The Contents of the European Investment Law and Arbitration Review, Vol. 5 (2020)

Prof. Nikos Lavranos & Prof. Loukas Mistelis (Co-Editors in Chief)

We are very pleased and proud to present the fifth issue of the European Investment Law and Arbitration Review (EILA Rev) 2020.

As of 23 December 2020, all articles of this volume can be ordered online at Brill Publishers:

The stormy developments of the past years regarding international investment law and arbitration broadly understood, which to a large extent were driven by various EU institutions – European Commission, Court of Justice of the EU and the European Parliament – have confirmed the need for a legal journal such as this Review that exclusively tracks these developments and provides a forum for debate on the current state of affairs and future developments.

The Achmea judgment, the termination agreement regarding intra- EU BITs, CETA, Opinion 1/17, Brexit, the ISDS reform efforts in the UNCITRAL Working Group III and the ECT, are just a few of the topics that have been featured and continue to feature in a broad range of different contexts in this Review.

This issue opens with an article by Sarah Vasani and Nathalie Allen, which highlights the need of effective investment protection in order to ensure that the Paris Climate targets are reached by an increase in foreign direct investments in renewable energy. Often investment protection and environmental protection are presented as opposing, mutually exclusive interests; however, the authors convincingly argue that the contrary is true.

Elizabeth Chan’s article turns to Brexit and its potential for post- Brexit UK to design its foreign investment policy anew – independent from the EU.

Subsequently, Alexander Leventhal and Akshay Shreedhar analyze the practice of the European Commission intervening in arbitration proceedings by way of using amicus curiae briefs. They discuss the question whether, and if so, to what extent the European Commission can be considered a neutral friend of the tribunal or rather must be considered a third party with a particular interest – usually in support of the Member State concerned – which would have to be qualified as a potential abuse of the amicus curiae briefs tool.

Brady Gordon’s article provides a critical and sceptical analysis of the CJEU’s case law regarding CETA.

This is followed by David Sandberg and Jacob Rosell Svensson’s article regarding the implications of Achmea for national court challenge proceedings. They highlight the huge impact of Achmea for many on- going proceedings before domestic courts in various jurisdictions.

Samantha Rowe and Nelson Goh (former Managing Editor of this Review) explain how perceived norm conflicts regarding the January 2019 EU Member States Declarations on the consequences of the Achmea judgment can be resolved through principles of treaty interpretation.

Nikos Lavranos concludes this series of Achmea related articles by offering his analysis on the recently signed termination agreement, which would effectively terminate most intra-EU BITs.

As in the past years, we also run an Essay Competition, which resulted in many outstanding submissions. Indeed, this year the quality was so high that the Editorial Team decided to award, next to the first prize winner, two joint second prize winners rather than a second and third prize winner.

Crawford Jamieson is the first prize winner of the Essay Competition 2020 with his submission, which assesses the CJEU’s decisions in Achmea and Opinion 1/ 17 regarding CETA in light of the proposed Multilateral Investment Court (MIC). He shows that there are considerable flaws and inconsistencies in the CJEU’s jurisprudence, which can only be explained by political motivations in order to lend support to the MIC.

Joint second prize winner, Robert Bradshaw, illustrates with his submission that international investment law is in need of a proportionality test. The other joint second prize winners, Florence Humblet and Kabir Duggal, provide an extensive analysis for using Article 37 of the EU Charter as a defence for Climate Change and environmental measures in Investor-State arbitration disputes.

The case-note section is opened by Cees Verburg who analyses the Hague Court of Appeals’ decision, which overturned the lower courts’ decision to annul the USD 50 billion Yukos award. This decision reinstated the award, while at the same time triggered an appeal by the Russian Federation before the Dutch Supreme Court. Thus, there will be another, final, round.

Bianca McDonnell examined the Adamakopoulos v. Cyprus Decision on Jurisdiction by the ICSID arbitral tribunal. This decision is particularly interesting regarding the dissenting opinion of one arbitrator concerning the alleged incompatibility of the bit s and the EU Treaties as well as regarding the aspect of the mass claim nature of the proceeding.

Finally, Alesia Tsiabus and Guillaume Croisant discuss the lessons learned from the Micula saga for the relationship between international investment law and EU competition law.

The focus section on the Young ITA event on investment arbitration and the environment continues the theme, that was initiated by the first article in this Review. The focus section encompasses several written contributions of the presentations given at the Young ITA event held on 5 November 2019 in London.

This section is opened by an extensive analysis of Laura Rees-Evans in which she explains the recent developments and prospects of reform regarding the protection of the environment in international investment agreements.

Crina Baltag looks at the doctrine of police powers in relation to the protection of the environment, while Anna Bilanova explains the option of using environmental counterclaims. This is followed by a discussion of Guarav Sharma on environmental claims by States in investment treaty arbitration.

Finally, Nikos Lavranos, the other Co- Editor-in-Chief of this Review, looks at the (ab)use of third- party submissions in investment treaty arbitration proceedings.

The EFILA focus section contains a summary of the keynote delivered by Meg Kinnear at the 5th EFILA Annual Conference with a particular focus on using ADR tools in investment disputes.

This is followed by the text of the 5th EFILA Annual Lecture delivered by Prof. Laurence Boisson de Chazournes on navigating multiple proceedings in the light of the proliferation of courts and tribunals.

Finally, three book reviews wrap up this issue. Nikos Lavranos looks at the new Practical Commentary on the ICSID Convention, while Nelson Goh (former Managing Editor of this Review) reviews a Case Book on International Law in Domestic Courts and Trisha Mitra (Co- Managing Editor of this Review) examines the book on the future of Investment Treat Arbitration in the EU.

We are confident that this year’s 480 page volume underscores again the raison d’être for publishing this Review, which covers such a dynamic field of law.

In order to produce an interesting volume next year yet again, we invite unpublished, high-quality submissions (long and short articles as well as case notes) that fall within the scope of this Review.

The Call for Papers and the house style requirements are published on the Review’s website:

In addition, we will also again run an Essay Competition. All information regarding the 2021 Essay Competition will be published on the Review’s website:

Table of Contents of the European Investment Law and Arbitration Review 2020


1 No Green without More Green: The Importance of Protecting FDI through International Investment Law to Meet the Climate Change Challenge 3

Sarah Z. Vasani and Nathalie Allen

2 The UK’s Post- Brexit Investment Policy: An Opportunity for New Design Choices 40

Elizabeth Chan

3 The European Commission: Ami Fidèle or Faux Ami? 70

Alexander G. Leventhal and Akshay Shreedhar

4 A Sceptical Analysis of the Enforcement of ISDS Awards in the EU Following the Decision of the CJEU on CETA 92

Brady Gordon

5 Achmea and the Implications for Challenge Proceedings before National Courts 146

David Sandberg and Jacob Rosell Svensson

6 Resolving Perceived Norm Conflict through Principles of Treaty Interpretation: The January 2019 EU Member State’s Declarations 167

Samantha J. Rowe and Nelson Goh

7 The World after the Termination of intra-EU BITs 196

Nikos Lavranos

Essay Competition 2020

8 Assessing the CJEU’s Decisions in Achmea and Opinion 1/ 17 in Light of the Proposed Multilateral Investment Court – Winner of the Essay Competition 2020 215

Crawford Jamieson

9 Legal Stability and Legitimate Expectations: Does International Investment Law Need a Sense of Proportion? – Joint 2nd Prize Winner of the Essay Competition 2020 240

Robert Bradshaw

10 If You are not Part of the Solution, You are the Problem: Article 37 of the EU Charter as a Defence for Climate Change and Environmental Measures in Investor- State Arbitrations – Joint 2nd Prize Winner Essay Competition 2020 265

Florence Humblet and Kabir Duggal

Case- Notes

11 The Hague Court of Appeal Reinstates the Yukos Awards 299

Cees Verburg

12 Theodoros Adamakopoulos and Others v. Republic of Cyprus, ICSID Case No Arb/15/49, Decision on Jurisdiction, 7 February 2020 315

Bianca McDonnell

13 Investment Arbitration and EU (Competition) Law – Lessons Learned from the Micula Saga

Alesia Tsiabus and Guillaume Croisant 330

Focus section on the Young ITA Event: Investment Arbitration and the Environment – Emerging Themes

14 The Protection of the Environment in International Investment Agreements – Recent Developments and Prospects for Reform 357

Laura Rees- Evans

15 Investment Arbitration and Police Powers: Emerging Issues 392

Crina Baltag

16 Environmental Counterclaims in Investment Arbitration 400

Anna Bilanová

17 Environmental Claims by States in Investment Treaty Arbitration 412

Gaurav Sharma

18 The (ab)use of Third- Party Submissions 426

Nikos Lavranos

Focus Section on EFILA

19 ADR in Investment Disputes: The Role of Complementary Mechanisms – Keynote to the 5th EFILA Annual Conference 2020 439

Meg Kinnear

20 The Proliferation of Courts and Tribunals: Navigating Multiple Proceedings – 5th EFILA Annual Lecture 2019 447

Laurence Boisson de Chazournes

Book Reviews

21 The ICSID Convention, Regulations and Rules – A practical Commentary 471

Nikos Lavranos

22 International Law in Domestic Courts: A Case Book 473

Nelson Goh

23 The Future of Investment Treaty Arbitration in the EU: intra-EU BITs, the Energy Charter Treaty, and the Multilateral Investment Court 475

Trisha Mitra

Eiser v. Spain: Reinforcing the Importance of Early Disclosure in Investment Arbitration

By Sumit Chatterjee (National Law School of India University, Bangalore)

An ICSID Committee, chaired by Ricardo Ramirez-Hernandez, recently annulled an arbitral award rendered in favour of a solar power investor in the case of Eiser Infrastructre Ltd. v Republic of Spain. [1] The primary ground on which the award was annulled was the undisclosed relationship between Stanimir Alexandrov, who was one of the arbitrators on the arbitral tribunal that rendered the award, and one of the experts appointed by the Claimants to make their case. The committee came to the conclusion that the undisclosed relationship created a “manifest appearance of bias”, which qualified the threshold of annulment on the grounds of improper constitution of the tribunal, and a serious departure from a fundamental rule of procedure under 52 of the ICSID Rules. [2]

After understanding the decision of the committee, and reconciling the same within the ICSID Rules framework, this post will explore two broader ramifications of this decision on investment arbitration; first, the importance of early disclosure of potential and existing conflicts by arbitrators, and second, the importance of this decision in understanding the double-hatting debate in international arbitration.

Decision of the committee

After the arbitral tribunal chaired by John Cook, and comprising of Stanimir Alexandrov and Campbell McLachlan, had decided the dispute between UK-based infrastructure firm Eiser Infrastructure Ltd. and the Republic of Spain in favour of the former, and ordered Spain to pay €128 million, Spain filed an application to annul the award, and to deliberate upon the same, a three-member committee comprising of Chairman Ricardo Ramírez-Hernández, Dominique Hascher and Teresa Cheng was constituted. After Teresa Chang stepped down from the committee, she was swiftly replaced on the committee by Makhdoom Ali Khan.

Spain had made their case for annulment of the award on two broad grounds. First, that the tribunal had been improperly constituted, under Art. 52(1)(a), as a result of the undisclosed relationship between the nominated arbitrator of the Claimant, Stanimir Alexandrov, and one of the experts of the Brattle group that was appointed by the Claimants, Carlos Lapuerta. The influence that Alexandrov exercised on being a part of the tribunal, and the failure to provide Spain with an opportunity to challenge his appointment on the ground of this relationship, was invoked by Spain to claim a serious departure from a fundamental rule of procedure under Art. 52(1)(d) of the ICSID Rules. Second, they claimed that the tribunal had failed to provide reasons, under Art. 52(1)(e), and had manifestly exceeded their powers, under Art. 52(1)(b), as a result of an improper award of damages.

The committee deliberated on the first ground, and analysed the relationship between Mr. Alexandrov and the expert retained by the Claimants in great detail. It was soon discovered that during the proceedings themselves, Mr. Alexandrov had been acting as counsel of a reputed law firm in other arbitration proceedings, and had employed the services of the Brattle group as experts. Furthermore, in four of these proceedings, the impugned expert, Mr. Lapuerta, had been the testifying expert on behalf of the Brattle group. Thus, these well-established past and present connections between the arbitrator and the expert retained by the Claimants suggested a manifest appearance of bias on the part of the arbitrator, and would thus qualify the threshold under Art. 52(1)(a) of the ICSID Rules to hold that the tribunal had been improperly constituted. The committee referred to the standard laid down in Blue Bank International v Bolivia, [3] by Chairman Kim, wherein it was stipulated that in order to determine whether an arbitrator had failed to comply with the standards of independence and impartiality, the standard should be one of whether “a third party would find an evident or obvious appearance of lack of impartiality on reasonable evaluation of the facts in this case”. [4]

The Committee also stated that the failure on the part of Mr. Alexandrov to disclose this conflict had severe effects on the proceedings themselves, as it hampered the constitution of an independent tribunal, and also adversely affected Spain’s right to a fair arbitration. It thus held that the failure to disclose had a “material effect” on the proceedings, and thus the tribunal had seriously departed from a fundamental rule of procedure under Art. 52(1)(d) of the ICSID Rules. Having considered the first ground sufficient to annul the award rendered by the tribunal, the committee did not delve into the intricacies of the second ground raised by Spain.

The next part of this post will explore the duty of disclosure in the context of investment arbitration, and analyse the decision of the committee from that perspective.

Tracing the contours of the duty to disclose in Investment Arbitration

One of the hallmarks of the arbitral process is having independent and impartial arbitrators on the tribunal to adjudicate the disputes between the parties. While independence and impartiality have often been used interchangeably in the context of understanding the duty of the arbitrators, it is well established that the former refers to a more objective standard of ensuring that the arbitrator does not have any personal, financial or professional ties with any of the parties, witnesses, counsel etc., while the latter is more of a subjective standard that is based on the conduct of the arbitrator during the proceedings. [5] With respect to investment treaty arbitration, the requirement of independence and impartiality assumes much accentuated significance, as a result of the public interest element, and the political and economic ramifications of the decision on the Respondent State. The duty to disclose is a corollary of the independence and impartiality requirement, as it places a positive duty upon the appointed arbitrators to disclose any and all potential and existing conflicts of interest with any of the parties, witnesses, counsel etc. involved in the arbitration. [6] The disclosure is also a safeguard to ensure that the arbitrator is secured from any future challenges on his/her independence or impartiality by one of the parties on the grounds which have been disclosed. [7] Under the ICSID Arbitration Rules of 2003, the disclosure duty is grounded in Article 6, the scope of which was expanded through the amendments made in 2006 to make it a continuing obligation on the part of the arbitrator. [8]

In the Eiser case, the committee assumed the role of a “guardian of the ICSID system [9] and held that the bar must be set high when it comes to disclosure requirements given the importance of early disclosure for a fair and just arbitral process. By holding the same, the committee reinforced the importance of prompt and early disclosure in investment arbitrations. Not only does a disclosure aid the parties in raising a timely challenge to the appointment of the arbitrator if it deems so necessary, it also waives the right of the party from raising such challenge at a later date, or post the rendering of the award, in cases where they fail to make such a challenge within the stipulated time period. The failure of Mr. Alexandrov to make a timely disclosure of the conflict resulted not only in declining Spain the opportunity to challenge his position on the tribunal, but also in influencing the decision of the other members of the tribunal with his continued presence on the tribunal, which in the eyes of the committee, would raise a reasonable suspicion of bias to any independent observer.

While the case certainly emphasised the importance of making prompt and early disclosure of conflicts of interest in Investment Arbitration, it also highlighted an issue that has garnered significant academic interest and debate for a long while: the issue of double-hatting.

Double-hatting in Investment Arbitration: A Necessary Evil?

Double hatting has gained significant traction in the academic discourse on investment arbitration ever since Prof. Phillipe Sands first alluded to the dilemma at the 2009 IBA Conference. [10] It essentially refers to the growing trend in investment arbitration, wherein lawyers who are appointed as arbitrators in particular cases continue to represent other parties as counsel in arbitration proceedings at the same time. Double hatting raises a number of poignant ethical and practical concerns, as a result of the unavoidable conflict of interests that arise in light of the interwoven nexus of relations which lawyers have, both in his/her role as a counsel, and as an arbitrator. One of the overarching concerns in this regard is of role confusion, which refers to the situation where arbitrators try to issue an award that would be favourable for them in a case where they are representing a different client as counsel. [11] Role confusion is also linked to another related concern with double hatting, which is the problem of issue conflict. An issue conflict arises when an arbitrator has to adjudicate on an issue that was in contention in an earlier or ongoing case where he/she served as a counsel, or as an arbitrator. [12] Double hatting thus increases the possibility of an occurrence of issue conflict for an arbitrator, as was evident in the case of Telekom Malaysia Berhad v Ghana, [13] and raise justifiable doubts as to the arbitrator’s impartiality and independence. [14]

The need for reform to combat the predicament of double hatting has been all the more pronounced as a result of the prevailing no-man’s land with respect to ethical standards that prevail in arbitration proceedings, not just for legal counsels, but also for arbitrators. This invigorated call for a reform in the prevailing paradigm has led to a number of recent developments, which also illustrate two extremely different approaches to tackling this predicament.

The Dutch Model BIT has employed a rather extreme approach, explicitly disallowing double hatting, and precluding arbitrators from acting as legal counsels. [15] It also mentions that no arbitrator should have acted as a counsel in any investment arbitration proceeding in the previous five years. [16] Another radical change that the Dutch Model BIT makes is to completely do away with party-appointed arbitrators, and instil the power to appoint arbitrators solely to a competent appointing authority.

This development has come in light of the increasing concern of politicisation of Investor-State arbitrations, and how the appointment of arbitrators to constitute the tribunal accentuate this concern more than any other factor. In fact, in the preliminary identifications of possible areas of reform in investor-state arbitration by the UNCITRAL Working Group III, [17] the concern that arises from completely shifting the burden of appointments from parties to an appointing authority is a re-politicisation of the investment arbitration paradigm. [18] It has been stated, for example, that the influence of States on appointments would continue to exist while the investor would lose out on having any say in the appointment process. While there have been suggestions as to limit the influence of States, and to include investors to be a part of the process, such as screening, consultations etc., there is no black and white position on this issue as of yet. [19]

However, the Working Group III was also responsible for the conceptualisation of the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, released by the ICSID and the UNCITRAL. The Draft Code flags the issue of double-hatting in Article 6, [20] which aims at a “limit on multiple roles” for adjudicators. The Draft Code came into being due to growing concerns about the numerous ethical and practical predicaments in investment arbitration proceedings, due to the different professional relations and roles of the appointed arbitrators. It illustrates the median approach, which seeks to remedy the concerns of double hatting within the prevailing framework in investment arbitration, while also maintaining the balance between the interests of both the investor and the Responding State party in the arbitral process, especially during appointments.

The public interest element, and the fact that proceedings in investment arbitration are indeed public, call for a greater scrutiny of the independence and impartiality of the arbitrators appointed. This tension, between party autonomy in the choice of arbitrators on one hand, and ensuring the right to a fair and independent arbitration on the other, has been the crux of the academic debate surrounding double hatting. And it is in this context that the Eiser case has taken a firm stand. The ICSID committee, by recognising the failure to disclose the conflict as a ground to annul the award, has illustrated the extremely serious implications of double-hatting in an investment arbitration, where it can cast a shadow over a successful award rendered in favour of a party, and ultimately lead to its annulment. Not only does the decision come at a crucial time, given the prevailing debate around double hatting, it also comes as a telling warning for lawyers who serve on tribunals in their roles as arbitrators to recognize and adhere to the duty of being independent and impartial throughout the proceedings. The Eiser case also demonstrated that the wide nexus of connections that a lawyer has, and people he/she engages with in order to represent their clients, leads to a number of potential conflicts, as was observed here with the expert of the Brattle group, retained by the Claimants. Arbitrators must be extremely wary of such conflicts, and comply with the best practice of early and prompt disclosure to the best of their abilities. The jury is still out on whether the setting up of an international investment adjudicatory body is in the best interests of resolving all the problems that exist in the investor-state dispute resolution settlement mechanism, but the Eiser decision has, by taking a firm stand against any minutiae of an appearance of bias, shown that the present system is also well equipped to provide parties what they wish for: a neutral, efficient and fair result.

[1] Eiser Infrastructre Ltd. v Republic of Spain (ICSID Case No. ARB/13/36).

[2] ICSID Rules, Article 52, “(1) Either party may request annulment of the award by an application in writing addressed to the Secretary-General on one or more of the following grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based.”

[3] Blue Bank International v Bolivia (ICSID Case No. ARB/12/20).

[4] Ibid.

[5] The distinction was emphasized in Suez v. Argentina (ICSID Case no. ARB/03/19).

[6]Noah Rubins and Bernard Lauterberg, ‘Independence, Impartiality and Duty of Disclosure in Investment Arbitration’ in Christina Knahr, Chrishtian Koller et al., Investment and Commercial Arbitration – Similarities and Divergences (Eleven International Publshing, 2010).

[7] M.B. Feldman, ‘The annulment proceedings and the finality of ICSID arbitral awards’ [1987] 2(1) ICSID Rev.

[8] ICSID Arbitration Rules (2003), Article 6. Rubins and Lauterberg (n vi).

[9] Cosmo Anderson and Sebastian Perry, ‘Undisclosed expert ties prove fatal to ICSID award’ (Global Arbitration Review, 12 June 2020) <; accessed 4 July 2020.

[10] Dennis H. Hranitzky and Eduardo Silva Romero, ‘The ‘Double Hat’ in International Arbitration’ (New York Law Journal, 14 July 2010) <; accessed 4 July 2020.

[11] Frederick A Acomb and Nicholas J Jones, ‘Double-Hatting in International Arbitration’ (2017) 43 Litig 15.

[12] Ibid, at 16.

[13] Telekom Malaysia Berhad v Ghana (UNCITRAL Arbitration at the PCA, The Hague).

[14] In Telekom Malaysia Berhad v Ghana (UNCITRAL Arbitration at the PCA, The Hague), Ghana challenged the presence of the arbitrator nominated by the Claimants, Prof. Emmanuel Galliard, on the ground that he was acting as counsel for Morocco in the annulment proceedings of the award rendered in RFCC v Morocco (ICSID Case No. ARB/00/6), where he was challenging an argument that was being relied on by Ghana in the present case. The matter went up before the District Court in the Hague, which held that the dual roles would certainly hint at an appearance of being influenced by his role as counsel on his position on the tribunal. Subsequent to this decision, Prof. Galliard resigned from his role as the counsel of Morocco in the annulment proceedings and continued to serve as an arbitrator on the tribunal

[15] Netherlands Model Bilateral Investment Treaty, 2018.

[16] ‘The new draft Dutch BIT: what does it mean for investor mailbox companies?’ (HSF Notes, 30 May 2018) <; accessed 4 July 2020.

[17] UNCITRAL Working Group III: Investor-State Dispute Settlement Reform 2020.

[18] Fernando Dias Simoes, ‘UNCITRAL Working Group III: Would an Investment Court De-politicize ISDS’ (Kluwer Arbitration Blog, 25 March 2020) <; accessed 4 July 2020.

[19] Ibid.

[20] UNCITRAL and ICSID, Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, Article 6 – “Adjudicators shall [refrain from acting]/[disclose that they act] as counsel, expert witness, judge, agent or in any other relevant role at the same time as they are [within X years of] acting on matters that involve the same parties, [the same facts] [and/ or] [the same treaty]”.

Taking Investors’ Rights Seriously: The Achmea and CETA Rulings of the European Court of Justice do Not Bar Intra-EU Investment Arbitration

Prof. Dr. Alexander Reuter *

The ECJ’s Achmea and CETA rulings [1]; as well as the entire debate conducted on the issue so far, disregard one legal factor, that is, the binding legal effect of investors’ rights under investment treaties. That factor is, however, at the heart of the matter and decisive. Under EU procedural law that factor can be raised at any time as a “fresh issue of law”. Thus, the Achmea and CETA rulings of the European Court of Justice do not bar intra-EU investment arbitration.

This proposition is not to contribute to the voluminous debate on Achmea and on the compatibility of intra-EU investment arbitration with TFEU art. 344, 267 and 18 or other EU governance principles such as the “principle of mutual trust”. In contrast, that proposition is based on investors’ rights under public international law as third parties, and the binding effect on the EU, its institutions and its member states of such rights. In addition, under the criteria developed by said ECJ rulings, intra-EU ISDS under the ECT fares better than the CETA.

The above propositions are set out in more detail by the author in the Heidelberg Journal of International Law (HJIL) (Zeitschrift für ausländisches öffentliches Recht und Völkerrecht; ZaöRV). [2]

A)   Third party rights under public international law

In Achmea the European Court of Justice (”ECJ“) found intra-EU investment arbitration under the bilateral investment treatybetween Slovakia and the Netherlands to violate the principles of mutual trust and sincere cooperation amongst EU member states, the supremacy of EU law and the protection of the ECJ’s own competence to ensure the uniform application of EU law. All of these principles concern the internal governance of the EU, its member states and its institutions, not investors’ rights. On the other hand, in the last years a great many arbitral tribunals dealt with intra-EU investment arbitrations, most of them under the Energy Charter Treaty (“ECT”), a multilateral investment treaty to which the EU has acceded. None of these tribunals found the proceedings to be incompatible with EU law. [3] The tribunals refer to the general interpretation rules of the Vienna Convention on the Law of Treaties (VCLT) and, as one tribunal has worded it, a carve-out for intra-EU conflicts would be “incoherent, anomalous and inconsistent with the object and purpose of the ECT”, the rules of international law on treaty interpretation, in particular the universal recognition of “the principles of free consent and of good faith and the pacta sunt servanda rule”. [4]

This is in line with the intent of the EU institutions involved with the accession by the EU to the ECT. The internal documents preparing the accession demonstrate that the EU did not intend the ECT to distinguish between intra-EU and extra-EU disputes. In line therewith, the ECT, as adopted not only by all EU member states, but by both the European Commission and the European Council, does not contain any indication that differing rules should apply “intra-EU” on the one hand and in respect of non-EU parties on the other hand. In contrast, by a declaration made when acceding to the ECT (see Annex ID to the ECT) [5] , the European Communities did not only set forth that the “European Communities and their Member States” are “internationally responsible” for the fulfillment of the ECT, it also expressly mentions the “right of the investor to initiate proceedings against both the Communities and their Member States”. Additionally, the declaration expressly deals with the role of the ECJ and documents that the EU acceded to the ECT in full cognizance of the fact that the ECJ can be involved in such proceedings only (1) “under certain conditions” and in particular only (2) “in accordance with art. 177 of the Treaty” [now TFEU art. 267]. Hence, the declaration expresses the acceptance by the EU of the curtailment to the competences of the ECJ resulting from investment arbitration under the ECT.

B)   Taking investors’ rights seriously: Their binding effect within the EU

The reason for this discrepancy between the findings of the ECJ and those of the arbitral tribunals can already gleaned from the above: While the tribunals deal with investors’ rights under the relevant investment treaties, the ECJ is concerned with intra-EU governance issues. [6] However, governance issues do not do away with the fact that investment treaties form part of public international law and bestow private investors with the rights (1) that the host state comply with the treaty’s protection standards and (2) to take the host state to arbitration. Such private enforcement is even one of the essential features of investment treaties. [7] Which consequences does this have within the EU?

Even the ECJ concedes that public international law treaties must be interpreted in accordance with the VCLT, notably “in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose”. Thus, for purposes of public international law, the ECJ must be taken to recognize (1) that investment treaty rights vest with the investors and (2) the fact that all arbitral tribunals involved have affirmed the ECT, under public international law, to cover intra-EU investments. There is no indication that such a long, uniform and unequivocal line of arbitral holdings does not constitute an interpretation of the ECT “in good faith in accordance with the ordinary meaning to be given to its terms in their context and in the light of its object and purpose”.

In turn, under TFEU art. 216(2) “Agreements concluded by the Union are binding upon the institutions of the Union and on its Member States”. Admittedly, the ECJ makes an internal exception to TFEU art. 216 (2), that is, an exception as regards the parties to the EU Treaties, the EU and its institutions: Vis-a-vis these parties the ECJ confines the binding effect of treaties under art. 216 to supremacy over secondary EU law, and carves out primary EU law. [8] However, this internal limit to the effect of public international law treaties does not apply to third parties. Vis-à-vis third parties, under public international law the EU is bound by the treaties it has concluded. [9] The ECJ has held „that the Community cannot rely on its own law as justification for not fulfilling [the international treaty at bar].“ [10] As private investors are third parties, this holds true for them as well, and all the more so as their means to analyse the internal governance rules of the EU (or a host state) for potential infringements which may impact the validity of the treaty or of obligations contained therein, are substantially lower than the means of the other state parties which negotiated, concluded, and agreed on the ratification process for, the relevant treaty. In short: Pacta sunt servanda, in particular where investors have made investments which they cannot undo. [11]

In this connection it is irrelevant that intra-EU investment arbitration is typically directed against the relevant host state, not against the EU. As a party to the ECT, the EU is bound not to obstruct the due implementation of the rights and obligations of investors and the relevant host states. In contrast, the obstruction by the EU of the due implementation of the ECT would constitute a treaty violation in itself. [12]

C)   Consequences for Intra-EU bilateral investment treaties

The above considerations do not directly apply to bilateral investment treaties (“BITs”) between EU member states, to which the EU has not acceded. However, rights vesting under a BIT are not without protection under EU law either: First, where a host state has acceded to the EU after it has entered into a BIT, TFEU art. 351 grandfathers rights of investors as third parties. Second, there may have been acts or omissions of the EU in connection with the relevant treaty. Third, while, in general, determining EU law with retroactive effect, under its case-law the ECJ may be “moved” to carve-out “existing relationships” from such effect. [13]

D)   No precedent character of Achmea and CETA

Invoking investors’ rights is not precluded by a “precedent” character of Achmea or CETA: Preliminary rulings under TFEU art. 267 only bind the national court, and thus the parties, to the main proceedings in question [14] . Nevertheless, referral procedures under TFEU art. 267 have the purpose to have EU law interpreted for the EU as a whole and thus have a factual precedent effect. [15] However, the ECJ has confirmed the right to make a (further) reference on a “fresh question of law” or “new considerations which might lead the ECJ to give a different answer to a question submitted earlier”. [16] As a result, Achmea and CETA have no binding or precedent effect beyond the considerations they have dealt with.

These considerations do not include investors’ rights: Achmea, as already mentioned, is confined to EU governance issues. CETA, in contrast, did not fail to consider the position of investors. However, these were ex ante considerations, not the protection of investors who have already made investments in reliance on a treaty. It did thus not deal with a treaty which had already been concluded, had come into force, had bestowed rights on investors, and in reliance on which investors had made investments. [17]

In contrast, the ECT is a concluded treaty which has been in force for many years and under which investors have already made a great many intra-EU investments. Thus, when making their investments, investors were entitled to have the expectation that the ECT would be respected by its parties, including the EU.

E)   Applying the criteria of the CETA Opinion

In the alternative: If one (contrary to the above) were to disregard investors’ rights under public international law, the question arises how the ECT would fare under the criteria selected by Achmea and CETA to assess the compatibility of intra-EU investment arbitration with EU law. A detailed analysis shows that the ECT does not run aful of, but meets, those criteria. [18]

F)   A matter of justice

The conclusion is: Investors are entitled to rely on their investment treaty rights. Under public international law, the EU position regarding intra-EU ISDS is, as the Vattenfall tribunal has expressed it, “unacceptable”, “incoherent”, “anomalous and inconsistent”. [19] This is corroborated by the described conduct of the EU when negotiating and acceding to the ECT. Hence, that investors should not be bereaved of their vested rights is a matter of material justice. This holds all the more true where the EU was instrumental in soliciting the investments and changed its position only at a point in time when such investments had been made. [20]

* Rechtsanwalt and Attorney-at-Law (New York)
Partner, GÖRG Partnerschat von Rechtsanwälten

[1] ECJ, 6 March 2018, Case C‑284/16, Achmea; ECJ, ECJ, Opinion 1/17 of 30 April 2019, CETA.

[2] Issue 80 (2/2020), pp. 379 – 427.

[3] Cf. Foresight v. Spain, SCC Arbitration V 2015/150, Award, 14 November 2018, para. 221, with a list of awards affirming intra-EU arbitration; Reuter, note 2, Part B IV.

[4] Vattenfall et al. v. Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue, 17 August 2018, paras. 154/155; Reuter, note 2, Part B


[6] The reasons for that stance may be institutional rather than legal: Organizations innately tend to attach high priority to their own competences and inter-institutional governance.

[7] MacLachlan/Shore/Weiniger, International Investment Arbitration, 2007, paras. 1.06, 2.20, 7.01; Reuter, note 2, Part B.

[8] ECJ, 10 January 2006, C-344/04, IATA and ELFAA, para. 35.

[9] For more details Reuter, note 2, Part D.

[10] ECJ, 30 May 2006, Joined Cases C-317/04 and C-318/04, European Parliament v Council, para. 73.

[11] For more details Reuter, note 2, Part D.

[12] As for the liability of the EU on the one hand and member states on the other hand in connection with mixed investment agreements in general Armin Steinbach, EU Liability and International Economic Law, Hart Publishing 2017, pp. 133 et seq., pp. 141 et seq.

[13] For more details Reuter, note 2, Part D; as regards the carve-out ECJ, 13 May 1981, Case 66/80, International Chemical Corporation, paras. 13/14; see also ECJ, 8 April 1976, Case 43/75, Defrenne v Sabena, paras. 71/72.

[14] ECJ, 29 June 1969, Case 29/68, Milch-, Fett- und Eierkontor GmbH v Hauptzollamt Saarbrücken, para. 3.Wegener in Calliess/Ruffert, EUV/AEUV, 5th ed. 2016, art. 267, para. 49.

[15]     ECJ, 24 May 1977, Case 107/76, Hoffmann-LaRoche/Centrafarm, para. 5; Reuter, note 2, C III.

[16] ECJ, 5 March 1986, Case 69/85, Wünsche Handelsgesellschaft GmbH & Co. v. Germany, para. 15; For more details Reuter, note 2, Part B III.

[17] For more details Reuter, note 2, Part B III 3.

[18] For more details Reuter, note 2, Part D.

[19] See note 4.

[20] Reuter, note 2, Part E.

New from Oxford University Press: China’s International Investment Strategy Bilateral, Regional, and Global Law and Policy

China’s International Investment Strategy
Bilateral, Regional, and Global Law and Policy
International Economic Law Series

Edited by Julien Chaisse

This collection, compiled by award-winning scholar Professor Julien Chaisse, explores the three distinct tracks of China’s investment policy and strategy: bilateral agreements including those with the US and the EU; regional agreements including the Free Trade Area of the Asia Pacific; and global initiatives, spear-headed by China’s presidency of the G20 and its ‘Belt and Road initiative’. The book’s overarching topic is whether these three tracks compete with each other, or whether they complement one another – a question of profound importance for the country’s political and economic future and world investment governance.


• Combines legal, economic and international relations perspectives, to provide a comprehensive analysis of the subject
• Brings together a group of experts in the field, exploring the most recent issues in international trade law
• A variety of illustrations support and elucidate the contributors’ arguments.

Table of Contents
Forward, Zhao Hong
Introduction: China’s International Investment Law and Policy Regime- Identifying the Three Tracks, Julien Chaisse
1: China’s Inward Investment: Approach And Impact, Michael J. Enright
2: China’s Outward Investment: Chinese Enterprise Globalization’s Characteristics, Trends, and Challenges, Hui Yao Wang and Lu Miao
3: Impact of Tax Factors on Chinese FDIs, Na Li
4: SOE Investments and The National Security Protection: Implications For China, Lu Wang
5: Nationwide Regulatory Reform Starting From China’s Free Trade Zones: The Case Of Negative List Of Non-Conforming Measures, Jie (Jeanne) Huang
6: Addressing Sustainable Development Concerns through IIAs: A Preliminary Assessment of Chinese IIAs, Manjiao Chi
7: Lessons Learned from The Canada-China FIPA For The US-China BIT And Beyond: Chinese Whispers Or Chinese Checkers?, Kyle Dylan Dickson-Smith
8: Innovation as a Catalyst in the China-Israel Investment Relationship:The China-Israel BIT (2009) and the Prospective FTA, Hadas Peled and Marcia Don Harpaz
9: Drivers and Issues of China-EU Negotiations for A Comprehensive Agreement on Investment, Flavia Marisi and Qian Wang
10: Issues on SOEs in BITs: The (Complex) Case of the Sino-US BIT negotiations
11: Towards A Fourth Generation of Chinese Treaty Practice: Substantive Changes, Balancing Mechanisms, And Selective Adaption, Matthew Levine
12: Substantive Provisions of East Asian Trilateral Investment Agreement and Their Implications, Won-Mog Choi
13: The RCEP Investment Rules and China: Learning From the Malleability of Chinese FTAs, Heng Wang
14: Towards an Asia-Pacific Regional Investment Regime: The Potential Influence of Australia and New Zealand as a Collective Middle Power, Amokura Kawharu and Luke Nottage
15: A New Era in Cross-Strait Relations? A Post-Sovereign Enquiry in Taiwan’s Investment Treaty System, Horia Ciurtin
16: China Moves The G20 Toward An International Investment Framework And Investment Facilitation, Karl P. Sauvant
17: G20 Guiding Principles for Global Investment Policy-Making: A Stepping Stone for Multilateral Rules on Investment, Anna Joubin-Bret and Cristian Rodriguez Chiffelle
18: Beware of Chinese Bearing Gifts: Why China’s Direct Investment Poses Political Challenges in Europe and the United States, Sophie Meunier
19: The Political Economy of Chinese Outward Foreign Direct Investment in “One-Belt, One-Road (OBOR)” Countries, Ka Zeng
20: China’s Role And Interest In Central Asia: China-Pakistan Economic Corridor, Manzoor Ahmad
21: The International Fraud & Corruption Sanctioning System: The Case of Chinese SOEs, Susan Finder
22: He Who Makes the Rules Owns the Gold: The Potential Ramifications of The New International Law Architects, Joel Slawotsky
23: Investment Treaty Arbitration in Asia: The China Factor, Matthew Hodgson and Adam Bryan
24: Investment Disputes Under China’s Bits: Jurisdiction with Chinese Characteristics?, Jane Willems
25: Protecting Chinese Investment Under the Investor-State Dispute Settlement Regime: A Review In Light Of Ping An V Belgium, Claire Wilson
26: Use Of Investor-State Against China’s Enforcement of The Anti-Monopoly Law: Belling The Panda?, Sungjin Kang
27: Implementing Investor-State Mediation in China’s Next Generation investment Treaties, Shu Shang

For more details, please visit the OUP dedicated page.

The Need for the Implementation of a Multilateral Agreement on Investment vis-à-vis Dispute Settlement in WTO

Aayushi Singh*

Introduction – Cogs of the same wheel – Trade and FDI

Grazia Ietto-Gillies’ theories were based on the classical theory of trade in which the motive behind trade was a result of the difference in the costs of production of goods between two countries, focusing on the low cost of production as a motive for a firm’s foreign activity. The relation between trade and FDI flows from this. Analytical work has recently been developed by OECD in order to explore the nature of these links in quantitative terms.

Globally speaking, the impact of FDI on trade has been much debated and studied in the literature since it provides an  indication  of  how  the  international  specialization  of  countries  is  affected  by  globalization  and, hence, holds a clue to understanding the welfare effects. If  trade  and  FDI  complement  each  other  then  it might  lead  to  greater competitiveness of the foreign market and this is beneficial to exports from host country and therefore to its industries. Reinterpreting  models  of  the  multinational  firms  in  terms  of  the  choice  between FDI  and  cross-border  services  takes  into  account  the  fact  that  services  account  for  an important and stable fraction of global trade. Hence, theories explaining international trade (in services) should, in principle, also be applicable to international trade in financial services.

At this juncture it is integral to understand that FDI may enter through regional, bilateral and multilateral investment treaties. The write-up draws two theses regarding the viability and opportunities offered by bilateral and multilateral investments and attempts to build a case for the latter through an analysis of empirical data and research gathered from financial institutions, trade organizations and research papers.

Thesis 1A) limitations of bilateral FDI arrangements (Achilles Heel) as opposed to multiilateral framework in the interest of member nations

UNCTAD puts the number of BITs globally at the end of 2011 at 2,833. Perhaps because of the larger existing number already negotiated, or because of the shift towards negotiations of regional FTAs or regional treaties, the number of new annual BITs signed has declined recently, with a total of 47 new IIAs signed in 2011 (33 BITs and 14 other IIAs), compared with 69 in 2010. Developing governments have been actively seeking partners for BITs as a way to promote trade and economic relations and to elicit interest in their economies as a destination for FDI.  Only a few countries have refrained from the BITs race, most notably Brazil, which has signed BITs with 14 countries, none of which have entered into force. Brazilian authorizes have feared that strong protection clauses and comprehensive investor–state dispute resolution mechanisms in BITs may restrict their ability to pursue an independent national development strategy, expose the country to liabilities caused by legal claims by foreign investors and increase the complexity of policy-making.

The increasingly complex global setting for international investment that has resulted from the “patchwork quilt” of agreements discussed above requires investors and  governments to try and ensure consistency between differing sets of obligation.

A large number of investment agreements, notably the BITs, contain similar concepts (national treatment, MFN treatment, fair and equitable treatment, full protection and security), but have legal and/or textual variations that can result in divergent interpretations of the same general obligation under different agreements. This can engender costs, in the form of time and inefficiencies in trying to sort through the implications of various provisions in different investment contexts, and potentially divert investment flows from more efficient to less efficient locations. Another question raised by the overlapping set of investment agreements is the possibility of “forum shopping” in the case of dispute settlement, where an investor may initiate multiple procedures on the same issue to take advantage of the potentially more favorable dispute settlement provisions available in different agreements.

Thesis 1B) Current fragmented governance of FDI contributes to the confusing landscape faced by investors and governments and multilateral agreement on investment is a viable solution

Despite its importance, the disciplines governing FDI lie in the shadow of those governing global trade. There is no single, comprehensive multilateral treaty or institution to oversee investment activity. In addition to the efforts to address the topic in the Havana Charter of 1948 – which ultimately failed for other reasons, a second attempt was made by the OECD through its four-year effort (1995–1998) to craft a multilateral agreement on investment (hereinafter “MAI”). The effort involved OECD Members and a few key developing countries. When made public in 1997, the draft agreement drew widespread criticism from civil society groups and developing countries. The effort was suspended at the end of December 1998. A third attempt to bring investment under multilateral rules took place within the WTO itself, in the context of the Doha Development Agenda, when investment and three other “Singapore issues” (competition policy, government procurement and trade facilitation) were originally included within the Doha negotiating mandate. However, dissension within the WTO ranks made it impossible to reach a decision. In August 2004 three of the four “Singapore issues” were dropped from the Doha Agenda, and negotiations were subsequently launched on only one subject: trade facilitation.

Need for mandating a MAI through WTO

If an International Investment Agreement is to emerge at some future point, then for several reasons the WTO is the logical home for it. WTO provides effective regulation of trade, but only piecemeal regulation of FDI. An MAI will be effective in countering various drawbacks with the fragmented structure of FDI that presently exists and will be beneficial in the following manner:

  • There is a growing unhappiness with various provisions in BITs and investment provisions in RTAs, particularly with their dispute settlement aspects. Multilateral negotiations could yield more equitable outcomes and ensure non-discrimination.
  • WTO’s dispute settlement regime has worked well, especially in its most trying period during the current global financial crisis. It has a strong record with regards to member participation, different levels of development and achieving compliance.
  • Current proliferation of investment regimes offers arbitrage opportunities for investors who are well placed to exploit it, yet confuses many others who are not. At the same time, regulating states’ hands are increasingly tied in a confusing array of obligations.

A unified system would help overcome these problems. Reflecting this groundswell of interest in multilateral investment regulation, there have been several recent attempts to reflect on what the content of such regulation should be.

UNCTAD, OECD, ICC and APEC have all recently issued principles, recommendations and policies that could be used to effectively promote and regulate FDI. Overall, these guidelines and recommendations focus on a new development paradigm in which inclusive and sustainable development is at the centre of international investment policy-making. An MAI could perhaps diminish litigation costs and cater to a better understanding of direct and indirect investment globally. Further, some states oppose agreements that contain investor–state dispute settlement obligations and often FDI is looked at with a similar perspective. Since the WTO’s dispute settlement mechanism is a state–state system, it at least has the important advantage that it is widely accepted. WTO dispute settlement could also limit the scope of state obligations and responsibilities and increase the pressure to comply. The downside is that companies would be reliant on their governments to bring such cases, which introduces factors other than corporate interests into the equation, thereby making the process unpredictable. From the investor’s standpoint, this is an argument in favour of investor–state dispute settlement, but it would require amending the Dispute Settlement Understanding, which is deliberated on in the next section.

Overhauling the Dispute Settlement Understanding Scheme of WTO

In the early years of the GATT, most of the progress in reducing trade barriers focused on trade in goods and in reducing or eliminating the tariff levels on those goods. More recently, tariffs have been all but eliminated in a wide variety of sectors. This has meant that non-tariff trade barriers have become more important since, in the absence of tariffs, only such barriers significantly distort the overall pattern of trade-liberalization. The presence of multiple datasets on WTO dispute settlement and FDI arbitration may bias researchers towards further research on patterns within these issue areas.  Members often use dispute settlement as a mechanism to gain further clarification of the provisions of the covered agreements and as a means to try to expand the scope of existing obligations to encompass matters on which no negotiating process has been made.

– Cross-border trade in services and investment are addressed in chapters devoted to each. Investment rules and disciplines cover both matters of investment protection and liberalization through market access and even these are met with much chaos.

– Forum shopping in the case of dispute settlement, where an investor may initiate multiple procedures on the same issue to take advantage of the potentially more favorable dispute settlement provisions available in different agreements, is one of the most rampant issues created by the dispute settlement provisions.  The tabulation states:

Complaints by developed country members

Respondents – Developed – 127

Respondents – Developing – 77

Complaints by developing country members

Respondents – Developed – 72

Respondents – Developing – 53

Complaints by both developed and developing country members

Respondents – Developed – 6

Respondents – Developing – 0

Given  that  the  largest  members  of  WTO  could  not  deploy  these  ultimate  enforcement  measures  of suspension and concessions in the  DSU  effectively,  the  prospects  for  developing  countries  or  small  economies are even bleaker.  Over three-fourths of the WTO’s members are developing countries, and thus this question assumes great importance for a large majority of the member states. If instances of non-compliance go unchecked and cannot be remedied, it may not be very long before the euphoria   about the WTO’s “giant leap” withers away and serious questions are raised about the efficacy of the dispute settlement procedures.

Need for unified MTA – Impending a developing nations clause – Conclusion and the Way Ahead.

Each year on July 1, the World Bank revises analytical classification of the world’s economies based on estimates of gross national income (GNI) per capita for the previous year. The updated GNI per capita estimates are also used as input to the World Bank’s operational classification of economies that determines lending eligibility. As of 1 July 2015, low-income economies are defined as those with a GNI per capita, calculated using the World Bank Atlas method, of $1,045 or less in 2014; middle-income economies are those with a GNI per capita of more than $1,045 but less than $12,736; high-income economies are those with a GNI per capita of $12,736 or more. Lower-middle-income and upper-middle-income economies are separated at a GNI per capita of $4,125.

In the academic literature there is much discussion and analysis of two main types of constraints faced by developing nations in the DSU, which have been thought to hold back participation of developing members in the system. As expressed by Guzman and Simmons, these are “capacity constraints”, a term which includes the limits imposed by shortage of skilled human resources or lack of finance for use of outside legal assistance, and “power constraints”, a term which covers the impact of possible retaliatory action by major players if their policies or measures were challenged in the WTO. These restraints can be addressed and incorporated in the system of multilateral trade agreement policies and a clause to address the needs of developing nations must be encapsulated.

* Aayushi Singh, V Year, Symbiosis Law School, Pune

The EU’s foreign investment screening proposal: Towards more protectionism in the EU

by Prof. Nikos Lavranos, Secretary General of EFILA

Last September, European Commission President Juncker presented a proposal for a European foreign investment screening regulation – apparently following a request by Germany, France and Italy.

The proposal fits the protectionist mood that has taken hold in Brussels and in many EU Member States. The backlash against TTIP, CETA and ISDS – suddenly supported by once free trade minded countries such as Germany and the Netherlands – has prepared the ground for this proposal.

Indeed, the EU has failed to deliver so far anything on its competence on Foreign Direct Investment (FDI). TTIP has been put in the freezer; the CETA investment chapter is on hold because it is awaiting adjudication by the Court of Justice of the EU (CJEU) and in the new envisaged trade agreements with Japan, New Zealand and Australia the investment chapter is left out altogether.

So, instead of promoting and protecting foreign direct investments – especially European foreign direct investments abroad – the EU has followed suit on populist calls for protecting Europe from perceived dangerous Chinese and other foreign investors, which aim at supposedly buying up strategic European companies.

As often is the case, the main argument for this European screening mechanism for foreign investments is “harmonization”, since several EU Member States already have a national screening mechanism while other Member States don’t.

Accordingly, the proposal first and foremost claims to provide legal certainty for Member States that maintain a screening mechanism or wish to adopt one. In other words, this Regulation would empower Member States to maintain their mechanisms or to create new ones in line with this Regulation.

Second, the Regulation aims at creating a “cooperation mechanism” between the Member States and the European Commission to inform each other of foreign direct investments that may threaten the “security” or “public order”. This cooperation mechanism enables other Member States and the Commission to raise concerns against envisaged investments and requires the Member State concerned to take these concerns duly into account. In other words, this “cooperation mechanism” is an “intervention mechanism” in disguise by given the Member States and the Commission a tool to review and intervene against planned foreign investments in other Member States.

Third, the proposal also enables the Commission itself to screen foreign investments on grounds of security and public order in case they “may affect projects or programmes of Union interest”.

In short, Member States and the Commission will effectively be enabled to review any screening of any foreign investments and to intervene if they think that their interests may be affected.

If one looks at the description of the screening grounds (“security” or “public order”), it immediately becomes clear that this proposal essentially can cover any investment.

Article 4 Factors that may be taken into consideration in the screening of the proposal states:

In screening a foreign direct investment on the grounds of security or public order, Member States and the Commission may consider the potential effects on, inter alia:

  • critical infrastructure, including energy, transport, communications, data storage, space or financial infrastructure, as well as sensitive facilities;
  • critical technologies, including artificial intelligence, robotics, semiconductors, technologies with potential dual use applications, cybersecurity, space or nuclear technology;
  • the security of supply of critical inputs; or
  • access to sensitive information or the ability to control sensitive information.

In determining whether a foreign direct investment is likely to affect security or public order, Member States and the Commission may take into account whether the foreign investor is controlled by the government of a third country, including through significant funding.

Moreover, in order to be effective, this Regulation essentially will require all Member States – in particular those which have not yet a screening mechanism in place – to create one, otherwise these Member States and the Commission will not be able to share the required information about planned new foreign investments and the review them.

As a result, if this proposal is approved, the screening of foreign investments will become a standard procedure in all Member States.

The question arises to what extent this proposal may be damaging for the economies of the Member States. In this context, it is telling that this proposal is not accompanied by an impact assessment study. This proposal contains the following justification for the lack of the impact assessment:

“In view of the rapidly changing economic reality, growing concerns of citizens and Member States, the proposal is exceptionally presented without an accompanying impact assessment. The proposal targets specifically the main issues identified at this stage in a proportionate manner. Other elements will be further assessed in the study announced in the Communication accompanying this Regulation. In the meantime the Commission proposal for Regulation is accompanied by a Staff working document providing a factual description of foreign takeovers in the EU on the basis of the available data, as well as a brief analysis of the issue at stake.”

This “justification” reveals that the need to satisfy populism quickly is considered more important than performing a proper impact assessment.

Apart from this, there are significant reasons to reject this proposal.

Firstly, the question arises whether such a screening mechanism would be compatible with the 1,500 extra-EU BITs which the EU Member States currently have in place with third states. The proposal does not discuss the potential incompatibility with BITs and neither does it discuss the potential claims based on the BITs by foreign investors against such screening decisions. This is very surprising since one of the main aims of BITs is to promote foreign investments and to protect them against unfair or discriminatory treatment. Prima facie, it seems that such a screening mechanism could lead to breaches of these BITs and thus to subsequent claims.

Secondly, there are many countries within the EU, in particular in Central, Eastern and Southern Europe which actually are in dire need of foreign investments – including also Chinese investments. Creating more obstacles against such investments is not going to help these countries economically.

Thirdly, one may wonder whether it is in the interest of the EU to send out such a protectionist signal to the world – in particular in light of the current US Administration’s protectionist attitude. Indeed, the experience with the American CFIUS mechanism shows that the screening of foreign investments is mainly used for domestic political gains rather than for economic benefits.

Finally, one wonders who will be financially responsible if foreign investments fail to materialize due to the market distorting interventions by other Member States and/or the Commission.

So, for all these reasons, the EU Member States should resist riding on the populist protectionism wave that may be helpful to satisfy short-term political gains, but which will be damaging for the EU as an attractive FDI dentition. The EU Member States are in dire need for more foreign investments, for example in renewable energy but also for large infrastructure projects such as connecting to the One Belt one Road (OBOR) project, which is currently pushed by China.

The Vodafone Tax Dispute: Abuse of Process in International Investment Arbitration?

by Malcolm Katrak*

Recently, the Delhi High Court in the case of Union of India v. Vodafone Group, passed an ex-parte order restraining the Vodafone Group from pursuing an investment arbitration claim against India under the India-United Kingdom Bilateral Investment Treaty (India- UK BIT). The Court held that multiple claims cannot be permitted by corporate entities in a single vertical chain against the same measure of the host state under various bilateral investment treaties and protection agreements. Thereafter, the court proceeded to pass an anti-arbitration injunction against Vodafone from initiating arbitration proceedings under the India-UK BIT.

Before analyzing the issues in this case, it is necessary to consider the facts that led to the dispute. Vodafone (Netherlands) bought a Cayman Island entity of Hutchison group, in order to acquire controlling interest in the Indian entity Hutchison-Essar Ltd. The Indian Income tax statute, before amendment, did not tax transactions outside India which did not involve transfer of shares of any Indian entity. Thereafter, the Indian government amended the tax statute, which interpreted according to the government, included transactions which changed the control of an Indian entity, as was the Vodafone transaction. The Supreme Court of India rejected the Indian government’s contention that the text of the statute, as it stood then, could be interpreted to include such a transaction under the tax ambit.

In 2012, the Vodafone group initiated proceedings against India under the India-Netherlands BIT before the Permanent Court of Arbitration (PCA). Vodafone was challenging the imposition of a million-dollar tax bill arising out of the retrospective amendment of the Indian Income Tax Act in 2012. Thereafter, Vodafone on 24th January, 2017 issued another BIT arbitration notice for the same cause of action. However, the second BIT arbitration notice was initiated under the India-UK BIT. Since Vodafone had already initiated a BIT against India, on the issue of retrospective taxation, the Indian Government proceeded to the Delhi High Court, seeking an order restraining Vodafone from initiating parallel BIT proceedings on the same issue before another BIT Tribunal citing ‘abuse of process’.

The case has been much publicized and raises several intriguing legal propositions; the first being the domestic court’s jurisdiction to try the dispute, the second being basis to pass an anti-arbitration injunction and the third being whether there is an abuse of process by Vodafone by initiating arbitration proceedings under different BITs.

As far as the jurisdiction of the domestic court is concerned, the Delhi High Court held, “India constitutes a natural forum for the litigation of the defendants’ claim (the India-UK BIT claim) against the plaintiff.” The counsel for the government laid a two-pronged approach for the purpose of facilitating a jurisdictional argument; first being that disputes encompassing tax demands raised by host State are beyond the scope of arbitration provided under the BIT as taxation is a sovereign function and the second being that under the constitutional scheme of India, laws passed by the Parliament cannot be adjudicated by an arbitral tribunal. This, according to me, is a fallacious interpretation of the India-UK BIT. The BIT allows taxation to be considered under its ambit except for the provisions pertaining to National Treatment and Most-favoured Nation. A treaty must not be construed liberally or restrictively but literally. The India-UK BIT being broadly worded allows taxation to come under the ambit of the BIT.

The second issue being the anti-arbitration injunction, it is necessary to analyze when exactly is a domestic court allowed to pass an anti-arbitration injunction. In the case of Board of Trustees of the Port of Kolkata v. Louis Dreyfus Armaturs SAS & Ors (behind paywall), the Calcutta High Court has held that an anti-arbitral injunction could be issued under the following circumstances – first, there is no arbitral agreement between the parties; second, the arbitration agreement is null and void, inoperative or incapable of being performed; third, continuation of foreign arbitration proceeding might be oppressive, vexatious or unconscionable.

The Vodafone case initiated under the India-UK BIT in itself constitutes a valid arbitration agreement and thus, the basis to pass an anti-arbitration injunction falls. However, it must be remembered that in the case of SGS v. Pakistan, the Supreme Court of Pakistan restrained the foreign investor from carrying out arbitration through the BIT albeit the ICSID Tribunal still took cognizance of the matter and exercised its jurisdiction.

The claims which have risen in the India-UK BIT and Indian-Netherlands BIT are based on the same cause of action and the reliefs sought are identical but from two different arbitral tribunals against the same host state. This is a perfect example of abuse of process. Emmanuel Gaillard states, ‘abuse of process in BIT arbitration does not violate any hard and fast legal rule but nonetheless causes significant prejudice to the party against whom it is aimed and can undermine the fair and orderly resolution of disputes by International arbitration.’ To facilitate the argument of abuse of process, the counsel for the State relied on the case of Orascom TMT Investments v. Algeria, wherein the ICSID Tribunal stated:

In particular, an investor who controls several entities in a vertical chain of companies may commit an abuse if it seeks to impugn the same host state measures and claims for the same harm at various levels of the chain in reliance on several investment treaties concluded by the host state. It goes without saying that structuring an investment through several layers of corporate entities in different states is not illegitimate […] Several corporate entities in the chain may be in a position to bring an arbitration against the host state in relation to the same investment. This possibility, however, does not mean that the host state has accepted to be sued multiple times by various entities under the same control that are part of the vertical chain in relation to the same investment, the same measures and the same harm.

As far as the abuse of process goes, it would be correct to say that Vodafone utilized the process which is formulated to enhance economic benefits to the host state and protect investments of the companies, in a negative manner. On the other hand, it can be argued that the law pertaining to abuse of process in international investment arbitration is not clear. For example, Yosef Maimam, a German-born Israeli businessman sought arbitration proceedings against Egypt under the US-Egypt BIT by one of his companies and another arbitration under the Egypt-Poland BIT through his own name. Thus, abuse of process in investment arbitration is not a clear picture.

It is fair to say that the Delhi High Court has exceeded its jurisdiction by restraining Vodafone from proceeding with its arbitration proceedings under the India-UK BIT. On the other hand, it cannot be denied that there was no abuse of process. As far as the consequence of an anti-arbitration injunction goes, the same would be impossible to analyze or presume. However, the Delhi High Court has failed to provide a comprehensive, logical and reasoned backing to its judgment, which only shows how far the Courts have been reluctant to interpret BITs.

Malcolm Katrak is currently a Law Clerk to Justice (Retd.) S. N. Variava, Former Judge, Supreme Court of India. In the past, he has worked under Mr. D. J. Khambata, Former Vice-President, London Court of International Arbitration and Justice S. J. Kathawalla, Jugde, Bombay High Court. He may be contacted at

Urbaser v. Argentina: Analysing the Expanding Scope of Investment Arbitration in light of Human Rights Obligations

by Sujoy Sur

While allowing investors the right to directly bring a claim against the States has said to be the single most progressive development in International Law in the 20th century, they also have gained recognition as ‘subjects’ of international law. It is this recognition which puts a corollary duty on the investor to regard human rights while carrying out activities in the host state. Over the past couple of decades, there has been a growth in, both, international human rights jurisprudence and investment arbitration claims by investors against States. With both procedural and substantive matters of importance coming to the fore, it has led to the convergence of both the areas and raised a valid concern of the importance of erga omnes obligations of human rights in investment arbitration. A human rights concern is a two-way street, with States being concerned about human rights violations by the investor in their territory and the investor being careful that his/her human rights are not unjustly violated by the State.

The recent award in the case of Urbaser v. Argentina brought to the fore the aspect of increasing convergence of human rights with investment law. This case cements the strengthening position being given to non-treaty international obligations in investment arbitration cases, besides mercantile obligations, as also seen previously in the Phillip Morris cases last year. The Panel, besides deciding on other questions on merit of the case, successfully allowed the State to make a human rights counter-claim against the Spanish corporation, Urbaser. A first of its kind, as the treaty allowed for filing of claims from either of the parties, thus, allowing for the possibility of counter-claims.

The dispute arose under the Spain-Argentina BIT. The claimant investor was a shareholder in a concessionaire which provided water and sewerage services in the Province of Buenos Aires, Argentina. This was granted to the claimant’s subsidiary, AGBA, in early 2000s. Argentina faced a financial emergency in 2001-02. It took emergency measures in January 2002, in the process of which the Claimant’s concession was also terminated in 2006 by Buenos Aires, leading to Claimant’s financial loss and insolvency. Citing obstruction and persistent neglect of AGBA’s shareholders’ interests, the Claimants alleged violations of the BIT, namely:

  • Article III.1, on the prohibition to adopt unjustified or discriminatory measures;
  • Article IV.1, on the obligation to afford fair and equitable treatment to the referred investments; and
  • Article V, which forbids any illegal and discriminatory expropriation of foreign investments, imposing obligations to compensate.

After analyzing Article X(5) of the BIT, which states that, “The arbitral tribunal shall make its decision on the basis of… norms of private international law, and the general principles of international law”, the tribunal held that it is permitted by the BIT to incorporate principles of international law to adjudicate the claim, thus, the BIT was not a ‘closed system strictly preserving investors’ right under the BIT. On the basis of this the Tribunal rejected the Claimant’s contention that guaranteeing the human right to water is a duty that may be born solely by the State, and never borne also by private companies like themselves. The Tribunal referred to the Universal Declaration of Human Rights (“UDHR”) and the International Covenant on Economic, Social and Cultural Rights (“ICESCR”) while reasoning its stance on making private companies liable for human rights violations in investment disputes. Article 30 of the UDHR imposes the duty on any group or person to maintain rights under the Declaration, while General Comment 15 (Art. 11 and 12) by the Committee on Economic, Social and Cultural Rights stresses the importance of the supply and the economic accessibility of water, which will be the duty of States to ensure, in case it is being provided by third parties. Corroborating its finding, the Tribunal further held that ‘international law accepts corporate social responsibility as a standard of crucial importance for companies operating in the field of international commerce’, which includes the duty to comply with human rights obligations in countries other than the seat of their incorporation. Further, the Tribunal relied on Article 31(3)(c) of the Vienna Convention on Law of Treaties (“VCLT”) and Tulip Real Estate v. Republic of Turkey to conclusively hold that rules of international law, of which human rights are also a part of, cannot be ignored when adjudicating a claim arising out of a BIT, especially when the treaty provides for it.


The decision reached by the Panel is of consequential importance for two reasons. Firstly, investment treaty arbitration is in a precarious situation as many countries are either signing out of it or have already rescinded their treaties, owing to the regulatory chill they have been facing because of multitudes of investment claims. Secondly, the decision reaffirms the greater scope which States are being given off late by arbitral tribunals to regulate, to assert their sovereignty in a bona fide manner, and to make sure the rights of their citizens are not violated in fear of protecting the treaty rights of alien investors. In Philip Morris v. Uruguay last year in the investor was not allowed to subvert the national policy adopted for the purposes of public health. The intention of the State, it being bona fide, to take a public policy measure was given a higher legal ground against the claims of it being unreasonable, discriminatory and disproportionate which were analysed and rejected by the tribunal. The tribunal had also imported the human rights doctrine of “margin of appreciation” from the jurisprudence of European Court of Human Rights to grant Uruguay a regulatory space to take such a measure for its national needs. The ruling in Urbaser also squarely goes against the ruling in cases of Biloune v. Ghana Investments Centre and Tradex Hellas S.A. v. Albania, where the tribunals expressly dismissed human rights argument stating that its competence is limited only to the commercial merits in the dispute.

The ruling in Urbaser can also be held to be controversial for the purposes of imposing a human rights liability on investors, but this goes well with the prevailing trend of, I) Investors having a legal personality as transnational in international law, therefore, II) having the duty to uphold international law, including human rights. Back in August 2003 itself, the Sub-Commission on the Promotion of Human Rights of the United Nations Commission on Human Rights (CHR) approved the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights which defines human rights as one in the UN multilateral and customary system, being in consonance with Articles 1, 2, 55 and 56 of the UN Charter. The Norms on Transnational Corporations reinforce how corporations must pay heed to international human rights law. Similarly, the UN issued another document in June 2011, titled ‘Guiding Principles of Business and Human Rights’ which lays down principles of human rights which Corporations must follow, in recognition of the State’s obligation to protect human rights in its territory and the duty on Corporations, as specialised organs performing specific functions, to respect human rights while doing so. Although these obligations might be obligatory in nature, they are a restatement of the will of the international community and act as a guiding mechanism for international courts/panels to adjudicate upon disputes. These are obligations besides the more binding ones which the Panel cited, such as the UDHR, ICESCR, which have attained peremptory status in International Law.

From the point of view non-investment treaty obligations, the incorporation of it was also done by an arbitral panel in the case of SPP v. Egypt, where on the basis of the wordings of the treaty, the Panel interpreted that these obligations exist as far as the dispute is concerned when seen through Article 42 of the ICSID Convention. Though Egypt was not allowed the defence as the cancellation of the contract took place before it ratified the UNESCO Convention under which the contract would be illegal, SPP findings laid down that a) Investment obligation can be held to be against the State’s general international obligations, b) International obligations can be given precedence over investment promises. However, in the Urbaser case, Article X of the BIT specifically provided for adherence to international law and obligations besides contractual and investment law obligations, thus providing the tribunal a scope to directly adjudicate the case through the parameters of non-treaty obligations.

The Urbaser case has many far reaching implications. Besides the jurisdictional implication as far as counter-claims are concerned, it sets a path for greater allowance for conflict of other international law norms with that of international investment law, thus, a greater scope for regulation and assertion of sovereignty for the host States.

It is not that this is first case where the defence of human rights has been acknowledged. In Suez v. Argentina the tribunal did acknowledge the validity of State’s action in accordance with international law, by virtue of Article 42 of ICSID, but it held the concern to be mutually exclusive from that of the State’s obligations for the investor. In SAUR International v Argentine Republic the tribunal had also acknowledged the need for the State to regulate for human rights concerns as a part of its ‘governmental powers’, but said it has to be balanced out against the investors interests, thus, holding Argentina’s actions as one eligible for compensable expropriation to the investor. The tribunal in this case not only acknowledged the importance of human rights obligations in the role they play as a part of international law in a consent based mechanism such as investment arbitration, which in earlier cases was disregarded, but also stated the value of both the norms when seen from a wider aperture of international law. Although one can say that human rights obligations, here that of water, trumped the BIT obligations but a hierarchical nature of obligations was not stated explicitly. This position might become clearer with similar disputes in the future.

By directly adjudicating that a human rights issue and an investment dispute are not mutually exclusive, the tribunal’s decision can be ascertained to hold that different aspects of international law are under the ambit of one legal system which is how a dispute must be seen. Investment claims cannot be allowed to fragment international law by making them an exception to inherent obligations which every subject of international law is expected to follow. Such an inclusion and interpretation by ad-hoc tribunals is another way how investment law can converge and is seen to be converging with other branches of international law, rather than fragmenting it, besides multilateralization of investment treaty law as another way. This, thus, is the great comeback which the bilateral investment treaty regime can build upon.

What this dispute also inspires is how a treaty should be worded to allow the arbitral panel a greater scope to assess the action of the host State in light of its domestic and international obligations. Many States which are backing out of the investment treaty regime should and will come up with treaties which expressly state that tribunal should adjudicate a claim on the basis of principles of private and public international law, as seen in Article X of the Spain-Argentina BIT. Article 14(9) of the India’s new Model BIT, Article 9.23 of the TPP are a couple of examples.

It will be pertinent to see whether human rights as a whole will be put on a pedestal which might act as the looking glass through which investor duties and violations will be analysed or will it be graded so that only the most important rights which are peremptory in nature are allowed as a defence. This will also to an extent satiate the concerns raised by the tribunal in the SAUR case of there being an asymmetrical power relationship between the investor and the State. However, as far as right to water is concerned, it has always been acknowledged by international law as one of the most important human rights guarantee but it got disregarded owing to myriad of technical and jurisdictional reasons.

Lastly, such a decision by the tribunal also changes the scenario as far as the liability of investors is concerned and as to how investors must pay regard to other international obligations, particularly to that of human rights. This makes the investors more accountable to the kind of investments they make, forcing them to foresee the repercussions of their actions. This will surely bring a positive change to the investment climate in the world and allow States to take confidence in the investment treaty regime with renewed vigor.

* Sujoy Sur, BA/LLB, Gujarat National Law University.

In search of a “better” globalization

by Nikos Lavranos, Secretary-General of EFILA

The backlash against globalization

At the OECD, Global Forum on International Investment (6 March) more than hundred stakeholders from businesses, trade unions, academics and OECD member states gathered together for a one-day meeting considering ways towards a “better” globalization, which is more “inclusive”, i.e., which benefits all.

The OECD set the scene by describing the current backlash against globalization, trade, investment and investor-state dispute settlement (ISDS) as an urgent matter that must be addressed now to reverse the trend of protectionism and populism, which is increasingly visible in the US and Europe.

While it was stressed from the outset that foreign direct investments (FDI) have created many jobs and hugely benefitted many countries around the world over the past decades, it was also concluded that this was not an “inclusive” development. In other words, the benefits of globalization were distributed unevenly and there have been many more losers – not only low-skilled workers but also domestic businesses – than has generally been acknowledged so far.

At the backdrop of this, it was argued that nowadays FDI must not only be perceived to be more inclusive but that they must be more inclusive by making a positive, lasting and substantial contribution to the economy and benefit all citizens of the host state.

The responsibility of multinationals

In this context, many speakers from emerging economies and representatives of trade unions put the responsibility to achieve this on multinationals.

In the first place, many speakers stressed the need that the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct must be systematically adhered to by all investors. Moreover, it was argued that multinationals must take the lead towards a low carbon economy and “green investments”.

In the second place, it was stressed that multinationals must pay their fair share of taxes. The current tax system which allows multinationals to avoid paying the full amount of taxes was criticized. The OECD’s efforts against Base Erosion and Profit Shifting (BEPS), the increasing transparency regarding international tax rules and the implementation of country-to-country reporting were considered essential in countering the backlash against globalization.

In the third place, multinationals were called upon to invest in the “social infrastructure” of societies by supporting the losers of globalization in building a new future.

Towards “quality” investments?

The discussion then turned towards a new econometric study which aims at analyzing how “good” or “quality” investments, which are “inclusive”, could be fostered.

To achieve that it is first all necessary to decide the factors which should be taken into account in order to determine whether, and if so, to what extent an investment is “inclusive”.

The researchers of the study made a distinction between (i) FDI policy and framework composition, (ii) different FDI types, and (iii) FDI outcomes.

The first results show that all of these factors have an important impact on the outcome, which means that a much more nuanced view of FDI must be developed for this new narrative. It also was admitted by the researchers that there is still a lack of sufficient data regarding the various FDI types and FDI outcomes. Obviously, the vast differences in the economies of various is another complicated factor, which makes it difficult to provide easy answers.

As a one of the speakers pointedly concluded:

“it is not the same if an investor invests in producing microchips or potato chips”.

Preliminary results were also shown which indicate that foreign investors compared to their domestic counterparts generally pay higher wages, tend to have a higher productivity, create more and better jobs, and employ more female workers. In other words, foreign investors are in many cases already now providing relatively more inclusive investments than domestic investors.

A new positive globalization narrative

While this study has just been started and much more work needs to be done, the discussion raised several additional issues.

The first issue is the seemingly complete absence of required state action. Instead, many participants expect that multinationals will take on this responsibility, while states do not need to act. However, one may question whether this is not a too easy solution for the states. After all, the domestic Rule of law and governance situation in each state can significantly impact the level of “inclusiveness” of an investment. For example, if a state is run by practically one family clan, any FDI will naturally benefit mainly or exclusively that family clan and thus can never be considered “inclusive”. However, does this fact make every investment – even in for example renewable energy – automatically a “bad” investment? And is the investor solely responsible for the fact that the country is run by a family clan?

The second issue concerns the almost exclusive focus on multinationals in this narrative, whereas it is well-known that SMEs play a very important role in most, if not all, economies of the world. It therefore would seem necessary and appropriate to consider how these additional obligations – if they were to be imposed on investors – would affect SMEs. More generally, it would seem important to make a clear distinction between the needs and obligations of multinationals and SMEs. In other words, the narrative must also be “inclusive” vis-à-vis all types of investors and investments.

The third and probably most complex and contentious issue relates to the question of how states could make a distinction between “bad” and “good” FDI without discriminating against certain foreign investors. Arguably, a state could always invent and apply certain criteria, which would enable it to decide one way or the other as it sees fit, while the investor would be rather helpless against this kind of potential arbitrariness.

This in turn raises the fundamental question of whether this new narrative of “quality” FDI and “inclusiveness” can actually be effectively applied in practice? For now, it is too early to give a definite answer.

Nonetheless, the efforts of the OECD and most of its member states to continue to push for a multilateral framework, which promotes and supports FDI as an essential and important element for an open economy must be applauded. This is a rarely heard sound in these days.

The development of a new, positive narrative in support of FDI is any case a welcome tool to help fight the backlash against globalization.


Iran’s Accession to ICSID: What to Expect?

by Shiva Ghahremani (Konrad & Partners), Amirhossein Tanhaei (CMS)

The signing of the Joint Comprehensive Plan of Action (JCPOA) in July 2015 and subsequently the lifting of the sanctions imposed on Iran, reintroduced the Iranian economy to the international trade and investment, leading Iran to return to the commercial mainstream. Just a few days ago, Tehran signed a $16.6 billion deal for 80 Boeing passenger jets and according to Iranian media, agreements have been concluded for the purchase of dozens more Airbus planes, forming the biggest package of commercial contracts with western companies since Iran’s Islamic revolution in 1979. The lifting of the banking sanctions also means that Iran – despite technical difficulties – is reconnected to the world financial network.

With a population of almost 80 million, most of whom are young and highly educated people, Iran is an attractive hub for investors. Iran has the 26th largest economy in the world with a GDP of $ 425, 3 billion in 2016, and is amongst the largest economies in the Middle East and North Africa region. Besides, Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves.  The Iranian sixth ‘Five-Year Development Plan’ for the 2016-2021 period comprises of development plans to envisage an annual economic growth rate of 8%.

In such circumstances, direct foreign investments make essential accompaniments to Iran’s economic development efforts, by contributing toward Iran’s economic growth and development over the long term. Foreign investments can potentially create jobs, build up competitiveness and productivity and transfer knowledge and technology. However, a key issue is to build necessary conditions to facilitate the investment flows. In October 2014, Iran ranked 130th out of 189 countries in the World Bank’s Doing Business Report, which further illustrates that Iran should make efforts to achieve a more transparent, secure and foreseeable investment environment to attract more foreign direct investments. This will be feasible by, amongst other things, offering a reliable, efficient and internationally accepted investment dispute settlement mechanism.

In this respect, the International Centre for Settlement of Investment Disputes (ICSID) provides a platform outside the domestic legal systems, which offers the foreign investors the guarantee that they can take the disputes to a facility which is not part of the legal system of the country in which they are suing. Commentators and investment scholars cite many benefits for the accession of states to the ICSID Convention, including that ICSID provides ‘additional protection’ to the investors abroad by allowing them to provide for recourse to arbitration using ICSID arbitral rules in their contracts with foreign states. Further, ICSID membership would contribute to reinforcing countries’ images as being investment friendly. According to the report published by the United Nations Conference on Trade and Development (UNCTAD), the majority of international investment disputes between UNCTAD members are settled through ICSID. In this regard, as an UNCTAD member, Iran can provide Iranian investors with the opportunity of settling their disputes with foreign governments without the need of direct involvement of the Iranian government by accession to the ICSID.

Iran has developed its domestic laws during the recent years to pave the way for the facilitation of foreign investments. For instance, the enactment of the Law Concerning International Commercial Arbitration was one of the important initiations taken by Iran as a step towards making it a more arbitration-friendly country. In addition, Iran sought to take a noticeable step towards joining the international investment world by enacting Iran’s Foreign Investment Promotion and Protection Act (FIPPA) in 2002. This Act introduces an alternative method for dispute settlement for the Parties other than the exclusive referral to domestic courts, if provided by the Bilateral Investment Agreement. The establishment of the Tehran Regional Arbitration Centre, as well as the Iranian accession to the New York Convention, further highlight Iran’s readiness to adopt international developments in alternative dispute resolution methods. Iran has also frequently had recourse to arbitration over the past decades. For instance, the Iran-United States Claims Tribunal which was established in 1981 to resolve certain claims has finalized over 3,900 cases to date.

However, Iran is not a member state to the ICSID Convention. Despite the long standing discussions in respect to Iran’s becoming an ICSID member, one should bear in mind that in practice there are features in Iran’s jurisdiction which put limitations on Iran from being subject to ICSID arbitrations. Iran’s Constitution places a strict condition on foreign investments in Iran. In particular, Article 81 of the Constitutional Law of the Islamic Republic of Iran states that it is “absolutely forbidden” to give foreigners the right to establish companies in commercial, industrial, and other fields and in the service sector.

However, having passed the Law of Permitting Registration of Branches and Representatives Offices of Foreign Companies in 1997, Iran sought to facilitate the flow of foreign investments and business activities, by recognizing that foreign companies may – under certain circumstances – set up branches and representative offices in Iran to carry out the businesses authorized by the government of Islamic Republic of Iran in due compliance with the Laws of Iran. In addition, Article 139 of said Constitutional Law has conditioned the subjective arbitrability of public and State properties to the approval of the Council of Ministers, and a two-leveled approval system “in cases where the party to the dispute is a foreigner and in important internal cases, it must also be approved by the Assembly”. Therefore, the Iranian accession to the ICSID will have technical complications from the perspective of its Constitution, as it limits the State power to access the ICSID’s arbitration process.

Joining the ICSID will enhance international perceptions of Iran as a welcoming country to invest. Iranian companies and individuals, on the other hand, will also enjoy the protection of their investments abroad, if Iran joins the Convention. Iran has entered into almost 70 BITs with other countries, many of which contain clauses to submit the disputes to the ICSID, ‘if or as soon as both contracting parties have acceded to it’. The inclusion of such clauses in the BITs entered into by Iran demonstrates that the possibility of the Iranian accession to ICSID Convention in the future has been considered by the Iranian government.