Fair and Equitable Treatment of Foreign Investment - Essay Example

According to the claimant, the Lesivo procedure did not afford due process since it had not allowed the investor an opportunity to contest or respond to the government’s allegations before the declaration was issued. On the other hand, the respondent stressed that under CAFTA the obligation of FET requires only the minimum standard of treatment under customary international law and does not create additional substantive rights. Thus, the tribunal adopted the equating approach and maintained that the minimum standard of treatment of FET will be breached, if the State’s conduct “is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a leak of due process”.

However, the jurisprudential doctrine of understanding the international law minimum standard has also been developed under international investment agreements. Essentially, there have been two views surrounding the understanding of the minimum standard of treatment, wherein breaches lead to violations of the FET standard.

Firstly, the traditional view understands the customary international law minimum standard as was reflected in the Neer case in the 1920s. For instance, in Alex Genin v Estonia, where the response authorities revoked the claimant’s bank license, the tribunal illustrated the conduct that would violate the minimum standard; they concluded that they “would include acts showing a wilful neglect of duty, an insufficiency of action falling far below international standards, or even subjective bad faith”. Thus, it appears clear that the tribunal deals with the traditional view because it believes that the FET standard would be breached in case the State acts in bad faith.

Secondly, the evolutionary view, considers that the customary international law minimum standard has evolved since the Neer case. For example, in the Azurix case, after analyzing some awards inside and outside NAFTA the tribunal believed that the minimum requirement to satisfy the FET standard has evolved, and held that “such intention and bad faith can aggravate the situation but are not an essential element of the standard. It is also understood that the conduct of the State has to be below international standards but those are not at the level of 1927s”. Furthermore, in the Railroad case, the tribunal also discussed the evolution of the minimum standard and adopted the conclusion that “the minimum standard of treatment is constantly in a process of development including since Neer’s formulation”.

Therefore, after examining the ways of interpreting the FET standard, it is logical to say that the controversy between the equating and plain meaning approaches is constantly reviewed in most cases. This, without a doubt, appears in many arbitral awards both within and outside NAFTA, because tribunals are quite reluctant to resolve this controversy. In addition, investors almost adopt an expensive view, as in the case of the Pope & Talbot case, while host States seek to support the NAFTA FTC approach of interpreting FET. However, it seems that none of the advanced approaches can provide persuasive reasons for their construction of FET, because “this controversy is misguided, and the dichotomy presented by opposing views is a false one on several levels”.

In this regard, what is needed is that the previous controversy should be reduced by construing fair and equitable treatment as only one single concept. This will play a major role in the consistency of international investment law. Moreover, it would achieve far-reaching consequences for unifying the formulation of the FET standard in investment treaties. The concept of the FET standard will be discussed in the following chapter.

It appears clear that the most recent BITs have a clause that requires host States to treat foreign investors fairly and equitably. The reason for including the FET standard in many investment agreements is because this standard has a stricter meaning that makes it the main factor in protecting investments and investors. In addition, the legal nature of the FET standard urges parties to combine this standard in their investment agreements, since it is different from other standards of treatment, such as national treatment and most-favored-national treatment. In more detail, the FET standard, as mentioned before, constitutes an absolute and non-contingent standard of treatment whose exact meaning is determined by reference to specific circumstances; whereas other standards, as in the case of national treatment and most-favored-national treatment, are relative and contingent standards that are defined by reference to the treatment accorded to other investments.