BIT’s bilateral investment agreements provide an economic cooperation framework and protection of investments in two countries, which have a substantial impact
BIT’s bilateral investment agreements provide an economic cooperation framework and protection of investments in two countries, which have a substantial impact on inward FDI. The impact of BITs on outward direct investment can be seen in the following ways:
Investor Protection: Provisions designed to protect investments by investors from one country to another are usually included in BITs. This protection can be used by investors who know that their investments will be protected from unfair acts of the host country, leading them to make direct investments abroad.
Legal Certainty: BITs help to provide legal certainty for investors through the establishment of transparent rules and alternative dispute resolution mechanisms. This will be conducive to reducing the perceptions of risks associated with FDI and encouraging companies to take advantage of this option.
Dispute Resolution: The mechanism for resolving disputes between investors and host countries is often included in BITs. International arbitration can provide investors with an alternative law in their own countries. To mitigate the risk of possible disputes, such mechanisms may make them more attractive for inward FDI.
Non-Discrimination: Provisions ensuring fairness and equality of treatment, as well as discrimination protection, are frequently included in BITs. Therefore, it could be more attractive for companies to participate in an outward direct investment if they knowingly receive a level playing field with national and other foreign investors.
Promotion of economic cooperation: BITs are increasingly including provisions for promoting economic cooperation, technical transfer, and other forms of collaboration that go beyond merely investment protection. These elements would incentivize investment from abroad by providing investors with further benefits.
Risk Mitigation: BITs can reduce the perception of risks linked to external direct investments using provisions on compensation for expropriation and additional risk mitigation measures. In turn, investors may take advantage of such a situation and allocate their funds to other markets.
An impact on the regulatory environment: The regulatory environment of the host country can be influenced by BITs. When countries know that their policies can be subject to monitoring by International Law, they may encourage the preservation of transparency and investor-friendly legislative frameworks favorable for inward Direct Investment.
BITs covering bilateral investment Treaties are usually accompanied by varied legislative protection measures and dispute settlement mechanisms to safeguard the interests of interested parties. These provisions are intended to provide a framework for dispute resolution between investors and host countries. Also, ensuring fairness and equal treatment while providing recourse to law. A set of common legal safeguards and dispute resolution mechanisms has been identified in BITs:
Unfair and Equitable Treatment: A provision guaranteeing that investors are treated fairly and equally is included in many BITs. The aim of this provision is that host countries are not allowed to take measures that could be regarded arbitrarily, discriminatingly, or contrary to the legitimate expectations of investors. Investors may be able to bring proceedings before the International Court of Justice if this treatment takes place.
Most-Favored-Nation (MFN) Treatment: The MFN stipulates that investors from a given country shall be treated per or superior to the treatment received by investors from any third country. This provision calls for equal treatment, limiting the host countries’ favor of investors from a particular country.
Expropriation and Compensation: BITs address the issue of expropriation, establishing that expropriation should only take place for public purposes, on a nondiscriminatory basis, and with prompt and adequate compensation. International arbitration may be used for disputes relating to the expropriation or compensation.
Dispute Resolution Mechanisms: Arbitration in BITs is a mediation and conflict resolution mechanism. International arbitration, the most common method for resolving disputes between investors and host countries, is often provided in contracts. Arbitration may be conducted under ad hoc arbitration provisions or in institutions such as the International Center for Settlement of Investment Disputes (ICCID).
UNCITRAL Arbitration Rules: Some BITs may opt for arbitration under the UN Commission on International Trade Law’s Uniform Arbitration Rules. These provisions can be applied in multiple disputes involving investments and are also applicable to arbitration proceedings.
Local Remedies Exhaustion: BITs may require investors to pursue local remedies before the start of a global arbitration procedure. This means that before recourse to international arbitration, investors need to make an effort to resolve the dispute through domestic legal channels.
Proceedings of transparency and open arbitration: Provision for enhanced transparency in the dispute settlement process is more and more becoming part of BITs. To this end, it may be necessary to publish the records of arbitrations and hearings to promote transparency and due process.
It should be noted that the provisions of BITs vary considerably and their effectiveness largely depends on whether the parties intend to enforce them or not. There is also an ongoing debate about the balance between protecting investors and ensuring that host countries use their regulatory powers in the public interest. The nature of legal safeguards and dispute settlement mechanisms in BITs may also be evolving with the evolution of international investment law.
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