HOW CAN DEVELOPING COUNTRIES AVOID BEING SUED BY FOREIGN INVESTORS: A LOOK AT INTERNATIONAL CENTRE FOR THE SETTLEMENT OF INVESTMENT DISPUTES' REGIME AND CASE ANALYSIS HOANG NGUYEN HA QUYEN Student ID: xxx A dissertation submitted in partial fulfilment of the requirements of the University of the West of England for the degree of Master of Laws in International Law School of Law, University of the West of England, Bristol, UK November 2008 1 DECLARATION I hereby declare that I have read and understood the regulations governing the submission of LLM dissertation at the University of the West of England, including those relating to length and plagiarism, and that this dissertation conforms to these regulations. I further declare that I agree for the University to keep and/ or store an electronic copy of this dissertation in the library. Signed by HOANG NGUYEN HA QUYEN ACKNOWLEDGEMENT I wish to express my sincere thanks to Prof. Elena Blanco from the University of the West of England for her great contributions to my dissertation.
Thanks to her interesting topics in the international commercial disputes course that I have had a chance to attend and her example about Argentine’s crisis at the ICSID Center has created the initial thought about this dissertation. During the time of writing this paper, she has provided valuable contributions and comments to my works and I highly appreciate her time for me. I also wish to thank Dr. Le Net for providing me information related to the topic.
There are many others have provided information related to the topic in many ways and I appreciate their contributions to this paper. I am especially grateful to my friend and husband, for his understanding, support and encouragement during my LLM course, for the long journey he has done to cheer me up, for his constant sleepless nights listening and reading my works, for his editorial observations and suggestions to every piece of the work I’ve done. His knowledge of computers was also extremely helpful. ii Table of Contents ABBREVIATION.
v TABLE OF CASES. 4 Chapter 1: FOREIGN INVESTMENTS PROTECTION AND ICSID .1 Economic Development and Foreign Investment under investment treaties. Role of foreign investment toward Economic development:. The foundation of Investment treaties:.
Other forms of investment protection:.2 Investment Dispute settlement and the choice of ICSID arbitration. 8 Chapter 2: ICSID AND ITS REGIME.1 World Bank and the establishment of ICSID .2 ICSID arbitration and its regime. Consent in writing:. National of Contracting States: .3 ICSID arbitrators and arbitral tribunal .4 ICSID awards and enforcement.
18 Chapter 3: CRITICISM ON ICSID DISPUTES SETTLEMENT MECHANISM .1 Is ICSID the best choice for developing countries? .2 Facts and statistics: .3 Criticisms on ICSID disputes settlement mechanism: .4 Some special features of investor-state disputes:. 28 CHAPTER 4: ICSID REGIMES AND THEIR DISADVANTAGES TOWARD HOST STATES .1 Does ICSID take into account special features of investor – state dispute?. Ignore human rights:. Broad definition of expropriation:.
Broad definition of investment and investor: .2 Why and how ICSID awards favored foreign investors?. Question of World Bank’s regime?. Question of arbitrators?. Question of system.
The problem of using case law. 46 CHAPTER 5: SOLUTIONS FOR DEVELOPING COUNTRIES .1 Do developing countries need BITs to attract FDI?.2 Solutions for developing countries:. Negotiate and draft treaties carefully before signing:. Define investor and investment:.
Enhancing the capacity of domestic institutions. Limit the investor’s access to arbitration:. Raise Human Rights Obligations. Call for the corporate social responsibility (CSR).
Allowing Individuals to Sue Investors for Human Rights Violations. Renegotiate existing BITs. Develop a more balanced set of investment rules:. Taking Australia precedent to exclude ICSID provision:.
Reform the ICSID arbitration process:. De-link ICSID from the World Bank:. The Slovak Republic. 72 CMS Gas Transmission Company v.
74 ---o0o--- Word counts: 14,492 v ABBREVIATIONS BIT: Bilateral Investment Treaty CAFTA: Dominican Republic – Central America Free Trade Agreement CSR: Corporate Social Responsibilities ECT: Energy Charter Treaty EU: European Countries FDI: Foreign Direct Investment FTA: Free Trade Agreement IBRD: The International Bank for Reconstruction and Development ICC: International Chamber of Commerce ICSID: International Centre for Settlement of Investment Disputes IFC: International Finance Center IIA: International Investment Agreement IISD: The International Institute for Sustainable Development IMF: International Monetary Fund IPS: Institute for Policy Studies LDCs: Least Developed Countries MAI: Multilateral Agreement on Investment MFN: Most Favored Nation MIGA: World Bank’s Multilateral Investment Guarantee Agency MNCs: Multi-national Corporations NAFTA: North American Free Trade Agreement NGO: Non-government Organization OECD: Organisation for Economic Co-operation and Development PCA: Permanent Court of Arbitration SCC: Stockholm Chamber of Commerce UK: The United Kingdom UNCTAD: The United Nations Conference on Trade and Development US: The United State of America USTR: Office of the United States Trade Representative vi TABLE OF CASES ADF Group Inc. United States of America, ICSID Case No. Aguas del Tunari S. Republic of Bolivia, ICSID Case No.
ARB/02/3 Alex Genin, Eastern Credit Limited v. Republic of Estonia, ICSID Case No. ARB/99/2, Award, 25 June 2001 (United States-Estonia BIT) Autopista Concesionada de Venezuela v. Bolivarian Republic of Venezuela, ICSID Case No.
ARB/00/5, Decision on Jurisdiction, 27 September 2001, and Final Award, 27 September 2003. Azurix Corp v Argentine Republic, Award, ICSID Case No ARB/01/1, 14 July 2006 Bayview Irrigation District et al. Mexico, ICSID Case No. ARB(AF)/05/1 (NAFTA ) Award, 19 June 2007 Československa obchodní banka, a.
Slovak Republic, ICSID Case No. ARB/97/4 CME Czech Republic B. v Czech Republic (2003) – search case No. Continental Casualty Company v.
Argentine Republic, ICSID Case No. ARB/03/09, award dated September 5, 2008 European Court of Human Rights - López Ostra v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision on Objections to Jurisdiction (11 July 1997), 5 ICSID Reports 183 (2002) Fireman's Fund Insurance Company v.
United Mexican States, ICSID Case No. ARB (AF)/02/1 (NAFTA) Generation Ukraine INC v. Ukraine, ICSID Case No.ARB/00/9, Award 16 September 2003 CMS Gas Transmission Company and the Argentine Republic, ICSID Case No. ARB/01/8, Award, May 12, 2005.
Argentine Republic, ICSID Case No.ARB 97/6 vii LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. Argentine Republic, ICSID Case No. ARB/02/1, Decision of the Arbitral Tribunal on Objections to Jurisdiction, 30 April 2004, Decision on Liability, 3 October 2006 Marvin Roy Feldmen Karpa v.
United Mexican States, ICSID Case No.ARB (AF)/99/1) MCI Power Group LC and New Turbine, Inc. Republic of Ecuador, ICSID Case No. ARB/03/6, Award, 31 July 2007. Metalclad Corp v the United Mexican States, ICSID Case No.
Kingdom of Morocco, ICSID case No. ARB/004, Decision on Jurisdiction (23 July 2001) SGS Soci´et´e G´en´erale de Surveillance S. on Objections to Jurisdiction, 18 ICSID Review 307 ICSID (2003) SGS Société Générale de Surveillance S. Republic of the Philippines, ICSID Case No.
ARB/02/6 Suez, Sociedad General de Aguas de Barcelona, S. (AGBAR) and Vivendi Universal, S. Argentine Republic - ICSID Case No. T´ecnicas Medioambientales TECMED S.
133, 122 ICSID (World Bank) 2003 Tecnicas Medioambientales Tecmed S. United Mexican States, ICSID Case No. Chile, ICSID Case No. ARB/04/7 (Chile – Spain BIT) viii INTRODUCTION In the past twenty years, there have been a growing number of bilateral economic co-operation treaties between industrialised and developing countries.
These treaties have mainly addressed the issue of encouragement, treatment and protection of investments.1 All these treaties contain clauses on dispute settlement, and there has been a tendency after 1966 when the Convention of the Settlement of Investment Disputes between States and Nationals of Other States came into force has been to insert a clause through which parties mutually agree to submit their differences to arbitration or conciliation under the Centre established through that Convention. 2 By the end of 2005, the total number of bilateral investment treaties had reached 2,495, along with 232 other international agreements containing investment provisions,3 approximately 1,500 call for dispute resolution via ICSID. This figure shows that roughly 75% of new foreign investment in which the host state contracts with foreign investors is subject in principle to ICSID dispute resolution. Some other multilateral trade and investment treaties such as the North American Free Trade Agreement, the Energy Charter Treaty, the Cartagena Free Trade Agreement and the Colonia Investment Protocol of Mercosur, also refer to ICSID for disputes arising in investment.4 It is also worthy to note that the model BIT of the United State also refer to ICSID as one the dispute-resolution-system for investors to choose.5 Additionally, in recent years, ICSID has been written into national legislation on investment protection.6 1 Several treaties of this nature have also been concluded among developing countries themselves.
2 Aron Broches, Selected essays: World Bank, ICSID and other subjects of public and private international law, Journal of International Banking Law, (1996) Publication Review 3 UNCTAD, World Investment Report 2006: FDI from Developing Countries and transition economies: implications for development, New York and Geneva, Available at: http://www. [Assessed on August 18, 2008] 4 Clint Peinhardt and Todd Allee, The International Center for Settlement of Investment Disputes: A Multilateral Organisation Enhancing a Bilateral Treaty Regime (2006) 5 The US Model BIT 2004, available at: http://www.gov/assets/Trade_Sectors/Investment/ Model_BIT/ asset_upload_file847_6897. See also Hakeem Seriki and Mark Beeley, State immunity and arbitration: Svenska Petroleum Exploration AB v Government of the Republic of Lithuania and AB Geonafta, International Arbitration Law Review (2006) 1 However, is ICSID a good choice for developing countries? International arbitration statistic shows that to the end of 2007, 35 new investor-State cases were filed under international investment agreements, 27 of which were filed with the International Centre for Settlement of Investment Disputes (ICSID). The total cumulative number of known treaty-based cases reached 2907 in which 180 cases (62% of the total cases) were filed with ICSID or the ICSID Additional Facility.
Argentina is on the top of the list of government being sued by investors with 46 claims lodged against it.8 During the past decade, ICSID was a “bitter” experience to Argentina with total ICSID awards against it has been reached total $750 million. There are more than 30 separate claims outstanding against it at ICSID with a total potential value running into billions of dollars.9 Most of the cases brought to ICSID were claims for violations of ‘fair and equitable treatment’ under bilateral investment treaty or multilateral investment treaties. Talking about ICSID arbitration, Bolivian President Evo Morales said that 36% of the cases have resulted in rulings in favor of the investors and another 34% are settled out of court with compensations to the investors. He further noted that cases brought to ICSID tribunals represent the excessive powers granted to multinational corporations through bilateral investment treaties and free trade agreements.
ICSID is considered as to promote and protect foreign investment with little regard for the costs to democracy, the environment and the public welfare. Bolivian President further argued that the ICSID Convention, and the investment and free trade treaties that implement it, often 7 These numbers do not include cases in which an investor and a state have settled a dispute after the investor threatened a claim before the claim was registered with ICSID. 8 Latest development in Investor – State Dispute Settlement, IIA Monitor No.1 (2008), UNCTAD, United Nations, Geneva 2008. Available at: http://www.org/en/docs/iteiia20083_en.pdf [Assessed on: August 17, 2008] 9 Dow Jones, Interview: Argentina seeks diplomatic exit from ICSID suits, Bilaterals.org - October 12, 2007, Available at: http://www.php3?id_article=9950 [Assessed on August 17, 2008] 2 violates a country’s sovereignty, constitution and national laws.
10 Therefore, on the 2nd of May 2007, Bolivia has sent a formal notice to the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) declaring its withdrawal from the ICSID convention. In widely reported comments made in April 2007, the Bolivian President had called upon Latin American Governments to withdraw from the World Bank’s investment dispute facility (i.