Policy Brief: The Importance of Investment Treaty Protection in a Post COVID-19 World

Policy Brief: The Importance of Investment Treaty Protection in a Post COVID-19 World

Key issues

  • As green shoots emerge of a cautious return to normal (or what will become the new normal) post Covid-19, it is likely that governments will begin to embark upon a process of self-reflection.
    • Firstly, in an effort to quantify the damage caused by the pandemic and devise an appropriate response
    • Secondly, to identify the weaknesses in their response and find solutions to offer resilience in the face of future events.
  • Governments managing battered economies and facing political pressure over the handling of the pandemic may be tempted to restrict, or take greater control of, what they now perceive to be critical industries or supplies within their jurisdiction to avoid or mitigate some of the critical supply issues faced at the height of the pandemic.
  • In some countries we have started to see severe restrictions being imposed on foreign investment in the wake of a weakening economy, and commentary devoted to the over-reliance on imports due to the depletion of the domestic manufacturing industry.
    • For other nations, more fundamental issues of food and energy security have risen to the fore in the wake of the pandemic.
  • Such measures will, no doubt, be well intentioned. However, this does not make them immune to action from disappointed foreign investors in countries subject to investment treaties, and may give rise to unexpected or unwelcome consequences if the investment protections promised by those treaties are not delivered.
  • Where foreign investors have already made their investment in a country which their home country has a treaty with, they will be entitled to expect that any actions taken by the host nation, as it emerges from the pandemic, will not devalue their investment.
    • This can occur directly, such as by expropriation or nationalisation, or indirectly, such as by the subsidisation of local competitors or the imposition of additional regulations or fees.
  • While nationalisation or direct expropriation of an investment are quite straightforward examples where investment protections will trigger a right to compensation, indirect expropriation or breach of the fair and equitable treatment protection are generally less clear-cut.
    • Further, not every government action that leads to a devaluation of an investment will contravene the protections in the treaty. Generally, there has to be some discriminatory element.
  • Host nations should be careful in the implementation of policies and legislation as part of their recovery, that they do not discriminate against foreign investors and reduce the value of their investments.
  • Foreign investors should be aware of the various protections provided to them under investment treaties and consider how they might be able to press these rights if their investments are put in jeopardy by measures enacted by governments in the countries in which they have invested.
  • Those nations with a robust treaty programme, and a proven track record of protecting foreign investors, are likely to fare better at attracting foreign direct investment than those leaning towards a more nationalistic approach, which may well emerge when this global pandemic is finally over.


What are the protections provided to investors under investment treaties?
Most investment treaties provide a foreign investor with a suite of standard protections against undue influence being exerted over their investments. While the exact extent of the protections available will depend on the investment treaty sought to be relied upon, there are a number of commonly reoccurring protections which appear in a significant number of investment treaties globally, namely:
  • national treatment provisions;
  • fair and equitable treatment provisions;
  • most-favoured-nation treatment provisions;
  • expropriation and nationalisation provisions; and
  • transfer provisions.
At the core of most investment treaties is the premise that foreign investors will be treated no less favourably, in like circumstances, to a domestic investor. This is often referred to as national treatment.
The inclusion of fair and equitable treatment provisions in investment treaties is seen as another central tenet of the operation of investment treaties, with such provisions generally providing that a host nation will not act in a discriminatory or unreasonable manner towards foreign investors/investments.
Expropriation and nationalisation provisions prevent a host nation from taking measures to expropriate or nationalise an investment, without providing prompt compensation. It is not uncommon to see these provisions qualified with language to the effect that expropriation shall not take place “unless the measures are in the public interest, non-discriminatory, in accordance with the law of the host nation”. This kind of carve out is of obvious interest given many of the measures taken by countries to combat the COVID-19 virus could arguably fall within it i.e. being measures taken in the public interest.
Transfer provisions, are another common feature of investment treaties which provide a foreign investor with the right to transfer all funds – often broadly defined – freely and without undue delay out of the host nation. The unencumbered transfer of funds from one country to another is of course critical to the operation of any globally operating business.
The operation of each of these protections (and any others) may also be extended if an investment treaty has a most-favoured-nation provision (MFN). The effect of MFN provisions is to extend to the beneficiary not only the protections in its own home country’s investment treaty with a host nation, but also the protections that are enjoyed by foreign investors from a different country with the same host nation. In other words, the host nation promises to the beneficiary of a MFN clause that it will have the highest standard of investment protection that is on offer though its treaty program.
Taken together the protection provisions above provide investors with a wide safety blanket and certain expectations regarding the treatment of their foreign investments. The protection provisions more crucially provide a legally binding framework upon which a foreign investor might rely as recourse against an infringing host nation, as many provide for binding arbitration against the host nation.
Measures which might infringe investor protection provisions in a post COVID-19 world
Under most investment treaties, host nations will commonly be afforded a number of defences to measures that, on their face, would appear to infringe upon the protections it has promised to foreign investors. Like the specific investor protections, the extent to which defences are available to a host nation will be dependent upon each specific investment treaty. However, measures taken by host nations which would otherwise infringe the rights of foreign investors are commonly defensible if:
  • necessary to protect human, animal or plant life or health;
  • necessary for the maintenance of public order;
  • necessary to ensure compliance with laws and regulations, insofar as those laws and regulations are not inconsistent with the investment treaty in question;
  • imposed for the protection of national treasurers of artistic, historic or archaeological value;
  • necessary to protect intellectual or industrial property rights or to prevent unfair, deceptive, or misleading practices;
  • it relates to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; or
  • a defence arises under customary International Law – custom provides a defence in circumstances where measures are taken because of a force majeure event, distress and necessity (among others) – as codified in the International Law Commission’s Articles on State Responsibility.
In the context of the COVID-19 pandemic, host nations that are challenged by foreign investors over measures implemented in response would likely rely upon the defence that measures taken were “necessary to protect human…life or health” or the “public order” defence. While the success of any defence will ultimately turn on the unique facts of the dispute in question, the protection of life or health defence is likely to be compelling where the measures were taken for the purpose of seeking to stem the rate of transmission of the virus, such as closing certain workplaces and industries, or to bolster a country’s ability to treat its citizens, such as the procurement of additional critical care capacity.
The public order defence may also apply in such circumstances. In any event, many of these urgent measures were applied across the board, and were non-discriminatory in their application. As such, they may not be considered to be an infringement of the investment protections in any event.
Less clear, as most nations are yet to emerge from the grip of the pandemic, is the prospect of a host nation relying upon the protection of life or health or public order defence for measures taken as part of its social and economic recovery i.e. post the COVID-19 pandemic. Arguably, once the immediate threat of the pandemic is over, and the focus shifts to fixing economies and communities, these defences are unlikely to have the same efficacy.
Potential traps and opportunities
Regulations promoting domestic manufacturing of critical medical equipment or personal protective equipment (at the expense of existing foreign owned manufacturers or importers), may well give rise to an entitlement to compensation under an investment treaty after the immediate threat of the pandemic has passed, but may be defensible if enacted during the course of the pandemic. More tangentially, restrictions on trade or discriminatory economic stimulus measures which advantage domestic investors over incumbent foreign investors, may also expose unwary governments to claims for compensation under investment treaties.
While investors may ultimately have recourse to investor state dispute settlement such as through the International Centre for Settlement of Investment Disputes, part of the World Bank based in Washington DC, awareness of their rights and engagement with the host nation and investor state trade bodies at an early stage may go a long way to avoiding protracted disputes.

This is an ECA Edge Policy Brief. To read all of our Poicy Briefs, head to our main page here

Export Council of Australia Partner with Gandhi Creations to Create New Opportunities to Position Australian Businesses on a Global Context

Export Council of Australia Partner with Gandhi Creations to Create New Opportunities to Position Australian Businesses on a Global Context

Across several national projects and initiatives, the Export Council of Australia (ECA) will be partnering with NSW based multi-award-winning social enterprise, Gandhi Creations, to further enhance bilateral trade relationships between Australia and nations across the globe.

Will the transparency in the digital marketplace be a major disruptor to your business?

Will the transparency in the digital marketplace be a major disruptor to your business?

The digital marketplace has taken one giant leap forward in recent months, and this is going to have severe implications for supply chains and sales channels. A new level of transparency and touchpoints will be required by the customer here and overseas, which has the potential to be a significant disruptor to your business.

One of the key objectives being discussed today for companies in the new normal is their ability to redesign supply chains and sale channels that will enable them to ‘rapidly reconfigure’ these in times of significant disruption. This is required right now for your business online, and here is why.

Firstly, the pricing model has just become a whole lot more complicated, and it’s not just about the move from bricks and mortar. Consumers shopping online have a certain expectation about price, and if you are a legacy business that has not redesigned your business platform here or in your export markets, your cost base and messaging will not work online.

Secondly, traceability of the product is and will become even more essential post-COVID-19 for health and authenticity reasons. Furthermore, concerns about the environment, as well as product sustainability, will continue to be of importance to end-users.
These three touch points – price, traceability and sustainability – will see an even more significant trend towards wanting to buy or sell closer to the source, or at the very least be able to obtain the information at source on your required product or service purchase.
Enabling this in the digital marketplace will require platforms that can facilitate the buying and selling process in many new ways. Not everyone is going to like this transparency – I know a wholesaler in Asia who will not share with the manufacturer who their core customers are.
The wholesaler needs that transparency to understand who their customers are to be able to truly redefine their marketing mix and product offering in this new normal. Wholesalers also want to make sure they can tell their supplier story and provide the transparency the customer is looking for in what they are buying. For the customers, they are and will go around the wholesaler to the manufacture to create the transparency they need to make an informed purchasing decision. A cohesive digital marketplace gives them both the ability to do that. So the wholesaler can either facilitate this process and try and stay of value, or quickly become irrelevant in the purchasing transaction.
Omni Channel Marketing, a term thrown around for some time, simply means a multichannel approach to sales that seeks to provide customers with a seamless shopping experience. Whether they are shopping online from a desktop or mobile device, by telephone, or in a brick-and-mortar store in Sydney or Hong Kong – this will now become mainstream. Clients will expect the ability to see and touch the product at a place of their choosing, whether online or offline or through showrooms – virtual or traditional.
And don’t think this is just a retail offering. We are hearing about many industries looking to go virtual in demonstrating their product’s capabilities, and how it meets their essential requirements. Some are genuinely thinking way outside the square to do this. Picture your potential supplier being 500 metres underground in a mine demonstrating live their new lighting system as you watch from your home in Los Angeles and can ask critical questions live. Think about engineers wearing virtual reality glasses to see your equipment in service, pinpointing subtle differences in how the equipment is operating to advise adjustments, rather than flying across the world to the site as they always have.
Those who truly start blending their marketing strategies or even their service strategies into the digital marketplace and facing up to a world that will demand greater transparency on price, traceability and sustainability and then adjust their business platform accordingly will lead the disruption, not be a victim of it.
Shane Styles

National Skills Development Manager, Export Council of Australia

CHINA – Dot Your “I’s” and Cross Your “T’s”

CHINA - Dot Your "I's" and Cross Your "T's"

China has recently imposed an import suspension on four Australian abattoirs.

Key points:

  • Three abattoirs in Queensland and one in NSW have had an import suspension imposed on them re importing into China
  • The four locations provide an estimated 35 percent of beef exports to China
  • The Australian Government was notified several weeks ago about the suspensions, which Chinese authorities linked to labelling and health certificate requirements. Taking aside the possible political implications arising from this situation Minister Birmingham has told Australian agricultural exporters to make sure all their paperwork and labelling is in order for exporting products to China: “Everyone always should be dotting their I’s and crossing their T’s and leaving no scope for any dispute”.
Export documentation is essential to ensure products can move correctly through the import/export supply chain globally, not just into China. Therefore, in order to protect the respective interests of the exporter and the importer involved in export business, certain documentary formalities become essential.
Such documentation facilitates the smooth flow of goods and payments across national frontiers. It may seem confusing at first, but importers and exporters must understand who creates each document and how and why they are used.
Building on the experience gained over 60 years of supporting international business, the Export Council of Australia (ECA) has developed a suite of comprehensive skills development programs, aimed at building the international capability and capacity of Australian businesses.
Speak to the Export Council of Australia if you would like to know more.
Shane Styles

National Skills Development Manager, Export Council of Australia

Post COVID-19: Are you assuming a new normal for your industry?

Post COVID-19: Are you assuming a new normal for your industry?

Let us put some perspective around our position. Whilst the interconnectedness of the world of trade is here to stay, a shock to the system of this magnitude is creating a shift in the preferences and expectations of society as people, employees, and consumers. How you interpret these shifts and then position your business to chart a course forward will determine your position success – not just now, but in two years’ time?

Now is not the time to think it will all go back to normal. We need to start to drill down and ask, how will these global businesses and consumer shifts in your industry affect your supply chain, sales channels and simply how you transact? What will be the political implications across regions? And how sensitive to these should you be in your planning?

People across the globe still need to eat, advance technology, stay healthy, mine, manufacture and build, and Australia has so much to offer. There is no one answer, no one quick fix. Discerning a path forward in life or work in a time of change is never easy, but how you go to market – both in a physical sense and a sales sense – will require more planning than ever before for many industries and businesses. It is this planning that will give you the platform to go forward.

Scenario planning in supply

There is a global rethink of our critical component supply, inventory management, and the just-in-time production and supply schedules. This has and will result globally in some manufacturing returning home. We are also seeing companies move to have 2 to 3 key component manufacturers across regions, not just in one country – and it is only just beginning.

Inventory holdings are increasing, and businesses will need to rethink cost structures because of this, as well as cashflow mechanisms to be able to fund an increase in inventory. This is a time to grow in your knowledge of your own unique supply chain and sales channels and determine the best mix of technology and data monitoring to help you report on your needs.

One thing being discussed is we will see companies redesign supply chains that enable them to ‘rapidly reconfigure’ in a time of crisis. To do so, contingency and scenario planning methodology will be important to practice. This mapping and optimisation around the new demand and supply mechanisms are, for many companies, becoming a daily task to stay on top of.

Learn and grow

I think for many businesses, one of the challenges of the new normal is the real-time nature of change. We can go to bed at night, wake up the next morning, and restrictions in one country or another has been either tightened or loosened. Again, we must stay informed. Now is not a time to be stuck in your business, but a time to grow, train and learn.

ECA stands ready to support businesses in this new normal and soon will release a new series of online training programs targeted at helping businesses review their position, and gain further skills to grow in their understanding of what it will take to thrive in the new normal.

Shane Styles

National Skills Development Manager, Export Council of Australia

Managing the impact of COVID-19 on our businesses

Managing the impact of COVID-19 on our businesses

Businesses need to understand upfront that dealing with COVID-19 is not a sprint; it’s going to be a marathon. But most managers and owners are running around in the businesses like it’s a sprint, and the business is going to struggle to chart the right course.

In the craziness of responding, trying to stay afloat, meeting new demand, or just trying to get the business to work; everyone needs to just take time to breathe, think clearly and find time to plan better than they have ever planned before. A good marker point for this plan is to start reflecting on where the business will be in spring. It’s the decisions businesses make now, that will best determine where they are placed come September.

The “New Normal”

One of the new phrases being banded around at present is about a new normal, and what that will look like for businesses post COVID-19. A shock of this scale will create a shift in the preferences and expectations of consumers and businesses.

For the businesses, the supply chain will have a great impact going forward on how it goes to market, both in a physical sense, and a sales sense. This is important – a business can get hung up, and rightly so, on the physical supply chain, and see this purely in a sourcing and supply sense. But just as important in a time of crisis, is understanding well the other supply chain, the businesses sales channels, and ensuring its product gets sold.

Stay informed – Think “Local and Global”

The other point to make is where do businesses go looking for answers. The situation changes almost daily, and therefore everyone must take personal responsibility to stay informed by ‘thinking Local and Global.’

No one government, the industry body, supplier or customer can give the business all the answers, they have to seek them from multiple sources. There are some really great websites including ECA’s trying to keep you informed.

Everyone’s business, and therefore how that plays out in the market, is unique, and each business needs to make informed decisions that are best for that business.

Contingency plans that are targeted, modest and scalable

In looking at the contingency plans for the business, it must ensure three things:

  • Firstly, they are targeted, with a clear understanding of the current real needs of the business.
  • Secondly, they are modest. They must be affordable and sustainable.
  • And Thirdly, they must be scalable when needed.

Crisis – The Word in Chinese translates to “dangerous opportunity”

For many its hard amongst so much suffering to think about opportunity, and that is understandable, but the business is no good to anyone if it is out of business in 3 to 6 months’ time, and it’s how the business positions now that will determine how it is placed in spring.

Many studies have been done on the Global Financial Crisis, and it was the businesses that sort and seized the opportunities that survived and then went on to thrive post the GFC.

In Summary

Firstly, know the lay of the land is going to change and continue to change. Stay informed.

Secondly, the businesses local and global competitors are all going to have their own issue to overcome, and due to the nature of this virus and the different times and stages in each country, supply chains and sales channels are not all affected evenly.

So how does the business stay on top of the opportunities as they present themselves will then determine the best path forward to not only survive but thrive post-COVID-19.

Shane Styles

National Skills Development Manager, Export Council of Australia