The Many Faces of States in International Investment Law: Supranational Organizations, Unrecognized States, and Sub-State Entities

Abstract

Since the conclusion of the first bilateral investment treaty (BIT) between Germany and Pakistan in 1959, the practices of the BITs have remained solely within the purview of nation states. According to the United Nations Conference on Trade and Development (UNCTAD), BITs are defined as “agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each other's territories by companies based in either country”. A similar definition has been adopted by leading scholars. Therefore, in looking at state practices in BITs and investor-State arbitration cases, pertinent international organizations and most of the literature seem to assume that ‘states’ refers to sovereign states. Nonetheless, this assumption has been challenged recently by borderline cases where ‘states’ refer to something other than what is generally considered a sovereign state. One such example is a supranational organization, of which perhaps the best-known example is the European Union (the EU): a supranational organization with competence transferred to it by sovereign states. With the entry into effect of the Lisbon Treaty (1 December 2009), the EU has been conferred with exclusive competence over FDI. In exercising this new competence, the EU has sought, and been granted, a mandate to negotiate a stand-alone BIT with China (the envisaged EU-China BIT). Even before the entry into force of the Lisbon Treaty, the EU, by virtue of the use of ‘mixed agreements’, has concluded a number of free trade agreements (FTAs) which include an investment chapter. Another example is an unrecognized sovereign state. One such state, largely unrecognized in international community, is Taiwan. Taiwan recently concluded an investment protection agreement with China, which asserts that Taiwan is but a renegade province. But Taiwan has also concluded BITs with India and Japan, neither of which maintain official diplomatic relations with Taiwan. Thus, these two BITs were signed by semi-official agencies or non-governmental organizations with implicit or explicit authority delegated from the national governmental authority. The third anomaly relates to sub-state entities within a federal system, or the special administrative regions of China. One such example is Hong Kong, which using the title ‘Hong Kong, China’, has concluded and maintains a number of bilateral agreements with sovereign states. Using the status of a separate customs territory, Hong Kong has also concluded some FTAs that also include investment chapters. In view of these peculiarities, this article aims to redefine the ‘state’ in international investment law by looking at three anomalies to sovereign states: a supranational organization, an unrecognized state, and a sub-state entity. Referencing the three aforementioned cases, this article argues that sovereign states are not the sole actors in international investment law and policies – there are some subtle, but significant, variations. Specifically, this article explores the attribution difficulties that arise in linking these anomalous actors with their member states, governmental authority, or central government respectively. With regards to investor-State arbitration, there are two pertinent questions. The first concerns where, and against whom, an investment dispute should be brought. The second question relates to the enforcement of an arbitral award. Currently, the International Centre for the Settlement of Investment Disputes (ICSID) regime plays a key role in investor-State arbitration. In view of the fact that the ICSID convention does not provide an opportunity for these three anomalies to participate, this article proposes to soften the state-centric definition of ‘state’ in Additional Facility Rules so as to provide an opportunity for the participation of these three anomalous entities. In so doing, investor’s rights may also receive better protection. Further, given that most free trade agreements include investment chapters, softening the definition of state-centric ‘state’ and including these three anomalous entities will close the gap between trade regime and investment regime, bringing them closer. This article concludes that in exploring the contemporary role of the state in investor-State arbitration, a prerequisite is to redefine the state in a way which would cover many actors other than sovereign states. In view of this new reality, a closer look at attribution will play a key role in defining state responsibility in international investor-State disputes.