Treaty Clauses Research Articles

MOST-FAVORED NATION TREATMENT CLAUSE IN INVESTMENT ARBITRATION

Bilateral and regional investment agreements have proliferated in the last decade and new ones are still being negotiated. Most-Favored-Nation (MFN) clauses link investment agreements by ensuring that the parties to one treaty provide treatment no less favorable than the treatment they provide under other treaties in areas covered by the clause. MFN clauses have thus become a significant instrument of economic liberalization in the investment area. Moreover, by giving the investors of all the parties benefiting from a country’s MFN clause the right, in similar circumstances, to treatment no less favorable than a country’s closest or most influential partners can negotiate on the matters the clause covers, MFN avoids economic distortions that would occur through more selective country-by-country liberalization. Such a treatment may result from the implementation of treaties, legislative or administrative acts of the country and also by mere practice. The present article provides a factual survey of jurisprudence and related literature on MFN treaty clauses in investment agreements with a view to contributing a better understanding of the MFN interfaces between such agreements. Key words: dispute resolution, foreign investment, ICSID, most-favored nation treatment, third party treaty, mandate of the arbitration tribunal, a selective import

Shooing the vultures? The case for investment treaty protection of sovereign debt

Abstract This essay identifies a doctrinal trend away from subject-matter jurisdiction for sovereign debt in investment treaty arbitration: prominent voices have espoused the view that sovereign debt is not an ‘investment’ and therefore not protected. It rebuts that notion, making the first normative case for why sovereign bond protections advance international investment law’s goal of development. Combining the credible commitment model and efficient market hypothesis with empirical research on sovereign debt markets, it argues that by allowing high-risk, emerging-market countries to credibly commit to repayment, investor protections reduce those countries’ cost of borrowing. It presents historical evidence from the drafting of the ICSID Convention and its political context to show that the creators of international investment law intended it to apply to sovereign debt. Next, it offers a systematic guide to parsing treaty clauses to evaluate jurisdiction, proposing an inductive, text-centered but purposivist approach that emphasizes legal predictability and economic incentives. In clarifying the mechanics of bond offerings, it discredits prevailing arguments against sovereign bond protection. Finally, it proposes superior alternatives to balance the needs of distressed countries and investors.

The COVID-19 Pandemic as “Public Emergency”

States have deviated from human rights obligations by taking legal measures to combat the pandemic spread of the SARS-CoV-2 virus (COVID-19), raising a wide range of challenges with respect to necessity and proportionality considerations. Within this broad spectrum, the present paper focuses on derogation clauses in international human rights treaties. It notably seeks to answer the questions of whether, taken in abstract terms, a pandemic qualifies as a (health) emergency for the purposes of triggering the derogation clauses in such treaties and whether this holds true for the COVID-19 pandemic more specifically.

The Relevance of the Beneficial Ownership Concept in Tax Treaty Clauses That Do Not Include It in Their Wording: A Note on the Colgate-Palmolive Case

This case note analyzes the outcome of the Spanish Colgate-Palmolive case, decided by the Supreme Court in September 2020. The case revolved around the interpretation of Article 12 of the Spain-Switzerland tax treaty (1967), on royalties, which omits any reference to the beneficial owner of the income in its wording. In short, the Court considered that the beneficial ownership concept cannot be construed by resorting to the OECD Commentaries, because soft law documentation cannot supersede the content of an applicable tax treaty.

A Look at Tax Sparing Clauses in the 21st Century as Tools for the Implementation of Tax Incentives from the Perspective of Developing Countries

Over 20 years after the OECD issued the 1998 Report by the Committee on Fiscal Affairs (Tax Sparing: A Reconsideration), it is appropriate to revisit the reasons that the OECD used for discouraging the use of such clauses, re-evaluating the soundness of such reasons under the current circumstances. Although tax treaties signed in the 21st century show a reduction in the use of such clauses, they are still part of international treaty practice. However, the most recent model clauses incorporate some remedies that prevent their abuse, taking into account some of the OECD’s recommendations included in the 1998 Report. Tax sparing clauses are vital international instruments used to retain the effectiveness of tax incentives in respect of multinational entities by avoiding a situation in which a reduction in taxation in the host country increases taxation in the residence country. Therefore, tax sparing clauses can only be analysed considering the fundamentals of tax incentives, understanding that the former support the latter. While the OECD has advised the limited and exceptional use of tax incentives and the mechanisms for their incorporation through the use of tax sparing clauses, respect for sovereignty has been used as a strong argument against these recommendations. However, there are valid reasons justifying the full but cautious use of tax incentives and in combination with tax sparing clauses. The assessment of the adequacy of specific-purpose tax incentives will depend on a number of complex social, economic and political factors that start by analysing the financial and government systems of the state that provides the tax incentive. Tax incentives can prove to be efficient or inefficient depending on the purpose that the state pursues and the means to achieve these objectives, so it is not possible to universally sustain the inconvenience of developing countries using tax incentives as part of their tax policy. This will clearly influence the negotiation of the use of tax sparing clauses in bilateral treaties. In addition, the drafting of modern tax sparing clauses should aim to tackle their use beyond their main purpose and in line with controlled foreign corporation rules and other minimum taxation provisions as envisaged in the framework of the Pillar 2 debate.

Non-economic disciplines still take the back seat: The tale of conflict clauses in investment treaties

AbstractThe article offers a new perspective on the interaction of international investment law with other fields of international law based on an empirical study of the use of conflict clauses in over 1,000 investment treaties, providing a first systematic account of this type of provision. The use and content of conflict clauses serve as an indicator of state priorities regarding the coordination of investment standards of protection with other disciplines in the international law matrix. Both numerically and from qualitative perspectives, the clauses’ survey reveals important asymmetries in the engagement on the part of investment treaty makers with international economic disciplines, as compared to non-economic disciplines and human rights more specifically. Indeed, conflict clauses on international economic law are much more common, more detailed and establish clearer priority rules than similar provisions on any other field of international law; and the disparity is only likely to deepen over time. This analysis suggests that negotiators already have the toolkit to create effective links between international norms and institutions, and it is only its use that is uneven. As a result, the article suggests a shift in policy perspective to reflect that reality. Such a shift seems all the more relevant considering the growing body of literature showing that investment arbitrators (and international adjudicators more generally) pay only limited attention to norms from fields beyond their own, thus casting doubt on their capacity to develop a principled approach on the issue without treaty guidance.

Passive Investments

Abstract Passive investments are a phenomenon in investment treaty arbitration. Arbitral jurisprudence is divided over the eligibility of investments represented by claimants who played little or no part in their establishment or nurturing for treaty protection. This note attributes the emergence of passive investments as a category of protected investments to a jurisdictional loophole present in the vast majority of investment treaties. It then considers the extent to which this loophole can be addressed by ‘denial of benefits’ clauses in applicable treaties, by reading an ‘action of investing’ jurisdictional condition into applicable treaties, and by the award of nominal damages when a claim arising from a passive investment prevails on the merits. This note concludes that so long as investment treaties continue to hold sway as regulatory tools, passive investments, for better or for worse, are protected investments.

Extradition clauses in multilateral international treaties: international legal aspects

The article focuses upon the legal sense of extradition clauses in multilateral criminal law treaties. The methodology of the article embraces both general methods, such as analysis and synthesis, and specific ones, such as comparative, statistical, and linguistic methods. A multi-pronged evaluation of the clause is performed, with particular scrutiny given to the different kinds of authentic English- and Russian-language wording intrinsic to this type of treaty. Such clauses are prone to have a direct effect and are subject to implementation by state parties to an international treaty, along with its substantive norms. In some cases, an extradition clause is considered a substitute for a special extradition treaty, notwithstanding the deficiency of the presumption of inclusion of crimes criminalized by the conventions in bilateral extradition treaties. Irrespective of the salient virtues inherent in such clauses (for instance, the absence of the necessity to elaborate and conclude a special extradition treaty; the procurement of enforcing substantive norms; the existence of legal mechanisms provided for in such conventions by dint of which state parties are entitled to resort to international judicial organs, in case of any dispute concerning the application or interpretation of a treaty), the shortcomings, among which are a narrow range of crimes to which the clause relates, and a set of legal hindrances connected with the implementation process, are unequivocal.

CJEU Achmea Judgment and What Comes Next. Some Reflections on the Potential Implications of the CJEU Judgment (C-284/16)

In the judgment of 6.03.2018 (Achmea case, C-284/16), CJEU ruled that treaty clauses that allow investor from one of the Member States to bring proceedings against another Member State before an arbitraltribunal outside the EU judicial system are irreconcilable with Articles 267 and 344 TFEU when such tribunal may be called on to interpret or apply EU law. This principle is applicable to EU trade or investment agreements (FTAs and IIAs), since they are part of EU law, and to BITs, FTAs and IIAs, since they contain explicit or implicit referrals to municipal (EU) law. In intra-EU relations, such a conflict of norms must be solved according to customary international law codified in the VCLT. According to this law, TFEU would prevail as lex superior and, in the case of Poland and many other Member States, as lex posterior. In intra-EU relations, TFEU prevails ex proprio vigore, i.e. without the need to terminate intra-EU BITs. However, such termination is highly desirable, not only for reasons of clarity, but also because arbitral tribunals and extra-EU courts are not bounded by the ECJ’s ruling. In the case of agreements with non-Member States, the incompatibilities referred to in the Achmea judgment must be eliminated by renegotiation or formal termination (Article 307 (2) TFEU). In the case of the BITs, the latter seems to be the only practical solution.

Urgența în dreptul internațional. Justificarea urgenței în baza unor clauze în tratate

The study proposes to examine – in the light of the challenges raised by the COVID-19 pandemic – whether and how States can suspend the performance of international law obligations in a situation of emergency. The study focuses on patterns of treaty clauses that may allow for certain exceptions (while the circumstances precluding wrongfulness are subject to a subsequent study). On one side, the research examines the GATT exceptions provided in articles XX (general exceptions) and XXI (security exceptions), and on the other side, the patterns of clauses within Bilateral Investment Treaties. Relevant case-law of WTO panels, appelate bodies and of investment arbitration tribunals is also examined.

COVID-19 și posibilele apărări în dreptul internațional: ar putea forța majoră și schimbarea fundamentetnală a circumstanțelor să justifice neexecutarea obligațiilor internaționale?

The study examines possible defences that States could invoke in order to justify or excuse measures designed to respond to the COVID-19 crisis, which prima facie might not be in conformity with certain international obligations. The study examines only defences available in general international law – beside certain exceptions that might be provided by the clauses of the respective treaties. Two grounds for suspending international obligations, stemming from the law of treaties – impossibility of performance and rebus sic stantibus – and three circumstances precluding wrongfulness, stemming from the law of international responsibility – force majeure, distress and state of necessity – are subject to examination. The study argues that, even if “common sense” might draw the public opinion towards the plausibility of invoking force majeure, impossibility of performance or fundamental change of circumstances, such a conclusion does not reflect general international law. In reality, the “best candidate” as a justification or excuse is distress, while the “second best candidate” might be represented by the state of necessity.

A Nightmare or a Noble Dream? Establishing Investor Obligations Through Treaty-Making and Treaty-Application

AbstractThis article assesses different approaches currently discussed and developed in international human rights and investment law to establish investor obligations. The article begins with a general framework of analysing and comparing these approaches. Next, attempts to include direct obligations of business entities in international human rights treaties are discussed. Despite earlier indications the recent initiative to create a legally binding instrument on business and human rights will most likely not include direct obligations for business entities. Subsequently, the article assesses the development of investor obligations in new international investment treaties and through the interpretation and application of existing international investment agreements. Arguably, the former will not lead to binding obligations in the foreseeable future and the latter rests on methodologically questionable grounds. Consequently, the article suggests that the way forward will require domestic legislation in host and home states to establish investor obligations which can be taken into account when interpreting existing investment treaty clauses requiring the investor to adhere to domestic law. This would reflect recent trends both in investment law reforms as well as the business and human rights movement.

Preface and Introduction to the Second Edition of the Oxford Guide to Treaties

This Preface and Introduction introduces readers to the Second Edition of the Oxford Guide to Treaties, an award-winning volume that provides a comprehensive review of the rules and practices surrounding the making, interpretation, and operation of these instruments. The Preface explores the Dickensian state of modern treaties – it is the best of times and it is the worst of times. It offers evidence for both the dominance of treaties within the current international legal order and their decline given the reduction in new treaty-making and rising withdrawals from existing instruments. The Introduction situates treaties within the international legal order and offers a framework for the remainder of the volume. Leading experts provide essays designed to introduce the law of treaties and offer practical insights into how treaties actually work. Foundational issues are covered, including what treaties are and when they should be used, alongside detailed analyses of treaty formation, application, interpretation, and exit. Special issues associated with treaty theory, alternatives, effectiveness, and dynamic interpretation are new to this second edition while all the first edition’s chapters have been fully updated and revised. These scholarly treatments are complimented by a new set of over 400 model treaty clauses. Real examples illustrate the approaches treaty-makers can take on topics such as entry into force, languages, reservations, and amendments. The Second Edition of the Oxford Guide to Treaties thus provides an authoritative reference point for anyone involved in the creation, interpretation, or application of treaties and other forms of international agreement.

Militärische Unterstützung aufgrund einer Ex-ante-Zustimmung: Verstoß gegen Artikel 2 (4) der UN Charta?

The current contribution explores one specific legal controversy pertaining to military assistance on request, a construct with significant political and legal implications for collective security. It examines whether general international law requires a temporal proximity between the consent issued by the inviting state and military assistance provided. In particular, it explores whether the prior consent has to be ad hoc to the specific intervention, or whether it may also be given ex ante through a so-called pro-invasion treaty clause. In Africa in particular, requests for military assistance since the end of the Cold War have at times been extended to regional or sub-regional organisations on the basis of their treaty frameworks that facilitate ad hoc as well as ex ante military assistance to member states. In as far as ex ante pro-invasion clauses are concerned, two articles within regional security frameworks merit attention. These respectively include Article 4 (h) of the Constitutive Act of the African Union (AU) of 2000 and Article 25 of the Protocol Relating to the Mechanism for Conflict Prevention, Management, Resolution, Peace-Keeping and Security of 1999 of Economic Community of West African States.

The Future of Intra-EU Investment Arbitration: Intra-EU Investment Arbitration under the ECT post Achmea

The Achmea judgment of the Court of Justice of the EU (CJEU) found that arbitration clauses in bilateral investment treaties (BITS) between Member States of the European Union are incompatible with European Union law. Following this, Member States attempted to invoke this judgment in relation to similar intra-EU arbitrations under the Energy Charter Treaty (ECT). Tribunals established under the ECT have however generally rejected the applicability of the Achmea judgement. While the EU Commission and the majority of Member States concluded that this judgment also precludes intra-EU ect arbitrations, a few Member States held the opposite view. The future of intra-EU ECT arbitrations therefore seems fragile in the least. A closer analysis of the decisions of ECT Tribunals, and the relationship between obligations under European Union law and international law however argues that the future of such intra-EU ECT arbitrations is not as fragile as it may seem.

Paradigm shift; the emergence of arbitral forum shopping in CPEC investment disputes

Purpose The phenomena of arbitral forum shopping to resolve a commercial investment dispute is still under development and more complicated in many states. However, for Pakistan, it seems in an evolutionary phase, where the country is struggling hard to adopt the best practice of dispute resolution through forum shopping clauses. This struggle is even more inflated with huge Chinese investment through China Pakistan economic corridor (CPEC) projects in Pakistan, which come alongside with commercial investment disputes. For this purpose, the current treaty or contract-based system between China and Pakistan and litigation based domestic civil court structure look obsolete, hence, appear to require reinstatement of forum shopping clauses under concerned treaties or contracts for CPEC investment-related issues. Design/methodology/approach The authors choose a legal research method. The research design is a comparative analysis between CPEC contracts and dispute resolution mechanism between China and Pakistan and also the domestic civil court’s litigation system. This analysis selected by the authors due to inefficient bilateral investment arrangements and efficient resolution of future commercial disputes in CPEC. While the international arbitration system is included in the assessment were particular in the time and space context. The comparison comprises on dispute resolution clauses in free trade agreement (FTA) and bilateral investment treaties (BIT) between China and Pakistan and the system of resolving disputes by CPEC clauses. Findings The authors finds that in the absence of CPEC forum shopping clause under dispute resolution system, Pakistan is highly at risk to lose foreign investors, and therefore, set back the goal of long term economic sustainability in the region. However, China has already made its investment policies safer with establishing three international commercial courts (also referred to as Belt and Road courts), one in Xi’an for the land-based Silk Road Economic Belt, one in Shenzhen for the Maritime Silk Road and one in Beijing that will serve as the headquarters. These courts will be offering litigation, arbitration and mediation services. According to one view, China aims to have all belt and road initiative (BRI) disputes resolved by these courts. This makes Pakistan position more awkward and needs proactive measures, as CPEC investment is based on Pakistan foreign direct investment policies and legal structure. Therefore, it will be complicated and less favourable for Pakistan to deal with such cases under Chinese Courts. Originality/value The paper’s primary contribution is finding that comprehensive analysis of alternative dispute resolution mechanism between China and Pakistan over CPEC investment is inevitable. A socio-legal research combine with an examination of Singapore International Commercial Court functions and mechanism and CPEC plans further contributes to ascertain the best model of the settlement of commercial disputes under investments in Pakistan. This research paper anticipates future economic and legal problems, which Pakistan may encounter.

Frustration and Failure: The Zero Carbon Bill and the Treaty of Waitangi

The Climate Change Response (Zero Carbon) Amendment Bill fails to honour obligations under the Treaty of Waitangi/te Tiriti o Waitangi adequately, in particular the principles of partnership and active protection. The current Treaty clause circumscribes when Māori will be relevant in the decision-making process and implicitly considers Māori as one stakeholder among many others. This approach silences the unique worldview of tikanga Māori and the ability for Māori to practice kaitiakitanga, as well as ignoring the particular vulnerability of Māori and taonga to consequences of climate change. This paper discusses these shortcomings in light of the principles of partnership and active protection. It argues that both procedural and substantive reform is needed if the Bill is to comply adequately with obligations under the Treaty. The possible suggestions aim to give effect to partnership by incorporating tikanga Māori into the decision-making process, and to active protection by granting relevant Māori the ability to exercise kaitiakitanga.

Extradition in the absence of state agreements: Provisions in international treaties on extradition

By virtue of state sovereignty, states exercise authority over all persons and things within their territories. This includes individuals suspected of committing or charged with crimes in foreign states. International law generally imposes no obligation to surrender individuals suspected of or charged with committing crimes in foreign states. Fugitives may only be returned when an agreement exists between the states concerned. As such, states are increasingly ratifying international treaties mandating cooperation to ensure that individuals responsible for certain categories of crimes are brought to justice. It is worth noting that some of these states lack extradition treaties with each other. For example, South Africa and the United Arab Emirates (UAE) are party to the United Nations Convention Against Corruption (UNCAC) which mandates that they cooperate with each other in ensuring that crimes related to corruption are prosecuted. However, there is no extradition treaty between South Africa and the UAE. In these circumstances, a question arises as to whether they can they rely on the UNCAC to extradite individuals for corruption-related crimes. If they can, what is the nature of the international obligation entrenched under the UNCAC? Overall, what is the standing of international treaty clauses on extradition for states without extradition treaties?

Extradition in the absence of state agreements: Provisions in international treaties on extradition

By virtue of state sovereignty, states exercise authority over all persons and things within their territories. This includes individuals suspected of committing or charged with crimes in foreign states. International law generally imposes no obligation to surrender individuals suspected of or charged with committing crimes in foreign states. Fugitives may only be returned when an agreement exists between the states concerned. As such, states are increasingly ratifying international treaties mandating cooperation to ensure that individuals responsible for certain categories of crimes are brought to justice. It is worth noting that some of these states lack extradition treaties with each other. For example, South Africa and the United Arab Emirates (UAE) are party to the United Nations Convention Against Corruption (UNCAC) which mandates that they cooperate with each other in ensuring that crimes related to corruption are prosecuted. However, there is no extradition treaty between South Africa and the UAE. In these circumstances, a question arises as to whether they can they rely on the UNCAC to extradite individuals for corruption-related crimes. If they can, what is the nature of the international obligation entrenched under the UNCAC? Overall, what is the standing of international treaty clauses on extradition for states without extradition treaties?

The Future of Intra-EU Investment Arbitration: Intra-EU Investment Arbitration under the ECT post Achmea

The Achmea judgment of the Court of Justice of the EU (CJEU) found that arbitration clauses in bilateral investment treaties (BITs) between Member States of the European Union are incompatible with European Union law. Following this, Member States attempted to invoke this judgment in relation to similar intra-EU arbitrations under the Energy Charter Treaty (ECT). Tribunals established under the ECT have however generally rejected the applicability of the Achmea judgement. While the EU Commission and the majority of Member States concluded that this judgment also precludes intra-EU ECT arbitrations, a few Member States held the opposite view. The future of intra-EU ECT arbitrations therefore seems fragile in the least. A closer analysis of the decisions of ECT Tribunals, and the relationship between obligations under European Union law and international law however argues that the future of such intra-EU ECT arbitrations is not as fragile as it may seem.