Analysis of articles of BIT between FDRE government of Ethiopia and Russian federation in line with the fundamental principle of BITs at international standard of foreign investment protection
Analysis of articles of BIT between FDRE government of Ethiopia and Russian federation
©2013
Academic Paper
19 Pages
Summary
Introduction
What are the Main Elements of this bilateral Treaty? The main elements are “Fair and Equitable Treatment” Standards, Most Favored Nation (MFN) Treatment, national treatment and its exception clause ,Protections against “Indirect” Expropriation, Bans on Performance Requirements, Bans on Capital Controls, and Investor State Dispute Resolution
What are the Main Elements of this bilateral Treaty? The main elements are “Fair and Equitable Treatment” Standards, Most Favored Nation (MFN) Treatment, national treatment and its exception clause ,Protections against “Indirect” Expropriation, Bans on Performance Requirements, Bans on Capital Controls, and Investor State Dispute Resolution
Excerpt
Table Of Contents
2
However, regulatory sovereignty makes a state simple change the economic policy, investment
policy (incentive), and the like by the host state might against the interest of foreign investors.
So, BIT limits the impact of regulatory power of state up on foreign investors of the other state
(contracting party). And more BIT limit the unilateral modification or change the term,
condition, and termination of contract by host state since this agreement has binding nature up on
the contraction party for better protection and promotion of investment as per article 2 of this
BIT and principle of MFN, NT limit the regulatory power of host state or capital importing state
like Ethiopia. Therefore, BIT interims disabling the regulatory power of capital importing
country Ethiopia unless there were on exception on the national treatment since the exceptions
enable the regulatory power the host state. But there is no NT and no exception on it in the BIT
between Ethiopia and Russia.
Principle and Definition
Principle of BIT on doctrine of reciprocity (principle of give and take) can be for the protection
and promotion of foreign investor, and its investment between them. Some time this doctrine in
violation of the fundamental principle of MFN treatment. Since non -contracting party shall
claim the equal treatment with other contract party as per article 3 0f GATTs. (Only MFN exist
on this BIT, but there is no express provision of NT and its exception clause on it)
In BIT ,there is not only lack of clear definition for expropriation and its four element of
expropriation(public interest, due process law, non-discriminatory and promote, adequate and
effective compensation ) and fair and equitable treatment(not clear enough if we compare with
other BITS), minimum standard of treatment, but also no cross-reference to domestic legislation
at to the definition of the terminology.
With respect to the definition of "investors" not defined rather refers to domestic law definition
of investor so that the local definition of Ethiopia and Russia bind two states each other. But two
states commonly recognize the definition of investor as any natural person who is a citizen of the
state of that Contracting Party in accordance with its legislation. Or as any legal person
constituted or otherwise duly organized under the laws of that Contracting Party and has its
principal seat and economic activities in the territory of that same Contracting Party.
Definition of investment include all investments since "investment" means every kind of
investment in the territory of one Party so that in this BIT Long term investment (FDI) and
portfolio investment as well through equity investment as per art.1 (2b) of this BIT. Therefore,
BIT gives similar protection both type of investment. Hence, applying for establishment BIT and
duly established /approved investments are subject to the treaty regime of this BIT provisions
which is compatible with international standard in specific area of definition of investment.
3
In general, form of capital derived from the definition of "investment", hence, almost all form of
capital exits in the provisions of BIT except social capital (which is an assets since it is part and
parcel of soft capital) and knowledge which is not recognize in express terms in this BIT.
3
Infra note 17 at 225
3
Limitation on the definition of investment:-
With regarding the definition of "investment" has international standard definition because it
include the
all kind of assets
(like tangible and intangible assets) invested by investors of one
Contracting Party in the territory of the other Contracting Party in accordance with the later
Contracting Party's legislation and in particular: here, there is cross-border of capital from
Ethiopia to Russia and Vic varies. Almost all capital form cross the border in different form like
physical capital (movable and immovable property as well as property rights therein), financial
capital (shares, stocks and other forms of participation (bond) in equity investment), and liquid
money (claims to money invested for the purpose of creating economic values related to
investments)
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. More over, IPR is one form of capital (exclusive rights to intellectual and
industrial property rights, including rights with respect to copy rights, patents, trade marks, trade
names, industrial designs, trade secrets, technical processes and know-how and goodwill ;)
however, expressly geographic origin protection is not listed under sub provision of article 1(d)
and is it part of technical processes? If it is, it needs a rule of interpretation before application of
geographical origin
.
Where is the protection of investment on the area of
plant hybrid
by using bioengineering? When
there is new invention through breading of plant and animals by using bioengineering
technology, in such case, till part of technical process or not? Or it is part of know-how? or Some
thing else. It need interpretation clause among contracting party.
The list under IP is just an indicative list of IPRs or is it a kind of exhaustive list? So, it needs
rule ...interpretation to know the intention of contracting party.
According to article 1(3),(4)(5),there are definition of return , territory, and legislation
respectively but no definition for the nationality, company, currency , "associated activities" ,
"state enterprise" and "delegation" alteration of term, or condition and permant residence of
natural and judicial person which unlike the BIT agreement between USA and Ecuador, and BIT
between Ethiopia and Malaysia. Therefore, interims of defining different terminology BIT
agreement between Ethiopia and Russian narrower than other BITs.
Promotion and protection of investment
Article 2 of this BIT is the aim of every investment treaties what makes different is the level and
the degree of promotion and protection of investment. Article 2 recognize the political
sovereignty of the contracting party Since the foreign investment shall encourage and create
favorable condition for investors in accordance with its laws and regulations of contracting party
at basis reciprocity.
4
Article 1 (c) of BITs between FDRE of Ethiopia and Russia federation
4
Therefore, Each Contracting Party shall, in accordance with its legislation, guarantee to investors
of the other Contracting Party
full protection and security
5
to investments made by Investors of
the other Contracting Party. Since full protection and security can be part of multilateral
agreement of TRIMS, or international standard of foreign investment law.
Treatment of Investments
The main issue here will be Standards of treatment interims of Minimum Standard(in this BIT no
recognition human dignity of foreign investor) or Fair and equitable(which is better standard
interims of protection of foreign investor ) and reason for the stand. This treaty more focuses on
fair and equitable treatment of foreign investors and it is better level of treatment than minimum
standards interims of providing due process of law and transparency at time rendering decision
on foreign investment matters. But ,the subject to subjective understanding of idea of fairness
and equity treatment .more over , there are instances of application of MFN on this BIT, but
there is exceptions clause in this BIT .IF we see the BIT of USA and Ecuador ,there are well
designed exceptions clause within BIT provisions on MFN and NT.
Ethiopia or Russia shall ensure in its territory
fair and equitable treatment of the investments
made by Investors of the other Contracting Party and activities in connection with such
investments .The problem is there is no clear demarcation line between minimum standard of
treatment of the investment verses fair and equitable treatment of the investment on this
agreement and the concept in general since it has some sort of subjectivity in the objective nature
of fair and equity treatment.
6
The Fair and equity treatment interims of due process of law that means decision/judgment
should not be arbitrary decision rather it follow all proper procedures so that it should be in line
with legitimate standards but equity does not mean that equal treatment investors. More over, the
decision should be transparent to foreign investors and it should be informed about the decision.
Therefore, fair and equity treatment interims of decision with due process of law and
transparences, hence, this treatment does not prohibit the unequal treatment of unequal between
investors, based on different circumstances of the investors where as equal investors at equal
treatment at basis of similar circumstances, and also fair and equity treatment is not violation of
sovereignty of the states.
With respect to the principle of exclude
the use of discriminatory measures
that might negative
reparaction up on management, maintenance, use, enjoyment, extension and administration of
investments. This principle has mauch relation with the local content requirement and
performances requirement since there are a instances of violation of article 3 and 11 of GATT.
For instance the government creates artificial market through regulation to local producer and
foreign investor of either of the two contracting party subjects to consumer the local produced
5
Article 2(2) of BIT between Ethiopia and Russia
6
Article 3(1)
5
goods. And they do not get benefit from the local content regiment rather they are victims from
such kind of local regulation. Therefore, local produced goods get artificial market by distorting
the demand and supply interaction which is the violation of article 3and 11 of GATT, but no
provision in relation to NT in this agreement. (The same principle apply in article 5 GATS in
mode 3 on services and service provider i.e. foreign investors between Ethiopia and Russia)
The treatment referred to the above paragraph of this Article shall not be less favorable than that
granted to the investments and activities in connection with such investments by its own
Investors or Investors of a third state.
7
These are the kin d of recognition of MFN in their BIT to
make the fair application of this treaty when any case happen between the two states in the future
relationship .
However , The most favored nation treatment granted( exception on MFN)in accordance with
paragraph 2 of this Article 3(3) shall not apply to benefits which the Contracting Party is
providing or will provide in the future: like in connection with the participation in a free trade
area, and customs or economic union. So, MFN treatment should not dependent up on regional
integration or arrangement rather it multilateral arrangement and also has exception clause on
MFN, which is vital for capital importing country to have policy space domestically.
On the other hand , basis of agreement meant to avoid double taxation, or other arrangements on
taxation issues that is important to encourage the foreign investor and investments since the tax
relief, avoid of double tax ,inactive could be one way to promote(to expand) the foreign
investment. Even if taxation is the main source of revenue of the government and it is way to
express the economic sovereignty of the state. Therefore, the contracting party uses other way
benefit from the foreign investment than taxation, because taxation is not the only benefit for the
government.
Expropriation
Taking of property can be legal or illegal depended on the measure taken by contracting state but
there is no clear definition for word "taking" under this agreement. On other hand, BIT tries to
define investment property within the definition of "investment" so that investment properties
include all kind of assets (tangible or intangible property).
There is no definition of expropriation or taking property on this BIT between Ethiopia and
Russia and no more explanation about nationalization, expropriation, confiscation and no
distinction stated in the agreements about these kinds of terminology. Even in the domestic law,
Ethiopian the investment proclamation no 769/2012 article 25(3), the word nationalization or
expropriation used interchangeable inspire of difference in meaning . But there is no cross
reference to the domestic legislation as to the definition of nationalization, expropriation, and
confiscation in this BIT.
7
Article 3(2)
6
But BIT recognizes the creeping/legitimate/indirect expropriation and direct expropriation as per
article 4(1). So, creeping expropriation/indirect taking / had common provision in every BITs
and regional investment treaties (e.g. NAFTA) which is similar with WB guild line of foreign
investment.
So, any acts at end result the loss of investment property amount to indirect expropriation
.internal regulatory measure taken by host stat adversely affect the on the foreign investor
investment property then it amount to indirect taking of property.
For instances, unilateral cancellation of investment contract by host state amount to indirect
expropriation investment property since it is violation of " puct sunt srvinda" base for the claim
of foreign investors. Other instances of indirect taking foreign investment property could be exist
when the host states refuse the contractual claim of foreign investors as contractual creditors.
This is because of
contractual claim
is part and parcel of investment property of foreign investor.
Therefore, any measure which can make depreciate in the value of investment property amount
to indirect expropriation
Investments by Investors of one Contracting Party made in the territory of the other Contracting
Party, shall not be expropriated, nationalized or subjected to measures tantamount to
expropriation(indirect taking ) or nationalization ("hereinafter referred to as expropriation"),
except when such measures are taken for public interest and in accordance with the procedure
established by the legislation, when they are not discriminatory and are followed by prompt,
adequate and effective compensation.
8
In short these provisions are recognizing all cumulative requirements of lawful expropriation
when the measure should be public interest, due process of law, non-discriminatory, and finally,
prompt, adequate and effective compensation.
9
International law on foreign investment was
recognized as minimum standard treatment of foreign investment in accordance with general
principle of customary international law on foreign investment. But the Compensation modality
based on compensation assessment method( market value) so that it is high level of protection of
foreign investor since this BIT focus on prompt, adequate and effective compensation at time of
taking of
investment property
(like physical property, share, bond, intangible property
,contractual claim or IPR)
10
however, investment property of BIT does not include privilege as
property which granted by host state to foreign investor at time of establishment could be part
of investment property in the current understanding of foreign investment law . But our BIT
silent on the issues of privileges whether it is part and parcel of investment property or not.
8
ARTICLE 4(1)
9
INTERNATIONAL GENRAL PRINCIBLE OF CIVILIZED STATE
10
Article 1(2)(a,)(b)(,c)(,d)(,e)
7
More over, the all the cumulative requirement to allow lawful expropriation existed in Ethiopia
legal systems from the FDRE constitution article 40(8) up to new investment proclamation no
769/2012 article 25 and land lease proclamation no 711/211.
11
When we analysis all legal
provision with the element of lawful expropriation more or less the same in spite of different in
usage of terminology. For instances, FDRE constitution use term"
balanced compensation
" at
market value instead of
prompt, adequate and effective compensation
which is the highest level
of protection of foreign investor interims of compensation. But the investment proclamation no
769/2012, article 25(3), use the term "adequate compensation payment" for expropriation or
nationalization of foreign investment property.
With respect to public interest there is no definition in BIT and no cross-references to domestic
legislation. but if we see Ethiopia investment proclamation and regulation there is definition for
public interest which is too much broader definition when we compare with international
standard definition of public interest. Since in Ethiopia, the word "public interest" has wider
notion because it include every action of the government which directly or indirectly benefit the
people of Ethiopia.
12
Therefore, the extent of public interest is subject interpretation as per this
BIT unless the contracting party has guild line for the scope of the application of public interest
which is based on theoretical analysis of art.4 with international definition for public interest in
time of expropriation. If Ethiopia defined public interest in broader manner where as Russia
might defined narrowly hence, it might create conflict in different level of interpretation due to
this, it is better that BIT should have definition for public interest.
More over, our constitution, new investment regulation, this BIT, has not made the clear
distinction between the types of expropriation like creeping or indirect and direct expropriation
with its extent to apply this BIT local legislations. Therefore, extent of indirect taking need the
rule interpretation unless hoe we can limit the scope indirect taking.
The BIT is silent about the consequences of unlawful expropriation (creeping, direct) taken as
measure by either of contracting party. Is it the level fault taken in to account to assess the
amount of compensation or the compensation assessment methods? BIT is silent on this point or
not? It subjected the value judgment of interpreter of this contractual agreement and arbitration
tribunal.
With regard to compensation shall amount to the market value of the investments (which is
similar with article 25 sub 2 of new investment proclamation no 769/2012) affected immediately
before the measures of expropriation or nationalization are taken or become public knowledge,
and it shall be freely transferable in a freely convertible currency from the Contracting Party.
Any unreasonable delay in payment of compensation shall carry on interest at prevailing
commercial rate as agreed upon by both parties unless such rate is prescribed law. But according
11
Federal democratic republic of Ethiopia constitution article 40(4) in 1995. And investment
proclamation No 282/2004 and proclamation No.769/2012
12
Investment proclamation no 769/2012 and investment regulation no and land lease proclamation 711/2011
Details
- Pages
- Type of Edition
- Originalausgabe
- Year
- 2013
- ISBN (PDF)
- 9783954899685
- File size
- 687 KB
- Language
- English
- Publication date
- 2015 (August)
- Grade
- A+
- Keywords
- Fair and Equitable Treatment MFN
