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Bilateral Investment Treaties: Investors and Property versus the State

Bilateral Investment Treaties: Investors and Property versus the State

Posted by Stephan Kinsella on November 8, 2003 02:14 PM

Interesting recent article on Bilateral Investment Treaties (BITs), Arbitrating over BIT claims, by attorneys Mark Friedman and Gaetan Verhoosel.

I found this comment interesting: “BITs typically contain a “most favored nation” clause that allows an investor from any country having a BIT with the host country to claim the best treatment available to any investor from any other country that has a BIT with the host state. So, for example, a Dutch national investing in a host state under a BIT may actually be able to take advantage of substantive protections contained in a BIT made between the United States and the same host state. According to some authorities, an investor may even be able to benefit from the procedural protections offered by a BIT between the host state and a third country.”

What is interesting about this is that these most-favored nation (MFN) provisions in the proliferating number of BITs may, as one of the authors wrote me, “accomplish something like the [now-defunct Multilateral Agreement on Investment (MAI)] by assuring to a qualifying investor in the host state the best protections available to any qualifying investor in the host state. Nevertheless, there are some multilateral agreements that are invoked as sources of investment rights. NAFTA is one such multilateral agreement. Another is the Energy Charter Treaty in Europe. They both have some restrictions on them that BITs do not, but they are examples of multilateralism.”For more info on the MAI, see my 1997 Philadelphia Lawyer article: An International Framework for the Protection of Investment; some other writings on foreign investment/political risk and international law.

The MAI was being negotiated at the Organization for Economic Cooperation and Development (OECD). It was designed to establish uniform limits on what governments to do to foreign investments. It was like a BIT applied to many countries around the world, instead of only to pairs.

Negotiations stopped around 1998, due to opposition from developing nations and their advocates, who did not want corporations to be able to control the ability of nations to regulate and expropriate (though that’s now how they would put it). As the author wrote me, “the developed, capital exporting countries concluded that they can get more dealing with each country one on one, rather than dealing with capital importing countries as a block.”

There was some thought that the WTO might take over negotiations, and the TRIMs agreement seems to do part of what the MAI would do, but as far as I can determine, even the WTO does not seem to be actively pursuing anything very similar to the MAI.

More information: Protecting Foreign Investment: The WTO and the New Global Investment Regime, by Carlos M. Correa and Nagesh Kumar (August 2003); MAI status; OECD documents; WTO’s “Agreement on Trade Related Aspects of Investment Measures (TRIMs); WTO 2001 notes on Trade and Investment: Negotiate, or continue to study?; other WTO docs on Trade and Investment; differences between MAI and BITs; CorpWatch article Multinationals and the World Trade Organisation.

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