Investment Treaties

1. Investment Treaties University of Miami School of Law September 10, 2008 Mark Anderson Counsel — Latin America & the Caribbean Caterpillar Inc.

2. Investment Treaties Should be Considered in 2 Situations • Contracts with governmental entities • Includes state-owned companies • Sales of Cat products • Other, e.g., land purchase (Panama) • Governmental interference • expropriation • unfair/discriminatory treatment, regulation

3. Advantages • Substantive protections for investments • International arbitration of claims and disputes • Especially important in developing countries • Avoid local courts, local favoritism • Overcome issues of sovereign immunity • Enforceability of arbitration awards • New York Convention on enforcement of arbitral awards • Arbitral award ~ judgment of local court where enforced • Very limited grounds to refuse enforcement • No review of the merits

4. Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States • Entered into force in 1966 • 155 countries have signed, 143 ratified • Vast majority of developing countries have ratified • Exception: India (but India does have many BITs)

5. Washington Convention – Article 25 • Establishes jurisdiction for “ICSID” (International Center for Settlement of Investment Disputes) • Jurisdiction extends to: • disputes arising from an investment • between a State/subdivision and a national of another State • where the parties consent in writing to submit the dispute to ICSID • Each of these issues is defined in the relevant investment treaty, not in the Washington Convention itself

6. Multilateral Investment Treaties and BITs • Many “MITs” (e.g., NAFTA, CAFTA, etc.) • Over 2,300 BITs are in place between various countries around the world • Purpose of BITs: • Encourage investment, esp. in developing nations • Reduce risks to private investors through protections • Enforce safeguards via international arbitration (usually ICSID) • Each BIT is somewhat unique, although they share many similarities • The U.N. Conference on Trade and Development maintains a list of BITs as well as text on many of them • See www.unctad.org

7. Panama A Case Study

9. U.S. — Panama BIT • Signed in 1982, became effective in 1991 • “protocol” (amendment) added in 2000 to account for Panama’s ratification of the Washington Convention

10. U.S. — Panama BIT Key features • “investment” defined very broadly: • Equity, debt, service, investment contracts • Tangible and intangible property, mortgages, liens and pledges • IP rights • Licenses and permits • Any right conferred by law or contract

11. U.S. — Panama BIT • No discrimination, MFN: “Each party shall permit and treat such investment, and activities associated therewith, on a basis no less favorable than that accorded in like situations to investment or associated activities of its own nationals or companies, or of nationals or companies of any third country, whichever is the more favorable . . .”

12. U.S. — Panama BIT • Anti-discrimination, MFN clause: • government cannot give preferential treatment to domestic or foreign investors • allows investor to analyze other BITs that host country has with other third countries in order to claim further protections • example: U.S.-Egypt BIT lacks “fair and equitable treatment” clause, but MFN bootstraps this in from other BITs that Egypt has (e.g., U.K.)

13. U.S. — Panama BIT • Fair and equitable treatment, no arbitrary or discriminatory measures • No restrictions on current and capital transfers • No expropriation, either directly or indirectly, except with prompt and adequate compensation

14. U.S. — Panama BIT • Note on expropriation: tribunals have defined “expropriation” broadly to encompass governmental action that effectively neutralizes the benefit of an investment. Indirect expropriation can occur when measures taken by the government deprive the investor in whole or in significant part of the use or reasonably expected economic benefit of an investment.

15. U.S. — Panama BIT • Dispute resolution • “investment disputes” defined very broadly • Alleged breach of investment contract • Violation of rights granted under the BIT • Unless parties agree otherwise, at private company’s or national’s option, investment disputes are resolved by ICSID arbitration (Panama automatically consents)

16. U.S. — Panama BIT • “ . . . Any company duly incorporated, constituted or otherwise duly organized under the applicable laws and regulations of either Party or a political subdivision thereof but that, immediately before the occurrence of the event or events giving rise to the dispute, was owned or controlled by nationals or companies of the other Party, shall be treated as a national or company of such other Party.”

17. How did BIT affect Panama land purchase contract? • Buyer (Cat) is entitled to protections of U.S.-Panama BIT (even though purchaser is Panamanian sub) • All disputes arising from Cat’s investment to be resolved by arbitration (ICC) in a “neutral” location • ICC arbitration prevails over all procedure from moment an “investment” is made by Cat • Avoids statutory process for resolution of government contract claims

18. Summary of Take-Aways • Consider investment treaties when negotiating with government entities or state-owned companies • Know what protections are available • Don’t waive important rights • Consider defining important terms from the BIT in the contract • “investment” • National of what country?

19. Summary of Take-Aways • Consider investment treaties when facing unfair, punitive or arbitrary government actions • Direct or indirect expropriation • Unfair treatment vis-à-vis local nationals or other foreign nationals (if MFN)

20. Summary of Take-Aways • Consider the full spectrum of available treaties • Example: India • No U.S. BIT, but BITs w/ U.K., Switzerland, etc. (arbitration via UNCITRAL) • BITs define who is a national in different ways (e.g., Switzerland-India BIT has no ‘ultimate control’ feature as in the U.S.-Panama BIT)

21. Questions? Thank You