The BIT experience of the Fair and Equitable Treatment standard

1. To insert other ready-formatted pages: go to the insert menu/slides from files/ select ‘on-screen inserts.ppt’ Click the display button, then click the button on the right (marked with red below). Click on the slide(s) to insert then insert and close. The BIT experience of the Fair and Equitable Treatment standard Lluís Paradell British Institute of International and Comparative Law - Fifth Investment Treaty Forum Conference - The Honourable Society of Gray’s Inn 9 September 2005

2. Overview I. Treaty practice • Variations of the standard in BITs • Interpretative approaches • General characteristics • Scope

3. I. Treaty practice • Art. 11(2) of the 1948 Havana Charter • Art. 23 of the 1948 Economic Agreement of Bogotá • US post-WWII FCN treaties: e.g. Germany, Ethiopia (“fair and equitable treatment”), Belgium and Luxembourg, France, Greece (“equitable treatment”) • 1960, 1963, 1968 OECD Drafts and 1998 MAI negotiating text • Commonly used in multilateral, regional, sectoral and bilateral treaties • MIGA [Art. 12(d)] • ASEAN treaty for the promotion and protection of investments [Art. IV] • Energy Charter Treaty [Art. 10(1)]

4. II. Variations in BITs • By itself and unqualified Art. IV.1 Argentina / Spain BIT “Each Party shall gurantee in its territory fair and equitable treatment of investments made by investors of the other Party” • Combined with other absolute standards of treatment and treatment in accordance with international law Art. 3(a) Ecuador / US BIT “Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law” Art. 5 Argentina / France BIT “Investment made by investors of one Contracting Party shall be fully and completely protected and safeguarded ... , in accordance with the principle of just and equitable treatment...”

5. II. Variations (cont’d) • Combined with relative standards of treatment Article 4(1) of the India / Thailand BIT “Investments of investors …. shall receive treatment which is fair and equitable and not less favourable than that accorded in respect of the investments and returns of the investors of the latter Contracting Party or of any third State” • Expressly equated with the customary international law minimum standard 2004 US and Canada Model BITs, recent US FTAs and Uruguay / US BIT E.g. Art. 5 of the Uruguay / US BIT “(1) Each Party shall accord to covered investment treatment in accordance with customary international law, including fair and equitable treatment and full protection and security. (2) For greater certainty, paragraph 1 prescribes the customary international law minimum stardard of treatment of aliens... The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substative rights. ...”

6. II. Variations (cont’d) • Spelling out some specific obligations Art. 3 Argentina / France BIT “Each Contracting Party undertakes to accord ... just and equitable treatment in conformity with the principles of international law ... and to ensure that the exercise of the right so granted is not impeded either de jure or de facto. The following shall be considered as de jure or de facto impediments to just and equitable treatment: any restrictions on the purchase or transportation of raw materials and secondary materials, energy and fuel, and of means of production and operation of all kinds, any impediment to the sale or transportation of goods within the country and abroad, and any other measure having a similar effect” • Also referred to in the BIT preamble Argentina / US BIT “The United States of America and the Argentine Republic, hereinafter referred to as the Parties: [...] Agreeing that fair and equitable treatment of investment is desirable in order to maintain a stable framework for investment and maximum effective use of economic resources; [...] Have agreed as follows:”

7. III. Interpretative approaches • Interpretative uncertainty “the notions of ‘fairness’ and ‘equity’ do not connote a clear set of legal prescriptions” (Vasciannie) • The customary international law minimum standard approach • The independent standard approach • Gives arbitral tribunals the authority to “articulate a variety of rules necessary to achieve [NAFTA’s] object and purpose in particular disputes” (Brower) • Requires a tribunal “to decide whether in all the circumstances the conduct in issue is fair and equitable or unfair and inequitable” (F.A. Mann)

8. III. Interpretative approaches (cont’d) • “The standard serves the useful purpose of giving foreign investors the opportunity to question administrative and other actions without actually embarking upon deliberations on the requirements of either municipal law or customary law. Investors are thus able to approach host States with the abstract question whether a particular form of treatment is unfair or inequitable in the context of investment relations [...]” (Vasciannie) • MTD v. Chile “In their ordinary meaning, the terms ‘fair’ and ‘equitable’ used Article 3(1) of the BIT mean ‘just’, ‘even-handed’, ‘unbiased’, ‘legitimate’… As regards the object and purpose of the BIT, the Tribunal refers to its preamble where the parties state their desire ‘to create favourable conditions for investments […]’ and the recognition of ‘the need to protect investments…’ . Hence in terms of the BIT, the fair and equitable treatment should be understood to be treatment in an even-handed and just manner, conducive to fostering the promotion of foreign investment”

9. IV. General characteristics • First, it does not confer “unfettered discretion ... on a subjective basis” (Mondev v. US) • Second, it “does not provide a tribunal with an open-ended mandate to second-guess government decision-making” (Myers v. Canada) • Third, it is an “objective requirement unrelated to ... any deliberate intention or bad faith” (CMS v. Argentina) • Fourth,it is an overarching standard that covers a number of specificobligations

10. V. Scope • Due process • Mondev v. United States • CAA and CGE v. Argentina • Middle East Cement v. Egypt • Transparency • Maffezini v. Spain • Tecmed v. Mexico • Due diligence in the physical and legal protection of investments • Wena v. Egypt - MTD v. Chile

11. V. Scope (cont’d) • Respect for representations and legitimate expectations • “if a host country provides an assurance of fair and equitable treatment, it presumably wishes to indicate to the international community that investments within its jurisdiction will be subject to treatment compatible with some of the main expectations of foreign investors” (Vasciannie) • Tribunals need to examine “the impact of the measure on the reasonable investment-backed expectations of the investor; and whether the state is attempting to avoid investment-backed expectations that the state created or reinforced through its own acts” (Paulsson) • “[The Government] breached its obligation of fair and equitable treatment by evisceration of the arrangements in reliance upon [which] the foreign investor was induced to invest” (CME v. Czech Republic)

12. V. Scope (cont’d) • “in light of the good faith principle established by international law, [fair and equitable treatment] requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment” (Tecmed v. Mexico) • Eureko v. Poland • Stability, predictability and risk allocation - “There can be no doubt that ... a stable legal and business environment is an essential part of fair and equitable treatment” (CMS v. Argentina; Occidental v. Ecuador) • No arbitrariness or discrimination • Pope & Talbot v. Canada; Waste Management v. Mexico; Petrobart v. Kyrgyz Republic (on arbitrariness) • CMS v. Argentina; Methanex v. US (on discrimination)

13. To insert other ready-formatted pages: go to the insert menu/slides from files/ select ‘on-screen inserts.ppt’ Click the display button, then click the button on the right (marked with red below). Click on the slide(s) to insert then insert and close. The BIT experience of the Fair and Equitable Treatment standard Lluís Paradell British Institute of International and Comparative Law - Fifth Investment Treaty Forum Conference - The Honourable Society of Gray’s Inn 9 September 2005