On 3 December 2016, the Governments of Morocco and Nigeria signed a bilateral investment treaty (BIT) that deserves close scrutiny. The treaty is an important attempt by two developing countries to move toward a new generation of BITs fully aligned with the evolution of international law. Indeed, it contains several largely innovative provisions susceptible to address the criticism raised in the last few years against investment treaties.
From popularity to hostility
Investment treaties, and especially BITs, were popular in the 1990s and 2000s. Their number grew quite spectacularly as did the participation of developing countries. In the last few years, however, BITs have been increasingly perceived by States as inconvenient for several reasons, including unbalanced content, restrictions on regulatory powers, and inadequacies of investment arbitration.
Dissatisfaction with traditional BITs has generated four main types of reaction: (a) reluctance to ratify BITs. Since 2012, only 25 BITs have entered into force (see here); (b) conclusion of facilitation agreements, which radically downgrade the substantive protection of foreign investment and do not provide for arbitration (see, eg, Treaty between Brazil and Mozambique); (c) termination of BITs and adoption of investment legislation (see South Africa Protection of Investment Act, 2015); and (d) upgrading of BITs with a view to striking a better balance between the private and public interests at stake. The BIT concluded – but not in force yet – between Morocco and Nigeria is a fine example of the last typology.
The treaty establishes a Joint Committee composed of representatives of both Parties with the following responsibilities: (a) to monitor the implementation and execution of the treaty (including facilitate the exchange of information and when appropriate set corporate governance standards); (b) to debate and share opportunities for the expansion of mutual investment; (c) to promote the participation of the private sector and civil society; and (d) to seek to resolve any issues or disputes concerning Parties’ investment in an amicable manner.
The enhancement of sustainable development is the overarching objective of the treaty as it transpires from the four references to it contained in the preamble. The definition of investment in Art. 1(3) requires that investments contribute to sustainable development, although sustainable development is not expressly included amongst the characteristics of investment. Interestingly, under Art. 24(1), investors “should strive to make the maximum feasible contributions to the sustainable development of the host State and local community”. It is also worth noting that the definition of investment excludes inter alia portfolio investments.
Standards of protection
The treaty ensures a level of substantive protection comparable to that traditionally contained in BITs. Starting with contingent standards, the national treatment standard applies in like circumstances, which are indicated in the non comprehensive list of Article 6(3). The MFN standard is applicable “to make an investment and conduct business”.
Inspired by North American practice, under Article 7 investors are entitled to the minimum standard of treatment (MST) guaranteed under customary international law. The same provision further clarifies that fair and equitable treatment (FET) includes “the obligation not to deny justice in criminal, civil or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of a Party”, while full protection and security refers to “the level of police protection required under customary international law”.
The remaining substantive provisions, including that on expropriation, transfer of funds and subrogation, largely reflect consolidated BITs practice too.
Obligations for foreign investors
The overwhelming majority of BITs impose obligations only upon States (see Spyridon v. Romania). Conversely, the treaty between Morocco and Nigeria introduces a series of obligations upon investors. Investors shall comply with environmental assessment screening and assessment processes in accordance with the most rigorous between the laws of the host and home states, as well as a social impact assessment based on standards agreed within the Joint Committee (Art. 14(1) and (2)).
Under the treaty, investors must, after establishment, apply – alongside the host State – the precautionary principle (Art. 14(3)). They also have to maintain an environmental management system and in case of resource exploitation and high-risk industrial enterprises also a current certification to ISO 14001 or an equivalent environmental management standard (Art. 18(1)). Moreover, investors must uphold the human rights and act in accordance with core labour standards (ILO 1998 Declaration on Fundamental Principles and Rights of Work) as well as the international environmental, labour and human rights obligations of the host state and/or home state (Art. 18).
Investments shall meet or exceed national and internationally accepted standards of corporate governance for the sector involved, in particular for transparency and accounting practices (Art. 19). Furthermore, investors and their investments are expected to operate through high levels of socially responsible practices and should apply the ILO Tripartite Declaration on Multinational Investments and Social Policy, as well as specific or sectorial standards of responsible practice (Art. 24).
Equally important, the BIT requires that investors and their investments shall never engage or be complicit in corruption practices. Non compliance with this obligation would amount to a breach of the domestic law of the host State and be prosecuted accordingly (Art. 17(2) to (5)).
Each State has an “undeniable right and privilege to exercise its sovereign legislative power” (see Parkerings Companiet AS v. Lthuania). Such power, however, must be exercised in accordance with international obligations, including investment treaties. Yet, investment treaties are often perceived by the host State as unduly restricting its regulatory powers and its capacity to protect collective interests.
The BIT between Morocco and Nigeria addresses this concern by recognizing – perhaps in a rather inelegant drafting – the parties’ right to exercise discretion:
“with respect to regulatory, compliance, investigatory, and prosecutorial matters and to make decisions regarding the allocation of resources to enforcement with respect to other environmental matters determined to have higher priorities” (Art. 13(2)).
Moreover, nothing in the treaty prevents them from adopting, maintaining, or enforcing, in a non-discriminatory manner, any measure otherwise consistent with this Agreement that they consider appropriate to ensure that investment activity in their territory is undertaken in a manner sensitive to environmental and social concerns (Art. 13(4)). More generally, regulatory powers – which are based on balancing the rights and obligations of investors and those of the State – must be exercised in accordance with customary international law and the principles of international law (Art. 23(2)). Under Art. 23(3), finally, non-discriminatory measures taken to comply with international obligations under other treaties do not constitute a breach of the BIT.
As most BITs, the treaty provides for mandatory settlement of both investor-State (Art. 27) and State-State disputes (Art. 28). With regard to the first category, Art. 27 provides investors – and investors only – access to arbitration (ICSID, UNCITRAL or any other tribunal).
State-State disputes are to be settled before a three-member arbitral tribunal (Art. 28). Before resorting to arbitration, however, the Parties “shall strive with good faith and mutual cooperation to reach a fair and quick settlement of the dispute”. No timeframe for the peaceful settlement of the dispute is established.
The treaty contains also an innovative – yet rather problematic – provision titled “disputes prevention”, according to which, before initiating arbitral procedure, “any dispute between the Parties shall be assessed through consultations and negotiations by the Joint Committee” upon a written request by the State of the concerned investor (Art. 26(1) and (2)). Representatives of the investor and the host State (or other competent authorities) participate, whenever possible, in the “bilateral meeting” (Art. 26(2)). The procedure ends at the request of “any Party” and with the adoption by the Joint Committee of a report summarizing the position of “the Parties”. If the dispute is not settled within 6 months, the investor may resort to international arbitration after exhausting domestic remedies Art. 26(5).
Art. 29 provides for the possibility of consolidating, upon a request by “any disputing party” of two or more claims submitted separately to arbitration under Art. 27 and 28 that “have a question of law or fact in common and arise out of the same events or circumstances”. The Joint Committee decides the procedure for consolidation and indicates the appointing authority.
Arbitral proceedings shall be transparent, and, in particular, the notice of arbitration, the pleadings, memorials, briefs submitted to the tribunal, written submissions, minutes of transcripts of hearings, orders, awards and decisions of the tribunal shall be available to the public (Art. 10(5)).
Finally, the treaty introduces a novel provision on the liability of investors, who:
“shall be subject to civil actions for liability in the judicial process of their home state for the acts or decisions made in relation to the investment where such acts or decisions lead to significant damage, personal injuries or loss of life in the host state” (Art. 20).
The treaty contains a provision on termination by mutual consent as well as on unilateral termination (Art. 34), but no sunset clause.
Preliminary assessment of the treaty
The substantive provisions of the treaty replicate in good substance those commonly found in BITs. The specifications on “like circumstances” for the purpose of the national treatment may be expected to facilitate the interpretation and application of the standard. The reference to the making of an investment and the conduct of business in the MFN provision presumably excludes the application of the standard to procedural provisions, although an express clarification in this sense could have been appropriate (see, eg, Art. 4 of the BIT between Switzerland and Colombia). The provision on MST conveys the cautious approach of the Parties through the careful demarcation of FET and the confinement of protection and security to police protection.
The significance of the treaty lies with three main largely innovative elements.
First, the treaty counter-balances the protection granted to investors with a series of obligations on the conduct of investment. While not entirely novel (see ECOWAS Supplementary Act on Investments), these obligations – especially those related to environmental and social impact assessment, human rights, corruption, and corporate governance and responsibly – greatly increase the legitimacy of the treaty and pave the way to a new approach in the regulation of foreign investment.
Second, the treaty effectively addresses another of the main sources of criticism toward investment treaties by carefully safeguarding the policy space of the host State. The express obligation incumbent upon the host State to exercise its regulatory powers in accordance with customary international law and the general principles of international law, although strictly speaking not indispensable, is to be welcomed. The same can be said about the provision on compliance with other international treaties. The difference in the sources of international obligations referred to in the two provisions, however, is not apparent. With regard to environmental measures, it is worth noting that their adoption depends on the good-faith judgment of the host State without any necessity test being applicable.
Third, with regard to dispute settlement, the treaty confirms that time is not ripe yet for permitting States to file a request for international arbitration against investors. Perhaps more surprisingly, the treaty remains silent on both counter-claims (see, e.g., Art. 14(11) Indian Model BIT, here) and non-disputing Party submissions (see e.g. Art. 28(2) of the BIT between the United States and Rwanda, here).
The involvement of the Joint Committee in the peaceful settlement of disputes is definitely intriguing. Yet, Art. 26 is rather ambiguous in many respects. Leaving aside its unfortunate title, it deals with investor-State disputes and inexplicably refers to “disputes between the Parties” and “a solution between the Parties”. Moreover, Art. 26 does not indicate what is the position of the investor in the whole exercise beyond the possible participation in “bilateral meeting” of the Joint Committee. Equally important, it does not define the nature and legal significance of the “assessment” of the dispute, or the meaning of “consultations and negotiations”.
Art. 26 blurs the roles and positions of States and investors. It undermines the essence of the settlement of investor-State disputes, namely their insulation from political considerations, hazards and pressure. The very fact that the procedure under Art. 26 is activated by the national State is questionable and may raise several problems, also with regard to the jurisdiction of arbitral tribunals under Art. 27. Finally, abandoning direct negotiations between the investor and the host State as pre-condition for international arbitration seems rather counterproductive.
The inappropriate conflagration between the roles and interests of investors and States characterises also the possible consolidation under Art. 29 of investor-State and State-State disputes. Such a possibility is bound to be fraught with procedural and conceptual difficulties.
The provision on the investor liability before the tribunals of the home State, finally, may have a considerable impact on domestic litigation against investors – especially multinational companies – and help overcome jurisdictional hurdles and most prominently the forum non conveniens doctrine. This can be considered as an important development from the standpoint of the responsible conduct of investments, the redress of wrongful doings, and the role of the home State.
BITs are not necessarily treacherous legal products. As any other treaties, they are simply an instrument at the disposal of the contracting parties to legally protect their respective interests. What really matters is their content, which obviously depends on the agendas, choices and concessions of the parties.
Morocco and Nigeria have shown confidence that such an instrument can offer investors solid protection without compromising on the host State’s rights or on social values. Their BIT contains several innovative provisions that recalibrate the legal protection of the interests of all stakeholders and can be expected to enhance the chances for economically, socially and environmentally sustainable investments.
With regard to procedural matters, the provision on liability of investors before the tribunals of the home State is an important development. The provisions on the involvement of the Joint Committee in the peaceful settlement of disputes and on consolidation, on the contrary, present significant problems that the Parties may consider addressing through an exchange of letters, a protocol, or any other suitable means.