Current Arbitral Practice Relating to Economic Crises in Host Developing Countries: The FET Standard in Context

Abstract

This chapter discusses some selected arbitral awards in which the investment disputes arose as a result of a host developing country’s actions to address an economic crisis. Foreign investors alleged that the actions and measures taken in response to the economic crisis had violated FET and other investment protection standards. The chapter through a detailed case study shows how the tribunals have addressed the issue and whether they took this particular economic context into account. Most of the cases discussed in this chapter are against Argentina. This chapter argues that, despite the reference to the magnitude of the crisis and acknowledging its socio-political consequences, in general the tribunals have declined the defence of necessity and dismissed the severity of economic crisis, employing logic that is largely inadequate and inconsistent. These recent awards in relation to the Argentine economic crisis raise concern for host developing countries, considering their vulnerability to economic crises, including those that originate in developed countries. Certainly such economic crises might not be an issue for investor protection for a country like the USA or Canada, but this was certainly a factor for a country like Argentina or other developing countries which already have a fragile economy. With their limited resources and capabilities, developing countries run the risk of being overburdened with liabilities to comply with the legitimate expectations of the foreign investors under such economic crisis situations. The current investment tribunals have failed to appreciate this vulnerability, and the resulting awards were test cases before the tribunals which raise alarms for developing countries in the future.