Introduction
Trade has been an immensely significant tool in the globalisation of our planet. Trade between countries has been made possible by advancements in science and technology. However, human relations and inter-state relations play a vital role in such transactions. Trade between countries also include foreign investments in a country to boost up the economic scenario and to amass wealth. When a party starts to invest in a foreign country, there are many agreements and treaties signed prior to it to make business easier. Though there are many clauses and conditions mentioned and bound to be followed in trade operations, fair and equitable treatment is one of the modern pertinent concepts that caught the attention of many scholars and traders. This article seeks to find out what it is and aims to explain the nuances of it to the readers.
Fair and Equitable Treatment
Fair and equitable treatment is one of the protection policies of the host country to the foreign investments to protect from circumstances and situational disadvantages to an extent. These policies are expected to conform to the minimal standards of international trade and investments law or the host country’s trade policies. There has been a wide range discussion on[1] whether the minimal standard refers to the standards of international law or the provisions of the treaty itself.
Fair and Equitable treatment policy should be clearly mentioned in the treaty between the parties, as ambiguity in that will lead to a significant advantage for the arbitrators and the authorities to bargain their demands. This aspect is attributed to the variable interpretations of the features of the clause by different people. To eliminate this hurdle, usually, fair and equitable policies are drafted clearly with their boundaries, powers and an exhaustive list of points whose execution will lead to the breach of the agreement. Most of the Nations tend to provide arbitrators less power and discretion, as more power at the disposal of arbitrators would lead to the concepts of fairness and equity in their own notions or understandings.
Origins
Fair and Equitable treatment first found its existence in the Havana charter of 1948 for an international Trade Organization. The article 11(2) stated the importance of a “just and equitable treatment” to the trade organizations and governments, as
- To make recommendations for and promote bilateral or multilateral agreements on measures designed
- To assure just and equitable treatment for the enterprise, skills, capital, arts and technology brought from one Member country to another.
The member states were also advised to respect the rights of the host states to admit the foreign investments and to impose the conditions. But due to difference among states, the charter did not find success.
After this, the [2]economic charter of Bogota was introduced in the regional level at ninth conference of American states, which also emphasized the significance of fair and equitable treatment in article 22. This charter too did not seek victory owing to its conflicting provisions. After many attempts, the [3]Draft Convention on the Protection of Foreign Property by the OECD Council was passed on 12 October1967, which, though was not signed by states, was regarded as the uniform code for nations. Now, bilateral treaties are made between two states to facilitate business and trade between them. Countries such as [4]Saudi Arabia, Pakistan and Singapore have consciously avoided the usage of the terms, but other countries, like [5]Chile, [6]China, Peru, Thailand, Bulgaria, UAE and Malaysia have included the clause for fair and equitable treatment[7]. South American countries are reluctant to include this provision due to [8]Calvo doctrine, which restricts them from transferring their jurisdiction from domestic to international courts.
Multilateral instruments such as [9]Draft United Nations Code of Conduct on TransnationalCorporations(Article 48) and [10]1992 World Bank Guidelines on Treatment of Foreign Direct Investment (article III(2)) also reinstate the presence of fair and equitable treatments towards foreign investments to facilitate business and trade practices.
Standard of Fair and Equity
The standard of fair and equity has been attributed to three various principles such as
- [11]Minimum international standard required by customary law
- International law and instruments
- Self-contained independent treaty standards
Practices violating FET
These are some of the practices which arbitrators have identified as violating measures to the fair and equitable treatment by the states.
- Absence of obligation of protecting and safe-guarding the investors’ assets and other workers.
- Denied justice or jurisdiction to the investors.
- Non-fulfilment of legitimate expectations of investors by the host state.
- Threats or harassment by the host state or its public organs to the investors.
- Failure to offer a just and predictable legal basement of the judicial system.
- Unjust enrichment of competitors against foreign investors.
- Arbitrary treatment towards the investors by the host.
- Failure of transparent methods of governance by the host to the investors.
The standards of fair and equitable treatment have been coupled with independent principles of international trade and investments law, such as complete protection and security, non-discrimination, most favoured nation, Pacta sunt servanda, standard of non-impairment, to enrich the environment with justice and fair procedure.
Case Laws
In the case of[12]Asian Agricultural Products Ltd. (AAPL) v. Republic of Sri Lanka, the judge went on to define or draw an outline of what fair and equitable treatment is. In this case, the AAPL shrimp farm was annexed by Tamil insurgents and the State forces went to capture them. The farm was destroyed and the staff were killed, but nobody knew which force did it. Judge Asante, in a dissenting opinion, and said that the fair and equitable treatment and minimum security and protection connote same thoughts, and the fair and equitable treatment should conform to international standards.
In [13]Oil Platforms (Iran v. United States) case, judge Higgins, stated as “The key terms ‘fair and equitable treatment to nationals and companies’ and ‘unreasonableand discriminatory measures’ are legal terms of art well known in the field of overseas investment protection, which is what is there addressed…”, regarding a tussle between U.S. and Iran.
The case of [14]American Manufacturing & Trading (AMT) (US), Inc. v. Republic of Zaire stated as the minimum protection against threats by the host state is an integral part of fair and equitable treatment, and the failure of Zaire government to protect the foreign investment from widespread looting indicated the non-conformity of the state with the principle.
FET in India
India has been interested in signing trade agreements with many nations. The Indian [15]International Investment Agreements (IIA) have been efficient tools to propagate India’s interest towards enriching the investment and trade sector and promoting trade and peace among its allies. [16]The first IIA was signed by India with U.K. in 1994 and since then, a total of 75 countries have signed IIA with India. Indian IIAs contain clauses to protect foreign investments, and some examples are most-favored-nation treatment, fair and equitable treatment, protection against expropriation, right to challenge host nation actions at international arbitration institutions.
But there are also some exceptions to these principles, as they facilitate the execution of non-investment policy decisions.[17]Only two IIAs do not have provision for FET, Turkey and Singapore. But Singapore investors do not have any FET really, as a Turkish investor can borrow FET as they have a Most favoured Nation provision.
Indian IIAs can be classified into three types, based on their take on the provision of Fair and Equitable Treatment, as
- [18]Model-IIA provisions– In this model, FET is not explicitly defined, thus opening up to the interpretations of arbitrators, but limiting them towards the context. The FET is said to be provided “at all times”, emphasizing India’s interest in protecting foreign investments. The FET provision is not combined with any other concepts such as MFN, thus making FET as a stand-alone provision. Among the 68 IIAs taken for study, 34 are model IIAs.
- Modified-model IIA provisions: – These modified model IIA provisions are similar to modelIIA ones, as these provisions too do not emphasize on the definition of FET in India. But unlike the stand-alone model IIA provisions, these FET provisions are combined with other concepts such as full protection and security, non-discriminatory measures, MFN treatment, protection of investments etc. Since these provisions are similar to the model IIA ones, but differ in a crucial aspect, they are assigned the status of modified model IIA provisions. Among the 27 IIAs taken for study, 27 are modified model IIAs.
- Content-indicative IIA type– These IIAs add a provision which provides directions or definitions to FET of investments and foreign players, These IIAs provide the definition of FET in accordance with international laws, and link them with IIAs. This is done to reduce the scope of arbitration from interpreting vague IIAs to give their own normative explanations. A main feature here shows that if a breach of a trade clause happens, it necessarily does not imply an unfair and unequitable treatment of investments. Of the 68 IIAs taken for study, 7 belong to this type.
By an intense observation of Indian IIAs, the following points can be comprehended.
- [19]Most of the Indian IIAs do not provide any meaning to FET whatsoever.
- Model IIA and modified model IIA provide protection of investment. An arbitrator cannot interpret on his own, without taking the immediate context of the agreement into account.
- There is no specific trend in formulating FET provisions in Indian IIAs. This makes it difficult to arrive at any conclusion or speculations regarding investment protection or public policy of the state.
Conclusion
There have been a plethora of debates concerning the terms and conditions which come under the umbrella of Fair and Equitable Treatment. Though many have been discussed, only a handful have been considered as legitimate, as those should neither be a threat to the sovereignty of the host nation nor detrimental to value investments and assets of foreign investors. Fair and Equitable Treatment continue to be one of the areas needing much groundwork and a uniform code has not been brought into existence by the international community. In the time of looming trade wars between largest economies and the seemingly alarming rates of economic aggression by corporations, Fair and Equitable Treatment in the trade sector is the need for the day and by regulating its provisions, trade, and investments can be regulated and safeguarded from arbitrary actions and personal interests.
[1]OECD (2004), “Fair and Equitable Treatment Standard international Investment Law”, OECD Working Papers on International Investment, 2004/03, OECD Publishing. Available at http://dx.doi.org/10.1787/675702255435, accessed on June 16, 2020.
[2]Vasciannie, Stephen, “The Fair and Equitable Treatment Standard in International Investment
Law and Practice” in the British Yearbook of International Law, (2000), vol. 70, pp. 99-164.
[3]“Draft Convention on the Protection of Foreign Property and Resolution of the Council of the OECD
on the Draft Convention”, OECD, pp.13-15, 1967.
[4]See UNCTAD, Bilateral Investment Treaties in the Mid 1990s, 1998 op. cit. n.1 p.54.
[5]Model Treaty, Article 4 on the Treatment of Investments (1994), see UNCTAD op. cit. n.1 p.54.
[6]Article 3 of the Model Treaty, see UNCTAD op. cit. n.1..
[7]ICSID Investment Laws of the World: Bilateral Investment Treaties (1972- ).
[8]According to the Calvo doctrine, these countries were reluctant to enter into treaty arrangements that
would result in the transfer of jurisdiction over disputes on property owned by foreigners in the
country from domestic to international courts.
[9]UNCTC, The United Nations Code of Conduct on Transnational Corporations, Current Studies,
Series A (New York, 1986) UN Doc. ST/CTC/SER. A/4, Annex 1.
[10]World Bank, “Legal Framework for the Treatment of Foreign Investment”, 1992.
[11]The international minimum standard is a norm of customary international law which governs the
treatment of aliens, by providing for a minimum set of principles which States, regardless of their
domestic legislation and practices, must respect when dealing with foreign nationals and their
property. While the principle of national treatment foresees that aliens can only expect equality of
treatment with nationals, the international minimum standard sets a number of basic rights established
by international law that States must grant to aliens, independent of the treatment accorded to their
own citizens. Violation of this norm engenders the international responsibility of the host State and
may open the way for international action on behalf of the injured alien provided that the alien has
exhausted local remedies.
[12]International Legal Materials, 30 (1991), pp. 580-655.
[13]Oil Platform (Iran v. United States), 1996, I.C.J. 803 (Preliminary Objection).
[14]American Manufacturing & Trading, Inc. (AMT) (US) v. Republic of Zaire, ICSID case No. ARB/93/1
Award, 21 February, 1997, reprinted in 36 International Legal Materials 1531 (1997).
[15]IIAs, as a generic term, means Bilateral Investment Treaties (BITs), investment chapters in Free Trade Agreements (FTAs) and in Comprehensive Economic Cooperation Agreements (CECAs).
[16]Ranjan, Prabash, Fair and Equitable Treatment in Indian International Investment Agreements, IV Annual Forum for Developing Country Investment Negotiators, New Delhi, October 27-29, 2010, accessed on June 16, 2020.
[17]Ibid.
[18]Model available at http://finmin.nic.in/the_ministry/dept_eco_affairs/icsection/Indian%20Model%20Text%20BIPA.asp?pageid=1, accessed on June 16, 2020.
[19] Ranjan, Prabash, Fair and Equitable Treatment in Indian International Investment Agreements, IV Annual Forum for Developing Country Investment Negotiators, New Delhi, October 27-29, 2010, accessed on June 16, 2020.
This Article is Authored by A S Aravind, 4th Semester BA.LLB Student at Tamil Nadu National Law University, Tiruchirappalli.
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