Jump to Content Jump to Main Navigation
Signed in as:

5 Monetary Transfer

From: Chinese Investment Treaties: Policies and Practice

Norah Gallagher, Wenhua Shan

From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.  Subscriber: null; date: 08 June 2023


(p. 175) Monetary Transfer

A.  Introduction

5.01  The transfer or repatriation of funds provision in BITs is at the heart of the object and purpose of an investment treaty. The main aim of BITs is to encourage investment by investors of one state into the other state. The investor will most likely need to bring funds into the host state when initially making its investment. Then once the investment starts to generate profits the investor will want to be able to freely transfer those profits to its home state or a third state. The sole reason for making a foreign investment is to make a profit. The system would cease to be attractive if the profits were not transferable elsewhere. An investor would therefore clearly favour an unrestricted provision on transfer.

5.02  Yet the host state has sovereignty over its currency and foreign reserves ‘monetary sovereignty’.1 Large flows of capital investment, into or out of the country, have to (p. 176) be monitored. The interests of the investor and the state are entirely different. States do not want to grant investors unlimited rights to repatriate. In fact, ‘the need to retain foreign exchange to pay for essential goods and services has in many instances prompted developing countries to enact exchange control laws’.2 The transfer provisions in BITs and multilateral treaties3 try to achieve a balance between these two conflicting interests.4

5.03  The obligation to ensure the free transfer of funds in, but more importantly out of, the host state is a common feature in all BITs. This is not surprising as an investment is only made at the outset by international businessmen interested in generating profit and return. Yet despite the huge significance and prevalence of the transfer clauses in investment treaties there has been little case law on these provisions. This has been explained, at least to some degree, by the ‘specificity in the regulation of most treaties, it is therefore not surprising that tribunals rarely have to address the transfer of funds’.5 Their importance has been confirmed, however, by the claim pending before the European Court of Justice (ECJ) taken by the European Commission against three member states, Austria, Finland, and Sweden. The case was commenced on the basis that some of the pre-existing BITs of these member states have transfer provisions that do not exclude emegncy provisions that may be invoked by the European Council under the provisions of the EC Treaty.

5.04  A good example or a typical transfer provision appears in the Argentina–Canada BIT 1991 at Article VIII:

  1. (1)  Each Contracting Party shall guarantee to an investor of the other Contracting Party the unrestricted transfer of investments and returns. Without limiting the generality of the foregoing, each Contracting Party shall also guarantee to the investor the unrestricted transfer of

    1. (a)  funds – in repayment or loan – directly related to a specific investment;

    2. (b)  the proceeds of the total or partial liquidation of any investment;

    3. (c)  wages and other remuneration accruing to a citizen of the other Contracting Party who was permitted to work in connection with an investment in the territory of the other Contracting Party;

    4. (p. 177)
    5. (d)  any compensation owed to an investor by virtue of Articles VI or VII of this Agreement.

  2. (2)  Transfers shall be effected without delay in the convertible currency in which the capital was originally invested or in any other convertible currency agreed by the investor and the Contracting Party concerned and in accordance with the procedure established by that Contracting Party. Unless otherwise agreed by the investor, transfers shall be made at the rate of exchange applicable on the date of transfer.

5.05  It sets out a non-exhaustive list of the types of payment that are covered by the provisions and then in what is a pretty standard format confirms in paragraph 8(2) that the transfer will be made without delay in the convertible currency of the original investment and at the rate of exchange fixed on the transfer date. This particular provision does not include any restrictions on the transfer of funds in certain circumstances. This is in contrast to the Canada–Venezuela BIT which sets out a list of permitted exceptions to free transfers. Article VIII (4) states that:

Notwithstanding paragraphs 1, 2 and 3, a Contracting Party may prevent a transfer through the equitable, non-discriminatory and good faith application of its laws relating to:

  1. (a)  bankruptcy, insolvency or the protection of the rights of creditors;

  2. (b)  issuing, trading or dealing in securities;

  3. (c)  criminal or penal offenses;

  4. (d)  reports of transfers of currency or other monetary instruments; or

  5. (e)  ensuring the satisfaction of judgments in adjudicatory proceedings.

5.06  It is not unusual for a state to impose certain limitations on the freedom of transfers, for example in the event of balance-of-payment problems, when payments for imports are larger than payments for exports, or of limited availability of foreign exchange. The provision on ‘Transfers’ in NAFTA, for example, is quite long and detailed. It also contains a list of exclusions to free transfer in Article 1109(4)(a)–(e). Unfortunately there has been no case law on how these provisions apply or how the exclusions would operate.6 In the Biwater v Tanzania award the claimant was unsuccessful in its assertion that the transfer provisions in Article 6 of the Tanzania–UK BIT had been breached. The tribunal rather favoured the submission made by the respondent that the transfer provisions do ‘not guarantee that investors will have funds to transfer … The free transfer principle is aimed at measures that would restrict the possibility to transfer, such as currency (p. 178) control restrictions or other measures taken by the host State which effectively imprison the investors’ funds, typically in the host State of the investment’.7 The transfer provisions guaranteed that if an investor had funds they could be transferred in accordance with the provision of Article 6 and no more.

5.07  The current Chinese Model BIT subjects free transfers of investments to ‘its laws and regulations’. This is because China still implements an exchange-control policy, particularly on capital account and its currency, the RMB, is not yet freely convertible. This rule has nevertheless been further liberalised in recent BIT practice. Again, taking the Germany BIT as an example, it lifted the ‘subject to its laws and regulation’ limitation on transfers. China has of course been slowly but systematically liberalizing its laws and regulations on transfers, foreign exchange, and convertibility. It applies the provisions of the Article of Association of the International Monetary Fund (IMF Articles).

5.08  The IMF Articles limit the restrictions that can be imposed on the free transfer of current international transactions. This does not cover liquidation funds but these are covered in the OECD Code of Liberalisation of Capital Movements. This Code, binding on the members, aims to remove restrictions on cross-border capital transfer and thereby liberalise a range of transfers relating to investments.8 Both the IMF Articles and the OECD Code permit members to maintain certain restrictions at the time of becoming a member. In addition they permit temporary measures to be imposed in time of financial crisis affecting the balance of payments of a state.

5.09  This chapter will look at the types of payments covered in the repatriation provisions in China’s BITs. It will include the scope of the clause and whether it covers both outward and inward transfer of funds. It will also look at the types of payments that are covered by the transfer provisions and whether it is an illustrative list or an exhaustive one. It will then consider the important provision on convertibility and exchange rates, what they mean, and when they are designated. Finally this chapter will look at provisions that are typical to China’s BIT provisions on transfer of funds, in particular the limitation on monetary transfers to compliance with ‘domestic laws and regulations’. This chapter will also consider briefly the impact of the pending litigation before the ECJ against several member states on the scope of the transfer provisions in some of their BITs (including some with China) entered into before acceding to the EC Treaty. The decision may (p. 179) impact some of China’s BITs which might require re-negotiation or clarification depending on the extent of the judgment.

B.  Types of Payment

5.10  In nearly all BITs, investors are given the right to free transfer of capital or funds relating to their investment without undue delay and in a freely convertible currency at a designated exchange rate, for example, the exchange rate set at the date of transfer.9 The types and scope of payments permissible are critical to the investor’s decision to make its original investment. All three of China’s Model BITs have a similar provision on monetary transfer. They all guarantee the free transfer of investments and returns10 subject to its local laws and regulations. They include a non-exhaustive list of types of payments that fall under the treaty. Not all BITs include a list of types of payment. Article 6 of the UK Model BIT simply provides: ‘Each Contracting Party shall in respect of investments guarantee to nationals or companies of the other Contracting Party the unrestricted transfer of their investments and returns’.11 Article 8 of the Japan BIT refers only to ‘remittances, and transfers of financial instruments or funds including value of liquidation of an investment … ’. It does not contain the fuller list that appears in China’s other BITs.

5.11  The current Chinese Model BIT contains a typical transfer provision. Article 6 stipulates that:

  1. 1.  Each Contracting Party shall, subject to its laws and regulations, guarantee investors of the other Contracting Party the transfer of their investments and returns held in its territory, including:

    1. (a)  profits, dividends, interests and other legitimate income;

    2. (b)  proceeds obtained from the total or partial sale or liquidation of investments;

    3. (c)  payments pursuant to a loan agreement in connection with investments;

    4. (d)  royalties in relation to the matters in Paragraph 1, (d) of Article 1;

    5. (e)  payments of technical assistance or technical service fee, management fee;

    6. (f)  payments in connection with contracting projects;

    7. (g)  earnings of nationals of the other Contracting Party who work in connection with an investment in its territory.

  2. (p. 180)
  3. 2.  Nothing in Paragraph 1 of this Article shall affect the free transfer of compensation paid under Articles 4 and 5 of this Agreement.

  4. 3.  The transfers mentioned above shall be made in a freely convertible currency and at the prevailing market rate of exchange applicable within the Contracting Party accepting the investment and on the date of transfer.

5.12  China’s earlier two models have similar provisions, although they have only two paragraphs, one setting out the types of payments that can be freely transferred in an illustrative list12 and the other confirming that the transfer shall be made at the exchange rate on the date of transfer.13 The Model BITs all cover the transfer of ‘investments and returns’14 of an investor. This is broad in scope and includes all funds related to an investment. Consistent with wider treaty practice,15 all three models favour the non-exhaustive illustrative list of the types of payments that are included under the provision. These provisions operate in the same way as the illustrative list used in the definition of ‘investment’. The examples of payment set out in paragraph 1(a)–(g) include a wide range of payments. It is clear that the profits from the investment or proceeds generated on a sale of investment are payments relating to the ‘investment’ and returns. In addition, payments under loan agreements, royalties, and for technical assistance all relate to an investment. In fact all of China’s BITs contain the same or very similar lists of examples of payments.

5.13  However, while under subparagraph (g) the earnings of nationals is not directly related to an investment it is nevertheless ‘considered an important feature of investment protection’.16 Earnings of foreign personnel are also covered by the Articles of Agreement of the International Monetary Fund 1976. This type of payment does not appear in the US Model BIT but the Norway Model does include the ‘earnings and other remuneration of personnel engaged from abroad in connection with an investment’.17 The World Bank Guidelines on the Treatment of Foreign Investment include a reference to ‘periodic transfer of a reasonable part of the salaries and wages of foreign personnel … ’.18 This element of income generated as an indirect result of an investment of the host state appears (p. 181) to be seen as part of the income generated out of the investment and as such is transferable in whole or in part out of the host state. This approach confirms the observation that ‘returns, loan payments liquidation proceeds, or payments from licenses and royalties are guaranteed free transfer, whereas qualifications of this right may be found for the transfer of salaries’.19 An example of a qualification can be found in the Czech Republic BIT which covers earnings of personnel ‘engaged from abroad who are employed and allowed to work …’ (emphasis added).20 Transfers can be made only of earnings of personnel who have the appropriate authorization to work in the host state. In the Denmark BIT it refers to an ‘adequate portion of the earnings of the citizens who are allowed to work’21 which shall be freely transferable. It is uncertain whether the contracting parties intended to restrict this provision to citizens from the other contracting state. It would also be open for debate as to what exactly comprised an ‘adequate’ amount of the salary earned. The Finland BIT has a wider formulation referring not only to earning but also to ‘other remuneration’. No doubt this would cover bonus payments as well as other benefits earned by such employees.

5.14  In the Cyprus BIT the reference is to ‘unspent earnings of nationals of the other Contracting Party …’.22 The express reference to nationals of the other Contracting parties would appear to limit free transfers to employees working in the host state in connection with the investment to those nationals. Income, or unspent earnings, of personnel from a third state would not be covered by this clause. This provision can be contrasted with that in the more recent New Zealand FTA which covers earnings ‘and other remuneration of personnel engaged from abroad in connection with that investment’. There are no limitations on the nationality of employees who can make the transfer.

5.15  Most of China’s BITs reflect the language of the Model BITs. They contain similar lists of the types of payments that are freely transferable. A review of the transfer provisions shows that China’s BITs do not deviate substantially from general treaty practice. Many of the BITs also include in the list of types of payment an express reference to free transfers of compensation (p. 182) award under the expropriation provisions. The Tunisia BIT, for example, guarantees the transfer of ‘compensation awarded under Article 4 and 5’, the expropriation and compensation for damages and losses provisions.23

5.16  In some of the newer BITs there is a reference to the free transfer of payments relating to ‘establishing, maintaining or expanding the investment… ’.24 In fact, in the Portugal BIT it expressly refers to ‘the initial capital’ used in the investment as well as any additional injection of capital to maintain or increase that investment. This makes it clear that start-up costs are transferable also.

5.17  The Jordan BIT has an additional type of payment included in its list. Article 7(1)(g) refers to ‘payments arising out of the settlement of an investment disputes under Article 10’. Article 10 contains the investor–state disputes resolution provisions.25 In fact, the New Zealand FTA contains a reference to both payments made on expropriation and in the event of a settlement for a dispute. In contrast the Vanuatu BIT specifically confirms that the transfer provisions do not affect the transfer of compensation under Article 4 (which sets out the expropriation provisions and confirms free transfer of any compensation awarded). Essentially both formulations achieve the same end, that there is no doubt that the investor is entitled to transfer any sums awarded on expropriation of its investment.

5.18  Some BITs do include an exhaustive list in the transfer provisions. Again similar to the finite list in the definition of investment, only payments that fall within one of the listed types of payments are covered. Any other type of payment will not be protected by the transfer provisions. China’s first BIT with Sweden, for example, has a relatively short version of the transfer provision with an exhaustive list of payments that can be made. Article 4 confirms that each contracting state is obliged to:

… allow without undue delay the transfer in any convertible currency of:-

  1. (a)  the net profits, dividends, royalties, technical service fees, interest and other current income, accruing from any investment by an investor of the other Contracting State;

  2. (b)  the proceeds of the total or partial liquidation of any investment by an investor of the other Contracting State;

  3. (c)  funds in repayment of borrowings which both Contracting States have recognized as investment; and

  4. (d)  the earnings of nationals of the other Contracting State who are allowed to work in connection with an investment in its territory.26

(p. 183) 5.19  The Turkey provision states that the contracting states ‘shall permit all of the transfers of the following proceeds … (a) returns, (b) proceeds from the sale or liquidation of all or any part of the investment, (c) all other proceeds in respect of investment specified under Article 1(c)’. This is an exhaustive list where the types of payments are linked to the definition of investment in Article 1 of the treaty.

Scope of Transfer Provisions: Inward and Outward Investments

5.20  There are certain BITs that cover the flows of investment both into and out of the host state.27 The new-generation Finland BIT contains an express reference to free transfers ‘into and out of its territory … ’28 (emphasis added). The recent Mexico BIT also specifically refers to all payments related to an investment which can be transferred ‘into and out of its territory’. In contrast other treaties expressly refer only to outward transfers. The Republic of Korea BIT refers to the transfer ‘out of the territory … ’. Given this express language it would be hard to argue that free inward transfers were also intended to be covered.

5.21  Many of China’s BITs, are silent on whether they cover both inward and outward transfers. The Myanmar BIT, for example, is wide in scope, covering transfer of investments and returns. However, the heading of the transfer provision is ‘Repatriation of Investments and Returns’ which seems to indicate that the party’s intention was to cover only transfers of payments out of the host state.

5.22  The Chile BIT has a slightly different approach to the scope of the transfer clause. It guarantees freedom of payments ‘between the territories of the two Contracting parties as well as between the territories of such other Contracting Party and of any third state’.29 This provision clearly envisages the movements of capital to and from the host state and other states.

Exclusions to Transfer Provisions

5.23  It is not unusual for the transfer provision to be subject to certain exceptions, for example compliance with bankruptcy measures. There has been a move towards including a list of specific exclusion in the transfer provisions in BITs. The Bulgaria BIT, for example, imposes a fiscal obligation on an investor seeking to make a transfer. Transfers are also permitted in the Oman BIT only after the performance (p. 184) of any fiscal obligations. The treaty with Israel also requires the investor to comply with its fiscal obligations.30 All taxes must be made prior to any transfer.

5.24  The Slovenia BIT imposes a condition on free transfers that all ‘financial obligations required by law have been settled’.31 This would cover any outstanding financial obligations of the investment entity, not just tax liabilities. The Australia BIT has an exclusion for the rights of creditors. So again transfers can only be made net of any outstanding financial liabilities.

5.25  The Norway Model BIT, includes specific exclusions in Article 9(3) which states:

It is understood that paragraphs 1 and 2 are without prejudice to the equitable, non-discriminatory and good faith application of measures:

  1. i.  to protect the rights of creditors,

  2. ii.  relating to or ensuring compliance with laws and regulations

    1. (a)  on the issuing, trading and dealing in securities, futures and derivatives,

    2. (b)  concerning reports or records of transfers, or

    3. (c)  concerning the payment of contributions or penalties.

    4. (d)  concerning financial security or any other equivalent regarding the prevention and remedying of environmental damage

  3. iii.  in connection with criminal offences and orders or judgments in administrative and adjudicatory proceedings.

5.26  The Commentary to the Norway Model BIT confirms that the general rule is that ‘all transfers of capital made in connection with investments shall take place freely’. However, certain restrictions can be imposed on the free flow of capital generated by an investment. ‘Nor shall the article prevent the carrying out of obligations deriving from tax legislation or in connection with welfare policy and pension schemes’.

Most Favoured Nation Clause and the Transfer Provisions

5.27  It is just worth noting briefly that a handful of China’s BITs include an express confirmation that the transfer provisions should be applied in accordance with the MFN requirements. Article 6(2) of the Oman BIT of 1995 confirms that ‘without restricting the generality of Article 3 [the MFN clause] …’ the parties agree to accord any transfer ‘treatment as favourable as that accorded to transfer (p. 185) originating from investments made by investors of any third state’.32 Although it is widely accepted that the substantive protections within a treaty fall under the scope of an MFN provision, this additional wording in the transfer clause makes this beyond doubt. Investors can therefore be assured that they will be able to avail of the best treatment with regard to transfers where such a clause is present in the treaty.

C.  Convertibility and Exchange Rates

5.28  The majority of BITs require the relevant permitted transfers to be carried out in a freely convertible currency at the official rate of exchange on the date of transfer and such transfer will be made without undue delay. The first criterion of convertibility relates to the types of currency of the transfer. The most common reference in BITs in general is for transfer to be made in a ‘freely usable currency’33 or a ‘freely convertible currency’.34 The majority of treaties do not, however, define these terms. The reference to freely usable is to ‘hard’ currencies used regularly in international transactions. Article XXX(f) of the Article of Agreement of the International Monetary Fund defines a freely usable currency as meaning ‘a member’s currency that the Fund determines (i) is, in fact, widely used to make payments for international transactions, and (ii) is widely traded in the principal exchange markets.’35 The IMF lists the Euro, the Japanese yen, pounds sterling and the US dollar as freely usable currencies.36

5.29  The Energy Charter Treaty in the definition section in Article 1(14) states that ‘Freely Convertible Currency’ means a currency which is widely traded in international foreign exchange markets and widely used in international transactions’.37 No specific currency is mentioned but it can safely be assumed that the same currencies that the IMF has determined are included in this definition. It at least gives (p. 186) some certainty to the investor in identifying the currencies in which a transfer may be made under the BIT. China’s current Model BIT also refers to ‘freely convertible currency’ and reference to such convertible currency can be found in many of China’s BITs. The Belgium and Luxembourg BIT, for example, at Article 5(2) confirms that the ‘transfers mentioned above shall be made in a freely convertible currency’.38 By far the most common provision on convertibility and exchange rates that appears in China’s BITs provides for payment to be made in freely convertible currency at the prevailing market rate of the host state on the date of transfer.

5.30  The Israel BIT, however, stipulates that the transfer will be in the convertible currency of the original capital investment or such other convertible currency as the parties agree. Absent any agreement between the parties the default is the original currency. This type of provision gives the host state more control of its foreign exchange reserves especially if the original investment was made in the local currency.39 The India BIT also gives the parties a choice of currency but does not require the agreement of the parties; a transfer can be made in the currency of the original investment or any other freely convertible currency.40

Exchange Rates

5.31  The usual provision in transfer clauses on the rate of exchange is that it will be made at the official rate of exchange on the date the transfer is made. The rate of exchange from the local currency is important as different results may be reached depending on the rate used. It might not be the same, for example, ‘to use an official rate of exchange subject to the control of the host country, or other exchange rates, such as market rate of exchange or exchange rates calculated using particular international criteria’.41 Examples of such a reference to an international institute to settle the rate of exchange appear in several of China’s BITs. The Portugal BIT states at Article 6(2) that:

The transfer mentioned above shall be made without delay in a freely convertible currency and at the prevailing market rate of exchange applicable within the Party accepting the investments and on the date of transfer. In the event that the market rate of exchange does not exist, the rate of exchange shall correspond to the cross rate (p. 187) obtained from those rates, which would be applied by the International Monetary Fund on the date of payment for conversions of the currencies concerned into Special Drawing Rights.42

5.32  The default position for determination of the rate of exchange of any transfer thus is determined by the IMF. Most of China’s BITs refer to the ‘prevailing market rate of exchange within the Contracting Party accepting the investments and at the date of transfer’.43 Other BITs refer to the market rate but without a reference to the host state. The Czech Republic BIT, for example, states that the rate of exchange shall be ‘the market rate for current transactions at the date of transfer, unless otherwise agreed’.44 This appears to be a more general provision where the rate could be determined according to international criteria independent of the host state. Other BITs do refer to the ‘official exchange rate’45 in the host country which makes the domestic provision on exchange rates applicable. The Malaysia BIT has a separate exchange rates for each state; for Malaysia the prevailing exchange rate at the time of transfer and for China the official exchange rate. A further variation can be found in the Israel BIT which provides for transfer to be made ‘under the effective foreign exchange laws and regulations at the foreign exchange rate on the date of transfer’.46

5.33  Several of China’s BITs also have a default rate. For example, in the Benin BIT Article 6(4) confirms that in the absence of a market for foreign exchange ‘the rate to be used shall be the most recent exchange rate for the conversion of currencies into Special Drawing Rights’.47 The Portuguese BIT has something similar in Article 6(2): in the absence of the market rate of exchange the rate shall be ‘the cross rate obtained from those rates, which would be applied by the International Monetary Fund on the date of payment for conversions of the currencies concerned into Special Drawing Rights’.48 The Saudi Arabia BIT has another variation on the default rate of exchange. The prevailing market rate shall apply to (p. 188) transfers and that rate shall be ‘based on the official exchange rate of the International Monetary Fund. In the event that such exchange rate does not exist, the rate of exchange shall be based on the official exchange rate of Special Drawing Rights or USD or any other convertible currencies agreed by the parties’.49

5.34  The Hungary BIT stipulates the ‘official exchange rate’ of the host state on the date of transfer. Absent any such rate the ‘market rate’ shall be applied. The Australia transfer provision states that the exchange rate will be determined in accordance with the laws of the host state on the date of transfer. An alternative method appears in the treaty with Ghana, which stipulates that a transfer shall be made ‘at the official exchange rate as determined by the Central Bank of the Contracting State accepting investment on the date of transfer’.50 Market rate will apply if no such official exchange rate is available.

5.35  The Lebanon treaty imposes an obligation on the states to ‘carry out the formalities required for the acquisition of foreign currency and for its effective transfer abroad’ within a reasonable (defined in the Protocol) time frame. The contracting state thus undertakes to ensure the availability of the appropriate amounts of foreign exchange needed to make any transfer under the BIT.

‘Without Delay’

5.36  It is a standard provision in the transfer clause of BITs that the relevant payments be transferred ‘without delay’ or undue delay or as expeditiously as possible.51 There may even by a specific time limit within which the transfer must take place, for example two months. Other BITs define what is meant by ‘undue delay’, in the Protocol for example, Article 6 (cannot exceed four months) to the Brunei BIT as well as of the Republic of Korea Protocol Article 6/(shall not exceed six months). The Protocol to the Lebanese BIT confirms at Ad Article 6 that a reasonable period of time within which a transfer should be made ‘means a period of time which is normally required for the completion of transfer formalities according to the international financial practice’. Similarly, a reasonable period mentioned in the France BIT is defined in the Protocol as ‘a period normally required for the completion of transfer formalities according to international financial practice’.52 The Italy BIT has a specific backdrop date within which the transfer must take place. The protocol defined the term ‘undue delay’ as meaning ‘within such period as is normally (p. 189) required according to international financial practice and not later, usually, than six months’.53 It is clear that the longest it should take to transfer the payments is six months. The Protocol to the Portuguese BIT confirms that the longest it should take to make the transfer ‘without delay’ is two months.54

5.37  The Denmark BIT has an additional provision relating to payments of compensation on an expropriation which provides that the ‘delay starts by the submission of a relevant application and must not exceed six months’.

5.38  Some of China’s BITs are silent on the speed with which a transfer must take place. Examples include the Belgium and Luxembourg, and the Bulgaria BITs which do not include any reference to payments being made without delay.55 The Chile BIT has a separate provision concerning capital transfer from Chile; it can be made only after one year unless the domestic legislation provides for more favourable treatment. Repatriation of investment funds can be made only after this time period unless the local law stipulates a shorter period. The treaty with Thailand has a specific provision relating to payments made in the event that a large amount of compensation has been awarded under the expropriation clause. The transfer of such compensation can be made in ‘reasonable instalments’. The investor would not therefore be able to transfer all of the funds immediately.

D.  ‘China Clauses’ on Transfer

5.39  As already discussed, most of the transfer provisions in China’s BITs have similar provisions on the types of payment, convertibility, and exchange rate. There are, however, some BITs that have provisions in the transfer clause that are unique to China. Most of these types of clauses which relate to the foreign exchange regime at the time the treaties were signed appear in a Protocol to the treaty. However, the UK BIT of 1986 includes the provision in the transfer clause itself. It states at Article 6(4):

In respect of the People’s Republic of China, transfers of convertible currency by a national or company of the United Kingdom under paragraphs (1) to (3) above shall be made from the foreign exchange account of the national company transferring (p. 190) the currency. Where that foreign exchange account does not have sufficient foreign exchange for the transfer, the People’s Republic of China shall permit the conversion of local currency into convertible currency for transfer, in the following cases:

  1. (a)  proceeds resulting from the total or partial liquidation of an investment,

  2. (b)  royalties derived from assets in Article 1 (1)(a)(iv);

  3. (c)  payments made pursuant to a loan agreement in connection with any investment guaranteed by the Bank of China;

  4. (d)  profits, interest, capital gains, dividends, fees and any other form of return of a national or company specifically permitted by the competent authority of the People’s Republic of China to carry out economic activities in the territory of the People’s Republic of China.

5.40  This ‘China clause’ requires all payments to be made out of the foreign investor’s foreign exchange account. If there is insufficient funds in this account the competent department of the Chinese Government will allow the conversion of local currency into convertible currency for transfer usually for certain designated categories of payments.56 The protocol to the Syria BIT confirms that particular types of payments, liquidation amounts, and royalties will be subject to the approval of the appropriate foreign exchange authority for China. In respect of Syria, all transfer shall be made for the foreign exchange account of the investment entity in accordance with the foreign exchange regulations of Syria.

Subject to Local Laws and Regulations

5.41  The Djibouti BIT has a reference to the local laws of the contracting states. Article 6 states that:

Each Contracting party shall, subject to its laws and regulations, guarantee to the investors of the other Contracting Party the transfer of investments and returns held in its territory including…57

5.42  As can be seen from this extract, Chinese BITs tend to subject the freedom of monetary transfer to the ‘domestic laws and regulations’. This means in the case of China that the investor would have to comply with the domestic law on repatriation of investment returns at the time of a transfer. The foreign exchange (p. 191) regime has in fact changed significantly in China over the past ten years and China has officially accepted the obligations in Article VIII of the IMF Agreement to remove all restrictions on current account transactions.58 Further details of Chinese law on transfer follow.

5.43  Although the majority of China’s BITs include the local law requirement, it does not appear in some of the recent BITs. The Germany BIT 2003, for example, removed the ‘subject to its laws and regulation’ qualification, and replaced it by merely subjecting transfer of proceeds to relevant ‘formalities stipulated by the present Chinese laws and regulations’ and requiring loan agreements to be registered with the relevant authority. The Protocol to the treaty with Germany confirms that to ‘the extent that the formalities mentioned above are no longer required according to the relevant provisions of Chinese law, Article 6 shall apply without restrictions’. Thus as China liberalises its foreign exchange requirements, the transfer provisions are less restricted. The treaty with Mauritius does have the local law requirements but states must apply them on ‘a non-discriminatory basis… ’59

5.44  In the New Zealand BIT Article 142(3) has a clause relating to the formalities imposed under the exchange control laws and regulations of China. Transfers can be subjected to these regulations provided that the formalities are not used as a means of avoiding China’s commitments. The formalities must be complied with in an expeditious way and not longer than 60 days. As in the German BIT, if such formalities cease to exist in Chinese law then transfers can be made without restrictions.

Transfer under Chinese Law

5.45  The Chinese foreign exchange (forex) regime has undergone rapid changes since 1979,60 and a rather liberal regime has been in place since 1996 when the Regulations for Foreign Exchange Administration (RFEA) were adopted. As can be seen below, all the basic FIE laws and regulations, including the EJVL, CJVL, and WFEL, contain general guarantees on the rights of repatriation of investments and returns. However, the operational rules in point are contained in the RFEA, (p. 192) together with the Regulations on Sale, Purchase of and Payment in Foreign Exchange. Transfer of investment and returns, under Chinese law, may be divided into two interrelated aspects: the repatriation of foreign investments and returns and the convertibility of local currency into freely usable currencies.

Repatriation of Foreign Investments and Returns

5.46  Chinese basic FIE laws and regulations guarantee that a foreign investor in an FIE can repatriate the net profits and the proceeds of the liquidation of the investment, in accordance with the RFEA.61 Likewise, foreign employees of an FIE may remit their salary and other legitimate incomes out of China.62 Since December 1996, China has formally accepted the obligations of Article VIII of the IMF Articles of Agreement, removing exchange restrictions on current account transactions.63 Accordingly, the 1996 RFEA has freed all the payments and transfers of current transactions, which covers import and export transactions of the FIE, profits, dividends and interests of foreign investors and salaries and other legitimate income of foreign employees.64 FIEs can purchase forex from designated forex banks or debit their forex accounts for any payment in current transaction, upon presentation of valid documents to the designated forex banks or the State Administration of Foreign Exchange (SAFE) for bona fide tests.65

5.47  When an FIE is legally terminated, the foreign investor may convert the RMB he/she may have, after due procedures of liquidation and taxation are cleared, into foreign currency and remit or carry it out of China.66 FIEs may open forex accounts to hold foreign invested capital, and may sell from these accounts upon approval from the SAFE.67 FIEs may also borrow forex directly from domestic and overseas banks, but are required to register with SAFE afterwards, and obtain SAFE approval by for debt repayment and services.68

5.48  Compared with the above mentioned ‘China clause’ in some BITs, this has marked a great advancement as it is more favourable. Arguably, this more favourable treatment can be enjoyed by investors from all other BIT partners with China, since all the BITs have an MFN clause, and some of them are accompanied by a ‘preservation-of-rights’ clause.

(p. 193) Convertibility and Exchange Rate

5.49  The RMB is now fully convertible under current transactions, but not yet convertible under capital transactions. Nevertheless, the RFEA has expressly prescribed that foreign investors may convert the RMB proceeds of liquidation of the investment into foreign currency and remit or carry them out of China. China unified the exchange rates in 1994 and adopted a single, managed floating exchange rate regime based on supply and demand. Since China has huge foreign reserves,69 foreign currency is now relatively freely available.

5.50  An important issue related to investment transfer is the balance of foreign exchange requirements, which used to be a common condition on the establishment of FIEs70 and which has caused much difficulty in the operations of many FIEs. Since 2000, main FIE laws and regulations has been modified and the balance of forex requirements have been removed.71 For FIEs that generate little or no foreign currency, this is obviously a great relief.

Temporary Restrictions to Transfer – Balance of Payments

5.51  Some BITs provide special provisions in times of financial crisis. These are usually temporary in nature. The Protocol to the Slovakia BIT provides that:

  1. 3.  Notwithstanding paragraph 1 and 2 above, either Contracting Party may adopt or maintain measures relating to capital transfer:

    1. (a)  in the event of serious balance of payments and external financial difficulties or threat thereof; or

    2. (b)  in cases where, in exceptional circumstances, movements of capital cause or threaten to cause serious difficulties for macroeconomic management, in particular, monetary and exchange rate policies.

  2. 4.  Measures referred to in paragraph 3 of this Article:

    1. (a)  shall not exceed those necessary to deal with the circumstances set out in paragraph 3 of this Article;

    2. (b)  shall be temporary and eliminates as soon as conditions permit; and

    3. (c)  shall be promptly notified to the other Contracting Party.

5.52  The Uganda BIT has a provision permitting the host state to temporarily restrict transfers out of the state. This is permitted only when there is a ‘serious balance of (p. 194) payments difficulties and external financial difficulties or the threat thereof …’. This leaves it to the discretion of the host state to decide when it believes there may be a threat of such financial difficulties. There are certain conditions that must be complied with including prompt notification to the other party, the restrictions must comply with the IMF Article, be for an agreed period, and most importantly be imposed on a non-discriminatory and good faith basis. Article 7(5) of this Uganda BIT also gives the contracting states the option to request that an investor complies with any formalities under the relevant national laws and regulations. These formalities cannot be applied in such a way as to frustrate the guarantee of free transfers.72 A similar provision for the temporary suspension of the obligation to transfer is contained in Article 8(3) of the Sri Lanka BIT. It applies only in ‘exceptional balance of payments difficulties’ and must be exercised in good faith for a limited period.

5.53  These balance of payments (BoPs) exceptions are not very common in treaty practice. One reason cited for this is that states do not believe that control of transfer is the best method to deal with ‘shortages of international reserves’.73 A BoP exception does appear in the newly signed Mexico BIT of 12 July 2008 however. The temporary restrictions on transfer must be imposed on an ‘equitable, non-discriminatory and in good faith basis’.74 These BoP provisions provide a state with the right to impose restrictions in difficult financial times. However, ‘such restrictions must be proportionate to the aims sought to be achieved. Governments enjoy a wide margin of appreciation in deciding how to respond to matters of public interest, but that is subject to judicial scrutiny to ascertain whether the measure adopted strikes a reasonable balance between the public interest on one hand and respect for the right of the individual on the other’.75

5.54  The provision in the Papua New Guinea BIT is slightly less onerous in that transfers are guaranteed by the states save ‘in exceptional financial or economic circumstances’ a party can exercise equitable and in good faith powers conferred by its law’.76 The Chile BIT has an express provision confirming that the contracting parties can still impose exchange restrictions in accordance with its applicable laws and regulations. Article 6(4) confirms that this right to impose exchange (p. 195) restrictions does not impact the ‘obligations with respect to exchange restrictions that either Contracting Party has… as a Contracting Party’77 of the IMF.

5.55  In Article 6(4) of the Kuwait BIT the states are permitted to impose ‘reasonable restrictions’ for a period of six months to address ‘situations of fundamental economic disequilibrium… ’78 This temporary restriction on transfers of capital is subject to the proviso that 50% of transfers can be repatriated in those periods. The treaty with Indonesia permits the states to require under its laws that investors submit reports of currency transfers. This is another mechanism to ensure that the host state is made aware of all transfers into and out of the country.

E.  ECJ Litigation Relating to Transfer Provisions

5.56  It is clear that these transfer provisions in investment treaties are of considerable significance. Why else would the Commission have commenced claims against several EU member states? On 10 May 2004 the European Commission decided to send formal requests to Denmark, Austria, Finland, and Sweden seeking information on potential incompatibilities contained in BITs these states had entered into prior to acceding to the European Union. Of particular concern to the Commission was the fact that these treaties might adversely affect powers vested in the EU Council to adopt restrictions on the free movement of capital to and from non-EU countries.79 The transfer provisions in the offending BITs contained unconditional rights for investors from non-EU countries to free international transfers. The Commission took the first step in infringement proceedings under Article 226 of the EC Treaty as it felt that these BITs were not compatible with the power of the Council to introduce restrictive measures on the free movement of capital. Article 307 obliges member states to take all appropriate steps to remove such potential incompatibilities in pre-existing treaties.

5.57  Austria and Sweden in their replies denied any such incompatibilities in their existing BITs. The Commission issued two reasoned opinions giving the countries a two-month deadline to comply with their obligations under Article 307 EC Treaty. Austria and Sweden continued to deny that there was any incompatibility with the EC Treaty. Austria confirmed that when revising its Model BIT it would include a ‘Regional Economic Integration Organization’, or REIO clause, which (p. 196) would prevent any potential conflicts with its EC Treaty obligations. The Commission was clearly not satisfied with the answer from the states that such provisions were common place in investment treaties. It commenced proceedings against Austria and Sweden (heard together) and Finland, the following year. Finland, Germany, Hungary, and Lithuania sought permission to intervene in support of the position taken by Austria and Sweden.

5.58  The Commission of the European Communities filed cases at the European Court of Justice against Austria,80 Finland,81 and Sweden,82 on the basis that certain of their BITs that predated their accession were incompatible with the EC Treaty. As they predated the member states, accession they are governed by Article 307 (ex Article 234) of the EC treaty which imposes an obligation on member states.

The rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more Member States on the one hand, and one or more third countries on the other, shall not be affected by the provisions of this Treaty.

To the extent that such agreements are not compatible with this Treaty, the Member State or States concerned shall take all appropriate steps to eliminate the incompatibilities established. Member States shall, where necessary, assist each other to this end and shall, where appropriate, adopt a common attitude.

In applying the agreements referred to in the first paragraph, Member States shall take into account the fact that the advantages accorded under this Treaty by each Member State form an integral part of the establishment of the Community and are thereby inseparably linked with the creation of common institutions, the conferring of powers upon them and the granting of the same advantages by all the other Member States.

5.59  This provision imposes a ‘best efforts’ obligation on a state to ensure that the incompatibilities are removed. It also relates only to agreements between EU member states and third states. The main objective in the Article 307 case law is to reduce as far as possible any incursion into the Community legal order caused by a pre-existing international obligation. The ECJ has affirmed that Article 307 EC Treaty is of general scope and applies to any international agreement, irrespective of subject matter capable of affecting application of the Treaty.83 Article 307 EC requires EU member states to take specific steps and exhaust all avenues (p. 197) available in order to eliminate all incompatibilities arising from the specific international investment agreements. The transgressing Member States must take steps to adjust the treaty in accordance with its terms or, if this is not possible, to re-negotiate the entire treaty. It appears that, if such re-negotiation fails, and the agreement provides for the possibility of denunciation, the Member State must denounce the agreement. In Commission v Portugal84 the ECJ had to ‘consider in what circumstances a Member State may maintain measures contrary to Community law in reliance upon a pre-Community convention concluded with a third country’. That case involved a pre-existing agreement on merchant shipping with a non-EU state, Angola. The Portuguese government argued that denunciation would involve a disproportionate obligation in the circumstances. However, The ECJ held that as ‘far as denunciation of such an agreement is possible under international law, it is incumbent on the Member State concerned to denounce it’.85 The ECJ noted that EU member states have a choice of steps to be taken under Article 307. However, ‘they are nevertheless under an obligation to eliminate any incompatibilities existing between a pre-Community convention and the EC Treaty. If a Member State encounters difficulties which make adjustment of an agreement impossible, an obligation to denounce that agreement cannot therefore be excluded’.86

5.60  There has been some speculation on whether what will be required of Austria, Finland, and Sweden is a full denunciation or a re-negotiation of the transfer provision possibly through signing a Protocol or Annex to the original treaty. In the later situation the state could by signing an amending Protocol avoid the often long drawn-out process of re-negotiation of an entirely new treaty and instead merely agree to an EC limitation clause to ensure compliance with the member states’ obligations under Articles 57(2), 59, and 60(1) EC Treaty. Whether or not China and the other states which have treaties that are in breach of the EC Treaty would agree to any amendment is far from certain. An example of a provision that would comply with the EC Commission’s requirements can be found in Article 6(5) of the Czech Republic BIT. It states that with regard to the Czech Republic, ‘the transfers referred to in Article 6 of this Agreement shall comply with measures adopted by the European Community’. If the European Council did adopt restrictions on the free movement of capital to and from third countries, the Czech Republic would be able to comply with those restrictions without breaching the terms of the transfer provisions in the BIT.

(p. 198) 5.61  Austria and Sweden in their replies to the Commission’s request to take action to remove the incompatibilities denied that the BITs in any way violated their EU obligations. The Austria BIT provisions on transfer are similar in their terms to the Sweden BIT referred to earlier. The BIT provides at Article 5 that:

Either Contracting Party, guarantees to investors of the other Contracting Party free transfer of the proceeds related to their, in particular of:

  1. (a)  capital or additional funds that are necessary to maintain or for the ongoing or extension of the investment

  2. (b)  the returns

  3. (c)  repayment of loan agreement in connection with investments;

  4. (d)  license and other fees in Article 1 paragraph 1.

  5. (e)  amounts from liquidation or partial liquidation of the investments;

  6. (f)  compensation mentioned in Paragraph 1 of Article 4.87

5.62  A similar action brought against Finland on 27 February 2007 also relates to several pre-existing BITs that the EC believes contravene the provisions of the EC Treaty. The Commission alleges that the transfer provisions in the treaties, including the Finland BIT, are incompatible with Community law because Finland is or would be unable to comply with any measures taken by the EC institutions under Articles 57(2), 59, and 60(1) EC Treaty. The Commission also contends that as the treaties were made before Finland’s accession to the EU, Finland is obliged to take all appropriate steps to eliminate the incompatibilities in the agreements in accordance with Article 307. Of course any conclusion reached in these cases may cease to be relevant if and when the EU Treaty of Lisbon enters into force. Although at the time of writing the Lisbon Treaty was of undetermined status since the Irish ‘No’ vote at a referendum on 12 June 2008, it will arguably give an increased competence to the EU in the area of treaty making on foreign direct investment. If the Lisbon Treaty or a further variation of it does ultimately come into force it is likely that a similar provision to Article 188C transferring exclusive competence for foreign direct investment will be included. Therefore it is conceivable that in the future the EU will enter into BITs on behalf of member states with third countries. Consideration will of course have to be given to this in any arbitration that might be initiated by an aggrieved Chinese investor challenging a measure or a series of measures imposed by an EU Member State. Interesting questions that arise under such a situation include: Who would be the respondent in the arbitration – the EU alone or the Member State also? Who will have power to appoint an arbitrator and if it is the European Commission does it need to consult with the respondent (host) Member State? Does the Commission have the power (and the financial capacity) to enter into a settlement agreement with the claimant? If the (p. 199) arbitration proceeded and damages were awarded against the EU, who would pay the amount due?

5.63  The Advocate General, Poiares Maduro, delivered his Opinion on 10 July 2008. He held against Austria and Sweden, finding that both countries had infringed the obligation under Article 307. Both states had entered into BITs with third countries prior to their accession to the EU. In both cases, the BITs with China were included in the list of incompatible treaties that formed the basis of the infraction proceedings commenced by the EC Commission.88 These treaties did not make any specific reference to permitting exceptions required under any REIO. Even though the incompatibility was at this point merely hypothetical, the Commission felt it was sufficient to trigger an obligation under Article 307 to amend the treaties. The Advocate General’s opinion reviewed in detail the concept of incompatibility for the purpose of Article 307 and concluded that member states’ duty of loyal cooperation obliges them ‘to refrain from any measures liable seriously to compromise the exercise of Community competence. In particular, Member States are obliged to take all appropriate steps to prevent their pre-existing international obligations from jeopardising the exercise of Community competence’.89 The Advocate General was not persuaded by Austria’s submission that the use of the term ‘without undue delay’ in the transfer clauses would allow it to delay any transfers in order to give effect to Article 59 EC Treaty. However, as pointed out in the Opinion, this would not apply to the remaining provisions of Article 57(2) and 60(1). In fact, this term is defined in the Austria BIT in the Protocol at paragraph 5; ‘the term “without undue delay” in paragraph 1 of Article 7 means that the transfer shall be made within a period normally required for the completion of transfer formalities’.90

5.64  The Advocate General’s conclusion that this term was unlikely to operate in the way suggested by Austria would on a literal interpretation of the Protocol seem to be correct. It would be a stretch to read into the definition of ‘without undue delay’ in the Protocol any obligations imposed by the EU on Austria. Sweden relied on the local law requirement to assert that the BITs could never be contrary to the mandates of Community law. The Advocate General also rejected this submission as the clause was not present in all of the treaties transfer provisions and (p. 200) ‘whether it refers to Community law is again debatable’.91 This may be true but there is some merit in the argument that the requirement in Article 4 of the Sweden BIT that the contracting states ‘shall, subject to its laws and regulations, allow … ’ includes Community law requirements which are part of the Swedish law. The Advocate General also rejected the application of what he called a ‘controversial point of international law such as the rebus sic stantibus’.92

5.65  Once an incompatibility under Article 307 is found to exist the member states are obliged to take all appropriate steps to eliminate it. Sweden had not taken any such action as it had violated its obligation under Article 307. Austria had started to work on a REIO provision for its new Model BIT. This of course would apply only in the future. As regards the existing offending treaties, Austria ‘mentioned only that talks with China were scheduled for the ‘near future’ and that renegotiation of the agreement with Russia had begun’.93 As negotiations had been suspended, Austria was also found to be in breach of its Article 307 obligations. The two states have to take all appropriate actions to eliminate the incompatibilities including denunciation as, in the Advocate General’s view, an ‘ultima ratio’. This is because the EC Treaty favours avoiding, when possible, any interference with existing international obligations of the member states. The Opinion ultimately recommends that the ECJ find Austria and Sweden to have failed to comply with their obligations under Article 307. If the ECJ follows the Opinion and finds that the BITs are incompatible with the EC Treaty, Austria and Sweden will have to re-negotiate the treaties not only with China but for all of the BITs in breach. If agreement cannot be reached, Austria and Sweden may have no choice but to denounce the BITs to ensure compliance with the judgment. This case reaffirms the relevance of the transfer provisions to investment protection.

5.66  Article 307 only governs relations between EU member states and third states. The question of whether intra-EU treaties are automatically terminated was answered in the negative by a recent tribunal. In the Eastern Sugar v Czech Republic94 case the respondent asserted that once it acceded to the EU on 1 May 2004 this terminated or at least limited the scope of application of the Czech–Netherlands BIT. The tribunal (p. 201) confirmed that BITs between Member States are not automatically derogated on membership of the EU. It is not yet settled as to what the position is with regard to intra-EU BITs. There is at present about 19195 such treaties in place between the EU members and states are reluctant to denounce these treaties for fear of giving the impression that investors would be in a far worse position without the protection provided for in these treaties. The Commission itself, however, has consistently asked member states to terminate such BITs. There is no doubt that Community law and the ECJ itself prevails from the date of accession. This point was clearly indicated for state–state arbitration in the Mox plant case. The five–member tribunal suspended proceedings commenced under Annex VII of the United Nations Convention on the Law of the Sea 1982 (UNCLOS) pending judgment of the ECJ in a related case concerning European Community law issues. The ECJ in its judgment of 30 May 2006 confirmed that Ireland had breached its obligation under the EC treaty to vest exclusive jurisdiction in the ECJ.96

F.  Conclusion

5.67  The transfer provisions in any BIT are central to the promotion and protection of foreign investment. In general, treaties do not grant an absolute right to transfer funds relating to an investment. They try to strike a balance between the investor’s right to repatriate profits from its investment and the state’s sovereign right to regulate its monetary policy. In today’s economy there is essentially a competition for capital between states and parties will not want to over-prescribe the transfer of payment from investments. Governments want to retain monetary sovereignty and often will want to encourage reinvestment into the local economy by foreign investors rather than see the profits returned to the investor’s home state. China’s BIT provisions largely reflect the provision used in the Model BIT with some variations. They are therefore largely consistent with general treaty practice in this area. The transfer clauses permit the free transfer of funds and include a non-exhaustive list of the types of payments covered. There are provisions on convertibility and exchange rates. Finally, there are limitations imposed on the transfer of payments. As there have not yet been many cases where these terms and provisions have been applied by an international tribunal, there is little more that (p. 202) can be said about their scope. The pending infraction proceedings taken by the European Commission against several of its member states are good examples of only recent cases where the transfer provisions have been in question. Of course, in that instance it is the fact that the transfer clauses in the BITs do not have exclusion for the EC that is at issue and not how the provisions themselves are to be applied.


H Zeng, International Investment Law (1999) 460 and more generally on international monetary law, F A Mann, The Legal Aspects of Money (5th edn, 1992).

R Dolzer and M Stevens, Bilateral Investment Treaties (1995) 85. For a brief historical review of the developments in international law on foreign exchange regulations see A Kolo and T Wälde, ‘Capital Transfer Restrictions under Modern Investment Treaties’ in A Reinisch (ed), Standards of Investment Protection (OUP, 2008), 205, 206–213.

see eg Art 1109 NAFTA and Art 14 Energy Charter Treaty.

K J Vandevelde, United States Investment Treaties: Policy and Practice (1992) 143. See also generally UNCTAD, Transfer of Funds (2000) and UNCTAD, International Investment Agreements: Key Issues (2004) 257.

R Dolzer and C Schreuer, Principles of International Investment Law, 192.

The Notice of Intent to Arbitrate in Calmark Commercial Development Inc. v Mexico filed under NAFTA on 11 January 2002 refers to a breach of the transfer provision in Art 1109 by Mexico by interfering with the repatriation of funds from the sale of the investment. The case appears to be a denial of justice claim for actions taken by the Mexican judiciary concerning its investment in a tourist development in Baja California. No further action appears to have been taken since the Notice was filed. The Notice of Intent is available at <http://www.naftaclaims.com/disputes_mexico_calmark.htm> (accessed on 20 August 2008).

Biwater Gauff (Tanzania) Ltd v Tanzania, ICSID Case No. ARB/05/22, para 735.

The ‘Codes have served as a useful yardstick by which the liberalisation efforts of member countries can be assessed and compared over time’. OECD (ed), OECD Codes of Liberalisation of Capital Movements and Current Invisible Operations: User’s Guide (2008), 16. See generally P Muchlinski, Multinational Enterprises and the Law (2nd edn, 2007) on measures to encourage inward direct investment, 247–51.

See eg Art 6 Sierra Leone–UK BIT, Art 7(2) USA Model BIT, and Art 9(2) Norway Model BIT, Art 6(3) China’s current Model BIT.

10  Returns is usually a defined term for example in the Germany BIT it means ‘the amounts yielded from investments, including profits, dividends, interests, capital gains, royalties, fees and other legitimate income’.

11  See also Art 7 Sri Lanka Model BIT.

12  Art VI(1) China Model BIT (1989) and Art 6(1) China Model BIT (1984).

13  Art VI(2) China Model BIT (1989) and Art 6(2) China Model BIT (1984).

14  Most BITs include a definition of return, for example ‘return’ means the amounts yielded from investments, including profits, dividends, interests, capital gains, royalties, fees, and other legitimate income.

15  UNCTAD, Bilateral Investment Treaty 1995–2006: Trends in Investment Rulemaking, 58.

16  UNCTAD, Transfer of Funds (2000) 31.

17  Art 9(1)(v) Norway Model BIT. See also Art 14(1)(d) ECT, Art VII(1)(d) ASEAN, Art 5(f) Netherlands Model BIT.

18  World Bank Guidelines on the Treatment of Foreign Direct Investment (1992), Art 6(1)(a) which continues to also cover ‘on liquidation of the investment or earlier termination of the employment, allow immediate transfer of all savings from such salaries and wages’.

19  R Dolzer and C Schreuer, Principles of International Investment Law (2008) 193.

20  See also Art 5(1)(g) Argentina BIT, Art 6(e) Cameroon BIT, Art 6(1)(f) Gabon, Art 6(1)(e) Guyana BIT, Art VII(1)(h) Indonesia, Art 8 (1)(e) Republic of Korea, Art 6(1(d))Kuwait BIT, Art 6(1)(e) Malaysia, Art 6(1)(f) Morocco, Art 6(1)(d) Papua New Guinea BIT, Art 7(1)(e) Trinidad and Tobago BIT, Art 7(1)(d) United Arab Emirates, Art 6(1)(f) Yemen.

21  Art 6(1)(d) Denmark BIT. In the France BIT Art 5 confirms that nationals of either state can transfer an appropriate proportion of their earnings to their country of origin.

22  Art 6(1)(h) Cyprus BIT. Art 6(1)(d) of the Norway BIT refers to the ‘legitimate incomes of nationals of the other contracting party.’ Art 6(1)(g) Nigeria BIT also refers to incomes of nationals of the other contracting party.

23  Art 6(1) (g) Tunisia BIT. See also Art 5(1)(e) France BIT.

24  Art 5 (1) Belgium and Luxembourg BIT 2005. See also Art 8(1)(a) Mexico BIT 2008.

25  A similar provision appears in Art 6(1)(e) of the Russia BIT. See also Art 142 of the New Zealand FTA and Art 8(1)(f) and (g) of the Mexico BIT 2008, which cover compensation and arbitration payments.

26  Art 4 Sweden BIT 1982. This treaty is one of the offending BITs at the centre of the litigation action taken by the European Commission against Sweden and Austria. See also Art 5 Austria BIT.

27  See eg Art 7(1) US Model BIT, Art 9(1) Norway Model BIT, and Art 14 Energy Charter Treaty which have express reference to transfer ‘into and out of’ the host state.

28  Art 6(1) Finland BIT. Art IV of the Turkey BIT also permits transfer ‘into and out of’ the contracting states.

29  Art 6(1) Chile BIT.

30  See also the BITs with Guyana, Indonesia, Kirgizstan, Turkmenistan, White Russia, Ukraine, Yemen refers to a transfer of ‘net’ amounts which indicates a similar obligation.

31  Art 5 Slovenia BIT. See also Former Yugoslav republic of Macedonia BIT and Oman BIT for similar provisions. The Yugoslavia BIT permits transfer only when ‘all due obligations’ have been met.

32  Art 6(2) Oman BIT. Other treaties with China which include an express reference to an MFN in the transfer provisions include Azerbaijan, Bolivia, Kuwait, Lebanon, Malaysia, Morocco, Norway, Papua New Guinea, UAE, Yemen, and Zambia.

33  See Art 7(2) US Model BIT, Art 1109(2) NAFTA, Art VII (1) ASEAN, Art 7(1) United Arab Emirates BIT.

34  See Art 5 Netherlands Model BIT, Art 14(2) Energy Charter Treaty.

35  IMF Agreement Art XXX (9f). The US Model BIT defines freely usable currency as determined by the IMF under this provision.

36  In contrast, the Egypt–Malaysia BIT defines ‘freely usable currency’ at Art 1.1(e) as the ‘United States dollar, Pound sterling, Deutschemark, French Franc, Japanese yen or any other currency that is widely used to make payments for international transactions’. This allows the transfer to be made in a currency that is not listed but that has become widely used in the international exchange market eg the euro.

37  This wording is almost identical to the definition of freely convertible currency at Art 9(2) Norway Model BIT.

38  Other treaties with China which refer to freely convertible currency include Art 6(2) Algeria, Art 6(3) Burma, Art 6(1), Art 6(3) Congo, Czech Republic, Art 5(2) Estonia, Art 6(3) Finland, Art 6(3) Germany, Art 6(1) Greece, Art 6(2) Kenya, Art 6(3) Latvia, Art 7(3), Art 6(1) Malaysia, Art 6(3) Mozambique, Netherlands, Art 6(1), Art 6 (2) Nigeria, Papua New Guinea, Art 5(2) Poland refers only to ‘convertible currency’, Art 6(2) Portugal, Art 6(2), Art 6(3) Sierra Leone, Slovakia, Art 6(3) Spain, Art 4 Sweden refers to ‘any convertible currency’, Art 6(2) Zimbabwe, Art 7(1) UAE.

39  See also Art 6(2) Brunei BIT and Art 6(3) UK BIT.

40  Art VII (2) Indonesia BIT has a similar choice in determining the currency of any transfers.

41  UNCTAD, Bilateral Investment Treaty 1995–2006: Trends in Investment Rulemaking, 60.

42  Art 6(2) Portugal BIT 2005. A similar provision can be found in Art 6(3) Germany BIT 2003, Art 7 Austria BIT.

43  See China’s BITs with Azerbaijan, Bahrain, Bangladesh, Barbados, Belgium and Luxembourg, Bulgaria, Burma, Cape Verde, Congo, Cyprus, Ecuador, Estonia, Germany, Greece, Hungary, Kenya, Korea, Latvia, Lithuania, Moldova, Mozambique, Myanmar, Netherlands, Portugal, Romania, Saudi Arabia, Slovakia, Slovenia, Sierra Leone, Spain, Syria, Sudan, Tunisia, Uganda, Ukraine, UK, Yugoslavia, Zambia.

44  Art 6 Czech Republic BIT. See also Algeria (prevailing rate of exchange), Cameroon (prevailing rate of exchange), Finland, Gabon (prevailing rate of exchange), India, Morocco (refers to effective rate of exchange), Oman, South Africa, Vanuatu, Yemen, Zimbabwe.

45  Art 5(2) Bulgaria BIT. See also China’s BITs with Denmark (no reference to host state), France, Kirgizstan, Pakistan, Philippines, Poland, White Russia, Macedonia, Malaysia, Papua New Guinea (no reference to host state), Tajikistan, Uzbekistan.

46  Art 6 Israel BIT. See also Art 6(1) Greece BIT.

47  Art 6(4) Sino–Benin BIT. See also Art 6(4) Finland BIT.

48  See also Germany BIT for a similar reference to IMF rates.

49  Art 5(3) Saudi Arabia. See also Art 142(2) New Zealand FTA, Art 6(2) Brunei BIT for similar default provisions for the exchange rate.

50  Art 6(1) Ghana BIT.

51  BITs that include this standard wording include Argentina, Australia, Bolivia, Botswana, Brunei, Cyprus, Czech Republic, Denmark, Finland, Germany, Greece, Iceland, India, Indonesia, Israel, Jordan, Korea, Kuwait, Latvia, Lebanon, Malaysia, Nigeria, Norway, Oman, Papua New Guinea, Portugal, Russia, Slovenia, South Africa, Spain, Sweden, Tunisia, UK, and Zimbabwe.

52  Paragraph 3, Protocol France BIT.

53  Italy Protocol. See also the provision in the Protocol of the Switzerland BIT paragraph 5 which sets out what will not be deemed an undue delay: 90 days from the date the competent authority received an application to transfer and 180 days for expropriation and subrogation payments.

54  See also ad Art 6 Sino–Germany BIT not to exceed two months.

55  See also China’s BITs with Albania, Azerbaijan, Bahrain, Cameroon, Cape Verde, Congo, Cuba, Djibouti, Ecuador, Egypt, Estonia, Ethiopia, Gabon, Georgia, Ghana, Guyana, Hungary, Kirgizstan, Lithuania, Moldova, Morocco, Mozambique, Netherlands, Peru, Philippines, Poland, Qatar, Romania, Saudi Arabia, Slovakia, Sierra Leone, Sri Lanka, Uzbekistan, Ukraine, Uruguay, Vanuatu, White Russia, Yemen, Yugoslavia, and Zambia.

56  Similar provisions appear in the Protocol to the Austria, France, Kuwait, Switzerland, Thailand, and UAE BITs. These provisions have been replaced in the Germany and Belgium and Luxembourg BITs.

57  Other BITs with China which include this local laws and regulations restriction include Albania, Algeria, Argentina, Australia, Azerbaijan, Bahrain, Bangladesh, Benin, Bolivia, Botswana, Brunei, Bulgaria, Cambodia, Cote d’Ivoire, Croatia, Cuba, Denmark, Estonia, Greece, Italy, Jamaica, Democratic People’s Republic of Korea, Republic of Korea, Lao, Lebanon, Lithuania, Malaysia, Mauritius, Mongolia, Myanmar, New Zealand (1988), Norway, Pakistan, Peru, Philippines, Poland, Qatar, Romania, Russia, Singapore, Slovakia, Slovenia, Sri Lanka, Sweden, Syria, Thailand (in the Protocol), Trinidad and Tobago, Turkey, United Arab Emirates, Uruguay, Vietnam, Zambia, and Zimbabwe.

58  For more on China’s changes to its foreign exchange regime see W Shan, The Legal Framework of EU–China Investment Relations (2005), Section 5.4.2. See also A Kolo and T Wälde, ‘Capital Transfer Restrictions under Modern Investment Treaties’ in A Reinisch (ed), Standards of Investment Protection(OUP, 2008), 205, 215.

59  Art 8(1) Mauritius BIT.

60  A brief outline of the history of China’s forex regime reform can be found in the World Trade Organisation Working Party on the Accession of China: Report of the Working Party on the Accession of China (hereinafter ‘Working Party Report’), WT/ACC/CHN/49 (1 October 2001), at 5–6.

61  Art. 11, EJVL; Art. 19, WFEL.

62  Art. 12, EJVL; Art 19, WFEL.

63  Working Party Report, n 60 above, at 6–7.

64  Art 21–5, Regulations on Sale and Purchase of and Payment in Foreign Exchange.

65  Working Party Report, n 60 above, at 7.

66  Art 26, Regulations on Foreign Exchange Administration (RFEA).

67  Working Party Report, n 60 above, at 7.

68  Id.

69  By the end of June 2008, China had accumulated $1808.83 billion foreign reserve. Official statistics of China’s foreign reserve available at the SAFE website: <http://www.safegv.cn/model_safe/tjsj/tjsj_detail.jsp?ID=110400000000000000,19&id=5> (last visited on 28 August 2008).

70  According to the author’s survey, 27% of EU investors had had such a requirement imposed. See W Shan, Legal Framework of EU–China Investment Relations: A Critical Appraisal(Hart, 2005),Chart 10.

71  For details of the change see W Shan, ‘Toward a Level Playing Field of Foreign Investment in China’, 3 The Journal of World Investment (JWI) 2, 2002.

72  A similar provision can be found in the Protocol to the Tunisia BIT Ad Art 6.

73  UNCTAD, Bilateral Investment Treaty 1995–2006: Trends in Investment Rulemaking, 63. This would not preclude a state from relying on the doctrine of necessity under customary international law as reflected in Art 25 of the ILC Art on State Responsibility. For a detailed discussion on necessity and exchange restrictions see A Kolo and T Wälde, 205, 217–27.

74  Art 8(5) Mexico BIT.

75  A Kolo and T Wälde, ‘Capital Transfer Restrictions under Mod-ern Investment Treaties’ in A Reinisch (ed), Standards of Investment Protection (OUP, 2008), 205, 228.

76  Art 6(4) Papua New Guinea BIT.

77  Art 6(4) Chile BIT. Art 8(2) Japan BIT also permits the parties to impose exchange restrictions. However, in the Protocol, Art 7 also confirms that the agreement does not affect the rights and obligations on exchange restrictions under the IMF Agreement.

78  See also Art 7(3) UAE BIT.

79  As envisaged by Arts 57(2), 59, and 60(1) EC Treaty. T Tridemas, The General Principles of EC Law (2nd edn, 2006).

80  Action brought on 5 May 2006, Commission of the European Union v Republic of Austria Case C-205/06.

81  Action brought on 27 February 2007 Commission of the European Union v Republic of Finland Case C-118/07. This case was commenced over six months later than the Austria and Sweden cases.

82  Action brought on 2 June 2006 Commission of the European Union v Kingdom of Sweden Case C-249/06.

83  Case 812/79 Attorney General v Burgoa [1980] ECR 2787.

84  Case 62/98 Commission v Portugal, Judgment of 4 July 2000.

85  Id, para 34 (endorsing the earlier decision in Case C-170/98 Commission v Belgium [1999] ECR I-5493, para 42).

86  Id, para 49.

87  Art 5 Austria BIT 1985 (in force since 11 October 1986).

88  Other treaties that allegedly violated the EC Treaty entered into by Austria include Cape Verde, Korea, Malaysia, Russia, and Turkey. Those BITs entered into by Sweden (other than China) include Argentina, Bolivia, Egypt, Hong Kong, Indonesia, Ivory Coast, Madagascar, Malaysia, Pakistan, Peru, Senegal, Sri Lanka, Serbia and Montenegro, Tunisia, Vietnam, and Yemen.

89  Opinion of Advocate General P Maduro, Cases C-249/06 and C-205/06 Commission v Austria and Commission v Sweden, para 42.

90  Para 5, Protocol (Re Paragraph 1 of Art 7).

91  Opinion of Advocate General P Maduro, Cases C-249/06 and C-205/06 Commission v Austria and Commission v Sweden, para 60.

92  ibid para 62. This legal principle is codified in Art 62 of the Vienna Convention on the Law of Treaties. The Advocate General’s Opinion notes that this doctrine is applied in limited circumstances and there was no way to be certain that the exercise of Community competence under Art 59 and 60(1) would be exceptional for the purposes of the operation of the rebus sic stantibus principle.

93  ibid para 65.

94  Eastern Sugar BV v Czech Republic, SCC Case No. 088/2004. There is a similar argument being made by the Czech Republic in an arbitration with Mr R J Binder under the Czech–Germany BIT, summary details at: <http://www.iareporter.com>.This question may also arise in cases between EU member states under the Energy Charter Treaty.

95  A van Aaken, ‘Fragmentation of International Law: The Case of International Investment Protection’ (2008) 1 University of St. Gallen Law School Law and Economics Research Paper Series, 28 available at: <http://ssrn.com/abstract=1097529>. See also International Law Commission, ‘Fragmentation of International Law: Difficulties arising from Diversification and Expansion of International Law’, Report of the ILC Study Group UN Doc A/CN.4/L682 13 April 2006 and UN Doc A/CN.4L.702 18 July 2006.

96  Commission v Ireland [2006] ECR I-4635, C-459/03.