PRINCIPLES OF INTERNATIONAL INVESTMENT LAW AND STATE LIABILITY

Authors:

Sanya Shah, Pravin Gandhi College of Law Mumbai

Neha Pandey, NLU Shimla

Editor: Jasmine Emmanuel, GLC Thrissur



Introduction

International trade and investment became an important aspect of business during the early 19th century. The term ‘investment’ refers to the application of assets and money with the hope that it would generate more income in the future. The boom in international investment was triggered by the rise of new global leaders, who chose to shift the focus from national trade to global trade; a shift in their mindset led to the establishment of new economic reforms which would shape the world of international investment. In the years that followed, the public’s interest in international investment and trade only grew; multilateral agreements were drawn, international treaties and laws were drafted, and the idea of international investment became more and more concrete.

These laws mainly seek to govern the relationship between states and foreign investors. By bringing in foreign investors, a state is open to large scale economic development and global recognition. International investment laws seek to protect investors from acts such as discrimination. In a country like India, where foreign investment is an important source for funds, such laws help ease the process of incoming foreign money and investments. Foreign Direct Investment, or FDI’s, are regulated under the Foreign Exchange Management Act, 2000 which is controlled by the Reserve Bank of India[1].

International investment law has a preferred focus on arbitral precedents and case laws rather than the traditional approach that law has, which is more textbook based. Dispute settlements and arbitral tribunals are what really defined international investment laws. This means that in order to truly comprehend the principles of international investment law, one needs to be aware of recent and important jurisprudential developments as well as economic and historic foreign investment activities.[2]

Three Major Principles

There are three major principles[3] of international investment law-

· Principle of Most Favoured Nation (MFN)

· Principle of the national treatment

· Principle of fair and equitable treatment

Principle of Most Favoured Nation (MFN)

Most Favoured Nation (MFN) principle is the most important principle of international investment law. The most favoured nation (MFN) treatment standard is among the main elements of international investment agreements. In international investment law, the most favoured nation principle is a mechanism to make some conditions within which international investors from various nations have the same opportunity to compete fairly in the host country. In the beginning of development, during the eighteenth and nineteenth centuries, the MFN principle was mainly applied to the fields of friendship, commerce, and navigation treaties. The MFN clause in an investment treaty, which is fundamentally a promise between the two states party, states that none of the two states will give favorable treatment to investors of any other third state than that given to investors from the other state party to the treaty. It had been too broad, applying to the various range of issues such as privileges, rights, immunities, and exceptions with respect to trade, commerce, and navigation, or to duties and prohibition with respect to vessels, importation or exportation of goods.[4]


The principle of national treatment

The national treatment standard is one of the main general standards which is used in international practice to secure a form of treatment for FDI in host countries. National treatment is a principle whereby the host country provides foreign investors the same treatment that it accords to national investors in the same circumstances. In this way the national treatment standard seeks to ensure a degree of competitive equality between national and international investors. While most favoured nation treatment seeks to grant foreign investors treatment comparable to other foreign investors operating in host country, the national treatment seeks to grant treatment comparable to domestic investors operating in the host country.


Principle of fair and equitable treatment

The fair and equitable standard has been an important aspect of international investment law since the period following the World War II. The first reference to “equitable” treatment is found in the 1948 Havana Charter for an International Trade Organization. Article 11(2) of the Charter stated that foreign investments should be assured “just and equitable treatment.”

The organization was to be authorized, inter alia, to promote arrangements which would facilitate “an equitable distribution” of skills, arts, technology, materials and equipment, with due regard to the needs of all member states.

There is diversity in the way the “fair and equitable treatment” standard is formulated in investment agreements. There are two different views have been advanced as to the precise meaning of the term “fair and equitable treatment” in investment relations:

i) The plain meaning approach and;

ii) Equating fair and equitable treatment with the international minimum standard

In essence, the fair and equitable standard provides a yardstick by which relations between foreign direct investors and Governments of capital-importing countries may be assessed. It also acts as a signal from capital-importing countries, for it indicates, at the very least, a state’s willingness to accommodate foreign capital on terms that take into account the interests of the investor in fairness and equity. Furthermore, as most capital-importing countries have now entered into agreements that incorporate the standard, reluctance to accept this standard could prompt questions about the general attitude of a State to foreign investment.

State Liability

State liability is the legal responsibility a state holds. In terms of international law, state liability is the legal responsibility a state has to another international individual, company, or organization. Such responsibility is vital for a state to have, as without it, the state can easily harm citizens and investors without a regulation or law overlooking them. This aspect of international law discusses the breach of an international obligation by the state.[5]

Regulation’s central role at the beginning of the twenty-first century tells us that the state possesses the constitutional power to re-define and re-adjust the relationship between the public interests and the private interest. In other words, the state has the constitutional duty to administer the burdens and the benefits across the society in its permanent quest for the public good. The continuous upsetting of the status quo, hence, is an important piece of the essence of the regulatory state.

The act of a state is held wrongful only when it-

i) Constitutes a breach of an international obligation and;

ii) Can hold the state accountable for its actions.

The actions of a state can be the actions of any public servant serving in any organ of the state, whether it be the police force, the army, or any other organ that follows the orders of the state.

Once a state is proved to have committed an internationally wrongful act, they are asked to make several reparations. Firstly, they have to compensate for the act they committed, in whichever way that may be; it could be in the form of restitution, compensation, or satisfaction. Secondly, they have to immediately halt the action if still ongoing, and in certain cases, make a guarantee that the said act will not be repeated.

[1] The Foreign Exchange Management Act, 2000. Government of India. Web. 1999. [2] Schill, Stephan. (2009). Principles of International Investment Law. European Journal of International Law. Web. [3] United Nations Conference on Trade and Development; International Investment Agreements: Key Issues UNCTAD/ITE/IIT/2004/10 (Vol. I). United Nations Publication. n.d. Web. 12 August 2020. [4] Robertus Bima Wahyu Mahardika ; Emmy Latifah; The Assistant of The Public Notary of Ismiyati ; Universitas Sebelas Maret Varying Application of Most-Favoured-Nation principle in International Investment Treaty. Yustisia Vol. 7 No. N.p,. 2 May – August 2018. Web. 12 August 2020. [5] Shaw, Malcolm. International Law 2020: Encyclopædia Britannica. Web.

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