Fair and Equitable Treatment on Foreign Investment and its Effects - Essay Example

?Design Proposal Dissertation Fair and Equitable Treatment on Foreign Investment and its Effects. An Overview Since 1945 the growth of international foreign investment has been improved slightly until it reached a peak in the 1990s. This development of international foreign investment was tied with a number of bilateral investment treaties (BITs), which grew from 500 in 1999 to 2000 in the year 2000.1 In fact, a large number of BITs contain different standards of protection, like full protection and security, umbrella clause, national treatment, most favoured nation treatment and fair and equitable treatment standard (FET). The FET is the most frequently invoked standard in international investment disputes between investor and a host state. Many commentators agree with the view that the majority of the successful claims in international investment arbitration are based on a violation of the FET standard.2 The reason of this is that there are different jurisprudences on the way of interpreting the concept of the FET according to investment treaties and tribunal practises.3 In my dissertation I will try to analyze the jurisprudences of interpreting the FET standard in the light of both states and tribunals practise. In the first part of the dissertation, the concept of the FET standard will thrown light upon. In this part, I will reveal the history of the standard according to treaties practise. In addition, I will present the definition of the FET standard according to some commentators’ views. Subsequent to that, the relation between the FET standard and customary international law will be illustrated. In this part, the extent of this standard to reflect the international minimum standards will be shown in the light of states and tribunals practise. Finally, the elements of applying the FET standard will take place in third parts. In this part, the forms of applying the FET will be revealed which are transparency, stability and the protection of the investor’s legitimate expectations, compliance with contractual obligations, procedural propriety and due process, good faith and freedom from coercion and harassment. A Summary of the Argument Through the research process, which covered four weeks since submitting the dissertation title to the School of Law at Oxford Brookes University in 13th of February 2012, there are two significant issues that have been discussed by a plethora of scholars. The first issue is on the field of the concept of the FET standard. Some scholars discussed the difference between “fairness” and “equity”. In other words, whether the FET standards contains two standards, namely “fair” and “equitable” with independent meaning for each one or the FET standard appears as an unified standard. Scholars examined this question, due to the fact that arbitrators always make their decision on international investment dispute according to their notions of “fairness” and “equity”.4 As a result, the first argument of the dissertation is to analyse the meaning of the FET standard in order to know whether it contains two standard or not. The second issue is on the field of the interpreting the FET standard. Several scholars criticized the heterogeneity of the FET standard language in investment treaties and illustrated how that could affect on the extent of the standard.5 In other words, they argued that whether the FET standards reflect the international minimum standards of treatment? Such as national treatment and most favoured nation treatment, or it works as an autonomous standard or independence from other standards. Scholars observed this issue because some treaties state the FET standards as equivalent to the international minimum standard required by customary international law. Therefore, the second argument on the dissertation is whether the FET standard is measured the international minimum standard required by customary international law or it is an absolute or an autonomous standard. A Literature Review In order to gather relevant information to the FET standard, I started searching for information by using secondary sources first, such as books and journal articles. Dolzer and Schreuer book is the first source that I have read6. The authors discuss in their book the meaning of the FET according to tribunals practise in a number of cases. For instance, in the TECMED v Mexico case the tribunal presented the most comprehensive definition of the FET when it said that: The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor… The foreign investor also expects the host State to act consistently, i.e. without arbitrarily revoking any preexisting decisions or permits issued by the State that were relied upon by the investor to assume its commitments as well as to plan and launch its commercial and business activities. The investor also expects the State to use the legal instruments that govern the actions of the investor or the investment in conformity with the function usually assigned to such instruments, and not to deprive the investor of its investment without the required compensation7. Therefore, the authors conclude that there is no a specific meaning of the FET standard owing to the fact that the concept of the standard in investment treaty is a broad and depend on different circumstances. Moreover, they analyse the history of the FET standard by illustrating multilateral investment treaties and bilateral investment treaties that contain the standard. However, some of these treaties are non-binding because they have not entered into force and others are binding. They mention to the non-binding treaties first, for example, Article 1 of the OECD Draft Convention on the Protection of Foreign Property (1967) which provides that “Each Party shall at all times ensure fair and equitable treatment to the property of the national of the other Parties” and Section IV of the OECD Draft Negotiating Text for a Multilateral Agreement on Investment (1998) Article 1(1) stipulates “Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party and equitable treatment and full and protection and security”.8 Furthermore, the binding treaties, such as Article 1105(1) of the North American Free Trade agreement (NAFTA) (1992) which says “Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full and protection and security”9. Another book, which I have read, is Gallagher and Shan book10. The authors’ points out the key issues in the FET standard which is whether the standard is measured the international minimum standard required by customary international law or it is an absolute or an autonomous standard. They state that the FET standard and the Full Protection and Security “belong to the group of non-contingent standard or so-called absolute standard of treatment”11. During the research period I have obtained some journal articles, which are very relevant to the FET standard. One of them is Yannaca’s article12. The author refers to some scholars who believe that the FET standard reflects the international minimum standard by customary international law. For instance, Fatouros who says “non-contingent standards present certain advantages in that the treatment they prescribe is determined beforehand and thus, presumably, does not fall below a minimum standard”13. Kohona suggests that the phrase “just and equitable treatment in accordance with international law which occurs, for instance in certain Australian bilateral investment treaties, amounts to the international minimum standard”14. Mo indicates that the FET imposes an obligation on the contracting parties to “implement the measures of treatment in accordance with international standards”15. Sacerdoti affirms, “Lawfully acquired property is protected by a minimum international standard, which is often defined as fair and equitable”16. On the other hand, Yannaca refers to some scholars who accept the FET standard as an absolute or an autonomous standard. For example, Mann observes that it is misleading to equate the fair and equitable with the minimum standard because “the terms fair and equitable treatment envisage conduct which goes far beyond the minimum standard and afford protection to a greater extent and according to a much more objective standard than any previously employed form of words…the terms are to be understood and applied independently and autonomously”17. Dolzer and Stevens states that “the fact that parties to BITS have considered it necessary to stipulate this standard as an express obligation rather than rely on a reference to international law and thereby invoke a relatively vague concept such as the minimum standard is probably evidence of a self-contained standard. Further, some treaties refer to international law in addition to the fair and equitable treatment, thus appearing to reaffirm that international law standards are consistent with, but complementary to, the provision of the BIT”18. To sum up, the FET standard is now a key element of international law on the protection of investors and their investments. In fact, I think finding more sources, which are relevant to the FET will not be an issue because many investment treaties contain this standard. In addition, many countries mention to this standard in their BIT Models, as in the case of France, the US, Switzerland and Germany. Furthermore, several scholars examined the FET according to states and tribunal practices.19 Reflective diary Introduction On the 13th of February 2012 I submitted my dissertation title, which is ‘Fair and Equitable Treatment on Foreign Investment and its Effects’ to the School of Law at Oxford Brookes University. In order to complete the third assessment in the ALRM module, this work seeks to reflect the student’s diary on the research process. In fact, the aim of this work is to obtain some relevant primary and secondary sources, which will be used when I start writing the dissertation in May 2012. In these diaries I will try to represent the key issues in the Fair and Equitable Treatment standard and support them by providing evidences, such as treaties, cases and commentators opinion. Diary 1 On the 28th of February 2012 I started reading chapter seven in Dolzer and Schreuer book20, which discusses standards of protection in international investment. The first standard is Fair and Equitable Treatment (FET). The authors reveal the importance of the FET by showing how it becomes the most invoked standard in investment disputes. For instance, they mention to Metalclad v Mexico21 and Maffezini v Spain22 the first two cases which examined the meaning of the standard and applied it to a wide rang of circumstances. I think these cases will assist me to introduce the meaning and the importance of the FET standard in my dissertation. In the following part the authors’ illustrate the history of the FET concept. They show that the standard appeared in many multilateral investment treaties (MITs) and bilateral investment treaties (BITs). However, some of these treaties are non-binding because they have not entered into force, but others are binding. They mention to the non-binding treaties first, for example, the first appeared of the FET was in Article 11(2) of the Havanna Charter for International Trade Organization (1948), Article I of the Abs-Shawcross Draft Convention on Investment Abroad (1959), Article 1 of the OECD Draft Convention on the Protection of Foreign Property (1967), The Draft for a United Nations Code of Conduct on Transnational Corporations (1983), Section III of the Guidelines on the Treatment of Foreign Direct Investment adopted by the Development Committee of the Board of Governors of the International Monetary Fund and the World Bank in (1992) and the OECD Draft Negotiating Text for a Multilateral Agreement on Investment (MAI) (1998).23 After that, they show the binding treaties, such as Article 12 of the Convention Establishing the Multilateral Investment Guarantee Agency (1985), Article 1105(1) of the North American Free Trade agreement (NAFTA) (1992) and Article 10(1) of the Energy Charter Treaty (1994). In my view, I believe that my dissertation will base on these treaties, in particular, when I discuss the concept of the FET in the first part by presenting the materials of these treaties and showing how the FET standard was adopted and become as an essential standard in the BITs and MITs due to the fact that many countries have BIT models which contain the FET standard. Diary 2 On 29th of February 2012 I continued reading the previous book.24 The writers’ explain the heterogeneity of the FET standard language in investment treaties and how could that affect on the extension of the standard. In other words, they discuss whether the FET standard reflects the international minimum standards of treatment, such as National Treatment and Most Favoured Nation Treatment (MFN), or it works as an autonomous standard or independence from other standards. Some treaties, as in the case of NAFTA in Article 1105(1) and the OECD Draft Convention on the Protection of Foreign Property indicate that the EFT stander “reflects the customary international law minimum standards and dose not require treatment in addition to or beyond that, which is required by customary international law”25. This approach was adopted by the Guidelines on the Treatment of Foreign Direct Investment (1992) and in Noble Ventures v Romania26. On the other hand, some commentators, such as FA Mann and many tribunals believe that the EFT stander works as an independence from other standards.27 I think this issue has a significant impact on the investment treaties because if the FET standard reflects other standers, this will lead to identify them and recognize the relationship between them and the FET. Furthermore, it will lead to know why investment treaties include other standards if the FET reflects them because it does not make sense mentioning other standers in the investment treaty according to this approach. As a result, the writers state that the FET standard should be interpreted according to Article 31 of the Vienna Convention on the Law of Treaties. Diary 3 On March 5, 2012 I finished reading chapter seven of the previous book.28 In the definition part of the FET, the authors show that tribunals have tried in a number of cases to present a more specific meaning to the standard. In the Genin v Estonia the tribunal stated that acts violating the fair and equitable standard “would include acts showing a wilful neglect of duty, an insufficiency of action falling far below international standards, or even subjective bad faith”29. Moreover, the tribunal in the TECMED v Mexico presented the most comprehensive definition of the FET.30 Therefore, there is no a specific meaning of the FET standard owing to the fact that the concept of the standard in investment treaty is a broad and its meaning depend on different circumstances. Following to that, the authors’ illustrate another significant issue about identifying the situations of applying the FET standard. An examination of tribunals practices proves that several principles can be identified or embraced by the FET standard, for instance, Transparency, Stability, the Protection of the Investor’s Legitimate Expectations, Compliance with Contractual Obligations, Procedural Propriety and Due Process, Good Faith and Freedom from Coercion and Harassment. As a result, I think this issue needs to be considered carefully in my dissertation by showing the definitions for each principle and analyse if breach these principle lead to violate the FET standard in the light of tribunals practices. This issue I think appeared since there is no a specific definition of the EFT standard, because the definition plays major role in identifying the situations of applying the standard. Diary 4 On the 10th of March 2012 I went to the Brookes University Library in order to use the databases for searching about relevant journal articles to the FET standard. Firstly, I used Westlaw then LexisLibrary and I found some articles, which related to different journals31. One of these articles was written by Catherine Yannaca-Small.32 The author pointes out the key issue in the FET standard which is whether the standard is measured the international minimum standard required by customary international law, such as investment protection obligations generally found in treaties and general principles or whether the FET is an absolute or an autonomous standard.33 In fact, Yannaca refers to some scholars who believe that the FET standard reflects the international minimum standard by customary international law. For instance, Fatouros who says “non-contingent standards present certain advantages in that the treatment they prescribe is determined beforehand and thus, presumably, does not fall below a minimum standard”34. Kohona suggests that the phrase “just and equitable treatment in accordance with international law which occurs, for instance in certain Australian bilateral investment treaties, amounts to the international minimum standard”35. Mo indicates that the FET imposes an obligation on the contracting parties to “implement the measures of treatment in accordance with international standards”36. Sacerdoti affirms, “lawfully acquired property is protected by a minimum international standard, which is often defined as fair and equitable”37. Moreover, some countries adopted this approach and defined it in their BITs, as in the case of France, the US and Canada.38 Also, some tribunals adopted this approach in a number of cases arising under BITs, such as the AMT v. Republic of Zaire when the tribunal found that Zaire has manifestly failed to respect the minimum standard required of it by international law and the tribunal stated that: These treatments of protection and security of investment required by the provisions of the BIT of which AMT is beneficiary must be in conformity with its applicable laws and must not be any less than those recognized by international law. For the Tribunal, this last requirement is fundamental for the determination of the responsibility of the host state. It is thus an objective obligation, which must not be inferior to the minimum standard of vigilance and of care required by international law.39 On the other hand, Yannaca refers to some scholars who accept the FET standard as an absolute or an autonomous standard. For example, Mann observes that it is misleading to equate the fair and equitable with the minimum standard because “the terms fair and equitable treatment envisage conduct which goes far beyond the minimum standard and afford protection to a greater extent and according to a much more objective standard than any previously employed form of words…the terms are to be understood and applied independently and autonomously”40. Dolzer and Stevens states that “the fact that parties to BITS have considered it necessary to stipulate this standard as an express obligation rather than rely on a reference to international law and thereby invoke a relatively vague concept such as the minimum standard is probably evidence of a self-contained standard. Further, some treaties refer to international law in addition to the fair and equitable treatment, thus appearing to reaffirm that international law standards are consistent with, but complementary to, the provision of the BIT”41. In addition, some countries accepted this approach and defined it in their BITs, as in the case of Netherlands, Sweden, Switzerland and Germany.42 Also, tribunals applied this approach in many cases such as, TECMED v. The United Mexican States.43 Thereby, I think Yannaca’s article will provide me with the literature review that I need when I write my design proposal. Diary 5 On the 13th of March 2012 I finished reading the previous article.44 The author affirms that there is no specific definition to the FET standard and arbitrators always make their decision according to their notions of “fairness” and “equity”. In effect, the author mentions to a significant issue that may support my dissertation when I discuss the meaning of the FET, which is whether there is a difference between “fairness” and “equity”. In other words, whether the FET standard contains two standard, namely “fair” and “equitable” with independent meaning for each one or the FET standard appears as an unified standard. Diary 6 On the 16th of March 2012 I went to the Bodleian Library in order to use its databases. I found many books, which are relevant to the FET standard45. One of these books was written by Gallagher and Shan46. The authors state that the FET standard and the Full Protection and Security (PNS) “belong to the group of non-contingent standard or so-called absolute standard of treatment”47. In fact, they explain the two different approaches of interpretation of the FET that have been developed in theory and in arbitration practice. The first approach is the plain meaning approach and the other one is the equation of the FET with the international minimum standard which has been adopted by NAFTA.48 Diary 7 On the 19th of March 2012 I went to the Brookes University Library in order to search on more journal articles by using Westlaw system. I found some articles 49 and one of them was written by Stone.50 The writer presents the key argument as whether the FET standard should be understood as being synonymous with or substantively analogous to the international minimum standard of treatment under customary international law51. After that, he supports the argument by some arbitration practices that related to NAFTA tribunal such as Waste Management Inc v. Mexico case52 and other tribunals.53 Bibliographer Books Aguilar G and Reisman W, The Reasons Requirement in International Investment Arbitration: Critical Case Studies, (MNP 2008). Dolzer R and Schreuer C, Principles of International Investment Law (OUP 2008). Dolzer R and Stevens M, Bilateral Investment Treaties, (ICSID 1995). Fatouros A A, Government Guarantees to Foreign Investors (CUP 1962). Gallagher N and Shan W, Chinese Investment Treaties Policies and Practice (OUP 2009). Klager R, Fair and Equitable Treatment in International Investment Law, (CUP 2011). Tudor L, The fair and equitable treatment standard in the international law of foreign investment (OUP 2008). Journal Articles Kohona P, ‘Investment Protection Agreements: An Australian Perspective’ [1987] JWTL. Mann F A, ‘British Treaties for the Promotion and Protection of Investments’ [1981] BYIL. Marshall F, ‘Fair and Equitable Tratment in international Investment Agreements’ [2007] IISD. Mo J, ‘Some Aspects of the Australia-China Investment Protection Treaty’ [1991] JWTL. Sacerdoti G, ‘Bilateral Treaties and Multilateral Instruments on Investment Protection’ [1997] RCT. Schreuer C, ‘Full Protection and Security’ [2010] JIDS. Schreuer C, ‘Fair and Equitable Tratment in Arbitral Practice’ [2005] JWIT. Stone J, ‘Arbitrariness, the Fair and Equitable Treatment Standard, and the International Law of Investment’ [2012] LJIL. UNCTAD, ‘Fair and Equitable Treatment: UNCTAD Series on Issues in International Investment Agreements II’ [2012] UNCTAD. Cases AMT v. Republic of Zaire, ICSID Case No. ARB/93/1, Award, 21 February 1997. Genin v The Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001. CME v The Czech Republic, ICSID Case, First Partial Award, 13 September 2001. Maffezini v Spain, ICSID Case No. ARB/97/7, Award on Merits,13 November 2000. Metalclad v Mexico, ICSID Case No. ARB (AF)/97/1, Award,30 August 2000. Mondev International v. USA, ICSID Case No. ARB(AF)/99/2, Award, 11 October 2002. Noble Ventures v. Romania, ICSID Case No. ARB/01/11, Award on Jurisdiction, 12 October 2005. S.D. Myers, Inc v Canada, ILM Case, First Partial Award, 13 November 2000. TECMED v Mexico, ICSID Case No. ARB (AF)/00/2, Award, 29 May 2003 United Parcel Service of America v Canada, Award on Jurisdiction, 22 November 2002. Waste Management v. Mexico, ICSID Case No. ARB(AF)/98/2, Final Award, 2 June 2002. Authorities Abs-Shawcross Draft Convention on Investment Abroad (1959). Convention Establishing the Multilateral Investment Guarantee Agency (1985). Draft United Nations Code of Conduct on Transnational Corporations (1983). Energy Charter Treaty (1994). Guidelines on the Treatment of Foreign Direct Investment adopted by the Development Committee of the Board of Governors of the International Monetary Fund and the World Bank in (1992). Havanna Charter for International Trade Organization (1948). OECD Draft Convention on the Protection of Foreign Property (1967). OECD Draft Negotiating Text for a Multilateral Agreement on Investment (MAI) (1998). North American Free Trade agreement (NAFTA) (1992). Vienna Convention on the Law of Treaties 1969 (Vienna, 23 May 1969), Entered into force on 27 January 1980. Read More