THE “FET” PROTECTION PROVIDED FOR FOREIGN INVESTMENT UNDER INTERNATIONAL INVESTMENT LAW AND THE CONTENTS OF ETHIOPIAN BIT’s
CHAPTER TWO
THE “FET” PROTECTION PROVIDED FOR FOREIGN INVESTMENT UNDER
INTERNATIONAL INVESTMENT LAW AND THE CONTENTS OF ETHIOPIAN BIT’s
2.1 Introduction
BIT’s (BITs) are investment agreements that are entered into by two sovereign states in a way
that is not detrimental or injurious to investments by investors from the other contracting State.
They are regarded as a means of drumming up investor confidence by signaling that the legal and
political structures are not injurious to foreign investors and investments, thus providing a
welcoming climate for FDI. 60 The development of BIT’s was primarily a response to the fears and insufficiencies of the
customary international law of state responsibility for injuries to foreigners and their property.61
Further, the developed states required to obtain better market access assurance from developing
states for their investors and to obtain advanced development in the standards of investment
protection.62
The first IIA was between Pakistan and Germany in 1959 for the promotion and protection of
investments. It had many provisions that have become common in current BIT’s. The efforts by
Germany to conclude BIT’s were followed by Switzerland and Tunisia in 1961, Netherlands and
Tunisia in 1963, Italy and Guinea in 1964, Sweden and Denmark in 1965, UK and Egypt in
1975.63
The features of these treaties during this period were majorly based on the OECD draft
Convention.64 Since then more than 3,000 such agreements have been concluded in the world.65
One of the factors that has motivated developing states to enter into investment treaties is due to
the ambition for them by OECD and UNCTAD. This was on the premise that they added security
to foreign investors which would offshoot increase in foreign investment. 66 The other factor
which is put forth by intergovernmental institution such as International Finance Corporation is
60
Id., p.25
61
Muthucumaraswamy Sornarajah, The International Law on Foreign Investment, (2nded Cambridge University
Press 2004), P.61
62
Id., P.56
63
Emer de Vattel, Law of Nations: Or, Principles of the Law of Nature Applied to the Conduct and Affairs of
Nations and Sovereigns. A Work Tending to Display the True Interest of Powers, (1805), p.100
64
Muthucumaraswamy Sornarajah, Cited above at note 63, P. 56
65
Nathalie Bernasconi, International Institute for Sustainable Development, (2012)
66
Muthucumaraswamy Sornarajah, Cited above at note 63, P. 5624
that, investment treaties are seen as risk management tools. Finally, globalization has increased
the spread of investment treaties.67
The developed countries have ready capital to invest in developing countries thus the majority of
the BIT’s are concluded between developed and developing countries. The underlying principle
behind BIT’s is that, by granting foreign investor’s enhanced security and protection beyond that
which is provided by the laws of the host state, will increase and attract foreign investment.68
As discussed below, except for three Ethiopia’s BIT concluded with UAE, Brazil & Qatar, in all
other Ethiopia BITs69 the Fair & Equitable Treatment clause included are unqualified type. This
will expose Ethiopia to potential, unnecessary litigation before the arbitral tribunals. If Ethiopian
government body takes a measure contrary to the obligations contained in an investment treaty,
that action can engender high liability for the government. This could potentially require the
payment of millions of dollars in compensation, damage the state’s reputation as a decent place to
invest, and limit the state’s ability to attract foreign investment in the future.
2.2 Terminology of “FET”
The manner in which the notion of fairness and equity to be granted to the investor is represented
in a treaty may vary. There are a number of agreements that refer to the standard as “just and
equitable treatment” or simply “equitable treatment.” For example Ethiopia Malaysia70 BIT on
article 2(2) states that “Once an investment is admitted investors of each Contracting Party shall
at all times be accorded “equitable treatment” and shall enjoy full and adequate protection and
security in the territory of the other Contracting Party”. The French model and various BIT’s
involving Switzerland71 also refer solely to “just and equitable treatment”.
The United States signed Friendship, Commerce and Navigation (FCN) Treaties with Belgium,
Luxembourg72, Greece73, Ireland74, Israel75, and Pakistan76 all of which referred to the standard as
67
Ibid
68
UNCTAD, The role of IIAs in attracting foreign direct investment to developing countries, (United Nations,
2009)
69
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.
70
Ethiopia - Malaysia BIT, 1998
71
UNCTAD, Fair and Equitable Treatment UNCTAD Series on Issues in International Investment Agreements,
(1999), P.22.
72
Marcela K., “Fair and Equitable Treatment: an evolving Standard” Max Planck Yearbook of United Nations
Law Online, (2006) p. 614
73
Ibid
74
Ibid
75
Ibid25
“equitable treatment.” On the other hand, FCN’s agreed upon with Ethiopia 77 , Germany78 ,
Oman79, and the Netherlands80 referred to “FET”. The fact that the use of a different adjective
would imply a different standard is questioned, however, as Fatouros suggests: “this variation in
the form of words seems to be of no great importance.”81 The reason the drafters referred to the
notion as “equitable treatment” or “just and equitable treatment” is that at that time, the
formulation of it as “FET” had not yet become the principal form of its expression.
2.3 Definition of “FET”
Until the recent rise of arbitral interpretations of the “FET” standard, its meaning was not
generally determined. The word “fair” is defined by the Concise Oxford Dictionary as “just,
unbiased, equitable, in accordance with rules”.82 Therefore, the concepts of fair and equitable are,
to a large extent, interchangeable. In addition, equity suggests a balancing process, weighing up
of what is right in all the circumstances. It is a word related to the idea of equilibrium defined as
“a state of physical balance”.83 The balancing function of equity is accepted as an aspect of
international law.84
“FET” clauses typically refer to “treatment” of investments. “Treatment” is an expansive term,
defined as “conduct, action or behavior towards a person”.85 Essentially, any action or omission
attributable to the host State can become a subject of “FET” claim.86 While historic cases on the
international minimum standard and denial of justice were typically concerned with alleged
failures in the judicial system of the host State, modern “FET” claims cover, in addition, all types
76
Ibid
77
Id., p.615
78
Ibid
79
Ibid
80
Ibid
81
S.Vasciannie, The Fair and Equitable Treatment Standard in International Investment Law and Practice, (1999),
P.111
82
See The Concise Oxford Dictionary of Current English, (8 th ed. Clarendon Press 1990), p. 420.
83
Id., p. 396.
84
In the Tunisia-Libya Continental Shelf Case, the International Court of Justice (ICJ) held that: “Application of
equitable principles is to be distinguished from a decision ex aequo et bono. The Court can take such a decision only
on condition that the parties agree (Art.38, para. 2 of the Statute), and the Court is then freed from the strict
application of legal rules in order to bring about an appropriate settlement. The task of the Court in the present case is
quite different: it is bound to apply equitable principles as part of international law and to balance up the various
considerations which it regards as relevant in order to produce an equitable result”(emphasis added), see Continental
Shelf Case, (I.C.J., 1982), I.C.J. Reports Vol. 18, para. 71.
85
The Oxford English Dictionary, (2nd Ed. Clarendon Press 1989), vol. I, p. 602.
86
Saluka Investments v. Czech Republic (UNCITRAL, Mar 17, 2006) (Partial Award), para. 45926
of administrative and legislative decisions, as well as the conduct of anybody or entity if this
conduct is attributable to the State.87
Fair & Equitable Treatment Standard definition depends on the circumstances of each case. In
Mondev Case, it was stated that ‘judgment of what is fair and equitable cannot be reached in
abstract; it must depend on the facts of the particular case’.88 This definition of Fair & Equitable
Treatment Standard is considered a problem by some scholars and jurists.
The argument is that the definition can imply that the test is whether the investor has been treated
fairly and equitably by the host State. The challenge with the definition is that it invites an ex
aequo et bono consideration89. Although fair and equitable principles may be considered as legal
concepts of fairness and equity, the same should not be confused with ex aequo et bono.90 In
Mondev Case, the tribunal noted that ‘It may not simply adopt its own idiosyncratic standard of
what is fair or equitable, without reference to established sources of law.’91
The actual practice of application of “FET” clauses by arbitral tribunals has drawn a distinction
solely between “FET” as an unqualified standard and the “FET” obligation linked to the
minimum standard of treatment of aliens under customary international law.92 Where an IIA ties
the “FET” obligation to the customary international law minimum standard of treatment of aliens,
the threshold of liability as applied by arbitral tribunals has been generally higher: the State’s
conduct needs to be egregious or outrageous in accordance with the Neer case. Indeed, the
minimum standard of treatment of aliens is an international lowest common divisor or a floor for
the assessment of governmental conduct. Generally, a reference in “FET” clause to the minimum
standard of treatment of aliens conveys a clear message that only the very serious acts of
maladministration can be seen as violating the treaty.93
In disparity, arbitral tribunals applying unqualified “FET” clauses have not limited themselves to
the most serious breaches and have found violations of the “FET” standard where they considered
87
UNCTAD, Cited above at note 18, p.63
88
Mary Njeri, Cited above at note 40, p.33
89
Ex aeco et bono means according to what is equitable and good, on the merit of the case the word is often used in
international law when a matter is to be decided according to principles of equity rather than by points of law. See
Merriam-Webister, https://www.merriam-webister.com/legal/ex%20aequo%20et%20bono.
90
Christoph Schreuer, Investments, International Protection, (Max Planck Encyclopedia of Public International
Law, 2013) para.48-80.
91
Mary Njeri, Cited above at note 40 p.33
92
Marcela K., Cited above at note 72, p.609.
93
UNCTAD, Cited above at note 18, P.1327
the State’s conduct in question to be simply unfair towards the claimant. 94 In other words
tribunals have generally interpreted unqualified “FET” as encompassing a wide range of
procedural and substantial rights, beyond the minimum standard of customary international law.95
The elements commonly associated with the “FET” standard are, in addition to those included in
the minimum standard of treatment: the protection of legitimate expectations, non-discrimination,
transparency and protections against bad faith, coercion, threats, and harassment.96
There seem to be emerging elements of Fair & Equitable Treatment Standard that can be
categorized in different ways. The rationale behind of various elements is vague and to some
extent overlapping. For example, Transparency can be seen as an element by its own right, as part
of legitimate expectations of investors or included under denial of justice. Because of this only
legitimate expectation element of “FET” was selected to be discussed for this research.
2.3.1 Legitimate expectations
It is generally accepted that the legitimate expectations of the foreign investor form part of
“FET”. 97 What constitutes ‘legitimate expectations’ is again subjected to diverse interpretations,
covering expectations resulting from the host State’s conduct in respect of commitments or
representations made by the State, expectations of a certain stability and predictability in the legal
and administrative framework of the host State, and the general – circular – expectation of a fair
and equitable conduct by the host State.98
A prime example of the high standards that some tribunals have demanded of host state behavior
was delivered in 2003 in the Tecmed vs. Mexico case (and echoed in a number of subsequent
cases99), where the local government had refused to relicense an operating waste treatment plant,
in effect shutting it down. The tribunal found that to avoid violating the “FET” obligation, the
host state must act in a manner that, among other things: “Does not affect the basic expectations
that were taken into account by the foreign investor to make the investment;” and Is consistent,
94
UNCTAD, Cited above at note 18, p.13
95
Andrew Newcombe & Liuis Paradell, Cited above at note 30, P.238.
96
Id., P.279.
97
Ibid
98
Ibid
99
Excerpts from TecnicasMedioambientalesTecmed v. The United Mexican States (ICSID Case No. ARB AF/00/2,
May 29, 2003) para. 154, cited in MTD v. Chile, (ICSID Case No. ARB/01/7, May 25, 2004, Sept. 9, 2008), para.
112; Occidental Exploration Case, (LCIA case No. UN3467, July 1, 2004), para. 185; Azurix Corp v. The Argentine
Republic, (ICSID Case No. ARB/01/12, June 23, 2006), para. 371; Siemens vs the Argentine Republic, (ICSID Case
No. ARB/02/8, Jan 17, 2007), para. 297-99; Eureko B.V. v. Republic of Poland, (Aug 19, 2005) (Partial Award),
para. 235.28
“free from ambiguity and totally transparent,” so that the investor may know all the relevant
rules and regulations and their respective goals before investing.100
The term ‘legitimate expectations’ is used in at least three ways. In its most specific form,
legitimate expectations refers to expectations arising from the foreign investor's reliance on
specific host state conduct, usually oral or written representations or commitments made by the
host state relating to an investment.101 Second, tribunals have referred to legitimate expectations
of a stable and predictable legal and administrative framework that meets certain minimum
standards, including consistency and transparency in decision-making. 102 Third, at the most
general level, legitimate expectations can be used to refer to the ‘expectation that the conduct of
the host State subsequent to the investment will be fair and equitable.’103
Legitimate expectations about the treatment of investments will arise ‘based on the conditions
offered by the host State at the time of the investment.’104 IIA jurisprudence highlights that, to
create legitimate expectations, state conduct needs to be specific and unambiguous. 105
Encouraging remarks from government officials do not of themselves give rise to legitimate
expectations.106 There must be an ‘unambiguous affirmation’107 or a conclusive, unequivocal and
repeated guarantee. 108 The conduct must be targeted at a specific person or identifiable group.
In EDF v. Romania, 109 The tribunal noted that:
“The idea that legitimate expectations, and therefore “FET”, imply the stability of the legal and
business framework, may not be correct if stated in an overly-broad and unqualified formulation.
The “FET” might then mean the virtual freezing of the legal regulation of economic activities, in
100
TecnicasMedioambientalesTecmed v. The United Mexican States, Ibid
101
On unilateral acts, see W.M. Reisman & M.H. Arsanjani, “The Question of Unilateral Government Statements as
Applicable Law in Investment Disputes”, ICSID Rev 32, (2004), P.19
102
In Encana Corporation v. Ecuador (LCIA Case No. UN3481, Feb 3, 2006), the tribunal noted at para. 158 that
‘under standards such as those in Article II (fair and equitable treatment) of the BIT the State must act with
reasonable consistency and without arbitrariness in its treatment of investments. One arm of the State cannot finally
affirm what another arm denies to the detriment of a foreign investor.’
103
Saluka Investments v. Czech Republic, Cited above at note 33, para. 301.
104
LG & E Energy Corp. Case (ICSID Case No. ARB/02/1 Jul 25, 2007)
105
In Metalclad, cited above at note 101, the tribunal noted at para. 148 that the ‘assurances received by the investor
from the Mexican government in Metalclad were definitive, unambiguous and repeated.’
106
Nagel v. Czech Republic (SCC Case No. 049/2002, Sept 9, 2003) P. 164.
107
GAMI Investments, Inc. v. Mexico (UNCITRAL, Nov15, 2004) para. 95, noting that the ‘Mexican regulatory
regime did not contain an unambiguous affirmation to the effect that the Government shall announce annually
individual export quotas for all mills and shall promptly enforce any non-compliance.’
108
International Thunderbird Gaming Corporation v. Mexico (Arbitral Award,) 26 Jan. 2006, para. 30, to the
contrary, suggests that the risk of ambiguity should be allocated to the government that made the statement and that a
‘government agency cannot rely on intentionally inserted obfuscation to extract itself from the key message the
investor relied upon and that the drafter and the public authority in a position of superiority over the foreign investor
has to be clear, unambiguous and consistent.’
109
EDF v. Romania, (ICSID Case No. ARB/05/13, Oct 8, 2009) 29
contrast with the State’s normal regulatory power and the evolutionary character of economic
life. Except where specific promises or representations are made by the State to the investor, the
latter may not rely on a BIT as a kind of insurance policy against the risk of any changes in the
host State’s legal and economic framework. Such expectation would be neither appropriate nor
rational.” 110
The power of States to regulate without compensating foreign investors will also be limited where
it makes specific assurances to the investor about keeping in place certain aspects of the business
or legal regime. Similarly, general regulations that are put in place specifically to induce foreign
investments and on which an investor relies can expose a State to liability if it subsequently
decides to change or withdraw those regulations. Liability may be avoided if the treaty includes
general exceptions that may justify the relevant State conduct.111
In a series of claims against Argentina, tribunals have found that the changes Argentina made to
its gas regime in the early 2000s to address severe economic conditions breached the “FET”
guarantee, because the changes destroyed the stability and predictability of the regulatory regime
governing the gas sector. In the first of these cases, CMS v. Argentina112, the tribunal found that
investors have a legitimate expectation of a certain level of stability and predictability.
2.4 Overview of BIT Practices in Ethiopia
In most of the existing IIAs, more emphasis is given for the protection of the rights of the firms or
investors in order to promote the flow of investment. Such IIAs give insignificant consideration
for incorporating the counter obligations of the investor in host state113
Ethiopia started to conclude BITs with other countries since 1964 and currently Ethiopia has
signed 35 BITs with different countries.114 Most of these countries are the developed countries of
which eight of them are the top ten main sources of FDI to Ethiopia during 2011/12.115 Almost
all of these BITs of the country are influenced by the capital exporting countries and emphasize
110
Id., para. 217.
111
UNCTAD, Cited above at note 18 p.77
112
CMS Gas Transmission Company vs. the Republic of Argentina, Cited above at note 59
113
Levashova 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),
P.42
114
UNCTAD Report, from these 2 BIT is terminated, 12 BIT is not in force.
115
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) 30
highly on the protection and promotion of the investment and ignorant of the obligations of the
investor.116
Since 1995 Ethiopia has gradually shifted from having a state-controlled economy towards an
open and market-oriented one. Successive amendments to the national Investment Code have
reduced the number of industries that are closed to foreign investors. FDI is now, in principle,
welcome in most sectors. Activities still closed to foreign participation include a number of
services, small-scale manufacturing and sectors considered to be of national interest. 117 To
facilitate private investment, both domestic and foreign, and to provide a one-stop-shop for
investors, the government established the Ethiopian Investment Authority (EIA) renamed
Ethiopian Investment Commission (EIC) in 2003.118
Currently, the Second Five-Year Growth and Transformation Plan (GTP-II) and Sustainable
Development Goals are driving Ethiopian’s demand for foreign capital from investment to meet
its objective of becoming a middle-income country by 2025.119 Accordingly, achieving 11% of
annual average real GDP growth rate is among the four main objectives of GTP-II.120
2.5 International Formulations of the “FET” standard & Ethiopian BIT practice
The manner in which a treaty structures the standard and its association with other standards will
be decisive in defining its meaning. For the reason of the variances in its formulation, the proper
interpretation of the “FET” standard depends on the specific language of the particular treaty, its
context, the object and purpose of the treaty, as well as on negotiating history or other indications
of the parties’ intent.121 Developed countries have become concerned about the real effect this
protection will have on their nationals that invest in capital importing countries. The most
important and widespread approaches to the “FET” standard in treaty practice are the following:
(a) None Incorporation of “FET” obligation;
(b) The Exhortatory Style Formulation
(c) Unqualified, autonomous or self-standing “FET” standard;
116
Jian Zhou, “National Treatment in Foreign Investment Law: a Comparative Study from Chinese Perspective,”
Touro Int’l L.Rev. (2000), p. 94
117
UNCTAD, Investment and Innovation Policy Review Ethiopia, (2002)
118
Ibid
119
African Development Bank Group, Federal Democratic Republic of Ethiopia Country Strategy Paper 2016- 2020,
(Accessed on 2 February 2017).
120
National Planning Commission, Federal Democratic Republic of Ethiopia, Growth and Transformation Plan II
(GTP II), (Addis Ababa, 2016) Vol. I, P.80.
121
OECD, Fair and Equitable Treatment Standard in International Investment Law, (OECD 2004), p.4031
(d) “FET” linked to international law or to principles of international law
(e) “FET” linked to the minimum standard of treatment of aliens under customary international
law;
(f) “FET” with additional substantive content (denial of justice, unreasonable/discriminatory
measures, breach of other treaty obligations, accounting for the level of development).
2.5.1 None Incorporation of “FET” obligation
To this date, only a few BIT’s have not included “FET” standard. At the Bilateral level, the 1978
agreement between Egypt and Japan as well as the agreement between Italy and Romania and the
agreement between Ethiopia & United Arab Emirates122 may be mentioned as instances, among
others, in which the standard is not expressly incorporated in inter-State investment relations.”123
The absence of the standard in a treaty has important consequences. There is no certainty as to the
possibility that the “FET” standard is a part of customary international law. Therefore, if the
standard is not incorporated in the agreement, the investor will have no protection against unfair
and inequitable conduct by the host state. Only the international minimum standard may be
invoked by the alien to protect his investment.124
However, despite the absence of the “FET” obligation in a treaty, the international minimum
standard still exists in customary law. The question is whether an investor would be able to
enforce the minimum standard of treatment of aliens through an IIA’s ISDS mechanism. This will
depend on the extent of the treaty’s ISDS clause. For instance, the ISDS clause in the India
Singapore Comprehensive Economic Cooperation Agreement applies only to disputes
“concerning an alleged breach of an obligation of the former under this Chapter” (Article 6.21);
therefore, given the absence of the “FET” clause in the treaty, claims alleging breaches of the
minimum standard of treatment of aliens will fall outside the tribunal’s jurisdiction. In contrast,
the New Zealand-Thailand Closer Economic Partnership Agreement’s arbitration clause
encompasses all disputes “with respect to a covered investment” (Article 9.16) – there is no
requirement that relevant claims arise from a violation of the Agreement itself. Such a clause is
broad enough to include, among others, claims of violation of the minimum standard of treatment
of aliens under customary international law.
122
Ethiopia – United Arab Emirates BIT, 2016
123
UNCTAD, Fair and Equitable Treatment UNCTAD Series on Issues in International Investment Agreements,
(1999), p.23
124
Marcela K., “Fair and Equitable Treatment: an evolving Standard” Max Planck Yearbook of United Nations
Law Online, (2006), p.624 32
Another possibility is that the “FET” standard could be read into the treaty by way of the MFN
clause. In the Bayindir case125, the tribunal did accept the MFN argument. This case concerned,
among other matters, the question as to whether the claimant, a Turkish road construction
company, could invoke the “FET” standard even though it was absent from the text of the
Pakistan-Turkey BIT (the claim alleged a breach of the “FET” standard by the Pakistani
authorities due to the termination of the claimants’ involvement in a major motorway construction
project). The tribunal held that the reference to the “FET” standard in the preamble of the
Pakistan - Turkey BIT (1995) allowed use of the MFN clause to import that standard from
Pakistan’s BIT with a third party:126
Treaty practice suggests that countries that have not included “FET” obligation or a reference to it
into their treaty have done so purposefully to avoid being exposed to this standard of protection.
Accordingly, any introduction of “FET” clause from another IIA through the MFN clause should
be done with care and take into account the clear intention of the parties.127
In its publication regarding the “FET” standard, UNCTAD suggests different options for host
countries regarding the “FET” standard. 128 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” standard, although not explicitly mentioning “fair and equitable” in
its suggested clause. 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[1]
inducing representations or measures, on which the investor has relied.” 129
The draft Model BIT of Ethiopia adopted a direct elimination of the “FET” standard without even
providing the above prohibited state actions which the researcher of this paper could not
recommend such like elimination of “FET” clause. This is because, “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. It is an
important protection standard which will attracts foreign investment. It is not Elimination of
125
Bayindir Insaat Turizm Ticaret ve sanayi A.S. V. Islamic Republic of Pakistan (ICSID Case No.ARB/03/29, Aug
27 2009)
126
UNCTAD, Cited above at note 18, p.19
127
Id., p.20
128
Ibid
129
Id., p 108-09.33
“FET” obligation but, associating “FET” with Minimum standards of treatment which has also
received most support in recent state practice.
2.5.2 The Exhortatory Style Formulation
Although most investment agreements state the “FET” standard as obligatory for the parties, there
are cases, generally in multilateral agreements, in which its inclusion is not binding.
There is an exhortation to apply it, but it is not obligatory for any of the parties. This approach
may be found in the MIGA Convention130 and in the Havana Charter.131 They are non-binding
instruments, thus the reason for not making reference to the standard in a binding format. They
both refer to the “FET” standard, but do not create an obligation for State parties to provide such
treatment in relation to their investments. The idea behind this approach is to create an incentive
for parties to apply the standard of treatment.
2.5.3 Unqualified “FET” formulation
Many IIAs use a simple unqualified formulation which does no more than state the obligation of a
host State to accord “FET” to protected investments. Some agreements use the unqualified form
of the “FET” standard and link it with the standard of full protection and security in the same
clause. Such a formulation would not modify the interpretation of the “FET” standard; it merely
lists both standards of treatment in the same provision.132 Similarly Existing treaty practice has
examples of other types of “FET” clauses which combined in one article with NT or MFN.
However, these types do not appear to be significant in conceptual terms.133 In a non-NAFTA
context, tribunals have generally interpreted “FET” as encompassing a wide range of procedural
and substantial rights, beyond the minimum standard of international law in customary
international law.134
The dominant approach by tribunals 135 and commentators has been to interpret “FET” as an
independent treaty standard with an autonomous meaning. In a series of cases, IIA tribunals have
held that “FET” has a meaning independent of the minimum standard of treatment. Interpretation
has been guided by a textual interpretation based on the specific wording of the “FET” provision,
130
The Convention Establishing the Multilateral Investment Guarantee Agency, 1985, available under
<http://www.miga.org/screens/about/ convent/convent.htm>.
131
The Havana Charter available under <http://www.globefield.com/havana.htm>.
132
UNCTAD, Cited above at note 18, p. 21
133
Ibid p.18
134
Andrew Newcombe & Liuis Paradell, Cited above at note 30, P. 238.
135
MTD Equity Sdn. Bhd. Case, (ICSID Case No ARB/01/7, May 25, 2004), paras 110-11234
with significant reliance on the expressed purpose of the IIA in question, which in almost all cases
is explicitly to promote and protect investment.136 Principles of treaty interpretation provide the
primary argument in favor of “FET” as an independent treaty standard. Article 31(1) of the VCLT
provides that: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning
to be given to the terms of the treaty in their context and in the light of its object and purpose.”
Article 31(1) suggests that fair and equitable should be given its ordinary meaning, in the context
of other treatment standards and consistent with the overall promotion and protection purpose of
the IIA.
The following Ethiopian BIT takes us to belief that the standard is self-contained.
Agreement between the Belgian-Luxembourg with Ethiopia137 in Article 3 (1) states that “All
investments made by investors of one Contracting Party shall enjoy a “FET” in the territory of
the other Contracting Party. The same formulation can be seen from the agreement Between
Ethiopia & Algeria 138 , Denmark 139 , Malaysia 140 , China 141 , Tunisia 142 , Russia 143 , Italy144 ,
Kuwait145, Libya146, Sweden147, Sudan148, Yemen149 & India150
Example of Ethiopian BIT which use the unqualified form of the “FET” standard and link it with
the standard of full protection and security is Agreement Between Ethiopia & Israel. It states in
article 2 (2) that “Investments made by investors of each Contracting Party shall be accorded
“FET” in accordance with the provisions of this Agreement, and shall enjoy full protection and
security in the territory of the other Contracting Party. Neither Contracting Party shall in any
way impair by unreasonable measures the management, maintenance, use, enjoyment or disposal
of investments in its territory of investors of the other Contracting Party.” The same formulation
136
SGS Société Générale de Surveillance S.A. v. Philippines (ICSID Case No. ARB/02/6, Jan. 29, 2004) (Decision
on Jurisdiction), para. 116;
137
Belgian-Luxembourg – Ethiopia BIT, 2006
138
Ethiopia - Algeria BIT, 2002
139
Ethiopia - Denmark BIT, 2001
140
Ethiopia - Malaysia BIT, 1998
141
Ethiopia - China BIT, 1998
142
Ethiopia - Tunisia BIT, 2000
143
Ethiopia - Russian BIT, 1999
144
Italy - Ethiopia BIT, 1994
145
Ethiopia - Kuwait BIT, 1996
146
Ethiopia - Libya BIT, 2004
147
Ethiopia - Sweden BIT, 2004
148
Ethiopia - Sudan BIT, 2000
149
Ethiopia - Yemen BIT, 1999
150
India - Ethiopia BIT, 200735
was stated in the agreement Between Ethiopia & Finland151, Equatorial Guinea152, Austria153 ,
Egypt154, Spain155, Germany156, Iran157, Tunisia158, Netherland159, South Africa160, Turkey161 ,
Great Britain & Northern Ireland162 & Swiss Confederation163 .
2.5.4 The “FET” standard linked to international law or to principles of international law
In this case, the whole body of international law serves as the relevant source. Under this
approach, the disputing parties and the tribunal must derive relevant obligations of host States
from general international law including, among others, the relevant general principles of national
law as well as relevant decisions of international tribunals and writings of publicists.164
Theoretically, a reference to “international law” controls tribunal discretion less than a reference
to the “customary international law minimum standard of treatment” because the former notion is
significantly broader than the latter. However, arbitral practice of the past decade shows that
tribunals do not strictly adhere to the process of deriving legal norms from the relevant sources.165
Example of these type of “FET” formulation in Ethiopia BIT is the agreement between Ethiopia
& France.166 In Article 3 it states that:
“Either contracting party shall extend “FET” in accordance with the principles of international
law to investments made by nationals and companies of the other Contracting Party on its
territory or in its maritime area, and shall ensure that the exercise of the right thus recognized
shall not be hindered by law or in practice.”
This article have the Interpretation guidance protocol attached with BIT which stipulates
regarding this Article that:
151
Finland - Ethiopia BIT, 2006
152
Equatorial Guinea - Ethiopia BIT, 2009
153
Austria - Ethiopia BIT, 2004
154
Egypt - Ethiopia, BIT, 2006
155
Ethiopia - Spain BIT, 2006
156
Germany - Ethiopia BIT, 2004
157
Ethiopia - Iran BIT, 2003
158
Ethiopia - Tunisia BIT, 2000
159
Ethiopia - Netherlands BIT, 2003
160
South Africa - Ethiopia BIT, 2008
161
Turkey - Ethiopia BIT, 2000
162
Great Britain and Northern Ireland - Ethiopia BIT, 2009
163
Swiss Confederation - Ethiopia BIT, 1998
164
According to Article 38(1) of the ICJ Statute, applicable international legal sources include (a) international
conventions establishing rules expressly recognized by the contesting States, (b) international custom, (c) the general
principles of national law and (d) judicial decisions and the teachings of the most highly qualified publicists (as a
subsidiary means for the determination of the rules of law).
165
UNCTAD, Cited above at note 18, p. 107
166
Ethiopia - France BIT, 200336
“In particular though not exclusively, shall be considered as de jure or de facto impediments to
“FET” any restriction on the purchase or transport of raw materials and auxiliary materials,
energy and fuels, as well as the means of production and operation of all types, any hindrance of
the sale or transport of products within the country and abroad, as well as any other measures
that have a similar effect. Within the framework of their internal legislation, the Contracting
Parties shall favorably examine requests for entry and authorization to reside, work and travel
made by the nationals of one Contracting Party in relation to an investment made on the territory
or in the maritime area of the other Contracting Party.”
The above interpretation guidance protocol restricted the “FET” provision as no more than self[1]
contained “FET” clause.
2.5.5 The “FET” standard Linked to the minimum standard of treatment under customary
international law
Some “FET” clauses refer to the minimum standard of treatment of aliens under customary
international law. A reference to the MST assumes that tribunals examining “FET” claims will
hold the claimant to this demanding standard. In theory, to demonstrate a violation of a particular
right, the claimant must first prove that the MST protects this right. To do so, it must show a
sufficiently wide and representative State practice on the matter and provide evidence of opinio
juris, i.e. States follow this practice from a sense of legal obligation. In practice, however, given
that the traditional MST is undeveloped and not truly adapted to modern economic realities, the
test is very difficult to meet if this approach is followed literally.167 Nevertheless, the main feature
of this approach remains a high liability threshold that outlaws only the very serious breaches. In
the words of the Glamis tribunal, it is “a floor, an absolute bottom, below which conduct is not
accepted by the international community”; it would have to be sufficiently basic to allow
countries in all stages of development to conform to it. 168 Minimum standards of treatment
therefore provide a treaty-defined baseline or, in the words of one IIA tribunal, ‘a floor below
which treatment of foreign investors must not fall, even if a government were not acting in a
discriminatory manner.’169
The general reference to MST may be complemented by a closed or illustrative list of conduct
that the State considers to be proscribed under the standard. Such a list may include gross denial
167
UNCTAD, Cited above at note 18, p.105
168
Id., p.106
169
S.D. Myers, Inc. v. Canada (UNCITRAL, Nov. 13, 2000) (Partial Award) para. 259.37
of justice, manifest arbitrariness, a complete lack of due process, evident discrimination or a
manifest lack of reasons.170
The MST is a concept that gives a rough idea of a high threshold that the challenged
governmental conduct has to meet for a breach to be established. In fact, the contemporary
practice of arbitral tribunals and discussions within the broader investment community helps to
flesh out the minimum standard of treatment of foreign investors and their investments.171
An OECD report has concluded that the international minimum standard applies in the following
areas: (a) the administration of justice, usually linked to the notion of the denial of justice; (b) the
treatment of aliens under detention; and (c) full protection and security. On this view, there are no
other aspects of the MST that have become apparent to date in customary international law.172
Based on the above literature the researcher believes the “FET” clause of BIT concluded between
Ethiopia & Brazil173 as it is based on the formulation of “FET” clause with MST. It states in
Article 4 under the caption “Admission and treatment” that:
“1. Each Contracting Party shall admit and encourage investments of investors of the other
Contracting Party, according to their respective laws and regulations.
2. Each Contracting Party shall grant to investments and investors of the other Contracting Party
treatment according to the due process of law.
3. In line with the principles of this Agreement, each Contracting Party shall ensure that all
measures that affect investment are administered in a reasonable, objective and impartial
manner, in accordance with their respective laws and regulations.”
States wishing to provide additional guidance to tribunals and restrict their ability to interpret the
“FET” standard in an overly expansive manner may therefore wish to fill it with specific elements
of content.
2.5.6 The “FET” clause formulated Using the SADC Model BIT
The SADC Model BIT174 also provides for a specific approach, not only on BITs in general, but
more specifically on “FET” and Full Protection & Security provisions. The SADC Model BIT
takes again a rather strict approach to “FET”, and contains two options. The first one links “FET”
to the customary IMS – in line with the US and Canadian practice – but contains in its second
paragraph a definition of that customary IMS which incorporates almost verbatim the Neer
170
UNCTAD, Cited above at note 18, p.105
171
Id., p.60
172
Id., p.45
173
Brazil - Ethiopia BIT, 2018
174
SADC Model Bilateral Investment Treaty Template with Commentary, 2012 38
formulation of that standard:175
The Commentary to the SADC Model BIT is very informative in this respect. It states that the
first option is based on the traditional “FET” provision common to many BITs.’176 The explicit
reference to the Neer formulation here is intended to be more specific and precise in the standard
to be applied, and counters the fact that explicit references to customary international law
generally, or the customary international law standard of treatment of aliens have not sufficed to
restrain arbitrator creativity in this regard.177 Option 2 is even narrower being limited to Fair
Administrative Treatment, and denial of justice only:
Article 5: Option 2: Fair Administrative Treatment
“5.1. The State Parties shall ensure that their administrative, legislative, and judicial processes
do not operate in a manner that is arbitrary or that denies administrative and procedural
[justice][due process] to investors of the other State Party or their investments [taking into
consideration the level of development of the State Party].
5.2. Investors or their Investments, as required by the circumstances, shall be notified in a timely
manner of administrative or judicial proceedings directly affecting the Investment(s), unless, due
to exceptional circumstances, such notice is contrary to domestic law.
5.3. Administrative decision-making processes shall include the right of [administrative review]
[appeal] of decisions, commensurate with the level of development and available resources at the
disposal of State Parties.
5.4. The Investor or Investment shall have access to government-held information in a timely
fashion and in accordance with domestic law, and subject to the limitations on access to
information under the applicable domestic law.
5.5. State Parties will progressively strive to improve the transparency, efficiency, independence
and accountability of their legislative, regulatory, administrative and judicial processes in
accordance with their respective domestic laws and regulations.” 178
In relation to the second option, the Commentary to the SADC Model BIT states that: “this is an
alternative formulation that would be a new approach to addressing key issues in a more restricted
and careful manner than the “FET” text.”179 It is clearly formulated as a reaction to the broad
interpretations of “FET” provisions in other treaties, and aims at removing the option left to
175
The United States-Mexico General Claims Commission described the IMS as follows in LFH Neer Case, (Oct 15,
1926), Reports of International Arbitral Awards, (United Nations, 2006), Vol. IV p. 60 – 66: the propriety of
governmental acts should be put to the test of international standards, and (second) that the treatment of an alien, in
order to constitute an international delinquency, should amount to an outrage, to bad faith, to willful neglect of duty,
or to an insufficiency of governmental action so far short of international standards that every reasonable and
impartial man would readily recognize its insufficiency. Whether the insufficiency proceeds from deficient execution
of an intelligent law or from the fact that the laws of the country do not empower the authorities to measure up to
international standards is immaterial.
176
SADC Model Bilateral Investment Treaty, Cited above at note 176, P.23
177
Ibid.
178
Id., article 5.
179
Id., 23–24.39
arbitrators to decide what “FET” means: the wording on “FET” presented here is the least likely
to lead to mischief through expansive interpretations by arbitrators.’180
The pertinent example of this kind of “FET” clause formulated using the SADC Model BIT in
Ethiopia is the BIT Agreement concluded between Ethiopia and Qatar.181 Including its caption,
Article 4 of this BIT directly copied “FET” clause from the above option 2 of SADC Model BIT,
Except for its exclusion of sub article 3 provision of this option 2.
2.5.7 BIT Preambles and Ethiopia’s BIT practices
In interpreting “FET”, tribunals have tended to rely heavily on treaty preambles to highlight the
object and purpose of a given IIAs. Article 31 (1) of the VCLT on the “General Rule of
Interpretation” stipulates that: “a treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in their context and in light of its object
and purpose”.
This is part of the general tendency to rely on treaty titles and preambles in interpreting treaty
obligations. When a preamble refers to the objectives that emphasize the parties’ intention to
create “a stable framework for investments” or “favorable conditions for investments” as the sole
aim of the treaty, this creates a possibility that tribunals will tend to resolve all interpretive
uncertainties in favor of investors. In contrast, where a preamble complements investment
promotion and protection objectives with other objectives such as sustainable development and
the contracting States’ right to regulate, this is likely to lead to more balanced interpretative
outcomes.182
For example, in Siemens, the tribunal referred to the title and preamble of Argentina-Germany
(1991) and noted that: “The Tribunal shall be guided by the purpose of the Treaty as expressed in
its title and preamble. It is a treaty to safeguard and to encourage investments. The preamble
provides that the parties have agreed to create favorable conditions for the investments of
nationals or companies of one of the two States in the territory of the other State. Both parties
recognize that the promotion and protection of these investments by a treaty may motivate private
economic initiative and increase the welfare of the peoples of both countries. The intention of the
parties is clear. It is to create favorable circumstances for investments and to stimulate private
180
Ibid
181
Ethiopia - Qatar BIT, 2017
182
UNCTAD, Cited above at note 18, p.11240
initiative.” 183
Based on the wordings and the content of the preambles, UNCTAD divided preambles of BITs in
to two types. The first one is the traditional preamble wherein the contracting states underline
their intention of reciprocal investment/investor protection and the assumption that investment
leads to prosperity.184 Such kind of preamble, might also state the importance of investment in
technology transfer, human resource development, and mutual respect for state sovereignty.185
A typical traditional type preamble is the one in Ethiopia-Germany BIT of 1964 which reads as
follows:
“Desiring to intensify economic cooperation between both states, Intending to create favorable
conditions for investments by nationals and companies of either State in the territory of the other
State, and Recognizing that contractual protection of all assets of nationals or companies of
either Contracting Party in the territory of the other Contracting Party is apt to promote private
investments and private business initiatives and to increase the prosperity of both nations.
Surprisingly enough, the relatively recent BIT of Ethiopia and the UK of 2009 (signed fifty years
after the first Germany-Pakistan BIT of 1959) reads as follows:
Desiring to create favorable conditions for greater investment by nationals and companies of one
Contracting Party in the territory of the other Contracting Party;
Recognizing that the encouragement and reciprocal protection under international agreement of
such investments will be conducive to the stimulation of individual business initiatives and will
increase prosperity in both Contracting States;186
This Ethiopia UK BIT of 2009 is as traditional as the 1964 Ethiopia-Germany BIT in relation to
the preambular part. Except BIT Ethiopia concluded with Finland187 , Qatar 188 , United Arab
Emirates 189 & South Africa 190 All other BIT of Ethiopia’s are drafted with traditional type
preambles.
The second category of preambles is called non-traditional type preambles. They included
183
Siemens A.G. v. Argentina, cited above at note 101 para. 81. See also Vivendi Universal S.A case, (ICSID Case
No. ARB/97/3, Mar 03, 2015) para. 7.4.4: ‘As to the object and purpose of the BIT, the Tribunal notes the parties'
wish, as stated in the preamble, for the Treaty to create favorable conditions for French investments in Argentina, and
vice versa, and their conviction that the protection and promotion of such investments is expected to encourage
technology and capital transfers between both countries and to promote their economic development. In interpreting
the BIT, we are thus mindful of these objectives.’
184
UNCTAD, Bilateral Investment Treaties 1995-2006: Trends in Investment Rulemaking, (2007), P. 4
185
Ibid
186
Great Britain and Northern Ireland - Ethiopia BIT, 2009
187
Finland - Ethiopia BIT, 2006
188
Ethiopia - Qatar BIT, 2017
189
Ethiopia – United Arab Emirates BIT, 2016
190
South Africa - Ethiopia BIT, 200841
Protection of public health, safety, protection of the environment and consumers, and respect for
international labor standards. These are examples of public policy objectives that can be found in
non-traditional preambles of BITs. 191 For Example the BIT between the Government of the
Republic of Finland and the Government of the Federal Democratic Republic of Ethiopia has
paragraphs in the preamble which states the following:
“Recognizing that the development of economic and business ties can promote respect for
internationally recognized labor rights, and
Agreeing that these objectives can be achieved without relaxing health, safety and environmental
measures of general application”,192
2.6 Conclusion
While recognizing that it is impossible to plan ahead of time a comprehensive list of all
government actions that may adversely and unfairly affect an investment, the uncertainty in the
scope of the “FET” standard can be greatly minimized by greater specificity in the wording of the
standard in the BITs. As explained above, the Majority of Ethiopian BIT’s guarantee “fair and
equitable” treatment of investments autonomously, without defining what constitutes such
treatment, and have left it to arbitral tribunals to interpret and apply the standard in specific cases.
In newer investment agreements, States including Ethiopia have made attempts at narrowing the
scope of “FET” by adopting greater specificity clauses. Some States have explicitly referred to the
customary international minimum standard of treatment. The arbitral tribunals then use the
customary minimum standard as a ‘yardstick’ for determining “FET” violation.
191
UNCTAD, Cited above at note 186
192
Finland - Ethiopia BIT, 2006 42
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