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The Oxford Handbook of International Investment Law edited by Muchlinski, Peter T; Ortino, Federico; Schreuer, Christoph

Part II Substantive Issues, Ch.16 Regulatory Transparency

Akira Kotera

From: The Oxford Handbook of International Investment Law

Edited By: Peter T Muchlinski, Federico Ortino, Christoph Schreuer

From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.  Subscriber: null; date: 23 October 2019

Subject(s):
Fair and equitable treatment standard — Transparency

(p. 617) Chapter 16  Regulatory Transparency

  1. (1)  Significance of Transparency 619

  2. (2)  The Expansion of Transparency Obligations in IIAs 625

  3. (3)  Transparency and ‘Fair and Equitable Treatment’ 628

  4. Concluding Remarks 634

(p. 618) Nowadays it is understood that transparency should be observed in numerous types of organizations, including in particular governments and other public bodies. In the contemporary field of international investment, transparency has begun to be characterized as a fundamental principle. Initially required of the host country, it may also come to be required of the home (investing) country and the investor (investing corporation), according to research conducted by the United Nations Conference on Trade and Development (UNCTAD).1 The Declaration of the Doha Development Agenda of the World Trade Organization (WTO), which sought to draft a multilateral investment agreement in the section entitled ‘Relationship between trade and investment’, indicated that transparency would be one of the basic elements of future WTO Investment Rules. It stipulates as follows: ‘In the period until the Fifth Session, further work in the Working Group on the Relationship Between Trade and Investment will focus on the clarification of: scope and definition; transparency; and non-discrimination …’.2

However, early bilateral investment treaties (BITs) concluded in the late 1950s to 1960s did not contain a provision for transparency. Articles on transparency first appeared in the early US BITs, which were concluded in the 1980s. Furthermore, even recent books on investment treaties have neither a chapter on transparency nor do they include transparency as a term in the index.3

Furthermore, with respect to the international economic field, transparency is argued for not only in the area of investment but also in trade. As transparency is to be required widely in relation to the organization in general, it is natural that transparency is required in respect of the importing countries as the main addressee of obligations in the trade field.4 Transparency is widely discussed, so we need to take its particular meaning into account in the context of investment.

The present chapter will offer an overview of transparency issues as follows. It begins with a discussion of the significance of the concept in the investment field, asking why transparency is being increasingly characterized as a fundamental (p. 619) principle and considering why it was neglected for a long time, bearing in mind early investment treaty practice. It then goes on to review the development of specialized transparency obligations in more recent international investment agreements (IIAs), highlighting their principal features. Thirdly, the chapter will analyse the interrelationship between the transparency obligations of the state and the principle of fair and equitable treatment, taking into account developments in international investment arbitrations in this regard. Finally, the chapter will conclude by considering the role that transparency has to play in investment protection more generally. The chapter does not cover issues of corporate transparency through disclosure rules, which is done elsewhere in this volume.5

(1)  Significance of Transparency

Transparency is covered in many WTO agreements and in the General Agreement on Trade in Services (GATS) is ranked as a basic principle alongside the principle of most-favoured-nation treatment.6 One reason why transparency has obtained the position of a fundamental principle in the international economic field, including international investments, was the impact of its treatment in GATS. Transparency within the GATS treaty is covered in the preambles as follows.

Wishing to establish a multilateral framework of principles and rules for trade in services with a view to the expansion of such trade under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries …. (Emphasis added)

In the text of GATS, transparency, which is stated as its main purpose in the preamble, is defined as a ‘basic principle’.7 The main obligations contained in Article 3 are as follows: (1) the obligation to make publicly available all relevant measures (p. 620) of general application, that are all relevant national laws, such as by their publication; (2) the obligation promptly to inform the Council for Trade in Services of the introduction of any new, or any changes to existing, laws and other regulations; (3) the obligation to respond promptly to all requests by other members for specific information on a member's measures of general application or international agreements and to establish enquiry points to provide specific information to other members.

Article 3 of GATS indicates that the core element of transparency is that all relevant measures of general application be made publicly available. To ensure this availability, importing countries need to meet the three obligations as stated above. It should be noted that this requirement of public availability does not always require the publication of these measures. Publication is one means by which the measures of relevant laws may be made publicly available. Furthermore, with respect to the exchange of information as the means of securing the public availability of all relevant laws, only the obligations to inform the Council for Trade in Services and to respond to all requests by other countries are included. The obligation to respond is not placed on any individual entity but only on countries themselves. The scope of information which is exchanged is more restricted than that which is to be publicly available.

Other WTO agreements in addition to the GATS emphasize transparency. For example in the following, though transparency is not designated as a basic principle, it is still addressed:

The inclusion of transparency obligations in the WTO Agreements carries on the precedent set by the General Agreement on Tariffs and Trade (GATT) 1947. The ensuring of public availability of all relevant national laws applied as the basic element of transparency came into existence in Article 10 of the GATT, which provides obligations for the publication of laws, regulations, judicial decisions, and administrative rulings of general application. Article 10 of GATT does not include the obligation of information exchange which nowadays is one of the means of realizing transparency.8 On the other hand, Article 3 includes other obligations which are not included in Article 3 of GATS. Those obligations are: (1) the obligation not to enforce a measure before such a measure has been officially published, (2) the obligation to administer in a uniform, impartial, and reasonable manner all its laws etc, as stated above (fair administration), (3) the obligation to maintain or institute independent judicial, arbitral, or administrative tribunals or procedures (independent tribunals). These last two obligations are common to the contemporary US criteria of transparency as stated below.

But it was not recognized that Article 10 of GATT included transparency as it was viewed only as a technical provision.9 This means that this article was not considered important in the GATT. Therefore Article 10 cannot be characterized as the origin of the transparency obligation in current international economic regulations, although it might appear so on the surface when we compare Article 10 with the present provisions. Article 10 of GATT is only a forerunner to these present manifestations of transparency.

The concept of transparency came into existence in the GATT Tokyo Round codes. The Preamble to the Government Procurement Agreement reads, ‘Recognizing that it is desirable to provide transparency of laws, regulations, procedures and practices regarding government procurement;…’. On the other hand, in the text of the Agreement there is no article specifically entitled ‘transparency’. Article 6, ‘Information and Review’, includes only the obligation to publish any law and procedure regarding government procurement but does not include the obligation of information exchange. We can presume that transparency in the preamble is used (p. 622) in connection with Article 6, but it is not clear whether or not it can be considered to be limited to the content contained in Article 6. However, in order to achieve national treatment and non-discrimination as the main purposes of the agreement on government procurement, open tendering procedures, as well as regulations of technical specifications, are stressed. The emphasis on open tendering procedures indicates the importance of transparency in this area.10 In the history of the WTO and GATT, we have to realize that the concept of transparency emerged as an important principle at the time of the Tokyo Round and finds its most developed contemporary expression in the GATS.

In the field of trade, the importance of the general availability of relevant laws was formerly recognized, but it is only in recent times that it has been viewed as important from the standpoint of transparency. The initial practice of BITs did not include a specific transparency provision. The first BIT was between West Germany and Pakistan in 1959 and certain Western European countries followed this practice. The purpose of BITs at that time was to secure prompt, adequate, and effective compensation provided against expropriation by states. At that time, the notable case where the issue of expropriation and compensation emerged was the expropriation of natural resources-related investments in developing states. Developing states strongly argued that natural resources should be entirely controlled based upon the state in which they were located under the title of ‘permanent sovereignty over natural resources’, and the means of compensating for expropriation should be decided entirely by the states themselves. The initial BITs were in response to such a situation and were called ‘investment protection agreements’. Such BITs did not include the principle of transparency, neither mentioning the word ‘transparency’ nor containing any provision concerning the general availability of laws of the countries concerned. Such agreements continue even today. One example is the most recent UK BIT with Vanuatu in 2004.11 Thus, this type of investment protection attaches no importance to transparency.

On the other hand, in the late 1970s the prevailing opinion in the USA was that the conventional programme of freedom of commerce and navigation treaties (FCN) had not responded to the needs of investors and traders. First, as GATT regulations widely covered trade, the significance of disciplines imposed by FCN treaties was weakened. Secondly, with respect to international investment, it was recognized that FCN rules were not sufficient to respond to the needs of that time. The conventional FCN treaty did not include a clause covering issues such as the prohibition of (p. 623) performance requirements or the free entry of key foreign personnel in connection with the establishment and operation of an investment. Thirdly, as the FCN programme was built on the premise that partners were advanced states, it was difficult for developing states to commit to obligations that were capable of full compliance only for advanced states. Given this situation, much attention was paid by the USA to the European practice of concluding BITs and, in due course from the early 1980s, the US government constructed a BIT programme to conclude such treaties with developing countries.

The purpose and structure of the US BIT programme was, however, different from its European counterpart. Although the main purpose of European BITs was to guarantee adequate, prompt, and effective compensation against expropriation, the US government set as its main aims the improvement of the investment environments of host states as well as investment protection. The improvement of the investment environment in host countries enabled the acquisition of national treatment or most-favoured-nation treatment. The securing of transparency was one form of treatment of investment for which improvement was sought.

Article 2 (Treatment of Investments), paragraph 9 of the first US Model BIT, drafted in 1983, states,

Each Party and its political subdivisions shall make public all laws, regulations, administrative practices and procedures, and adjudicatory decisions that pertain to or affect investments in its territory of nationals or companies of the other Party.12

This includes securing the public availability of relevant laws in the treatment of investments. The US BITs with Bangladesh and Haiti from the 1980s adopted this model to make publicly available the relevant laws of host states. Furthermore, the BITs with Turkey, Grenada, and Congo adopted the model of the 1984 or 1987 draft. (The BIT with Panama did not contain such a provision because in this case, in the view of the US Department of State, such public availability of relevant laws had already been realized.13) At that time, the US BIT included only the obligation of public availability of relevant laws of host states and did not use the concept of transparency. This obligation was characterized as one of the treatment of investment standards.

(p. 624) After the end of the Cold War, the USA began to conclude BITs with Eastern European countries. On the one hand, this was for the purpose of maintaining a market economy system after the collapse of the former socialist regimes and on the other hand it indicated to the wider world the change of economic regimes of the former socialist countries. One such pioneering agreement was the Treaty with Poland Concerning Business and Economic Relations, a comprehensive agreement that included not only investment but also trade. At that time, Poland was not a member of GATT. By Article VIII of that agreement,

Exchange of Information and Transparency

1.  Each Party acknowledges the desirability of facilitating the collection and exchange of all non-confidential, non-proprietary information relating to investments and commercial activities within its territory.

2.  Each Party shall make publicly available all non-confidential, non-proprietary information which may be useful in connection with investment and commercial activities. In addition, each Party shall promptly make public all laws, regulations, administrative practices and procedures, and adjudicatory decisions having general application that pertain to or affect commercial activities or investments.

3.  The Parties shall disseminate to their respective business communities such information made available under paragraph 2 which will assist their nationals and companies in pursuing the most expeditious and equitable settlement of any dispute affecting them which may arise under this Treaty. Such information may be related to timeliness of decisions and vindication of rights under the Treaty.14

In this article, the word ‘transparency’ is applied clearly, which means securing the public availability of all laws with the added obligation to make information public and for information exchange. In this sense, this provision appears similar to Article 3 of GATS. However, the obligation to make information public was not specifically equated with publication as in GATS. With respect to information exchange, it mentions only its desirability. On this point, the obligations are less strict than those in GATS.

The Treaty on Business and Economic Relations with Poland had the political and economic functions of showing the transition of the former socialist regime beyond the mere improvement of investment environments through legal forms.15 Such a document was highly symbolic of the functions of the concept of transparency. Transparency was viewed as an inevitable requirement of a free market economy. From the historical viewpoint, transparency that ensured the public availability of relevant laws as its basic element was definitely born at that moment, and led to GATS.

(p. 625) (2)  The Expansion of Transparency Obligations in IIAs

NAFTA realized the next stage of transparency. The aim of NAFTA is included in Article 102, paragraph 1 as follows: ‘The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to …’. Herein transparency is positioned as a basic principle and rule on a par with national treatment and most-favoured-nation treatment. As the concrete definition of transparency, Chapter 18, ‘Publication, Notification and Administration of Laws’, stipulates its core meaning as securing the public availability of relevant information on laws. The structure of Chapter 18 is as follows: Article 1801: Contact Points; Article 1802: Publication; Article 1803: Notification and Provision of Information; Article 1804: Administrative Proceedings; Article 1805: Review and Appeal. Chapter 18 of NAFTA stipulates the involvement of related parties in administrative procedures and obligations to establish an impartial review agent, such as a court, in addition to the public availability of information on relevant laws. However, it is not indicated in the text that transparency is to be secured by these articles. This point has been clearly demonstrated in US practice in the 21st century.

The new US Model BIT of 2004 includes the following transparency-related articles: Article 10, entitled ‘Publication of Laws and Decisions Respecting Investment’ and Article 11 entitled ‘Transparency’.16

(p. 626) The concept of transparency was greatly expanded in the US Model BIT of 2004. First, the publication of laws and other regulations is separated from the principle of transparency itself. The term transparency covers the following items: (1) to make contact points for facilitation of communications; (2) to publish in advance any relevant measure that a Contracting Party proposes to adopt and to provide the opportunity to comment on proposed measures; (3) to respond to questions pertaining to any actual proposed measure; (4) to institute administrative proceedings; (5) to establish or maintain administrative tribunals or procedures for the purpose of the prompt review.

Transparency was expanded to include the institution of a prior comment upon the proposed laws and administrative decisions as stipulated in (1), that is, a commitment concerning the enactment of laws and administrative decisions beyond the mere provision of information of relevant laws to be publicly available and the review of the related administrative decisions by an impartial agent such as a court. Such broad transparency appeared in the US-Uruguay BIT.17 In more recent US Free Trade Agreements with investment provisions, a commitment to transparency in (p. 627) administrative proceedings has been introduced.18 In addition, in a number of other BITs a general right for any interested person to have available to them information on relevant laws, regulations, and procedures can be found, as well as permission to comment on proposed measures.19

Transparency was expanded in this way because its purpose had shifted from mere improvement of investment environments to public control of policy-making or of the implementation and dispute settlement process of host states. A new philosophy has emerged that transparency is to ensure the accountability of host states with a view to good and effective governance.20 Transparency from the standpoint of accountability is compatible with that of the improvement of investment environments. Investors not only obtain merit from the public availability of information on relevant laws, but this can also reinforce the accountability of host states. Furthermore, the realization of such accountability guarantees good and effective governance in host states as a means of improving their investment environment.

Deep analysis of the purpose of transparency leads to an increase in the number of actors for which transparency would be requested. The research on BITs by UNCTAD which positioned transparency as an emerging principle in international investment law examines transparency not only towards host countries but also towards home countries and investors themselves.21 The basic philosophy of UNCTAD's research is that BITs should be desirable for all relevant actors, including host states, home states, and investors, and that home countries as well as investors should be requested to release relevant information on request. In practice, BITs have demanded transparency from neither home states nor investors. But it is important that such an idea on transparency has emerged. Currently, the basic purpose of transparency has been shifting from mere improvement of investment environments to pursuit of the accountability of all actors concerned.

This new philosophy on BITs, in practice, has been adopted only by the US government, which further has only applied such transparency to host states' measures. Governments other than the USA have not requested such transparency in making BITs.22 Taking this situation into account, one may conclude that the (p. 628) currently prevailing idea is that transparency should be viewed only as securing public availability of information on relevant laws by their open release and information exchange in order to improve the investment environment. The transparency provided in the BITs and Economic Partnership Agreements concluded by Japan belong to such a category.23 But it is necessary to pay attention to the new philosophy of transparency and the gradual increase in the number of its supporters.24

(3)  Transparency and ‘Fair and Equitable Treatment’

Since around 1980 the number of BITs that include the obligation of fair and equitable treatment of investors by host states has been increasing. The purpose of this provision is to ensure a certain level of treatment of investors and investments by host states. The concept of fair and equitable treatment has not been clearly defined and the abstract views on the topic have been divided into two main factions. The first view is that it means the minimum standard that should be given to foreign investors under international customary law and the second is that it means a degree above the minimum standard.25 We may suppose that transparency could be included in fair and equitable treatment, so such an idea should be discussed.

Whether such a relationship exists between fair and equitable treatment and transparency has been considered in a number of recent investment arbitrations. One of the most important legal grounds of claim alleged by investors in such cases has been a breach of the obligation of fair and equitable. As a result, the definition of fair and equitable treatment has come to attract attention.26 In this process, arbitral awards have emerged where the relationship between fair (p. 629) and equitable treatment and transparency was the most controversial issue. The Metalclad case, based on NAFTA Chapter 11 (chapter on Investment), was the first of these recent cases in which fair and equitable treatment came into contact with issues of transparency.

In the Metalclad case,27 the Metalclad Corporation had planned to operate a waste disposal facility in Mexico on the invitation of the Mexican government, but, faced with the opposition of local government authorities in Mexico, Metalclad abandoned its plan. In response, it brought the case to arbitration to pursue the responsibility of the Mexican government to provide compensation for the loss of investment. The arbitration tribunal considered that the Mexican government had not provided fair and equitable treatment to Metalclad, contrary to Article 1105 of NAFTA. The arbitration award states:

An underlying objective of NAFTA is to promote and increase cross-border investment opportunities and ensure the successful implementation of investment initiatives … Prominent in the statement of principles and rules that introduces the Agreement is the reference to ‘transparency’ (NAFTA Article 102(1)). The Tribunal understands this to include the idea that all relevant legal requirements for the purpose of initiating, completing and successfully operating investments made, or intended to be made, under the Agreement should be capable of being readily known to all affected investors of another Party …. Once the authorities of the central government of any Party (whose international responsibility in such matters has been identified in the preceding section) become aware of any scope for misunderstanding or confusion in this connection, it is their duty to ensure that the correct position is promptly determined and clearly stated so that investors can proceed with all appropriate expedition in the confident belief that they are acting in accordance with all relevant laws.28

The Mexican government's denial of a municipal construction permit was considered improper. Metalclad, relying on representations by Mexican government officials, acted in good faith and fully expected to be granted the permit. Therefore,

Mexico failed to ensure a transparent and predictable framework for Metalclad's business planning and investment. The totality of these circumstances demonstrates a lack of orderly process and timely disposition in relation to an investor of a Party acting in the expectation that it would be treated fairly and justly in accordance with the NAFTA.29

In the view of the arbitral tribunal, the policies of the Mexican Federal Government and local governments were not clearly made known to Metalclad, which created confusion and therefore the lack of transparency created Metalclad's hardships. The tribunal acknowledged the responsibility of the Mexican government.

(p. 630) Mexico sought judicial review of this award before the courts of Canada as the designated place of arbitration in this case.30 With respect to the issue of fair and equitable treatment, the arbitration award was nullified by the judgment of the Supreme Court of British Columbia31 on the grounds that the tribunal had read transparency into fair and equitable treatment:

In its reasoning the Tribunal discussed the concept of transparency after quoting Article 1105 and making reference to Article 102. It set out its understanding of transparency and it then reviewed the relevant facts. After discussing the facts and concluding that the Municipality's denial of the construction permit was improper, the Tribunal stated its conclusion which formed the basis of its finding of a breach of Article 1105; namely, Mexico had failed to ensure a transparent and predictable framework for Metalclad's business planning and investment. Hence, the Tribunal made its decision on the basis of transparency. This was a matter beyond the scope of the submission to arbitration because there are no transparency obligations contained in Chapter 11.32

It seems that the tribunal read transparency (Art 102 NAFTA) into fair and equitable treatment and made the award. In the view of the Supreme Court, the issues an investor can bring to arbitration were limited to Chapter 11 under NAFTA. Therefore, it was beyond the scope of NAFTA's authority for the tribunal to make a decision based on Article 102.

From the viewpoint of the arbitration tribunal, it can be argued that it did not have the intention of directly applying Article 102. Indeed, the tribunal acknowledged that the Mexican government lacked transparency and affirmed the responsibility of the Mexican side. Yet in the view of the tribunal, the investor suffered damages from the measures of the Mexican government which were contrary to the obligation of fair and equitable treatment. To define the measures of the Mexican government which lacked fair and equitable treatment in precise terms, the tribunal argued there was a lack of transparency. Article 102, which includes transparency, covers myriad fields, including investment, but is not found in Chapter 11 of NAFTA, which the arbitration between investors and states covers. To interpret the arbitral award in such a way is in effect to exclude any transparency obligation from the fair and equitable treatment standard in Article 1105 of NAFTA, which is what the decision of the Supreme Court of British Columbia did.

Such a narrow approach to the fair and equitable treatment standard was not accepted in the subsequent Tecmed case, where a different approach to interpretation was taken not involving Article 102 of NAFTA. In the Tecmed case,33 the tribunal (p. 631) considered that the fair and equitable treatment provision in the BIT between Spain and Mexico was an element of good faith recognized under international law and stated:

(T)his provision of the Agreement, in light of the good faith principle established by international law, requires the Contracting Parties to provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment.

The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations ….The foreign investor also expects the host State to act consistently, i.e. without arbitrarily revoking any preexisting decisions or permits issued by the State that were relied upon by the investor to assume its commitments as well as to plan and launch its commercial and business activities.34

The view of the tribunal was that investors held a certain expectation in concluding the BIT and that this led the definition of fair and equitable treatment to be one that ensures the protection of such investor expectations. The expectation held by investors, according to the tribunal, was that host states should act in a consistent manner, free from ambiguity and totally transparent in its relations with the foreign investor. This tribunal rephrased fair and equitable treatment in accordance with the principle of good faith and read transparency into it. Such an approach was also followed in the Saluka case.

The Saluka case35 developed and clarified the Tecmed decision. In the Saluka case, the actions of the Czech government were the object of the complaint by Saluka Investments BV, a Netherlands-registered affiliate of the Japanese financial group Nomura. In the case, whether the actions taken by the Czech government violated the ‘fair and equitable treatment’ standard became an important issue. To interpret the ‘fair and equitable treatment’ standard, the tribunal examined first its ordinary meanin; secondly, the context, and finally, the object and purpose of the Czech Republic-Netherlands BIT. With regard to the ordinary meaning, the tribunal, quoting the SD Myers decision,36 stated that ‘the infringement of the standard requires treatment in such an unjust or arbitrary manner that the treatment rises to the level that is unacceptable from the international perspective’.37 Regarding the context, this tribunal said that ‘the “fair and equitable treatment” standard is linked directly to the stimulation of foreign investment and to the economic development of both (p. 632) Contracting Parties’.38 Concerning the object and purpose, its overall aim is considered to be to encourage foreign investment, and extend and intensify the parties' economic relations. Based on these interpretations, the tribunal considered that the ‘fair and equitable treatment’ standard requires the host state to assume an obligation ‘to treat foreign investors so as to avoid the frustration of investors' legitimate and reasonable expectations’.39 Theoretically, a foreign investor may expect that the government's conduct does not manifestly violate the requirements of transparency as well as those of consistency, even-handedness, and non-discrimination as this tribunal said. Thus the tribunal connects the ‘fair and equitable treatment’ standard with transparency.40

Thus, transparency has been considered as an element of fair and equitable treatment in recent arbitration awards. Is this view compatible with the concept of fair and equitable treatment? With regard to fair and equitable treatment, there has been controversy over whether it would mean the minimum standard under customary international law or beyond the minimum, as stated above. Such controversy is related to the argument as to why transparency should be read into fair and equitable treatment standard in any case. Taking into account the current situation of developing states, and the prevailing view that each country is required to provide treatment for foreign investors that is equivalent to that for nationals,41 it is difficult to say that transparency, even the public availability of information of relevant laws, should be a minimum standard towards foreign investors under customary international law.

The arbitral tribunal of Metalclad assumed that an underlying objective of NAFTA is to promote and increase cross-border investment opportunities and interpreted the fair and equitable treatment not as a standard of international law but as a standard of NAFTA. The tribunal in the Pope and Talbot case42 clearly stated that fair and equitable treatment should be a NAFTA standard beyond the minimum under customary international law in the language, ‘[a]nother possible interpretation of the presence of the fairness elements in Article 1105 is that they are additive to the requirements of international law. That is investors under NAFTA are entitled to the international law minimum plus the fairness elements’.43 Such interpretations (p. 633) of fair and equitable treatment as a NAFTA standard exclude the idea that it should be a standard under customary international law. However, in later arbitration awards under NAFTA, the tribunals considered that fair and equitable treatment does not mean anything other than the minimum standard under international law and in fact dismissed the Pope and Talbot interpretation. The implication of this may be that transparency might not be an additional element to fair and equitable treatment in NAFTA as it goes beyond the minimum standard under customary international law.

On the other hand, the interpretation of the Tecmed tribunal uses a very subtle expression as follows: ‘(T)he commitment of fair and equitable treatment included in Article 4(1) of the Agreement is an expression and part of the bona fide principle recognized in international law’.44 How should we interpret this expression? If fair and equitable treatment indicates the standard under customary international law, the fair and equitable treatment clause in a BIT has little significance as this obligation would be complied with by countries without the clause.

First, we should be reminded that fair and equitable treatment clauses differ from agreement to agreement. Accordingly, the purpose and interpretation of this clause will be different in each agreement. For example, Article 1105 of NAFTA provides as follows:

Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.

Article 3.1 of the Czech Republic-Netherlands BIT, upon which Saluka 's claim was brought, provides as follows:

Each Contracting Party shall ensure fair and equitable treatment to the investments of investors of the other Contracting Party ….

Comparing these two clauses, their styles are completely different. On the one hand, it might be appropriate for the fair and equitable standard of NAFTA to be interpreted under customary international law as it explicitly mentions international law. On the other hand, it might be reasonable that Article 3.1 of the Czech Republic-Netherlands BIT, which does not mention international law, should be interpreted as an autonomous standard as in the Saluka decision.

We have to note that as the same concept of fair and equitable treatment has been applied to different BITs, it is important to seek a common element in this concept. From this perspective, the MTD Equity case45 gives us helpful guidance. In that case the tribunal states that it follows the Tecmed decision on this issue,46 and borrows (p. 634) Professor Schwebel's words to indicate the meaning of fair and equitable treatment as ‘a broad and widely-accepted standard encompassing such fundamental standards as good faith, due process, nondiscrimination, and proportionality’.47 The tribunal then paraphrases, ‘In their ordinary meaning, the terms “fair” and “equitable” used in Article 3(1) of the BIT mean “just”, “even-handed”, “unbiased”, “legitimate”’.48 The tribunal, upon such an assumption, concludes that the host state's approval of an investment which was clearly against its own urban development policy is a breach of the obligation of fair and equitable treatment. Thus ‘minimum’ is the common element of fair and equitable treatment and includes good faith, due process, non-discrimination, and proportionality. The Tecmed and Saluka decisions have added transparency to this list of good governance criteria.

As the above-mentioned arbitration awards show, the common meaning of fair and equitable treatment is the minimum standard to act in good faith under customary international law or under each BIT. Its concrete meaning should be adapted according to both the contents of each BIT, such as the purpose of the BIT, and the political and economic situations of the host states to which it applies.49 Based on applicable situations, transparent action might be required as a principle of good faith. In other words, even if a BIT does not contain a provision for transparency, the core element of transparency might emerge if a clause on the fair and equitable treatment obligation resides within it and its application calls for such a reading. Yet, we cannot define the concrete meaning of transparency as an element of fair and equitable treatment in each BIT by understanding the specific contents of the BIT and investment environments, although the obligation of public availability of information on relevant laws could be included in the meaning.

Concluding Remarks

As stated above, transparency originated in the concept of the improvement of the investment environment, but it is not clear what relationship transparency should (p. 635) have with investment protection. One could presume that the obligation of transparency has no relation to the protection of investments. But to read transparency into fair and equitable treatment gives a basis for compensation towards investments that have suffered injuries, such as where an investor was led into making a bad decision to invest due to lack of information on relevant laws. Thus, transparency might have a significant bearing on the aspect of investment protection in this sense. Transparency may require the host state not only to secure the public availability of relevant laws but also to compensate investors who have suffered because of the lack of transparency by host states.50 Indeed, depending on the particular interpretation that a tribunal might place on the precise meaning of fair and equitable treatment in a given case, transparency may be regarded as an element of fair and equitable treatment and so require a degree of accountability by host states.

In the 1980s, transparency came to be known as the securing of the public availability of information on relevant laws. This trend was followed by the WTO Agreements, which ranked transparency as a basic principle. Furthermore, transparency has developed in US BITs as a tool to pursue the accountability of host states and to charge host states with corresponding obligations so as to establish an impartial review mechanism. From the same viewpoint, it has come to be argued that accountability should also be required of investors and host states in BITs. This proposal indicates a change in the theoretical basis not only of transparency but also of the fundamental functions of BITs. Until now, BITs have been treaties that lay out obligations concerning areas such as investment protection or improvements in investment environments in host states in favour of investors and investments. But the new argument could intend to shift the obligations upon both investors and home states in favour of host states. In this sense, this argument proposes changing the paradigm of what BITs should be.

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  • Sornarajah, M, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004)
  • __, International Investment Agreements: Key Issues (New York and Geneva, United Nations, 2004)
  • __, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006)
  • UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (New York and Geneva, United Nations, 2007)
  • Vandevelde, Kenneth J, United States Investment Treaties (Deventer, Kluwer Law and Taxation Publishers, 1992)
  • Vasciannie, Stephen, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’, 70 BYIL 99 (1999)
  • Winham, Gilbert R, International Trade and the Tokyo Round Negotiations (Princeton, Princeton University Press, 1986)

Footnotes:

See UNCTAD, International Investment Agreements: Key Issues (New York and Geneva, United Nations, 2004) ch 10, ‘Transparency’ at 281–314. Also published separately as UNCTAD, Transparency, Series on issues in international investment agreements (New York and Geneva, United Nations, 2004), available at <http://www.unctad.org/iia>.

WTO, Ministerial Conference, Fourth Session, Doha, 9–14 November 2001, Ministerial Declaration, WT/MIN(01)/DEC/1. Negotiations over investment rules were dropped from the Doha Development Agenda (DDA) in 2004.

See M Sornarajah, The International Law on Foreign Investment (Cambridge, Cambridge University Press, 2nd edn, 2004); Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (The Hague, Nijhoff, 1995). Muchlinski states, ‘Among other, less common, specific standards to be found in BITs are: … transparency obligations’, citing the US-Uruguay BIT of 25 October 2004, Art 8: 44 ILM 268 (2005) and the above UNCTAD study (n 1), but he does not elaborate further: Peter T Muchlinski, Multinational Enterprises and the Law (Oxford, Oxford University Press, 2nd edn, 2007) at 693. But see below n 22.

The main purpose of the trade facilitation negotiation now in progress in the DDA is enhancing transparency in trade.

See further Peter Muchlinski, ‘Corporate Social Responsibility’, ch 17 below.

National treatment and market access are also basic principles, but these are applied to matters to which contracting states have made commitments. Therefore the ambit of the application of national treatment and market access is very restrictive. On the contrary, transparency and MFN are applied to all matters in principle. See General Agreement on Trade in Services 1994, available at <http://www.wto.org>.

GATS Article III: Transparency:

1.  Each Member shall publish promptly and, except in emergency situations, at the latest by the time of their entry into force, all relevant measures of general application which pertain to or affect the operation of this Agreement. International agreements pertaining to or affecting trade in services to which a Member is a signatory shall also be published.

2.  Where publication as referred to in paragraph 1 is not practicable, such information shall be made otherwise publicly available.

3.  Each Member shall promptly and at least annually inform the Council for Trade in Services of the introduction of any new, or any changes to existing, laws, regulations or administrative guidelines which significantly affect trade in services covered by its specific commitments under this Agreement.

4.  Each Member shall respond promptly to all requests by any other Member for specific information on any of its measures of general application or international agreements within the meaning of paragraph 1. Each Member shall also establish one or more enquiry points to provide specific information to other Members, upon request, on all such matters as well as those subject to the notification requirement in paragraph 3. Such enquiry points shall be established within two years from the date of entry into force of the Agreement Establishing the WTO (referred to in this Agreement as the “WTO Agreement”). Appropriate flexibility with respect to the time-limit within which such enquiry points are to be established may be agreed upon for individual developing country Members. Enquiry points need not be depositories of laws and regulations.

5.  Any Member may notify to the Council for Trade in Services any measure, taken by any other Member, which it considers affects the operation of this Agreement.’

See UNCTAD, above n 1 at 36–7.

John H Jackson, World Trade and the Law of GATT (Indianapolis, Bobbs-Merill Company, 1969) 461. Nowadays Art 10 of GATT is interpreted as the obligation of transparency. See Petros C Mavroidis, The General Agreement on Tariffs and Trade: A Commentary (Oxford, Oxford University Press, 2005) 270–2.

10  See Arie Reich, International Public Procurement Law (The Hague, Kluwer Law International, 1999) 117–25; Gilbert R Winham, International Trade and the Tokyo Round Negotiations (Princeton, Princeton University Press, 1986) 358.

11  Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Vanuatu for the Promotion and Protection of Investments (Port Vila, 22 December 2003) Vanuatu No. 1 (2004) (the Agreement is not in force) Cm 6169, available at <http://www.fco.gov.uk/Files/kfile/Cm6169,0.pdf>.

12  See eg the US-Senegal BIT of 6 December 1983 entered into force 25 October 1990, <http://www.state.gov/documents/organization/43585.pdf>. Art II(10): ‘Each party shall make public by existing official means all laws, regulations, administrative practices and procedures, and adjudicatory decisions that pertain to or affect investments in its territory of nationals or companies of the other Party. 11. The treatment accorded by a Party to nationals or companies of the other Party under the provisions of paragraphs 1 and 2 of this Article shall in any State, Territory, possession, or political or administrative subdivision of the Party be the treatment accorded therein to companies incorporated, constituted or otherwise duly organized in other States, Territories, possessions, or political or administrative subdivisions of the Party.’

13  US-Panama BIT of 27 October 1982, entered force 30 May 1991, available at <http://www.state.gov/documents/organization/43582.pdf>.

14  The Treaty between the Republic of Poland and the United States of America concerning Business and Economic Relations of 21 March 1990, available at <http://tcc.export.gov/static/doc_exp_005367.asp> or <http://www.unctad.org/sections/dite/iia/docs/bits/us_poland.pdf>.

15  See Kenneth J Vandevelde, United States Investment Treaties (Deventer, Kluwer Law and Taxation Publishers, 1992) 235–44.

16  See US Model BIT of 2004 at <http://ita.law.uvic.ca/documents/USmodelbitnov04.pdf>:

Article 10:  Publication of Laws and Decisions Respecting Investment

1.  Each Party shall ensure that its: (a) laws, regulations, procedures, and administrative rulings of general application; and (b) adjudicatory decisions respecting any matter covered by this Treaty are promptly published or otherwise made publicly available.

2.  For purposes of this Article, “administrative ruling of general application” means an administrative ruling or interpretation that applies to all persons and fact situations that fall generally within its ambit and that establishes a norm of conduct but does not include: (a) a determination or ruling made in an administrative or quasi-judicial proceeding that applies to a particular covered investment or investor of the other Party in a specific case; or (b) a ruling that adjudicates with respect to a particular act or practice.

Article 11:  Transparency

1.  Contact Points

(a) Each Party shall designate a contact point or points to facilitate communications between the Parties on any matter covered by this Treaty. (b) On the request of the other Party, the contact point(s) shall identify the office or official responsible for the matter and assist, as necessary, in facilitating communication with the requesting Party.

2.  Publication

To the extent possible, each Party shall: (a) publish in advance any measure referred to in Article 10(1)(a) that it proposes to adopt; and (b) provide interested persons and the other Party a reasonable opportunity to comment on such proposed measures.

3.  Provision of Information

(a) On request of the other Party, a Party shall promptly provide information and respond to questions pertaining to any actual or proposed measure that the requesting Party considers might materially affect the operation of this Treaty or otherwise substantially affect its interests under this Treaty. (b) Any request or information under this paragraph shall be provided to the other Party through the relevant contact points. (c) Any information provided under this paragraph shall be without prejudice as to whether the measure is consistent with this Treaty.

4.  Administrative Proceedings

With a view to administering in a consistent, impartial, and reasonable manner all measures referred to in Article 10(1)(a), each Party shall ensure that in its administrative proceedings applying such measures to particular covered investments or investors of the other Party in specific cases: (a) wherever possible, covered investments or investors of the other Party that are directly affected by a proceeding are provided reasonable notice, in accordance with domestic procedures, when a proceeding is initiated, including a description of the nature of the proceeding, a statement of the legal authority under which the proceeding is initiated, and a general description of any issues in controversy; (b) such persons are afforded a reasonable opportunity to present facts and arguments in support of their positions prior to any final administrative action, when time, the nature of the proceeding, and the public interest permit; and (c) its procedures are in accordance with domestic law.

5.  Review and Appeal

(a) Each Party shall establish or maintain judicial, quasi-judicial, or administrative tribunals or procedures for the purpose of the prompt review and, where warranted, correction of final administrative actions regarding matters covered by this Treaty. Such tribunals shall be impartial and independent of the office or authority entrusted with administrative enforcement and shall not have any substantial interest in the outcome of the matter. (b) Each Party shall ensure that, in any such tribunals or procedures, the parties to the proceeding are provided with the right to: (i) a reasonable opportunity to support or defend their respective positions; and (ii) a decision based on the evidence and submissions of record or, where required by domestic law, the record compiled by the administrative authority. (c) Each Party shall ensure, subject to appeal or further review as provided in its domestic law, that such decisions shall be implemented by, and shall govern the practice of, the offices or authorities with respect to the administrative action at issue.’

17  See the US-Uruguay BIT of 25 October 2005 in 44 ILM 265 (2005) Arts 10 and 11.

18  See UNCTAD, Investment Provisions in Economic Integration Agreements (New York and Geneva, United Nations, 2006) at 88, citing the US-Singapore FTA Art 19.5. See too US-Chile FTA of 6 June 2003 Art 10.20, available at <http://www.unctad.org/sections/dite/iia/docs/Compendium//en/290%20volume%2012.pdf>.

19  See eg the Canadian Model BIT 2004 Art 19, available at <http://ita.law.uvic.ca/documents/Canadian2004-FIPA-model-en.pdf>.

20  OECD, Public Sector Transparency and International Investment Policy (Paris, OECD, 11 April 2003) at 5.

21  UNCTAD, Key Issues, above n 1 at 285–9.

22  See further UNCTAD, Bilateral Investment Treaties 1995–2006: Trends in Investment Rulemaking (New York and Geneva, United Nations, 2007) at 76–80. The study concludes: ‘only a small—albeit growing—number of BITs of the last decade include provisions on transparency. However, to the extent that BITs deal with this issue, there have been significant developments concerning the content of the clause. Transparency is no longer perceived as a matter of the contracting parties exchanging investment-related information. In addition, a few recent BITs grant information rights to “all interested persons” and even allow them to comment upon draft legislation. Some BITs also enhance investor rights in administrative and judicial proceedings and provide for third-party participation’.

23  See eg Japan-Vietnam BIT 2003 Art 7 in UNCTAD, above n 22 at 77.

24  Howard Mann, ‘The IISD Model International Agreement on Investment for Sustainable Development: An Introductory Note’, 20 ICSID Rev-FILJ 84 ff (2005).

25  See Stephen Vasciannie, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’, 70 BYIL 99 (1999) at 102–5.

26  When the arbitration under NAFTA started in the 1990s, the issue whether damage to investments might arise from expropriation by host states was highly controversial. Following that, the definition of fair and equitable treatment has come to be a central topic of discussion as it has been shown that the theory of regulatory expropriation is not so easily confirmed: on which see further August Reinisch, Ch 11 above and Todd Grierson-Weiler and Ian A Laird, ch 8 above.

27  Metalclad Corporation v The United Mexican States, ICSID Case No. Arb(AF)/97/1, 40 ILM 36 (2001).

28  Ibid at paras 75–6.

29  Ibid at para 99.

30  See Patrick G Foy and Robert J Deane, ‘Foreign Investment Protection under Investment Treaties: Recent Developments under Chapter 11 of the North American Free Trade Agreement’, 16 ICSID Rev-FILJ 299 at 325–9 (2001).

31  The United Mexican States v Metalclad Corporation, 2001 BCSC 664.

32  Ibid at paras 70–2.

33  Técnicas Medioambientales Tecmed, SA v United Mexican States, ICSID Case No. Arb(AF)/00/2 (Spain/ Mexico BIT), Award, 29 May 2003, 43 ILM 133 (2004).

34  Ibid at para 154.

35  Saluka Investments BV (The Netherlands) v The Czech Republic (Dutch/Czech BIT), Partial Award, 17 March 2006 at <http://ita.law.uvic.ca/documents/Saluka-PartialawardFinal.pdf>.

36  Myers (SD) Inc v Canada, NAFTA Arbitration, UNCITRAL Award of 12 November 2000, 40 ILM 1408 (2001) para 263.

37  Saluka, above n 35 at para 297.

38  Ibid at para 298.

39  Ibid at para 302.

40  According to the tribunal, ‘A foreign investor whose interests are protected under the Treaty is entitled to expect that the Czech Republic will not act in a way that is manifestly inconsistent, non-transparent, unreasonable (i.e. unrelated to some rational policy), or discriminatory (i.e. based on unjustifiable distinctions). In applying this standard, the Tribunal will have due regard to all relevant circumstances.’ Ibid at para 309.

41  Note Ian Brownlie, Principles of Public International Law (Oxford, Oxford University Press, 6th edn, 2003) at 501–2.

42  Pope and Talbot v Canada, UNCITRAL; Award on the Merits of Phase 2, 10 April 2001 at <http://ita.law.uvic.ca/documents/PopeandTalbot-Merit.pdf>.

43  Ibid at para 110.

44  Tecmed, above n 33 at para 153.

45  MTD Equity Sdn Bhd & MTD Chile SA v Chile, ICSID Case No. Arb/01/7 Final Award, 25 May 2004, 44 ILM 91 (2005).

46  Ibid at paras 114–15.

47  Ibid at para 109.

48  Ibid at para 113.

49  See eg Genin v Estonia, ICSID Case No. Arb/99/2 Award of 25 June 2001, 17 ICSID Rev-FILJ 395 (2002) where the reality of administering financial sector supervisory functions in a transitional economy was thought relevant to determining whether the investor had been unfairly and inequitably treated. Indeed, the tribunal noted that the investor had been less than fully transparent towards the regulatory authorities as to the precise ownership structure of their investment in that country, which led in part to their decision to revoke his licence to operate. See further Peter Muchlinski, ‘“Caveat Investor?” The Relevance of the Conduct of the Investor under the Fair and Equitable Treatment Standard’, 55(3) ICLQ 527 (2006) at 540–1.

50  But note that the investor may also have responsibilities to act reasonably in assessing the commercial viability of the investment: see MTD Equity, above n 45 and Muchlinski, above n 49 at 542–7.