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12 - States' Reassertion of Control over International Investment Law: (Re)Defining ‘Fair and Equitable Treatment’ and ‘Indirect Expropriation’

from PART IV - Reassertion of Control: Policy and Trends

Published online by Cambridge University Press:  12 January 2017

Eric De Brabandere
Affiliation:
Leiden University
Andreas Kulick
Affiliation:
Eberhard-Karls-Universität Tübingen, Germany
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Summary

‘Fair and equitable treatment’ (FET) without doubt is the most invoked standard in investment treaty arbitration, and its importance as a standard of investment protection cannot be underestimated. The prohibition of indirect expropriation commonly found in international investment treaties is less frequently successful as a stand-alone claim in investment disputes, but it constitutes nevertheless one of the most invoked provisions in investment disputes. Both investment protection provisions share many common principles, such as their standardly vague formulation or definition in the vast majority of international investment agreements. They also share the reputation of being generally considered as detrimental impediments to the States’ right to regulate and to take measures in the public interest. This is precisely why both FET and the prohibition of indirect expropriation have attracted much criticism over recent years.

This chapter investigates how States, through definitions of the FET standard and the prohibition of indirect expropriation, have sought to assert or reassert control over investment law. Indeed, there are clear differences in the formulation of the FET standard and the prohibition of indirect expropriation. ‘Western hemisphere’ bilateral investment treaties (BITs) used in Western European States tend to include FET as a stand-alone standard of treatment, whereas North American investment treaties, as exemplified, inter alia, in the North American Free Trade Agreement (NAFTA) and the US Model BIT 2012, tend to equate FET with the customary norm on the minimum standard of treatment. Similarly, distinctions in the formulation of what constitutes a prohibited indirect expropriation are widespread, and here again, the contrast between the practice of North American treaties and those based on the ‘western hemisphere’ BITs show that the former tend to more precisely define what constitutes a prohibited indirect expropriation and which regulatory measures cannot amount to an expropriation, while the latter more generally contain a generic definition of the term. These differences highlight one important issue: States generally have full discretion in how to formulate these provisions in their treaties. And while ‘tradition’ has in the past influenced the choice of one model or formulation over the other, increasingly policy-related arguments now define the precise formulation of FET and the prohibition of indirect expropriation, provided, of course, that all States parties to the treaty agree on the terminology.

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Publisher: Cambridge University Press
Print publication year: 2016

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