Tag Archives: Agreement

Morocco and Nigeria sign new investment treaty

BloggIn December 2016, Morocco and Nigeria signed a new investment treaty, which will enter into force once it has been ratified by both countries’ parliaments. The treaty is in many ways an ambitious update of the content often seen in older treaties, and as such a good illustration of the new “generation” of investment protection.

The majority of investment treaties are relatively old: most were negotiated in the 20th century. Many states have expressed concerns over the content of these treaties and reacted by drafting new “model agreements”, renegotiate existing treaties or even terminate old treaties entirely.

The new Morocco-Nigeria treaty is longer than the average older treaty. Among the more innovative features are a clear role for sustainable development, limits and clarifications to the substantive investment protection, as well obligations on the investor (and not only on the host state).

With respect to dispute resolution, both ISDS and state-state arbitration is available. For ISDS, an investor can choose between ICSID and UNCITRAL. In the latter case, the dispute will automatically be covered by the UNCITRAL Transparency Rules, but it is also made clear by Article 10(5) that every dispute shall be characterized by extensive transparency.

The treaty is available here. That two African states decide to sign a bilateral investment treaty is not only an expression of support for such deals: it also shows the path forward in the balancing of investment protection and state interests, in a manner compatible with sustainable development.

 

Bridging the Climate Change Policy Gap

BLoggIt is clear that to fight climate change, we need to scale up green investment both in terms of amount and geographical reach. However, climate change law, in this case the United Nations Conference Framework on Climate Change and the recently-signed Paris Agreement, do not specifically include terms to promote and protect investment. This is a policy gap.

The SCC, together with the International Bar Association, the International Chamber of Commerce and the Permanent Court of Arbitration, took an initiative to discuss this gap by organising a conference, Bridging the Climate Change Policy Gap: The Role of International Law and Arbitration, in Stockholm on 21 November.

It is noted during the conference that around USD 100 billion in investment over the next fifteen years is needed to combat climate change – a target that is considered achievable. Another speaker emphasised that there is no shortage of capital to address climate change. The challenge is how to get investors to actually invest and how to match the capital with the green investments.

It appeared to be a consensus among the speakers that good policy is key to attracting sustainable investments. Policy needs to be long-term and stable. Short-term policies, often associated with government’s turnover, caused bad impacts, from high transaction costs to the fact that the industry had to fire and re-hire employees depending on how policy is.

A panel of lawyers discussed how litigation has been used to fight climate change, directly and indirectly. Among other things, renewable energy investors have resorted to international arbitration to bring a claim against government for unstable policies and revocation of incentives. Another case being discussed in depth was Urgenda Foundation v. the Netherlands where a Dutch district court ruled that the government has breached its duty of care to its citizens by not doing enough to address climate change.

It may be foreseen that these types of cases, both in domestic and international fora, will propel the right type of government actions.

A report from the conference with more details will be published soon.

 

Host states’ legitimate expectation

Scenic landscapes of Northern ArgentinaThe investor’s legitimate expectations are often a key question in ISDS cases. Such expectations can be based on, for example, the host state’s laws, policies, or contractual commitments – such as when a host state granted the investor mining rights for a certain number of years. A violation of these expectations can be a ground for the investor to bring an ISDS claim against the host government. Several tribunals have ruled that a host country cannot act contrary to the investor’s legistimate expectations.

Karl P. Sauvant and GüneşÜnüvar have written an article published by Columbia Center for Sustainable Investment, introducing the question of whether or not states can also have legitimate expectations towards the foreign investor. According to the article, such expectations may arise from, for instance, the investor’s statements of its contribution to the host country.

As an example, the article points to Sempra v Argentina, where Argentina argued that it “had many expectations in respect of the investment that were not met or otherwise frustrated … (such as)… work diligently and in good faith…”. The article also notes, however, that since governments currently cannot initiate ISDS proceedings against foreign investors, their reliance on legitimate expectations is limited to counterclaims brought in response to investors’ claims. See our previous post about counterclaims here.

Finally, the article proposes that future international investment agreements (IIAs) could explicitly stipulate that host states’ legitimate expectations are protected, thereby establishing a right for host states to bring a claim on this basis.

The New York Convention – a success from 1958 serving ISDS

Central Park with Manhattan skyline in New York CityISDS is established and ruled by international agreements. 159 states have submitted to the World Bank’s ICSID system, which is designed specifically for disputes between foreign investors and states. Many ISDS proceedings are conducted outside the ICSID system and for those proceedings, other instruments are in control. The most important of these is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

The New York Convention began to be discussed in the mid-50s because it was necessary to support the emerging international trade. The system at that time simply lacked an effective way to enforce arbitral awards across borders. A judgment of a national court was then, as now, difficult to enforce outside the court’s home jurisdiction, which meant that it was fairly easy for the losing parties to international disputes to avoid paying (it has become somewhat easier since the 1950s particularly in the EU, but it is still difficult to get, for example, a Swedish court judgment executed abroad and vice versa).

Arbitration is an important piece of the puzzle for international trade to function, it is by far the most common way to resolve international disputes. The New York Convention guarantees that whoever wins the dispute has not only the right but also gets the right in practice. By signing the Convention, states agree to enforce arbitral awards rendered in another state that is party of the Convention. The Convention has provisions to ensure the rule of law, for example, enforcement of an arbitration award can be rejected if it was rendered with a procedural deficiency.

Most of the states in the world have signed the New York Convention. It is the UN Commission of International Trade Law secretariat in Vienna (UNCITRAL), which takes care of the practical issues when new states accede. According to the UNCITRAL, Andorra is the latest country to ratify the Convention, and this means that the Convention is an applicable law in 156 countries.

The Convention is widely considered to be the most successful international convention ever. Although there are international agreements that have been signed by more states, they rarely contain any direct commitments. The New York Convention requires courts of the state parties to effectively apply the provisions of the Convention, and such strong support from the world’s countries is a major success story for international law and international trade.

How investment protection affects the “right to regulate”

Green paragraph between black paragraphsIn discussions of investment protection provisions in the context of the Transatlantic Trade and Investment Partnership (TTIP), issues have been raised regarding the risk of such investment provisions affecting the signatory states’ “right to regulate”.

A report from the Swedish National Board of Trade seeks to bring clarity to these issues by examining how two of the most commonly used investment protection provisions affect states’ “right to regulate”. At the outset, the report explains that the term itself is misleading, for an investment protection agreement never entails a waiver of the states’  right to regulate. Rather, the “right to regulate” in this context refers to the state’s ability to legislate and adopt administrative acts without running the risk of having to pay damages to investors.

Using the concluded trade agreement between the EU and Canada (CETA) and the US model bilateral investment treaty, the report analyzes two investment protection articles that frequently occur in investment disputes, and which also have the greatest potential impact on the state’s “right to regulate”. These two articles relate to (1) fair and equitable treatment and (2) expropriation without compensation.

The “fair and equitable treatment” article protects investors against, inter alia, fundamental breach of due process in judicial and administrative proceedings, manifest arbitrariness, and targeted discrimination. The article is often interpreted to include protection of investors’ “legitimate expectations”, based on the laws, regulations and government commitments that attracted the investment. According to the Swedish National Board of Trade, foreign investors in Sweden already enjoy this type of protection under Swedish law. The article on “fair and equitable treatment” in an investment protection agreement will thus not affect Sweden’s “right to regulate”.

The article regarding “expropriation without compensation” prevents states from nationalizing private property (direct expropriation), or by legislation or other means causing the investor to lose control of the investment or rendering the investment worthless (indirect expropriation). The provision again direct expropriation is broadly consistent with Swedish law; while the provision against indirect expropriation provides investors with some additional protection beyond that offered by Swedish law. According to the National Board of Trade, the expropriation article on the whole has only a slight, if any, impact on Sweden’s “right to regulate”.

The report concludes that, because the protection that these articles provide foreign investors in Sweden is already largely covered by Swedish law, they have a very small impact on Sweden’s “right to regulate”.

ISDS key figures and findings

worldisdsA report by Notre Europe Jacques Delors Institute, a think-tank working on European Union issues, summarizes important numbers related to bilateral investment treaties (BITs) and ISDS.

The report puts numbers into perspective – with some of its findings as follows:

  1. The number of BITs increased five-fold between the late 1980s and the end of 1990s.
  2. In parallel, the external stock of FDI demonstrates a ten-fold increase over 20 years with a growth from USD 2,400 billion in 1992 to USD 23,600 billion in 2012.
  3. There is now a total of 3,200 investment agreements worldwide, 93% of them provides an ISDS clause.
  4. Out of the 98 countries who have been a respondent in an ISDS proceeding, about three-quarters were developing countries or economy in transition. Less than one-third of claims were brought against developed countries.
  5. The average compensation claimed was USD 343.5 million, however the average amount awarded was USD 10.4 million.

The European Union member states have signed a total of 1,356 BITs with non-EU member states, in addition to around 190 BITs between themselves.

With regards to the EU – United States relationship, the report notes that nine member states have signed investment agreements with the U.S – all include ISDS as dispute resolution mechanism. These member states consist of Bulgaria, Croatia, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia. There have been so far 9 known ISDS claims between the U.S and the EU, all submitted by US investors (4 against Poland, 3 against Romania, 1 against the Czech Republic and 1 against Estonia).

ISDS is included in the EU’s upcoming agreements, including free trade agreements with Canada and Singapore – the negotiations of which have been concluded. According to the report, ISDS is also mentioned in agreements currently negotiated between the EU and China, Myanmar, Morocco, Thailand and Vietnam.

ISDS reform is already happening

Governments of both sides of the Atlantic have made significant policy revisions of ISDS mechanism over the past few years, as concluded in this recent article.

A decade ago, the U.S introduced transparency and third-party participation in ISDS as provided in its 2004 Model BIT. The current US BIT model, the 2012 model, contains these provisions as well. The 2012 model further provides an opportunity for the investors to discuss the effects of change of regulations with the host government, which may prevent the initiation of ISDS by investors. This model serves as the template for US’ position in the negotiation of future investment agreements.

The European Union has also introduced new elements to the ISDS regime, most notably in the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”). The ISDS provision under this agreement contains among others:

  1. Prohibition of parallel proceedings in domestic court or other international tribunals;
  2. Introduction of a fast-track system for rejecting frivolous claims; and
  3. Full transparency in ISDS proceedings.

In addition, the CETA is the first trade and investment agreement which contains a binding code of conduct for arbitrators. The code of conduct obliges arbitrators to continuously disclose any possible conflict of interest as well as to maintain their independency and impartiality. This code of conduct is also included in the draft free trade agreement between the EU and Singapore.

The negotiations of the CETA have been completed and the text will now undergo a legal review followed translation into all official languages of the EU. The agreement will, at the later stage, need to be approved by the Council and the European Parliament.