In addition to the above, the project lenders and investors can ensure from the outset that the project falls within the scope of a Bilateral Investment Treaty (BIT) or a Multilateral Investment Treaty such as the North American Free Trade Association (NAFTA) or the Energy Charter Treaty (ECT).
A BIT entered into between two states to protect “investments” made by a national of either of the states into the other. It also aims to provide a level of legal protection to the investor. Many BITs contain broadly similar protections.
To qualify for protection under a BIT, there must be an “investor” with an “investment” located in the host state. A dispute would qualify for protection under a BIT if it is between the investor and the host state. Each BIT contains the definition of an “investor” and an “investment”.
International arbitration is usually the neutral forum used to resolve disputes. However, a number of treaties provide for arbitration under the International Centre for the Settlement of Investment Disputes (ICSID). This is addressed in further detail below.
The protections commonly found in BITs are:
- right to fair and equitable treatment;
- right to “national treatment”;6
- right to most favoured-nation-treatment;
- right to compensation for civil disturbance etc.;
- protection against expropriation and nationalisation;
- right to repatriate profits and property;
- protection against breach of contractual obligations/“umbrella clauses”; and
- dispute resolution/enforcing rights/arbitration.
In any investment decision, the existence and status of a BIT is an important factor. The protection afforded by BITs is extra-contractual, and so will apply to an investment contract even if not expressly referred to. The host state’s signature of the BIT is sufficiently binding for it to apply to the investment contract.
The importance of BITs continues to grow. In fact, the total number of BITs rose to 2,676 by the end of 2008. Despite the intense BIT negotiating activity of some countries, over the last four years, there has been no change in the ranking of the top ten signatory countries of BITs7.
Figure 1: Top ten total signatories of BITs up to end 2008
Source: UNCTAD (www.unctad.org.iia)
The growing number of BITs signed suggests that states value these treaties as having a tangible effect. However, some commentators submit that an issue may arise given the arguable inequality of bargaining power between developing countries that wish to promote foreign investment, and developed countries that wish to protect their investors8. Either way, these are important protections for an investor who is looking to invest in a higher risk jurisdiction.