Investment Protection Provisions Research Articles

Challenges at the intersection between investment provisions in regional trade agreements and implementation of the GloBE Rules under Pillar Two

A number of regional trade agreements (RTAs) include investment protection provisions that may limit a country’s ability to change tax measures. This limitation could raise concerns for States as regards the recently agreed global minimum tax under the Global Anti-Base Erosion (GloBE) Rules, as its implementation could amount to a breach of investment obligations. Therefore, this paper analyses how the GloBE Rules and their impact on investment incentives interact with investment provisions in RTAs, also considering the impact of the minimum tax on regional integration efforts and the potential for a regional approach to its implementation.

Investment Protection in Post-Brexit EU–UK Relations

Abstract With the United Kingdom’s withdrawal from the EU, in particular from its internal market, the customs union and all of the EU’s international agreements, a new chapter in Europe’s legal, economic and political history has begun. This note sets out the consequences of Brexit for investment protection and arbitration, focusing on EU-UK investment relations. In a first step, it addresses the EU-UK Trade and Cooperation Agreement’s investment protection provisions and its unique dispute settlement mechanism before turning to the fate of the United Kingdom’s bilateral investment treaties with EU Member States as well as the Energy Charter Treaty. Even though these investment treaties are likely to remain in force, the article concludes that, from the point of view of EU investors in the UK and UK investors in the EU, it can overall be seen as a clear omission that the Trade and Cooperation Agreement does not regulate investment protection in a comprehensive manner. The current situation leaves significant gaps in treaty protection, especially for investments from and into the Western EU Member States.

Embedded Neoliberalism and the Legitimacy of the Post-Lisbon European Union Investment Policy

Much has been written about the ongoing legitimacy crisis of the global investment treaty regime and the system of investor-to-state dispute settlement (ISDS). In the European Union (EU), the proposed inclusion of investment protection provisions and ISDS in negotiations on the Comprehensive Economic and Trade Agreement (CETA) with Canada and the Transatlantic Trade and Investment Partnership (TTIP) with the United States triggered unprecedented levels of contestation. This article seeks to explain why EU responses to such contestation, in the form of an investment court system and a multilateral investment court, did not bring about a clear break away from the traditional ISDS model. Drawing on critical political economy perspectives, it regards the EU investment policy following the entry into force of the Treaty of Lisbon as deeply embedded in a broader neoliberal project mediated by material, institutional, and ideological configurations. Several factors have inhibited possibilities for more fundamental changes. The European Commission construed the lack of legitimacy as stemming from ISDS’ procedural features rather than questioning its social purpose. There has been no shift in the underlying social power balance, and no comprehensive counter-project has been proposed. The European Commission enjoys relative autonomy vis-à-vis other parts within the EU institutional ensembles and wider societal interests, allowing it to block more radical solutions. Finally, there were no clear signs of a fundamental departure from the neoliberal path in terms of wider EU economic regulation.

Investment Protection Under the EU–UK Trade and Cooperation Agreement: Limited but Predictable?

After ten months of intense negotiations, the EU-UK Trade and Cooperation Agreement (TCA) was concluded on 24 December 2020. The TCA runs to 1,246 pages and covers what may be the broadest range of issues ever to be addressed within an international trade agreement. However, the tca’s limited investment protection provisions have been met with perplexity and expressions of disappointment among commentators. In particular, the limited set of substantive investment protections and the absence of an investor-State dispute settlement (ISDS) mechanism have been viewed as something of a missed opportunity, particularly as the EU and the UK have agreed to more expansive investment chapters in recent trade agreements with third parties. Why did the UK and the EU ultimately limit the scope of investment protection and exclude ISDS under the TCA? This article examines this question by analysing the key features of the tca’s investment chapter and tracing the underlying investment policy dynamics, including the UK’s and the EU’s respective negotiating positions that led to the tca’s circumscribed investment chapter. This article also considers the significance and potential implications of the TCA for the UK’s and the EU’s respective investment policies going forward.

Trade agreements and Global Value Chain (GVC) participation: Evidence from Chinese industries

AbstractThe growing fragmentation of production across national borders and the proliferation of preferential trade agreements (PTAs) have become salient features of the global economy in the past decades. This paper examines the role of PTAs in promoting the integration of domestic industries into global value chains (GVCs) based on the experience of China, a country that has emerged as a key link in East Asian and global production networks in recent years. We conjecture that both the presence of PTAs and the depth of these agreements matter for GVC participation. Furthermore, PTAs that contain strong provisions with regard to investment protection and services are particularly likely to stimulate the expansion of GVC linkages. This is because strong investment protection provisions may reduce the disruptions that hostile government policy may generate for the entire production chain. Rigorous PTA provisions regarding services may help facilitate the provision of services, which are not only critical in enabling the emergence of GVCs, but are also becoming essential inputs in GVC trade. Empirical analysis of the effect of the PTAs signed by China on the GVC participation of 16 Chinese industries between 2005 and 2015 lends substantial support to our hypotheses.

Investment Protection Under the EU–UK Trade and Cooperation Agreement: Limited but Predictable?

After ten months of intense negotiations, the EU-UK Trade and Cooperation Agreement (TCA) was concluded on 24 December 2020. The TCA runs to 1,246 pages and covers what may be the broadest range of issues ever to be addressed within an international trade agreement. However, the TCA’s limited investment protection provisions have been met with perplexity and expressions of disappointment among commentators. In particular, the limited set of substantive investment protections and the absence of an investor-State dispute settlement (ISDS) mechanism have been viewed as something of a missed opportunity, particularly as the EU and the UK have agreed to more expansive investment chapters in recent trade agreements with third parties. Why did the UK and the EU ultimately limit the scope of investment protection and exclude ISDS under the TCA? This article examines this question by analysing the key features of the TCA’s investment chapter and tracing the underlying investment policy dynamics, including the UK’s and the EU’s respective negotiating positions that led to the TCA’s circumscribed investment chapter. This article also considers the significance and potential implications of the TCA for the UK’s and the EU’s respective investment policies going forward.

Statess Reassertion of Control Over International Investment Law - (Re)Defining Fair and Equitable Treatmentt and Indirect Expropriationn

‘Fair and equitable treatment’ (FET) without doubt is the most invoked standard in investment treaty arbitration, and its importance as a standard of investment protection cannot be underestimated. The prohibition of indirect expropriation commonly found in international investment treaties is less frequently successful as a stand-alone claim in investment disputes, but it constitutes nevertheless one of the most invoked provisions in investment disputes. Both investment protection provisions share many common principles, such as their standardly vague formulation or definition in the vast majority of international investment agreements. They also share the reputation of being generally considered as detrimental impediments to the States’ right to regulate and to take measures in the public interest. This is precisely why both FET and the prohibition of indirect expropriation have attracted much criticism over recent years. This chapter investigates how States, through definitions of the FET standard and the prohibition of indirect expropriation, have sought to assert or reassert control over investment law. Indeed, there are clear differences in the formulation of the FET standard and the prohibition of indirect expropriation. ‘Western hemisphere’ bilateral investment treaties (BITs) used in Western European States tend to include FET as a stand-alone standard of treatment, whereas North American investment treaties, as exemplified, inter alia , in the North American Free Trade Agreement (NAFTA) and the US Model BIT 2012, tend to equate FET with the customary norm on the minimum standard of treatment. Similarly, distinctions in the formulation of what constitutes a prohibited indirect expropriation are widespread, and here again, the contrast between the practice of North American treaties and those based on the ‘western hemisphere’ BITs show that the former tend to more precisely define what constitutes a prohibited indirect expropriation and which regulatory measures cannot amount to an expropriation, while the latter more generally contain a generic definition of the term. These differences highlight one important issue: States generally have full discretion in how to formulate these provisions in their treaties. And while ‘tradition’ has in the past influenced the choice of one model or formulation over the other, increasingly policy-related arguments now define the precise formulation of FET and the prohibition of indirect expropriation, provided, of course, that all States parties to the treaty agree on the terminology.

Increasing the Host State's Regulatory Flexibility Under FTA Investment Chapters: US Approaches Under NAFTA, the AUSFTA and the TPP

Building on the negotiation of U.S. bilateral investment treaties beginning in the early 1980s, U.S. free trade agreements incorporating specific host-state obligations to foreign investors and binding investor-state dispute settlement (ISDS) have been a feature of U.S. trade and investment policy since 1992 (when the NAFTA negotiations were concluded). Presidents Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush and Barack Obama have all endorsed ISDS, despite opposition by many Democratic legislators, organized labor and environmental groups. Yet the content of these investment chapters shows a significant evolution from NAFTA to the Australia — United States FTA (AUSFTA) (with investor protection but without ISDS), the United States — Chile FTA and the Singapore — United States FTA (2003) to the Trans-Pacific Partnership (TPP) (2015). The changes have been driven largely by the concerns of civil society and government officials over the dozens of NAFTA investment claims filed against the NAFTA Parties. They also reflect the perceived need for the United States and other host governments to maintain a higher level of regulatory flexibility and discretion, particularly in such areas as protecting the environment and maintaining public health. The United States’ Trade Promotion Authority (TPA) legislation enacted in 2002 and 2015 also mirrors these post-NAFTA changes. The newest iteration of the mechanism (Chapter 9 of the TPP) thus affords host governments far more regulatory discretion than earlier agreements such as NAFTA, along with increased transparency, making it more difficult for foreign investors to prevail against host governments with claims of denial of “fair and equitable treatment” and “regulatory takings.” The evolution of U.S. sponsored investment protection provisions into a significantly more host government friendly, regulatory friendly, process, is the principal theme of this paper.

Variation in Bilateral Investment Treaty Provisions and Foreign Direct Investment Flows to China, 1997–2011

ABSTRACTThis article examines the differentisal effects of specific provisions included in China’s bilateral investment treaties (BITs) in inducing foreign direct investment (FDI). Empirical analysis yields some evidence suggesting that while the signing of a BIT does not necessarily boost FDI, the entry into force of a BIT does exert a strong effect on investment flows. More importantly, we find substantial evidence that BITs with stronger investment protection provisions such as absolute and relative standards of treatment and dispute settlement procedures are more likely to induce greater FDI flows. These results suggest that the variation in the institutional design of bilateral investment treaties strongly influences FDI flows by shaping foreign investors’ expectations of their asset security and the overall stability of the host country investment environment.

Development of Rule-Based Investment Protection Provisions in Mega-FTAs: A Manifestation or a Negation from Customary International Law Principles?

Customary international law affirms the obligation of the host state to protect foreign investors by according the minimum standard of treatment of foreign investors. These become well-established principles of fair and equitable treatment and full protection and security in foreign investment law. Led by the North American Free Trade Agreement (NAFTA), investment protection provisions are heavily negotiated in modern FTAs. The jurisprudence of investment protection in early FTAs, namely NAFTA, relied on principles of customary international law as the texts of agreements did not contain definitions or exemplification to the principles. A number of mega-FTAs, including the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP) bring about changes in the minimum standard of treatment of foreign investors. In contrast to a principle-led approach, the minimum standard of treatment terms are more clearly defined in recent mega-FTAs. The fair and equitable treatment term in the TPP, for example, 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. The proposed TTIP provides that a breach of the fair and equitable include a targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief. The paper proposes that there has clearly been a shift in the minimum standard of treatment clause from the principle-based approach to the rule-based approach in recent mega-FTAs. On the one hand, the rule-based provisions in the new mega-FTAs could limit the scope of ordinary principles of customary international law and negate from a long-held jurisprudence in foreign investment law. On the other, the rule-based provisions could manifest the intention of parties to be bound by obligations provided by agreements and limit the expansive view of tribunals in applying the principle.

The Yukos Cases. A Comparative Case Note on the ECtHR’s Decisions and the PCA Tribunal’s Awards

The decisions on the Yukos cases delivered by the European Court of Human Rights (ECtHR) in 2009/2011/2014 and by an international arbitral tribunal administered by the Permanent Court of Arbitration (PCA Tribunal) in 2009/2014 call for a comparative analysis. The two judicial bodies arrived at highly divergent conclusions, in particular with regard to the amount of damages to be paid by Russia: according to the Tribunal, Russia had to pay compensation amounting to roughly 50 billion USD, whereas the Court ordered Russia to pay about 2 billion EUR only. The general factual background to the ECtHR’s decisions and the PCA Tribunal’s awards was the same, though. Russian authorities had subjected Yukos to tax reassessments and related enforcement measures upheld by domestic courts. At the end of the day, Yukos was declared bankrupt and liquidated. The significant differences between the decisions can be attributed, at least to a certain extent, to the differing legal bases underlying the decisions. The ECtHR had to apply the European Convention on Human Rights (ECHR) and related additional protocols (ECHR-Prot.), i.e. human rights instruments, whereas the PCA Tribunal was bound to apply the investment protection provisions of the Energy Charter Treaty (ECT). The Tribunal classified the tax reassessments and related enforcement measures as a ‘creeping’ de facto expropriation (Article 13 ECT) whereas the Court held that these measures solely amounted to unlawful and disproportionate interferences with the right to property (Article 1 ECHR-Prot. 1). Accordingly, from the Tribunal’s perspective, Russia had to compensate the value of Yukos as a multibillion stock company. In contrast, according to the Court, Russia was obliged to refund unwarranted tax and enforcement fee payments only. The ECtHR also declared that Russia had violated the right to a fair trial (Article 6 ECHR). In contrast, the PCA Tribunal did not deal separately with due process violations even though it could have done so, e.g., under the ‘ fair and equitable treatment’ clause (Article 10(1)(2) ECT). A distinctive feature of the PCA Tribunal’s reasoning was the arbitrators’ ‘credo’ that Russia had intended mala fide to extinguish Yukos for political reasons. The Tribunal arrived at this conclusion on the basis of extensive testimony of fact witnesses called by the claimants. In contrast, the ECtHR abstained from any hypothesizing about political motives behind the taxation and related enforcement measures taken by the Russian authorities and affirmed by the Russian courts.

PROTECTING ITALIAN INVESTMENTS IN LIBYA’S CHANGING ENVIRONMENT

Italy is both the main trading partner and the State that has the most sizeable foreign direct investment interests in Libya. However, the outbreak of armed conflict in Libya in 2011 resulted in extensive damage to Italian investors. In order to obtain proper redress Italian investors may seek to rely upon investment protection provisions contained in treaties previously concluded between these two States, notably the BIT of 2000 and the Treaty of Benghazi of 2008. Crucially, however, the outbreak of the armed conflict and the subsequent regime change that took place following the Gaddafi’s removal from power raise doubts about the effectiveness of such treaties. This article firstly reviews both the relevant rules of international law and the investment treaties in force between Italy and Libya. Then, it examines the relationship between Italy and Libya during and after the events of 2011 and comes to the conclusion that such treaties are still effective and as such Italian investors may invoke the provisions contained therein, including those envisaging resort to international investment arbitration.

Land reform and investment protection after the Campbell litigation: can SADC learn from NAFTA?

In 2008, Mike Campbell and other former commercial farmers took the Zimbabwean Government to the erstwhile SADC Tribunal in Windhoek over a land dispute. While the dispute was primarily about allegedly discriminatory land reform laws and policies affecting citizens of Zimbabwe mainly, the manner in which the Zimbabwean Government reacted to the ruling suddenly raises questions about the protection of investments in the SADC region. The nagging question which this paper seeks to address is, “is the SADC dispute settlement regime as currently provided for in Article 32 of the Declaration and Treaty of SADC and the subsequent Protocol on Trade adequate to guarantee investor protection in light of the aftermath of the Campbell decision?” In an attempt to address the question, this paper takes a closer look at the NAFTA Chapter 11 Investment protection provisions and compares them with their SADC counterparts.

Investment Provisions in the CARIFORUM-EC Economic Partnership Agreement: What Implications for CARIFORUM-EU Investment Relations?

Among its many firsts, the CARIFORUM-EC EPA is the first international investment agreement between all CARIFORUM and all European Union countries. It aims to create a more favourable, transparent and predictable framework for investment flows between the Parties. However, do the provisions of the EPA create such a framework? What implications does the EPA have for CARIFORUM-EU investment relations? It is these questions which this paper examines. The paper argues that the enhanced market access concessions offered by CARIFORUM countries to EU investors are an important value-added in some cases, while the Agreement's development-friendly provisions attempt to rebalance host states' rights with the broad protections given to investors under the bilateral investment treaties currently existing between some CARIFORUM and EU countries. However, the EPA's lack of investment protection provisions, its co-existence with, and co-dependence on the existing BIT network between CARIFORUM and EU countries, and its notable contradictions in some cases with the provisions in these BITs cast doubt on the Agreement's ability to increase the attractiveness of CARIFORUM countries as investment destinations for EU investors or to enhance the transparency of the CARIFORUM-EU investment framework. The paper goes on to argue that the EU's new exclusive competence over FDI matters could potentially help to remedy this situation.

Energy Charter Treaty and the European Union: Is Conflict Inevitable?

The European Union (EU) is a venerable institution. Today’s EU is the result of continuing development, becoming both wider and deeper over more than half a century. And yet the EU cannot live in isolation. The EU imports vast quantities of energy from third states and is also both a significant exporter and a significant importer of capital investment. It is, therefore, not surprising that numerous investment protection treaties exist, both between EU member states inter se and between EU member states and third states.The Energy Charter Treaty (ECT) was intended to foster energy exchanges in the Eurasian context, particularly between the developed economies of Western Europe and Japan and the emerging economies of the former CIS. The ECT contains extensive investment protection provisions and is a mixed agreement to which the European Communities and their 27 member states are parties, alongside 24 non-EU members. The present article is intended to review the implications of this in relation to the key area of investment protection. In several respects, the competence exercised by EU institutions in this area is undergoing expansion. The key question is whether this must inevitably lead to conflict between EU and other institutions which to a large extent share common objectives, or whether, with moderation and mutual understanding, an accommodation is possible.

The new generation of international investment agreements: recent developments in the Asia–Pacific region

Over the past decade, a number of countries in the Asia Pacific region have concluded a new generation of FTAs that liberalise trade in goods and services while also containing investment protection provisions. This paper provides an overview of the recent trends giving special attention to the impact of Investor State Dispute Settlement (ISDS) cases which has influenced the evolution of investment rule-making over the last decade. The paper asserts that investment disputes have influenced the refinement of the provisions of the new generation of investment agreements as well as the inclusion of a series of procedural and substantive innovations in these agreements.