Introduction
Globalization has turned the world into a small village where movement and communication are easily done irrespective of the location of an individual. Technological improvement in the field of communication has meant that it is now possible for a business unit to communicate with its customers all over the world in real time using mobile phones. Managers can also monitor operations of their overseas plants without their physical presence at the facility. Other communication channels like the social media have also played a major role in enhancing communication around the world. Bilateral investment treaties have become common as countries realize the importance of bilateral trade. However, it is true that bilateral investment treaties and their dispute resolution provisions are seen by some as a valid tool for the promotion of investment, and by others as a tool for domination. This research focuses on critical assessment of the effectiveness of bilateral investment treaties’ mandated dispute resolution in state-investor disputes.
Institutional and Normative Foundations of International Investment Law
A business unit cannot survive in an environment that does not have clear laws and regulations. This is because the law defines how a business should operate and its relationship with other business units. It is a fact that the laws set to govern business units are always based on the local needs and social structure. However, businesses are currently operating internationally, and this necessitates international investment law that would guide multinational corporations operations around the world. These laws would help in protecting both the firm and the host country. The laws help host country from exploitation by large influential multinationals. On the other hand, this law protects the multinationals from a possible breach of contract by the host country.
Relevance of Bilateral Investment Treaties
Bilateral investment treaties have gained relevance in the current global society due to the need by large corporations to expand their market coverage beyond the borders of their home countries. According to Vandevelde, bilateral investment treaties “Is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state.” This scholar says that the first ever bilateral treaty to be signed in the world was between the Germany investors and the Pakistani government on 25th November 1959. These are treaties developed between the host state and the company that wishes to invest in this state. This takes place when a foreign firm wishes to make a foreign direct investment to the host country within a particular period. The bilateral investment treaties spell out the nature of relationship that would exist between the investor and the host country. This treaty would state the kind of trade the foreign investor would engage in, and the specific period that the investor plans to stay in the country. This means that the investor would be bound by the terms indicated in the treaty.
The investor would therefore, be strictly required to stay in line with the nature of business that was stated in the agreement. The time specification will also state the period within which the treaty would be considered as valid. As Sornarajah says, a treaty cannot be signed for eternity. It reaches a moment where a treaty ceases to be relevant given the dynamics in the world. As such, time specification would help determine the duration under which both parties would be bound by the treaty. During the process of signing the treaty, the host country may consider allowing a short but renewable time limit for the treaty in order to factor in any changes that might take place in the environment. Finally, the investor must state the benefits that the host country stands to benefit from the investment. A treaty must always state how the two parties will mutually benefit from the agreement. In the treaty, the investor must state the percentage of the host country nationals that will benefit from the project in the form of employment opportunities. The treaty must also indicate the direct benefits the project has to the state in form of tax. Another clarification will be on the amount of profits that the firm will reinvest in the project, and the amount it will take back to the parent country.
On the side of the government, there will be need to specify terms under which the firm will operate within the country. The country must offer the investor adequate security that will enable it operate in the new country without fear of attack or intimidation from other operators or government agencies. The government and the investor must also agree on the appropriate timeline when taxation will be levied on the new firm. In most of the cases, the host country government would offer the new firm one or two year grace period within which the firm will not be subjected to payment of taxes. The government can also consider offering lower taxes within the period when the firm is about to lay its foundation in the local market. The government would also need to assure the investor that when it is necessary, a new treaty would be signed when there is need to continue operations. This would be an assurance to the firm that when business is flourishing, its contract will not be terminated in an illegal manner. With these agreements, the investor will know what to expect from the host government for the period it will be operating in the country.
The government will also be aware of what to expect from the investor for the same period. The two parties will weigh the benefits and some of the negative consequences that the agreement shall carry. For instance, the investor will look at the taxation set by the government, and the limitation on the amount the firm can repatriate to the parent country. The investor will then consider the possible profitability of the venture within the agreed period. If the benefits outweigh the negative consequences, then the deal will be considered good enough to be accepted. When the contrary is true, then the investor can consider a renegotiation, and if this is not possible, the investor can decide to avoid the contract. Similarly, the government will need to conduct a comprehensive analysis of the agreement in order to consider if the project stands to benefit the firm. Some of the issues that the host government would need to consider include the effect it will have on the local investors. If the investment will foster a healthy competition with the local firms, then it should be given a mandate to operate in the country. However, if it threatens to eliminate the local investments, then the government should find a way of protecting the local investors. The government will also consider the financial benefits and employment opportunities brought by the investment. If this investment worth is within the desirable levels, then the government can authorize the investor to establish a plant locally.
Bilateral Investment Treaties as a Valid Tool for the Promotion of Investment
It is coming out clearly from the discussion above that bilateral investment treaty is meant to help both the investor and the host country government. It is an agreement that fosters mutual benefit to all the parties involved. According to Sasse, bilateral investment treaties are a valid tool for the promotion of investment around the world. This scholar says that given the fact that the world has been reduced into a global village, firms are finding it difficult to operate locally. For instance, one of the main markets of Nike’s products in Europe is Germany. This American firm has made massive profits in Germany with its sportswear. On the other hand, Adidas- which is a German firm- has its main market at the United States. This is a clear indication that firms can no longer operate strictly within their borders. They are forced to go beyond their home country to look for larger market share in foreign nations. In developing countries, the number of manufacturing firms is limited, especially in the technological sector. These countries depend on motor vehicle from Japan and United States, mobile phones from Korea and China, Computers from the United States and China, Oil from the Middle East among other imports. These countries also export various raw materials including tea, flower and minerals.
This interdependency cannot be avoided. It is mutually beneficial to all the parties involved. Bilateral investment treaties enable firms to increase their investment in their industries in various other countries. The treaty helps in defining the relationship between the investor and the government. This creates an environment where the investor and the host country government will view each other as a partner. To the host country, the investor will be a partner whose success will ultimately result into a success to the government. This will necessitate the need for the government to protect the firm. On the other hand, the investor will view the government as a partner and this will make it easy for the government to make all the necessary payments as a way of supporting the government. This helps in promoting investment. Some of the largest firms in the world such as the Coca Cola Company, General Electric, Barclays Bank, Toyota Corporation, and Microsoft have benefited from bilateral investment treaties. The treaty has enabled them expand their operations to wider regions beyond their home countries.
Despite the benefits that bilateral investment treaties have in promotion of investment, Akgul says that others have used it as a tool for domination. This scholar cites the Coca Cola Company for instance. This firm is the leading beverage company in the world. The firm has used bilateral investment treaties to dominate the beverage industry for years. This firm has inhibited growth of firms in this industry in many countries, especially the developing countries. It has expanded its mandate in many countries beyond the cola products. This firm now sells bottled water and fruit juices besides the cola products. Given the strength of its brand, and the financial strength it has, the firm has managed to suppress other small firms that have tried to emerge in this industry. Given the fact that it already has a system of delivering products to the market, the local firms have found it increasingly difficult to compete with this firm in this industry. So successful is Coca Cola Company in the beverage company that it has managed to acquire the niche of the rich and the poor in the market. This makes it almost impossible for its competitors to outsmart it in the market.
Effectiveness of BIT Mandated Dispute Resolution in State-Investor Disputes
Bilateral investment treaties mandated for dispute resolution in state-investor dispute has been very effective. According to Newcombe, it is not possible for an investor to take a government to its own courts whenever there is a dispute. This is because there are chances that the government would influence the decision of the courts. This means that for the disputes to be solved amicably, the two parties must find a non-partisan body that will be able to offer arbitration without taking sides with one of the two sides. Business investment treaties have been very effective in offering arbitration between the investor and the state. When signing the treaty, it was noted in the discussion above that both parties will go through the agreement in order to find a common ground for both. The agreement will be based on mutual agreement for all the parties involved. Before signing the agreement, it is the responsibility of both parties to ascertain that the agreement they are entering into is fair to them. They must also accept the fact that the agreement is legally banding.
This means that any party that goes against the agreement will have to compensate the other party for the damages caused. This agreement in itself helps in resolving possible conflict that may arise during the period that the parties are bound by the agreement. This is because each party will be conscious of what is expected of it. Any party that decides to contravene the stipulations in the agreement will be liable to pay the other party the fine stated in the agreement. This will deter any party from acting contrary to the provision of the treaty. In case one party considers that the prevailing circumstances may not allow it to observe the provisions of the treaty, the agreement states how the parties will approach the issue. This way, there is no circumstance when the parties will fail to agree when they decide to adhere to the provisions of the treaty.
Conclusion
Bilateral investment treaties have been vital in promotion of investment globally. It has enabled various firms to increase their market coverage beyond the borders of their home countries. The treaties have also helped various governments to increase job opportunities for their citizens. Although some scholars argue that bilateral investment treaties are tools for domination, the truth is that it helps in promoting investment globally. These treaties have acted as perfect ways of eliminating possible dispute that may arise between the investor and the host country. Each of the two parties knows what is spelt in the treaty and the possible consequences if one ignores the provisions.
References
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