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.
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- Firstly, in an effort to quantify the damage caused by the pandemic and devise an appropriate response
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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.
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For other nations, more fundamental issues of food and energy security have risen to the fore in the wake of the pandemic.
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- 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.
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- 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.
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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.
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- 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.
Background
- national treatment provisions;
- fair and equitable treatment provisions;
- most-favoured-nation treatment provisions;
- expropriation and nationalisation provisions; and
- transfer provisions.
- 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.
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