15 Investment Treaty Dispute Settlement

This chapter focuses on investment treaty dispute settlement, examining the nature of conflicts between investors and states and the various means provided by treaties to resolve them. In general, investor–state disputes governed by treaties occur because a host state has taken a ‘measure’ that allegedly violates that state's treaty commitments on the treatment it has promised to accord to investments protected by that treaty. Before the advent of investment treaties, investors basically had three methods to seek resolution of their disputes with host states: (a) direct negotiation with host state governments; (b) domestic courts in the host country; and (c) diplomatic protection by their home states. In order to establish a stable, rule-based system for international investment, treaties provide means to resolve disputes about the interpretation and application of treaty provisions. Most investment treaties provide four separate dispute settlement methods: (1) consultations and negotiations between contracting states; (2) arbitration between contracting states; (3) consultations and negotiations between covered investors and host governments; and (4) investor–state arbitration.

8 Investment Promotion, Facilitation, Admission, and Establishment

This chapter assesses investment promotion, facilitation, admission, and establishment. International law recognizes that by virtue of its sovereignty a state has the right to control the entry and exit of persons and things into and from its territory and also to regulate the activities of nationals or foreign persons and companies within that territory. A corollary of that principle is that a state is not required to allow foreign nationals or companies to establish or acquire an enterprise or investment within its territory. With respect to foreign investment, states have complete legislative jurisdiction to determine to what extent foreign nationals and companies may undertake investments, which sectors and industries they may or may not enter, and whether or not they must fulfil additional conditions in order to undertake and operate an investment within state territory. Numerous factors have shaped individual countries' attitudes towards foreign investment and investment treaty negotiations. One of the traditional aims of the investment treaty movement has been to reduce these internal barriers to foreign investment, particularly through treaty provisions on investment promotion, admission, and establishment. The second decade of the twenty-first century witnessed a growing emphasis in both international discussions and a few treaties on a new concept: foreign investment facilitation.

14 Treaty Entry into Force, Exceptions, Modifications, and Terminations

This chapter discusses the entry into force, exceptions, modifications, and terminations of investment treaties. While enunciating rules of international law governing foreign investors and investments, investment treaties at the same time incorporate various devices to regulate and limit the applicability of those rules and thereby allow contracting states to mediate tensions between demands of treaty partners and of internal pressure groups, such as labour unions, local manufacturers and merchants, and civic organizations. Such devices include treaty provisions on four matters: the entry into force of the treaty; treaty exceptions; treaty modifications; and treaty terminations. States employ the first two as part of the treaty negotiating process. On the other hand, states usually employ the latter two devices as a result of their unsatisfactory experience with a treaty that has entered into force.

4 A History of International Investment Treaties

This chapter traces the history and considers the purposes and consequences of the movement by states to negotiate investment treaties. In the post-colonial era of nationalizations and contract renegotiations, the economic facts of life in host countries struggled against the form of various legal commitments made to foreign investors. To change the dynamics of this struggle so as to protect the interests of their companies and investors, capital-exporting countries began a process of negotiating international investment treaties that, to the extent possible, would be: (1) complete; (2) clear and specific; (3) uncontestable; and (4) enforceable. These treaty efforts took place at both the bilateral and multilateral levels, which, though separate, tended to inform and reinforce each other. As a result of this process, a widespread treatification of international investment law took place in a relatively short time. By the end of the second decade of the twenty-first century, foreign investors in many parts of the world were protected primarily by international treaties rather than as previously by customary international law alone. For all practical purposes, treaties have become the fundamental source of international law in the area of foreign investment.

5 The General Structure of Investment Treaties

This chapter outlines the general structure of investment treaties. An investment treaty is an international agreement embodied in one or more written documents by which two or more states agree to certain legal rules to govern investments undertaken by nationals of one treaty party in the territory of another treaty party. A treaty is an instrument of international law that binds the contracting states. An investment treaty usually consists of a single document. However, the parties may use an exchange of letters or separate protocols to explain, modify, or elaborate on certain treaty provisions. The chapter then studies the ten topics that make up the basic structure of most modern investment treaties.

10 Monetary Transfers and Treatment

This chapter describes the treatment accorded to monetary transfers by investment treaties. Nearly all investment treaties grant covered investors or investments the freedom to make monetary transfers. However, the precise nature of such provisions in particular treaties depends upon the differing interests of host country governments. While investors want broad and unrestricted guarantees on monetary transfers, host states seek, in varying degrees, to limit their commitments with respect to monetary transfers and to subject them to qualifications and exceptions. Although the provisions on monetary transfers vary from treaty to treaty, they all tend to address six basic issues: (1) the general scope of the investor's rights to make monetary transfers; (2) the types of payments that are covered by such rights; (3) the nature of the currency in which payments may be made; (4) the applicable exchange rate; (5) the time within which the host state must allow the investor to make transfers; and (6) exceptions to the right to make monetary transfers.

12 Protection Against Expropriation, Nationalization, and Dispossession

This chapter examines the investment treaty protections against expropriation, nationalization, and dispossession. Because the investment treaty movement arose during a period when many expropriations and nationalizations had taken place and states exhibited significant disagreement about the applicable international law, one of the primary goals of capital-exporting countries in promoting investment treaties was to protect their investors and investments from acts of expropriation, nationalization, and dispossession by host governments. As a result, virtually all investment treaties contain a provision concerning the expropriation or nationalization of covered investments; however, the nature of those provisions, their scope, and the limitations they place on governmental action, vary among treaties. The chapter then examines the scope of coverage of expropriation provisions as they apply to direct and indirect takings of investor property by a state. It also considers the various conditions and limitations that treaties place upon such state actions, including the obligation to pay compensation.

16 The Consequences of Treaty Violations

This chapter assesses the consequences of treaty violations. As a general rule, investment treaties do not specifically state the consequences of a state's breach of treaty provisions. In fact, many, if not most investment treaties make no reference at all to the obligation of an offending state to pay compensation or make reparation to investors injured by a breach. While investment treaties generally do not specify rules on damages for failure to respect their provisions, they nearly always provide that tribunals are to decide disputes not only in accordance with the applicable treaty provisions but also in accordance with ‘the relevant principles of international law’, ‘the general principles of international law’, or ‘the applicable principles of international law’. Thus, all investment treaties stipulate that international law, customary international law, or some variation of that formulation is the source of law that tribunals are to apply in deciding the issues that they confront, which of course includes compensation for investments that have been injured by a contracting state's failure to respect treaty provisions. In order to determine the value of the loss to an injured investment, one must have recourse to valuation techniques drawn from the science of finance.

7 Scope of Application of Investment Treaties

This chapter focuses on the scope of application of investment treaties. Any international regime must have rules to determine which persons and actions are governed by the regime. Therefore, the key questions that must always be answered in the application of an investment treaty are whether the alleged investment meets the definition of ‘investment’ under the treaty and whether the legal or physical person owning the investment meets the legal definition of ‘investor’. The chapter examines these two questions. At the outset, however, it should be stressed that while investment treaties exhibit strong similarities in definitions and definitional approaches, significant textual differences can also be found since contracting states always have control in defining the scope of the treaty. Consequently, persons interpreting investment treaties to determine the extent of their coverage must focus carefully on the language of the definitional sections of the specific treaty in question.

2 The Nature and Significance of International Investment

This chapter explains the nature and significance of international investments and investors. All international investment treaties focus on two subjects: (1) investments, particularly international or ‘foreign investments’; and (2) investors, especially international or ‘foreign investors’. An understanding of these two phenomena is fundamental to understanding the growing role and significance of investment treaties in international economic life. The meaning of the term ‘investment’ at its most basic level is the commitment of resources by a physical or legal person to a specific purpose in order to earn a profit or to gain a return. Meanwhile, there are four basic categories of investors: private investors; state investors; international organizations; and mixed enterprises. The chapter then looks at the different forms of international investment.