribunal put forward (perhaps indicating a lack of conviction in its first reason) a second, in our eyes weaker, fall-back line of reasoning. Its reasoning is not at all clear. In essence, it seems to carry out an intellectual operation which overcomes the plain meaning of Article X(1)—that parties ‘should strive to accord fairness and equity’—denoting a merely hortatory and not legally binding phrase.112 This exhortation is followed by the word ‘nevertheless’ introducing the tax carve-out, so it is hard to see how the parties could have wanted to apply the fair and equitable standard to tax-related disputes, when they clearly said that this was only at most a best-effort exhortation, without legally binding effect and equally clearly said that the tax carve-out covered the legally binding ‘fair and equitable’ obligation. Nor can the plain meaning be overridden by ‘purpose and intention’: a tax carve-out for ‘fair and equitable’ and ‘national treatment’ obligations (but not expropriation) is fairly common. Article X of the BIT is part of a general BIT practice which expresses the logic of the tax carve-out provisions: expropriation, for the investor the most serious issue expressing its greatest vulnerability, is included, albeit with many procedural limitations as described in Article X(2)(c). Fair and equitable and national treatment, on the other hand, are excluded because here the balance between tax sovereignty and investor vulnerability is different; in both cases, intrusion into the ‘regulatory space’ of the state is greater, while the investor exposure is—at least generally—less than in the expropriation scenario. This part of the reasoning of the Occidental tribunal should therefore be seen as an obiter dictum not necessary to support the—reasonable (though perhaps a little strained)—conclusion that the dispute included enough substance from the investment agreement and so was not excluded by the tax carve-out. The El

110 The issues are discussed in ibid paras 64–77. 111 Another issue is that the claimant apparently did not formulate its claim as centring on the investment agreement, but on the tax issue; some might say the tribunal here helped to improve on the advocacy of claimant, but then it could rely on the fact that the respondent seemed to have accepted that the dispute includes the ‘factor X’ formulations in the investment agreement. It would be too formalistic to require a tribunal to have to stare slavishly at the way a claim is formulated when the substance arising out of claim and defence indicates the contours of the dispute. 112 It does not help that the tribunal omits that the expression ‘strive to accord’—itself not very persuasive of a legally binding commitment—is introduced by the word ‘should’ which, in comparison to ‘shall’, must generally be seen as qualifying the otherwise ambiguous ‘strive to accord’ as a hortatory phrase devoid of legal commitment.

340

Thomas w wÄlde and abba kolo

Paso—Argentina jurisdictional award113 disagreed with this very wide reading, but left its determination to the merits phase; it assumed jurisdiction on the basis that the claimant made a prima facie showing of a tax dispute that was expropriatory and in breach of an investment agreement. The subsequent EnCana v Ecuador award dealt with the same government conduct under more or less identical conditions as in the Occidental case, but there was one crucial difference: it was based on the Canada (not US)–Ecuador BIT. This BIT (Art XII) had a similar, but more extensive, tax carve-out. It only allowed tax-related claims about a ‘breach of an agreement between the central government authorities . . . and the investor’—while the US–Ecuador BIT did not use such a restrictive notion of the ‘investment agreement’ (the agreement in both cases was with PetroEcuador, not the central government). The full tribunal (including the dissenting co-arbitrator) had no difficulty in considering the claims as mainly tax-related— and thus excluded (apart from the expropriation element) from the investor–state dispute settlement mechanism by reason of the operation of the tax carve-out.114 The explicit narrowing down of the exemption from the tax carve-out to disputes about breach of ‘agreements with central government’ (ie whatever its status under international law, not with Petro-Ecuador) supports the tribunal’s conclusion in the face of claimant efforts to present the claim as not in the main about tax, but about oil contracts. It seems from both the EnCana and Occidental awards that no contract drafters, advocates, tribunals or commentators have so far been able fully to come to grips with the operation of the ‘adaptation’ (ie economic re-equilibration) component of tax stabilization clauses.115 The fact that as yet no persuasive jurisprudence has grown out of these two cases reflects the early stage of arbitral tribunals’ confrontation with the tax issues. One should therefore not be too critical but praise the tribunals for identifying some of the key issues. A particular difficulty in these cases was the interaction between general tax regulation on the one hand and, on the other, specific contracts of the investor with the state enterprise. These contracts, their specific content, the legitimate expectations they created, and the conditions for contract tendering were inextricably linked with the general tax system. Both tribunals struggled valiantly with this link; their efforts at struggling with this interaction 113 Above n 83 at paras 100 ff, in particular 110. The tribunal clearly does not concur with the wide reading of the Occidental tribunal assigning some sort of opaque justiciability to the ‘strive to accord’ clause: ‘claimant considers that the fair and equitable treatment clause . . . is enforceable, though precisely on what basis one does not know’. 114 EnCana v Ecuador, above n 3 above at paras 141–67. In the Enron v Argentina award (above n 85) the tribunal was ready to view a series of interrelated contractual instruments as constituting an ‘investment agreement’, thus conferring jurisdiction on it under the restricted tax-related jurisdiction clause of the US Model BIT: at paras 70, 71. 115 KH Berger, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’, 36 Vand J Transnat’l L 1347 (2003) See also M Coale, ‘Stabilisation Clauses in International Petroleum Contracts’, 30 Denv J Int’l L & Pol’y 217 (2001–2).

taxation and modern investment treaties

341

deserves respect, though the ultimate outcome and reasoning need to be seen more as pioneer efforts than a conclusive statement resolving the dilemmas of adjudicating on tax issues closely intertwined with contract issues. It is also noteworthy that both tribunals have reached opposite conclusions, both, perhaps, stretching the law or positioning themselves at the edges of interpretability to reach the preferred results. Tax and state sovereignty raise strong sentiments; attitudes towards the relation between state and a private investor are forced to reveal themselves.

(5) Taxation and Expropriation—Tax ‘Filter/Veto’ The tension between the need to protect investor rights on the one hand and the taxing powers of governments on the other is most intense when it comes to the expropriatory tax provisions of modern investment treaties. Modern complex tax systems with endless add-ons for reasons of social, economic, and financial engineering, of anti-avoidance methods and because of an infinite amount of political pressures and lobbying will have difficulty standing up to exacting and perfectionist nondiscrimination and ‘fair and equitable’ standards; investors have learnt to accept— at home as well as abroad—that tax systems are complex, with some volatility, and not perfect in terms of equality and justice. They have even learnt that business opportunities can be created by regulatory and tax changes (eg current solar and wind power and other non-renewable business booms),116 but can also be destroyed by such changes (eg prohibition of tax avoidance models are often associated with mini-booms in particular areas, eg in the building industry or fiscal discouragement of other industrial and commercial activities for, say, environmental or health and safety reasons). But what is hard for investors to accept is ‘undue surprise’, that is, governmental action, usually following visible or invisible political pressures, that disappoints the ‘legitimate expectations’ of an investor that a particular tax treatment will continue117 and thereby destroys all or most of the economic value of 116 One example is the various initiatives in the USA to encourage private investment in windpower projects by using various forms of fi nancial incentives (such as tax credits and loans) and regulatory mandates (requiring utilities companies to buy their electricity from wind-power companies). See E Smith, ‘US Legislative Incentives for Wind-Generated Electricity: State and Local Statutes’, 23 JENRL 173 (2005); H Anderson, ‘The Federal Production Tax Credit: Will its Expiration End the United States Wind Industry?’ in Environmental Law Institute (ELI), The Environmental Law Reporter 1 (2002). 117 eg the scenario in the Nykomb v Latvia case (The Arbitration Institute of the Stockholm Chamber of Commerce Arbitral Award Rendered in Stockholm, Sweden on 16 December 2003, available at ) where environmentally favourable

342

Thomas w wÄlde and abba kolo

the investment. The facts of the Barcelona Traction118 and Yukos119 cases illustrate this well. Both cases illustrate how the tax system—and in particular its application—can be used by governments, typically with collusion between leaders of government, the national judiciary, the tax authorities, and often the subsequent beneficiaries—to destroy the economic value of an investment under cover of what appears on the surface and at first sight to be formally proper application of tax (or foreign exchange) audit, tax assessment, and tax collection procedures. Investors have had experience with such velvet forms of legally camouflaged expropriations in particular after both world wars and in the inter-war and post-war periods. Often or inevitably, it is authoritarian regimes with a political, ideological or racist agenda which use the ‘tax screws’ to finish off political opponents, foreign investors, or undesirable ethnic businesses in a way that can be presented internally and internationally as nothing but the normal pursuit of ‘law and order’. It is for these reasons that, whatever the reluctance of ministries of finance and tax authorities to let private parties, private counsel, and international tribunals interfere in their conduct, confiscatory tax (‘fiscal expropriation’, ‘expropriatory taxation’) is usually the one concept that remains in investment protection treaties, even if frequently with procedural qualifications to let at least joint action by home and host state tax authorities acting in a spirit of collegiality and consensus defeat an investor claim. co-generation investment was encouraged by an electricity tariff premium promised for eight years to compensate for the technology risk, but also to protect from competition from low-priced (‘dumped’) imported Russian nuclear power. The state promised the ‘double tariff ’ by law; the state enterprise was to implement it by mandatory double-tariff-based purchasing. But its own economic interest—to purchase cheap rather than expensive electricity—prevailed; it was judicially compelled to pay national co-generators the premium tariff, but refused to pay this tariff to the—only—foreign co-generation investor, thus converting a reasonably profitable business model into a loss-making operation unable to recoup the capital investment. 118 See (1970) ICJ Reports p.3. The Barcelona Traction experience is likely to have influenced the Comment in the authoritative US Restatement (3rd) para 712, Commentator note g. After recognizing that ‘normal’—bona fide general taxation—is not an expropriation, the comment continues: ‘if it is not discriminatory . . . and is not designed to cause the alien to abandon the property to the state or sell at a distress price’ (emphasis added). These conditions were met in both the Barcelona Traction and the Yukos cases. 119 In the 2004 Yukos case, the Russian government—angered by the political opposition of Mikhail Khodorkovsky, the main Yukos shareholder and its founder—attacked tax practices (that were widely spread and had been tolerated or accepted by the tax authorities); it made the tax authorities carry out a re-assessment, with penalties and interest charges amounting in the end to about 100 of total sales (not net profits) of the company in the relevant three-year period. It then prevented the company from selling its shares to pay such tax debt and arranged an auction where the only bidder was a sham company acting for the state company Rosneft. Rosneft, through the sham company, then bought at about 50 of a biased valuation and at a fraction (say 10–20) of the true market value. For an analysis of the Yukos case, see the published expert opinions, studies, and comments published on TDM at . For an analysis of the modern-day theory of ‘state capture’ by politically influential private interest groups to the detriment of the welfare of the general public, we refer here in particular to the works of Daniel Kaufmann and his colleagues at the World Bank Global Governance Institute, available at .

taxation and modern investment treaties

343

The difficulties in distinguishing an indirect expropriation from legitimate regulation with a significant economic impact on the investor’s property have led recently to efforts in (mainly US and Canadian) model BITs to provide more specific criteria. These often borrow from comparative constitutional law (in particular US ‘regulatory takings’ jurisprudence). Comparative constitutional law (including EU, ECJ, and US jurisprudence) provides an already highly developed set of criteria; it is thus helpful for defining the boundaries of indirect expropriation.120 In essence, it is the three-level test: substantial deprivation—disappointment of legitimate, investmentbacked expectations—character of the government measure (itself including in our view the limits on property ‘police power’ in the exercise of inherent rights). This test now shows up not only in US and Canadian model BITs, but also increasingly in new BITs based on these models and arbitral jurisprudence.121 With regard to taxation, the—incomplete—provisions of the 1998 draft MAI reflect quite pertinent attitudes among at least (and presumably not only) the OECD member states on a careful approach towards confiscatory tax claims: Article VIII of 120 See further August Reinisch, Chapter 11 below; T Waelde and A Kolo, ‘Environmental Regulation, Investment Protection and Regulatory Taking in International Law’, 50 ICLQ 811–48 (2001); Jon Stanley, ‘Keeping Big Brother out of our Backyard: Regulatory Takings as Defined in International Law and Compared to American Fift h Amendment Jurisprudence’, 15 Emory Int’l L Rev 349 (2001). The new US/Canadian efforts to formulate international indirect takings law largely to reflect US takings’ law follow the position we took in our 2001 article: see mainly Annex 10-C DR-CAFTA, above n 52; Annex B to the US Uruguay BIT (2004), above n 97; Annex B13(1) to the Canada Model BIT (2004), above n 48. However, other countries do not seem to have embraced the American and Canadian position yet in their treaty practice as none of their post-2000 BITs contain similar guidelines—eg UK–Angola BIT (2001); UK–Mozambique (2004); Germany–Nigeria BIT (2000); Germany–Cambodia (2001); Japan–Korea BIT (2003); Japan–Mexico FTAs (2004): . One needs to be cautious, however, in fully equating ‘indirect expropriation’ rules with eg US takings’ jurisprudence. US takings’ jurisprudence is far from clear and, like most jurisprudence, includes a ‘wider’ and a ‘narrower’ approach. International law protection is not identical with national constitutional protection: it protects an alien in a more vulnerable position and intends to use the instrument of investment protection to encourage foreign investors to invest in what is for them an alien environment where their ability to participate in the political process and manage successfully the informal political, legal, institutional, and commercial processes is usually less than that of their domestic competitors, see Wälde Separate Opinion, in: Thunderbird v Mexico, above n 105. 121 See eg Metalclad v Mexico, ICSID Case No. Arb(AF)/97/1 40 ILM 36 (2001); CME (Netherlands) v Czech Republic, Partial Award 13 September 2001, available at ; Tecmed v Mexico, ICSID Case No. Arb (AF)/00/2, Award of 29 May 2003, 43 ILM 133 (2004). For a review of arbitral jurisprudence with respect to indirect expropriation. See C Schreuer, ‘The Concept of Expropriation under the ECT and other Investment Protection Treaties’, followed by an instructive comment by K Yannaca-Small, in C Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (Turkington, NY, Juris Net, 2006) 108; Yves Fortier and Stephen Drymer, ‘Indirect Expropriation in the Law of International Investment’, 19 ICSID Rev–FILJ 293 (2004) at 321; J Paulsson and Z Douglas, ‘Indirect Expropriation in Investment Treaty Arbitrations’ in N Horn and S Kroll (eds), ‘Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects’ (The Hague, Kluwer Law International, 2004) 145; A Newcombe, ‘The Boundaries of Regulatory Expropriation in International Law’, 20 ICSID Rev–FILJ 1 (2005); OECD, ‘ “Indirect Expropriation” and the “Right to Regulate” in International Investment Law’ (Paris, OECD, 2004), available at: .

344

Thomas w wÄlde and abba kolo

the draft MAI states, among other things, that the mere fact that a taxation measure is burdensome on an investment does not constitute expropriation if it is generally within the bounds of internationally recognized tax policies and practices; more so if the tax measure applies to all taxpayers.122 The more a singling-out of individual investors (presumably, in particular, foreign investors) is present, the weaker the presumption in favour of the non-expropriatory character of the tax. That itself takes up suggestions in general expropriation law where ‘disproportionate burden’ and discriminatory singling-out, without legitimate reasons, of individual, in particular foreign, taxpayers raises ‘red flags’ pointing towards expropriation.123 The draft MAI provision takes up a theme that one can also identify in the ‘Harvard Draft’124 which sought to formulate the international law standard for indirect expropriation (Art 10(3)): A ‘taking of property’ includes not only an outright taking of property, but also any such unreasonable interference with the use, enjoyment, or disposal of property as to justify an inference that the owner thereof will not be able to use, enjoy, or dispose of the property within a reasonable period of time after the inception of such interference. (Emphasis added)

Article 10(5) contains the significant qualification and specification:

122 Note here also the reflections of the EnCana v Ecuador tribunal, above n 3 para at 142, on the ‘general’ nature of taxation: ‘The question whether something is a tax measure is primarily a question of its legal operation, not its economic effect. A taxation law is one which imposes a liability on classes of persons to pay money to the state for public purposes’. That suggests a priority of form over substance—and a readily available instrument to disguise actions against individuals (eg the Yukos and Barcelona Traction cases referred to earlier) as something that is ‘general’ in nature. The EnCana tribunal therefore hedged its formalistic approach: ‘An arbitrary demand unsupported by any provision of the law of the host state would not qualify . . .’ (as a tax measure covered by the tax carve-out in the underlying BIT). 123 It is useful to recall the pertinent interpretive note: ‘When considering the issue of whether a taxation measure effects an expropriation, the following elements should be borne in mind: a) The imposition of taxes does not generally constitute expropriation. The introduction of a new taxation measure, taxation by more than one jurisdiction in respect to an investment, or a claim of excessive burden imposed by a taxation measure are not in themselves indicative of an expropriation. b) A taxation measure will not be considered to constitute expropriation where it is generally within the bounds of internationally recognised tax policies and practices. When considering whether a taxation measure satisfies this principle, an analysis should include whether and to what extent taxation measures of a similar type and level are used around the world. Further, taxation measures aimed at preventing the avoidance or evasion of taxes should not generally be considered to be expropriatory. c) While expropriation may be constituted even by measures applying generally (eg, to all taxpayers), such a general application is in practice less likely to suggest an expropriation than more specific measures aimed at particular nationalities or individual taxpayers. A taxation measure would not be expropriatory if it was in force and was transparent when the investment was undertaken. d) Taxation measures may constitute an outright expropriation, or while not directly expropriatory they may have the equivalent effect of an expropriation (so-called ‘creeping expropriation’). Where taxation measure by itself does not constitute expropriation it would be extremely unlikely to be an element of a creeping expropriation. (Emphasis added.) 124 Convention on the International Responsibility of States for Injuries to Aliens by Professors R Sohn and L Baxter, reprinted in 55 AJIL 545 (1961).

taxation and modern investment treaties

345

An uncompensated . . . deprivation of the use or enjoyment of property of an alien which results from the execution of the tax laws; from a general change in the value of the currency; from the actions of the competent authorities of the State in the maintenance of public order, health or morality; . . . .shall not be considered wrongful, provided: (a) it is not a clear and discriminatory violation of the law of the State concerned; . . . .(c) it is not an unreasonable departure from the principles of justice recognized by the principal legal systems of the world; and (d) it is not an abuse of the powers specified in this paragraph for the purpose of depriving an alien of his property. (Emphasis added.)

The distinction between more general (and thus less likely to be expropriatory) and more specific (and thus with a ‘red flag’) taxation also appears in the US Restatement: A State is responsible as for an expropriation of property under subsection (1) when it subjects alien property to taxation, regulation, or other action that is confiscatory, or that prevents, unreasonably interferes with, or unduly delays, effective enjoyment of an alien’s property. . . . .125 A state is not responsible for loss of property or for other economic disadvantage resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind that is commonly accepted as within the police power of states, if it is not discriminatory . . . and is not designed to cause the alien to abandon the property to the state or sell it at a distress price.126 (Emphasis added.)

We find the same reference to ‘normal’ government conduct (one should add the implied qualification of ‘well governed countries’—something that was more explicit in the now obsolete earlier notion of ‘civilized nations’ that is now replaced by the ‘principal legal systems of the world’, in post-2004 US BIT practice (Art 5)) with its reference to the principal legal systems of the world, that is, the general principles of international and comparative administrative (and thus also tax) law. The scrutiny of a tax practice asserted by the claimant to breach an investment treaty discipline— and in particular the expropriation standard—thus will in most cases involve a benchmarking against ‘good’ and ‘normal’ tax practice in developed systems of law. 125 American Law Institute, Restatement of the Law Third, The Foreign Relations Law of the United States, Vol 2, 196, 200 (1987). 126 The latter situations referred to—a strategy to use tax and foreign exchange restrictions to force the alien to sell at a distress price (including contrived bankruptcy)—are likely to refer to the Barcelona Traction experience, then of recent date, and they would now be used to examine the Yukos case with its tax-induced sale of the company’s major assets in a rigged tender at a distress price. In the only tax-related case decided by the Iran–US Claims Tribunal, it was held that the seizure of the claimant’s liquor licence and other properties by the US Inland Revenue Department in order to meet his tax liabilities did not amount to expropriation. Too v Greater Modern Insurance Associates & the USA, 23 Iran–US CTRT 378. Gasus-Dossier v Netherlands (1995) 20 EHRR 304 (decided under Art 1, Protocol 1 to the European Convention on Human Rights), involving the seizure of a concrete-mixer by the tax authorities in satisfaction of the buyer’s tax liability whereupon the court held that the seller could not recover the property or compensation from the tax authorities even though he had not transferred legal title in the property to the buyer at the time of sale. The tax authorities’ conduct was held not to be in violation of Art 1 of Protocol 1 to the European Convention on Human Rights.

346

Thomas w wÄlde and abba kolo

These provide the yardstick to identify significant deviation; while a deviation may by itself express nothing but acceptable idiosyncrasies of national law and legal culture, they come with a ‘red flag’. The onus is then on the government’s burden to persuade and prove that such deviation is legitimate. With the help of such authoritative instruments we can conclude that ‘normal’ state practice in countries seen as well governed127 is unlikely to constitute an expropriatory taking; it rather reflects the toll that investors have to accept as a price for doing business and for getting access to the infrastructure of the host state’s economy and society at large. On the other hand, when taxation goes beyond what is ‘normal’, a red flag attaches itself to such measures and the expropriation test (economic impact—legitimate expectation—character of the measure) needs to be applied fully. The more a tax measure is ‘out of the ordinary’—as compared to the tax practices of well-governed countries, the more there are elements of discrimination and singling-out which are not based on legitimate reasons as compared to a general tax measure and the more intentions (which can be read into the design and architecture of the tax measure) to deprive foreign investors can be identified, the more the likelihood of an expropriation emerges. A tax or tax enforcement that singles out a particular investor (or group of investors)128 becomes suspect, in particular if such singling-out and discriminatory enforcement correlate with political opposition between that investor and the powers controlling the state The same applies when there are substantial indications that the tax discrimination (whether in terms of the actual content of the law and/ or de facto in prosecution, auditing, and enforcement practice) is based on racial prejudice,129 association of the foreign or domestic investor(s) with the former 127 The criterion of good governance is not so difficult to determine; it continues the now taboo qualification of ‘civilised nations’ (still found in Art 38 of the ICJ statute), which has morphed into the ‘principal legal systems of the world’ in the new model US BIT. There are enough governance-ranking surveys (World Bank; EBRD; Transparency International; competitiveness surveys) which allow the upper echelon of what should be regarded as well-governed legal systems to be defined quite easily thus serving as a suitable benchmark. 128 Note the identification of the ‘oil companies’ as a relevant group of investors in Occidental v Ecuador above n 82 (itself not an unproblematic concept in the context of that particular case). 129 In interpreting the taxation provisions of the US–Moldova BIT in the case of Link-Trading v Moldova (UNCITRAL Rules, Award of 18 April 2002 at ), the arbitral tribunal noted that ‘not all fiscal measures necessarily constitute an expropriation, although their habitual effect is to cause the tax payer to surrender part of his income or property to the state. As a general matter, fiscal measures only become expropriatory when they are found to be an abusive taking. Abuse arises where it is demonstrated that the state has acted unfairly or inequitably towards the investment, where it has adopted measures that are arbitrary or discriminatory in character or in their manner of implementation, or where the measures taken violate an obligation undertaken by the state in regard to the investment.’ (at para 64); Waste Management v Mexico, ICSID Case No. Arb(AF)/00/3 Award of 30 April 2004, 43 ILM 967 (2004) paras 150–5 and see Feldman v Mexico, above n 78, for the application of indirect expropriation analysis to the terms ‘sectional and racial prejudice’, ‘arbitrary’ and ‘discriminatory’. A similar view has been expressed by Rosalyn Higgins: R Higgins, ‘The International Law Perspective’, in T Daintith (ed), The Legal Character of

taxation and modern investment treaties

347

government, or because the investment is exclusively or primarily foreign-owned (and/or owneds by nationals of specific countries with which the host state is in a hostile relationship). In such cases, the burden of showing a ‘legitimate reason’ has to be much higher than in cases of differentiated tax treatment where no particular suspect reason for the differentiation is available. It is possible to distil from such principles—or rather guidelines for assessing the tax and balancing the criteria for and against its expropriatory character—a system of presumptions (involving a burden of proof and legal persuasion). As ‘red flags’ attach themselves to a tax measure, the burden of proof and legal persuasion is on the taxing state to show that the measure is not discriminatory, has legitimate reasons, and is not intended to harm foreign investors and carry out expropriation in legally camouflaged ways.

(6) Recent Arbitral Jurisprudence on Expropriatory Taxation There are few earlier awards dealing with taxes;130 their relevance is less than modern treaties, the accompanying authoritative instruments (eg US Restatement; OECD model convention; MAI; Harvard Draft; World Bank Guidelines), and in particular recent arbitral jurisprudence. The modern practice can be understood as rejecting—at times quite explicitly and directly—the traditional public international law approach expressed, for example, in the 1932 Kuegele v Polish State, case which completely exempted taxation from the applicable treaty’s scope.131 One needs to appreciate that, to employ Philipp Bobbitt’s terminology,132 the earlier cases are embedded in the context and spirit of the extreme emphasis (if not obsession) with the nation state: touching tax powers meant touching the most sensitive part Petroleum Licences: A Comparative Study (Dundee, CPMLS, 1981) 35, 56; Higgins, ‘The Taking of Private Property by the State: Recent Developments in International Law’ (RDC-Collected Course (1982-III), 259, 350; M Sornarajah, The International Law of Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) 393–4. 130 For a review, see in particular Manciaux, above n 3. Manciaux discusses a 1962 (it seems) interstate arbitral commission decision—Epoux Gilis c RFA—where a very far-reaching tax (over 50 of net asset value) was not considered confiscatory as payment was stretched over 30 years. V CoussiratCoustere and P Eisemann, Repertoire de la jurisprudence arbitrale internationale T. III (Dordrecht, Nijhoff Publishers, 1991) 902. 131 R Dolzer, ‘Indirect Expropriations of Alien Property’, 1 ICSID Rev–FILJ 41 (1986) note 2 at p 63, cites one case of confiscatory taxation—a rate of 99 in Burma on certain gains. 132 Philipp Bobbitt, The Shield of Achilles: War, Peace and the Course of History (New York, Borzoi Books, 2002).

348

Thomas w wÄlde and abba kolo

of the nation state. External and independently enforceable disciplines on states’ tax powers are rather an indication of the gradual, and far from smooth, transition from the nation state to its modern form of market state. Subordination to international disciplines provides market states with a competitive advantage; simultaneously, it reinforces the effectiveness of domestic economic reform. The contrast between the post-World War I Kuegele case and the post-2000 Feldman case thus illustrates the transition from the pure nation-state focus to acceptance of the new paradigm of market states in international economic law. In recent arbitral jurisprudence, expropriatory jurisprudence has only been dealt with in a few awards. In the earlier Revere Brass and Copper case, the tribunal (as we discussed earlier) found expropriation because of the imposition of a new ‘production tax’ (‘bauxite levy’) contrary to a tax stabilization clause. This case—often and incorrectly cited to support a narrow indirect expropriation concept—to the contrary marks a very extensive application: the tribunal (with a dissent) considered this tax expropriatory, though the operation remained profitable and under the factual control of the investor. The tribunal, operating under the then more narrow OPIC insurance contract, which provided coverage only for expropriation, not for breach of contract, thus shoehorned the breach of contract into the expropriation concept. It should stand as authority that interferences with investors’ rights with a lesser economic impact can still be seen as expropriatory when a new tax breaches a prior tax stabilization guarantee. It should not, however, be seen as providing any authority for the proposition relied upon in both the Methanex v US and EnCana v Ecuador awards that a regulatory measure (including a tax) becomes expropriatory only if contrary to a prior specific tax stabilization commitment. In EnCana v Ecuador, the tribunal required, for ‘indirect expropriation’, that a tax law be ‘extraordinary, punitive in amount or arbitrary in its incidence’.133 It relied for its very restrictive result on the Kügele v Polish State case of 1932134 as the only precedent available that ‘general’ taxation cannot constitute expropriation. But a review of the Kügele decision suggests (on the bare facts reported) that the investor here was subject to an increase in licence fees that appears to have been made in order to drive him out of business. It is questionable if such precedents (as with the often quoted Oscar Chinn case) are still relevant and have not been in effect superseded and revoked by the express references in authoritative instruments such as the Harvard Draft, the OECD model agreement, the US Restatement, the draft OECD MAI, and the inclusion of, in particular, expropriatory taxation in most investment treaties to the effect that taxation should be considered expropriation if it has an effect equivalent to a taking. In particular, this practice—started in the 1950s and

133 Above n 3 at para 177. 134 Ibid at para 176 and n 126; Kügele v Polish State (1932), 6 ILR 69 (Upper Silesian Claims tribunal). Commented on by G Kaeckenbeeck, President of the Tribunal, in: The International Experiment of Upper Silesia (Oxford, Oxford University Press, 1942) at 116, 117.

taxation and modern investment treaties

349

fully developed since the 1960s135—suggests an outright rejection of the position of the Kügele tribunal that if something is labelled tax, then it cannot be expropriation as the ‘trader’—at least in theory—could continue his trade and pay the tax. In Occidental v Ecuador, the tribunal was much more reticent than the EnCana tribunal with respect to the quality of the ‘tax refund right’ to constitute an ‘investment’ protected against expropriation. It did not separate the tax refund from the overall investment consisting of a bundle of property rights but rather looked at the economic effect of the denial of the tax refunds on the overall investment. This examination of the economic effect indicated that the overall investment was doing well and thus no ‘substantial economic deprivation’ took place.136 The tribunal’s restrictive approach towards indirect expropriation was perhaps facilitated by the fact that it was not precluded (as the EnCana tribunal was) from accepting the claim for breach of national treatment/discrimination. A comparison between both awards is instructive for several reasons. The EnCana tribunal, by focusing on the tax refund right per se instead of looking at the overall ‘economic unity’ of the investment, would have been able to find a right that could be taken by direct expropriation, but used the lack of various criteria (bad faith, ‘final repudiation’, obstruction of access to courts) to reject a conclusive ‘taking’. The Occidental tribunal—in the end favourable to claimant—could afford to reject the expropriation claim—a frequently used satisfaction provided by tribunals to otherwise losing respondents—as it had been able to construct a jurisdictional and merits reasoning for the national treatment claim. In Goetz v Burundi,137 the dispute involved a licence to operate in an economic free zone entailing tax and import duty rebates. That licence was withdrawn with prospective—not retrospective—effect. The tribunal considered the withdrawal of the licence as an indirect expropriation under the applicable BIT. The case suggests that—except where specifically so regulated in the treaty—there is no particular respect due for tax-related measures; that is quite different from the EnCana tribunal, which added a substantial number of additional conditions to the expropriation test, even if a tax-related pre-existing right was repudiated by the government and even if the repudiation by the government created a retrospective effect. In Link-Trading v Moldova, the dispute concerned the withdrawal by the government of customs and tax exemption (contained in the country’s investment law) granted to the claimant’s retail customers for purchases of goods made in an economic free zone where the claimant conducted its business. The change in the customs and tax regime had a negative effect on the claimant’s profitability for which it 135 See the references to the thinking underlying the emergence of investment protection instruments since about 1957 in T Wälde, ‘The “Umbrella” Clause in Investment Arbitration’, 6 JWIT 183 (2005). 136 Above n 82 at paras 86–9. 137 Goetz (Antoine) and Others v Republic of Burundi, ICSID Case No. Arb/95/3, Award of 10 February 1999, 15 ICSID Rev–FILJ 457 (2000) at paras 102 and 124.

350

Thomas w wÄlde and abba kolo

claimed compensation for alleged indirect expropriation. After analysing the parties’ submission, the tribunal concluded that the disputed measure did not amount to an indirect expropriation of the claimant’s investment. It noted that although indirect expropriation might occur through taxation measures, such a finding could only be made when the measures were found to be an ‘abusive taking’, which was not so in this case. According to the tribunal, the disputed changes were neither arbitrary nor discriminatory. Instead, they were changes of general application not directed specifically against the claimant. Furthermore, the tribunal found that the changes did not ‘place the claimant in a worse competitive position than any other similarly situated businesses in Moldova’.138 Feldman v Mexico contains, next to EnCana, the most extensive modern discussion of indirect expropriation and taxation to date. Unlike EnCana, which relies mainly on the ‘direct expropriation’ concept, the Feldman tribunal considered that indirect expropriation was the natural concept to apply to taxation.139 It carried out an extensive analysis with considerable sympathy for the possibility of an indirect expropriation; in the end, it declined to award on the basis of Article 1110 NAFTA (expropriation) and chose instead Article 1102 (national treatment). Reviewing the jurisprudence of other tribunals that grappled with the indirect expropriation concept (mainly Pope & Talbot v Canada), the tribunal focused on the existence of an acquired ‘right’. If the acquired right were, in its economic impact, seriously affected, then, so one can read the award, it would have found an indirect expropriation. But it considered in the end that Feldman did not have an acquired right to receive a VAT refund under the specific circumstances of the case—a ‘grey’ market and unsatisfactory accounting for VAT paid, but rather a mere commercial expectation dependent on the evolution of the regulatory regime, but which had not grown into a secure legal right or a legitimate expectation that government conduct (at one time they paid a VAT refund) would remain stable. Furthermore, it saw no interference with the investor’s control over his business. One should quote here the degree to which, in the tribunal’s view, taxpayers have to tolerate inconsistent conduct by tax authorities: Unfortunately, tax authorities in most countries do not always act in a consistent and predictable way . . . As in most tax regimes, the tax laws are used as instruments of public policy as well as fiscal policy and certain taxpayers are inevitably favoured, with others less favoured or even disadvantaged.140 138 Above n 129 at para 72. The Link-Trading case is significant in the sense that it endorsed the three-pronged criteria (economic impact, breach of investment-backed expectations, and discrimination) for determining indirect expropriation. However, with regard to breach of prior commitment (investment-backed expectation or acquired right), the tribunal held that the commitment that was breached must have been made to the investor himself and not to third parties (such as suppliers, purchasers, or contractors etc) that had business ties with the investor. 139 Above n 78 at para 101: ‘By their very nature, tax measures, even if they are designed to and have the effect of an expropriation, will be indirect, with an effect that may be tantamount to expropriation’. 140 Ibid at para 113.

taxation and modern investment treaties

351

A review of the expropriation discussion in the award suggests three criteria that the tribunal thought key for determining expropriation: 1. the existence of an acquired right; 2. a restriction that is ‘sufficiently restrictive’ (with reference to Pope & Talbot); and 3. a finding that the authorities—legislative, administrative or judicial—behaved in a ‘discriminatory or arbitrary’ (or perhaps unfair or inequitable) way.141 It would tend to be more ready to find indirect expropriation if one of these standards were breached in a particularly intensive way—with a lessening of the intensity of breaches with respect to other criteria; it would also (referring to Metalclad v Mexico) be more ready to find an indirect expropriation if there were a breach of legitimate expectations (though the term is not used explicitly) created in particular by specific assurances without extensive ambiguity and on their face not inconsistent with Mexican law.142 The Feldman tribunal considered the assurances received by Feldman (if at all) ‘at best ambiguous and largely informal’. The treatment suggests that a breach of properly ascertained ‘legitimate expectations’ weighs heavily towards a finding of expropriation, while an absence of such expectations, or their lack of reasonableness and legitimacy, will weigh against the claimant.143 It is instructive to compare Feldman with the EnCana award. On the basis of the Feldman criteria, EnCana should have led to a finding of indirect expropriation: there was an acquired right, a legitimate expectation based on past conduct by PetroEcuador and the tax authorities, and, it appears, underlying a transparent tender for the contracts with Ecuador. Feldman does not require bad faith and/or the final, definitive, comprehensive repudiation by the administration and the courts which the EnCana tribunal required.144

141 Ibid at paras 99 and 141. 142 Ibid at paras 147, 148, and 149. 143 See ADT v Hungary, ICSID Case No. Arb/03/16, Award of 2 October 2006, para 304: ‘There can be no doubt whatsoever that the legislation passed by the Hungarian Parliament and the Decree had the effect of causing the rights of the Project Company to disappear and/or become worthless. The Claimants lost whatever rights they had in the Project and their legitimate expectations were thereby thwarted. This is not a contractual claim against other parties to the Project Agreements. An act of state brought about the end of this investment and, particularly absent compensation, the BIT has been breached. It is common ground that no compensation was offered in respect of this taking. Further, the Tribunal is satisfied that no case has been made out that the taking was in the public interest. The subsequent privatization of the airport involving BAA and netting Hungary US$ 2.26 billion renders any public interest argument unsustainable. In the opinion of the Tribunal, this is the clearest possible case of expropriation.’ 144 Though the Feldman tribunal did suggest that getting a formal legal clarification from the competent government authority or recourse to a court would have helped to establish an acquired right— that then can be seen as being expropriated (above n 78 at paras 149, 124). Unlike EnCana, it seems to have tried to use such recourse—administrative or judicial—as ways to establish if there was an acquired right or legitimate expectation.

352

Thomas w wÄlde and abba kolo

In CSOB v Slovak Republic,145 an argument over taxes played a role, but only in the context of damages; the respondent argued that had it complied with its obligations earlier, the claimant would have had to pay more taxes; that should, in its view, reduce the damages claim. The tribunal did not accept this ‘tax-saving by way of breach of international obligation’ argument. In the El Paso v Argentina jurisdictional award, the tribunal indicated that for an expropriatory tax claim, the taking of a ‘specific legal right’ was required;146 is also found, at least for jurisdiction, enough connection between the tax-related dispute and the investor’s concessions— here concluded with state-owned entities and granting ‘rights to natural resources belonging to the host state’.147

(7) The ‘Tax Filter’: Joint Tax Consultation or Joint Tax Veto as Limitation on the Expropriatory Tax Discipline A very distinctive feature of the regulation of tax measures in modern investment treaties is the ‘joint tax consultation’, sometimes amounting to a ‘joint tax veto’ by the two tax authorities. This mechanism reflects again the particular sensitivity of the tax issue and the reluctance of the tax authorities to let outsiders—private parties, counsel and tribunals—participate in the international tax instruments ‘owned’ by the tax authorities in an inter-governmental forum. It is recognized that expropriatory taxation can be a particularly insidious way to take property in ways that look on the face of it lawful, but on the other hand the tax authorities do not want to give up their powers even in this egregious case. This has led, in treaty formulations, to various forms for interposing the tax authorities (primarily acting jointly) between the parties and a tribunal. Either a joint tax consultation is, with a recommendatory or binding effect of some sort, required before an investment claim becomes admissible or there is a ‘joint tax veto’, where the tribunal’s power to determine the expropriatory character is in effect assigned to the two tax authorities acting jointly. This introduces an element of politics, as implicit in traditional diplomatic protection—an element to subordinate the adjudicatory power of investment treaty 145 CSOB v Slovakia, ICSID Case No. Arb/97/4 Final Award, 29 December 2004, at paras 360–8, available at . 146 Above n 83 at para 107. 147 Ibid at para 108.

taxation and modern investment treaties

353

tribunals to the power of the governments when they act jointly. It recalls the power of the NAFTA Commission to issue legally binding interpretations to tribunals148 and similar powers to issue legally binding opinions to tribunals of new US investment treaty models.149 The major investment treaties (NAFTA, ECT, DR-CAFTA) including the US– Uruguay BIT, US Model BIT (2004) Canada Model BIT (2004) and Japan–Mexico FTA,150 vest in the competent tax authorities the power to filter or veto a complaint by the foreign investor alleging expropriation arising from a taxation measure adopted by the host state. In essence, the treaties require the investor to refer its complaint of expropriatory taxation to the tax authorities prior to or at the time of initiating the arbitration process. The tax authorities are given a time limit (6 or 9 months) within which to decide whether the taxation measure is not expropriatory,151 failing which the investor may proceed with the arbitration.152 Thus, although the competent tax authority procedure cannot be used by the host state to unduly delay the arbitration, nevertheless, it may effectively prevent a purely legal issue from being determined by an arbitral tribunal. 148 Discussed in detail in the Pope & Talbot v Canada damages award, available at . 149 See here the new US—Peru/Colombia Free Trade Agreements, Arts 10.21(3) and 21(3): ‘Where a respondent asserts as a defence that the measure alleged to be a breach is within the scope of an entry set out in Annex I or Annex II, the tribunal shall, on request of the respondent, request the interpretation of the Commission on the issue. The Commission shall submit in writing any decision declaring its interpretation under Article 20.1.3 (Free Trade Commission) to the tribunal within 60 days of delivery of the request.’ This mechanism allows a defendant state, facing a legal interpretation unfavourable to it, to try to persuade, within a fi xed period, the other states to rally to its defence and thus decide the legal issue in lieu of the tribunal. As there is likely to be a collegial give-and-take between states, this mechanism creates considerable asymmetry in the equality at arms between claimant and respondent—and seems to be modelled on the joint tax veto mechanism. Further, sub-article 2 states: ‘A decision issued by the Commission under para 1 shall be binding on the tribunal, and any decision or award issued by the tribunal must be consistent with that decision. If the Commission fails to issue such a decision within 60 days, the tribunal shall decide the issue’. 150 NAFTA Art 2103(6); ECT Art 21(5); DR-CAFTA Art 21.3(6); US–Uruguay BIT Art 21(3); US Model BIT (2004) Art 21(2); Canada Model BIT Art 16(4); Japan–Mexico FTA (2004) Art 170(4). The procedure of ‘reference’ by domestic courts to the European Court of Justice under Art 234 of the EC Treaty could be seen as comparable as well, but here it is to a proper judicial organ, and not two fiscal administrations. 151 It is important to note that under NAFTA Art 2103 the tax authorities can only give a ‘negative opinion—that the tax measure is not expropriatory, not that it is ‘expropriatory’ (that would, in view of the respondent state’s normal position defending its tax measures, not be likely anyway). 152 For instance, under Art XIII US–Azerbaijan BIT (1997), once the tax authorities have decided that the taxation measure is not expropriatory, the investor ‘cannot submit the dispute to arbitration’. But it is not clear whether a negative decision by the tax authorities under NAFTA and the other investment treaties has a similar effect or whether it will only have a persuasive effect on the arbitral tribunal. Under the Energy Charter Treaty (Art 21(5)), the decision by the tax authorities only has a persuasive effect (albeit quite a powerful one) in that the arbitration tribunal is enjoined to ‘take into account any conclusion arrived at by the competent tax authorities’, unlike that arrived at under NAFTA, DR-CAFTA or the Canadian Model BIT, which is probably binding on both the tribunal and the investor.

354

Thomas w wÄlde and abba kolo

To sum up, the expropriatory provisions of the more recent investment treaties reflect the tensions and conflicts between those who wish to preserve and possibly extend international disciplines on the tax and regulatory power of states on the one hand and those—presumably in the main tax authorities, nationalistic governments and NGOs—who seek to minimize the impact of international, treaty-based disciplines on the domestic political process, a tension that is well illustrated in the ‘Federalist Papers’ debate concerning the US Constitution, that is between those in favour of a rule of law protecting minorities against favouring extensive constitutionally unchecked powers of majority rule arising out of the political process.153 In making a finding of confiscatory tax/indirect fiscal expropriation, it is not only the impact of the measure, but also the disappointment of legitimate expectations and the conformity (or not) of the tax measure at issue with accepted tax practices in the major legal systems which are determinative.

(8) Taxation and Transparency As part of the increasing liberalization of investment legislation and protection of foreign investors, a number of investment treaties impose on the contracting parties the obligation to make public their laws, regulations, judicial and administrative decisions, and rulings relating to investment, and to promptly respond to inquiries from interested foreign investors.154 Some investment treaties further require parties to receive and consider comments from interested individuals and groups 153 See Ron Chernow, Alexander Hamilton (New York, The Penguin Press, 2004) which includes a discussion of the debate in the Federalist Papers; Jack Rakove, Original Meanings, Politics and Ideas in the Making of the Constitution (New York, Vintage Books, 1977). This debate continues between the proponents of investment arbitration (as well as the WTO and even human rights) as international adjudicated disciplines on political, regulatory, and administrative conduct in host states and those who advocate a minimalist approach against such external control as unwarranted intrusion into the domestic political process and regulatory space. See eg several key papers on that position (von Moltke, H Mann) on . 154 OECD, above n 93 at 23; idem, The Fair and Equitable Treatment Standard in International Investment Law (Paris, OECD, 2004) 37–9, available at ; UNCTAD, Fair and Equitable Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) at 51 ff; UNCTAD, Transparency, Series on issues in international investment agreements (New York and Geneva, United Nations, 2004) p 71, available at ; Wälde’s Separate Opinion in the Thunderbird v Mexico NAFTA case, above n 105 includes an extensive discussion of the sources of transparency as a modern expression of the traditional good-faith principle in international law, including a review of relevant recent arbitral jurisprudence; see also the detailed Dissenting Opinion of Grigera Naon in the EnCana v Ecuador case, above n 3.

taxation and modern investment treaties

355

regarding proposed legislation so as to enable those directly affected by the proposed legislation to have a say in the law-making process.155 These are general requirements of transparency which might not be directly applicable to taxation matters under such treaties in view of the exclusion of tax matters from coverage under most investment treaties; however, they will inform the way the generally applicable goodfaith principle is applied to tax matters from which it is not, and arguably cannot, be excluded. The 2002 Japan–Korea BIT and the draft MAI expressly provide that the provisions on transparency shall apply to taxation measures.156 Article VIII(3) of the draft MAI states that the transparency provision of the treaty shall apply to taxation measures, except that no party is obliged to disclose confidential information regarding a taxpayer as provided for under the country’s domestic laws or international agreements. Transparency, and, in its wake, the concept of legitimate expectations as a generally recognized principle of comparative administrative law of the principal legal systems of well-governed countries, of international public law and international investment law, are therefore part of the legal order established by investment treaties applicable to tax matters—irrespective of the fact that some specific treaty disciplines—for example, fair and equitable treatment or national/most favoured treatment—may be excluded from application to tax-related investment disputes. The rationale behind the application of these principles to guide the application of the treaty’s specific disciplines is to contribute to the rule of law157 and prevent a manifest and substantial abuse of power by governments against foreign investors. That is part of the goodgovernance role of investment treaties; by external disciplines, they aim not just at protecting specific investors, but help host states upgrade their legal regime—both in formal and in substantial, practical terms.158 The point of applying the transparency and legitimate expectations principles is to prevent host states from springing surprises on unwary or unsuspecting foreign investors and to curb possible abuse of tax legislation (especially through reinterpretation and rulings by tax authorities) 155 eg Art 12.11 DR-CAFTA; Art 19 Canada Model BIT (2004); Art 20 ECT; Art 1802 NAFTA; Art XVI(2) Canada–Ukraine BIT (1994) (and the same article in the Canada–South Africa, Canada– Armenia, and Canada–Latvia BITs respectively); Art 15 Japan–Russian Federation BIT (1998); Art 3(2) Lithuania–Kuwait BIT; UNCTAD, Transparency (2004), above n 154; OECD, above n 93 at 66–67. 156 Art 19(2) Japan–Korea BIT states that the provision on transparency together with the fair and equitable treatment standard and other specified obligations shall apply to taxation measures. By Art 7(1) of the treaty, ‘each contracting party shall promptly publish, or otherwise make publicly available, its laws, regulations, administrative rulings and judicial decisions of general application as well as international agreements which pertain to or affect investment and business activities’. Under para 2, ‘each contracting party shall, upon request of the other contracting party, promptly respond to specific questions and provide that other contracting party with information on matters set out in paragraph 1 of this treaty’. 157 S Schill, ‘Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of Law’, IILJ Working Paper 2006/6, available at . 158 Wälde, above n 56.

356

Thomas w wÄlde and abba kolo

in a manner that would adversely affect the economic interests of foreign investors. While international law is not meant to ‘freeze’ domestic regulation from evolving reasonably and in line with accepted standards, the principles of transparency and legitimate expectations are meant to keep the state from abusing its dual power as both seller/contract party and as sovereign regulator in undoing the terms of deals agreed upon freely. States have numerous possibilities at their disposal—enacting new law with retroactive effect, using their control over administrative agencies and courts to bring in a surprising fundamental re-orientation of the law under which the investment was made or applying existing law in a way that singles out the foreign investor(s) in a detrimental way to satisfy domestic political agitation. Legal certainty, transparency, and reasonable respect for—reasonable—legitimate expectations are hence the essential constituents of the ‘rule of law’ in practical and effective, rather than only in nominal and formalistic terms. The main concern therefore is stability of the legal and business framework under which the investment was made and the protection of the legitimate expectations of the foreign investor.159 The application of tax law has to be constrained by the generally recognized principles of transparency, legal certainty, and legitimate expectation. These principles can be based on the over-arching ‘good-faith’ principle of international law, but they are also nothing but key components of the modern concept of ‘rule of law’ and ‘good governance’. As noted earlier, it is nothing more than the modernization of standards that have been expressed over and over in authoritative international instruments (eg the Harvard Draft, the commentaries to the OECD investment model agreement, the US Restatement, the World Bank Foreign Investment Guidelines, the draft MAI) and in modern arbitral jurisprudence. Nor do these principles fall from the air or from interpreters’ heads: most or all investment treaties explicitly mention liberalization of investment conditions and promotion of investment by greater predictability, certainty, and transparency. It is sufficient to take the Preamble to the NAFTA (‘predictable commercial framework for business planning and investment’), its list of objectives (promote conditions of fair competition, increase substantially investment opportunities) or the Energy Charter Treaty 159 For instance, in Occidental v Ecuador, the tribunal held that the reinterpretation of the tax law by the tax authorities and the demand on the claimant to pay back previous VAT refunds was inconsistent with the host state’s international obligation not to alter the business and legal environment in which the investment had been made, above n 82 at paras 273–4. Although the tribunal did not expressly mention transparency, it is implicit from the decision that it was based on the principle which, as we noted earlier, is an element of the fair and equitable treatment standard. Even the EnCana v Ecuador tribunal—which in the end rejected the investor’s claim (arguing it should have formulated its claim rather on the basis of its economic stabilization clause with Petro-Ecuador than as a tax-related claim)—highlighted in a careful analysis the various ways in which the Ecuadorian government introduced through presidential pressure, the tax services efforts, and ultimately through an ‘interpretation law’ an interpretation that was different from what was practised before and on which the investors had based their tender offer for petroleum development contracts with the state company Petro-Ecuador; one should note here the dissent by Grigera Naon highlighting the application of the principle of legitimate expectation (above n 3).

taxation and modern investment treaties

357

(‘create a climate favourable to the flow of investment’, ‘a transparent and equitable legal framework for foreign investments’ or a ‘stable and transparent legal framework’).160 These objectives, in accordance with Article 31 of the Vienna Convention on Treaties, have to guide the application of treaty disciplines to tax-related investment disputes. Comparative tax law thus serves as a tool to identify when tax surprises ‘go too far’. Tax surprises can easily ‘go too far’ when governments rely on open-ended legislation (eg the function of anti-avoidance legislation to question virtually every transaction with a tax planning motive) involving considerable discretion.161

Concluding Remarks In this chapter, we have presented an overview of how tax matters are regulated in modern investment treaties, including the underlying policy issues that are reflected in the tension between international controls on the one hand and tax sovereignty on the other. That tension is also mirrored in the much slower progress in tax treaties, where mere intergovernmental consultation seems gradually to be giving way to more formal procedures of inter-state arbitration, with quite a weak role for the individual tax-payer. In comparison with tax treaties, investment treaties have advanced further in imposing relevant external controls on domestic fiscal conduct. It seems to us that these tensions are indicative of the gradual and bumpy transition from the conceptual legal heritage of the nation state to the required legal approaches required in the modern market state. Law and lawyers in particular are conceptually imprisoned by the legal tradition of the nation state, nowhere more so than in public international law. As the development of law proceeds at a slow and majestic pace, new approaches—international disciplines—and traditional approaches—tax sovereignty—wrest with each other in treaty language, application, and commentary. The resolution of these tensions can only progress gradually as legal innovation is backed by attitudinal and cultural acceptance. This chapter has only been able to provide an overview of both modern tax-related investment treaty practice and some of the issues that arise when the specific treaty disciplines (in particular, fair and equitable treatment, national treatment, indirect expropriation) are applied to tax-related investment disputes. Furthermore, in-depth work is needed to use the full gamut of already available arbitral jurisprudence and academic commentary to the specific tax-related investment disputes we now see emerging. 160 From the 1991 ‘European Energy Charter’ that is explicitly referred to in the 1994 Energy Charter Treaty, reprinted in Wälde, above n 71 at 603 ff. 161 See further G Cooper (ed), Tax Avoidance and the Rule of Law (Amsterdam, IBFD, 1997).

358

Thomas w wÄlde and abba kolo

Select Bibliography Albrecht, A ‘Taxation of Aliens under International Law’, 29 BYIL 145 (1952) American Law Institute, Restatement of the Law Third, The Foreign Relations Law of the United States (St Paul, Minn, ALI, 1987) Anderson, H, ‘The Federal Production Tax Credit: Will its Expiration End the United States Wind Industry?’ in Environmental Law Institute (ELI), The Environmental Law Reporter 1 (2002) Anderson, T, Multinational Investment in Developing Countries: A Study of Taxation and Nationalisation (London, Routledge, 1991) Anderson, W, Taxation and the American Economy: An Economic, Legal and Administrative Analysis (New York, Prentice Hall, 1951) Arnold, B, and McIntyre, M, International Tax Primer (The Hague, Kluwer Law International, 2nd edn, 2002) Asante, SK, ‘The Concept of Good Corporate Citizen in International Business’, 4 ICSID Rev–FILJ 1 (1989) Avi-Yonah, R, ‘International Tax as International Law’, 57 Tax L Rev 483 (2004) Baker, P, ‘Taxation and the European Convention on Human Rights’, BTR 211 (2000) Bartlett, R, ‘The Making of Double Taxation Agreements’, BTR 76 (1991) Berger, KH, ‘Renegotiation and Adaptation of International Investment Contracts: The Role of Contract Drafters and Arbitrators’, 36 Vand J Transnat’l L 1347 (2003) Bernstein, W, The Birth of Plenty: How the Prosperity of the Modern World was Created (New York, McGraw-Hill, 2004) Beveridge, Fiona, The Treatment and Taxation of Foreign Investment under International Law (Manchester, Manchester University Press, 2000) Bobbitt, Philipp, The Shield of Achilles: War, Peace and the Course of History (New York, Borzoi Books, 2002) Brauner, Y, ‘International Trade and Tax Agreements may be Coordinated, but Reconciled’, 25 Va Tax Rev 251 (2005) Brennan, G, and Buchanan, T, ‘Towards a Tax Constitution for Leviathan’, J of Public Economics 8 (1977) Brower, C, and Steven, L, ‘Who Then Should Judge?: Developing the International Rule of Law under NAFTA Chapter 11’, 2 Chi J Int’l L 193 (2001) Bruggen, E, ‘ “Good Faith” in the Application and Interpretation of Double Taxation Conventions’, BTR 25 (2003) Byrne, J, ‘NAFTA Dispute Resolution: Implementing True Rule-Based Diplomacy through Direct Access’, 35 Texas Int’l L J 415 (2000) Cameaux, P, and Kinsella, N, Protecting Foreign Investment under International Law: Legal Aspects of Political Risk (Dobbs Ferry, NY, Oceana Publications, 1997) Chernow, Ron, Alexander Hamilton (New York, The Penguin Press, 2004) Chua, Amy, ‘The Privatisation-Nationalisation Cycle: The Link between Markets and Ethnicity in Developing Countries’, 95 Col L Rev 223 (1995) Coale, M, ‘Stabilisation Clauses in International Petroleum Contracts’, 30 Denv J Int’l L & Pol’y 217 (2001–2) Coenen, D, and Hederstein, W, ‘Suspect Linkages: The Interplay of State Taxing and Spending Measures in the Application of Constitutional Anti-discrimination Rules’, 95 Mich L Rev 2167 (1997)

taxation and modern investment treaties

359

Cooper, G (ed), Tax Avoidance and the Rule of Law (Amsterdam, International Bureau of Fiscal Documentation, 1997) Coussirat-Coustere, V, and Eisemann, P, Repertoire de la jurisprudence arbitrale internationale, T. III (Dordrecht, Nijhoff Publishers, 1991) Daintith, T (ed), The Legal Character of Petroleum Licences: A Comparative Study, (Dundee, CPMLS, 1981) ——, and Gault, I, ‘Pacta Sunt Servanda and the Licensing and Taxation of North Sea Oil Production’, 8 Cambrian L Rev 27 (1977) Desai, M, Foley, C, and Hines Jr, J, ‘Capital Controls, Liberalisations, and Foreign Direct Investment’, 19 The Review of Financial Studies 1433 (2006) Dolzer, R, ‘Indirect Expropriations of Alien Property’, 1 ICSID Rev–FILJ 41 (1986) Easson, A, Taxation of Foreign Direct Investment: An Introduction (The Hague, Kluwer Law International, 1999) ——, ‘Taxation, Regulation and Confiscation’ 20 Osgoode Hall LJ 433 (1982) Epstein, R, Takings: Private Property and the Power of Eminent Domain (Cambridge, Mass, Harvard University press, 1985) Fortier, L Yves, and Drymer, Stephen L, ‘Indirect Expropriation in the Law of International Investment’, 19 ICSID Rev–FILJ 293 (2004) Friedländer, Saul, Nazi Germany and the Jews, Vol I (1933–39) (New York, Harper Collins, 1977) Gaillard, E, ‘L’arbitrabilité des litiges fiscaux dans les investissements internation aux’, Rev Prat Dr Ent (1999) Garnaut, R, and Ross, A Clunies, Taxation of Mineral Rents (Oxford, Clarendon Press, 1983) Girvan, N, Corporate Imperialism: Conflicts and Expropriation—Transnational Corporations and Economic Nationalism in the Third World (New York, ME Sharpe Inc, 1978) Green, R, ‘Anti-Legalistic Approaches to Resolving Disputes between Governments: A Comparison of the International Tax and Trade Regimes’, 23 Yale J Int’l L 79 (1998) Gribnau, H (ed), Legal Protection against Discriminatory Tax Legislation: The Struggle for Equality in European Tax Law (The Hague, Kluwer Law International, 2003) Henckaerts, JM, ‘International Arbitration and Taxation—The EC Arbitration Convention for Transfer Pricing Disputes’, 10 J Int’l Arb (1993) Hinnekens, L, ‘The European Tax Convention and its Legal Framework’, BTR 132 and 272 (1996) ——, ‘The Search for the Framework Conditions of the Fundamental EC Treaty Principles as Applied by the European Court to Member States’ Direct Taxation’, 11 EC Tax Rev 112 (2002) Horn, N (ed), Legal Problems of Code of Conduct for Multinational Enterprises (The Hague, Kluwer, 1980) James, Harold, The Deutsche Bank and the Nazi Economic War against the Jews (New York, Cambridge University Press, 2001) James, S and Nobles, C, The Economics of Taxation: Principles, Policy and Practice (Harlow, Princeton Hall/FT, 7th edn, 2004–5) Jones, A, et al, ‘The Legal Nature of the Mutual Agreement Procedure under the OECD Model Convention (pt. 1)’, BTR 333 (1979) Kaeckenbeeck, G, The International Experiment of Upper Silesia (Oxford, Oxford University Press, 1942)

360

Thomas w wÄlde and abba kolo

Kantor, M, ‘International Project Finance and Arbitration with Public Sector Entities’, 24 Fordham Intl LJ 1122 (2001) Keeling, E, and Shipwright, A, ‘Some Taxing Problems Concerning Non-discrimination and the EC Treaty’, 20 Euro L Rev 580 (1995) Kobrin, S, ‘Foreign Enterprise and Forced Divestment in LDCs’, 34 Int’l Org 65 (1980) Kunig, P, Law, N, and Meng, W (eds), International Economic Law, Basic Documents (Berlin, Walter de Gruyter, 1989) Kwass, M, Privileges and the Politics of Taxation in Eighteenth Century France (Cambridge, Cambridge University Press, 2000) Le Gall, JP, ‘Fiscalité et arbitrage’, Rev de l’Arbitrage 3 (1994) Manciaux, S, ‘Changement de legislation fiscale et arbitrage international’, 2(3) TDM (2005); available at Massey, C, ‘Takings and Progressive Rate Taxation’, 20 Harv J L & Pub Policy 85 (1996) Metzger, C, ‘Brief History of Income Tax’, 13 ABA J 662 (1927) Miceli, T, Economic Approach to Law (Stanford, Calif, Stanford University Press, 2003) Muchlinski, Peter T, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) Neff, S, Friends but not Allies (New York, Columbia University Press, 1990) Newcombe, A, ‘The Boundaries of Regulatory Expropriation in International Law’, 20 ICSID Rev–FILJ 1 (2005) OECD, ‘ “Indirect Expropriation” and the “Right to Regulate” in International Investment Law’ (Paris, OECD, 2004) Oliver, D, ‘Tax Treaties and the Market-State’, 56 Tax L Rev 587 (2002–3) Otto, James (ed), Mineral Taxation (The Hague, Kluwer Law International, 1994) Park W, and Tillinghast, D, Income Tax Treaty Arbitration (Amersfoort, Sad Fiscale & Financiele Vitgerers, 2004) Patomaki, H, Democratising Globalisation: The Leverage of the Tobin Tax (London, Zed Books, 2001) Paulsson, J and Douglas, Z, ‘Indirect Expropriation in Investment Treaty Arbitrations’, in N Horn and S Kroll (eds), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (The Hague, Kluwer Law International, 2004) Picciotto, S, International Business Taxation: A Study in the Internationalization of Business Regulation (New York, Quorum Books, 1992) Quicle, R, and Lau, C, ‘Environmentally Motivated Tax Distinctions and WTO Law: The European Commission’s Green Paper on Integrated Product Policy in Light of the “Like Product” and “PPM” Debates’, 6 JIEL 419 (2003) Rabushka, A, ‘The Colonial Roots of American Taxation, 1607–1700’, Policy Rev 61 (2003) Rakove, Jack, Original Meanings, Politics and Ideas in the Making of the Constitution (New York, Vintage Books, 1977) Randall, S, United States Foreign Oil Policy since World War I: For Profits and Security (Montreal, McGill-Queens Native and Northern Series, McGill-Queen’s University Press, 2nd edn, 2005) Sabine, B, A Short History of Taxation (London, Butterworths, 1980) Sandler, D, Tax Treaties and Controlled Foreign Company Legislation (The Hague, Kluwer Law International, 1998) Sedler, R, ‘The Negative Commerce Clause as a Restriction on State Regulation and Taxation: An Analysis in Terms of Constitutional Structure’, 31 Wayne L Rev 886 (1985)

taxation and modern investment treaties

361

Seidl-Hohenveldern, I, Internationales Konfisckations und Enteignungsrecht (Tübingen, de Gruyter, 1952) Siegel, D, ‘Legal Aspects of the IMF/WTO Relationship: The Fund’s Articles of Agreement and the WTO Agreements’, 96 AJIL 561 (2002) Smith, E, ‘US Legislative Incentives for Wind-Generated Electricity: State and Local Statutes’, 23 JENRL 173 (2005) Sornarajah, M, The International Law of Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004) Stanley, Jon, ‘Keeping Big Brother out of our Backyard: Regulatory Takings as Defined in International Law and Compared to American Fift h Amendment Jurisprudence’, 15 Emory Int’l L Rev 349 (2001) Sundber, J, ‘The High Tax Society: A Pilot Study from Sweden’, 29 ICLQ 452 (1980) Swank, D, Global Capital, Political Institutions and Policy Changes in Developing Welfare States (Cambridge, Cambridge University Press, 2002) ——, European Tax Law (The Hague, Kluwer Law International, 4th edn, 2005) Terra, B, and Wattel, P, ‘The EC Court’s Attempts to Reconcile the Treaty Freedoms with International Tax Law’ 33 CML Rev 223 (1996) Twyman Jr, W, ‘Justice Scalia and Facial Discrimination: Some Notes on Legal Reasoning’, Va Tax Rev 103 (1998) UNCTAD, Transfer Pricing, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) Van Brauman, Martin M, and Mangano, Clifford A, ‘Resource Rent Taxation as a Basis for Petroleum Tax Policy by Foreign Governments and its Relationship to U.S Foreign Tax Credit Policy and Tax Law’, 20 JENRL 19–52 (2000) Vandevelde, K, ‘The Political Economy of the Bilateral Investment Treaty’, 92 AJIL 621 (1998) Van den Nor, P, and Heady, C, Surveillance of Tax Policies: A Synthesis of Findings in Economic Surveys (OECD, Economic Department Working Paper No. 303, 2001) Van Harten, G, and Loughlin, M, ‘Investment Treaty Arbitration as an Aspect of Global Administrative Law’, 17 Euro J Int’l L 121 (2006) Vogel, Klaus, et al, Double-Taxation Conventions (London, Kluwer Law International, 3rd edn, 1999) ——, ‘International Investment under the 1994 Energy Charter Treaty’, 29 JWT 5 (1995) Wälde, T (ed), Energy Charter Treaty (London and Boston, Kluwer Law International, 1996) ——, International Investment under the 1994 Energy, Charter Treaty’, in T Wälde (ed), The Energy Charter Treaty (The Hague: Kluwer Law International 1996) ——, (ed), The Energy Charter Treaty (The Hague, Kluwer Law International, 1996) ——, ‘Renegotiating Previous Governments’ Privatization Deals: The 1997 UK Windfall Tax on Utilities and International Law’, 19 Northwestern J Int’l L & Bus 405 (1999) ——, and Kolo, A, ‘Environmental Regulation, Investment Protection and Regulatory Taking in International Law’, 50 ICLQ 811 (2001) ——, ‘Investment Arbitration as a Discipline of Good Governance’, in T Weiler (ed), NAFTA: Investment Law and Arbitration (Ardsley, NY, Transnational Publishers, 2004) ——, ‘The “Umbrella” Clause in Investment Arbitration’, 6 JWIT 183 (2005) ——, New Aspects of Investment Law (Leiden: Nijhoff Publishers, 2006)

362

Thomas w wÄlde and abba kolo

Wallace, C, The Multinational Enterprise and Legal Control: Host State Sovereignty in an Era of Economic Globalisation (The Hague, Martinus Nijhoff, 2002) Weiler, J (ed), The EU, the WTO, and the NAFTA (Oxford, Oxford University Press, 2000) Weiler, T, ‘Foreign Investment and the United States: You Can’t Tell the Players without a Score Card’, 37 Int’l Law 279 (2003) Wolf, M, ‘Does Globalisation render States Impotent?’, BTR 537 (2000) Yannaca-Small, K, ‘Indirect Expropriation and the Right of the Governments to Regulate Criteria to Articulate the Difference’, in C. Ribeiro (ed), Investment Arbitration and the Energy Charter Treaty (Turkington, NY, Juris Net, 2006) Yergin, D and Stanislaw, J, The Commanding Heights: The Battle between Governments and Market Place that is Remaking the World (New York, Simon & Schuster, 1998) Zorn, S, ‘Unilateral Action by Oil-Producing Countries: Possible Contractual Remedies of Foreign Petroleum Companies’, 9 Fordham Int’l L J 63 (1985–86) Zuger, M, ‘Mutual Agreement and Arbitration Procedures in a Multilateral Tax Treaty’, in M Lang et al (eds), Multilateral Tax Treaties: New Developments in International Tax Law (London, Kluwer Law International, 1998)

chapter 10

MO S TFAVOU R E D  N AT IO N T R E AT M E N T Pia Acconci * (1) The Essential Features of the MFN Standard

365

(2) The MFN Treatment Standard as a Treaty Clause

367

(a) The MFN Clause in BITs (b) The MFN Clause in other International Instruments

(3) The International Case-Law Applying the MFN Standard (a) Substantive Treatment (b) Procedural Matters

Concluding Remarks

370 373

381 381 387

401

* The author wishes to express her gratitude and appreciation to Professors Andrea Bjorklund and Friedl Weiss for their valuable comments on an earlier draft of this chapter and to Professors Christoph Schreuer, Peter Muchlinski, and Thomas Wälde for their support. The opinions stated, as well as any inaccuracies or mistakes, are those of the author alone.

364

Pia Acconci

With increasing globalization, and with most developing countries no longer advocating the establishment of a New International Economic Order (NIEO), the so-called ‘open-door policy’ on foreign investment has become widespread and the non-discrimination principle is generally more accepted than in the past. The two typical non-discriminatory treatment standards, that is most-favoured-nation and national treatment, are usually included in international treaties, whether bilateral or multilateral, concluded in the field of foreign investment. As is well known, the most-favoured-nation standard takes the rights granted by the host state to foreign investors of other countries as a benchmark, whereas under the national treatment standard the foreign investor is entitled to be treated as a host state national would be.1 These are both relative standards, that is, variable and comparative, as they presuppose comparison with the way other foreign investments (most-favoured-nation treatment, MFN) and national ones (national treatment) are dealt with by the host state in a like situation. Their aim is to ensure uniformity and equality of the treatment granted by a host state and to balance competition in this country’s market. This chapter will assess how the mostfavoured-nation treatment standard has come to be regularly included in international instruments and treaties concerning foreign investment. After outlining the special features of this standard in international investment law, it will examine the relevant cases2 that have, inter alia, dealt with claims for applying such a standard differently from what many states and scholars were expecting. Then, the chapter will evaluate whether or not this case-law is actually altering the present international scenario for foreign investment, as one could think in light of the debate which arose from the ICSID Awards in the Maffezini and other subsequent cases.3

1 For a historical overview of the most-favoured-nation treatment standard and a comparison of its application in the field of trade in goods with that in international investment law, see J Kurtz, ‘The Delicate Extension of Most-Favoured-Nation Treatment to Foreign Investors: Maffezini v Kingdom of Spain’ in T Weiler (ed), International Investment Law and Arbitration (London, Cameron May, 2005) at 523ff. As regards reference to this treatment standard in international agreements concluded before the World War, see B Nolde, ‘La clause de la nation la plus favorisée et les tarifs préférentiels’, Recueil des Cours (1932-I) at 5ff. 2 For a quick survey of the relevant case-law to evaluate the functioning of the most-favourednation treatment clause in international investment law, cf M-F Houde and F Pagani, ‘Most-FavouredNation Treatment in International Investment Law’, in OECD International Investment Law: A Changing Landscape (Paris, OECD, 2005) at 127ff. 3 Maffezini v Spain, ICSID Case No. Arb/97/7 Decision on Objections to Jurisdiction, 25 January 2000, 16 ICSID Rev–FILJ 212 (2001). This decision is available on the ICSID website at . See further R Teitelbaum, ‘Who’s Afraid of Maffezini? Recent Developments in the Interpretation of Most Favored Nation Clauses’, 22 J Int Arb (2005) at 225ff.

Most-Favoured-Nation Treatment

365

(1) The Essential Features of the MFN Standard Commonly, uniformity and equality are deemed appropriate terms to define what consequences are supposed to derive from reference to the non-discrimination principle.4 Undoubtedly, this does not mean that such a principle obliges a host state to grant an ‘equal or identical treatment’ to all investors operating on its territory. A host state can grant different treatment to investors from different foreign states, if they are in a different objective situation. That is why investment treaties often include the ‘in like situations’ or ‘in like circumstances’ requirement in their most-favoured-nation treatment clauses. This means that such clauses apply only to investors and investment that are ‘in like situations’ or ‘in like circumstances’.5 Reference to this requirement underlines the comparative nature of the non-discriminatory treatment standards and the key role of comparators. As the ultimate goal of the non-discrimination principle is to make foreign investors from different countries and national investors compete on the same level, it is enough that a host state accords foreign investors a ‘ “treatment no less favourable” than that accorded to the “most favoured” third nation . . . and to [its] nationals’,6 provided that the ejusdem generis principle is satisfied. The ejusdem generis principle requires that the international treaty including a most-favoured-nation clause (so-called ‘basic treaty’) deals with the same subject-matter as the international treaty providing for the most favourable treatment (so-called ‘third-party treaty’).7 Otherwise, in conformity with general rules of international law, the ‘third-party treaty’ is res inter alios acta in respect of the state which, under the ‘basic treaty’, is the beneficiary of the most-favoured-nation treatment.8 4 As regards the functioning of a most-favoured-nation clause as a means to ensure equality among States, cf the judgment of the International Court of Justice in The Case Concerning Rights of Nationals of the United States of America in Morocco (France v United States of America), 27 August 1952, ICJ Pleadings, Morocco Case, 1953, vol I and vol II. 5 See UNCTAD, Most-Favoured-Nation Treatment, Series on issues in international investment agreements (New York and Geneva, United Nations, 1999) at 7. 6 Cf UNCTAD, Trends in International Investment Agreements: An Overview (New York and Geneva, United Nations, 1999) at 60. See generally Art 5 of the Draft Articles on Most-FavouredNation Clauses prepared by the UN International Law Commission (below 13). 7 See E Ustor, ‘Most-Favoured-Nation Clause’, 3 EPIL 472 (1997), who points out that, under the ejusdem generis principle, not only subject-matter, but also ‘persons and things’ are to be ‘of the same category’. As regards a possible definition of the ‘basic treaty’, cf the judgment of the International Court of Justice in The Anglo-Iranian Oil Company (Jurisdiction) Case (United Kingdom v. Iran), 22 July 1952, (1952) ICJ Reports at 109. See generally Arts 9 and 10 of the Draft Articles on MostFavoured-Nation Clauses prepared by the UN International Law Commission (below 13). 8 In this connection, see the ICJ judgment in the Anglo-Iranian Oil Company (Jurisdiction) case, above n 7 at 109.

366

Pia Acconci

From a foreign investor’s point of view, both the non-discriminatory standards, being variable, do not, however, ensure certainty of treatment. In order to achieve the highest level of protection possible, modern international treaties concerning foreign investment prescribe that a contracting state has to grant another contracting state’s investors most-favoured-nation treatment or national treatment, ‘whichever is the more favourable’. In addition, these treaties often refer to both such standards combined with other different treatment standards, such as fair and equitable treatment. This is a non-contingent standard, that is, invariable and absolute, since it is independent of the treatment accorded by the same country to other investors. The 1994 Dutch Model BIT provides a typical formulation of how the possible different treatment standards can be combined. By Article 3 (1) and (2): 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 the investments of its own nationals or to investments of any third State, whichever is more favourable to the national concerned.9

Most-favoured-nation treatment cannot apply if only investors of the same country have invested in another country. In such a case there is no possibility of comparing the treatments granted by the same country to foreign investors coming from different countries. Thus, fair and equitable treatment becomes a very important reference standard.10 This is probably one of the main reasons why the latter is often considered more typical of the field of foreign investments than the most-favourednation treatment standard, whose functioning in such a field has indeed been quite a neglected issue so far. Recently, some claimants and scholars have, however, started to be interested in this issue. Actually, applying the most-favoured-nation treatment standard has become one of the most controversial issues in international investment law, 9 See Agreement on Encouragement and Reciprocal Protection of Investments between . . . and the Kingdom of the Netherlands, avalilable at . In this regard, the 2004 German Model BIT (Arts 2 and 3) is also relevant. Some BITs provide for similar clauses. See, inter alia, US–Argentina (1991) Art II; China–Argentina (1992) Art 3(2); Hungary–Czech Republic (1993) Art 3; Bolivia–Peru (1993) Art 3; Norway–Chile (1993), Art 4(1); Netherlands–Lithuania (1994) Art 3; Switzerland–El Salvador (1994) Art 3 (2); Iran–Kazakhstan (1996) Art 4; US–Jordan (1997) Art II; Switzerland–Iran (1998) Art 4. See further Cf MI Khalil, ‘Treatment of Foreign Investment in Bilateral Investment Treaties’ The World Bank Group, Legal Framework for the Treatment of Foreign Investment, (Washington, The World Bank, 1992) vol I, at 13ff, specifically at 25. 10 Cf F Horchani, ‘Le droit international des investissements à l’heure de la mondialisation’, JDI, No. 2. 2004, at 388.

Most-Favoured-Nation Treatment

367

especially since the 2000 ICSID Award in the Maffezini case. As will be seen, the ICSID tribunal established that, by including a most-favoured-nation standard clause in an investment treaty, uniformity can be achieved as regards not only substantive treaty rules but also procedural ones, particularly those concerning dispute settlement and consent to arbitration. Afterwards, other ICSID tribunals interpreted and applied this treatment standard extensively, causing much public debate at an international law level.11 Notably, the line of reasoning adopted by these tribunals has contributed to the ongoing debate on ICSID and its possible reform. In fact, ICSID is criticized by some developed and developing countries that are no longer satisfied with the increasingly frequent recourse to its arbitration by private investors, resulting in increasingly complex amounts of inconsistent case-law.

(2) The MFN Treatment Standard as a Treaty Clause Most-favoured-nation treatment is provided for in a treaty clause. In effect, there are no rules of general international law in this respect.12 This was also the view of the UN International Law Commission which, in 1978, proposed some Draft Articles on Most-Favoured-Nation Clauses to the UN General Assembly to promote negotiations for a pertinent multilateral agreement within the UN.13 These negotiations did not take place. The 1969 Vienna Convention on the Law of Treaties would have been the key reference point for such negotiations, since the most-favoured-nation treatment standard is provided for in a treaty clause. The relevance of such a Convention

11 To present a complete picture, it is noteworthy mentioning that, apart from the Maffezini case (above n 3), the issue of applying the non-discriminatory treatment standards, ie most-favourednation and national treatment, to procedural matters had already arisen in the GATT 1947 framework with the case on s 337. See United States–Section No. 337 of the Tariff Act of 1930, 7 November 1989, 36 GATT BISD 345 (1990), in particular para 5.11. The Report by the panel is available on the WTO website (). 12 See, in general, G Schwarzenberger, International Law (London, Stevens, 3rd edn, 1957) vol I at 240–5; Ustor, above n 7 at 468. 13 The text of the Draft Articles is available on the UN website at . For the work carried out by the International Law Commission in this regard, see ‘Rapport de la Commission à l’Assemblée générale sur les travaux de sa trentième session’, Annuaire de la Commission du droit international, 1978, vol II, deuxième partie.

368

Pia Acconci

would have derived from the fact that, at least partly, it incorporates rules of general international law on the Law of Treaties.14 With respect to international agreements providing for the most-favoured-nation treatment standard in the field of foreign investment, bilateral investment treaties (BITs) must be distinguished from multilateral ones, especially from recent regional ones, which mostly establish free trade areas. Whereas BITs tend to focus on treatment and protection of private investments,15 recent multilateral agreements also tend to ensure progressive liberalization and promotion of trade and investment. Therefore, these agreements, inter alia, deal with matters such as market access, right of establishment, performance requirements, government procurement, and transparency. However, multilateral agreements have only a limited geographical and sectoral coverage and provide more exceptions than BITs. Furthermore, as far as specific treatment standards are concerned, such agreements generally follow the typical formulation of corresponding BITs provisions. Thus, BITs remain basic for evaluating chief trends in present international investment law. In particular, these bilateral treaties, being great in number and being widely applied by international arbitral tribunals, are a very important means to understand the main issues of modern international investment law, such as that related to the functioning of the most-favoured-nation treatment standard. Implementing treaty obligations concerning treatment standards generally means protecting the foreign investor against non-commercial risks, that is, against any action of the host state authorities that may impair his/her legal position and economic activity. Eventually, the observance of these obligations ensures that, during the normal life of an investment, the relationship between a host state and a foreign investor remains almost uneventful. As a rule, the most-favoured-nation clauses included in investment treaties are formulated as unconditional because these clauses are often unrestricted as well as automatically and immediately applicable to investments made by nationals of each contracting state. These clauses are also indeterminate since they are unlimited ratione materiae, ratione personae, and ratione temporis. Furthermore, such clauses are usually reciprocal since they refer to mutual relationships among all contracting states of the investment treaty taken into consideration. On the other hand, since foreign investment is also a field in which states ‘wish to retain their sovereign rights . . . in line with the traditional diversity of their economic structures’,16 investment treaties tend to provide for exceptions and reservations to the

14 See para 59 of the Rapport de la Commission à l ’Assemblée générale sur les travaux de sa trentième session, ibid at 16. 15 Cf KJ Vandevelde, ‘ The Political Economy of a Bilateral Investment Treaty’, 92 AJIL 621 (1998). 16 See Ustor, above n 7 at 472.

Most-Favoured-Nation Treatment

369

most-favoured-nation treatment standard.17 By so doing, a balance can be achieved between the non-discrimination principle and possible diverging interests at stake. Note that to some extent a host state can control the treatment standard accorded to foreign investors under non-discriminatory standards.18 Specifically, with respect to the most-favoured-nation treatment standard, this state’s control derives from the fact that it can decide the treatment granted to the most favoured nation. Thus, a host state can, at least in principle, limit the scope of most-favoured-nation treatment clauses which are included in its international treaties. Mostly, the level of treatment, that is, the content of the rights accorded, is not spelled out directly. Instead these rights are to be inferred from the actual texts of the treaty clauses which provide the treatment standards, and which must be interpreted in conformity with the international rules on treaty interpretation, and from the provisions of other pertinent legal instruments.19 Thus, as there are a very great number of treaties and instruments in the field of foreign investment, determining the field of application of the pertinent most-favoured-nation clauses can be hard. Such a field of application can vary both ratione materiae and ratione personae. Particular problems may arise from the fact that the scope of these clauses may be different from treaty to treaty. Although the main difference between mostfavoured-nation treaty clauses is whether or not they apply only at the post-entry stage or also at the pre-entry stage, there are other important distinctions. For example, some treaties do not limit the functioning of their most-favoured-nation clauses at all, whereas other treaties confine it to specific matters. Hence, it is relevant to examine what sorts of clauses are in principle included in international treaties concluded in the field of foreign investment.20

17 See AA Fatouros, ‘Towards an International Agreement on Foreign Direct Investment?’, 10 ICSID Rev–FILJ 181 (1995) at 195–6. 18 See S Vasciannie, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’, 70 BYIL 99 (1999) at 106. 19 In this regard, G Schwarzenberger agrees with those who describe most-favoured-nation clauses ‘as draft ing (and deletion) by reference’ (above n 12 at 243). 20 Cf D Anzilotti, Cours de droit international (Paris, Recueil Sirey, 1929), who points out that ‘. . . juridiquement parlant, il n’existe pas une clause des la nation la plus favorisée; il existe autant de stipulations distinctes qu’il y a de traités qui la contiennent, de sorte que toute question relative à la nature et aux effets de la clause est avant tout une question d’interprétation d’une clause donnée dans un traité déterminé’ (at 438). See also R Dolzer and T Myers, ‘After Tecmed: Most-Favored-Nation Clauses in Investment Protection Agreements’, 19 ICSID Rev–FILJ 49 (2004) at 50; E Gaillard, ‘Establishing Jurisdiction through a Most-Favored-Nation Clause’, NYLJ (2005) at 8. As for differences among investment treaties cf UNCTAD, Recent Developments in International Investment Agreements, UNCTAD/WEB/ITE/IIT/2005/1, 30 August 2005; UNCTAD, International Investment Rule-Setting: Trends, Emerging Issues and Implications, TD/B/COM.2/68, 18 Janury 2006. See too UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (New York and Geneva, United Nations, 2007) at 38–43; UNCTAD, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006) at 100–5.

370

Pia Acconci

(a) The MFN Clause in BITs BITs typically include a most-favoured-nation clause which runs as follows: Neither Contracting Party shall subject investments in its territory owned or controlled by nationals or companies of the other Contracting Party to treatment less favourable than it accords in equivalent circumstances . . . to nationals or companies of any third State.21

In general, the object of the most-favoured-nation BIT clause is the investment rather than the investor. Anyway, some clauses refer to both22 or only to investors.23 As a rule, most-favoured-nation BIT clauses are unconditional, reciprocal, and indeterminate, although different clauses may be detected. For example, the mostfavoured-nation clauses of a few German BITs cover only ‘similar treaties’ of one contracting Party.24 Besides, some BITs do not refer to the ‘in like [or equivalent] circumstances’ requirement.25 Most BITs refer to treatment standards, including the most-favoured-nation standard, only with respect to the post-establishment phase. In fact, as already pointed out, BIT treatment clauses tend not to deal with admission and establishment matters. This is due to the fact that BITs per se do not grant a general right to make foreign investments. American, and some recent Canadian, BITs are significantly different in this respect, as they also include a most-favoured-nation commitment as regards market access.26 A similar undertaking is also provided by 21 Germany–Barbados (1994) Art 3(1). See, inter alia, Canada–Poland (1990) Art III; Australia– Vietnam (1991) Art 4; France–Mongolia (1991) Art 4; France–Vietnam (1992) Art 4; Australia– Romania (1993) Art 4; Poland–UAE (1993) Art 3(1); UK–Honduras (1993) Art 3(1); Argentina–Venezuela (1993) Art 4; Israel–Estonia (1994) Art 3(1); Israel–Ukraine (1994) Art 3(1); UK–India (1994) Art 4; UK–Turkmenistan (1995) Art 3; Canada–Trinidad & Tobago (1995) Art III; Norway–Peru (1995) Art 4; Spain–Colombia (1995) Art IV(2); Israel–India (1996) Art 4(1); US–Bahrain (1999) Art 2(1); US–El Salvador (1999) Art II(1); India–Ghana (2000) Art 4(1). See or ICSID, Investment Treaties (Oceana/Oxford University Press) Vols 1–9 (periodically updated). 22 See the 2004 Canadian Model BIT, Art 4 at , and the 2004 US Model BIT, Art 4 at . 23 See some German BITs, such as Germany–Kuwait (1994) Art 3(2); Germany–Thailand (2002) Art 3. at . See also the 2005 German Model BIT, Art 4(4) available at . 24 See eg Germany–Romania (1979) Art 2. see J Karl, ‘The Promotion and Protection of German Foreign Investment Abroad’, 11 ICSID Rev–FILJ 1 (1996) at 13. 25 See, inter alia, Australia–Vietnam (1991) Art 4; Australia–Romania (1993) Art 4; UK–Honduras (1993) Art 3; China–Slovenia (1993) Art 3; Czech Republic–Hungary (1993) Art 3; Poland–UAE (1993) Art 3; Argentina–Venezuela (1993) Art 4; Bolivia–Peru (1993) Arts 3, 7; Netherlands–Lithuania (1994) Art 3; Israel–Estonia (1994) Art 3; Italy–UAE (1995) Art 3; Spain–Colombia (1995) Art IV; Norway–Peru (1995) Art 4; Israel–India (1996) Art 4; Italy–Czech Republic (1996) Art 3. See or ICSID, Investment Treaties above n 21. 26 See eg Canada–Latvia (1995) Art II(3); Canada–South Africa (1995) Art II(3); US–Nicaragua (1995) Art II(1); Canada–Egypt (1996) Art II(3); Canada–Panama (1996) Art II(3); Canada–Venezuela (1996) Art II(3); Canada–Thailand (1997) Art II(3); US–Azerbaijan (1997) Art II(1); US–Jordan (1997) Art II(1); US–Bahrain (1999) Art 2(1); US–El Salvador (1999) Art II(1). See or ICSID, Investment Treaties. See also the 2004 Canadian Model BIT, Art 4 above n 22 and

Most-Favoured-Nation Treatment

371

the 1988 BIT between Japan and China.27 In any case, most of the treaty obligations concerning treatment standards cover ‘the management, maintenance, use or enjoyment of investments’28 or ‘activities in connection with investments’29 or ‘activities associated with investments.’30 Furthermore, beyond an indefinite mostfavoured-nation clause, many BITs include other most-favoured-nation clauses in relation to specific matters. Notably, some BITs include a most-favoured-nation treatment clause concerning transfers of payments or in general ‘returns on investments’. These clauses may run as follows: . . . the contracting States undertake to accord to transfers . . . a treatment as favourable as that accorded to transfers originating from investments made by investors of a third State.31 There are also specific treaty clauses which provide for the most-favoured-nation standard to ensure equality of treatment of foreign investments as regards the consequences of expropriations, nationalizations, or any other similar measure that a host state may, directly or indirectly, adopt and/or the consequences of war or similar events which may occur in a host state. To this end, some BITs include a clause, according to which ‘nationals or companies of either Contracting Party shall enjoy most-favoured-nation treatment in the territory of the other Contracting Party in respect of the matters provided for in this Article’.32 Some BITs refer to both non-discriminatory treatment standards only as regards determining the consequences of war or similar events which may occur in a host state. In this regard, a typical clause is the following: Each Party shall accord national and most favoured nation treatment to covered investments as regards any measure relating to losses that investments suffer in its territory owing

the 2004 US Model BIT, Art 4 above n 22. JW Salacuse and NP Sullivan, ‘ Do BITs Really Work? An Evaluation of Bilateral Investment Treaties and their Grand Bargain’, 46 Harv ILJ 68 (2005) at 93–4. 27 Art 2(2) at . 28 See Canada–Poland (1990) Art III; US–Argentina (1991) Art II; UK–Honduras (1993), Art 3(2); Argentina–Venezuela (1993) Art 4; Germany–Swaziland (1993) Art 3(2); Germany–Barbados (1994) Art 2(2); Israel–Estonia (1994) Art 3(2); Israel–Ukraine (1994) Art 3(2); UK–India (1994) Art 4; UK–Turkmenistan (1995) Art 3; Canada–Trinidad and Tobago (1995) Art III; Israel–India (1996) Art 4(1). 29 See Japan–China (1988) Art 3; Germany–Barbados (1994) Art 3(2); Italy–Brazil (1995) Art III(5). 30 See China–Slovenia (1993) Art 3; and generally the US BITs. See or ICSID, Investment Treaties, above n 21. 31 Poland–UAE (1993) Art 7(2). See also Canada–Poland (1990) Art III; UK–India (1994) Art 4; Spain–Colombia (1995) Art VII(5); Norway–Peru (1995) Art 4; UK–Cuba (1995) Art 3(1); Israel–India (1996) Art 4(2); India–Ghana (2000) Art 4; and some BITs concluded by Italy, such as Italy–Vietnam (1990) Art6; Italy–Cuba (1993); Italy–Kazakhstan (1994) Art 6; and Italy–Ukraine (1995) Art 6; Italy–Russia (1996) Art 6(2); Italy–Bulgaria (1998) Art 5. See or ICSID, Investment Treaties, ibid. 32 Germany–Barbados (1994) Art 4(4) at . See also Bolivia–Peru (1993) Art 7at .

372

Pia Acconci

to war or other armed conflict, revolution, state of national emergency, insurrection, civil disturbance, or similar events.33

As will be seen, some of these BIT clauses have been applied by ICSID tribunals to compensate foreign investors for damages caused by domestic riots and acts of violence which occurred in host states.34 Moreover, some BITs include a clause to ensure automatic adjustments of their treatment standards, which may provide that: If the legislation of either Contracting Party or obligations under international law existing at present or established hereafter between the Contracting Parties in addition to this Treaty contain a regulation, whether general or specific, entitling investments by nationals or companies of the other Contracting Party to a treatment more favourable than is provided for by this Treaty, such regulation shall to the extent that is more favourable prevail over this Treaty.35

At any rate, investment treaties do include some exceptions to the applicability of the non-discriminatory treatment standards, even if these standards are often provided in clauses which at first sight are indeterminate, reciprocal, and unconditional. These exceptions may be justified by a host country’s desire to retain control over foreign investors or by a host country’s propensity for a progressive, rather than immediate, liberalization. There are general exceptions concerning public policy matters, such as public order, health, and national security, which often apply to all the provisions of a BIT. Other common exceptions to the treatment standards aim at ensuring the priority of international obligations that the contracting states of an investment treaty may have taken in other fields, such as regional economic integration36 and taxation.37 Some US BITs provide for an exception in relation to protecting intellectual property 33 US–Nicaragua (1995) Art IV(1). Many recent BITs include similar provisions. See eg Australia– Vietnam (1991) Art 8; Australia–Romania (1993) Art 6; China–Uruguay (1993) Art 5; Hungary–Czech Republic (1993) Art 4(1); Poland–UAE (1993) Art 5(1); UK–Honduras (1993) Art 4(1); Argentina– Venezuela (1993) Art 7; Israel–Estonia (1994) Art 4(1); Spain–Colombia (1995) Art VI; US–Jordan (1997) Art IV(1); US–Bahrain (1999) Art 4(1). See or ICSID, Investment Treaites, above n 21. 34 See eg Asian Agricultural Products Ltd v Republic of Sri Lanka, ICSID Case No. Arb/87/3, Final Award 21, June 1990, 30 ILM 577 (1991), discussed below at n 73ff. 35 Germany–Barbados (1994) Art 8 See also Bolivia–Peru (1993) Art 10 both above at n 32; UK–India (1994) Art 12; Colombia–Peru (1994) Art 11; Spain–Colombia (1995) Art VIII; Iran–Kazakhstan (1996) Art 5; Switzerland–Iran (1998) Art 7. See or ICSID, Investment Treaties, above n 21. 36 See Australia–Vietnam (1991) Art 4; France–Mongolia (1991) Art 4; France–Vietnam (1992) Art 4; Australia–Romania (1993) Art 4; Poland–UAE (1993) Art 4; UK–Honduras (1993) Art 7; Bolivia– Peru (1993) Art 3; Germany–Barbados (1994) Art 3(3); Israel–Estonia (1994) Art 7; Spain–Colombia (1995) Art IV(3); Israel–India (1996) Art 4(3); India–Ghana (2000) Art 4. See or ICSID, Investment Treaties, ibid. 37 See Australia–Vietnam (1991) Art 4; Australia–Romania (1993) Art 4; Poland–UAE (1993) Art 4; UK–Honduras (1993) Art 7; Bolivia–Peru (1993) Art 3; Germany–Barbados (1994), Art 3(4); Israel– Estonia (1994) Art 7; Spain–Colombia (1995) Art IV(3); Israel–India (1996) Art 4(3); India–Ghana (2000) Art 4. See or ICSID, Investment Treaties, ibid.

Most-Favoured-Nation Treatment

373

rights. For example, many US BITs include a clause according to which: . . . ‘the obligations . . . do not apply to procedures provided in multilateral agreements concluded under the auspices of the World Intellectual Property Organization relating to the acquisition or maintenance of intellectual property rights’.38 In order to avoid possible free-riding behaviour within the GATT framework, the Protocol to the 1992 US–Russia BIT provides for a specific exception which reads as follows: . . . the exclusion from the most-favored-nation treatment obligations shall apply also to advantages accorded by the United States by virtue of its binding obligations under any multilateral international agreement concluded under the framework of the GATT after the signature of this Treaty . . . .39

On the other hand, the 1995 BIT between Canada and Trinidad and Tobago excludes from the functioning of its most-favoured-nation clause possible more favourable obligations which one of the Contracting States may take ‘within the framework of the GATT or its successor organization and liberalizing trade in services’.40 Furthermore, some US BITs specify that, the Government of the United States of America may adopt or maintain exceptions to the obligation to accord national and most favored nation treatment to covered investments in the sectors or with respect to the matters specified below: fisheries; air and maritime transport, and related activities; banking, insurance, securities, and other financial services; and minerals leases on government land.41

Thus the drafting of the MFN clause tends to follow a similar pattern with some adaptations. However, the approach taken in BITs should be contrasted with that taken to MFN clauses in other international instruments to which attention now turns.

(b) The MFN Clause in other International Instruments The most-favoured-nation clause appears in the NAFTA Agreement and in other international treaties concluded by states of the Western hemisphere to establish 38 See, inter alia, US–Nicaragua (1995) Art II(2) (b); US–Azerbaijan (1997) Art II(2)(b); US–Jordan (1997) Art II(2)(b); US–Bahrain (1999) Art 2(2)(b); US–El Salvador (1999) Art II(2)(b). See or ICSID, Investment Treaties, ibid. 39 Art 6 of the Protocol to the BIT.