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Journal of Energy & Natural Resources Law Volume 2, 1984 - Issue 2
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Original Articles

Bilateral Investment Protection Treaties

Glenn Gallins Associate Professor of Law, University of Victoria, British Columbia, Canada. The author wishes to thank Professor Rosalyn Higgins of the London School of Economics and Political Science, London University, for her advice and encouragement in the preparation of this article.
Pages 77-97 | Published online: 08 Jun 2015

  • United Kingdom Treaty Series (U.K.T.S.), 1975, No. 151.
  • Korea-U.K.T.S., 1976, No. 45. Egypt—U.K.T.S., 1976, No. 97. Romania-U.K.T.S., 1977, No. 15. Indonesia-U.K.T.S., 1977, No. 62. Thailand—U.K.T.S., 1979, No. 99. Jordan-U.'K.T.S., 1980, No. 52. Bangladesh—U.K.T.S., 1980, No. 73. Philippines—U.K.T.S., 1981, No. 7. Sri Lanka—U.K.T.S., 1981, No. 14. Lesotho—U.K.T.S., 1981, No. 31. Papua New Guinea—U.K.T.S., 1982, No. 15. Belize-U.K.T.S., 1982, No. 33.
  • Journal Officiel de la Republique Française (J.O.), September 16, 1975, p. 9507. The treaty had been signed on October 5, 1972, but did not come into force until March 1, 1975.
  • Egypt—J.O., November 8, 1975, p. 11486. Indonesia—J.O., August 1. 1975, p. 7820. Singapore—J.O., December 12, 1976, p. 7150. Morocco—J.O., January 30, 1977, p. 677. Malta—J.O., December 31, 1977, p. 6361. Malaysia—J.O., April 10, 1977, p. 2136. Romania—J.O., October 17, 1978, p. 3594. Jordan—J.O., November 7, 1979, p. 2758. South Korea—J.O., April 11, 1979, p. 834. Paraguay—J.O.June 26, 1980, p. 1568. El Salvador—J.O., June 26, 1980, p. 1568. Syria—J.O., June 8, 1980, p. 1418. Sudan—J.O., October 3. 1980, p. 2295. Liberia—J.O., February 27, 1982, p. 689. Sri Lanka—J.O., June 20, 1982, p. 1950.
  • See e.g. 23 The Japanese Annual of International Law (1979–1980), p. 245. The Federal Republic of Germany, Switzerland, the Netherlands, Belgium, Sweden, Denmark and the United States have also entered into I.P. treaties. For easily accessible examples of I.P. treaties entered into by some of these capital exporting nations see: Switzerland—Sri Lanka (1982) 21 I.L.M. 399; Sweden-People's Republic of China (1982) 21 I.L.M. 477; United States—Panama (1982) 21 I.L.M. 1227.
  • Concession agreements generally require major expenditures to be made by the transnational corporation for exploration. See e.g. A Collection of International Concessions and Related Instruments Contemporary Series 1975/6 II (1982) ed. Fischer, for the Petroleum Exploration and Production Sharing Agreement Between the Arab Republic of Egypt and Chevron Oil (at p. 393) which required 10 million U.S. dollars to be expended on exploration in the first three years of the concession; and the Mining Concession between the Government of the Republic of Liberia and Liberia Gold and Diamond Corporation (at p. 447) under which one million dollars was required to be spent for exploration in the first three years of the concession.
  • In addition to initial expenditures, transnational corporations are at risk inter alia for expenditures made for fixed assets in foreign countries. The magnitude of expenditures for such assets is enormous. For example, the money spent for fixed assets by 25 major oil companies in 1981 in Africa was $6,725,000,000, in the Mideast $2,052,000,000 and in the Far East $14,708.000,000. See Chase Manhattan Bank, Financial Analysis of a Group of Petroleum Companies (1981).
  • Asante,“Restructuring Transnational Mineral Agreements,” 73 American Journal of International Law 335 (1979) at pp. 342–345.
  • The texts of I.P. treaties entered into between France and Paraguay; France and Korea; and France and El Salvador, have not yet been published and therefore are not included in the analysis.
  • Barcelona Traction, Light and Power Company. Ltd. [1970] I.C.J. 3.
  • In the treaty between France and Romania, Art. 2(2), the terms usually used, that is “national” and “company,” to describe the entities protected by the treaties have been replaced by the term “investor.” While for France an “investor” includes nationals and companies incorporated in conformity with French legislation, the definition of Romanian investors bears the hallmark of the structure of the Romanian socialist economy. An “investor” means an “industrial central” or its subsidiary or the economic units which under Romanian law are competent to trade externally and co-operate with foreigners. For a description of the Romanian economy, particularly as it relates to foreign investment, see Burgess, “Direct Foreign Investment in Eastern Europe: Problems and Prospects of Romania's Joint Venture Legislation” (1974) 6 Law & Policy in International Business 1059.
  • See e.g. Japan-Egypt, Art. 1(3); France—Sudan, Art. 1(2); France—Syria Art. 1(2); U.K.—Belize, Art. 1(c), (i), (ii); U.K.—Philippines, Art. 1(3)(a); in this agreement Philippine nationals are defined as citizens within the meaning of Art. III of the Philippine Constitution.
  • U.K.—Philippines, Art. 1(3)(b). By definition then, the agreement between the United Kingdom and the Philippines may allow the United Kingdom to act on behalf of persons who are citizens of a third state, and also on behalf of stateless persons—as long as such persons are British subjects and entitled to a right of abode in the United Kingdom.
  • See e.g. France—Syria, Art. 1(3); France—Jordan, Art. 1(3); France—Egypt, Art. 1(3); U.K.—Lesotho, Art. 1(d). (i), (ii); U.K.—Jordan, Art. 1(d), (i) (ii); U.K.—Indonesia, Art. 1 (d), (i), (ii).
  • Japan—Egypt, Art. 1(4).
  • See e.g. Japan—Egypt, Art. 1(4); U.K.—Egypt, Art. 1(d)(ii); U.K.—Thailand, Art. 2(b).
  • See e.g. U.K.—Indonesia, Art. 7(2); U.K.—Egypt, Art. 8(1); U.K.—Jordan, Art. 6; Japan—Egypt, Art. 11.
  • U.K.—Philippines, Art. 1(4). Such a provision augments the domestic law of the Philippines. Philippine law requires prior approval of the Philippine Board of Investments (BOI) whenever foreign equity participation exceeds 30 per cent, in a business enterprise. In granting approval to foreign investors the B.O.I, considers whether the proposed investment is consistent with the economic objectives of the Philippines. For example, before the B.O.I, will approve a foreign investment it ensures that the investment:
  • (a) is consistent with the investment Priorities Plan
  • (b) will contribute to sound and balanced development on a self-sustaining basis
  • (c) the business activity is not one which is adequately exploited by Filipinos.
  • Thus, whereas domestic Philippine law regulates the inflow of foreign capital to ensure that it is consistent with governmental economic objectives, the provision in the I.P. treaty allows the government to attempt to withdraw I.P. treaty protections from an unwelcome foreign investor.
  • U.K.—Philippines, Art. 2.
  • U.K.—Sri Lanka, Art. 1(a).
  • France—Romania, Art. 2.
  • See e.g. France—Jordan, Art. 1(1); France—Egypt, Art. 1(1); France—Singapore, Art. 1(1); U.K.—Belize, Art. 1(a); U.K.—Egypt, Art. 1(a); Japan—Egypt, Art. 1(1).
  • See e.g. France—Sudan, Art. 1(e); France—Romania, Art. 2(1)(e); France—Jordan, Art. 1(1)(e); France—Sri Lanka, Art. 1(a)(5).
  • See e.g. France—Romania, Art. 11.
  • See e.g. Japan—Egypt, Art. 9.
  • See e.g. U.K.—Jordan, Art. 2(1); U.K.—Egypt, Art. 2(1); U.K.—Sri Lanka, Art. 2(1); Japan—Egypt, Art. 2(1); France—Jordan, Art. 2; France—Syria, Art. 2. Some treaties specify that Contracting Parties will only encourage and create favourable conditions for investments which are consistent with the national objectives of the Contracting Party. See e.g. U.K.—Philippines, Art. 3(1). As noted above, however, the U.K.—Philippines treaty goes even farther to protect the investment objectives of the Philippines by having a mechanism to deny all I.P. treaty benefits to unregistered foreign investment. See note 18.
  • See e.g. U.K.—Indonesia, Art. 3(1); U.K.—Egypt, Art. 2(1); U.K.—Singapore, Art. 2(1); Japan—Egypt, Art. 2(1); France—Jordan, Art. 2; France—Syria, Art. 2.
  • U.K.—Lesotho, Art. 2(1).
  • For an example of the use of the M.F.N, standard see: France—Romania, Art. 3. For an example of the M.F.N.—national treatment standard see: Japan—Egypt, Art. 3(1).
  • Schwartzenberger, Frontiers of International Law (1968) at p. 220.
  • U.K.—Singapore, Art. 2(2), 3(3). The combined effect of these articles is to establish an M.F.N, standard with regard to these matters.
  • U.K.—Lesotho, Art. 2(2).
  • Japan—Egypt, Art. 3(2).
  • See e.g. France—Syria, Art. 6; France—Romania, Art. 7; France—Jordan, Art. 6; U.K.—Belize, Art. 6; U.K.—Singapore, Art. 6.
  • See e.g. U.K.—Sri Lanka, Art. 6; U.K.—Singapore, Art. 6; U.K.—Indonesia, Art. 6.
  • See e.g. U.K.—Philippines, Art. 7(1); U.K.—Thailand, Art. 7(1).
  • U.K.—Philippines, Art. 3(3).
  • Vienna Convention on the Law of Treaties, Art. 31(1). Text in Ian Brownlie, Basic Documentation in International Law (2nd ed., 1972).
  • Kissam and Leach, “Sovereign Expropriation of Property and Abrogation of Concession Contracts” (1959) 28 Fordham Law Review 177, at pp. 205–207, 210. Baldus, “State Competence to Terminate Concession Agreements with Aliens” 53 Kentucky Law Journal 56, at p. 57. Vagts, “Coercion and Foreign Investment Rearrangements” (1978) 72 American Journal of International Law 17.
  • Wehberg, “Pacta Sunt Servanda” (1959) 52 American Journal of International Law 775, at p. 782.
  • Weigel and Weston have observed that “‘law’ is as much the product of what people do as it is of what people say. No mere body of rules to be gleaned from textbook headings, relatively unchanged over time, law is the outcome of a process of decision (this is to say, a decision) which is taken in accordance with formal authority (doctrine) and sustained by effective control (sanction). Or as Myres McDougal has put it… ‘[i]nternational law is the reciprocal impact or interaction, in the world of operations as well as of words, of inter—penetrating processes of international and national authority and control.’” Weigel and Weston, “Valuation Upon Deprivation of Foreign Enterprises: A Policy Oriented Approach to the Problem of Compensation Under International Law” in Valuation of Nationalized Properly in International Law 1, (1972), Lillich (ed.) at p. 9.
  • Kissam and Leach, supra, note 38, at p. 198.
  • Kissam and Leach, supra, note 38, at p. 198. Texaco v. Libyan Arab Republic, 53 I.L.R. 389, at p. 474.
  • Carlston, “Concession Agreements and Nationalization” (1958) 52 American Journal of International Law 260, at p. 261. Mann, “State Contracts and State Responsibility” (1960) 54 American Journal of International Law 572, at p. 574.
  • Carlston, supra, note 43, at pp. 261, 275. Amerasinghe, “State Breach of Contracts with Aliens and International Law” (1964) 58 American Journal of International Law 881, at p. 908. Jennings, “State Contracts in International Law” (1961) 37 British Yearbook of International Law 156. See Mann, supra, note 43, at p. 575.
  • Arechaga, “State Responsibility for the Nationalisation of Foreign Owned Property” (1978) 11 New York University Journal of International Law and Politics 179, at p. 191.
  • See at pp. 86–90.
  • It is generally accepted that if the host state can be sued for breach of contract before a national court, recourse must be had to that court. Questions arise, however, when there are doubts about whether the court or reviewing body is legally constituted, or sufficiently independent of the host state to render a just verdict. See Amerasinghe, supra, note 44, at p. 906. Also see Jennings, supra, note 44 at 166; and Schwebel, “International Protection of Contractual Arrangements” (1959) Proceedings of the American Society of International Law 266. at p. 269.
  • For a brief discussion of some of the factors which a home state may take into consideration before assisting its national see: Amerasinghe, supra, note 44, at p. 886; Baldus, supra, note 38 at p. 76; and. Broches, “The Convention on the Settlement of Investment Disputes” 136 Hague Recueil 330. at p. 344.
  • For example, regarding the nationalisation of oil companies in Libya, various arbitral tribunals have reached opposite conclusions. In Liamco v. Libyan Arab Republic (1982) 20 I.L.M. 1, at p. 62, the arbitral tribunal declined to grant restituto in integrum because such an order would violate the sovereignty of the nationalising state. Rather, damages were awarded. In Texaco, supra, note 42. at p. 495, the arbitral tribunal held that the appropriate remedy was restituto in integrum to be performed within five months. See also Amerasinghe, supra, note 44, at p. 882.
  • See below, at pp. 91–94.
  • Muller, “Compensation for Nationalization: A North South Dialogue” (1981) 19 Columbia Journal of Transnational Law 35, at p. 36. Kissam and Leach, supra, note 38, at p. 195. White, “A New International Economic Order” (1975) 24 International and Comparative Law Quarterly 542, at p. 545.
  • Liamco, supra, note 49. at p. 59.
  • Kissam and Leach, supra, note 38, at p. 189.
  • See below, note 63.
  • See e.g. France—Romania, Art. 6(1); Japan—Egypt, Art. 5(2); U.K.—Egypt, Art. 5(1); U.K.—Indonesia, Art. 5(1).
  • See e.g. U.K.—Lesotho, Art. 5(1); U.K.—Egypt, Art. 5(1); U.K.—Indonesia, Art. 5(1).
  • See e.g. U.K.—Thailand, Art. 6(1)(a); France—Jordan, Art. 4(2); Japan—Egypt, Art. 5(2).
  • See at pp. 88–90.
  • See e.g. Japan—Egypt, Art. 5(4).
  • See authorities cited, supra, note 51.
  • See e.g. Japan—Egypt, Art. 5(2); France—Syria, Art. 5.
  • Dawson and Weston, “Prompt, Adequate and Effective: A Universal Standard of Compensation,” 30 Fordham Law Review 727. Kissam and Leach, supra, note 38, at p. 184; Weigel and Weston, supra, note 40, at p. 7; Barcelona Traction, Light and Power Company Ltd. [1970] I.C.J. 3.
  • U.N.G.A. Res. 1803, 17 U.N. GAOR, Supp. (No. 17) U.N. Doc. A/5344/Add. 1, A/L. 412/Rev. 2; U.N.G.A. Res. 3281, 29 U.N. GAOR, Supp. (No. 31) 50, U.N. Doc. A/9631 (1975). Muller, supra, note 51, at p. 42; Haight, “The New International Economic Order and the Charter of Economic Rights and Duties” (1975) 9 International Lawyer 591, at p. 601; Arechaga, supra, note 45, at p. 189.
  • Becker, “Just Compensation in Expropriation Cases: Decline and Partial Recovery,” American Society of International Law Proceedings (1959), 336; Cheng, “The Rationale of Compensation for Expropriation” (1958) 44 Transactions of the Grotius Society 267, at p. 293; Dawson and Weston, supra, note 62; Haight, supra, note 63, at p. 602; Schwebel, “The Story of the U.N.'s Declaration on Permanent Sovereignty over Natural Resources” (1963) 49 American Bar Association Journal 463.
  • Weigel and Weston, supra, note 40, at p. 26; see also Arechaga, supra, note 45, at p. 181.
  • For an overview of these methods of valuation see: Muller, supra, note 51.
  • See e.g. U.K.—Egypt, Art. 5(1); U.K.—Jordan, Art. 4(1); U.K.—Singapore, Art. 5(1); U.K.—Lesotho, Art. 5(1); U.K.—Sri Lanka, Art. 5(1); Japan—Egypt, Art. 5(3).
  • U.K.—Lesotho, Art. 5(1).
  • France—Indonesia, Art. 6(1), (2).
  • U.K.—Korea, Art. 5(1).
  • U.K.—Philippines, Art. 5(1).
  • France—Syria, Art. 5.
  • U.K.—Belize, Art. 5(1).
  • Missouri ex. rel. Southwestern Bell Tel. Co. v. Public Services Commission (1923) 262 U.S. 276, at p. 310.
  • Smith, “Real Property Valuation for Foreign—Wealth Deprivations” in Valuation of Nationalized Property in International Law I, (1972) Lillich (ed.) 133, at p. 141.
  • Weigel and Weston, supra, note 40, at p. 16.
  • Muller. supra, note 51 at p. 48.
  • Supra, note 68.
  • Supra, note 71.
  • Supra, note 69.
  • See e.g. U.K.—Singapore, Art. 5(1); U.K.—Sri Lanka, Art. 5(1); U.K.—Lesotho, Art. 5(1); Japan—Egypt. Art. 5(2).
  • U.K.—Egypt, Art. 5(1).
  • See e.g. France—Romania, Art. 6; U.K.—Thailand, Art. 6(1)(a); U.K.—Belize, Art. 5(1); U.K.—Philippines, Art. 5(1).
  • Dawson and Weston, supra, note 62, at p. 736.
  • Japan—Egypt, Art. 5(3). It is interesting to note that this provision is similar to provisions found in a number of constitutions of European states. See e.g. Art. 17 of the Constitution of Greece. The Basic Law for the Federal Republic of Germany, Art. 14(3), and Art. II of the Belgium Constitution.
  • See e.g. U.K.—Thailand, Art. 6(1)(a). 7.
  • Japan—Egypt, Art. 5(4).
  • See e.g. U.K.—Papua New Guinea, Art. 4; U.K.—Thailand, Art. 6(3); France—Jordan, Art. 4(3); France—Sri Lanka, Art. 7(3); Japan—Egypt, Art. 6.
  • See e.g. U.K.—Philippines, Art. 6.
  • See e.g. France—Jordan, Art. 4(3).
  • See e.g. U.K.—Lesotho, Art. 4(1); U.K.—Egypt, Art. 4(1); U.K.—Jordan, Art. 4(5); U.K.—Belize, Art. 4(1).
  • Meron, Investment Insurance in International Law (1976), at pp. 280–290.
  • Ibid, at pp. 42–44.
  • The provisions apply to both Contracting Parties although few states can now take advantage of these provisions. This is because few states have insurance schemes to protect investments by their nationals in other states.
  • See e.g. Japan—Egypt, Art. 13(2); U.K.—Philippines, Art. 11(1); U.K.—Romania. Art. 9(1); U.K.—Indonesia, Art. 8(1); France—Romania, Art. 12.
  • See e.g. France—Romania, Art. 12.
  • See e.g. Japan—Egypt, Art. 13(2); U.K.—Egypt, Art. 9(3); France—Jordan, Art. 11(3).
  • See e.g. U.K.—Egypt, Art. 9(4); France—Jordan, Art. 11(4); France—Sudan, Art. 12.
  • See e.g. Japan—Egypt, Art. 13(4); U.K.—Jordan, Art. 7(5); U.K.—Lesotho. Art. 9(5); U.K.—Philippines, Art. 11(4); France—Sudan, Art. 12; France—Syria, Art. 12(6).
  • See e.g. Japan—Egypt, Art. 13(4); U.K.—Jordan, Art. 7(5); U.K.—Egypt, Art. 9(5); France—Zaire, Art. 10.
  • Broches, supra, note 48, at p. 344.
  • See e.g. Japan—Egypt, Art. 11; U.K.—Jordan. Art. 6; U.K.—Korea, Art. 8(1); France—Singapore. Art. 6; France—Egypt, Art. 7
  • See e.g. Japan—Egypt, Art. 11; U.K.—Papua New Guinea. Art. 8(1); U.K.—Egypt, Art. 8(1); U.K.—Lesotho, Art. 8(1).
  • U.K.—Egypt, Art. 5(1).
  • France—Romania, Art. 8(1).
  • See e.g. U.K.—Belize, Art. 8(1), (three months); France—Romania, Art. 8(2), (two years).
  • Convention Art. 25.
  • Convention Art. 25.
  • Broches, supra, note 48, at p. 353.
  • Ibid.
  • Convention Art. 45.
  • Broches, supra, note 48, at p. 358.
  • Convention Art. 25(2)(b).
  • Broches, supra, note 48, at p. 381.
  • Convention Art. 42(1).
  • Convention Art. 53(1). See e.g. France—Romania, Art. 8(3)
  • See e.g. Japan—Egypt, Art. 14(2); U.K.—Indonesia, Art. 11(1); U.K.—Jordan, Art. 11; France—Sri Lanka, Art. 14(2); France—Syria, Art. 13.
  • See e.g. U.K.—Thailand, Art. 12; U.K.—Singapore, Art. 14; U.K.—Egypt, Art. 13.
  • See e.g. Japan—Egypt, Art. 14(3); U.K.—Indonesia, Art. 11(2); U.K. Romania, Art. 10(2).
  • See e.g. Japan—Egypt, Art. 14(4) (10 years); France—Romania, Art. 13 (15 years); France—Syria, Art. 13 (15 years); U.K.—Lesotho, Art. 13 (20 years); U.K.—Thailand, Art. 12(1) (10 years).
  • See examples noted in first note 6, supra.

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