Improving International Investment Agreements

Armand De Mestral, Céline Lévesque, Armand De Mestral, Céline Lévesque

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136260704
• Edition: 1
• Topic: Law
• Subtopic: International Trade Law
• Index: Law

This book presents the reflections of a group of researchers interested in assessing whether the law governing the promotion and protection of foreign investment reflects sound public policy. Whether it is the lack of "checks and balances" on investor rights or more broadly the lack of balance between public rights and private interests, the time is ripe for an in-depth discussions of current challenges facing the international investment law regime.

Through a survey of the evolution in IIA treaty-making and an evaluation from different perspectives, the authors take stock of developments in international investment law and analyze potential solutions to some of the criticisms that plague IIAs. The book takes a multidisciplinary approach to the subject, with expert analysis from legal, political and economic scholars. The first part of the book traces the evolution of IIA treaty-making whilst the other three parts are organised around the concepts of efficiency, legitimacy and sustainability. Each contributor analyzes one or more issues related to substance, treaty negotiation, or dispute resolution, with the ultimate aim of improving IIA treaty-making in these respects.

Improving International Investment Agreements will be of particular interest to students and academics in the fields of International Investment Law, International Trade Law, Business and Economics.

Part I

IIA treaty-making: evolution and evaluation

1 Developments in IIA treaty-making

Andrew Newcombe*

Introduction

There has been significant legal evolution in IIA treaty-making since the conclusion of the first BIT between Germany and Pakistan in 1959. The number of IIAs has increased exponentially over the past 50 years, creating a complex overlapping network of IIAs with varied procedural and substantive protections for foreign investors. According to UNCTAD, by the end of 2010, there were 2,807 BITs, 309 other international agreements with investment related provisions and 2,976 double taxation treaties.¹ IIAs have not only significantly increased in number, but also in length and complexity. Investment promotion and protection obligations are increasingly being integrated into comprehensive FTAs, creating complex interactions between trade and investment obligations and other international regimes, including international environmental law and international human rights law. Further, IIA treaty-making has begun responding to an array of controversial legal issues that have arisen in investor-state arbitrations. As the contributions in this book demonstrate, IIA treaty-making continues to evolve by adopting procedural innovations in the investor-state arbitration process and clarifying the scope of investment protections.

This chapter provides a brief overview of the legal evolution of IIAs. Part I describes the move towards the “treatification” of international investment law in the 1950s and 1960s and the evolution of IIAs up until the early 1990s. This period is distinguished by the increasing inclusion of investor-state arbitration provisions in treaty texts—the defining feature of the modern IIA. Part II surveys the “modelization” trend in IIA treaty-making—the proliferation of model IIAs—and their use in the treaty–making process. Part III highlights the recent trend towards renegotiation of first generation IIAs and analyzes changes in IIA practice resulting from the fact that an increasing number of countries have both “offensive” and “defensive” interests when negotiating IIAs.

Treatification and investor-state arbitration

The defining trend in international investment law post-WWII has been the process of “treatification.”² Prior to the development of BITs, treaty-based investment protection was sometimes available under bilateral economic treaties. After WWII, a number of states, including the United States and the United Kingdom, continued this practice, concluding treaties of friendship, commerce and navigation (“FCN”) that included provisions on the protection of property rights and the business interests of foreigners.³ In light of uncertainties regarding investor protection standards in customary international law and the lack of access to effective dispute settlement mechanisms, host states sought to promote and protect foreign investment by concluding treaties that would provide both procedural and substantive protections. Although there were early efforts to create an international framework for foreign investment, disagreements between capital exporting and importing states about standards of treatment for foreign investors were an obstacle to the conclusion of a multilateral treaty. As a result, capital exporting states began concluding BITs dedicated to foreign investment promotion and protection.

Germany was the first state to develop a BIT program, concluding its first BIT with Pakistan in 1959. ⁴ The Germany-Pakistan BIT (1959) addressed the scope of protections by defining protected investment and investors and contained many of the substantive provisions that are now common in IIAs.⁵ In addition, the BIT provided state-to-state dispute settlement before the ICJ if the parties agreed, or if they did not agree, to an arbitration tribunal upon the request of either party. This recourse to state-to-state arbitration before a three-person arbitral tribunal, as an alternative to ICJ jurisdiction, represents one of the major differences between early post-WWII FCN treaties, such as the Nicaragua-US FCN treaty, and the BITs that were developed in the early 1960s.

The defining feature of the modern BIT—consent to investor-state arbitration—was, however, still to come. The traditional form of consent to international arbitration between a foreign investor and a state was through an arbitration clause in a contract, such as a natural resource concession or a foreign investment agreement. Until 1968, BITs only provided for state-to-state dispute resolution through the establishment of an arbitral tribunal or submission of the dispute to the ICJ.⁶ During the negotiations of the ICSID Convention (1965), negotiators recognized that states could consent to arbitrate future disputes by making an offer to arbitrate in a foreign investment code or law, or by means of a treaty. In 1969, ICSID published a series of model arbitration clauses for use in BITs.⁷ The Chad-Italy BIT, concluded in 1969, appears to be the first BIT that provides for investor-state arbitration with unqualified state consent. It was this BIT, not the Germany-Pakistan BIT, that marked the true beginning of modern BIT practice because it combined substantive investment promotion and protection obligations with binding investor-state arbitration.

Although the defining features of the modern BIT existed in practice, states concluded only a small number of BITs through the 1970s. This period was characterized by intense disagreement between capital exporting and importing states over the treatment of foreign investment, as exemplified by the 1974 Declaration on the Establishment of a New International Economic Order and the Charter of Economic Rights and Duties of States.⁸ By 1979, states had concluded only 100 BITs.⁹ The majority of these BITs were between capital exporting states in Western Europe¹⁰ and developing states.

In contrast to the 1970s, the end of the 1980s and the 1990s witnessed an exponential growth in the conclusion of international investment and trade treaties. An important development in the early 1980s was the development of the United States BIT program.¹¹ Unlike European BITs, which focused on investment protection, the US model BIT provided for entry and establishment rights—investment liberalization, not just protection.¹² Further, China, which now has 130 BITs, signed its first BIT in 1982.¹³

The number of BITs quintupled during the 1990s. By the end of the 1990s, states had concluded 1857 BITs. By the early 1990s, the vast majority of new IIAs included an investor-state arbitration mechanism. Importantly, BITs were increasingly being concluded between non-industrialized states.¹⁴ Several industrializing states, including Argentina, Chile and India concluded their first BITs, and other OECD states, such as Canada and Australia, followed the United States by initiating BIT programs. The 1990s saw an increasing complexity in treaty provisions and the integration of investment provisions into a variety of international economic treaties, including the NAFTA, the ECT and the WTO General Agreement on Trade and Services (“GATS”) and Agreement on Trade-Related Investment Measures (“TRIMs”).¹⁵

This complexity continues to increase. In 2008, UNCTAD aptly summarized the network of IIAs as universal, atomized, multi-layered and multifaceted:

The system is universal, in that nearly every country has signed at least one BIT and the majority of them are members to several, if not numerous, IIAs. The structure of agreements is atomized, that is, it consists of thousands of individual agreements that lack any system-wide coordination and coherence. The IIA universe is multi-layered—as IIAs now exist at the bilateral, regional, intraregional, interregional, sectoral, plurilateral and multilateral level—and IIAs at different levels may overlap. The system is also multifaceted, meaning that IIAs include not only provisions that are specific to investment, but also rules that address other related matters, such as trade in goods, trade in services, intellectual property, labor issues or environmental protection.¹⁶

In light of this complexity, and controversial rulings that have resulted from some of the early investor-state arbitration cases, IIA treaty-making practice has continued to evolve.

“Modelization” trend

An important trend in IIA treaty-making is the creation by many states of model or prototype BITs to serve as the basis for the negotiation of new treaties.¹⁷ This trend might contribute to efficiency gains in IIA treaty-making, but also presents difficulties when two countries negotiate on the basis of very different model IIAs.

The beginning of state-based proposals for “modelization” can be traced to the 1962 OECD Draft Convention on the Protection of Foreign Property,¹⁸ which was revised and approved by the OECD in 1967 (1967 Draft OECD Convention).¹⁹ Although the 1967 Draft OECD Convention failed to gain sufficient support among OECD countries for adoption as a multilateral convention, its substantive provisions have subsequently served as an important model for BITs.²⁰ Further, as noted above, in 1969, ICSID published a series of model BIT arbitration clauses for use in BITs...