What protection does the “Fair and Equitable Treatment” (FET)-clause, which can be found in most contemporary International Investment Agreements, offer to foreign investors?
The most important usage of international minimum standart has been its inclusion as the relevant standart in over thousands bilateral investment treaties. It is most commonly put in terms of fair and equitable treatment or full protection and security. Such varying formulations have led to broad interpretations of the standart, as well as to considerable debate as to whether or not such standarts as fair and equitable treatment are included within the minimum standart or are additive to it. Furthermore , One of the strongest link between FET clause and Minimum Standart is systemic interpretation which means that interpretation is done in the light of customary international law, for instance article 31 ‘general rule of interpretation’ shows that any relevant rules of international law applicable in the relations between the parties’. Also there is a explicit references to customary international law&minimum standart in US Model Bilateral Investment Treaty (art. 5 ‘’Minimum Standart of Treatment’’). Besides the reference can be static or dynamic, however in Philip Morris v. Uruguay case, the reference was considered as dynamic.
Overview of common standarts of protection can be alined as following ; protection against expropriation without compensation, fair and equitable treatment, national treatment and most favoured nation treatment, transfer of capital/funds and lastly umbrella clause. The most important protective standart of FET is investor-state arbitration which means that ın case of any violation to minimum standarts or subjective rights of ınvestor, ınvestor has a right to directly access to arbitral tribunal without prior exhaustion of local remedies of host state. There are a lot attributions to FET such as Switzerland-Uruguay BIT Art. 3(2) and Energy Charter Treaty Art. 10 (1). In the tribunal in MTD v. Chile, for instance, observed that ‘’in their ordinary meaning, the terms ‘fair’ and ‘equitable’ mean ‘just’, ‘even-handed’,’unbiased’,’legitimate’’.
In the case of Tecmed v. Mexico, ICSID, arbitral tribunal observed that the FET standart requires the contracting parties to provide international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment. The foreign investor expects the host state to act in a consistent manner, free from ambiguity and totally transparently in its relations with foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practives or directives, to be able to plan its investment and comply with such regulations. Furthermore the tribunal understands that the scope of the undertaking of fair and equitable treatment under article 4(1) of the Agreement prescribed above is that resulting from an autonomous interpretation… By including this provision in the agreement, the parties intended to strenghten and increase the security and trust of foreign investors that invest in the member states.. This is the goal of such undertaking in the light of the agreement’s prembular paragraphs which express the will and intention of the member states to ‘’.. intensify economic cooperation for the benefit of both countries..’ and the resolve of the member states, within such framework,’’ .. to create favorable conditions for investment made by each of the contracting parties in the territory of the other.’’
The concept of international minimum standarts is a principle found in traditional international law that governs the treatment of aliens. Furthermore it is based on the principle that states have obligations to aliens independent of any obligations they have more generally under international human rights law. The IMS stands in contrast to the calvo doctrine, which only affords the same rights to aliens as to nationals. However an foreign investors (alien) are an individual who resides within the borders of a country but are not a citizen or subject of that country. Therefore, historically, aliens visiting or residing abroad were dependent upon the diplomatic protection of their home state to seek redress for any wrongs.Moreover, the international minimum standart grew out of the doctrine of state responsibility for injuries to aliens, which required that the state of nationality was the only state that could espouse a claim for diplomatic protection. The General Claims Commission establisheed by the United States and Mexico defined the minimum standart in the landmark Neer v United Mexican states as follows; the treatment of an alien, in order to constitute an international description, should amount to an violance, to bad faith, to wilful neglect of duty, or to an insufficiency of government action so far short of international standarts that every reasonable and impartial man would readily recognize its sufficiency.
The IMS extends to a number of areas, including the right to be free from a denial of justice ; the right of aliens to protection of life and against bodily harm; and the right of both alien indivuals and corporations to have their juridical personality recognized by the receiving state. However today, expropriations in particular and foreign investment and trade more generally are the two most prominent areas of application of the minimum standart. Expropriation only is regarded as lawful, provided that the expropriation that has been done for public purpose and has not discriminated against foreigners and has accompanied by compensation.Besides, according to the Hull formula, the compensation must be prompt, adequate and effective.
Under traditional ınvestment law, foreigners have not had a right to claim its injury directly from host state. However only way is diplomatic protection, which is done by home state on the basis of public international law (minimum standart). Furthermore, there is no direct access to international courts or tribunals as well as no direct substantive protection. Nevertheless only direct protection is via home state.There is a indirect protection of foreign investors via their home state under traditional investment law, which provide territorial jurisdiction that has been claimed to host state and personal jurisdiction that has been claimed to home state. However under modern approach (IIAs), foreign investors can benefit either from internatıonal minimum standarts and subjective rights of investor, which means that investor has substantive rights and has a direct access to international arbitration without prior exhaustion of local remedies.
When the issue is considered to extent of the protection of legitimate expectations of investors under modern investment law. There is a tension between investor’s legitimate expectations, in terms of stability and continuity of the regulatory framework as of the time of the investment, and the right to regulate of host state in terms of neccessity of reforming the regulatory framework in the interest of other public policy goals, such as health, environment, human rights. For instance, in plain packaging case there is a direct expropriation. Arbitral tribunal applied to modified police powers doctrine and balanced public interest and the interest of foreign investor against tobacco consumption on the basis of public interest. Moreover the public interest is considered to be outweighed the interest of foreign investors. In this respect, the best way to protect of legitimate expectations of both investor and host state is to balance ınvestors expectation of stability of the regulatory framework and host state’s ‘’right to regulate’’. Besides, the expectations is considered as ‘’legitimate’’ if they based on a ‘’spesific commitment or undertakings’’ by the host state and change in regulatory framework (for other spesific reasons) ‘’unreasonable’’. Moreover, the recent cases dealing with alleged expectations arising from a regulatory framework have looked at a number of factors to ascertain whether the expectation at issue was legitimate. A first factor identified by tribunals is the existence of spesific commitments given by the state to an investor. Tribunal shall check whether there is a spesific commitments. And second is that tribunals have underscored that a change in regulatory framework affecting investors must be ‘’reasonable’’ in order to be compliant with FET. Thirdly, in what can be seen as over-arching requirement ( in line with the interplay between stability and FET highlighted above), an isvestor’s legitimate expectations must be balanced with the state’s right to regulate in the public interest. With this respect , I would like to describe more on how to determine of ‘’spesific’’ nature of commitment. One of the convenient way to determine is that ıf commitment made directly between host state and foreign investor ( in particular in a contract), ın this case we assume that there is a legitimate expectation arising from contract.
There are some criticisms directed against ISDS in terms of lack of democratic legitimacy due to arbitrators appointed by host state and foreign investors, which leads to lack of impartiality and independence of arbitrators. Also, there is a lack of transparency concerns on the issue because of the confidentiality of proceedings.Furthermore, other crisitism is lack of legal security and predictability. And there is no substantive appeal, parties only allowed to set aside the award in terms of procedural rules.Moreover, ISDS is considered to give some privilege more than domestic investors, which led to some inequality. However, there are some reform measures done in EU ınvestment policy in order to prevent such concerns mentioned above. One of the reform measure is formulated in EU-Kanada free trade agreement and another is EU-Singapore ınvestment protection agreement also we have EU-Vıetnam ınvestment protection agreement. At the hearth of the reform measure is the creation of permanent investment courts. We have two tier system, we have tribunal of first instance and have appelate tribunal which has power to review first instance decisions on the merits, that provides substantive review.
There is no multilateral investment court. Nevertheless , there is a separate investment courts for each agreement, for instance, there is a separate investment court for EU-Kanada and there is also separate investment court for EU-Singapore and EU-Vietnam. Furthermore, within the European system, the members of these investment courts (first instance courts and appelate tribunals) are appointed in advance by EU and Contracting States, which means that investors are not involved in appointment procedure. The reason of exclusion of investors in appointment procedure is that to increase democratic legitimacy of decisions. At the same time ıt allows to EU and Contracting states to seek for some qualities of arbitrators which subject to strict rules of independence, integrity and ethical behaviour. Besides, arbitrators possess the qualifications required in their respective countries for appointment to judicial officies or be jurists of recognised competence. Furthermore arbitrators must have demonstrated their expertise in public international law. These agreements mentioned above also warrant that full transparency of proceedings (application of UNCITRAL transparency rules) , in particular ; all documents made publicly available and all hearings open to the public. What is more, another feature which increases the legitimacy of the process is that interested third parties allowed to make amicus curiee submissions to the tribunal which means that they may act as friend to the court. For instance, they are allowed to make submission in particular, environmental issues or public health. Also there is a prohibition of ‘’treaty shopping’’ that we saw in Philip Morris Case which was eventually declared inadmissible because ıt was considered an abuse of right by Philip Morris to have established the Hong Kong subsidiary with a view to triggering to application of bilateral investment treaty of Australia and Hong Kong. At the universal level there are certain level over arching topics one of which is transparency rules. For instance, the case of Vattenfall II v. Germany, has been accessible by public, which increases the transparency.Furthermore, last reform is judicial ethics in terms of at the universal level.
