BITs and Peace: The connection

LEGAL EYE

The acceleration in BITs is essentially a 1990s phenomenon, heralding the emergence of market capitalisation, with liberation of the East European nations from the tentacles of communism. There was China, which sent out signals ending its earlier regime of economic hostility.

A third group comprised the Latin American nations, creating a new platform for themselves migrating from the traditional Calvo doctrine to that of investor protection treaties with neutral dispute resolution mechanisms. Today China has entered into over 100 BITs and not faced a single treaty dispute, while Latin America has been mired in treaty arbitrations and awards, with Bolivia and Ecuador announcing their withdrawal from ICSID as the arbitral tribunal for future disputes.

It is interesting to examine this disparate evolution of BITs in the context in treaty structures. China has structured its treaties in manner that the definition of "investment" is subjected to the regulatory regime, and disputes other than expropriation compensation are decided by the domestic courts or local arbitration , subject to PRC determining the occurrence of expropriation. China has cleverly nuanced the balance of power in concessions to investor states to optimise mutual benefits.

Another jurisdiction following a similar model is South East Asia. A fundamental issue in the context of BITs is the host state's right to regulate its public welfare, the rule of thumb being that treaty obligations should override sovereign rights of the State, unless provided otherwise. South East Asia has succeeded in ensuring conservation of regulatory space in its treaties, so that each and every state action cannot be treated as a treaty violation.

Foreign investment definitions are restrictive, precise and protection is extended only to investments approved in writing. This is what saved Malaysia when exchange controls were imposed during a financial crisis and the Arbitral Tribunal declined jurisdiction as the investment was not "approved". Yet FDI flows are not impeded.

The Argentine experience has been bitter, as in the scramble for investments, certain compromises were made