TRIMs
The Trade-Related Investment Measures Agreement provides that the Member States shall not apply trade-related investment measures which are inconsistent with the national treatment requirement or the prohibition of quantitative restrictions. There are a number of illustrative trade measures (expand on this using earlier dictations on international matters).
Existing trade-related investment measures are to be notified to WTO Council on Trade and Goods and to be eliminated in accordance with a schedule.
Measures which are discriminatory including by way of taxes, licensing and expropriation without compensation are not trade-related measures in this context but maybe the subject of other bilateral treaties or customary international law.
Protection of Investors
Investment protection provisions have been a feature of International Trade Agreements for many years. They seek to protect investors of one state from governmental action, particularly confiscatory type action, by the government of the other state party. They are seen as a necessary precursor to confidence in investments.
Customary international law backed by effective political and military power traditionally provided for protection against forfeiture without adequate and timely compensation and protection.
Many industries were nationalised in the wake of the withdrawal of European colonial powers in the 1950’s until 1970’s. Developing states resisted payment of compensation in such circumstances on the basis of expropriation and nationalisation.
Many such protections exist as bilateral agreements. The UK has negotiated over a 100 bilateral agreements together with a further 75 treaties with equivalent provisions prior to the transfer of powers in this area to the EU in 2010.
The OECD promoted a draft convention on the protection of property rights abroad. It is used as a basis for treaty and bilateral agreement provisions.
Features of Modern Investment Agreement
Modern investment treaties provide for particular substantive and procedural guarantees of investors’ rights. They usually include a guarantee of procedural fair treatment in any prospective expropriation, compensation and the enforcement of contracts.
Investment agreements commonly affirm the protection and enforceability of contracts. The protection of contracts assists the protection against expropriation.
The purpose of the investment protection rules is to protect investors against the changes in law by states which arbitrarily frustrate their legitimate interests and expectations. They may cause a state to be liable to investor parties, even where the changes are as a result of its laws or policy.
Unlike almost all other areas, these provisions typically allow for direct rights of compensation for affected parties, where there is a breach of the obligation. There is usually provision for investors to claim directly before an international tribunal comprised of arbitrators appointed by the parties. There is provision for enforcement of the arbitration awards.
Modern agreements have declared good faith non-discriminatory measures that protect legitimate public welfare objectives such as health, the safety of the environment, do not to constitute indirect expropriation.
Modern agreements, including the CETA agreement, have sought greater transparency and arbitration, codes of conducts and an appeal system. There have been proposals to have a permanent international investment court.
Protections
The purpose of the investment protection rules is to protect investors against the changes in law by states which arbitrarily frustrate their legitimate interests and expectations. They may cause a state to be liable even where the changes are as a result of its laws or policy.
Nearly all investment treaties require that the host state affords fair and equitable treatment to investors of the other state. This is the issue most commonly raised before investment tribunals and the one most commonly breached. Fair and equitable treatment is not clearly defined. The settlements have developed progressively through international arbitration decisions.
In broad terms, when a foreign investor invests in a host state, he expects it to act in a consistent manner free from ambiguity totally transparently in its relationships effects not to have concerns in licences arbitrarily revoked.
Legitimate expectations are subcategory affair and equitable treatment. They may arise where the conduct of the host state induces legitimate expectations on the part of the foreign investor. Foreign investor relies on it and its expectations are subsequently frustrated by the host state’s actions, unilateral actions and thereby suffers damages and loss.
The procedural safeguards require fair and equitable treatment. This requires non-arbitrary treatment, no discrimination and due procedure. These protections have been controversial in that they may place significant constraints on what governments may feel to be the legitimate prerogatives.
Controversy re Limits on State Sovereign Rights
The protections may go beyond the rights of citizens against their own governments. Domestic contracts are usually taken to be subject to the possibility of future legislation or governmental action. It is argued that investment treaties may go too far in limiting state sovereignty and allow investors prospectively, large powerful multinational corporations, to challenge legitimate regulatory measures on the basis that they constitute effective expropriation.
This is arguably too great an interference with domestic sovereignty on arguably runs country to the basic principles of state sovereignty and the freedom to regulate in the public interest. States assert sovereignty in relation to the basic regulation of environmental, labour, human rights, public health and safety standards. This may come into conflict with the protection of proprietary rights.
The decisions of arbitral tribunals have tended to take a broad view of expropriation, extending it to cases where state action has effectively deprived an owner in whole or as to a significant part of the use reasonably to be expected or economic benefit of an asset. Arbitral tribunals have been less willing to accept public policy considerations as justifying state action. Often the agreements leave less scope and discretion for state justification of expropriation without compensation.
The Lisbon Treaty gave power to the European Parliament on a co-responsibility basis in relation to EU trade agreements. The T-Tip Agreement faced significant opposition in the EU and petitioning of Parliament on the basis of interference with national sovereignty and prerogatives.
The European Citizens Initiative under the Lisbon Treaty permits citizens to bring matters out to the political agenda by getting sufficient support from members of the public as signatories. This mechanism was used in an attempt to stop the TTIP’s ratification process. Ultimately, this was unsuccessful but the TTIP’s agreement elapsed with the election of Donald Trump as President of the United States.
Action Against Developed States and Brexit
Historically, developed countries have been content to enter investment treaties with developing countries on the basis that it protects their nationals and corporations against expropriation against action in the developing countries. The issue will become more pointed as Britain seeks investments from countries which have up to recently been considered to be developing.
The unusual nature of investment agreements is that they bind states to some extent, even in respect of change in their own law and regulation.
Increasingly, action has been taken against developed countries for controversial state action, including in relation to a ban on fracking against Canada and in relation to the phasing out of nuclear energy against Germany. There has also been a series of disputes under NAFTA.
There is a possibility that entities which have made very substantial investments in the United Kingdom may seek to invoke investment treaties on the basis of breach of the above criteria they may find themselves subject to wholly unexpected obstacles which destroy legitimate expectation.
Brexit may wholly disrupt the regulatory framework in certain areas such as to substantially impair or render an investment valueless tribunal. Arbitral decisions under some investment agreement have indicated that the stability of the legal and business framework in a state party is an essential element in the standard of what is fair and equitable as such the tribunal considers this to be an emerging standard affair and equitable treatment in international law.
An argument may be made by investors that in a particular circumstance that they relied on the regulatory framework under EU membership, in particular, would access to the European market.
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