Investment Protection Treaties Research Articles

The Protection of Intra-EU Investments: Putting the EU’s Rule of Law to the Test

With the 2018 Achmea ruling, the European Court of Justice declared investment arbitration in the intra-EU setting to be inadmissible. As a result, the Member States have cancelled more than 190 bilateral investment protection treaties between themselves. Critics fear a high level of legal uncertainty for intra-EU investments. The EU Commission, on the other hand, believes that the existing law of the internal market provides ‘adequate and effective protection’ for such investments without further ado. Both sides invoke the rule of law. After an overview of the developments, individual elements of the protection of investments within the EU, namely the rights of investors, the balance between them and public interests, the legal means available and the question of compensation, are analysed comparatively. In the end, it emerges that both positions can lay claim to different elements of the rule of law. The rule of law does not require maintaining investment protection with bilateral treaties and investor- state arbitration. However, it is questionable whether the existing law in the internal market does adequately protect investments in the European Union. With the abolition of traditional international investment protection, the European Union faces major challenges with regard to the further improvement of the rule of law, the importance of which goes far beyond the issue of investment protection.

International Investment Law and Climate Change: Reframing the ISDS Reform Agenda

Abstract Ongoing investment law reform processes take the investment treaty system as the starting point. While this can generate actionable reform options, it also entrenches ‘path dependency’ and forecloses space for more foundational questions. This article argues that, in the context of climate change, effective reform requires re-embedding debates within a policy space that places climate at its centre. The argument entails recognising: (i) climate change as a comprehensive ecological, economic and social challenge; (ii) the preferential nature of the protections investment treaties establish for foreign investment; and (iii) the structural misalignments that exist between this legal regime and climate action. It also involves interrogating the normative considerations invoked to justify investment protection treaties. The findings highlight the need to reorient collective reflection towards designing reforms that – rather than address narrowly defined concerns within the current system – develop a new system that can respond to 21st century challenges.

Going Out of Business: Representing Insolvent Claimants Seeking Investment Treaty Protection in Arbitrations Brought against States (Winner of the Essay Competition 2022)

In light of the continuing covid-19 pandemic, with its punctuating new waves and variants, and the war in Ukraine and accompanying global sanctions, it is likely that the number of insolvent claimants demanding investment treaty protection is on the rise. Against this background, it is the aim of this study to examine who can represent insolvent claimants in arbitral proceedings. In doing so, the authors examine the roles and representative powers of the different stakeholders in cases where an insolvent claimant has sought investment treaty protection in an arbitration brought against a State. By assessing the roles of insolvency administrators, companies’ shareholders and directors, and third-party funders, and analysing existing case law, the study serves as a guide to parties establishing their case strategy and to arbitrators faced with such issues.

Treaty rigidity and domestic democracy: Functions of and constitutional limits to democratic self-binding

AbstractInternational treaties create a layer of law that is particularly hard to change: While modern treaties entail significant constraints on domestic law-making, amendments require a new consensus of state parties. This creates a conflict with a core aspect of democratic constitutions: the power of new majorities to revise the laws made by their predecessors. In particular, several obligations of international economic law, namely regulatory stability promises in investment protection treaties, but also criminalization requirements under the UN drug control conventions face critique for overly diminishing domestic policy space. How can democratic constitutions deal with those tensions? One approach that is common in some countries accepts a power to legislate in violation of treaty obligations. But denying treaties the quality as real law in the domestic sphere risks to undermine the benefits of the instrument without truly solving the democracy concerns. Instead, democratic constitutions can be read to entail certain standards for engaging in treaties, namely (i) procedure-related duties to include denunciation clauses and political reform mechanisms in the treaty, and (ii) the need to establish a substantive justification for treaty constraints on future domestic law-making by legitimate aims of international constitutionalism or co-operation.

Going Out of Business: Representing Insolvent Claimants Seeking Investment Treaty Protection in Arbitrations Brought against States (Winner of the Essay Competition 2022)

In light of the continuing COVID-19 pandemic, with its punctuating new waves and variants, and the war in Ukraine and accompanying global sanctions, it is likely that the number of insolvent claimants demanding investment treaty protection is on the rise. Against this background, it is the aim of this study to examine who can represent insolvent claimants in arbitral proceedings. In doing so, the authors examine the roles and representative powers of the different stakeholders in cases where an insolvent claimant has sought investment treaty protection in an arbitration brought against a State. By assessing the roles of insolvency administrators, companies’ shareholders and directors, and third- party funders, and analysing existing case law, the study serves as a guide to parties establishing their case strategy and to arbitrators faced with such issues.

Value creation and value destruction in investor-state dispute arbitration

We investigate whether investor-state arbitration under investment protection treaties is valuable to foreign investors, and whether international arbitration has effects on firm value that are like those seen in domestic litigation. An event study of abnormal returns when claims for arbitration are filed and adjudicated show that firms gain in market value both at the time they file for arbitration and when they receive an award. These gains in value generally exceed the size of the awards, indicating that success in arbitration provides the foreign investor not only monetary compensation but also non-monetary reputational effects that reduce costs of doing business abroad. Stock markets anticipate the outcomes of the arbitration process when claims are filed and when awards are announced. The effects on firm value of domestic litigation and investor-state arbitration differ, reflecting the institutional differences between the two methods of resolving disputes.

Abuse of right by individual investors in investment arbitration

The article analyzes the problem of abuse of rights by investors when they initiate proceedings in investment arbitration. For an individual or legal entity of any state, it is an attractive opportunity to use the dispute resolution mechanism in international arbitration against their state. This can lead to abuse of investors, resulting in an “artificial arbitration competence”. It is shown that the abuse of rights by investors can be expressed by manipulating of corporate nationality, treaty-shopping, and obtaining a second passport. It is set up that the concept of “procedural abuse” is derived from the principle of good faith, which is used to assess the legality of the initiation and filing of a claim by a foreign investor in an international investment tribunal. The author concludes that investment restructuring is an abuse of procedural rights if such manipulations are carried out to transfer existing disputes into the scope of bilateral investment protection treaties, that is, in order to create “artificial jurisdiction” of investment arbitration. If an individual investor has the nationality of two states — parties to a bilateral investment treaty, he or she cannot act as a foreign investor for the host state, with which he has significant ties at the time of investment. The conclusion about the abuse of rights can be made by a comprehensive analysis of all the circumstances of the case: the time of the establishment of the company, the implementation of investments, the violation by the state of obligations under the investment treaty.

‘The Making of an Investment’ in the Context of the Temporal Scope of Investment Treaty Protection. Does the Indian Metals & Ferro Alloys Ltd v. Republic of Indonesia Award of 29 March 2019 Constitute a Breakthrough?

This contribution deals with the question of the legal character of investment treaty claims, brought to international investment arbitration, when alleged breaches of investment treaty obligations towards an investor occurred after the entry into force of an investment treaty but before the making of an investment by an investor. The analysis of the existing legal framework allows for the conclusion that the said acts of a host state are generally excluded from the scope of investment treaty protection. An arbitral tribunal neither has jurisdiction over these acts nor is it allowed to apply substantive treaty provisions thereto. This conclusion stems from the principle of intertemporal law and numerous provisions of investment treaties constituting the implementation or modification of this principle. Nevertheless, an arbitral tribunal is not fully deprived of the possibility of considering the acts of a host state preceding the making of an investmentand undertaken before any activity of the future investor took place. It can consider them as evidence of the intent of a host state, acts creating legitimate expectations of an investor or acts constituting elements of what is termed a continuing act.

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.

On Foreign Investor ‘Privilege’ and the Limits of the Law: A Reply to Ivar Alvik

Abstract International investment treaties are structurally characterized by inherent asymmetry in the (non-relative) legal protections extended to foreign investors vis-à-vis domestic companies and nationals. For many lawyers, ‘foreign privilege’ is deeply problematic as it violates a foundational legal principle – namely, equality before the law. Yet law and law alone cannot always offer a definitive answer of this sort. At the very least, legal hypotheses should be rigorously tested against insights from other disciplines that can offer sharp analytical light on the complex contours of a given phenomenon. In this reply, I explore the political economy of host state policy as it is formed against three categories of foreign direct investment (FDI). Conceptually (and empirically), this political economy matrix reveals sharply varying levels of risk of hostile state action against distinct forms of FDI. To be sure, this analysis alone does not justify the traditional and expansive model of bilateral investment treaty protections. Yet, at least for some categories, this political economy case reveals an internal problem that is difficult (if not impossible) for the state itself to resolve, and, thus, it may well be rational for such a state to leverage international norms to extend qualified extra-domestic priority to foreign actors.

The Paradox of Chinese Investments in Sri Lanka: Between Investment Treaty Protection and Commercial Diplomacy

AbstractThe politically sensitive nature of Chinese investments in Sri Lanka has made investment protection by the China-Sri Lanka BIT highly relevant. However, the treaty has a pro-state orientation, with limited protection for investors. This gives rise to a modern paradox in which China has become the top investor in Sri Lanka, despite the absence of an international protective framework for their activities. Chinese investors are apparently managing this paradox mainly through commercial diplomacy. As an alternative to a rights-based approach, this may signal a return to a power-based approach to settling investment disputes, with the Chinese government a leading actor therein. This will be particularly prominent in the context of the Belt and Road Initiative. While win-win co-operation is a stated principle of Chinese investment policy, whether mutually beneficial outcomes can be sustained with the asymmetrical power dynamics between China and BRI states remains to be seen.

International Law and Legal Regimes of Foreign Direct Investment in Selected African Countries

International Law and Legal Regimes of Foreign Direct Investment in Selected African Countries

Enhancing the Environmental Impact Assessment for the Foreign Direct Investment Regime in Vietnam: an Analysis from Integration Perspective

Foreign direct investment (FDI) plays an important role in the economic growth of Vietnam, contributing to nearly 22 per cent of the GDP. To attract FDI the government has committed to promoting investment climate and ensuring FDI protection under various international arrangements. FDI inflows into the manufacturing and processing sectors have seen a strong increase after Vietnam’s successful accession to the WTO. However, FDI also contributes to various environmental problems and challenges in Vietnam. From 2008 to 2017, most serious environmental disputes related to manufacturing activities were caused by FDI enterprises. The sanctions against FDI enterprises, however, may jeopardise the state’s responsibilities under investment protection treaties. One of the few realistic approaches to strengthening the environmental management of FDI is to promote the participation of the public in the environmental risk assessment and amend the investment treaties to regulate the issue of environment management. This study will adopt an integrative approach by integrating the rules and principles of environmental management into the FDI regime of Vietnam.

The Individual in International Law: ‘Object’ versus ‘Subject

There is uncertainty about the status of the individual in international law. The traditional positivist doctrine of international law is that States are the sole subjects of international law and that the individual is the object. The contemporary approach is that the individual is an original subject of international law and the owner of international individual rights. This approach relies for its justification on areas of international law such as investment protection treaties, intellectual property treaties, international human rights law, individual criminal liability in international law and Vienna Convention on Consular Relations where the individual has been brought into contact with international law.
 
 The objects of this article are: (i) to assess critically the various areas where the individual has been brought into contact with international law with a view to showing that the individual is not a full subject of international law; and (ii) to show that insofar as the individual possesses a limited locus standi in international law and a limited array of rights, that is, limited legal capacity, the proffered existence of an international legal personality of the individual is not only superfluous but also confuses international legal personality which involves the capacity to perform legal acts in the international sphere with legal personality in municipal law.

Implication of International law on Foreign Investment Process: A Reference of Nepal

Foreign investment is the movement of capital flow from one country to another country. A company and natural person can be the part of management of company or corporation in another country. Traditionally foreign investment was mere the subject matter of contract which has been changed with the presence of international law. Many issues of foreign investment are addressed by multilateral treaty provisions. There are financial investment; foreign direct investment (horizontal investment, vertical investment, conglomerate investment, greenfield investment, brownfield investment), portfolio investment, official flows, commercial loans, and technological investment etc. There are classical approach, dependency approach and middle path approach of foreign investment. Classical economic theory argues that foreign investment is beneficial for host country whereas dependency theory is reverse to classical theory and middle path theory analyses both positive and negative aspect of foreign investment. Joint venture, management contract, turnkey operation, and licensing agreement are basic method of foreign investment in Nepal. There are bilateral, regional and multilateral instruments supporting for foreign investment. Bilateral instruments include Bilateral Investment Protection Treaties and Bilateral Double Taxation Avoidance Treaties whereas regional instruments are developed by African Union, European Union etc. Multilateral instruments are developed by International Monetary Fund (IMF), World Bank Group, World Trade Organization etc. Constitution of Nepal (2015 AD) has purported liberal and open economic policy to accelerate economic growth. Foreign Investment and Technology Transfer Act, 2075 (2019 AD) and Foreign Exchange (Regulation) Act, 2019 BS (1962 AD) are principal legislation for foreign investment in Nepal. There are various principles of foreign investment which are most favored nation treatment, national treatment, preferential treatment, full protection and security, fair and equitable treatment, protection against nationalization or expropriation and protection from threat agreements etc.

‘Writing the rules of the global economy’: how America defines the contours of international investment law

Some characterize the standards of protection promoted by investment treaty law as a form of denationalized law. International investment law, it is said, is comprised of generic rules, representing norms of global good governance, and not those of any particular state. This paper argues that investment treaty standards exemplify, in Bourdieu’s terms, the fictitious universalization of the particular case. This is revealed in debates over conferring upon President Obama trade promotion authority to negotiate new mega-regional treaties, like the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP). Disagreement turned, in large part, on the degree to which commitments to foreign investors corresponded to rights found in the US Bill of Rights. Both sides were preoccupied with the question of whether standards for investor protection in mega-regionals looked sufficiently like US constitutional law. By evaluating the strictures of investment treaty protections and US constitutional rights, the paper generates evidence that investor protections, while resembling those rights, surpass them by a considerable distance. So long as the origins of the content of investment treaty commitments remain misrecognized, US political actors will continue hold a monopoly in determining the content of the universal.

Private Enforcement of International Monetary Law: Arbitration of Investment Treaty Claims Relating to Foreign Exchange Restrictions

International economic activity depends on the cross-border flows that characterize economic globalization—principally of goods, services, capital and labour. These flows all have in common that they involve some element of transnational transfers of funds. The international regulation of trade, investments and other economic activities is therefore inextricably linked to the regulation on the international plane of the transfer and currency conversion such funds, i.e. on international monetary law. A closer look at the political reality of international monetary affairs offers scant reason to presume that the existing liberal paradigm of free capital mobility and market-responsive exchange rate flexibility is beyond challenge or a potential reversal. Yet, rules exist on the international plane to ensure that exchange rates and capital flows remain free from restrictions, manipulation and distortion. In the Post-War international economic order and global institutional set-up, the task of enforcing the rules of international monetary law fell upon the International Monetary Fund. This role was enshrined in GATT 1947 and remains essentially intact. Nonetheless, in recent years, the efforts of the Fund to enforce such rules has not been sufficient to quell allegations against States of exchange-rate misalignment and currency manipulation. This paper, which builds on the author’s ongoing PhD research, looks at private enforcement of international monetary law and asks whether investment arbitration of exchange-rate disputes may offer an alternative enforcement mechanism that might result in positive externalities, benefitting all investors, traders and other non-disputing third parties, and thereby may help restoring trust in trade and investment. The paper seeks to confirm the availability, practicality and functionality of arbitral process to resolve disputes relating to currency convertibility. The paper first explores whether investment disputes relating to exchange rate restrictions are arbitrable for reasons of public policy and the political sensitivity of the interests concerned and, if so, whether and under what conditions any resulting arbitral awards nonetheless may be refused recognition and enforcement. In a second step, the enquiry interprets the scope of application and manner of application of substantive international investment law to determine whether such disputes fall within the scope of investment treaty protections and whether such protections should be restrictively applied to such disputes.

Evaluating Social Benefits and Costs of Investment Treaties: Depoliticization of Investment Disputes

The growth in the number of investment treaties and investment treaty arbitrations has led to a lively debate about the benefits, justification, and problems of this special form of protection for foreign investors. This chapter makes the positive case for understanding international investment law as an instrument for the depoliticization of conflicts that at times had led to fierce confrontations between home and host States of investors. Depoliticization means the transfer of such conflicts from the political arena of diplomatic protection to a judicial forum with objective, previously agreed standards and a pre-formulated dispute settlement process. First, this chapter addresses the goals of investment arbitration in this context. Second, it discusses the means provided for in the ICSID Convention and in investment protection treaties in their various forms to achieve these goals. Furthermore, it analyses how different investment protection instruments achieve different degrees of depoliticization. Third, it discusses whether investment treaties have been successful in providing judicial means to prevent investor-State conflicts developing into inter-State conflicts, which are dominated by power politics.

(In)Genuinely Foreign Investment: A Survey of Nationality Requirements in Investment Disputes

In recent decades transnational companies investing in emerging markets have done so through complex structures of shell holding companies. These companies usually have limited ties with the states of their incorporation. The determination of their nationality is of utmost importance for the applicability of investment treaty protection and the jurisdiction of an international tribunal. The aim of this article is to identify the rules and considerations that should be applied by a tribunal when determining nationality of an investor in an investor-state arbitration. In particular, this article considers whether a genuine or effective link between an investor and a state of its purported nationality is required in investor-state arbitration. The major argument against application of a genuine link requirement under international law rules on diplomatic protection in investment disputes appears to be a lex specialis relationship between general international law and a specific investment treaty: specific language in a treaty should prevail over general international law. However, many investment treaties lack clear language on nationality requirements of an investor. Moreover, treaty protection is sometimes claimed by investors who endeavour to abuse the system of treaty protection by hiding their nationality behind a corporate veil. In such circumstances, the principle of good faith could provide some assistance.

International Legal Rules for Adjudicating Matters of State Contracts ('State Contract Rules'). Informal Reflection on Public International Law in Its Current Development Phase

Rules pertaining to State contracts is the most intricate part of public international law dealing with foreign investors. While earlier this branch predominantly focused on safeguarding interests of foreign business, the attitude of international commercial community has evolved. Still, the major focus on committing the State to honor its voluntary contractual undertakings throughout the business project's life is maintained. At the same time, nowadays Tribunals tend to refer to various subsets of sustainable business environment principles when assessing implications of changed Government policies, conduct of the Investor, or workings of International Governmental Organizations. This paper aims to be the first codified set of modern public international rules regarding full plethora of major issues regarding State contracts. Especially, it gives position on such issues commonly facing Tribunals as: hierarchy of applicable laws to a State contract; conflict between terms of a State contract and EU law; whether defenses of force majeure and similar tools are applicable to State contracts at all (with regard to a Host State); or - when hardship has occurred and Parties are obliged to renegotiate terms of the deal. It is frequently forgotten (even by reputable Arbitrators) that, in the first half of the 20th century, when protection of State contracts was developing as a specific subset of public international law, the whole system was implicitly based on assumption that a Home State of the Investor permits direct dealing by the Host State with Investor only on condition as if the direct international bond existed between the two States regarding the agreed rules for operation of business of the Investor in the Host State. In other words, intention was to avoid opportunistic behavior on part of the Host State (that could formally cite changes in its laws - or impetus from international organizations - as ground for deviation from the contract). There are Tribunals committing a grand mistake of letting political factors influence their decisions - while it is true that, especially lately, international scene has witnessed various high level misuses of corporate power and links (and so, one shall be careful enough to properly assess each case), Tribunals shall persistently maintain a realistically juristic attitude rather than making politics or becoming popular with States (in terms of, potentially securing appointments as arbitrators in further proceedings). Of course, there are more and more known or publicized instances when Investor has been so exploitively, speculatively, or grossly negligently keen to secure the deal that it would run contrary to basic tenets of international justice to protect its interests, when later the deal brakes off and various risks turn against the Investor. But, for a proper and comprehensive assessment of peculiarities of each case, Tribunal would much benefit from existence of codified rules and guidance, such as put forward in this Paper. As a final note, these Codified Rules have been amalgamated from workings of both (i) Tribunals specifically formed under State contracts, or bilateral or multilateral investment protection treaties (including, the Energy Charter Treaty), and (ii) general international courts and tribunals (including, International Court of Justice and Permanent Court of International Arbitration). The latter referred general courts are an extremely useful source for inspirations concerning efficient and progressive adjudication of modern complex international relations.