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THE EURO–ARAB INVESTMENT TREATY THAT NEARLY WAS

Published online by Cambridge University Press:  16 April 2020

Eileen Denza  and
Lauge N. Skovgaard Poulsen Open the ORCID record for Lauge N. Skovgaard Poulsen [Opens in a new window]
Eileen Denza
Affiliation:
Former FCO Legal Counsellor and Visiting Professor, University College London, eileen.denza@btinternet.com
Lauge N. Skovgaard Poulsen
Affiliation:
Associate Professor, University College London, l.poulsen@ucl.ac.uk.
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Abstract

This article documents how members of the European Economic Community and members of the Arab League negotiated a draft ‘mega-regional’ investment protection treaty from 1976 to the late 1980s—the first of its kind. The negotiations produced a full draft treaty and came tantalisingly close to completion but ultimately ran into the political sands. Had it been concluded, the Convention would have been the most significant investment protection treaty ever negotiated at the time, and one of the most significant to this day. Negotiations were conducted within the cloak of diplomatic confidentiality, however, so the effort has remained unknown to even specialised scholars and practitioners to this day.

Keywords

Private International LawEuro–Arab Dialogueinternational investment lawinvestment treatiesinvestment arbitrationlegal historyPalestine statusArab Leagueexchange controlsfreezingexpropriationEuropean investment policy
Type
Articles
Information
International & Comparative Law Quarterly , Volume 69 , Issue 2 , April 2020 , pp. 267 - 299
Copyright
Copyright © The Authors 2020. Published by Cambridge University Press for the British Institute of International and Comparative Law

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Footnotes

The authors wish to thank Jonathan Bonnitcha, Mona Pinchis, Johnny Veeder QC, and two anonymous reviewers for helpful comments and suggestions. Lauge Poulsen would like to acknowledge support from the Leverhulme Foundation (grant RPG-2018-044). The usual caveats apply.

References

1 The list of attempts includes: the League of Nations (1928), International Trade Organization (1948), International Law Association (1948), International Chamber of Commerce (1949), the Abs-Shawcross initiative (1959), Harvard Law School (1961), Organisation for Economic Co-Operation and Development (OECD) (1967), UN Centre for Transnational Corporations (1980s), OECD again (1998), and the WTO (early 2000s). There was progress on procedural rules in the 1965 ICSID Convention and in recent years attempts are made in UNCITRAL.

2 Understood as a treaty with comprehensive investment protection provisions among regions with a major share of world investment.

3 See Burkhardt, H-M, ‘Investment Protection Treaties: Recent Trends and Prospects’ (1986) 41 Aussenwirtschaft 100, 102Google Scholar; Denza, E and Brooks, S ‘Investment Protection Treaties: United Kingdom Experience’ (1987) 56 ICLQ 908, 914Google Scholar. See also Denza, E, ‘Responsibility of the European Union in the Context of Investment’ in Evans, M and Koutrakos, P (eds), The International Responsibility of the European Union (Hart Publishing 2013) 216–17Google Scholar.

4 Reference to the negotiations is made in literature on the Euro–Arab dialogue; M Zakariah, ‘The Euro-Arab Dialogue 1973–978: British Reinsurance Policy in the Middle East Conflict’ (2013) 20 European Review of History: Revue européenne d'histoire 105.

5 See eg Schill, S, The Multilateralization of International Investment Law (Cambridge University Press 2007) Ch 2Google Scholar; Harten, G Van, Investment Treaty Arbitration and Public Law (Cambridge University Press, 2007) Ch 2Google Scholar; Sornarajah, M, The International Law on Foreign Investment (3rd edn, Cambridge University Press 2010) Ch 2CrossRefGoogle Scholar; Schreuer, C and Dolzer, R, Principles of International Investment Law (Cambridge University Press 2012) Ch 1Google Scholar.

6 A Dimopoulos, EU Foreign Investment Law (Oxford University Press 2011); R Basedow, The EU in the Global Investment Regime: Commission Entrepreneurship, Incremental Institutional Change and Business Lethargy (Routledge 2017); R Leal-Arcas, EU Trade Law (Elgar 2019) 22; J Voss, ‘The Protection and Promotion of European Private Investment in Developing Countries – An Approach towards a Concept for a European Policy on Foreign Investment: A German Contribution’ (1981) 18(3) CMLRev 363 (also cited in W Shan, The Legal Framework of EU-China Investment Relations: A Critical Appraisal (Hart 2005) 70).

7 K Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press 2013); T Weiler, Interpretation of International Investment Law: Equality, Discrimination and Minimum Standards of Treatment in Historical Context (Martinus Nijhoff 2013).

8 See also J Yackee, ‘The First Investor-State Arbitration? The Suez Canal Dispute of 1864 and Some Reflections on the Historiography of International Investment Law in S Schill, C Tams and R Hoffman (eds), International Investment Law and History (Edward Elgar 2018). For exceptions, see K Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties (Oxford University Press 2017); M Pinchis-Paulsen, ‘Fair and Equitable Treatment in International Trade and Investment Law: 1918–1956’ (2017) PhD dissertation, Kings College, London; T St John, The Rise of Investor–State Arbitration: Politics, Law, and Unintended Consequences (Oxford University Press 2018); Y Chernykh, ‘The Gust of Wind: The Unknown Role of Sir Elihu Lauterpacht in the Drafting of the Abs-Shawcross Draft Convention’ in Schill, Tams and Hoffman ibid; I Ryk-Lakhman, ‘The Protection of Foreign Investments in Armed Conflicts’ (2019) PhD dissertation, UCL; J Hepburn et al., ‘Investment Law before Arbitration’ (2019) Working Paper (which also mentions the Euro–Arab negotiation).

9 See Miles (n 7).

10 N Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893–2013 (Princeton University Press 2013); Yackee (n 8); J Yackee, ‘Investor-State Dispute Settlement at the Dawn of International Investment Law: France, Mauritania, and the Nationalization of the MIFERMA Iron Ore Operations’ (2019) 59 American Journal of Legal History 71.

11 Not unusual for historical international law scholarship; see R Lesaffer, ‘International Law and Its History: The Story of an Unrequited Love’ in M Craven, M Fitzmaurice and M Vogiatzi (eds), Time, History and International Law (Martinus Nijhoff 2007).

12 R Miller, ‘The Euro-Arab Dialogue and the Limits of European External Intervention in the Middle East, 1974–1977’ (2014) 50 Middle Eastern Studies 937.

13 ibid 949.

14 ibid 942.

15 Although the Arab League preferred to focus on ‘high politics’, it also had a ‘shopping list’ of what they wanted from economic cooperation, such as unrestricted access to community markets, protections against exchange rate and terms of trade fluctuations, better treatment of their migrant workers, and other trade and insurance initiatives for a deep preferential economic relationship between the regions.

16 Slater (Treasury) to Kemp (FCO) (1 June 1976); FCO 98/213.

17 Slater (Treasury) to Kelley (FCO) (18 June 1965); T 383/98.

18 Commission doc. 1/95/76; minute by Sinclair (FCO) to Gardiner (FCO Legal Advisers) (11 June 1976); FCO 98-213.

19 Slater (Treasury) to Kemp (FCO) (4 February1976); FCO 98-213.

20 Slater (Treasury) to Sir D Mitchell (Treasury) (19 January 1976); T 383-98; Euro–Arab Dialogue: Financial Cooperation Working Group; Sinclair (FCO) to Maud (FCO) (8 June 1976); FCO 98/213.

21 Sinclair (FCO) to Gore-Booth (UKREP) (8 July1976); FCO 98/214.

22 Euro–Arab Dialogue – First Report of the Sub-Group on Investment Protection, FCO 98-215.

23 ibid.

24 ibid. The UK was constrained as promotion of outward investment was politically sensitive and Labour and the unions were concerned about inward investment displacing UK jobs and investment. Wasilewski (Department of Industry) to Thomas (FCO) (5 October 1976). This was also a concern in the early US investment treaty programme, which was why the State Department could not justify the agreements by promoting US outflow of investment; Vandevelde (n 8).

25 Faber (FCO) to Maud (FCO) (13 December 1976); FCO 98-216.

26 F Slate to Kemp (4 February 1976); FCO 98-213.

27 Thomas (FCO) to Maud (FCO) (21 December 1976); FCO 98/216.

28 Faber (FCO) to Maud (FCO) (13 December 1976); FCO 98-216.

29 First Report of the Sub-Group on Investment Protection, FCO 98-215; Thomas (FCO) to Winkler (Treasury) (22 October 1976); FCO 98-215.

30 Working Group on Financial Co-operation: Assessment of UK Interests and Objectives; Note by the Treasury (24 January 1976); FCO 98-213.

31 Perfect (Treasury) to Denza (FCO) (2 July 1982); T 450/72.

32 Sinclair (FCO) to Faber (FCO) (16 June 1976); FCO 98-213.

33 Denza (FCO) to Shepherd (FCO) (27 October 1976); FCO 98/216.

34 ibid.

35 GA Res. 3201 and 3202 (SVI) adopted 1 May 1974.

36 GA Res. 3281 adopted 12 December 1974 by roll call vote with several European States voting against: SK Chatterjee, ‘The Charter of Economic Rights and Duties of States’ (1987) 60 ICLQ 669.

37 In particular the OECD Draft Convention on the Elimination of Foreign Property, OECD Publication No 15637/ (December 1962). The Convention was never opened for signature but had considerable influence at the time.

38 FCO 69-647.

39 European Financial Cooperation Working Group (FCWG), note by Gowlland (FCO), (30 March 1981).

40 Evans (FCO) to Balfour (Bank of England) (27 February 1981); FCO 69-643; Euro–Arab Dialogue: Investment Protection; Gowlland (FCO) to Braithwaite (FCO) and Lord Bridges (FCO) (30 September 1981); FCO 69/648.

41 Denza (FCO) to Ohlmann (European Commission) (22 March 1979); FCO 69-643; Watson (FCO) to Abdulla el-Kuwaiz (Arab League) (19 May 1981); FCO 69-645.

42 Financial Cooperation Working Group, note by Gowlland (FCO), (30 October 1981); FCO 69-644.

43 Miller (n 12) 954.

44 Summary of meeting at The Hague (21–22 May 1981) of the Euro–Arab Dialogue Ad Hoc Preparatory Group, Note by FCO's Near East and North Africa Department (NENAD) (8 June 1981); FCO 69-645.

45 Rowlands (DOT) to Lambert (FCO) (28 May 1981); FCO 69-645.

46 League of Arab States (1982) Economic Documents No. 3. The Agreement was ultimately ratified by all Members of the Arab League except Algeria and the Comoros. In 1981, within the framework of the Islamic Conference, there was also concluded an Agreement on Promotion, Protection of Investments amongst the Arab States.

47 Denza (FCO) to Gowlland (FCO) (30 March 1981); FCO 69-644. See also European Financial Cooperation Working Group (FCWG) note by Gowlland (FCO) (30 March 1981); Denza (FCO) to Powell (UKREP) (31 March 1981); Saunders (Treasury Solicitor's Department) to Hodges (Treasury) (8 April 1981); FCO 69-644; FCO 69-644; note by Gowlland (FCO) (30 October 1981); FCO 69-644; European Commission, ‘Participation of the Community as Co-contracting Party to the Draft Euro-Arab Convention for the Reciprocal Promotion and Protection of Investments’, Commission working document, Sec(81) 689, (4 May 1981).

48 Lavelle (Treasury) to Evans (FCO) (16 October 1981); FCO 69/950.

49 Gowlland (FCO) to McLean (FCO) and Evans (FCO) (23 November 1981); FCO 69-650. The UK maintained that some other European States—Greece in particular—had laws under which this limitation would be needed, but in spite of energetic lobbying failed to gain support; Letter of 13 January 1982 from Mark Gowlland, Trade Relations and Exports Department (TRED), FCO, to Chancery, Athens; Letter of 20 January 1982 to Mark Gowlland from Peter Davies, British Embassy, The Hague. Within the UK, the DOT differed from the Treasury and Bank of England suggesting that the UK should follow other European (and Arab) governments to safeguard funds UK investments in the region (the department was seeking to promote investment into Saudi Arabia); Smith (DOT) to Lawelle (Treasury) (13 October 1981); FCO 69/650.

50 Gowlland (FCO) to McLean (FCO) (4 October 1981); FCO 69/649.

51 Evans (FCO) to Balfour (Treasury) (5 November 1981); FCO 69-649.

52 ibid.

53 Denza (FCO) to Walker (Treasury) (28 November 1985); FCO 98-2270.

54 Watson (FCO) to Lord Bridges (FCO) (15 July 1981); FCO 69-646.

55 Report of the Financial Cooperation Committee (25 September 1981); FCO 69-648.

56 Letter from Edwards (Inland Revenue) to Gowlland (FCO) (17 August 1981); FCO 69-647.

57 ibid.

58 Gowland (FCO) to Yarnell (DOI) (4 December 1981); T 450-71.

59 The Treasury saw investment protection as ‘one of the few areas where some positive progress seems possible in the Euro-Arab Dialogue – even though there seems to be some doubt in Whitehall whether such a Convention will ever get signed’; Hodges (Treasury) to Wheldon (Treasury Solicitor's Department) (31 March 1981); FCO 69-644.

60 Watson (FCO) to Graham (FCO) (24 June 1981); FCO 69-646.

61 Gowlland (FCO) to Moberly (FCO) (22 June 1981); FCO 69-645.

62 Gowlland (FCO) to Moberly (FCO) and Graham (FCO) (25 June 1981); FCO 69-645.

63 European Commission, ‘Draft Final Communique of the Euro-Arab Dialogue Ministerial Meeting’ (17 June 1981); FCO 69-645.

64 Gowlland (FCO) to Braithwaite (FCO) and Lord Bridges (FCO) (30 September 1981); FCO 69/648; Euro–Arab Investment Agreement; Kay (Inland Revenue) to Loten (FCO) (16 November 1981); T 450/72.

65 Denza (FCO) to Egerton (FCO) (5 February 1985); FCO 98-2270. A few years later, the Saudi co-chairman suggested that if ‘saboteur’ Arab League members continued resistance, the Convention could be signed with the Gulf Cooperation Council; Denza (FCO) to Makepeace (NENAD) 1985; FCO 98-2270.

66 European Commission, ‘The European Community and the Arab World’ Information: Cooperation – Development 169/78 (1978) 17.

67 11 International Legal Materials (1972) 470.

68 Denza (FCO) to Yarnell (DOI) (23 June 1982); T 450/72; Note of Working Group Meeting on 25 May (28 May 1982); T 450/72.

69 Denza (FCO) to Yarnell (DOI) (23 June 1982); T 450/72.

70 Gowlland (FCO) to Moberly (FCO) and Graham (FCO) (29 June 1981); FCO 69-646.

71 Extensive discussions took place within the UK on this. The FCO sought to reassure the Treasury and the Bank of England that freezing for political reasons would be justified to give effect to a Security Council Resolution, as a measure of self-defence or in reliance on international rules on retaliation—and that these circumstances would override specific guarantee against freezing in the Agreement; Denza (FCO) to Norman (Bank of England) (7 December 1982); Norman (Bank of England) to Denza (FCO) (13 December 1982).

72 Euro–Arab Dialogue: Coreu note, CPE/BIL/ETR 501, 1981; T450/72.

73 Later confirmed by the Al-Warraq v Indonesia tribunal.

74 Report of the Financial Co-Operation Committee (25 November)1982.

75 Denza (FCO) to Yarnell (DOI) (13 June 1982).

76 The Belgians and French argued that even if the Convention should prohibit discriminatory tax treatment, they doubted whether it would work ‘in practice’. Kay (Inland Revenue) to Denza (FCO) (19 October 1982); T 450/72.

77 Gowlland (FCO) to Yarnell (Dept of Industry) (25 January 1982).

78 Gowlland (FCO) to Braithwaite (FCO) and Lord Bridges (FCO) (30 September 1981); FCO 69/648; undated letter from Denza (FCO) to Gowlland (FCO); FCO 69/648; Yarnell (Department of Industry) to Gowlland (FCO) (21 June 1982); T450/72.

79 Denza (FCO) to Gowlland (7 December 1982); FCO 69-960.

80 Art 7 of the 1985 draft – would have allowed free transfer of earnings but permitted host States to phase over several years repatriation of capital invested.

81 Draft letter from Walker (Treasury) to Kelly (Private Secretary to Chancellor Nigel Lawson) (13 September 1985); FCO 98-2270.

82 ibid. The FCO responded that they would not accept ‘a submission which proposed even as an option to Ministers that they should become parties to a Convention which they were not prepared to observe in certain foreseeable circumstances’; Denza (FCO) to Walker (Treasury) (28 October 1985); FCO 98-2270.

83 Denza (FCO) to King (FCO) (26 July 1985); FCO 98-2270.

84 Denza (FCO) to Burkhardt (German Ministry of Economics) (21 November 1985); FCO 98-2270.

85 Richmond (ECD) to Makepeace and Egerton (FCO) (6 December 1985); FCO 98-2270.

86 Minute of 17 December 1985 to Makepeace, NENAD, copied to TRED and ECD (E).

87 Watson (FCO) to Lord Bridges (FCO) (15 July 1981); FCO 69-646.

88 Financial Cooperation Working Committee, Coreu note, CPE/BIL/ETR 501, 1981; T450/72.

89 Denza (FCO) to P Walker (Treasury) (28 October 1985); FCO 98-2270.

90 Graham, E, Fighting the Wrong Enemy: Antiglobal Activists and Multinational Enterprises (Peterson Institute for International Economics 2000) Ch 2Google Scholar.

91 Poulsen, L, Bounded Rationality and Economic Diplomacy: The Politics of Investment Treaties in Developing Countries (Cambridge University Press 2015)CrossRefGoogle Scholar.

92 Johnson (CBI) to Denza (FCO) (1 December 1976); FCO 98-216. The UNICE proposal was blocked by Belgian and German representatives, because of the politically sensitive nature of discussions, and the UK had no strong views on the matter. It almost never consulted business regarding particular negotiations; Thomas (FCO) to Sinclair (FCO) (2 December 1976); FCO 98-216. The only other occasions when actual firms—or business institutions—are mentioned in the thousands of pages of UK files are (i) a brief exchange where the Chairman of the CBI's Overseas Investment Panel (a Shell consultant) was asked to comment on the conflicting positions on exchange controls, and (ii) a letter from Shell to the FCO saying that the Euro–Arab draft appeared superior to the Code of Conduct of Transnational Corporations discussed in the United Nations Centre on Transnational Corporations; Gowlland (FCO) to McLean (FCO) and Evans (FCO) (23 November 1981); FCO 69-650; Blair (Shell) to Gowlland (FCO) (26 October 1981); FCO 69/950.

93 ibid 49–50.

94 The Arabs were delighted when the Europeans proposed that strong protection should apply in case of divergence between the Convention and BITs; Financial Cooperation Working Committee, Coreu note, CPE/BIL/ETR 501, 1981; T450/72.

95 See generally L Poulsen, ‘Beyond Credible Commitments: (Investment) Treaties as Focal Points’ (2020) International Studies Quarterly (forthcoming).

96 Hepburn et al. (n 8).

97 Feldman, M, ‘State-Owned Enterprises as Claimants in International Investment Arbitration’ (2016) ICSID Review 31(1)CrossRefGoogle Scholar.

98 There have been recent attempts to restore closer inter-regional cooperation—in particular at a summit in Sharm El-Sheikh, Egypt, in February 2019—but the emphasis has been on migration, climate change and political and security issues rather than on investment protection: Council document at <http://www.consilium.europa.eu/meetings/international-summit/2019/02/24-25>.

99 This included binding obligations to accord fair and equitable treatment to foreign investment, to encourage and create favourable conditions conducive to participation by foreign investors, support conclusion of further BITs and limit the possibility of discriminatory provisions being offered by States which had already concluded such agreements. Art 243 of the Lomé II Convention (Cmnd. 9511) and the Joint Declaration in an Annex to the Convention.

100 In the years following 1990 many agreements were concluded between Arab States including—Libya and Syria. For example, Algeria–Syria (1997), Egypt–Jordan (1996), Egypt–Syria (1997), Jordan–Tunisia (1995), Jordan–Yemen (1996), Lebanon–Morocco (1997), Lebanon–Syria (1997), Libya–Syria (1993), Morocco–Tunisia (1994), Oman–Tunisia (1991), Syria–United Arab Emirates (1997), Syria–Yemen (1996), Tunisia–United Arab Emirates (1996)—see International Investment Agreements Navigator (UNCTAD) Investment Policy Hub).

101 St John (n 8) Ch 3.