What Is a Bilateral Investment Treaty?

A bilateral investment treaty is a treaty signed between a capital exporting country and a capital importing country to regulate foreign private investment in order to adjust international private investment relations. Historically, there have been two main forms of bilateral treaties for the protection of international investment: (1) Friendship, Commerce and Navigation treaty, mainly used before World War II. An investment protection clause, but the focus is on protecting merchants, not industrial investors. (2) Bilateral Investment Agreement (BilateraI investment Agreement) After World War II, especially since the 1960s, private capital in developed countries has flowed into developing countries in a large amount. Bilateral investment guarantee agreements signed by importing countries. Focus on the treatment of foreign investors, investment projects and content, political risk guarantees, subrogation claims, and procedures for handling investment disputes. Divided into American-style "investment guarantee agreement" and federal German-style "promotion and protection investment agreement". It is one of the most important means of international investment protection.

Bilateral investment treaty

Bilateral Investment Treaty refers to a written agreement signed between a capital exporting country and a capital importing country for the purpose of promoting, encouraging, protecting or guaranteeing international private investment and agreeing on the relationship between the rights and obligations of both parties. This is currently an important and effective way to protect private foreign investment among countries, and it is regarded as one of the important signs of the investment environment of the countries concerned. ^[1]

Treaty of Friendship, Trade and Navigation

The object of the adjustment of the location of the friendly trade and maritime treaty and the content of the location regulations are mainly to establish friendly relations between the contracting states.

Bilateral investment agreements are an important part of international investment law and play an important role in protecting foreign investment:

1. Bilateral investment agreements have created a good investment environment for host countries. The agreement must abide by the principles of international law that have become universally accepted by all countries, so bilateral investment agreements have strong legal binding force on contracting parties at the international level. If one of the parties fails to comply with its treaty obligations, State responsibility will arise. Therefore, bilateral investment agreements are much stronger than the protections provided by domestic law to foreign investors and their investments.

2. A bilateral investment agreement has only two parties to it. Compared with a multilateral investment treaty that seeks to balance the interests of multiple countries, it is easier to reach consensus on the basis of equality and mutual benefit, taking into account the interests of both countries. Bilateral investment agreements have been widely adopted by many countries and have become the most important international legal system for investment protection.

3. Bilateral investment agreements can strengthen or guarantee the effectiveness of domestic laws. Many countries, especially developed countries, have established their own overseas investment insurance or guarantee systems. They usually use bilateral investment agreements as the statutory prerequisite for implementing their domestic overseas investment insurance or guarantee systems, making bilateral investment agreements a strengthened domestic overseas investment insurance. Or an important international law instrument of the guarantee system.

4. Bilateral investment agreements, especially the promotion and protection of investment agreements, contain both substantive provisions on the rights and obligations of parties, as well as procedural provisions on subrogation rights and settlement of investment disputes, which are private overseas investments of both parties. The author pre-determines the legal and regulatory structure and framework to be followed in establishing investment relations, which can avoid or reduce legal obstacles, ensure the stability of investment relations, and promote the development of international private investment activities.

5. Bilateral investment agreements not only stipulate the methods and procedures for the settlement of disputes between contracting parties due to the interpretation and implementation of treaties, but also provide the methods and procedures for the settlement of disputes arising from investment between foreign investors and host governments, especially Most agreements also stipulate that such disputes should be resolved through the "International Center for Settlement of Investment Disputes", which provides a strong guarantee for the proper settlement of investment disputes. ^[1]

Although the specific content of a bilateral investment agreement varies from country to country, in international practice, it is mostly negotiated and signed in accordance with a certain model. As far as investment promotion and protection agreements are concerned, the currently influential models are: the three models of the Asian-African Legal Consultative Committee, the (Federal) German model, the Dutch model, the Swiss model, and the US model. The main contents of bilateral investment agreements are introduced below based on investment promotion and protection agreements.

Protected investors and investments

1.Investor

For protected investors, bilateral investment agreements generally provide for natural, legal or non-legal corporate and other corporations in the countries of the contracting parties. Protected investors are: (1) natural persons who have the nationality of a Contracting State or have a domicile in the territory of a Contracting State; (2) a legal person or an unincorporated economic entity that is established or has a domicile in the Contracting State; (3) A company in a third country or in a counterparty state controlled by a citizen or legal person of a contracting state. The latter is a legal or unincorporated economic entity of a third country or another State Party that has a significant connection with one of the Contracting States as determined by the principle of capital control.

2.Protected investments

Bilateral investment agreements protect both the various assets that investors invest in, as well as investor-related activities. Generally, protected investments must be permitted in accordance with the laws in force of each of the contracting parties or accepted under its laws and regulations. This is a respect for the national sovereignty of the capital-importing country and the basic premise that the investment can be protected.

Regarding protected investments and investment-related activities, most bilateral investment agreements provide for a combination of general and enumerated approaches. Although the items listed in each bilateral investment agreement are different, they include a broader scope, including tangible assets, shares, property rights that can be obtained through litigation, and intellectual property rights and concessions. The purpose is to ensure that the agreement is sufficiently flexible to facilitate the inclusion of both equity and non-equity investments and to adapt to new forms of investment.

About the treatment of foreign investment

The treatment stipulated in bilateral investment agreements generally deals with investments and investment-related activities of nationals of other Contracting States within the Contracting States. In bilateral investment agreements, three treatment standards are provided for foreign investors' investment and investment-related investment activities.

1. Fair and just treatment. This standard of treatment is provided in most bilateral investment agreements. For example, Article 2 of the Sino-German agreement stipulates that: "Each contracting party shall promote the investors of the other contracting party to invest in its territory, accept such investments in accordance with its legal provisions, and give fair and reasonable treatment under any circumstances." The model investment agreement stipulates: "Investment must be treated fairly and equitably at all times, must enjoy full protection and security, and must never be given treatment lower than that required by international law." It can be seen that the provisions of the US-style investment agreement are stricter because It requires compliance with the standards of international law.

Judging from the practice of bilateral investment agreements, although the provisions of the agreements on fair and equitable treatment are different, such as fairness and justice, fairness and reasonableness, the purpose of the treaty setting up the treatment can be said to be roughly the same. That is, this treatment should be taken as a principle, and other specific treatment standards such as national treatment, most-favored-nation treatment, etc. should be controlled, and the shortcomings of specific treatment standards should be made up. It makes full use of its vague meaning and abstract content to flexibly cope with situations not stipulated in the terms of bilateral investment agreements, fills gaps in relevant treaties and domestic legislation, and enables foreign investors to always enjoy investment and investment-related activities in the host country. Non-discriminatory treatment and full protection.

However, it is unreasonable to require investment treatment to comply with international law standards, such as the provisions of the American-style investment agreement. This is not only because the treatment standard has many names, uncertain content and ambiguity, but more importantly, the treatment standard represents the imperialist powers' domineering ideas. In international practice in recent history, this standard is often used to maintain the privileged status of citizens of western developed countries in weak developing countries, to support foreigners' control over the host country's national economic lifeline, and to support foreigners in escaping the host country's legal jurisdiction. Become a legitimate excuse for foreign forces to interfere in the host country. In fact, the so-called international standard is not a fair standard at all. On the contrary, it is a discriminatory and unequal standard. Because according to this standard, the treatment given to foreigners on an equal basis with locals in accordance with local laws may not necessarily be considered as the final fulfillment of international obligations, and it must also meet international judicial standards. If they do not comply, they will bear international responsibility. This is actually ignoring the national sovereignty of the host country.

2. Most-favored-nation treatment. Most-favored-nation treatment means that under the treaty, one party to a contracting party is obliged to give the other party no less favourable treatment than any other state. That is, whenever a Contracting State grants more preferential treatment to a third State, the other Contracting State has the right to claim this new and more favourable treatment. Almost all bilateral investment agreements have provisions for most-favored-nation treatment, which are broadly consistent in structure and content: First, the investment of an investor in a Contracting State enjoys no less favourable treatment in the territory of the other Contracting State than it does to any third-country national or company. ; Second, investors in one Contracting State enjoy investment treatment activities (usually including management, operation, maintenance, use, disposal, and enjoyment) in the territory of the other Contracting State that are no less favourable than that accorded to the third country by a third country national or company; Third, exceptions to MFN treatment do not apply.

3. National treatment. In international investment law, national treatment is a requirement that the host country grants foreign investors investment and investment-related activities no less than or equivalent to domestic investors' investment and investment-related activities. Because national treatment enables foreign and domestic investors to compete and obtain benefits under the same economic conditions, capital-exporting countries often strive to obtain national treatment for their investors in bilateral investment agreements. The most prominent example is that Germany regards national treatment as an important principle issue in bilateral investment agreements. It prefers to abandon treaty negotiations rather than abandon national treatment provisions. Therefore, national treatment clauses are often seen in bilateral investment agreements.

In order to provide sufficient protection for domestic overseas investors, in the practice of bilateral investment agreements, there has been a trend to combine national treatment with most-favored-nation treatment. That is, in bilateral investment agreements, capital exporting countries often require the signing of provisions that include these two treatment systems, so that no matter which of the two treatments is more favorable, domestic investors can enjoy more preferential treatment, so that domestic investors and Its investments are adequately protected in the host country. For example, Article 2 of the Model Bilateral Investment Agreement Agreement of the United States states: "Contracting parties shall grant no less than their nationals or companies in the same circumstances in granting and treating investments or activities related to each other's nationals or companies, or The treatment of investments or activities related to nationals or companies of the three countries, regardless of which is the most favorable. "

Guarantees on political risk

The guarantee of political risk is an important content of bilateral investment agreements. The risks of war and civil strife in political risk are not due to the intention of the host government to directly or directly target foreign investment, so bilateral investment agreements generally do not provide for this.

1. Requisition and nationalization

The provisions on expropriation and nationalization in a bilateral investment agreement roughly include the following aspects in structure:

(1) Conditions for nationalization. It is generally believed that, in accordance with the principle of the supremacy of territoriality in international law, the state has the right to expropriate or nationalize all its property, including foreign private property, but it must meet certain conditions. Although the wording of the bilateral investment agreement is different, they all stipulate roughly the same conditions: nationalization or expropriation must be based on national public interest considerations; non-discriminatory treatment must be given to foreign investors; foreign investors must be treated Give fair compensation; must follow certain legal procedures.

(2) Ways of expropriation and nationalization. Requisition and nationalization in international investment law refers to the acts of hostage or deprivation of foreign private property by the host country to prevent its ownership. In theory, it is generally believed that although the two are basically the same in legal nature and legal effect, they are also different. Expropriation has both broad and narrow distinctions, and there are differences between direct and indirect expropriation. In order to provide sufficient protection to investors, most bilateral investment agreements do not give clear definitions, but only provide general descriptions. For example, the German model adopts the formulation of "expropriation, nationalization or any other measure whose effect is equivalent to expropriation and nationalization". The Dutch model provides for "any measure that directly or indirectly deprives a national of the other Contracting Party of investment". The U.S. model worded "investment must not be requisitioned or nationalized, nor indirectly requisitioned or nationalized by measures equivalent to requisition and nationalization." The first model of the Asian-African Legal Consultative Committee provided the wording "expropriation, nationalization or measures with effects of expropriation and nationalization".

(3) Compensation for expropriation and nationalization. Regarding compensation for expropriation and nationalization, the positions adopted by developed and developing countries are different, which are reflected in the practice of bilateral investment agreements, which are manifested in two different compensation principles. One is the position of developed countries, which provides The principle of "adequate, timely and effective" compensation, such as the model treaty in the United States stipulates that levy must be accompanied by timely, adequate and effective compensation. The second is the "appropriate and reasonable" compensation standards advocated by developing countries, such as the "provide reasonable compensation" stipulated in the agreements between China and Australia and China and the United Kingdom. The agreement between China and France provides for "appropriate compensation."

2.Exchange and transfer

The exchange and transfer in the bilateral investment agreement mainly involves the following aspects: (1) the principle of free transfer. Basically, each bilateral investment agreement stipulates in principle that investors can freely convert and transfer their original investment and legal income. (2) The transfer of currency shall comply with the laws and regulations of the host country, especially the existing laws and regulations on foreign exchange control. (3) Most of the transfer currencies are stipulated as freely convertible currencies. (4) Exceptions, that is, under the premise of free convertibility and free transfer, allow investment receiving countries to impose certain restrictions on the free transfer of capital and profits in accordance with certain conditions when the balance of payments is difficult. As stipulated in the agreement between China and the United Kingdom, the right of investors to freely transfer their investment and income should be subject to the contracting parties' right to exercise their fair and good faith in the exceptional circumstances of difficult balance of payments and for a limited period Its rights under the law. However, such rights shall not be used to prevent the transfer of profits, interest, dividends, royalties or remuneration, and shall ensure that at least 20% of the investment and any other form of income is transferred annually.

(4) Subrogation right The subrogation right means that after the home country of the investor compensates its investors for losses in the host country due to political risks, the home country government will obtain the investor's related rights and rights in the host country. The agreement usually stipulates that the investment insurance institution or the home government of the investor's home country obtains all rights and obligations of the investor under certain conditions. The rights and obligations assumed by a contracting party shall not exceed the rights and interests enjoyed by the original investor. However, the government of the investor s home country may, in accordance with international law, make other requirements to the host country beyond this limit. At the same time, the exercise of the right of subrogation must be subject to the laws of the host country, but in some cases investors and home country investment insurance institutions are allowed to make appropriate arrangements within the scope permitted by the law of the host country. ^[1]