Playing fair: The meaning of fair and equitable treatment in bilateral investment treaties

Journal of World Trade

Volumn 41, Issue 2, 2007, Pages 273-291

  Mayeda, Graham ^a  

^a UNIVERSITY OF OTTAWA   (Canada)

Author keywords

[No Author keywords available]

Indexed keywords

BILATERAL AGREEMENT; FOREIGN DIRECT INVESTMENT;

EID: 34447254773     PISSN: 10116702     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (121)

1. Graham Mayeda is Assistant Professor of Law at the University of Ottawa, Canada. His research focuses on the impact of international trade and investment law on developing countries. I would like to thank Donald McRae and Michael Trebilcock for their helpful comments on previous drafts.
2. Richard Posner, for instance, argues that clear property and contract rights are essential if a developing, country is to develop the market institutions essential for economic growth. R. Posner, Creating a Legal Framework for Economic Development, 13 World Bank Research Observer 1 (1998).
3. For criticisms of this view, see Frank Upham, Mythmaking in the Rule of Law Orthodoxy, Carnegie Endowment for International Peace Working Papers, Rule of Law Series, Democracy and Rule of Law Project (2002);
4. and David Kennedy, "Law and Developments", in John Hatcher and Amanda Pery-Kessaris(eds), Law and Development: Facing Complexity in the 21st Century: Essays in Honour of Peter Slinn (Portland: Cavendish, 2003), p. 21.
5. Graham Mayeda, Appreciate the Difference: The Role of Different Domestic Norms in Law and Development Reform - Lessons from China and Japan, 51 McGill Law Journal 3 (2006);
6. see also Graham Mayeda, A Normative Perspective on Legal Harmonization: China and the WTO, 38 U.B.C. Law Review 1 (2005), pp. 83-122, in which it is argued that legal and ethical norms exist in China that will provide the minimal rule of law necessary to facilitate China's accession to the WTO regime.
7. See also Upham, as note 2 above, pp. 25-31.
8. Other agreements also include "fair and equitable treatment" clauses, the most notable being the North American Free Trade Agreement (NAFTA) (see Article 1105(1)).
9. CMS Gas Transmission Company v. The Argentine Republic, (2005) ICSID Case No. ARB/01/8 i CMS case].
10. The ICSID website listed 35 cases pending against Argentina on 23 January 2006, see . Bernard Hoekman and Richard Newfarmer state that the actual number is closer to 40 (Preferential Trade Agreements, Investment Disciplines and Investment Flows, 39 Journal of World Trade (2005), p. 966).
11. Hoekman and Newfarmer, ibid.
12. Hockman and Newfarmer, ibid., pp. 965-966.
13. See also Luke Peterson, Czech Republic Hit with Massive Compensation Bill in Investment Treaty Dispute, Invest-SD News Bulletin, March 2004 (Geneva: International Institute for Sustainable Development (IISD))
14. and International Institute for Sustainable Development, Invest-SD Investment Law and Policy News Bulletin (22 February 2005), online at .
15. The cases referred to are CME Czech Republic B. V. (The Netherlands) v. Czech Republic (2001) (UNCITRAL), and Ceskoslovenska Obchodni Banka, a.s. v. The Slovak Republic, (2004) ICSID Case No. ARB/97/4.
16. As note 6 above, p. 966.
17. The Calvo Doctrine, for instance, represents the traditional Latin American view that foreigners should be treated in the same way as nationals. See Donald Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy (Minneapolis: University of Minnesota Press, 1955);
18. see also Denise Manning-Cabrol, The Imminent Death of the Calvo Clause and the Rebirth of the Calvo Principle: Equality of Foreign and National Investors, 26 Law and Policy in International Business (1995), p. 1169;
19. and Brian Tamanaha, The Lessons of Law and Development Studies, 89 American Journal of International Law (1995), p. 478.
20. Manning-Cabrol, as note 10 above, pp. 1170-1171.
21. CMS owns 29.42 percent of TGN (CMS case, as note 5 above, para. 58).
22. CMS case, as note 5 above, para. 57.
23. Ibid., para. 60.
24. Ibid., para. 61.
25. Ibid., para. 65.
26. Ibid., para. 66.
27. Ibid., paras 69-70.
28. Ibid., para. 171; 93 percent of TGN's debts were foreign loans, which were severely affected by the devaluation of the peso.
29. CMS case, as note 5, para. 72.
30. Ibid., para. 88.
31. Ibid., para. 89.
32. Ibid., para. 91.
33. Ibid., para. 93.
34. Id.
35. Ibid., paras 94-97.
36. Ibid., para. 99.
37. Ibid., para. 138.
38. Ibid., para. 144.
39. Ibid., para. 151.
40. Ibid., para. 266;
41. see also para. 281.
42. Ibid., para. 267;
43. citing CME v. Czech Republic, as note 8 above, para. 611.
44. CMS case, as note 5, para. 268;
45. citing Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, (2004) 43 ILM 13, ICSID Case No. ARB (AF)/00/2, para. 154.
46. CMS case, as note 5 above, para. 284.
47. Ibid., para. 277.
48. In international law, expropriation protects against two kinds of expropriation: (1) direct taking of property by a government, such as occurs in nationalization; (2) indirect taking which "substantially deprives the investor of the use or enjoyment of its benefit of property, even if the legal and beneficial title of the asset remains with the investor" (Lucy Peed, Jan Paulsson, and Nigel Blackaby, Guide to ICSID Arbitration (The Hague: Kluwer International, 2004), p. 52).
49. CMS case, as note 5 above, paras 399-405.
50. Ibid., para. 467.
51. Ibid., para. 272, where Argentina's argument is paraphrased as follows: "[In Argentina's viewj stability does not mean immobilization [i.e., an absolute maintenance of the tariff rate at the level at which CMS expected it to be maintained] and the measures adopted, particularly the 'pesification', were the solution necessary to prevent greater social damage and poverty."
52. Online at .
53. Online at .
54. ADF Group Inc. v. United States (2003) ICSID Case No. AB(AF)/00/1, para. 179.
55. OECD, Fair and Equitable Treatment Standard in International Investment Law, Working Papers on International Investment No. 2004/3 (Paris: OECD, 2004), p. 8, note 32.
56. See also A.H. Roth, The Minimum Standard of International Law Applied to Aliens (Leiden: 1949), p. 127;
57. Ian Brownlie, Principles of Public International Law (6th edn, Oxford: Oxford University Press, 2003), p. 502.
58. Charles Rousseau, Droit International Public (6th edn, Paris: Dalloz, 1971), p. 46. The original reads: "La grande majorité de la doctrine estime qu'il existe à cet égard un standard international minimum suivant lequel les États sont tenus d'accorder aux étrangers certains droits,... même dans le cas où ils refuseraient ce traitement à leurs nationaux."
59. Neer Claim, 4 United Nations Reports of International Arbitral Awards (1926), pp. 61-62.
60. United Nations Conference on Trade and Employment, Havana Charter for an International Trade Organisation U.N. Doc. E/Conf. 2/78 (1948).
61. OECD, 1967 Draft Convention on the Protection of Foreign Property, repnnted in 7 ILM 117, at 120. Other statements of equivalence include the statement of the Swiss Foreign Office: "On se réfère ainsi au Principe classique du droit des gens selon lequel les états doivent mettre les étrangers; se trouvant sur leur territoire et leurs hiens au bénéfice du 'standard minimum' international, c'est-à-dire leur accorder un minimum de droits personnels, procéduraux et économiques" (Annuaire Suisse de Droit International (1980), p. 178,
62. quoted in OECD, as note 43 above, p. 10, note 40;
63. and in Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (The Hague: Martinus Nijhoff, 1995).
64. Pope & Talbot Inc. v. The Government of Canada, UNCITRAL, 31 May 2002, at paras 58-65.
65. Loewen v. United States, ICSID Case No. ARB (AF)/98/3, 26 June 2003, 42 ILM 811.
66. Ibid., para. 132.
67. Mondev International Ltd. v United States of America, (2003) 42 ILM 85, ICSID Case No. ARB(AF)/99/2 (NAFTA), para. 127.
68. Metalclad Corporation v. United Mexican States (2000) 5 ICSID Rpts 209, ICSID Case No. ARB(AF)/97/1.
69. Ibid., para. 99.
70. 21 July 2001. The statement can be found at .
71. ADF as note 42 above.
72. The US statement is to be found in the Transcript ofthe Oral Hearing, Vol. II, 16 April 2002, pp. 492-493,
73. and in a Post Hearing Transmission of the US, dated 27 June 2002, p. 20.
74. The Canadian statement is in the Second Submission ofCanada Pursuant to NAFTA Article 1128, 19 July 2002, para. 33. Both are cited in OECD, as note 43 above, p. 11, notes 43 and 45.
75. The NAFTA tribunal agreed with the parties, stating that "... what customary international law projects is not a static photograph of the minimum standard of treatment ofaliens; as it stood in 1927 when the Award in the Neer case was rendered. For both customary international law and the minimum standard of treatment of aliens it incorporates, are constantly in a process of development" (ADF, as note 42 above, para. 179).
76. M. Sornarajab, The International Law on Foreign Investment (2nd edn, Cambridge: Cambridge University Press, 2004), p. 236.
77. Michael Trebilcock and Pobert Howse point this out when they say that "[t]he approach that tribunals have so far articulated with respect to 'minimum standard of treatment' creates little risk that ordinary legitimate government action, including judicial and administrative decision-making, can be impugned. To violate the minimum standard of treatment, the government's conduct must be improper to the extent that it would shock or surprise an impartial international tribunal (Mondev)" (The Regulation of International Trade (3rd edn, New York: Routledge, 2005), p. 466).
78. "The phrase 'fair and equitable treatment', customary in relevant bilateral agreements, indicates the standard set by international law for the treatment due by each State with regard to the property of foreign nationals ... The standard required conforms in efFect to the 'minimum standard' which forms part of customary international law" (as note 47 above).
79. OECD, as note 43, p. 9, note 34.
80. Ibid., note 33.
81. See also S.N. Guha Roy, Is the Law of Responsibility of States for Injuries to Aliens a Part of Universal International Law?, 55 American Journal of International Law (1961), p. 884;
82. Sornarajah, as note 57 above, pp. 142-148;
83. Patrick Juillard, L'évolution des sources du droit des investissements, in Recueil des Cours, Vol. 250 (The Hague: Martinus Nijhoff, 1994), p. 83.
84. See the Model BIT online at .
85. On the identity of the principle of fair and equitable treatment and the international minimum standard, see Stephen Vasciannie, The Fair and Equitable Standard in International Investment Law and Practice, 70 British Yearbook of Intemational Law 99 (1999), p. 104.
86. Note that the statement of the FTC reigns in the view expressed in Pope & Talbot that the requirements of fair and equitable treatment go beyond those of the international minimum standard (as note 48 above, para. 110).
87. Thomas Franck, Fairness in International Law and Institutions (Oxford: Clarendon Press, 1995), p. 440.
88. Ibid.
89. Trebilcock and Howse are also of this view. They state that in the NAFTA context, the standard of fair and equitable treatment "includes due process of law, administrative fairness and protection by local law against abusive treatment by private actors (such as the duty to provide reasonable police protection for a threatened alien's person and Property)" (as note 58 above, p. 465).
90. OECD, as note 43 above, p. 9, note 34.
91. Sornarajah, for instance, states that the "content of the international minimum standard outside the abuse of the physical security of the alien was minimal" (as note 57 above, p. 331).
92. Case Conceming Elettronica Sicula S.P.A. (ELSI) (US v. Italy), [1989] I.C.J. Rpts. 15, 28 ILM 1109.
93. See Treaty, quoted at para. 103 of the judgment.
94. ELSI case, as note 69 above, para. 108.
95. Ibid., para. 111.
96. ADF, as note 42 above, para. 183.
97. OECD, as note 43 above, pp. 26-39.
98. On the nature of die good faith obligation, see Tecmed case, as note 33 above, para. 154, in which the tribunal stated: "The Arbitral Tribunal considers that this provision of the Agreement, in light of the good faith principle established by international law, 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. The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations Arith the foreign investor ...."
99. OECD, as note 43 above, p 39.
100. Id.
101. Ibid., p. 37.
102. Genin, Eastern Credit Limited, Inc. and A.S. Baltoil v Estonia (2001), ICSID Case No. ARB/99/21CSID, para. 367.
103. Coercion and Foreign Investment Rearrargements, 72 American Journal of International Law 17 (1978),
104. cited in OECD, as note 43 above, p. 15, note 63.
105. Genin, as note 78 above, para. 367
106. Ronald S. Lauder v. Czech Republic (2001) UNCITRAL.
107. Ibid., para. 292.
108. Ibid.
109. See also UNCTAD, Fair And Equitable Treatment, U.N. Doc. UNCTAD/ ITE/IIT/II, Vol. III (1999), pp. 10 and 15, which states that the principle of fair and equitable treatinent "will also prevent discrimination against die beneficiary of the standard, where discrimination would amount to unfairness or inequity in the circumstances".
110. Susan D. Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law Through Inconsistent Decisions, 73 Fordham Law Review (2004-05), p. 1545.
111. However, Esther Kentin notes that there is increasing recognition of the importance of amicus curiae briefs ("Sustainable Development in International Investment Dispute Settlement: The ICSID and NAFTA Experience", in Nic Schrijver and Friedl Weiss (eds), International Law and Sustainable Development; Principles and Practice (Leiden: Martinus Nijhoff, 2004), p. 323).
112. For a more detailed treatment of the limits of arbitration tribunals and potential reforms, see Joel C. Beauvais, Student Article: Regulatory Expropriations Under NAFTA: Emerging Principles and Lingering Doubts, N.Y.U. Envt'l L.J. (2002), p. 245.
113. See also Franck, as note 84 above.
114. British Treaties for the Formation and Protection of Investment, 52 British Yearbook of International Law (1981), p. 244. Sornarajah points out that Mann's statement "could not have anticipated the manner in which it was later employed in NAFTA litigation", as note 57 above, p. 333, n. 45.
115. Bilateral Investment Treaties, as note 47 above, p. 60.
116. CMS case, as note 5 above, para. 267.
117. Ibid., para. 263.
118. Ibid., para. 284.
119. Ibid., para. 276.
120. As note 33 above, para. 154.
121. Mary Hallward-Diemeier, Do Bilateral Investment Treaties Attract Foreign Direct Investment?, World Bank Policy Research Working Paper No. 3121 (Washington, D.C.: World Bank, 2003), p. 22 (there is "little evidence that BITs have stimulated additional investment").