INDIRECT EXPROPRIATION AND NON COMPENSABLE REGULATORY STATE ACT IN ETHIOPIAN BIT’s AND INVESTMENT LAWS
CHAPTER THREE
INDIRECT EXPROPRIATION AND NON COMPENSABLE REGULATORY STATE
ACT IN ETHIOPIAN BIT’s AND INVESTMENT LAWS
3.1 Introduction
International Investment Agreements (IIAs) are well termed as “double-edged swords”:193 while
they can be used as instruments to attract FDI, 194 they restrain host states’ policy space in
exercising their legitimate regulatory powers. In most IIAs there are no clear boundaries between
non-compensable regulatory measures and measures that lead to an “indirect expropriation”. 195 In
fact, the desire of contracting states to be perceived as attractive investment destinations or to gain
the maximum protection for their national investors investing abroad, meant States failed to
foresee the importance of leaving policy space for themselves.196
The police (regulatory) powers doctrine is closely linked to the international public law concept
of state sovereignty. State sovereignty is the state's attribute to realize its tasks both on its territory
and in international relations independently from others."197
According to supporters of the police powers doctrine, the scope of the states' sovereignty is
reduced, and their regulatory functions are weakened with every signed IIA,198 which should be
balanced by accepting states' right to regulate in the public interest. Individuals should not have
such a wide scope of liberty in the control and management of their property as not to be subject
to laws and regulations adopted by sovereign states. The idea may be sketched from Vattel and
his simple example: "if a country has too many vineyards and is in need of grain, sovereign may
forbid the planting of vines in fields which can grow grain, for here the public welfare and the
safety of State are concerned."199
The notion that states must be free to exercise their police powers and thus that measures taken
within this area of activity should be excluded from the expropriation sphere has been widely
193
Wolfgang Alschner and Elizabeth Tuerk, The Role of IIAsin Fostering Sustainable Development, (2013) p. 221.
194
UNCTAD, The Role of IIAs in Attracting Foreign Direct Investment in Developing Countries UNCTAD Series
on International Investment Policies for Development, (Geneva, 2012) p. 111.
195
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (2nd ed., 2012) p. 102.
196
Lorenzo Cotula, Expropriation Clauses and Environmental Regulation: Diffusion of Law in the Era of Investment
Treaties, 2015, p. 279;
197
ILC Draft articles on Responsibility of States for Internationally Wrongful Acts, Article 4
198
Belohlavek, A. J., Rozehnalova, N. “State Sovereignty”, Czech Yearbook of International Law. Netherlands,
(2019), pp. 299-301.
199
Segger, M., Gehring, M. W, Newcombe, “A Sustainable Development in World Investment Law”, Kluwer Law
International BV, (2011), p. 313.43
recognized under international law. The closer meaning of the exception and the type of public
purpose activities that are included in the police powers of a state are however matters seriously
disputed.
In all Ethiopian BIT`s expropriation clause, except those BITs which are concluded with Qatar,
United Arab Emirates & Brazil, there are no clear yardsticks which distinguishes “indirect
expropriation” from non-compensable regulatory power of the state.200 This leads for investors
claiming any reasonable breach of BITs under this catch all phrase “indirect expropriation” claim
and to make it worse in the absence of clear criteria in the BITs, the arbitrators are free to
determine the issue based on any standards, which might adversely affect the host state
Ethiopia.201
As things goes, even a measure which is pursued purely for legitimate purpose and bona fide
regulatory measures like public health, tax, protection of antiquities, environment and safety
might be constituted as “indirect expropriation”. 202 This again leads to regulatory freezing effect
for fear of possible violation of BITs obligations. Thus, the absence of hard and fast yardstick
makes the whole process unpredictable.
3.2 Definition of Expropriation and nationalization
In general, expropriation applies to individual measures taken for a public purpose while
nationalization involves large-scale takings on the basis of wide measures of social and economic
reform. 203 Many former colonies regarded nationalizations as an integral part of their
decolonization process in the period following the end of the Second World War.204
Sometimes, reliant on the extent of the host state action of seizure, the terms are used
interchangeably; hence ‘expropriation’ of entire industries or sectors of the economy are
described by Newcombe and Paradell as ‘nationalization’.205 The Tribunal in the Lauder v Czech
Republic case stated that:
“In general, expropriation means the coercive appropriation by the State of private property,
usually by means of individual administrative measures. Nationalization involves large-scale
200
Currently Ethiopia has signed 35 BITs. From these BITs, the researcher could not get BIT concluded Between
Ethiopia with Morocco, and Ethiopia with Nigeria because this BITs were not mapped & availed for internet use.
201
Yehualashet, Cited above at note 45
202
Ibid
203
UNCTAD, Taking of Property UNCTAD Series on Issues in IIAs, (United Nations, 2000) p.2.
204
UNCTAD, Cited above at note 22, p.5
205
Andrew Newcombe & Liuis Paradell, Cited above at note 30, p.342; 44
taking on the basis of an executive or legislative act for the purpose of transferring property or
interest into the public domain.” 206
Expropriation is subject to a different standard of compensation than nationalization. In practice,
however, IIAs do not make such a distinction and apply a single set of rules to both expropriation
and nationalization.207 The difference between expropriation and nationalization is thus the degree
of the scale and extent rather than their legal nature.208All the way through this thesis therefore,
the researcher used the term expropriation to describe both forms of taking.
3.3 Definition of lawful & unlawful Expropriation
A vast majority of IIAs allow States to expropriate investments as long as the taking is effected
for a public purpose, in a non-discriminatory manner, under due process of law and against the
payment of compensation209. Hence, the indicated set of criteria constitutes the requirements of
lawful expropriation. 210 It is clear that expropriation becomes illegal or unlawful if these
requirements are not duly satisfied. 211 Especially, the failure to make payment of adequate
compensation or recompense to the aggrieved party is generally the most litigious element in
state-foreign investor disputes. 212 The categorization of lawful and unlawful expropriation is
important to determine the extent of compensation.213 For unlawful expropriation, instead of
paying the fair market value of the investment, which is the remedy for lawful expropriations, the
state must usually carry off all the damage caused by its illegal act. This principle is called the
206
Lauder v Czech Republic (UNICITRAL, September 3, 2001) Para 200
207
UNCTAD, Cited above at note 205
208
Ibid
209
As recognized by international law, states possess an inherent right to nationalize or expropriate the property of
foreign national and local citizens. This principle is reflected in the UN General Assembly Resolution 1803 on
Permanent Sovereignty over Natural Resources, which recognizes the right of peoples and nations “to permanent
sovereignty over their natural wealth and resources. Paragraph 4 of the Resolution provides: “Nationalization,
expropriation, requisitioning shall be based on grounds or reasons of public utility, security of national interest which
are recognized as overriding purely individual or private interests, both domestic and foreign. In such cases the owner
shall be paid appropriate compensation in accordance with the rules in force in the State taking such measures in the
exercise of its sovereignty and in accordance with international law.” See Permanent Sovereignty over Natural
Resources, 1962, GA Res 1803 (XVII), p. 15.
210
It should be noted that the first three elements – “public purpose”, “non-discrimination” and “due process” served
only as the requirements for the lawfulness of expropriatory measures, and not as factors excluding the basic
obligations to pay compensation. See Saverio Di., International Investment Law and the Environment, (Edward Elgar
Publishing, 2013), p. 125.
211
Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law (New York: Oxford University
Press, 2008), p. 91.
212
Nasser Mehsin, The Limitation of State Sovereignty in Hosting Foreign Investments and the Role of Investor[1]
State Arbitration to rebalance the investment relationship, (2014, Unpublished PhD thesis University of Manchester),
p.107
213
Kriebaum, U. “Regulatory Takings: Balancing the Interests of the Investor and the State”, The Journal of World
Investment & Trade, Vol. 8, No. 5, (2007), p.720.45
“Chorzów Principle,” 214 deriving from the 1927 Permanent Court of International Justice
(“PCIJ”) Chorzów Factory judgment, which remains as one of the most significant decisions on
compensation under international investment law.215
In 1928, the PCIJ clearly distinguished between the financial consequences of lawful as opposed
to unlawful expropriation. While in the case of lawful expropriation, it is the just price, i.e., “the
value of the undertaking at the moment of dispossession, plus interest to the day of payment” that
must be compensated, “in case of unlawful expropriation, international law provides for
“restitutio in intergrum (Restoration of an injured party to the situation which would have
prevailed had no injury been sustained) or, if impossible, its monetary equivalent at the time of
the judgment.”216
In ADC v. Hungary, the tribunal noted that the investment’s value had risen significantly after the
expropriation, and therefore considered that:
“the application of the Chorzow standard requires that the date of valuation should be the date of
the Award and not the date of expropriation, since this is what is necessary to put the Claimants
in the same position as if the expropriation had not been committed”.217
This approach could not be adopted in the context of a lawful taking where treaties require that
the investment be valued at the date immediately before the taking. Tribunals later followed this
distinction in several prominent cases 218, and today, it is widely accepted that the Chorzów
Factory case created the basis for compensation resulting from unlawful expropriation.
3.4 The Concept of Direct & “Indirect expropriation”
Direct expropriation means a mandatory legal transfer of the title to the property or its outright
physical seizure 219 . As clarified by Redfern and Hunter: “There is an open, deliberate and
unequivocal intent, as reflected in a formal law or decree or physical act, to deprive the owner of
his or her property through the transfer of title or outright seizure.”220 This kind of expropriation
was frequent during the Mexican and Russian Revolutions of the early 20th century and the post-
214
Id., p. 719-720.
215
Surya p., Cited above at note 7, p. 125.
216
Chorzów Factory, Germany v. Poland, (Permanent Court of international Justice, Sep 13, 1928), p. 47.
217
ADC Affiliate Limited Case, (ICSID Case No. ARB/03/16, Oct 2, 2006), Para. 497.
218
E.g. by the Iran-United States Claims Tribunal in Amoco v. Iran or by the tribunal in ISDS case Siemens vs the
Argentine Republic, (ICSID Case No. ARB/02/8, Jan 17, 2007)
219
Amoco International Finance Corporation v Iran, (Iran-U.S. C.T.R), para 220
220
Redfern, A., Hunter, M. International Arbitration, (Student Version 6th ed. Oxford UP 2015), p. 471.46
World War II decolonization period.221 A classic historical example is the TOPCO v. Lybia
case222, caused by Libya’s nationalization of its oil industry.
On the other hand, there is no generally accepted and clear definition of the concept of “Indirect
expropriation” and what it distinguishes from non-compensable regulation. However, the concept
of “indirect expropriation” shields the total or nearly total deprivation of an investment without a
formal seizure or transfer of a title. It concerns cases where a state’s conduct leaves the legal title
to an investor’s property untouched but withdraws the investor of the possibility to utilize the
investment in a meaningful way.223
To date, a prevailing majority of “old-generation” investment treaties contain just a general
reference to “indirect expropriation” without any further elaboration. A noble example of such a
general language is “indirect expropriation” explained in Ethiopian BIT’s. While the provisions of
Expropriation extends treaty protection to cover indirect forms of expropriation it does not
provide clear guidance for tribunals regarding how such “indirect expropriation” has to be
established.
In contrast, there is a growing tendency among recent BITs to provide more detailed clarification
of the notion directly in the text or in the annexes. For instance, the 2012 Canada – China BIT
includes an annex specifically devoted to the issue of clarification of what constitutes “indirect
expropriation”. It provides that:
“Indirect expropriation” results from a measure or series of measures of a Contracting Party
that have an effect equivalent to direct expropriation without formal transfer of title or outright
seizure.224
Outstandingly, this provision expressly separates a “measure” from “a series of measures”. This
separation, particularly, draws a line between “indirect expropriation” and its controversial
subsection “creeping expropriation” which refers to a series of separate government measures
that, although not expropriatory when considered as separate and distinct measures, are
expropriatory when considered cumulatively. The UNCTAD defines ‘creeping expropriation’ as:
“The use of a series of measures in order to achieve a deprivation of the economic value of the
investment. In this case, no individual measure in itself would amount to an
221
UNCTAD, Expropriation, UNCTAD Series on Issues in IIAs II, (2019), p. 1.
222
Texaco Overseas Petroleum Co. v. Libyan Arab Republic, (Jan 19, 1977), p.389
223
Dolzer, R., Schreuer, CH. Principles of International Investment Law. (2nd ed, Oxford UP, 2012), p. 92.
224
See Annex B.10 Expropriation in Canada-China BIT, 2012. Similar provisions are included in Annex B of the
2012 US Model BIT, Annex B.13 (1) “Expropriation” of the 2004 Canada Model FIPA, see 2004 Canada’s Model
Agreement For the Promotion and Protection of Investments (2004 Canada Model BIT), online: A number of BITs
signed by India also include similar provisions, however, with some variations in wording.47
expropriation”. 225 This has been recognized by investment treaty tribunals, for example in
Generation Ukraine, Inc. v. Ukraine226 the ICSID tribunal defined creeping expropriation as:
“A form of “indirect expropriation” with a distinctive temporal quality in the sense that it
encapsulates the situation whereby a series of acts attributable to the State over a period of time
culminate in the expropriatory taking of such property.”227
3.5 Borderline of “indirect expropriation” and a non-compensable regulatory act of state
Regarding the line between States’ regulatory non-compensable activities and an act of “indirect
expropriation”, where compensation is required, 228 Sornarajah negatively commented on this
issue by saying that “The problem can be defined but the search as to the criteria identification of
the intersection of regulatory expropriation and compensatory expropriation is illusive.” 229
Nowadays police powers doctrine is a widely-accepted concept, however there is no commonly
recognized definition of it. 230The name of this term came from the US style of calling the
regulatory power of the State. The essence of the police powers concept is that regulatory measure
will not entail obligation to pay compensation to investor by the host State because it will not be
considered as expropriation but the State’s right to regulate.231
The police powers notion contradicts traditional Hull doctrine, where the State cannot take
investors’ property for any reason without compensation. Nevertheless, the State remains its
sovereignty, even if it is limiting it by concluding treaties, contracts it does not mean that it loses
its sovereign right to regulate at all. It is a fundamental and inherent right of the State. 232
Aikaterini Titi one of the scholars, experts in this area suggested definition of the State’s right to
regulate as follows:
“…the right to regulate denotes the legal right exceptionally permitting the host state to regulate
in derogation of international commitments it has under taken by means of an investment
agreement without incurring a duty to compensate” 233
Some measures short of physical takings may also amount to takings in that they permanently
destroy the economic value of the investment or deprive the owner of its ability to manage, use or
225
UNCTAD, Investor-State Disputes Arising From Investment Treaties: A Review Series on International Policies
for Development (United Nations 2005), p. 42
226
See Generation Ukraine Inc. v. Ukraine (ICSID Case No. ARB/00/9, Sept 16, 2003), para.20.22.
227
Ibid
228
Kriebaum, U. Cited above at note 217, p. 717-719.
229
Sornarajah, M. The International Law on Foreign Investment. (3rd ed. Cambridge UP, 2010), p. 398.
230
UNCTAD, Cited above at note 24
231
OECD, Cited above at note 21
232
Surya P., Cited above at note 7, p.160-161.
233
Aikaterini Titi, The Right to Regulate in International Investment Law (1st edn, Nomos 2014) p.33.48
control its property in a meaningful way. These measures are regarded as “indirect
expropriations”. Finally, there are also nondiscriminatory regulatory measures, i.e. acts used by
States in the exercise of their right to regulate in the public interest that may lead to effects similar
to “indirect expropriation” but do not give rise to the obligation to compensate those affected.234
Thus, there is a tension between the neo-liberal vision of absolute protection of investors' property
and the host states' need for regulatory space to achieve their fundamental objectives.235
Under international law, not all state measures interfering with property are expropriation. The
notion that the exercise of the State’s “police powers” will not give rise to a right to compensation
has been widely accepted in international law. Scholars recognized the existence of the distinction
but did not shed much light on the criteria for making the distinction and preferred to leave the
resolution of the problem to the development of arbitral decisions on a case-by-case basis236 .
The commentary to the American Law Institute’s Restatement Third of Foreign Relations Law of
the United States,237 which was designed to assist in determining, inter alia, how to distinguish
between an “indirect expropriation” and valid government regulation states that: “A state is
responsible as for an expropriation of property when it subjects alien property to taxation,
regulation, or other action that is confiscatory, or that prevents, unreasonably interferes with, or
unduly delays effective enjoyment of an alien’s property or its removal from the state’s
territory… A state is not responsible for loss of property or for other economic disadvantage
resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the
kind that is commonly accepted as within the police power of states, if it is not discriminatory…”
Past tribunals have dealt with “indirect expropriation” in three ways:
1. The sole effects doctrine: This approach considers the purpose of the measure to be irrelevant.
The only thing that defines an “indirect expropriation” is the extent of the measure’s impact on
the investor.238
234
UNCTAD, Cited above at note 22, p.xi
235
Shan, W., Simons, P., Singh, D. Redefining Sovereignty in International Economic Law, (Oxford: Hart
Publishing, 2008), p. 213.
236
The Iran-United States Claims Tribunal was established in 1981 in order to adjudicate claims by nationals of each
country following the Iranian revolution. Its creation was pursuant to the Algiers Declarations which resolved the
hostage crisis between Iran and the United States.
237
The American Law Institute’s, Restatement of the Law third, the Foreign Relations of the United States,
(American Law Institute Publishers, USA, 1987) Vol. 1, Section 712
238
For Example in the Metalclad v. Mexico case. Metalclad involved two separate government “measures.” The first
was a set of events that cumulatively denied the company a permit to operate a hazardous waste disposal facility. In
this context, the tribunal stated: Thus, expropriation under NAFTA includes not only open, deliberate and
acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favour of the 49
2. Proportionality: A second approach balances the public purpose of the measure against the burden
placed on the investor. It assess whether the negative impact on the investor is proportional to the
positive impact the measure seeks to achieve. It demands that the two should be proportional—
that is, the burden on the investor should not be excessive in light of the public benefits.239
3. The police powers carve-out: 240 A third approach carves out a class of measures that are deemed
not to be expropriation, however great their impact. The measures must be non-discriminatory
regulations taken in good faith for public welfare reasons. These are considered to be within the
safe haven that has traditionally been called the “police powers” of states.241
The three main approaches used to identify whether an “indirect expropriation” has occurred are
fundamentally different.
3.6 Classification of BITs based on generations of investment agreements
There is classification of BITs as generations of investment agreements. According to Mary
Footer, most of the existing BITs are of the first generation, concluded between 1959 and the
early 1990s.242 Others refer to those BITs between 1959 and the mid-1980s as the first generation
of BITs.243 This generation of BITs has entirely and exclusively focused on the protection and
promotion of the investment.244 First, these BITs have incorporated investor protection provisions
in detail but silent regarding investor obligations; second, they provide a greater right to foreign
investors than domestic investors; and third, they limit the regulatory power of the host
host State, but also covert or incidental interference with the use of property which has the effect of depriving the
owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefit of property even if
not necessarily to the obvious benefit of the host State. (paragraph 103)
239
With respect to the second measure, which was a state-level act that essentially converted the area for the proposed
operations of the investor into an ecological reserve, the tribunal found that this act, too, amounted to an
expropriation. In this context, the tribunal explicitly decided that the purpose of the measure was not important: “The
Tribunal need not decide or consider the motivation or intent of the adoption of the Ecological Decree.” See
Metalclad Corp. v. United Mexican States, (ICSID Case No. ARB/AF/97/1, Aug. 30, 2000), para. 111
240
See The American Law Institute’s, Restatement of the Law third, the Foreign Relations of the United States,
(American Law Institute Publishers, USA, 1987) Vol. 1, Section 712, comment g.
241
See the case of Methanex Corporation v. United States. In this case the State of California banned methyl tertiary
butyl ether (MTBE), a gasoline additive, because it was found to be contaminating groundwater supplies. Methanex,
a Canadian company, argued that this was a regulatory expropriation of its investments in the United States since its
business was the production of methanol—a key ingredient of MTBE. In its 2005 award, the tribunal dismissed
Methanex’s claim, explaining that “as a matter of general international law, a non-discriminatory regulation for a
public purpose, which is enacted in accordance with due process” is not an expropriation, unless the state has given
explicit guarantees that it will not take the measures in question. Methanex Corporation v. United States,
(UNCITRAL, Aug. 3, 2005), Part IV Chapter D, para. 7.
242
Mary E. “Bits and pieces: social and environmental protection in the regulation of foreign investment." Mich. St.
U. Coll. LJ Int'l L. (2009) p.37.
243
Van Os, and Roeline Knottnerus, Dutch BITs: a gateway to 'treaty shopping' for investment protection by
multinational companies, (2011)
244
Id., p.37. 50
state.245Footer argues that the BITs of this generation reflected the interest of the major capital
exporting states in the developed - industrialized world. 246
After the early 1990s (as some authors claim, from the mid-1980s to the mid- 1990s247) came the
newer, i.e. second generation of BITs and other international investment agreements. These
agreements were predominantly similar with the first generation of BITs. What makes them
different is the emphasis they accord to investment liberalization by removing or reducing market
access barriers in the developing, host, or recipient states.248Therefore, the second generation of
BIT’s done two things: protect & promote investment and liberalize investment in host states.
The recent development, which can be referred to as the third generation of BITs, were the ones
which were concluded since 1995.249They have the typical attribute of/or clause of the non[1]
lowering of environmental standards by the host states in order to attract FDI.250Such a Clause or
standard in BITs seems to be a response to the threat of pollution in ‘pollution heaven’ hypothesis
which states that FDI seeks host states with relaxed environmental and labor standards.251
3.7 Expropriation Provisions in International Investment Law & Ethiopian BIT’s
In general, the provisions of expropriation can be categorized into three groups.252
a) Expropriation clauses: Group I
The first group includes the clauses which mention the two forms of expropriation, but neither
define the term of an indirect taking, nor provide the provisions preserving policy space for the
state’s right to regulate. In this category fall those new BITs that continue to follow the approach
of “old-generation” investment treaties.253 It facilitates an expansive understanding of the notion
of “indirect expropriation”. It does not offer clarity as to the elements to be taken into account
when drawing a line between expropriation and non-compensable regulation.254
245
Uche Ofodile, “Africa-China Bilateral Investment Treaties: A Critique” Michigan Journal of International Law
(2013) Art. 35(1).
246
Ibid
247
Van Os and Roeline Knottnerus, Cited above at note 245, p.8.
248
Uche Ofodile, Cited above at note 247, p.37.
249
Ibid
250
Uche Ofodile, Cited above at note 247
251
Ibid
252
Anna Kuprieieva, Regulatory freedom and indirect expropriation: Seeking compatibility with sustainable
development in new generation BITs, (2015, Unpublished LLM Thesis Ottawa University) p.88
253
See e.g. Leon Trakman & Nicola Ranieri, Regionalism in International Investment Law (Oxford: Oxford
University Press, 2013), p. 331.
254
UNCTAD, Cited above at note 22, p.12651
Example of clauses falling into Group I is BIT between Ethiopia & Finland, in Article 5 it states
that:
“1. Investments by investors of a Contracting Party in the territory of the other Contracting Party
shall not be expropriated, nationalized or subjected to any other measures, direct or indirect,
having an effect equivalent to expropriation or nationalization (hereinafter referred to as
"expropriation"), except for a purpose which is in the public interest, on a non-discriminatory
basis, in accordance with due process of law, and against prompt, adequate and effective
compensation.
2. Such compensation shall amount to the market value of the expropriated investment at the time
immediately before the expropriation or before the impending expropriation became public
knowledge, whichever is the earlier. The value shall be determined in accordance with generally
accepted principles of valuation.”255
The first paragraph of the above Ethiopia - Finland BIT establishes a general obligation not to
expropriate foreign investor’s property except under certain conditions including paying
compensation. It extends its scope so as to embrace both direct and indirect forms of
expropriation. However, the provision neither clearly defines the concepts, nor suggests any
specific criteria for the identification of measures having an equivalent effect to expropriation.
Accordingly, any measures taken by a host country having an effect equivalent to expropriation
might need to be accompanied by prompt, adequate and effective compensation. Also, it is silent
with respect to regulatory power of the state exceptions preserving policy space of host states.
Finally, the second section stipulates how the compensation for expropriation should be paid to
investor.
All the rests of Ethiopian BIT`s Expropriation clauses, except those which are concluded with
Qatar256, United Arab Emirates 257 & Brazil258 , are also formulated with this traditional type
model.
b) Expropriation clauses: Group II
The second group includes expropriation clauses which cover both forms of expropriation and
either address the state’s right to regulate or provide a definition of “indirect expropriation”. The
255
Ethiopia – Finland BIT, 2006, Article 5
256
Ethiopia - Qatar BIT, 2017
257
Ethiopia – United Arab Emirates BIT, 2016
258
Brazil - Ethiopia BIT, 201852
provisions categorized into the second group are more explicit in covering measures having the
effect of expropriation than the first group. A good example is Article 6 of the Ethiopia – United
Arab Emirates BIT that constitutes the most common type of verses used by BITs falling under
this category. It states that:
“1. A Contracting Party shall not nationalize or expropriate investments in its territory or adopt
any other measures tantamount to expropriation of investments except:.
(a) for the public interest;
(b) on a non-discriminatory basis;
(c) in accordance with due process of law; and
(d) on payment of prompt, and adequate compensation.
4. (This article shall not apply on) non-discriminatory measures of a Contracting Party that are
designed and applied to protect or enhance legitimate public welfare objectives.”
The BIT Ethiopia concluded with Qatar will also falls under this group type.
As one can see from the above provision, the expropriation clause does not contain a definition of
“indirect expropriation”, but merely clarify that investor’s property shall not be expropriated by
“any other measures tantamount to expropriation.” Article 4 incorporates specific provisions
addressing the states’ right to regulate in the public interest. The inclusion of such clause in the
treaty main text can help to preserve the host states’ policy space for regulation designed to
protect legitimate public welfare objectives, where the term “legitimate public welfare objective”
can cover a wide range of state’s goals as those relating to public health, security and the
environmental protection. However, these types of provisions can be less functional for the
purposes of the interpretative approach that requires an assessment of proportionality.259
c) Expropriation clauses: Group III
The third group of expropriation clauses includes provisions that impose a proportionality
framework which, arguably, ensures better symmetry between the investment protection and the
preservation of host states’ regulatory space. The clauses falling under this category typically
include: (i) formulations covering both forms of expropriation; (ii) definition of “indirect
expropriation”; (iii) guidance for conducting a multi-factor assessment of “indirect
expropriation”, and (iv) provisions intended to reinforce the host state’s right to regulate. Ethiopia
could not have BIT formulated under this group clauses. Example of Expropriation clauses falling
259
Anna Kuprieiva, Cited above at note 252, p.88 53
into this Group III is 2013 Canada – Tanzania BIT. It states in Article 10 regarding Expropriation
that:
“1. A Party shall not nationalize or expropriate covered investments either directly or indirectly
through measures having an effect equivalent to nationalization or expropriation (hereinafter
referred to as “expropriation”) except for a purpose which is in the public interest, in accordance
with due process of law, in a non-discriminatory manner and on payment of prompt, adequate
and effective compensation.
5. For the purposes of this Article, direct expropriation occurs where an investment is
nationalized or otherwise directly expropriated through formal transfer of title or outright seizure
and “indirect expropriation” results from a measure or series of measures of a Party that have
an effect equivalent to direct expropriation without formal transfer of title or outright seizure.
In the context of any dispute arising under Section C, the determination of whether a measure or
series of measures of a Party constitute an “indirect expropriation” shall be determined through
a case-by-case, fact-based inquiry that shall consider, among other factors:
(a) the economic impact of the measure or series of measures, although the sole fact that a
measure or series of measures of a Party has an adverse effect on the economic value of an
investment shall not establish that an “indirect expropriation” has occurred;
(b) the extent to which the measure or series of measures interfere with distinct, reasonable
investment-backed expectations; and
(c) the character of the measure or series of measures.
Except in rare circumstances, such as when a measure or series of measures are so severe in the
light of their purpose that they cannot be reasonably viewed as having been adopted and applied
in good faith, non-discriminatory measures of a Party that are designed and applied to protect
legitimate public welfare objectives, such as health, safety and the environment, do not constitute
“indirect expropriation””.260
The actual innovation that distinguishes these new-generation BITs from their “predecessors” is a
detailed definition of “indirect expropriation”. These treaties also contain formulations providing
better accommodation for legitimate non-discriminatory public interest regulation within the
expropriation provisions.261
In addition to these factors, there may also be included other determinants, such as
nondiscriminatory character of the measure,262 duration of the measure263 and clarification that its
260
Canada – Tanzania BIT, 2013, Article 10
261
Luke Eric, Evaluating Canada’s 2004 Model Foreign Investment Protection Agreement In Light of Civil Society
Concerns (The Canadian Council for International Co-operation, 2006) p. 3
262
See Annex to the India – Lithuania BIT, 2011
263
Actually, this criterion has not been universally applied by the tribunals for the establishment of indirect
expropriation (e.g. the NAFTA tribunal in S.D. Myers concluded that in some circumstances, deprivation is
amounted to expropriation even if it were temporary). In some cases, it may nevertheless serve as an important
component of the proportionality test to measure whether the regulation has had a severe enough impact on
investment to be qualified as expropriatory. For instance, in LG&E v. Argentina the Tribunal also held that the
duration of the measure is an element to be taken into consideration. See LG & E Energy Corp. Case, cited above at
note 80 at para.151. 54
“character” involves consideration of object, context and intent.264 In addition, treaties sometimes
include in their interpretative guidance provisions requiring a kind of proportionality element. For
instance, the Annex to the 2011 India – Lithuania BIT requires tribunals to consider whether there
is a reasonable nexus between the state measure and the intention to expropriate.265
It is worth noting that the indicated list of criteria is non – exhaustive, hence it does not preclude a
tribunal from taking into account any other elements in addition to those highlighted in the clause.
Importantly, this guidance as included in the annexes or operative provisions on expropriation,
invite tribunals to rely on the particular technique – the proportionality test - to determine the
occurrence of “indirect expropriation”.
3.8 BIT`s lacking “indirect expropriation” clauses
In recent years, the vast majority of IIAs have referred to both direct and “indirect expropriation”.
Only few treaties of the later generation do not refer explicitly to “indirect expropriation” or
measures having equivalent effect. For example the Lebanon-Malaysia (BIT) (2003),266 provides
the following:
“Neither Contracting Party shall take any measures of expropriation or nationalization against
the investments of an investor of the other Contracting Party except under the following
conditions…”
Similarly, the Austria-Croatia BIT (1997) states:
“Investments of investors of either Contracting Party shall not be expropriated in the territory of
the other Contracting Party except for a public purpose by due process of law and against
compensation…”.
It can be argued that even when an IIA does not specifically mention indirect takings, the notion
of expropriation is broad enough to cover relevant measures of both direct and indirect kind.267
However the BIT between Ethiopia & Brazil even differ from the above treaties. In addition to
excluding “indirect expropriation” clauses it reaffirms as it only apply on direct Expropriation by
stating in article 7(1) & (5) that:
“1. Each Contracting Party shall not directly nationalize or expropriate investments of investors
of the other Contracting Party, except:
a) for a public purpose or necessity or when justified by a social interest;
264
These criteria can be found in recent FTAs concluded by Canada. See, for instance, Annex X.11: Expropriation of
Canada – EU FTA.
265
Annex to the India – Lithuania BIT, 2011.
266
Unless indicated otherwise, the texts of IIAs mentioned in the paper can be found in the UNCTAD databases at
www.unctad.org/iia.
267
UNCTAD, Cited above at note 24, p.855
b) in a non-discriminatory manner;
c) on payment of effective compensation, according to paragraphs 2 to 4; and
d) in accordance with due process of law
5. For greater certainty, this Article only provides for direct expropriation, where an investment
is nationalized or otherwise directly expropriated through formal transfer of title or ownership
rights.”
3.9 Expropriation provision in Ethiopian Investment Law
The history of Ethiopia goes back some 3.2 million years; from which time the oldest known
human bones are dated. These bones were found in Ethiopia and the country has therefor by some
been called “The cradle of humanity”.268
Ethiopia is one of the few countries on the African continent that has never been fully
colonialized by European forces, with an exception of a brief Italian occupation from 1936 to
1942. This rather unique history has formed a lot of the culture and traditions still seen today in
Ethiopia.269
In Ethiopia, it is believed that the concept of expropriation was introduced, at least in law, during
the reign of Minelik II when the first regulation, which made land a private commodity, was
enacted in 1907 for the city of Addis Ababa.270 The provisions became applicable to other parts of
the country soon after. Since the enactment of the 1907 regulation, few land lords; regional chiefs
became private owners of the large spans of land. In the interest of the public, however, the
government was allowed to have the right of expropriation (dispossession) of private owners.
Although, conceptually, the issue of expropriation was introduced in the 1908 Menelik’s land
related legislation, the first systematic definition of the concept in the Ethiopian legal system is
given in the Civil Code of Ethiopia.271
Currently based on the context of the Ethiopian Constitution, the government of Ethiopia issued
Expropriation of Landholdings for Public Purpose and Payment of Compensation and
Resettlement Proclamation 1161/2019 and its implementing regulation called Expropriation and
valuation, Compensation and Resettlement council of ministers regulation no. 472/2020, which
together with Investment proclamation no.1180/2020 form prominent investment Expropriation
law of the country.
268
Martin Persson, Compensation Practices in the Ethiopian Expropriation Process, A Case Study from Amhara
National Regional State, (Lund University, Sweden, 2015), p.25
269
Ibid
270
Belachew yirsaw, Expropriation, Valuation and Compensation in Ethiopia (2013, Unpublished Doctoral thesis,
Royal Institute of Technology (KTH)), p.78-82
271
The Ethiopian Civil Code Art. 1460 56
In corollary of the principle of state sovereignty over their natural resource, contemporary
international law recognized the right of the state to expropriate private property.272 Without any
variation, in all Ethiopia’s BITs expropriation and compensation is provided. In principle, all
BITs prohibit expropriation or nationalization of foreign investor property by the host state. In
addition any measure which has the effect of crippling the rights of investor will tantamount to
expropriation.
Although BITs in principle prohibit expropriation, there are exceptional circumstances in which
host state is allowed to expropriate private property if it proves the existence of public purpose in
line with the principle of non-discrimination and payment of compensation.273 In some BITs there
is a fourth requirement that expropriation should be taking place in due process of law.274 Quite
remarkably, BIT between Ethiopia and Belgium Luxembourg Economic Union extend the
exceptions to include national security.275
1. Purpose of Expropriation
The taking of property must be motivated by the pursuance of a legitimate welfare objective, as
opposed to a purely private gain or an illicit end. This condition is reflected in most domestic
legal systems as well, which indicates a convergence of approaches among States in various
regions with different legal cultures. 276 In addition, in most international investment
treaties277‘public purpose’ is visualized as one of the three requirements that should be met in
order for the expropriation to be legal. “The term public purpose is a concept of public
international law and shall be interpreted in accordance with international law. Domestic law may
express this or similar concepts using different terms, such as ‘social interest’, ‘public necessity’
or ‘public use’.”278 In ADC v. Hungary, the tribunal noted that:
“…a treaty requirement for public interest requires some genuine interest of the public. If mere
reference to public interest can magically put such interest into existence and therefore satisfy
this requirement, then this requirement would be rendered meaningless since the Tribunal can
272
D Arechaga “State responsibility for the nationalization of foreign owned property” Journal of International Law
and Politics, (1978) p. 179.
273
For instance Article 5(1) of Israel and Ethiopia BIT state that “except for public purpose related to the internal
needs of that Contracting Party on a non-discriminatory basis and against prompt, adequate and effective
compensation.’
274
For instance see Article 5(1) of BIT between Spain and Ethiopia.
275
Article 7(2) of BIT between Ethiopia and Belgium- Luxembourg Economic Union. However, one may argue that
national security or interest are part and parcel of public security.
276
UNCTAD, Cited Above at note 22, p.25
277
Tamara Lothian, “Local Institutions, Foreign Investment and Alternative Strategies of Development: Some Views
from Practice”, Colombia Journal of Translational Law Associations Inc, (2003)
278
Colombia - India BIT, 2009, Article 81157
imagine no situation where this requirement would not have been met.”279
The 1995 Ethiopian Constitution prescribes that:
Without prejudice to the right to private property, the government may expropriate private
property for public purposes subject to payment in advance of compensation commensurate to the
value of the property.280
The Constitution however, could not say anything as to what constitutes a public purpose.
Similarly, the Ethiopian investment proclamation in its dealing with investment guarantee and
protection could not provide what public purpose constitute. The investment proclamation in
article 19 provides that:
“1/The Government may expropriate any investment undertaken under this Proclamation for
public interest, in conformity with requirements of the law, and on a non-discriminatory basis.
2/ In case of expropriation of an investment effected pursuant to Sub-article (1) of this Article,
adequate compensation corresponding to the prevailing market value shall be paid in
advance.”281
Public interest mentioned in this article, is not different from ‘public purpose’ stated above.
Thus we should find in other subsidiary legislations of the Federal Government or other regional
laws. The new proclamation to determine Expropriation of Land holdings for Public Purposes,
Payments of Compensation and Resettlement no.1161/2019, defines the basic principles that have
to be taken into consideration in determining expropriation & compensation to a person whose
landholding is going to be expropriated.282 The Proclamation is applicable on both rural and urban
lands. This proclamation in its article 2(1) defines public purpose as follows:
1/“Public Purpose” means decision that is made by the cabinet of a Regional State, Addis Ababa,
Dire Dawa or the appropriate Federal Authority on basis of approved land use plan or;
development plan or; structural plan under the belief that the land use will directly or indirectly
bring better economic and social development to the public;
Overall, the Ethiopian Constitution protects against unlawful seizure of property, stating:
“Everyone shall have the right to his privacy and physical integrity. This right shall include
protection from searches of his person, his home, his property and protection from seizure of
property under his possession”. 283
The question that should also be outstretched here is whether or not the above provided article 19
279
ADC Affiliate Limited Case, (ICSID Case No. ARB/03/16, Oct 2, 2006), Para. 432.
280
The Constitution of the Federal Democratic Republic of Ethiopia, 1995, Article 40 (8), Proclamation No. 1, Fed.
Neg. Gaz., 1st Year No.1
281
Investment Proclamation, 2020, Article 19, Proclamation no 1180 Fed. Neg. Gaz., 26th Year No. 28
282
FDRE Ministry of Urban Development and construction urban job creation and food security agency, Urban
safety net and jobs project (USNJP), (Addis Ababa, Ethiopia, 2020)
283
The Constitution of the Federal Democratic Republic of Ethiopia, 1995 Cited above at note 282, Article 2658
of investment proclamation regarding expropriation guarantees against “indirect expropriation”.
One could argue that as expropriation by definition includes “indirect expropriation”, giving a
guarantee against expropriation in general covers both forms of expropriation and hence
Ethiopian investment laws give guarantee to both situations. On the other hand, since the
International investment treaties mentions “indirect expropriation” separately as ‘measures with
similar effect ‘as though the two are distinct concepts it is also arguable to hold that the laws by
referring one situation could not shield the other one.284
2.Non-discrimination
Discrimination in respect of expropriation might be directing the measure towards foreigners only
or towards particular foreigners. 285 An expropriation that targets a foreign investor is not
discriminatory per se: the expropriation must be based on, associated to or engaged for reasons of,
the investor’s nationality.286
There are two non-discrimination principle in international investment law. The first one is NT
which holds that “a foreign investor should not be treated any better or any worse by the host
government than the level of treatment accorded to national firms.”287Thus according to NT
standard 288 the host state should not make any distinction among foreigners and domestic
investors who are in similar situations.289
The second international nondiscrimination standard of treatment of foreign investors is the MFN
treatment. MFN treatment provides that foreign investors should be treated in not less favorable
than that accorded to other foreigners by the host country. MFN prohibits discrimination between
foreigners and differs from NT in a difference of comparing standards as the later standard
compares the foreigners with nationals of the host state.290
The Ethiopian Investment Proclamation could not provide these international nondiscrimination
standard of treatment. However, regarding expropriation measures the nondiscrimination between
284
Tekalegne Alemu, Protection of FDI under Vietnamese and Ethiopian Investment Laws (2007, Unpublished LLM
thesis, Central European University), p.37
285
Kaj Hober cited above at note 122 at 386
286
UNCTAD, Cited above at note 22, p.34
287
James D., “A comparative Analysis of the Laotian Law On Foreign Investment, the World Bank guidelines on the
Treatment of Foreign Direct Investment and Normative Rules of International Law on Foreign Direct Investment”
Ariz. J. Int’l & Comp.L. (1998), p.668
288
The national treatment principle is known as Calvo doctrine in the name of Argentine jurist who had developed
the principle as response to foreigners who exploited Latin America’s natural resources. See Id and associated text.
289
Jian Zhou, Cited above at note 118, p.83
290
Ibid59
investors is specified.
3.Compensation
The Ethiopian investment law explicitly recognizes the three standards of payment of
compensation. The investor is granted to the payment of adequate compensation that shall
correspond to the current market value.291 Moreover the time of the payment is provided in more
t h a n prompt manner in the sense that the state is required to pay the compensation in
advance of the expropriation measure.292 The payment however does not seem to be made directly
in a convertible currency; instead the investor is allowed to remit the compensation paid to him
out of Ethiopia in a convertible foreign currency. The new Ethiopian Expropriation and valuation
regulation No. 472/2020, decreed to apply the above proclamation no. 1161/2019, contains
property valuation and compensation methods and formulae that should be used in calculating
compensation for various properties. It also contains lump sum compensation to be paid for
severed social relationship and moral Damages.293 Thus, apart from the wording the effect is all
the same and hence the Ethiopian Expropriation law has provided for effective payment of
compensation.
3.10 Conclusion
In most IIAs there are no clear boundaries between non-compensable regulatory measures and
measures that lead to an “indirect expropriation”. Except those BIT which are concluded with
Qatar, United Arab Emirates & Brazil, in all the rests of Ethiopian BIT`s expropriation clause,
there are no clear yardsticks which distinguishes “indirect expropriation” from non-compensable
regulatory power of the state. There is a growing tendency among recent BITs to provide more
detailed clarification of “indirect expropriation”. Ethiopia could not have BIT Expropriation
clauses formulated under group 3 expropriation provisions. One of the most distinct characteristic
of group 3 expropriation provision is its intention to clearly distinguish “indirect expropriation”
from a non-compensable regulation, while balancing of the state’s right to regulate in pursuit of
public welfare and foreign investors’ rights and protections. So it is highly recommended for
Ethiopia BIT’s to have like Expropriation clause of Canada – Tanzania 2013 BIT explained
above.
291
Investment Proclamation, 2020, Cited above at note 283.
292
Ibid.
293
Expropriation and Valuation Compensation and Resettlement Council of Ministers Regulation, 2020, Regulation
no. 472, Fed. Neg. Gaz., 26th Year No. 61 60
CHAPTER FOUR
REGULATORY SPACES AVAILED FOR ETHIOPIAN GOVERNMENT TO
REGULATE FOREIGN INVESTMENTS FOR THE INTEREST OF THE PUBLIC
4.1 Introduction
The concept of state regulatory space can be defined as the extent of the capability of
governments to freely legislate and implement regulations in a given public policy spheres. 294
Given the debate over the legitimacy of the global investment regime emphasizes between
investor protection and the ability of host governments to independently manage their economic
and social policies, state regulatory space strikes at the heart of the issue. At one extreme states
have a great deal of flexibility to pursue policies they see fit, and are thus secluded from external
pressure or influence. At the other extreme, governments have little room to exercise and are
highly constrained by the ability of foreign investors to challenge their policies under IIAs and
ISDS. 295
Most IIAs preambles state the main goals of the IIA as it is to promote foreign investment and
protect foreign investors. Only Some IIAs attempt to balance investor protection with other goals,
such as the right to regulate, sustainable development, social investment policy, and
environmental investment aspects.296 The more such objectives are mentioned, the higher the state
regulatory space score on this side. Along similar lines, most IIAs include the MFN standard, but
some carve out treatment within the context of regional organization, matters related to taxation,
or procedural rules. The more such exceptions appear in the IIA, the greater the regulatory space
available to the host state. With respect to ISDS, to the extent that it is included in an IIA, the
state regulatory space value increases with more exceptions, limitations, and conditions that
restrict the ability of foreign investors to utilize it.297
One important aspect of BITs is that they do not change with change in government of the
signatory countries. As indicated by Subedi, unlike local laws which can be changed overnight
with the change of government, the protection under BITs will not be affected by the unilateral
action of a state.298 In addition, unlike other fields of International law which are stained by
294
Tomer Broude & Yoram Haftel, The Global Investment Regime and State Regulatory Space: Assessing the
Governance Role of the European Union and its Member States, (Hebrew University of Jerusalem, 2020)
295
Ibid
296
Ibid
297
Ibid
298
Surya P., Cited above at note 7, p. 83. 61
enforcement problems, IIL is backed by multilateral agreements that facilitate the enforcement of
pecuniary awards, thus, the restrictions that IIL places on regulatory space can have a far reaching
consequences.299
The normative basis for investment regulation ranges from the constitution, which is the basic
norm of the country, to directives.300 Most of the Ethiopian BITs do not fulfill the sustainable
development requirement which has been stipulated in the Federal Constitution of Ethiopia. Only
BITs concluded between Ethiopia & UAE, Brazil & Qatar that regulation for sustainable
development of the state301 is recognized. BIT between Ethiopia & Belgium Luxembourg also
provides independent articles to regulate labor & environment. BIT concluded between Ethiopia
& Finland stipulates only in the preamble regulation of general application for health, safety
environmental and for internationally recognized labor rights. All other BITs could not
recognized the right to regulate for the Ethiopian government. The absence of a clear policy in the
majority of Ethiopian BITs has to be underlined. Seen in light of the definite right to regulate, as
discussed below, the Ethiopian BIT regime especially MFN provisions which multilateralizes
investment treaties, could not reflect the current development in international investment treaties.
4.2 Definition of Investment in Ethiopian BIT
The definition of investment is vital in any BIT because it demarcates the scope of application of
the treaty and it is also the base line for assumption of jurisdiction where in case dispute arises.302
Under Article 25303 of the ICSID Convention, only disputes relating to ‘investments’ are the
subject of ISDS system under the treaty. This implies that the arbitrators shall not entertain the
case if there is no investment.304 Globally, there is no uniform definition of ‘investments’ across
the BITs. States negotiating a BIT are free to determine its scope.305
299
Lorenzo Cotula, Do Investment Treaties Unduly Constrain Regulatory Space?, (2014), p.22
300
Yehualashet Tamiru, Cited above at note 45, p.101
301
Currently Ethiopia has signed 35 BITs. From these the researcher has got & used 33 Ethiopian BITs for these
research. BIT concluded Between Ethiopia with Morocco, & Nigeria were not mapped & availed for internet use.
302
H Schreur The ICSID Convention: A Commentary (Cambridge University Press 2001), pp. 121-122.
303
Art. 25 (1) of the ICSID Convention provides that; “The jurisdiction of the Centre shall extend to any legal dispute
arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a
Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties
to the dispute consent in writing to submit to the Centre……”
304
N Schefer International investment law: text, cases and materials (Edward Elgar Publisher, 2013) p. 59.
305
Barton Legum, “Defining Investment and Investor: Who Is Entitled to Claim?” Paper presented at symposium co[1]
organized by ICSID, OECD and UNCTAD, (Paris OECD headquarters, 2005) 62
Most Ethiopian BITs adopt an open asset - based definition306 of investment that covers a wide
range of economic activities. However, the ICSID case law in this regard shows that this type of
definition has enabled arbitrators to include transactions that were not originally envisaged by the
state parties as covered investments (for example portfolio investments and government debt
securities).307 For instance, under Article 1(a) of Yemen-Ethiopia BIT investment means’ every
kind of asset invested by investors 308 of one Contracting Party in the territory of the other
Contracting Party, in accordance with the laws and regulations of the latter and in particular,
though not exclusively includes…..’309 The list of what’s meant by investment usually constitute
of movable and immovable property, shares/stocks/debentures, a claim for money, intellectual
property and business concession.310
The only exception in this regard is Brazil and Ethiopia BIT, in which enterprise based 311
definitional approach to the investment is provided. Accordingly investment is defined as’ a direct
investment of an investor of one Contracting Party, established or acquired in accordance with the
laws and regulations of the other Contracting Party, that, directly or indirectly, allows the investor
to exert control or significant degree of influence over the management of the production of goods
or provision of services in the territory of the other Contracting Party’. Therefore, as per this
definition the investor commercial presence in the other country should be considered as an
investment.
Generally, under Ethiopia’s BITs there is no exclusionary clause of what do not constitute
investment. However, under Ethiopia-Brazil BIT it is indicated that the judgment of the court,
debt security, portfolio investment and claim of money that arise solely from commercial
contracts, 312 shares or stocks that acquired for the sole purpose of speculation 313 shall not
constitute investment.
306
An open - asset based approach of the definition of investment goes beyond FDI and usually cover any kind of
asset or every kind of asset which accompanied by illustrative list. Usually such illustrative list includes five
categories of asset: movable or immovable, interest, claims for money, intellectual property and finally, business
concession. Such listing method in no way tantamount to excluding those activities not mentioned in the list. See
SADC Model Bilateral investment treaty template with commentary, 2012 p.10
307
UNCTAD, Investment Policy Framework for Sustainable Development, (2015), p.81
308
On this point Belgium - Ethiopia BIT goes further and said that there should be contribution in the form of cash,
kind or service.
309
The same hold true for other Ethiopia’s BITs too.
310
Article 1(1) of Germany and Ethiopia BIT.
311
It defines the protected investment in terms of the Business Organization of the investment through an enterprise
(with Controlling and management power). Usually this model will have the exclusionary clause of asset which does
not constitute investment. See SADC Model Bilateral investment treaty, Cited above at note 308, p.12
312
Article 1 of Ethiopia and Brazil BIT. 63
Regarding this the India Model BIT, requires that an investment should be made in accordance
with the laws of the host State for it to qualify as a protected investment. It then denies protection
to investments that are non-compliant.314 In addition, the investment must be owned or controlled
in good faith by an investor. Under the India Model BIT, an enterprise is deemed to be owned by an
investor if more than half of the capital in the enterprise is owned by it.315 An enterprise is deemed
to be controlled by an investor if such investor has the right to appoint a majority of the directors or
senior management officials or to control the management or policy decisions of such
enterprise.316 The India Model BIT goes onward to explicitly provide a list of assets that are
excluded from protection under the treaty. These include; portfolio investments, goodwill, brand
value, market share (or similar intangible rights), any interest in debt securities issued by the
government or any pre-operational expenditure that is incurred before an enterprise has
commenced substantial and real business operations in the host state.317
The researcher recommends for Ethiopia BIT to be the definition contained in the India Model
BIT with some modifications to incorporate the Salini test.318 This includes incorporating further
requirements on duration of the investment, the regularity of profit and return, the assumption of
risk, requirement for substantial commitment; and significance for the host State’s
development”319 as contained in the Nigeria – Morocco BIT.
4.3 Definition of foreign investment in Ethiopian Investment Law
In Investor-State treaty arbitration, only foreign investors get the privilege of directly claiming
against the State in which they invested. Basically there are two kind of foreign investment320 .
These are portfolio or indirect investment and FDI. Portfolio investment is an investment which
pursue profits on a speculative basis through buy and sell operations in the stock market.321 This
type of investment is placed through the capital markets without entrepreneurial commitment and
313
Article 1 of Ethiopia and South Africa BIT.
314
UNCTAD, Scope and Definition, IIA issues paper series (United Nations, 1999) p.35
315
Model text for the Indian bilateral investment treaty, 2015, Art 1.6.1(ii)
316
Id., Art. 1.6.1(i)
317
Id., Art 1.4(i-viii)
318
The tribunal in Salini v. Morocco explicitly recognized the existence of an objective criteria that has to be met if a
particular asset is to be considered an “investment” for the purposes of the ICSID Convention. See Salini v. Morocco
(ICSID Case No ARB/00/4 Jul 31, 2001) (Decision on Jurisdiction)
319
Id., Par 52
320
Omar “E.Garcia, G3 Agreement: A comparison of Its Investment Chapter With The Meaning International Law of
Foreign Investment”, ECKLICN-JV No 25 : 69, p.782
321
Ibid64
with the sole purpose of obtaining profit without influencing corporate management 322 The
investor does not need or seek operational control of the business but holds stock in the hope that
the stock will rise in value. On the other hand FDI means “the acquiring of a lasting and
controlling interest in an enterprise operating abroad “323. A lasting interest is defined as the
existence of a long term relationship between the direct investor and the enterprise.324 Controlling
interest in an enterprise on the other hand refers to a number of shares that is practically sufficient
to control management of the company.325 A 10% of share ownership has been established to
have a controlling interest.326
Distinction between the two forms of foreign investment is important especially when a given law
grants some protection to only one kind but not to the other. The crucial element to differentiate
the two is the investor’s role in asserting management control over assets. In FDI “the investor
assumes both the risk of the operation and its control”327 Coming back to our laws, the Ethiopian
investment proclamation does not define foreign investment in terms of portfolio and direct
investment. It simply provides the meaning of foreign investor. In article 2(6) It states that
“Foreign Investor means any one of the following who has invested foreign capital in Ethiopia: A
Foreign National; An Enterprise in which a Foreign National has an ownership stake; An
Enterprise incorporated outside of Ethiopia by any investor; An Enterprise established jointly by
any of the above investors or An Ethiopian permanently residing abroad and preferring treatment
as a Foreign investor.” The Ethiopian Investment Proclamation No 1180/2020 in article 2(1)
defines investment as an expenditure of capital in cash or in kind or in both by an investor to
establish a new enterprise, or to acquire, in whole or in part, or to expand or upgrade an existing
enterprise.328 In this definition the expression which state`s “…. to establish a new enterprise or to
acquire, in whole or in part, or to expand or upgrade an existing enterprise …” is more of about
FDI protection than portfolio investment, provided that the other elements of foreign investor are
fulfilled.
Nowadays, the concept of foreign investment is expanding to include even pre-establishment
rights, i.e. expenditures of an investor prior to acquiring admission to invest in a particular
322
Danil E., “Acceding to WTO: Advantages For Foreign Investors In Ukrainian Market”, FALL
L.&Bus.Rev.Am.779, p.10
323
Ibid
324
Ibid
325
Id., P.782
326
Id., p. 12
327
Id., p. 784
328
Investment Proclamation, 2020, Cited above at note 283 , Art.2(1) 65
jurisdiction and being established.329 However pre establishment foreign investment rights have
no place In Ethiopian Investment law regime: both in Ethiopian BIT & Investment Laws.
4.4 The origins of the modern investment treaty standard of protection
The principle that states should be held to an international law standard of treatment developed in
contrast to the equality principle. Under this principle, foreigners should be treated no better than
locals. This principle is well described by the note of the Mexican Minister of Foreign Affairs,
opposing the right of the United States to demand compensation for the agricultural lands of
American citizens expropriated by Mexico after 1927. The Minister said that Latin American
countries had supported: “... the principle of equality between nationals and foreigners,
considering that the foreigner who voluntarily moves to a country ... in search of a personal
benefit, accepts in advance, together with the advantages which he is going to enjoy, the risks to
which he may find himself exposed. It would be unjust that he should aspire to a privileged
position safe from any risk, but availing himself, on the other hand, of the effort of the nationals
which must be to the benefit of the collectivity.” 330
Supporters of the international law standard of treatment certainly envisaged protecting foreigners
from local custom that could harm foreigners. For example, in a colorful speech, Palmerston said:
“We shall be told, perhaps, as we have already been told, that if the people of the country are
liable to have heavy stones placed upon their breasts, and police officers to dance upon them; if
they are liable to have their heads tied to their knees, and to be left for hours in that state; or to
be swung like a pendulum, and to be bastinadoed as they swing, foreigners have no right to be
better treated than the natives, and have no business to complain if the same things are practiced
upon them. We may be told this, but that is not my opinion, nor do I believe it is the opinion of any
reasonable man.”331
Other commentators and tribunals differ in opinion that the host state’s level of development
should impact the standard of treatment they are obliged to provide to foreigners. The umpire
hearing the Montijo case is a major example. The umpire heard a claim that Panama failed to
provide international standards of treatment by failing to recover the boat called the ‘Montijo,’
which was stolen from Americans by revolutionaries. In finding that Panama failed to provide the
international standard of treatment, the umpire said:
“... the general government of the Union, through its officers in Panama, failed in its duty to
extend to citizens of the United States the protection which, both by the law of nations and by
329
FDI refers to an investment carried out by a foreign investor by being physically present in the country where the
investment takes place and she is in control of the management aspects of the investment; whereas portfolio
investment refers to an indirect investment which participates the foreign investor only indirectly such as through
buying shares, debentures and bonds.
330
American Journal of International Law Supplement, 1938 p. 188
331
Palmerston, In the House of Commons, regarding the Don Pacifico case. p. 522.66
special treaty stipulation, it was bound to afford. It was, in the opinion of the undersigned, the
clear duty of the President of Panama, acting as the constitutional agent of the government of the
Union, to recover the Montijo from the revolutionists and return her to her owner. It is true that
he had not the means of doing so, there being at hand no naval or military force of Columbia
sufficient for such a purpose; but this absence of power does not remove the obligation. The first
duty of every government is to make itself respected both at home and abroad. If it promises
protection to those whom it consents to admit into its territory, it must find the means of making it
effective. If it does not do so, even if by no fault of its own, it must make the only amends in its
power, viz, compensate the sufferer.”332
It is therefore evident that, neither the origins of the international standard, nor the academic
interpretations of that standard today, provide much guidance on whether modern investor-state
tribunals should consider the host state’s level of development when measuring their conduct
against the international law standard. The purpose of international investment treaties provides
little more.333
At the international law level, there is a clear regulatory gap to regulate corporate international
conduct through obligatory framework. Even though several attempts have been made to regulate
corporate conduct at the international level, all efforts remain unsuccessful as there is no common
regulatory binding framework at the international level.334
Most BITs do not keep the balance between investors’ protection and host state interests. Almost
more than 95 percent of the BITs provisions are investor protection clauses. Sometimes it is
difficult to get a policy space whereby the host state could deal with regulating its internal affair
in relation to the investment.335 The national treatment, the MFN treatment, “FET” clause, full
protection and security clause, expropriation and compensation clauses are some of the very
equivocal terminologies that limit the interest of host state to regulate its internal affair. By
contrast, there is no any obligation imposed on the investor enshrined in the BITs towards the host
state and the host society. The implication is very clear that there exists an imbalance.336
It is generally agreed that states have to exercise regulatory autonomy owing to their being
332
Montijo’ Case, (International Arbitrations, July 26, 1875) p. 1444
333
Clyde Eagleton, The Responsibility of States in International Law, (New York University Press, 1928) p. 89-90
334
There is only a draft law adopted at UN level to regulate corporate conduct at international level. But the draft
doesn’t have legal effect unless for further development. The international law commission has brought about the
draft. It, however, remained in vain. Corporations basically the TNC are left to develop their own self-initiated rule to
regulate their conduct at international level.
335
Jonathan Bonnitcha, Assessing the Impacts of Investment Treaties: Overview of the evidence, (International
Institute for Sustainable Development (IISD), 2017)
336
Ayalew Abate, Ethiopia’s BITs and Environmental Protection; The Need of Re Negotiation for Corporate
Responsibility, (2021), p.35567
sovereign. What are quarrelsome are the limits of these regulatory powers. BITs are viewed by
some critics as restraints on the policy space of host state in favor of foreign investors. A growing
number of investment arbitration proceedings and a series of large financial penalties against
various host countries have thrust BITs and their dispute settlement mechanisms into the
consideration. In White Industries v Republic of India, an arbitral panel found that the Indian
judicial system did not provide White Industries effective means of asserting claims and enforcing
rights, because of the delays inherent in the Indian system.337 An exciting aspect of this finding
was that the India-Australia BIT did not mention any such obligation. The tribunal borrowed the
"effective means" provision present in the India-Kuwait BIT by relying on the MFN provision of
the India-Australia BIT, It is this kind of entertaining that has unsettled governments, as it
encroaches on their policymaking space.
4.5 Types of MFN Clauses in international investment laws & Ethiopian BITs
There are many variations on the MFN clause in international investment treaties, but it is
possible to classify them according to three main criteria.
1/ a difference may be made on whether MFN is a stand-alone clause, attached to a NT clause or
attached to another clause in the BIT. For the first case, we can cite article 3(2) of the Ethiopia -
Italy BIT (1994):
“Each Contracting Party shall, within the limits of its own territory, accord to the investments
and income of investors of the other Contracting Party, including the matters referred to in
Articles 4.5, 6 and 7 and the income accruing therefrom, treatment no less favorable than that
accorded to the investments and income accruing therefrom of investors of any third State.”
But sometimes MFN is combined with the NT obligation in BITs, such as in article 3 of the
Ethiopia–Israel BIT (2003):
Neither Contracting Party shall, in its territory, subject investments or returns of investments of
investors of the other Contracting Party, to treatment less favorable than that which it accords to
investments or returns of investments of its own investors or to investments or returns of
investments of an investor of any third state.
2/ a distinction can be made on whether the MFN clause specifies or not the type of “treatment”
covered. The majority of old-style BITs do not specify the scope of application of MFN—that is,
the types of measures covered—like the examples cited above. Some BITs, however, are more
precise and distinguishes weather the protection accorded to investment include pre or post
337
White Industries Australia Ltd, V. The Republic of India (UNCITRAL, Nov 30, 2011), para i 05-08. 68
formation rights, for example, Article 4 of Ethiopia Kuwait BIT accord that post establishment
investment rights by stating that:
“Each Contracting State shall accord investors of the other Contracting State, as regards any
activity carried on in connection with their investments including, management, maintenance,
use, enjoyment disposal or compensation of such investments, treatment not less favorable than
that which it accords to its own investors or to investors of any third state, whichever is the most
favorable.”338
The BIT`s Ethiopia signed with Germany, Equatorial Guinea, the State of Israel, Kingdom of
Spain, Republic of Tunisia, People’s Democratic Republic of Algeria, Islamic Republic of Iran,
and the Republic of Austria contain similarly worded provisions. Such clauses are general in that
they do not define the precise meaning of the word ‘treatment’; nor do they specify the scope of
the MFN obligation. It is also not clear if the favorable treatment for the ‘management,
maintenance, use, enjoyment or disposal of the investment’ would include dispute resolution
provisions. In this regard, different tribunals have reached at different conclusions as to whether
dispute resolution provisions may be considered to be a normal part of the ‘management, use,
enjoyment or disposal’ of investment.339
On the contrary, other BITs refer directly to all the provisions contained in other BITs. Indeed,
they state that MFN is applicable to all the provisions of the BIT from definitions through to the
settlement of disputes. This type of BIT, therefore, expressly authorizes the import of any more
favorable provision from other BITs conforming to those covered by MFN. Article 4(1) of the
BIT signed between Ethiopia and the Belgian-Luxembourg Economic Union reads:
“In all matters relating to the treatment of investments, the investors of each Contracting Party
shall enjoy NT or most – favored nation treatment in the territory of the other Contracting
Party.”340
Although some other BIT`s do not have such phrase as ‘all matters’ it would still be considered as
broad since they specifically mention that the MFN commitment extends to dispute resolution
provisions as well. Article 3 of the UK-Ethiopia341 BIT, for instance, provides:
“1. Neither Contracting Party shall in its territory subject investments or returns of nationals or
companies of the other Contracting Party to treatment less favorable than that which it accords to
investments or returns of its own nationals or companies or to investments or returns of nationals
or companies of any third State.
338
Ethiopia Kuwait BIT, 1996, Art 4
339
Julie A., “MFN-Based Jurisdiction In Investor-State Arbitration: Is there any hope for a consistent approach?”,
Journal of International Economic Law, (2011), p. 165.
340
Belgian - Ethiopia BIT, 2006 Art 4(1)
341
United Kingdom - Ethiopia BIT, 2009 69
2. Neither Contracting Party shall in its territory subject nationals or companies of the other
Contracting Party, as regards their management, maintenance, use, enjoyment or disposal of
their investments, to treatment less favorable than that which it accords to its own nationals or
companies or to nationals or companies of any third State.
3. Except provided otherwise in this Agreement and for the avoidance of doubt, it is confirmed
that the treatment provided for in paragraphs (1) and (2) above shall apply to the provisions of
Articles 1 to 10 of this Agreement.”
Article 8 of the agreement deals with dispute settlement between an investor and the host state.
Thus, the provision contains a broad MFN clause as it is applicable with regard to the settlement
of investor-state investment disputes.
The BIT between Ethiopia and Italy directly confers the import of any favorable provision by
stating in article 3(3) that:
“If legislation of one of the Contracting Parties or international obligations in force or which
may come into force in the future in respect of one of the Contracting Parties results in a legal
framework under which investors from the other Contracting Party are accorded more favorable
treatment than that provided for in this Agreement, the treatment accorded to investors from these
other Parties shall also apply to investors from the Contracting Party concerned in respect of
existing relations.”
Similarly some other BITs with very important legal implications tie MFN to “FET”. For example
article 3 of Ethiopia – Libya (2004) BIT states that:
“1) Investments and activities associated with investments of investors of either Contracting Party
shall be accorded “FET” and shall endure protection in the territory of the other Contracting
Party.
2) The treatment and protection referred to in paragraph 1 of this Article shall at all times be not
less favorable than that accorded to investments and activities associated with such investments
of a third state.” 342
The BIT`s Ethiopia signed with Russia, Denmark, Egypt, Malaysia, Sudan, Yemen & China also
tie MFN to “FET”. These types of clauses present confusion as they tie the relative standard of
MFN with the objective standard of “FET” and it is not clear in what way the two are supposed to
interact.
3/ a distinction can also be held on whether or not the MFN clause incorporates a criterion of
comparison between foreign investors “in like circumstances or situations”: For example article
4(1) of Ethiopia Spain BIT & article 3(2) of Ethiopia Turkey BIT provides respectively that:
“Each Contracting Party shall accord, in its territory, to investments made by investors of the
other Contracting Party treatment no less favorable than that which it accords, in like
342
Ethiopia - Libyan Arab BIT, 200470
circumstances, to the investment made by its own investors or by investors of any third State,
whichever is more favorable to the investor concerned.”
“Once the investment is accepted, each Party shall accord to this investment, treatment no less
favorable than that accorded in similar situations to investments of its investors or to investments
of investors of any third country, whichever is the most favorable.”
Other treaties go further and provide guidelines for tribunals that must rule on whether like
circumstances are present. Ethiopia could not have such guidelines in her BITs. Article 17.2 of
the Investment Agreement for the COMESA Common Investment Area (CCIA) states that:343
“For greater certainty, references to ‘like circumstances’ in paragraph 1 of this Article requires
an overall examination on a case-by-case basis of all the circumstances of an investment
including, inter alia:
(a) its effects on third persons and the local community;
(b) its effects on the local, regional or national environment, including the cumulative effects of
all investments within a jurisdiction on the environment;
(c) the sector the investor is in;
(d) the aim of the measure concerned;
(e) the regulatory process generally applied in relation to the measure concerned; and
(f) other factors directly relating to the investment or investor in relation to the measure
concerned; and the examination shall not be limited to or be biased towards any one factor.”
The scope of activities of the national investors to be compared with those of foreign investors
remains controversial. In Feldman v. Mexico, in like circumstances was interpreted to denote to
the same business, i.e. the exporting of cigarettes, 344 whereas in Occidental v. Ecuador
(UNCITRAL award), 345 the investor argued that the expression “like circumstances” did not
imply merely comparing companies operating in the same sector, such as the oil sector, but all
companies engaged in the export of all goods such as flowers, minerals or seafood. The tribunal
upheld the meaning of the investor, ruling that the expression: “In like circumstances” cannot be
interpreted in the narrow sense advanced by Ecuador as the purpose of NTis to protect investors
as compared to local producers, and this cannot be done by addressing exclusively the sector in
which that particular activity is undertaken.
343
COMESA is the Common Market for Eastern and Southern Africa.
344
Marvin Feldman v. Mexico, (ICSID Case No. ARB (AF)/99/1 Dec 16, 2002), para. 171.
345
Occidental Exploration Case, Cited above at note 38, para. 173 71
4.6 Towards a new generation of International Investment Treaties
Today, several investment tribunals have accepted the possibility of importing more favorable
substantive protection from a comparator treaty to the basic treaty.346 For instance, in the first
known investment treaty arbitration, Asian Agricultural Products versus Sri Lanka, the Tribunal
accepted the principle that an investor covered by the basic treaty could rely on more favorable
substantive conditions granted under another BIT of the host State.347 The tribunals in Pope &
Talbot versus Canada and MTD versus Chile cases are few of the other tribunals which allowed
the incorporation of substantive rights from third country BIT`s through MFN clause to the basic
treaty.348
Interpretation of MFN clauses may lead to inconsistent results depending on whether the
interpretation of the scope of the MFN clause is expansive or narrow.349 MFN has been invoked
by investors to import into the basic treaty clauses whose formulation seems to them to be more
favorable than that in their own treaty. However, its interpretation by investment tribunals has
been particularly controversial since the 2000s. Moreover, the fact that these discrepancies are not
systematically based on different formulations of the MFN clause only serves to worsen legal
uncertainty and unpredictability.350 This issue started from the case of Maffezini v. Kingdom of
Spain (2000) 351 dispute. The dispute aroused from the treatment allegedly received by the
Argentine investor Emilio Agustin Maffezini from Spanish entities, in connection with his
investment in an enterprise for the production and distribution of chemical products in the
Spanish region of Galicia. Spain, the Respondent, objected to the tribunal’s jurisdiction since Mr.
Maffezini, the Claimant, had failed to comply with an exhaustion of local remedies requirements
set forth in the Argentine-Spain BIT. Mr. Maffezini admitted that the dispute had not been
referred to the Spanish courts prior to its submission to ICSID, but he argued that the MFN clause
346
Emmanuel Gaillard, “Establishing Jurisdiction through a MFN Clause, International Arbitration Law”, New York
Law Journal (2005) p.105
347
Asian Agricultural Products v. Sri Lanka, (June 27, 1990), Para 54, However, the investor in this case did not
prevail on the more favorable conditions because the investor could not show that the Swiss-Sri Lankan BIT provided
for a stricter liability standard of the host State compared with the British-Sri Lankan BIT. Stephan Schill, The
Multilateralization of International Investment Law, (Cambridge University Press, 2009) p. 126.
348
Nonetheless, there are also cases in which the importation of favorable substantive rights from comparator treaty
has been controversial. For more on this please see UNCTAD, MFN Treatment, UNCTAD Series on Issues in IIAs I,
(United Nations, 2010) p 9
349
MFN clause arbitration can be divided into two depending on the interpretation given: 1) expansive interpretations
of the scope of MFN clauses and 2) the narrow interpretations of the scope of MFN clauses. Gabriel Egli, “Don't Get
BIT: Addressing ICSID's Inconsistent Application of Most Favored-Nation Clauses to Dispute Resolution
Provisions”, PEPP. L. Rev., (2007) p.1066
350
Suzy H. Nikièma, The MFN Clause in Investment Treaties, IISD Best Practices Series, (2017), p.10
351
Emilio Agustin v. the Kingdom of Spain, (ICSID Case No. ARB/97/7, Nov. 9, 2000) 72
in the Argentine-Spain BIT would allow him to invoke Spain’s acceptance of ICSID arbitration
contained in the Chile-Spain BIT and that none of the exceptions from MFN in the Argentine[1]
Spain BIT applied to the dispute settlement provisions at issue in the case.
Paragraph 2 of Article IV of the Argentina-Spain BIT provides that after guaranteeing a “FET”
for investors (paragraph 1):
“In all matters subject to this Agreement, this treatment shall be no less favorable than that
extended by each Party to the investments made in its territory by investors of a third country.”352
In this connection, the Tribunal referred to the ejusdem generis principle353 and the reasoning
found in the Ambatielos case354 (namely that the MFN clause can apply to provisions concerning
the “administration of justice”). The Tribunal considered that:
“There are good reasons to conclude that today dispute settlement arrangements are inextricably
related to the protection of foreign investors, as they are also related to the protection of rights of
traders under treaties of commerce… These modern developments are essential, however, to the
protection of the rights envisaged under the pertinent treaties; they are closely linked to the
material aspects of the treatment accorded. …”
The Tribunal concluded that:
“…if a third-party treaty contains provisions for the settlement of disputes that are more
favorable to the protection of the investor’s rights and interests than those in the basic treaty,
such provisions may be extended to the beneficiary of the MFN clause as they are fully
compatible with the ejusdem generis principle…”355
Since Maffezini there have been more three major cases dealing with the applicability of the MFN
standard to dispute settlement before ICSID (Salini,356 Siemens357 and Plama).358 While Maffezini
and Siemens favor the application of MFN status to dispute settlement, Salini and Plama held the
opposite.
Especially, in Plama Construction v Bulgaria an ICSID tribunal held that:
352
Id., para 38.
353
The ejusdem generis principle is the rule according to which a MFN clause can only attract matters belonging to
the same subject matter or the same category of subject as to which the clause relates.353 OECD (2004), “Most[1]
Favored-Nation Treatment in International Investment Law”, OECD Working Papers on International Investment,
2004/02, p.9 see also Ibid at paragraph 56.
354
The arbitration commission in the famous Ambatielos case had ruled back in 1953 that MFN “can only attract
matters belonging to the same category of subject as that to which the clause relates.” Ambatielos, (Greece) v. The
United Kingdom, (May 19, 1953), ICJ Report, 1953, p. 10.
355
Decision on Jurisdiction of 25 January 2000, p. 56
http://www.worldbank.org/icsid/cases/emilio_DecisiononJurisdiction.pdf
356
Salini v. Jordan, (ICSID Case No ARB/02/13, Jan 31, 2006) para 208
357
Siemens vs the Argentine Republic, (ICSID Case No. ARB/02/8, Aug 3, 2004) Decision on Jurisdiction (English)
358
Plama Consortium Limited v. Bulgaria, (ICSID Case No. ARB/03/24, February 8, 2005), (Decision on
Jurisdiction Using Energy Charter). 73
“when the BIT was silent on this issue (dispute settlement) or the MFN definition was narrow in
its scope, one cannot reason a contrario that the dispute resolution provisions must be deemed to
be incorporated. Rather, the intention to incorporate dispute settlement provisions must be
clearly and unambiguously expressed.”359
The Maffezini cases says that MFN clause can be applied to overcome waiting periods and
similar admissibility requirements. (Paragraph 63) In the Plama case the Tribunal stated that MFN
clause does not extend to dispute settlement provisions, except when the contracting parties have
expressed a contrary interest.
Because of this UK Model BIT made it clear in Article 3(3) that the MFN principle included in
the treaty will apply to dispute settlement procedures. Another example of a BIT that extends the
application of the MFN principle to ‘all matters’ covered by the treaty is the Bulgaria–Cyprus
BIT.360 If a BIT has such a broad protection under the MFN principle it seems to apply to both
substantive and procedural matters.
4.7 Current Development in Investment Treaties to Limit the Scope of MFN provisions
Countries wishing to limit the scope of MFN in their BITs need to think about a solution for their
old and new BITs. They must carefully choose appropriate language that renders in a clear and
unequivocal manner their interpretation for all BITs they concluded.361 On this basis, several
states, first the large capital-exporting countries, have reviewed their negotiation practice for BITs
to counter recent MFN interpretations.362
4.7.1 The Exclusion of Procedural Provisions from Other Agreements
As we have seen, MFN is often invoked to import more favorable procedural provisions from
other host state BITs. Some states have tried, therefore, to prevent this possibility by excluding
the dispute settlement mechanism from the scope of MFN.
An example of this is article 3.2 of the Colombia–United Kingdom BIT (2010) which states: “The
most favorable treatment to be granted in like circumstances referred to in this Agreement does
not encompass mechanisms for the settlement of investment disputes, such as those contained in
359
Id., paras 203 and 204.
360
See S Fietta, “MFN Treatment and Dispute Resolution under Bilateral Investment Treaties: A Turning Point?” Int
ALR, Issue 4, (2005) p 131.
361
Ambatielos, (Greece) v. The United Kingdom, Cited above at note 356, p.21
362
Ibid, p.2374
Articles IX and X of this Agreement, which are provided for in treaties or international
investment agreements.”363
The same can be seen in article 5.4 of the Switzerland–Georgia BIT (2014): “It is understood that
the MFN treatment referred to in paragraphs (2) and (3) does not apply to investment dispute
resolution mechanisms provided by this agreement or by other international agreements made by
the Contracting Party concerned.”364
The presence of this type of exclusion is growing, not only in BITs, but also in the investment
chapters of recent FTAs.365 It is, however, partial and it leaves the possibility open of importing
substantive obligations from other treaties.
4.7.2 The Exclusion of the Entire Contents of Past Treaties
Another approach consists of a broader exclusion of the scope of MFN. On the one hand, the
entire contents of other treaties, both substantive and procedural rules, are excluded from the
scope of MFN; On the other hand, only agreements signed or coming into force before the BIT
are excluded. The exception, therefore, does not include future treaties. This later is the case, for
example, in annex III.1 of the Canada–Burkina Faso FIPA (2015) which states that:
“Article 5 (Most-Favored-Nation Treatment) does not apply to treatment accorded by a Party
under a bilateral or multilateral international agreement in force on or signed prior to the date
on which this Agreement came into effect.”
Similarly, Ethiopia’s draft Model BIT in its article 5(5) explicitly exclude all previous investment
treaties from the coverage of the MFN protection to ensure that foreign investors will not try to
benefit from more favorable treatment provisions the host state has concluded in the past. This
type of exclusion does not cover treaties signed after the entry into force of the BIT in question
and requires the signatory states to adopt consistent practices when they conclude future
investment treaties.
The CETA between Canada and the European Union is an example of a recent agreement in
which the parties agreed to exclude not only procedural rules but also substantive ones from the
scope of MFN.366
363
See also the following treaties: Chile-Colombia FTA, 2006, annex 9.3; Canada–Peru FTA, 2008, annex 804.1;
Canada–Colombia FTA, 2008, annex 804.3; Japan–Switzerland EPA, 2009, article 88, and China–Canada BIT, 2012,
article 5.3.
364
Switzerland – Georgia BIT, 2014, article 5.4
365
See, for example: Comprehensive Economic and Trade Agreement (CETA), 2016, article 8.7, para. 4; EU–
Vietnam FTA, 2016, article 4.6; Trans-Pacific Partnership (TPP), chapter 9, article 9.5, para. 3; Switzerland–Tunisia
BIT, 2012, article 5.5; COMESA CCIA, 2007, article 19.1.75
“For greater certainty, the “treatment” referred to in paragraphs 1 and 2 does not include
procedures for the resolution of investment disputes between investors and states provided for in
other international investment treaties and other trade agreements. Substantive obligations in
other international investment treaties and other trade agreements do not in themselves constitute
“treatment”, and thus cannot give rise to a breach of this Article, absent measures adopted or
maintained by a Party pursuant to those obligations.”367
The researcher recommends MFN provision for Ethiopia BITs to be like these resent provision.
The reason for this is the provision could not allow investors to continue to import unbalanced provisions from other
treaties. It protects, on one hand, MFN clause in the old generation BITs which have the potential of
unintended consequence of multilateralizing bilateral obligations. On the other hand it assures
equal treatment between foreign investors.
4.7.3 The Non-inclusion of MFN Treatment Clause
Encountered with the broad interpretations of MFN by investment tribunals and the difficulty of
unequivocally limiting their scope, some countries are considering the option of simply not
including this clause in their future treaties.
Some also believe that MFN is not relevant in a non-multilateral context such as BITs and FTAs.
Thus the 2012 SADC model BIT recommends not including a MFN clause,368 and the Indian
2015 model BIT does not contain one. 369 This apparently radical position is not contrary to
international law. Let us not forget, MFN treatment is not an obligation under customary
international law. A state is only bound by it if it so commits by treaty.
4.7.4 Foreign investment regulation in Ethiopia
The right to regulate is an important attribute of sovereignty. Ethiopia can adopt regulations or
pass administrative decisions to govern particular activity, conduct, business, or industry within
its territory.370 For instance the objective of Ethiopian Environmental Policy is:
“to improve and enhance the health and quality of life of all Ethiopians and to promote
sustainable social and economic development through the sound management and use of natural,
human-made and cultural resources and the environment as a whole so as to meet the needs of
366
Ambatielos, (Greece) v. The United Kingdom, Cited above at note 356, p.24
367
CETA, 2016, article 8.7.4.
368
SADC model bilateral investment treaty template with commentary, 2012, July, article 28.4
369
Model text for the Indian bilateral investment treaty, 2015, Article 15.2
370
Asamnew D., Ethiopia’s BIT’s and Protection of the Environment, (2017, Unpublished LLM thesis, Central
European University), p.35 76
the present generation without compromising the ability of future generations to meet their own
needs”. 371
International investment treaties which are supposed to create certainty for investors are becoming
the source of uncertainty for host states.372 The clear expression of the regulatory autonomy of the
country seems important in light of unpredictability and extensive discretion of arbitral
tribunals.373 For example in Metalclad v Mexico, the tribunal stated in its award that:
“The Tribunal need not decide or consider the motivation or intent of the adoption of the
Ecological Decree. Indeed, a finding of expropriation on the basis of the Ecological Decree is not
essential to the Tribunal’s finding of a violation of NAFTA Article 1110. However, the Tribunal
considers that the implementation of the Ecological Decree would, in and of itself, constitute an
act tantamount to expropriation.”374
In addition in Santa Elena v. Costa Rica, the tribunal stated that:
“Expropriatory environmental measures, no matter how laudable and beneficial to society as a
whole, are, in this respect, similar to any other expropriatory measures that a state may take in
order to implement its policies: where property is expropriated, even for environmental purposes,
whether domestic or international, the state’s obligation to pay compensation remains.” 375
Ethiopia has an aspiring plan to build a green economy. According to United Nation’s
Environmental Program (UNEP), green economy is key for growth that results in improved
human well-being and social equity, while significantly reducing environmental risks and
ecological shortages.” 376 According to Ethiopia’s climate-resilient Green Economy Strategy,
Ethiopia aims to achieve middle-income status by 2025 while developing a green economy.377
Investment may be considered as an impairment towards the building of a green economy. This is
because green economy may require a state to exercise its regulatory autonomy that may have
adverse effects to investment and investors. Implementation of such a green economy strategy
requires a strong regulatory framework.378 Investors/investments may be required to cut their
371
Federal Democratic Republic of Ethiopia. Environmental Policy, (1997)
372
Mann Howard & Konrrad von Moltke. NAFTA’s Chapter 11 and the Environment: Addressing the impacts of the
Investor-State Process on the Environment (International Institute for Sustainable Development 1999) p.5
373
Shotaro Hamamoto. “Review of The Right to regulate in International Investment Law by Titi Aikaterini”
European Yearbook of International Economic Law (2016) p.836.
374
Metalclad Corp. v. United Mexican States, (ICSID Case No. ARB/AF/97/1, Aug. 30, 2000) Para 111
375
Santa Elena v. Costa Rica, (ICSID, Case No. ARB/96/1 Feb 17, 2000), para 72
376
Bina Olivia, The green economy and sustainable development: an uneasy balance? (Environment and Planning C:
Government and Policy 31, no. 6, 2013), p.1024.
377
Federal Democratic Republic of Ethiopia, Ethiopia’s Climate Resilient Green Economy Strategy, (2011).
378
Brand Ulrich, Green economy–the next oxymoron? No lessons learned from failures of implementing sustainable
development, (GAIA-Ecological Perspectives for Science and Society 21, no. 1, 2012) 77
emissions or install new technology in an effort to build green economy.379 Such measures might
prove to be expensive for foreign investment. This may also lead to closure of factories. 380
Vinuales states in this regard that:
“The ‘transitional challenges mentioned in the Green Economy Report prepared by the United
Nations Environment programme would have to include the considerable litigation risks resulting
from the application of investment disciplines.”381
In furtherance of this, FDRE Constitution recognized right to sustainable development and
dictates integration of economic, social, and environmental concern in investment process.
However, the fact on the ground evidences that sustainable development objective is almost
missing from Ethiopian BITs. In addition in Ethiopian investment laws, it has been found that
economic pillar of sustainable development has been desperately asserted under preamble and
declared objective of investment stipulated under Art.5 of the proclamation but are not fully
translated in to other substantive provisions of the investment proclamation and regulation.
This should be a very serious concern for Ethiopia in light of BITs and the potential risk of being
taken to costly investment arbitrations. This impact should be one of the reasons why the country
should look in to its BIT regime and assess the place of such regulatory powers in the agreements.
However, recently Ethiopia adopted a draft model BIT in 2016382 which incorporates the notion
of sustainable development in BIT. In addition the draft model omitted the “FET” obligation.383
The expropriation provision also acknowledges measures taken for legitimate public welfare as it
shall not constitute “indirect expropriation”. 384What is more, Pursuant to Art. 14 of the draft
379
. Wilensky Meredith, Reconciling International Investment Law and Climate Change Policy: Potential Liability for
Climate Measures under the Trans-Pacific Partnership, (Environmental Law Institute, 2015)
380
Ibid
381
Viñuales Jorge, The environmental regulation of foreign investment schemes under international law, (2012), p.1.
382
Agreement between the Government of the Federal Democratic Republic of Ethiopia and the Government of the
… for the Promotion and Reciprocal Protection of Investments, 2016, (unpublished draft Ethiopian Model BIT,
Ethiopian Investment Commission)
383
Regarding this omission Ato Mesay Woldesenbet, Team Leader of treaty affairs experts in Ethiopian Investment
Commission said that: “at the inception all developing countries including Ethiopia included Fair and equitable
treatment standard of protection for foreign investors in their BITs, The inclusion of this standard to BIT has no
problem. But, the jurisprudence for interpretation for it by arbitral tribunal made the clause problematic. In addition
what may be fair and equitable treatment in Ethiopia may not be fair in other countries because of this we omitted the
standard from Ethiopian Model BITs. Regarding the non-inclusion of Minimum standard of treatment protection for
foreign investment he added that this treatment protection was originated from America and it have no measurement
standard from which countries Minimum standard of treatment could be sought. He added that what may be offered
as minimum standard protection in America may not be offered as minimum standard of protection in Ethiopia.
Because of this we omitted both standard of protection for foreign investment from Ethiopian Model BIT. (Interview
with Ato Mesay Woldesenbet, Team Leader of treaty affairs in Ethiopian Investment Commission, Sept 5, 2022)
384
Draft Ethiopian Model BIT, 2016, Cited above at note 384 Art. 8 (4). This provision is a verbatim copy of Annex
B, Art. 13 (1) (c) of the 2004 Canadian Model BIT. 78
Model a separate provision is adopted concerning labor & environmental protection under the
draft model.
This is a great development in the country. The host state model BIT, along with the home state
model BIT, will serve as a mirror that reflects each party’s position and projection of the final
BIT. From these two documents the parties can work together to reach a balanced final BIT that
fits the specific relationship and accommodates the interests of both parties. If the final BIT
strikes the right balance between economic development and investment protection, then
development through FDI becomes projected.385
4.8 Conclusion
Ethiopia’s Federal Constitution pursuant to article 43 states that all international agreements and
relations concluded, established or conducted by the State shall protect and ensure Ethiopia’s
right to sustainable development.386 Article 43(3) of the Constitutional so imposes the duty on the
government to make sure that all international agreements that are signed by the country to be in
line with the right of the country to sustainable development. Sustainable development among
other things entails a common responsibility for mankind to manage their resources base so as to
meet the needs of both present and future generations. In sustainable development approach the
investment and investor should contribute among other thing in the protection of human rights,
Labour and environmental rights. The Majority of Ethiopia’s BITs does not deal to this issue. As
per Article 9(4) of the Constitution, all BITs which are ratified by Ethiopia are part and parcel of
the law of the land. Hence, it can be concluded that the government has the duty to make sure that
the BITs that it signs and ratifies should permit government regulation & have sustainable
development as a goal.
385
Hisham Ababneh, A Model BIT for development: The Example of Jordan, (2017, Unpublished PhD Dissertation
University of Pittsburgh), p.261
386
See The Constitution of the Federal Democratic Republic of Ethiopia, 1995, Cited above at note 282 Article 43.
See also International Agreement Making and Ratification Procedure Proclamation, 2017, Proclamation No. 1024,
Fed. Neg. Gaz. 23rd Year No. 55 The later is about treaty making and ratification procedure and according to this
proclamation treaties are required to be harmonized and consistent to Ethiopian constitution.CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions
The “FET” standard is often invoked by foreign investors to claim that although they are not
affected by expropriation, they are incapable of developing their investment due to a host state’s
conduct. It consists of a certain treatment by the host state that would eventually impair the
investor’s ability to develop the investment. Conceptually, it is important to note that the duty to
accord “FET” extends to all subject matters. i.e., “FET” standard ensures that foreign investors
are protected from situations of unjust treatment by the host state that do not fall within the
domain of other specific treatment standards, such as NT or MFN treatment. For example, a lack
of transparency by the host state which does not allow the investor to learn of all regulations that
must be complied with, resulting in the above- mentioned impairment.
Except for three BITs concluded between Ethiopia & UAE, Brazil & Qatar, in all other BITs
autonomous type of “FET” clause is included in Ethiopian BITs. In the context of such an
autonomous “FET” clause, ‘in order to violate the “FET” standard, it may be sufficient that States'
conduct displays a relatively lower degree of unsuitability. In general, however, tribunals are less
likely to find a breach of the standard where the “FET” standard is a Linked “FET” Standard.
Similarly, Except those BIT which are concluded with Qatar, United Arab Emirates & Brazil, all
the rests of Ethiopian BIT`s expropriation clauses are group one type. I.e., it facilitates an
expansive understanding of the notion of “indirect expropriation”. It does not offer clarity as to
the elements to be taken into account when drawing a line between expropriation and non[1]
compensable regulation. Ethiopia could not have BIT formulated under group three expropriation
clauses. Even the expropriation clause included in draft Model BIT of Ethiopia is group two type.
A review of Ethiopian BITs also indicates that in almost all of the BITs, the MFN clause is
phrased in highly general terms and leaves considerable leverage to raise competing
interpretations with the effect of stretching the Country’s obligations under the relevant
agreements. Ethiopia’s BITs also could not have a balanced preamble that explicitly states - in
addition to investment protection - the development objective of the host state. Such an approach
could not acknowledges that the host state Ethiopia has rights under the treaty similar to the rights
of foreign investors.
7980
5.2 Recommendations
The researcher recommends for Ethiopia`s future (Model) BIT’s & on old generation BITs as
follows. The Ethiopian Investment commission is a government body who is responsible to
administer Investment In the country. This Government body should accept & admit the
recommendations mentioned underneath while dealing with & negotiating BIT.
v There is a need to have a balanced treaty preamble for Ethiopian BITs. Except BIT Ethiopia
concluded with Finland, Qatar, United Arab Emirates & South Africa, all other BIT of
Ethiopia’s are drafted with traditional type preambles. The objectives of a BIT are usually
stated in its preamble, which typically emphasizes the protection of foreign investors as the
treaty’s main goal. Preambles are not a source of legal obligation. However, preambles play a
determining role when it comes to the interpretation of treaty terms. Arbitral tribunals when
faced with vague and unqualified obligations are likely to rely on the preamble (which is
usually investment protection) to make a determination. Therefore, in order to ensure that the
BIT does not single out investment protection as the only objective, there is a need to
incorporate in the preamble other legitimate and important policy consideration. The preamble
of the Trans-Pacific Partnership Agreement (TTPA),387 may form a new norm in investment
treaty making. Its preamble equalizes the two main objectives of investment treaties, mainly
investment protection and host state right to regulate.
v In order to guide arbitral tribunals in interpreting the FET obligation, states are increasingly
taking certain precautionary measures. One is to avoid including the standard in their
investment treaties. Another approach is to draft the FET standard, or craft an interpretative
note, indicating that the FET requirement is synonymous with the customary international law
minimum standard of treatment of aliens. In its publication regarding the FET standard,
UNCTAD also suggests different options for host countries regarding the FET standard. The
recommended options are a qualified FET standard, or no FET standard per se. In the latter
option it suggests a list of prohibited state actions that breach the FET standard388, although
not explicitly mentioning “fair and equitable” in its suggested clause. The draft Model BIT of
387
Trans Pacific Partnership Agreement [TPPA] [2016].
388
The prohibited state actions include: i) denial of justice and flagrant violations of due process; ii) manifestly
arbitrary treatment; iii) evident discrimination; iv) manifestly abusive treatment involving continuous, unjustified
coercion or harassment; and v) Infringement of legitimate expectations based on investment-inducing representations
or measures, on which the investor has relied. UNCTAD, Fair and Equitable Treatment UNCTAD Series on Issues in
IIAs II, (United Nations, 2012), p. 108-0981
Ethiopia and Ethiopian BIT concluded with United Arab Emirates adopted a total elimination
of the FET standard without even providing the suggested prohibited state actions. On the
other hand, as discussed in chapter 2, the BIT between Ethiopia & Brazil and Ethiopia &
Qatar adopted a list of prohibited state actions that breach the “FET” standard, although not
explicitly mentioning “FET” clause in its full name. Based on this Ethiopia’s BIT
development experience the researcher recommends the Iran – Slovak BIT389 “FET” clause
for future (Model) BITs of our country. This clause limits the application extent of “FET”
even better than the “FET” clause of the above two Ethiopia’s BITs.
v The 3rd group expropriation clause help to avoid the risks of an over-expansive and
inconsistent interpretation of “indirect expropriation”. It requires tribunals to employ a
comprehensive multi-step analysis taking into account a number of factors that is based on a
proportionality framework. first, the guidance can help prevent interpretations of the concept
of indirect expropriation that do not take into account the public purpose of the measure;
second, it requires consideration of a broader spectrum of factors to ensure a balancing of
competing interests. Because of this the researcher of this paper recommends for Ethiopian
BIT to include Article 6(4) & (5) of the Slovak – Iran expropriation clause.390
389
It asserts in article 3 that: “1. Each Contracting Party shall accord to investments of investors of the other
Contracting Party, and to investors with respect to their investments, fair treatment and full protection and security
in accordance with paragraphs 2 to 4.
2. A breach of the obligation of fair treatment referenced in paragraph 1 may be found only where a measure or
series of measures constitutes:
a) Denial of justice in criminal, civil or administrative proceedings;
b) Fundamental breach of due process, including a fundamental breach of transparency, in judicial and
administrative proceedings;
c) Manifest arbitrariness; or
d) Targeted discrimination on the grounds of nationality.
4. A determination that there has been a breach of another provision of this Agreement, or of a separate international
agreement, does not establish that there has been a breach of this Article.”
390
It asserts in that “4. The determination of whether a measure or series of measures of the Contracting Party
constitute measures having equivalent effect to expropriation or nationalization requires a case-by-case, fact-based
inquiry that considers:
a) the economic impact of the measure or series of measures, although the sole fact that a measure or series of
measures of the Contracting Party has an adverse effect on the economic value of an investment does not establish
that such measure or series of measures constitutes measures having equivalent effect to expropriation or
nationalization;
b) the extent to which the measure or series of measures interfere with distinct, reasonable investment-backed
expectations arising out of the Contracting Party’s prior binding explicit written commitment directly and
specifically to the investor; and
c) the character of the measure or series of measures, including their nature, purpose, duration and rationale.
5. Except in rare circumstances, such as when a measure or series of measures are so severe in the light of their
purpose that they cannot be reasonably viewed as having been adopted and applied in good faith, non-discriminatory
measures of the Contracting Party that are designed and applied to protect legitimate public welfare objectives, such 82
v The vague ended MFN clauses typically included in Ethiopian BITs will allow foreign
investors to import more favorable treatment standards that do not exist in the basic treaty in
an unexpected manner. Ethiopia’s draft Model BIT in its article 5(5) explicitly exclude all
previous investment treaties from the coverage of the MFN protection to ensure that foreign
investors will not try to benefit from more favorable treatment provisions the host state
Ethiopia has concluded BITs in the past. But the researcher recommends, like Article 8.7.4 of
CETA 2016 cited in chapter four, the entire contents of other treaties, both substantive and
procedural rules, which are signed before & after the entry into force of the BIT in question to
be excluded from the scope of MFN. This protects on one hand, MFN clause in the old
generation and Future BITs which have the potential of unintended consequence of
multilateralizing bilateral obligations. On the other hand it assures equal treatment between
foreign investors. Ethiopia should also explicitly exclude the dispute resolution articles of the
investment treaty from MFN protection.391
v BITs should serve as a tool for economic development, in addition to investment protection.
Mobilizing investment and ensuring that it contributes to development objectives should be a
priority for all countries, including, in particular, developing countries. This requires a review
of the current BIT pattern used by most countries and a rebalancing of the approach, policies,
and law making of BITs, where both the economic development objectives of the host state
and home state investor protection are addressed and equally preserved. Ethiopia’s draft
model BIT incorporated the notion of sustainable development. This is a great development in
the country. However, the fact on the ground evidences that sustainable development
objective is almost missing from Ethiopian BITs. In addition in Ethiopian investment laws, it
has been found that economic pillar of sustainable development has been desperately asserted
under preamble and declared objective of investment stipulated under Art.5 of the
proclamation but are not fully translated in to other substantive provisions of the investment
proclamation and regulation.
v UNCTAD392 presents the pros and cons of 10 policy options for IIA reform: (1) jointly
as health, safety and the environment, do not constitute measures having equivalent effect to expropriation or
nationalization.”
391
E.g. “For greater certainty, notwithstanding any other Bilateral Investment Agreement the Contracting Parties
have signed with other States before or after the entry into force of this Agreement, the MFN treatment shall not
apply to procedural or judicial matters.” Article 3(3) of the UAE - Mexico BIT (2016).
392
UNCTAD, Phase 2 of IIA Reform: Modernizing the Existing Stock of old-generation Treaties, International
Investment Agreements issues Notes, (United Nations, Issue 2, 2017), p.8 83
interpreting treaty provisions; 393 (2) amending treaty provisions; 394 (3) replacing outdated
treaties; 395 (4) consolidating the IIA network; 396 (5) managing relationships between
coexisting treaties;397 (6) referencing global standards;398 (7) engaging multilaterally;399 (8)
abandoning unratified old treaties; 400 (9) terminating existing old treaties; 401 and (10)
withdrawing from multilateral treaties.402 Countries can adopt these options to pursue the
reforms set out in the Road Map in line with their policy priorities. From the above options
this paper prefers three options available to policy makers and public officers responsible for
negotiating and concluding BITs in Ethiopia. These are jointly interpreting treaty provisions,
Amendments & Replacing outdated treaties. While the three options can be pursued
independent of each other, the most preferred recommended option in the short term for
Ethiopia by the researcher would be amendment of the problematic substantive provisions of
BITs. Because, Even though jointly interpreting treaty provisions is the Easiest in its practical
application an entirely new meaning cannot be assigned to a provision and is only limited to
clarification of the existing provisions. Replacing outdated treaties could also be time
consuming and, depending on the other party (or parties), challenging. In the event of
termination by consent, whether the Contracting States can terminate the treaty together with
its sunset clause403 or modify the latter with the effect of shortening the relevant sunset period
is also contentious.
v A further researcher recommendation relates to the issue of BIT negotiators expertise, when it
comes to drafting & negotiating through BITs. The Ethiopia Investment Commission should
concern on investing the legal and investment expertise to aid its negotiation skills. As it
stands today, it is clear that it has not invested greatly as required in the sector of expertise to
strengthen its position. The omissions of critical details in foreign investors treatment
393
Clarifies the content of a treaty provision and narrows the scope of interpretive discretion of tribunals
394
Modifies an existing treaty’s content by introducing new provisions or altering or removing existing ones
395
Substitutes an old treaty with a new one
396
Abrogates two or more old IIAs between parties and replaces them with a new, plurilateral IIA
397
Establishes rules that determine which of the coexisting IIAs applies in a given situation
398
Fosters coherence and improves the interaction between IIAs and other areas of international law and
policymaking
399
Establishes a common understanding or new rules among a multitude of countries, coupled with a mechanism that
brings about change “in one go”
400
Conveys a country’s intent to not become a party to a concluded but as yet unratified treaty
401
Releases the parties from their obligations under a treaty
402
Similar in effect to termination, but leaves the treaty in force among the remaining parties who have not
withdrawn
403
Survival clauses included in most BITs which are designed to extend treaty application for a further period after
termination (some for 5 years, but most frequently for 10, 15, 20 or even 30 years).Standard clauses witnessed in the current Ethiopian treaties are as a result of poor
representation given to the government during negotiations.
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Oxford University Press, 2012)
89Saverio Di Benedetto, International Investment Law and the Environment, (Edward Elgar
Publishing, 2013)
Redfern, A., Hunter, M. International Arbitration, (Student Version 6 th ed. Oxford UP 2015)
Sornarajah, M. The International Law on Foreign Investment. (3rd ed. Cambridge UP, 2010)
Dolzer, R., Schreuer, CH. Principles of International Investment Law. (2nd ed, Oxford UP, 2012)
Surya P., International Investment Law Reconciling Policy and Principle (1st ed. Hart Publishing
2008)
Aikaterini Titi, The Right to Regulate in International Investment Law (1st ed, Nomos 2014)
N Schefer International investment law: text, cases and materials (Edward Elgar Publisher, 2013)
Shan, W., Simons, P., Singh, D. Redefining Sovereignty in International Economic Law, (Oxford:
Hart Publishing, 2008)
Van Os and Roeline Knottnerus, Dutch BITs: a gateway to 'treaty shopping' for investment
protection by multinational companies, (2011)
Tomer Broude & Yoram Haftel, The Global Investment Regime and State Regulatory Space:
Assessing the Governance Role of the European Union and its Member States, (Hebrew
University of Jerusalem, 2020)
Jonathan Bonnitcha, Assessing the Impacts of Investment Treaties: Overview of the evidence,
(International Institute for Sustainable Development (IISD), 2017)
Ayalew Abate, Ethiopia’s BITs and Environmental Protection; The Need of Re Negotiation for
Corporate Responsibility, (2021)
Suzy H. Nikièma, The MFN Clause in Investment Treaties, IISD Best Practices Series, (2017)
Bina Olivia, The green economy and sustainable development: an uneasy balance? (Environment
and Planning C: Government and Policy 31, no. 6, 2013)
H Schreur, The ICSID Convention: A Commentary (Cambridge University Press 2001)
Viñuales Jorge, The environmental regulation of foreign investment schemes under international
law, (2012)
Matthew Coleman & Thomas Innes, Investor - State Arbitration and Fair and Equitable Treatment,(2015)
90Gaukrodger D., The legal framework applicable to joint interpretive agreements of investment
treaties, Working Papers on International Investment, (Organization for Economic Development,
2016)
Wilensky Meredith, Reconciling International Investment Law and Climate Change Policy:
Potential Liability for Climate Measures under the Trans-Pacific Partnership, (Environmental
Law Institute, 2015)
Romesh Weeramantry, Treaty interpretation in investment Arbitration, (Oxford University Press,
2012)
A. Fatouros, Government Guarantees to Foreign Investors, (Columbia University Press, 1962)
Journal Articles
Wakgari Kebeta, “The adequacy of Ethiopia’s BITs in protecting the environment: Race to the
bottom”, Haramaya Law Review, (2017)
Martha Belete and Tilahun Esmael, “Rethinking Ethiopia’s BITs in Light of Recent
Developments in International Investment Arbitrations”, Mizan Law Review, Vol.8, No.1, (2014)
Florence Shu-Acquaye, “The Protection of Foreign Direct Investments in Developing and
Emerging Markets through the Instrumentality of Arbitration: Fair Game?” Florida A & M
University Law Review, (2013)
W.M. Reisman & M.H. Arsanjani, “The Question of Unilateral Government Statements as
Applicable Law in Investment Disputes”, ICSID Rev 32, (2004)
Marcela K., “Fair and Equitable Treatment: an evolving Standard” Max Planck Yearbook of
United Nations Law Online, (2006)
S Fietta, “MFN Treatment and Dispute Resolution under BIT’s: A Turning Point?” Int ALR,
Issue 4, (2005)
Andrew Newcombe and Liuis Paradell, “Law and Practice of Investment Treaties: Standards of
Treatment”, Kluwer Law International, (2009)
Segger, M., Gehring, M. W, Newcombe, “A Sustainable Development in World Investment
Law”, Kluwer Law International BV, (2011)
Gabriel Egli, “Don't Get BIT: Addressing ICSID's Inconsistent Application of Most Favored[1]
Nation Clauses to Dispute Resolution Provisions”, PEPP. L. Rev. (2007)
Mr Mohammed Sweify, “State Regulatory Power”, JUS MUNDI, (2021)
91Levashova Y., “The Accountability and Corporate Social Responsibility of Multinational
Corporations for Transgressions in Host States through International Investment Law”, Utrecht
Law Review Vol. 14, Issue 2, (2018)
Kriebaum, U. “Regulatory Takings: Balancing the Interests of the Investor and the State”, The
Journal of World Investment & Trade, Vol. 8, No. 5, (2007)
James D., “A comparative Analysis of the Laotian Law On Foreign Investment, the World Bank
guidelines on the Treatment of Foreign Direct Investment and Normative Rules of International
Law on Foreign Direct Investment” Ariz. J. Int’l & Comp.L. (1998)
Jian Zhou, “National Treatment in Foreign Investment Law: a Comparative Study from Chinese
Perspective,” Touro Int’l L.Rev. (2000)
Barton Legum, “Defining Investment and Investor: Who Is Entitled to Claim?” Paper presented at
symposium co-organized by ICSID, OECD and UNCTAD, (Paris OECD headquarters, 2005)
Kenneth J., “A Unified Theory of Fair and Equitable Treatment”, New York University
Journal of International Law and Politics, (2010)
Stephen Vasciannie, “The Fair and Equitable Treatment Standard in International Investment Law
and Practice”, British YIL, (1999)
Peter D., “Defining the Scope of “indirect expropriation” for International Investments”, The
Global Business Law Review, Vol. 3, Issue 2 (2013)
Julie A., “MFN-Based Jurisdiction In Investor-State Arbitration: Is there any hope for a consistent
approach?”, Journal of International Economic Law, (2011)
D Arechaga “State responsibility for the nationalization of foreign owned property” Journal of
International Law and Politics, (1978)
Emmanuel Gaillard, “Establishing Jurisdiction through a MFN Clause, International Arbitration
Law”, New York Law Journal (2005)
Mary E. “BITs and pieces: social and environmental protection in the regulation of foreign
investment”, Mich. St. U. Coll. LJ Int'l L. (2009)
Ursula Kriebaum, “Regulatory Takings: Balancing the Interests of the Investor and the State”, J.
World Inv. & Trade, (2007)
Shotaro Hamamoto. “Review of The Right to regulate in International Investment Law by Titi
Aikaterini” European Yearbook of International Economic Law (2016)
92Uche Ofodile, “Africa-China BITs: A Critique” Michigan Journal of International Law, (2013)
Belohlavek, A. J., Rozehnalova, N. “State Sovereignty”, Czech Yearbook of International Law,
(2019)
Tamara Lothian, “Local Institutions, Foreign Investment and Alternative Strategies of
Development: Some Views from Practice”, Colombia Journal of Translational Law Associations
Inc, (2003)
International Legal Instruments
Vienna Convention on Law of Treaties, 1969
Permanent Sovereignty over Natural Resources, 1962, GA Res 1803 (XVII)
Agreement Establishing the African Continental Free Trade Area, 2018
Treaty Establishing Common Market for Eastern and Southern Africa, 1993
International Centre for Settlement of Investment Disputes (ICSID) Convention, 1966.
United Nations Commission on International Trade Law, 1966
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958.
The Convention Establishing the Multilateral Investment Guarantee Agency, 1985
Trans Pacific Partnership Agreement, 2016.
The Energy Charter Treaty, 1994
BITs
Agreement between the Slovak Republic and the Islamic Republic of Iran for the promotion and
reciprocal protection of investments, 2016
Agreement between the government of the Federal Democratic Republic of Ethiopia and The
Government of the United Arab Emirates concerning the promotion and promotion of
Investments, 2016
Agreement between The Belgian-Luxembourg Economic Union and the Federal Democratic
Republic of Ethiopia on the reciprocal promotion and protection of investments, 2006
Agreement between the government of the Federal Democratic Republic of Ethiopia and The
Government of the People’s Democratic Republic of Algeria on the reciprocal promotion and
promotion of Investments, 2002
93Agreement between the Federal Democratic Republic of Ethiopia and the Kingdom of Denmark
Concerning the promotion and reciprocal protection of investments, 2001.
Agreement between the Federal Democratic Republic of Ethiopia and the government of
Malaysia for the Promotion and Protection of Investments, 1998.
Agreement between the government of Federal Democratic Republic of Ethiopia and the
government of the people’s Republic of China Concerning the encouragement and reciprocal
protection of investments, 1998
Agreement between the government of Federal Democratic Republic of Ethiopia and the
government of the Republic of Tunisia for the Promotion and reciprocal Protection of
Investments, 2000
Agreement between the government of Federal Democratic Republic of Ethiopia and the
government of the Russian Federation on the Promotion and reciprocal protection of investments,
1999
Agreement between The Government of the Republic of Italy and the Transitional Government of
Ethiopia on the Promotion and reciprocal protection of investments, 1994
Agreement between the Federal Democratic Republic of Ethiopia and the State of Kuwait for the
encouragement and reciprocal protection of investments, 1996
Agreement between the Government of the Federal Democratic Republic of Ethiopia and the
Great Socialist People’s Libyan Arab Jamahiriya concerning the Encouragement and Reciprocal
Protection of Investments, 2004.
Agreement between the Federal Democratic Republic of Ethiopia and the government of the
Kingdom of Sweden on the Promotion and reciprocal Protection of Investments, 2004
Agreement between the Federal Democratic Republic of Ethiopia and the Government of
Republic of the Sudan on the reciprocal promotion and protection of Investments, 2000
Agreement between the government of Federal Democratic Republic of Ethiopia and the
Government of Republic of Yemen on the reciprocal promotion and protection of investments,
1999
Agreement between the Republic of India and the Federal Democratic Republic of Ethiopia for
the reciprocal promotion and protection of investments, 2007
94Agreement between the Government of the Republic of Equatorial Guinea and the Government of
the Federal Democratic Republic of Ethiopia on the promotion and protection of investments,
2009
Agreement between the Republic of Austria and the Republic of Ethiopia for the Promotion and
Protection of investments, 2004
Agreement for the promotion and protection of investments between the Arab Republic of Egypt
and the Federal Democratic Republic of Ethiopia, 2006
Agreement between the Federal Democratic Republic of Ethiopia and the Kingdom of Spain on
the Promotion and reciprocal protection of investments, 2006
Treaty between the Federal Republic of Germany and the Federal Democratic Republic of
Ethiopia concerning the encouragement and reciprocal protection of investments, 2004
Agreement on reciprocal promotion and protection of investments between the government of the
Federal Democratic Republic of Ethiopia and the government of Islamic Republic of Iran, 2003
Agreement on encouragement and reciprocal protection of investments between the Federal
Democratic Republic of Ethiopia and the Kingdom of Netherlands, 2003
Agreement between the Republic of Turkey and Federal Democratic Republic of Ethiopia
concerning reciprocal Promotion and Protection of Investments
Agreement between the government of the United Kingdom of Great Britain and Northern Ireland
and Federal Democratic Republic of Ethiopia for the Promotion and Protection of Investments
Agreement between the Swiss Confederation and the Federal Democratic Republic of Ethiopia on
the Promotion and reciprocal Protection of Investments, 1998
Agreement between the Government of the Federal Democratic Republic of Ethiopia and the
Government of the Republic of France for the reciprocal promotion and protection of
investments, 2003
Agreement between the Federative Republic of Brazil and the Federal Democratic Republic of
Ethiopia on Investment Cooperation and Facilitation, 2018
The Agreement between the government of Federal Democratic Republic of Ethiopia and the
government of the state of Qatar for the Promotion and reciprocal Protection of Investments, 2017
Agreement between the Government of South Africa and the Government of the Federal
Democratic Republic of Ethiopia, 2008
95Agreement between the Government of the Republic of Finland and the Government of the
Federal Democratic Republic of Ethiopia on the promotion and protection of investments, 2006
Model BITs
Agreement between the Government of the Federal Democratic Republic of Ethiopia and the
Government of the … for the Promotion and Reciprocal Protection of Investments, 2016,
(unpublished draft Ethiopian Model BIT, Ethiopian Investment Commission)
U.S. Model Bilateral Investment Treaty, Treaty between the Government of the United States of
America and the Government of (Country) concerning the encouragement and reciprocal
protection of investments, 2012
Model text for the Indian bilateral investment treaty, 2015
South African Development Community (SADC) Model Bilateral Investment Treaty Template
with Commentary, 2012
Agreement between the kingdom of Norway and …Promotion and Protection of Investments,
2015
Ethiopian Legal Instruments
The Constitution of the Federal Democratic Republic of Ethiopia, 1995, Proclamation No. 1, Fed.
Neg. Gaz., 1st Year No.1
Investment Proclamation, 2020, Proclamation no 1180 Fed. Neg. Gaz., 26th Year No. 28
International Agreement Making and Ratification Procedure Proclamation, 2017, Proclamation
No. 1024, Fed. Neg. Gaz. 23rd Year No. 55
Expropriation of Land holdings for Public Purposes, Payments of Compensation and
Resettlement of Displaced People Proclamation, 2019, Proclamation No. 1161, Fed. Neg. Gaz.,
25th Year No. 90
Expropriation and Valuation Compensation and Resettlement Council of Ministers Regulation,
2020, Regulation no. 472, Fed. Neg. Gaz., 26th Year No. 61
Code
Civil Code of the Empire of Ethiopia of 1960
Civil Procedure Code of the Empire of Ethiopia of 1965
96Interview
Interview with Ato Mesay Woldesenbet, Team Leader of treaty affairs in Ethiopian Investment
Commission, Sept 5, 2022.
Interview with Ato Lama Fayisa, Director of Policy investigation and investment climate reform
in Ethiopian Investment Commission, Sept 5, 2022.
Interview with Ato Wandimageny Werkneh, Director of Legal Expert in Ministry of Trade &
Regional Integration of Ethiopia, Sept 6, 2022.
97
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