Analysis

Smart Flexibility Clauses in International Investment Agreements

A major challenge for investment treaty designers and adjudicators is to separate opportunistic behavior by host states that should be sanctioned under international law from bona fide public policy measures that should not. This article suggests that International Investment Agreements need to be both ‘smarter’ and more ‘flexible’ to better make that distinction. It draws on economic contract theory as a basic framework, and political economy theory for fine-tuning.

Enabling Risky Business: Human Rights and the Role of Officially Supported Trade Finance and Investment Guarantees

The expanded role played by Export Credit Agencies (ECAs) since the global financial crisis has not been matched with stronger rules that address the human rights-related impacts of ECA financed projects. Given narrow set of regulations that currently apply to ECAs, this brief article argues that more needs to be done to ensure that ECA financed projects do not cause harm to home states.

Remedies in Investor-State Arbitration: A Public Interest Perspective

While an extensive body of literature maps the tensions between regulatory sovereignty and investor protection in international investment law and analyses the balancing of private and public interests in arbitral practice, only a small sub-set of this literature makes reference to public interest considerations at the remedies stage of the investor-state arbitration process.

Land Grab v Food Security: Can Global Regulation Cope?

Agro-FDI is a two-edge sword: only when managed properly will it bring food security benefits. However, the current global governance structure for agro-FDI unevenly distributes rights and obligations between the host state, the investor and the investor’s home state.

A Distinction Without a Difference? The Interpretation of Fair and Equitable Treatment Under Customary International Law by Investment Tribunals

Broad interpretations of the standard for fair and equitable treatment (FET) by investment tribunals have become a source of increasing controversy. In theory, linking FET to customary international law (CIL), which is formed through the “general and consistent practice of states” that they follow out of a sense of legal obligation (opinio juris), results in a standard of protection that is more deferential to the regulatory authority of governments than the “autonomous” standard. In practice, however, investment tribunals continue to construe even CIL-based FET provisions to impose broad limits on government authority by accepting, without any evidence of state practice or opinio juris, the pronouncements of previous tribunals as definitive evidence of the standard under CIL.

Counterclaims by States in Investment Arbitration

It is quite common in investment arbitration for the respondent State to include in its defense to treaty claims one or more criticisms of the investor’s underlying conduct. Yet while such arguments feature prominently in State defenses, they are rarely framed as counterclaims seeking affirmative relief. The reason may lie in an instinctive preference by States to pursue any affirmative claims in their own courts. But it may also lie in perceived limits to the jurisdiction of international tribunals to hear State counterclaims.

Two recent ICSID decisions have reached entirely different conclusions on the issue of jurisdiction over State counterclaims. This essay touches briefly on certain jurisprudential and policy factors that may explain the divergent results and frame future cases for further analysis.

The IMF’s New Transfers Policy and the Trading System

In late 2012, the International Monetary Fund (IMF) officially endorsed an “institutional view” on the management of capital flows. This short note provides an overview of the new IMF view, pinpoints how it may conflict with country obligations under trade and investment treaties, and discusses remedies for reform.

Peru’s State Coordination and Response System for International Investment Disputes

Just as Peru has joined the global trend of concluding investment protection agreements, the country has also been no stranger to the considerable increase in international investment disputes observed in recent years. To address this growth in international investment arbitration in line with its investment attraction policy, Peru has created a system for efficiently and effectively resolving potential disputes.

The SADC MODEL BIT Template: Investment for Sustainable Development

The South African Development Community (SADC) Model Bilateral Investment Treaty Template and Commentary was completed in June 2012 by Member States of the Community. Its completion marks the end of an 18 month process of consultations and drafting among government representatives and is intended as a guide for member states in future investment treaty negotiations.

Towards a New Generation of Investment Policies: UNCTAD’s Investment Policy Framework for Sustainable Development

On 12 June 2012, the United Nations Conference on Trade and Development launched its Investment Policy Framework for Sustainable Development. IPFSD comes at a time when the international investment regime is in a state of “transition” and when an increasing number of governments are reviewing their investment-related regulatory frameworks, both at the national and international levels.

Consent to Arbitration Through National Investment Legislation

National investment codes[1] may function as potential sources of international investment law. In other words, states may make unilateral undertakings within the framework of national investment legislations and, as a result, be considered as having “created international obligation[s]”.[2] The addressees of national investment legislations are foreign investors as well as the state that is itself […]

Analysis of the European Commission’s Draft Text on Investor-State Dispute Settlement for EU Agreements

With the European Union’s Lisbon Treaty, in force since December 2009, foreign direct investment fell under the exclusive competence of the European Union (EU). Since then the three European institutions—the European Commission, the European Council of Ministers and the European Parliament—have been engaged in a vigorous debate over a new legal framework and negotiating positions […]

The Source for Determining Standards of Review in International Investment Law

After several cases assessing whether state regulation in the public interest gives rise to a claim under an investment treaty, commentators have begun asking questions about the applicable standard of review that should be applied in evaluating those claims. Now that there is emerging clarity around the interpretation of the most common substantive investment treaty […]

Investment Law and Public Services: Clashes of Interests or Peaceful Coexistence?

[T]he Tribunal must balance the legitimate and reasonable expectations of the Claimants with […] [the] right to regulate the provision of a vital public service.[1] This quote from an investment arbitration tribunal highlights the relationship between international investment law and the regulation of public services. This essay illustrates areas of contention between the requirements of […]

Deference or No Deference, That is the Question: Legitimacy and Standards of Review in Investor-State Arbitration

The appropriate standard of review to be applied in investor-state arbitration—as well as in other dispute settlement contexts, for that matter—remains a recurrent and much debated topic.[1] The reason is straightforward: In many cases, the outcome of arbitral proceedings hinges, inter alia, on the intensity with which a tribunal scrutinizes the conduct of the investment’s […]

Pro-Investor or Pro-State Bias in Investment-Treaty Arbitration? Forthcoming Study Gives Cause for Concern

Debates about investment treaties often raise questions about fairness and independence in international investment arbitration. Some observers argue that investment arbitration offers a neutral and impartial forum in which to resolve investor-state disputes as a basis for protecting foreign-owned assets and ensuring the rule of law.[1] Others claim that the arbitration mechanism favours investors and […]

Venezuela’s Withdrawal From ICSID: What it Does and Does Not Achieve

In January 2012, the Bolivarian Republic of Venezuela denounced the ICSID Convention,[1] becoming the third country – after Bolivia and Ecuador – to do so. The exit from the global forum for the settlement of investment disputes signals these countries’ apparent loss of faith in the system and raises questions about the Convention’s fitness for […]

Defining an ICSID Investment: Why Economic Development Should be the Core Element

A dispute will only fall within the jurisdiction of the International Centre for Settlement of Investment Disputes (ICSID) if it directly arises out of an ‘investment’, as is provided by Article 25(1) of the Convention for the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). However, not only does the ICSID Convention fail to provide any definition of what constitutes an ‘investment’, the drafters of the ICSID Convention, in fact, made an express decision not to include such a definition. This absence has given rise to interesting issues of interpretation as ICSID tribunals have sought to arrive at an understanding of how the term ‘investment’ should be properly understood for the purposes of the ICSID Convention.

Mission Creep: International Investment Agreements and Sovereign Debt Restructuring

As members of the Eurozone are now acutely aware, the lack of a sovereign debt restructuring regime is one of the most glaring gaps in the international financial architecture. That said, this summer’s decision by a tribunal of the International Centre for Settlement of Investment Disputes (ICSID), which grants a bilateral investment treaty (BIT) jurisdiction […]

Investment Developments in the Trans-Pacific Partnership Agreement

Advocates for the Trans-Pacific Partnership Agreement (TPPA) describe it as a “new generation agreement for the 21st century” that will go further behind the border than any previous free trade agreement (FTA). This signals significant changes in the investment regime found in the current generation of FTAs and bilateral investment treaties (BITs). Precisely what those […]

UNASUR Arbitration Centre: The Present Situation and the Principal Characteristics of Ecuador’s Proposal

Five years ago, some Latin American countries started a critical movement against the International Centre for Settlement of Investment Disputes (ICSID), the World Bank institution for arbitrating disputes between foreign investors and host states. They perceived that ICSID arbitration proceedings had become problematic due to a lack of transparency and a failure to address the […]

The Netherlands: A Gateway to ‘Treaty Shopping’ for Investment Protection

It is an established fact that many transnational companies choose the jurisdiction of the Netherlands as a base for their global trade and investment operations, at least partly because of the country’s favourable tax regime that facilitates corporate tax avoidance strategies.[1] A new report by the Centre for Research on Multinational Corporations (SOMO) entitled “Dutch […]

Stabilization in investment contracts: Rethinking the context, reformulating the result

Over the past two decades, stabilization provisions in investment contracts (and in the domestic law in some developing countries) became a popular demand of investors into developing countries. Rarely used and largely unconstitutional in most developed countries,[1] these provisions essentially limit the ability of governments to have new laws and regulations apply to a foreign […]

Principles for responsible contracts: Integrating the management of human rights risks into State-investor contract negotiations

The UN shines a spotlight on business and human rights In July 2005, the then United Nations Secretary-General Kofi Annan appointed John Ruggie as his Special Representative on Business and Human Rights. Ban Ki-Moon continued the appointment, and this June Ruggie delivered his final report to the Human Rights Council.  Ruggie’s mandate is highly significant […]

Going public to improve investment in agriculture

The public began to hunger for information about investment in the agriculture sector when a massive wave of foreign investment in farmland and water was triggered, in 2008, by a confluence of the biofuels boom, global food crisis, sharp spike in oil prices and the financial crisis. Alarming information started to emerge in the media. […]

Rethinking investor-state contracts through a sustainable development lens

In recent years, economic liberalisation, improved transport and communication systems, and the global demand for energy, minerals and agricultural commodities have fostered investment in agriculture, mining and petroleum projects in many poorer countries. For some commentators, this trend provides new opportunities to promote growth, generate public revenues and create employment in countries that have limited […]

Foreign investment contracts in the oil & gas sector: A survey of environmentally relevant clauses

The oil and gas industry faces increasingly strict environmental standards in developed countries. However, the majority of the world’s proven oil reserves are in developing countries and economies in transition, which often lack sophisticated regimes for environmental protection. Even when legislative frameworks are well developed, there are often deficiencies in capacity and an unwillingness to […]

Philip Morris v. Uruguay: Will investor-State arbitration send restrictions on tobacco marketing up in smoke?

For nearly two decades, the tobacco industry has used international investment rules to challenge governmentrestrictions on cigarette marketing.  In 1994, R.J. Reynolds Tobacco Company threatened to bring a claim under the North American Free Trade Agreement’s (NAFTA) investment chapter as part of its successful lobbying campaign against Canada’s proposed “plain packaging” legislation, which would have […]

Investment arbitration and the Canada-EU Comprehensive Economic and Trade Agreement: Time for a change?

With the seventh round of negotiations between Canada and the European Union over the Canada-EU Comprehensive Economic and Trade Agreement (CETA) completed this April, and the eighth round scheduled for July, the involved nations are closer than ever to being subject to the investment arbitration provisions of another free trade agreement. Canadian critics of CETA […]

The problem of moral hazard and its implications for the protection of ‘legitimate expectations’ under the fair and equitable treatment standard

While the concepts of sovereignty, human rights, the environment and the rule of law are often invoked in public debate about international investment treaties (IITs), there is relatively little discussion of the economic effects of such treaties.[1] One of the most powerful legal protections provided by IITs is the protection of foreign investor’s ‘legitimate expectations’ under fair and equitable treatment (FET) provisions, which are common to most IITs. This article draws on economic theory—specifically, the notion of moral hazard—to elucidate some of the problems with broader interpretations of the doctrine of legitimate expectations.

When international rules interact: International investment law and the law of armed conflict

The last two decades have witnessed an exponential increase in arbitral disputes between investors and states under international investment treaties. UNCTAD reports 357 known registered cases by the end of 2009; of those, 202 cases—or 57 percent—were initiated after 2004.[1] Independent investment tribunals now regularly render binding decisions as to whether states have violated investment protection standards guaranteed under various bilateral and multilateral investment treaties—a phenomenon that has turned international investment law into one of the most dynamic fields of public international law.

Reforming United States trade and investment treaties for financial stability: The case of capital controls

This short essay discusses new evidence in the economics profession showing that capital controls are important macro-prudential measures that nations should have in their toolkit to prevent and mitigate financial crises. More importantly for this publication, it will be shown that United States trade and investment treaties do not reflect the emerging consensus on capital controls. There is a unique opportunity to rectify this problem as the United States finalizes its new model bilateral investment treaty (BIT) and moves forward on negotiations for a Trans-Pacific Partnership Agreement (TPP) with numerous Pacific Rim nations. Moreover, an opportunity for reform lies in the pending Congressional votes on Bush-era trade deals such as those with South Korea, Colombia, and Panama.

Freezing government policy: Stabilization clauses in investment contracts

To a significant extent the site of debate about the terms of globalization and its relationship to the regulatory state has shifted from the World Trade Organization to the world of investment treaties and arbitration. Investment treaties typically confer on a foreign investor a right to sue a host state that has allegedly failed to comply with a number of substantive obligations, typical among them the requirement to compensate for expropriation, fair and equitable treatment, and national treatment.

2010 midterm congressional elections in the United States: Implications for new U.S. International Investment Agreements

The Republican victories in U.S. congressional elections on 2 November 2010 are widely assumed to have increased the odds that the Obama administration will proceed with new bilateral investment treaties (BITs) and free trade agreements (FTAs) containing investment chapters. But this assumption bear closer examination. The post-election situation is complex.

UNCTAD’s 2010 World Investment Forum: High-level experts discuss investment policies for sustainable development

The 2010 World Investment Forum (WIF), held on 6-9 September 2010, in Xiamen, China, turned UNCTAD into the global gravity center for open, universal, inclusive and high-level international investment discourse and policy formation. Eight events and conferences were attended by more than 1,800 participants from 120 countries and 16 international organisations, among them nine heads of State, four heads of international organisations, 79 ministerial-level officials, and 116 senior business executives.

Fairness and independence in investment arbitration: A critique of “Development and Outcomes of Investment Treaty Arbitration”

There has been recent interest in the use of quantitative research tools to evaluate the fairness and independence of investment arbitration. In this article, Professor Gus Van Harten critiques one of the most prominent studies to examine this question. While the study in question, “Development and Outcomes of Investment Treaty Arbitration” (2009), has been used in some policy circles to support the argument that investment arbitration functions fairly, Van Harten argues it has limitations that prevent such conclusions.

A global thirst: How water is driving the new wave of foreign investment in farmland

It is no longer a secret that there is a new wave of foreign investment in farmland, predominantly in Africa. An explosion of media reports and a series of studies by the World Bank, Food and Agricultural Organisation (FAO), International Fund for Agricultural Development (IFAD), United Nations Conference on Trade and Development (UNCTAD) and International Institute for Environment and Development (IIED), have confirmed the scale and consequences of this new influx of foreign investment. The World Bank report, by far the most comprehensive, found that reported deals amounted to 45 million hectares in 2009 alone.

The transparency requirement in the new UNCITRAL Arbitration Rules: A premonitory view

Ignacio Torterola  In October, State delegations are expected to discuss the issue of transparency in the UNCITRAL Rules of Arbitration.  Ignacio Torterola, ICSID Liaison at the Argentine Embassy in Washington, DC, and Argentine Delegate to the UNCITRAL Working Group II, explains why greater openness would benefit the investment arbitration system.  Some preliminary considerations Working Group […]

The EU’s international investment policy: Hardware without the software

Ramon Torrent The Lisbon Treaty broadens European commercial policy in what marks the latest milestone in a long (and unfinished) journey in which the EC/EU has sought to extend its exclusive competence over the entire area of external economic relations. Towards this goal, the European Commission has always led the course, albeit with limited success. […]

Reclaiming the public interest in Europe’s international investment policy: Will the future EU BITs be any better than the 1200 existing BITs of EU member states?

The Lisbon Treaty has shifted the competence related to Foreign Direct Investments (FDI) from the European Union Member States to the Union and has added it to the Union’s exclusive common commercial policy. This transfer of competence not only requires the development of a common EU investment policy, but also legislative steps to clarify the status of the 1200 existing Bilateral Investment Treaties (BITs) of the EU Member States and their ongoing BIT negotiations. This offers a unique opportunity for an assessment of the existing BITs and for an open and broad discussion on the future European international investment policy.

Towards a comprehensive European international investment policy: An interview with Tomas Baert, European Commission, Directorate General for Trade, Services and Investment

With the EU’s Lisbon Treaty granting the European Union competence over Foreign Direct Investment, the European Commission released two documents in July that help chart the way forward: a draft regulation on how to deal with existing Bilateral Investment Treaties (BITs) of the EU Member States over the next five years, and a Communication that […]