Plan de Trabajo

The discussion in part 4.2.B established that each developing country is unique in terms of its economic and social level of development, and that different international organisations classify them according to different economic and social criteria of development. The country classifications different international organisations have created can help us to understand the wide range of developing countries according to a broader set of perspectives. However such perspectives provide little help when it comes to the particular developmental issues of the host developing countries in the investment dispute context.

434 _{See e.g. Dudley Seers, ‘What Are We Trying to Measure? (1972) 8 The Journal of Development}

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As Morton and Tulloch have rightly observed, the phrases used to describe a developing country do not accurately or uniquely describe all the countries in the group; they are merely epithets.435 _{However, they have identified a number of features that}

often developing countries share, including poverty, unemployment, infrastructural capacity, lack of self-sustained economic growth, uneven economic development, significant disparity among citizens in terms of income and wealth, lack of high standards of living, illiteracy, different degrees of corruption, lack of technological support, and political instability.436 _{For example, Nepal and Brazil differ widely in terms}

of economic and technical capability but both countries face challenges like poverty, corruption in public life, and some degree of political instability.437 _{The issues identified}

by Morton and Tulloch represent an important and more inclusive basket of developmental issues that the host developing countries might face to varying degrees. What is important for this thesis is to identify those that are particularly relevant for the investment dispute context. This part of the thesis and the chapters which follow will identify some of those issues which will assist the tribunals in their interpretation of the alleged breach of FET standard by host developing countries. These issues will enable the tribunals to deal with this large group of host countries more appropriately.

435 _{Morton and Tulloch (n 360) 14. Also see e.g. UN Statistics Division Note}

<http://unstats.un.org/unsd/methods/m49/m49.htm> accessed 30 May 2014.

436 _{Morton and Tulloch (n 360) 15. Similarly, Szirmai identifies certain common problems in developing}

countries, such as a problem of widespread poverty, a dominance of agriculture in national income and employment patterns, widespread corruption, political instability, environmental degradation, and lack of proper technological capacities, see e.g. Szirmai (n 397) 29.

437 _{From the historical point of view, most developing countries lack the process of widespread capitalist}

industrialisation of their developed counterparts. However that does not mean that they were totally untouched by the development of Western capitalism or industrialisation. The majority of developing countries were once colonies of developed industrial states, and Morton and Tulloch argue that exceptions tend to have similar patterns in economic, political, and cultural links with industrial countries. They believe the links with their former colonial powers have an influential role in the economic, political, and social activities of the developing countries, since these influences have dominated their trade and exports with developed countries, in particular their ex-colonial powers and also their reliance on Western capital and technology. See e.g. Morton and Tulloch (n 360) 14.

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Thus, this thesis is not concerned with a universally applicable concept of ‘development’. Rather it suggests that there is a need to identify a concept of development that is relevant to the investment law context. It focuses on the international investment tribunals’ role in considering the developmental issues and challenges host developing countries face when they interpret the FET standard. This investigation requires an understanding of the functions of those tribunals in a dispute. As discussed in brief in Chapter 1, the purpose of international investment tribunals is to adjudicate investment disputes between host countries and foreign investors. Chapter 1 also emphasised the importance of the arbitrators’ discretionary powers to interpret the FET standard. From this view point of the arbitrators’ discretionary power to interpret the standard, this thesis proposes that international investment tribunals, in their interpretation of the standard, need to accommodate the developmental issues and challenges of the host developing countries which have direct and indirect relevance to the dispute in question instead of those identified by the different classifications by different international organisations in terms of their economic and social level of development. As will be shown in the chapters which follow, elements such as the level of poverty, HDI ranking, or GDP of the host developing countries are not the most relevant factors that the investment tribunals need to be particularly aware of in the investment dispute context. Rather investment tribunals should weigh other issues and factors identified in this thesis in adjudicating disputes against developing countries.

The case studies which Chapters 5-7 will present will identify those issues which, in the investment dispute context, the tribunals need to take into account most in relation to host developing countries. These issues and challenges include many which are identified by those Morton and Tulloch; in particular lack of administrative capacity and sophistication of the governmental bodies, lack of experience in international

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investment law, lack of technological support and infrastructure, limited resources, post-conflict vulnerability, social and political transition, political instability, social unrest, and economic crisis. Even the socio-political dimensions of a particular sector or socio-political sensitivity in relation to foreign investment in sectors like public utilities or natural resources bear on investment disputes. The status of being a developing country makes policy changes that might not occur in a developed country both natural and necessary. As Kriebaum argues,

‘[A] raising of domestic law requirements during the lifespan of the investment in fields such as labour law, environmental law etc. within reasonable bounds should not be seen as a violation of legitimate expectations. Investment protection must not stand in the way of States graduating to higher levels of social development.’438

Developing countries, intrinsically, are at a level of development different from their developed counter parts. Therefore investment treaties should not obstruct their right to change policies on certain issues to meet their obligations to foreign investors. Given the relationship of legitimate expectations to the FET standard, Kriebaum’s argument suggests developing countries should have latitude to change policies that might affect the investment. This thesis will extend this logic to the FET standard; the developmental issues and challenges of host developing countries that should bear on their adherence to the standard would include this right to change policy related to the investment.

Serious situations like civil war and the vulnerability that follows, social unrest, and economic crisis in the context of political instability make host developing countries

438 _{Kriebaum, ‘The Relevance of Economic and Political Condition for Protection under Investment}

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more vulnerable in their relationships with the foreign investors. Investing in developing countries bears inherent risks for foreign investors.

The three chapters that follow this one will describe how these issues and conditions have played a key role in the challenges that the host developing countries face in seeking to meet their investment treaty obligations and particularly their obligation in relation to the FET standard. The case studies will illustrate, investment tribunals have frequently disregarded these factors, when foreign investors claim host developing countries have breached the FET standard. The challenges host developing countries face under current interpretations of their treaty obligations reflect the catalyst role of a lack of resources, experience, sophisticated administrative capacity, and other vulnerabilities in the investment dispute context. This thesis focuses on three types of situations and crises which make these factors more significant; (i) political crises as discussed in Chapter 5 (ii) political and economic transition as discussed in Chapter 6 and (iii) economic crises as discussed in Chapter 7. Each of these chapters describes the influence of these factors in particular circumstances which are common for developing countries, and reveals their impact in host countries’ ability to meet their treaty obligations towards foreign investors.

This impact particularly emerges in difficult cases. Kläger has identified the absence of any clear guidance in relation to the difficult cases from the current tribunals.439 _He

describes the current tribunals as engaged in categorisation of lines of argument by specification of fact situations to simplify the FET standard,440 _{which does not help}

when it comes to the most difficult situations host developing countries face.

439 _{Kläger, ‘Fair and Equitable Treatment in International Investment Law’ (n 47) 121.}

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This thesis argues that if the investment tribunals acknowledge the developmental issues that host countries face in complicated situations, the awards will reflect a sound interpretation of the FET standard. Therefore this thesis argues that the issues, including the need to change policies, which become relevant for host developing countries in complicated situations should be introduced as obligatory factors in investment dispute proceedings and acknowledged as relevant. These factors fuel the challenges that host developing countries face as they seek to ensure investor protection standards under treaty obligations, and particularly in compliance with the FET standard. The flexible and ‘catch-all’ nature of the FET standard makes this particularly significant. Investment tribunals have interpreted it as license to interpret actions governments undertake to address crises or serve public need as a breach of their FET obligations, imposing high costs on developing countries of accepting foreign investment. If tribunals begin to identify and utilise developmental issues in the context of investment disputes, taking into account the challenges countries face relevant to the investment dispute, they will make possible a concept of development that supports both the continued development of host developing countries and their continued ability to support foreign investment.

4.3 Conclusion

This chapter has discussed the country classifications different international organisations have adopted depending on either economic or social criteria. It has also discussed the wide disparity among developing countries and highlighted that no definitive list of developing countries exists. It also points out the fact that these different classifications, and the concept of development as discussed here, have limited explanatory power in relation to the particular capabilities and challenges of the host

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developing countries in an investment dispute context. There is a need to identify a specific concept of development which is particularly applicable to the challenges faced by developing countries in investment law disputes as identified above. This will allow the tribunals to take the contextual background of the disputes into consideration in a way that will provide more appropriate decisions.

The subsequent three chapters will focus on how the tribunals have addressed the issues and challenges of host developing countries in relation to (1) political crises and socio- political conditions, (2) transition from communist centrally planned economies (CPEs) to market based economies, and (3) economic crises in their interpretation of alleged breaches of the FET obligation by host developing countries.

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Chapter 5

Current Arbitral Practice Relating to Social and Political

Circumstances in Host Developing Countries: FET Standard in

Context

5.1 Introduction

This chapter will discuss a selection of arbitral awards against host developing countries in which their particular socio-political circumstances led to alleged breaches of the FET standard. Tribunals in these cases have discussed the different aspects of those socio-political circumstances, the host countries’ related ability to provide protection to foreign investors, and the issue of foreign investors’ legitimate expectation from these host countries under the FET obligation in a particular case. The a rbitral awards discussed in this chapter represent the full range of approaches current tribunals have adopted where these socio-political circumstances were clearly a relevant contextual background to the dispute. Part 5.2.A of the chapter will analyse the awards where political instability wa s an issue and part 5.2.B will analyse the awards where a broader range of socio -political circumstances were a vital contextual background to the investment disputes.

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