OBLIGATION TO PROVIDE FAIR AND EQUITABLE TREATMENT TO FOREIGN

INVESTORS: ITS DEVELOPMENT FROM A TREATY-BASED RULE TO A RULE

OF CUSTOMARY INTERNATIONAL LAW

A Thesis Presented to

Far Eastern University- Institute of Law

Far Eastern University Makati

In Partial Fulfilment of the

Requirements for the Degree of

Juris Doctor

Authored by:

Floricel O. Castro

1
 TABLE OF CONTENTS

I. INTRODUCTION……………………………………………………………4
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Significance of the Study
1.4 Scope and Limitations
1.5 Definition of Terms
II. PRELIMINARY CONCEPTS……………………………………………….13
2.1 Custom in the Context of Investment Arbitration
2.2 The Element of State Practice (The Objective Element)
2.3 The Element of Opinio Juris (The Subjective Element)
2.4 Importance of Custom in International Investment Law
2.5 How Treaty Practice Transforms Into Customary Rules
III. ARBITRAL TRIBUNALS AND THEIR CONTRIBUTION TO THE
DEVELOPMENT OF CUSTOMARY INTERNATIONAL LAW……….24
3.1 Position Adopted by Arbitral Tribunals
3.1.1 Pope & Talbot Inc. v Canada
(Award in Respect of Damages, 31 May 2002) UNCITRAL
3.1.2 ADF Group Inc. v United States
(Award, 9 January 2003) ICSID Case No ARB (AF)/00/1
3.1.3 Mondev International Ltd v United States
(Award, 2 October 2002) ICSID Case No ARB(AF)/99/2
3.1.4 Merrill & Ring Forestry LP v Canada
(Award, 31 March 2010) UNCITRAL
3.1.5 Cargill, Inc v Mexico) ICSID Case No ARB (AF)/05/02
(Award, 18 September 2009
3.2 Role of Arbitral Tribunals in the Development of Customary Rule
IV. APPLICATION OF THE ELEMENTS OF CUSTOMS………………….37
4.1 Examination of State Practice
4.1.1 Table showing the number of States with BITs containing FET
provision and those without FET
4.1.2 General and Widespread State Practice
4.1.3 State Practice is Representative
4.1.4 State Practice is Uniform and Consistent
4.1.5 Duration of Practice
4.2 Examination of Opinio Juris
4.2.1 Table Representing Domestic Laws guaranteeing FET Protection
4.2.2 General and Widespread Practice of States to Provide FET Outside
the Treaty Framework

2
 4.2.3 Recognition of the States to accord FET protection as a legal
obligation under international law
V. STATES CUSTOMARY ADOPTION OF THE MINIMUM
FET STANDARD AS SEEN IN TREATY AND DOMESTIC
LAWS…………………………………………………………………………66
5.1 BITs FET Standard
5.2 FET standard under Domestic Laws
5.3 Content of the Standard
VI. CONCLUSION………………………………………………………………71

BIBLIOGRAPY……………………………………………………………...73

3
 Chapter 1

Introduction

1.1 Background of the Study

One of the most controversial areas of international law is the law relating to foreign

investments. The field of foreign investment law is expanding rapidly and changes overtime.1

The number of investment treaties in effect has continued to increase, and there has been a

veritable explosion of foreign investment disputes being resolved through international

arbitration.2

With the growth of foreign investment law is the proliferation of bilateral investment

treaties (BITs). BITs encourage foreign direct investment by creating stable and predictable

markets through establishing minimum standards of treatment for investors / investments.3

Although a BIT binds only the two signatory states, the general effect of the BIT movement

has been to establish an increasingly dense network of treaty relationships between capital-

exporting states and developing countries -- a trend that appears to continue and accelerate in

the future.4

1
Doak R. Bishop, James R. Crawford, W. Michael Reisman, Foreign Investment Disputes: Cases Materials and
Commentary (2d ed. 2014) [hereinafter Bishop, Crawford and Reisman]
2
Id.
3
Rudolf Dolzer & Christoph Schreuer, Principles of International Investment Law 817, (Oxford University Press
2012) [hereinafter Dolzer & Schreuer]
4
Jeswald W. Salacuse, BIT by BIT: The Growth of Bilateral Investment Treaties and their impact on Foreign
investment in Developing Countries, 24 Int”l Law. (1990)

4
 Almost 3,000 BITs have been signed in the past forty years with remarkably similar

provisions, leading some scholars to conclude that they may now express the customary

international law standards for foreign investment.5 These BITs guarantee certain standards of

treatment that are enforceable through a binding dispute settlement agreement which may be

invoked by the State-party and the investor.

The general obligations undertaken by State-parties to a BIT often require them to

provide investors and investments with fair and equitable treatment (FET); full protection and

security; treatment no less favourable than that required by international law; national

treatment; most favoured nation treatment; and the protection against direct and indirect

expropriation.6

The FET standard is emerging as one of the core concepts governing the relationship

between foreign investors and host states in international investment law, and has “the potential

to reach further into the traditional ‘domaine réservé’ of the host state than any one of the other

rules of investment treaties”.7A debate exists on whether the FET standard merely reflects the

international minimum standard of treatment of aliens, as contained in customary international

law, or offers an autonomous standard that is in addition to general international law.8 Arbitral

5
Bishop, Crawford and Reisman, supra note 1
6
Id.
7
Stephan W. Schill, Fair and Equitable Treatment under Investment Treaties as an Embodiment of the Rule of
Law, IILJ Working Paper 2006/6 Global Administrative Law Series, available at (www.iilj.org) [hereinafter S.
Schill]
8
Bishop, Crawford and Reisman, supra note 1, at 757

5
Tribunals,9 in determining violations of FET obligations, recognized different elements and

applied different standards of FET according to the circumstances presented.

Another controversial question in relation to FET obligation under BITs is whether the

obligation to provide FET to foreign investors had itself developed as a rule of customary

international law.10 There are different views propounded on that matter, the supporters of the

proposition based it on the fact that the standard is found in the overwhelming majority of BITs

reflecting state practice and the generality and consistency of such practice reflects opinio juris

while those who do not support the proposition argue that it lacks the element of opinio juris

which negates its crystallization to customary international law.11

This study deals with the latter question, and the author supports the proposition that the

obligation to provide FET protection is in and of itself a rule of customary international law.

1.2 Statement of the Problem

This study addresses the issue of whether or not the obligation to provide FET to foreign

investors should now be considered in and of itself a rule of customary international law.

Specifically the questions sought to be addressed are whether: (a) the practice of according FET

to foreign investments / investors is considered general, widespread, uniform, consistent and

9
See Saluka Investments BV (The Netherlands) v Czech Republic, UNCITRAL, Partial Award (17 March 2006)
[hereinafter Saluka v. Czech Republic]; SD Myers, Inc v Canada, UNCITRAL, First Partial Award (13
November 2000); CME v Czech Republic, UNCITRAL, Final Award (14 May 2003); Waste Management v.
Mexico, ICSID Case No ARB(AF)/00/3 (NAFTA), Award, 30 April 2004, 43 ILM 967 (2004). [hereinafter
Waste Management v. Mexico]
10
Patrick Dumberry, Has the FET standard become a rule of customary international law? Journal of
International Dispute Settlement, 2016, 1 [hereinafter P. Dumberry, 2016]
11
Id.

6
representative, as to reflect "state practice"; and (b) States have the requisite belief that they

have an obligation under international law to provide FET protection to the foreign investments

/ investors, as to reflect "opinio juris".

While it is now estimated that around 3000 BITs have been concluded, these BITs only

cover 13% of the total number of the States worldwide.12This shows that a majority of foreign

investors are not protected by BITs. These foreign investors will nevertheless receive some

legal protection under a contract or under the domestic legislation of the country where they

invest.13 They may also benefit from existing customary rules in the field of international

investment law as custom applies to all States.14 In the latter case, the foreign investor may be

sponsored by its/his state of origin which can file a case on behalf of such investor against the

host state before the International Court of Justice for the violation of an international

obligation.15

In other words, custom is the applicable legal regime in the absence of any BIT16 for the

protection of the legitimate interest of the foreign investor.

This fact gives rise to the significance of determining whether the States are bound to

provide FET protection under customary law and whether the foreign investors can legitimately

12
UNCTAD, Recent Trends, in IIAs and ISDS, IIA’ Issues Note, No. 1, February 2015
13
P. Dumberry, 2016, supra note 11, at 4
14
Id.
15
See Case Concerning The Barcelona Traction, Light And Power Company, Limited (New Application: 1962)
(Belgium V. Spain) Second Phase Judgment of 5 February 1970
16
Id.

7
expect that even if there is no existing BIT or despite the absence of FET clause in the BIT the

State is obliged to treat them and their investments fairly and equitably.

1.3 Significance of the Study

This study is of great importance to provide for the basis of protection in favor of foreign

investors who opt to invest in the States where their countries have no existing BITs with or

while they have BITs, they do not contain the obligation to provide FET.

It was already established that the violation of FET is frequently invoked and applied in

investor-state dispute settlement under the BITs,17 perhaps because the obligation itself is very

broad that State’s unreasonable, discriminatory and arbitrary conduct towards the investor and

its investment would amount to a violation of the obligation.

The Study gives more significance as this would promote foreign direct investments

(FDI) by assuring FET to foreign investors even without the existing BITs. This development

would create a more favorable environment for foreign investment which was proven to be an

essential factor which contributes to the flow of foreign direct investment worldwide.

According to The United Nations Conference on Trade and Development (UNCTAD) World

Investment Report18, more than 50 billion US dollars were invested in Germany in the year

2007. This amount of foreign direct investment reflects the attractiveness of Germany for

foreign investors- an attractiveness that relies not only on a healthy economic environmental

17
See S. Schill, supra note 7
18
For the whole report see www.unctad.org/en/docs/wir2008_en.pdf

8
and a stable political system, but also on the general openness of Germany towards foreign

investments as well as on a legal and institutional framework that guarantees a reliable

protection of foreign investment.19 said in its World Investment Report 2015 released in June

that in Southeast Asia the country which is at the bottom of the ranking on FDI has the most

restrictive and unstable environment for foreign investment.20

The overall benefits of FDI for developing country economies are well documented.21

Given the appropriate host-country policies and a basic level of development, a preponderance

of studies shows that FDI triggers technology spill overs, assists human capital formation,

contributes to international trade integration, helps create a more competitive business

environment and enhances enterprise development.22 All of these contribute to higher economic

growth, which is the most potent tool for alleviating poverty in developing countries.23

Moreover, beyond the strictly economic benefits, FDI may help improve environmental

and social conditions in the host country by, for example, transferring “cleaner” technologies

and leading to more socially responsible corporate policies.24

19
ICSID, The Legal Protection of Foreign Investment: A Comparative Study (with a Foreword by Meg Kinnear,
Secretary-General of the ICSID), 2012
20
UNCTAD, World Investment Report 2015, June
21
OECD, Foreign Direct Investment for Development Maximizing Benefits, Minimizing Costs. 5, 2002.
22
Id.
23
Id.
24
Id.

9
1.4 Scope and Limitations

This Study is confined to providing basis of considering the FET obligation embodied

in the BITs as in itself developed to be a rule of customary international law in the field of

international investment. Thus, it will examine how treaty obligations crystallized into

customary law by proving the presence of state practice and opinion juris. It will then analyze

the practice of States to include FET obligation in the BITs and whether these States have any

opinion juris with respect to the FET obligation.

Likewise, this study is limited to a scenario where the foreign investor invested to a

State with no existing BIT with his/its State of origin but has an existing contract which contains

arbitration clauses or while there is a BIT it lacks the obligation to provide FET.

The difference in the language of some Domestic Laws and BITs made it difficult to

provide an in-depth investigation of all domestic legal orders and BITs. Hence, studies and

statistical data made by other authors will be adopted.

Lastly, this study recognizes that Arbitral Tribunals adopt different variations of FET

standards based on varied provisions of FET standards in BITs. However, this study will not

deal with such varied FET standards. This study will be limited to a discussion on whether the

obligation to provide FET, per se, has attained customary status. Where such obligation to

provide FET exists, it will be assumed that the FET standard applicable is the minimum

standard of treatment under international law as enunciated in the case of Waste Management

v Mexico the approach which was followed by numerous tribunals. This minimum standard of

10
FET is defined under the next section and will be discussed further under Chapter V of this

study.

1.5 Definition of Terms

Foreign Direct Investment

Foreign investment involves the transfer of tangible or intangible assets from one

country to another for the purpose of their use in that country to generate wealth under

the total or partial control of the owner of the assets (e.g. transfer of physical property

such as equipment, or physical property that is bought or constructed such as plantations

or manufacturing plants).25

Bilateral Investment Treaty

A bilateral investment treaty (BIT) is an agreement establishing the terms and conditions

for private investment by nationals and companies of one state in another state which

grants investments made by an investor of one Contracting State in the territory of the

other a number of guarantees, which typically include fair and equitable treatment,

protection from expropriation, free transfer of means and full protection and security.26

25
M. Sornarajah, The International Law on Foreign Investment 8 (3d 2010).
26
W. Michael Reisman et al.,"International Law in Comparative Perspective" 460 (2004).

11
Fair and Equitable Treatment

Fair and equitable treatment encompasses a universe of “fundamental” principles

common throughout the world which, at the minimum, should include “the duty to act

in good faith, due process, transparency, candor, fairness and protection from

arbitrariness, grossly unfair, unjust or idiosyncratic, and discriminatory conduct.27

Customary International Law

Customary international law is defined as those rules of international law that derived

from and reflect a general practice accepted as law.28

27
Waste Management v. Mexico, supra note 10, at para 98; GAMI Investments Inc. v. Mexico, UNCITRAL
(NAFTA), Final Award, 15 November 2004, para. 97.; International Thunderbird Gaming Corporation v.
Mexico, UNCITRAL (NAFTA), Award, 26 January 2006; Glamis Gold, Ltd. v. United States, UNCITRAL
(NAFTA), Award, 8 June 2009, para. 605
28
North Continental Shelf Case, I.C.J. Reports 1969, p. 3, at p. 44, para. 77 [hereinafter North Continental Shelf
case]

12
 Chapter 2

Preliminary Concepts

An overview of the basic concepts involved in this study will be provided under this

chapter, the discussions involved will show that (2.1) international customs as one of the

sources of international investment law requires both the elements of state practice and opinio

juris, (2.2) the importance of custom in International Investment Law, and (2.3) how treaty

based rule can transform into customary rules.

2.1 Custom in the Context of Investment Arbitration

Majority if not all the scholars in the field of international investment acknowledged the

rules of customary international law as one of the sources of international investment

arbitration.

While international investment law is dominated by treaties, customary rules still plays

an important role as it remains highly relevant for the practice of investment arbitration. For

instance, rules on attribution and other areas of state responsibility, rules on expropriation, on

denial of justice, and on the nationality of investors as well as rules on damages are governed

by customary international law.29

29
Dolzer & Schreuer, supra note 3

13
 Customary international law is defined as “those rules of international law that derived

from and reflect a general practice accepted as law.”30 This definition has been adopted by the

International Court of Justice in cases of Jurisdictional Immunities of the State (Germany v.

Italy: Greece intervening)31, North Sea Continental Shelf Case32 and Continental Shelf

(Libyan Arab Jamahiriya/Malta)33

North Sea Continental Shelf Case involves the delimitation of the continental shelf areas

in the North Sea between Germany-Denmark and Germany-Netherlands where Denmark and

Netherlands move for the application of the principle of equidistance embodied under Article

6 of the Geneva Convention which Germany objected. Germany argued that the principle of

equidistance is not binding because while it signed the Geneva Convention, it did not ratify it.

In addition, Germany also argued that the said principle was not a rule of customary

international law that was binding to it contrary to the argument of Denmark and Netherlands.

In rejecting the application of the equidistance principle proposed by Denmark and

Netherlands, the ICJ sets out the dual requirement for the formation of customary international

law which are the state practice and the opinio juris.

30
International Law Commission, ‘Second Report on Identification of Customary International Law’, by
Michael Wood, Special Rapporteur, Sixty-Sixth Session, Geneva 8, 5 May–6 June and 7 July–8 August 2014,
UN Doc A/CN.4/672 [hereinafter referred to as ILC, Second Report, 2014],
31
Jurisdictional Immunities of the State (Germany v. Italy: Greece intervening), I.C.J. Reports 2012, p. 99, at p.
122, para. 55
32
See North Sea Continental Shelf Case, supra note 36, at para 77
33
Continental Shelf (Libyan Arab Jamahiriya/Malta), I.C.J. Reports 1985, p. 13, at p. 29

14
 Where these two elements are manifest, a rule of customary international law will be

deemed to bind all States, with the exception of persistent objectors, without it being necessary

to show that the particular State allegedly bound by the rule has participated in its formation or

has otherwise accepted it.34

2.1.1 The Element of State Practice (The Objective Element)

State Practice as element of international customs comes in many forms, including:

Diplomatic correspondence; declarations of government policy; the advice of government legal

advisers; press statements, military manuals, votes and explanation of votes in international

organizations; the comments of governments on draft texts produced by the ILC; national

legislation, domestic court decisions; and pleadings before international tribunals. 35 Thus,

Koplow suggested that in assessing the relevant behavior of States, “we look to their words as

well as deeds, and to silences as well as inactions.”36

In the formation of customary rule, the ICJ used different words to define the required

state practice in its various decisions. For instance, in the case of Asylum, it stressed that

constant and uniform usage is the yardstick to ascertain a customary rule.37 The Court has made

34
Maurice H. Mendelson, The Formation of Customary International Law 218 (1998). [hereinafter M.
Mendelson]
35
Ian Brownlie, Principles of Public International Law 5 (4th ed., 1990).
36
David Koplow, International Legal Standards and The Weaponization Of Outer Space, In Space: The Next
Generation—Conference Report, United Nations Inst. For Disarmament Research 160 (2008).
37
Asylum Case (Colombia /Peru), 1950 I.C.J. 266, at 276 (Nov. 20).

15
clear that perfect consistency is not required.38 In fact, the examination of the Court’s case law

would suggest that general practice suffices.

In Fisheries Jurisdiction, the Court emphasized that “too much importance need not be

attached to the few uncertainties or contradictions” in State practice.39 Similarly, in the

Continental Shelf cases between Tunisia and Libya, and between Libya and Malta the Court

concluded that although various proclamations of an exclusive economic zone were not

identical, they were sufficiently similar that the exclusive economic zone had become part of

customary international law.40 In Nicaragua Case, the Court stressed that, for a rule to be

established as customary, the corresponding practice must be in absolutely rigorous conformity

with the rule and to deduce the existence of customary rules, it is sufficient that the conduct of

States should, in general, be consistent with such rules.41

The ICJ has also spoken of the requirement of extensive practice, and indicated that in

the formation of customary law the practices of the affected States must be highly considered.42

This shows that in determining state practice as an element of customs, there is an important

qualitative aspect to the inquiry.

38
Scharf, Michael P., "Accelerated Formation of Customary International Law" 315 (2014), Faculty Publications.
Paper 1167. available at http://scholarlycommons.law.case.edu/faculty_publications/1167
39
Fisheries Jurisdiction (U.K. v. Nor.), 1951 I.C.J. 116, at 138 (Dec. 18).
40
Continental Shelf (Tunis/Libya), 1982 I.C.J. 18, at 74, para. 100 (Feb. 24); Continental Shelf, supra note 41, at
para 34
41
Nicaragua Case (Nicaragua v United States) Merits, Judgment, ICJ Rep 1986, [186]; 1986 I.C.J. at 98, para
186. [hereinafter Nicaragua Case]
42
Id.

16
 In sum, state practice as element of customs requires a general, widespread, uniform,

consistent and representative participation of States in the convention, including that of States

whose interests were specially affected.

2.1.2 The Element of Opinio Juris (The Subjective Element)

The purpose of the subjective element, known as opinio juris, is to differentiate State

actions that give rise to legal norms from actions that do not.43 Opinio juris is the belief by the

States that their practice is legally required by the norm, not because of the demands from other

sources of obligation.

In North Sea Continental Shelf case, the ICJ emphasized the need of opinio juris in the

formation of customary rules, it stressed that, “not only must the acts concerned amount to a

settled practice, but they must also be such, or be carried out in such a way, as to be evidence

of a belief that this practice is rendered obligatory by the existence of a rule of law requiring it.

The States concerned must therefore feel that they are conforming to what amounts to a legal

obligation. The frequency, or even habitua1 character of the acts is not in itself enough.”44

While number of scholars have rejected the dual requirement reflected in the North Sea

Continental Shelf Case and instead developed alternative theories generally focusing on the

43
ILSA Journal of International & Comparative Law 322 (Vol. 20:2)
44
North Sea Continental Shelf, supra note 36, at para 77

17
prevalence of opinio juris rather than actual State practice,45 for purposes of this study the dual

requirement is applied.

2.2 Importance of Custom in International Investment Law

With the proliferation of BITs in the present time, one would question the necessity of

custom in providing protections to foreign investors and to their investments. In the work

published by Dumberry46, he provided a discussion on why custom is still relevant in the field

of International Investment law.

According to Dumberry, the reason for the continuing importance of custom in today’s

investment arbitration is because these rules represent the applicable legal regime of protection

in the absence of any BIT.47 Therefore, a foreign investor originating from a State that has not

entered into a BIT with the State where the investment is made will not be given protection

which would have otherwise been typically offered under such a treaty.48 Customary rules will

apply to that investor. So, even in light of the proliferation of BITs, these rules continue to play

an important role in investment protection.49

In the case of Amco v. Iran, the Tribunal also stressed the relevance of rules of

customary law to fill in possible lacunae of the Treaty, to ascertain the meaning of undefined

45
International Law Commission, ‘First Report on Formation and Evidence of Customary International Law’, by
Michael Wood, Special Rapporteur, Sixty-fifth Session, Geneva, from 6 May–7 June and 8 July–9 August 2013
UN Doc A/CN.4/663, 17 May 2013, 20 [ILC, First Report, 2013] 47ff. [hereinafter ILC First Report]
46
Patrick Dumberry, The Formation and Identification of Rules of Customary International Law in
International Investment Law (CUP 2016). [hereinafter P. Dumberry]
47
Id.
48
Id.
49
Id.

18
terms in its text or, more generally, to aid interpretation and implementation of its provisions.50

It stated that while the BIT as a lex specialis in the relations between the two countries,

supersedes the lex generalis, namely customary international law this does not mean that the

customary rules are irrelevant in deciding the issues in the said case and considered it as

applicable law in determining the lawfulness and unlawfulness of the act of Iran against the

Claimant Amco.51

At the same time, customary rules apply even in the presence of the BIT if the BIT itself

referred to the rules of customary law for purposes of filling the gap of the treaty protection and

to interpret the provisions thereof.

For this study, it is important to note that customs is a source of obligation that the State

must comply with in treating the foreign investors and their investment and that violation of

such obligation is enforceable in the international sphere. Hence, it is important to determine

the rules in international investment that have developed as customs which protect the investors

despite the absence of the BIT.

2.3 How treaty practice transforms into customary rules

While treaties and customs are two different sources of international law, treaties can

generate customs binding on all States. There are three recognized ways on how treaties

generate customary rules: First, the codification and elucidation of customary international law

50
Amoco Int’l Fin. Corp. v. Iran, Iran-US CT, 14 July 1987, in ILR 83 (1990), para. 112.
51
Id

19
through treaties. Traditionally, the purpose of treaty is not to confirm existing customary law

but to derogate from it, however a particular treaty might contain some provisions meant to

reflect existing customary law, and others which constitute progressive development.52

Sometimes a treaty also declares that its provision, or certain of them, are declaratory of existing

customary law.53 For instance, Article 1 of the Genocide Convention declares that, genocide

whether committed in time of peace or in time of war, is a crime under international law which

they undertake to prevent and to punish.54 Aside from the declaration in the treaty itself, courts

may also find that a provision of a treaty constitutes a codification of customary law. For

example, in Namibia Case the ICJ applied the rules laid down by the Vienna Convention on the

Law of Treaties concerning termination of a treaty relationship on account of breach as

customary law to the South-West Africa Mandate which predated the Vienna Convention

saying that such rule in many respects are considered as a codification of existing customary

law on the subject.55

Second, the consensus formed through the process of treaty negotiation can sometimes

crystallize rules of customary international law as reflected in the treaty text before the treaty

comes into force.56 For instance, in Continental Shelf Case (Tunisia/Libya), the ICJ held that

52
See Mark E Villiger, Customary International Law and Treaties: A Manual on the Theory and Practice of the
Interrelation of Sources (2nd edn, Kluwer 1997) 195ff [hereinafter M. Villiger]; Michael P. Scharf, "Accelerated
Formation of Customary International Law" (2014). Faculty Publications. Paper
1167.http://scholarlycommons.law.case.edu/faculty_publications/1167 [hereinafter M. Scharf]
53
Id.
54
Convention Against Genocide, 78 U.N. Treaty Series, 278 (1948)
55
Legal Consequences for States of Continued Presence of South Africa in Namibia, Advisory Opinion, 1971
I.C.J. 16, at 47, par 94 (June 21)
56
M. Scharf at 319.

20
the recently concluded, though not yet in force, 1982 Convention on the Law of the Sea

“crystallizes” an “emergent rule of customary law.57 Similarly, in Gabcikova-Nagymaros

Project Case, the ICJ held that the requirements for invoking a state of necessity set out in the

Draft Articles on State Responsibility adopted on first reading by the ILC “reflect customary

international law.”58

Third, a treaty rule may commend itself to States generally, who then adopt it in practice

even if they fail to become parties to the treaty.59 For example, a treaty known as the 1856

Declaration of Paris abolished the government-sanctioned piracy against the vessels of enemy

States (privateering).60While very few States became parties to the instrument, it is widely

recognized that the outlawry of privateering became a rule of general customary law through

State practice inspired by the Declaration.61

The Author suggest that the obligation to provide FET protection to foreign investor has

developed into a rule of customary international law through the third way discussed. Most

scholars agree that, in theory, the content of a series of bilateral treaties may contribute to the

development of a new customary rule.62 This view also finds support in the decisions of

57
Continental Shelf, 1982 I.C.J. at 54, para 24.
58
Gabcikovo-Nagymaros Project (Hung./Slovk.), 1997 I.C.J. 7. para 52. [hereinafter Gabcikovo-Nagymaros
Project]
59
M. Scharf, supra note 61, at 320
60
Id.
61
Id.
62
P, Dumberry supra note 55, at 163.

21
tribunals in cases of Pope and Talbot v Canada63, Camuzzi International SA v Argentina64 and

impliedly declared in the cases of Glamis Gold v USA65 and Chemtura Corporation v Canada.66

The tribunal in Pope and Talbot emphasized the evolution in customary international law

concepts since the 1920’s and stated that, it is a facet of international law that customary

international law evolves through state practice.67 It continued by stating that international

agreements constitute practice of states and contribute to the grounds of customary international

law.68 This recognition however does not raise a presumption that bilateral treaties will

necessarily transform into customary rules.

In assessing whether a treaty based rule contained in a bilateral treaty can transform into

a rule of custom, the ICJ suggest that a provision must be of a fundamentally norm-creating

character such as could be regarded as forming the basis of a general rule of law.69 For some

writers, the FET standard has the potential to develop as a rule of custom.70

In concluding that the obligation to provide FET has developed into a new rule of

custom it will be shown that significant number of States entered into BITs which contain FET

provision, a practice which is general, widespread, uniform consistent and representative. The

63
Pope & Talbot Inc. v. The Government of Canada, UNCITRAL (Award in Respect of Damages, May 31,
2002) para 59) [hereinafter Pope and Talbot]
64
Camuzzi International SA v Argentina (Decision on Jurisdiction, May 11, 2005) ICSID Case No. ARB/03/2
para 144
65
Glamis Gold, supra note 34, at para 602
66
Chemtura Corporation v. Government of Canada, UNCITRAL (Award, August 2, 2010) para 121
67
Pope & Talbot, supra note 72, at para 59
68
Id.
69
North Sea Continetal Shelf Case, supra note 36, at para 72
70
Iona Tudor, The Fair and Equitable Treatment Standard in International Foreign Investment Law (OUP 2008)
133 [hereinafter I. Tudor]; Stephen Vasciannie, “The Fair and Equitable Treatment Standard in International
Investment Law and Practice” (1999) 70 British YIL 157-158

22
act of including the FET provision in the BITs reflects that the States consider the obligation to

provide FET protection to foreign investors as a rule in international investment law. As ICJ

Judge Richard Baxter once noted, “the firm statement by the State of what it considers to be the

rule is far better evidence of its position than what can be pieced together from the actions of

that country at different times and in a variety of contexts.”71 The case law of international

tribunals is replete with examples of verbal acts being treated as examples of state practice.72

To prove the second element of customs, it will be shown that the States who are parties

to the BITs or even those who are not, adopted in their own practice outside the treaty the type

of conduct prescribed in the convention.73 In other words, the Author will show that the States

consistently provide FET to foreign investors and to their investment outside the treaty

framework. This will prove that States recognized themselves the legal obligation to provide

FET as to constitute opinio juris.

An examination of whether the state’s practice of providing FET to foreign investors by

entering into BITs are considered general and uniform and whether States consistently adopts

such conduct even outside the treaty framework will be provided under Chapter 4 of this study.

71
Richard Baxter, Multilateral Treaties as Evidence of Customary International Law, 41 BRIT. YEAR BOOK
OF INT’L L. 275, 300 (1965–l966). 35. [hereinafter R. Baxter]
72
See Nottebohm Case (Lich. v. Guat.), 1955 I.C.J. 4, paras 21–23 (Apr. 6); Fisheries Jurisdiction, supra note 47,
at paras 55–58 (July 25); Military and Paramilitary Activities in and Against Nicaragua (Nicar. v. U.S.), Merits,
1986 I.C.J. 14, at 97–109, paras 183–207 (June 27) [hereinafter Nicaragua Case]; Legality of the Threat or Use
of Nuclear Weapons, Advisory Opinion, 1996 I.C.J. 226, at 259–61, paras 86, 88 (July 8) [hereinafter Nuclear
Weapons Advisory Opinion]; Gabcikovo-Nagymaros Project, supra note 67, paras 49–54, 83, 85 (Sept. 25).
73
Y Dinstein, “The Interaction between Customary International Law and Treaties (2006) 322 Rec des cours 294

23
 Chapter III

Arbitral Tribunals and Their Contribution to the Development of Customary

International Law

Tribunals have different views as to whether the obligation to provide FE has evolved

as a rule of customs. Some consider it as customs considering that its consistent presence in the

BITs reflects state practice. Those who opposed argued that the element of opinion juris must

also be present for the obligation to provide FET to foreign investors be considered to have

developed as a customary rule and stated that lack of it make the standard remain as a treaty

standard. This chapter will show that some tribunals have already taken the position that the

obligation to provide FET has become a rule of customary international law in and of itself.

The author will also discuss the role of arbitral tribunals in the development of customary

international law.

3.1 Position Adopted by Arbitral Tribunals

3.1.1 Pope & Talbot Inc. v Canada (Award in Respect of Damages, 31 May 2002)

UNCITRAL

In this case, Pope & Talbot, Inc., instituted a claim against Canada under the

UNCITRAL rules, alleging, among others, that Canada violated Article 1105 (minimum

24
standard of treatment)74 of the North American Free Trade Agreement (NAFTA), in its

implementation of U.S.-Canada Softwood Lumber Agreement. Under the said agreement,

Canada agreed to charge a fee on exports of softwood lumber in excess of a certain number of

board feet.75 According to Pope and Talbot, Inc.—which was a U.S. company, with investment

in Canada through a Canadian subsidiary that operates softwood lumber mills in British

Columbia -- Canada's assertions of non-existent policy reasons for forcing them to comply with

very burdensome demands for documents, refusals to provide them with promised information,

threats of reductions and even termination of the Investment’s export quotas, serious

misrepresentations of fact in memoranda to the Minister concerning the Investor's and the

Investment's actions and even suggestions of criminal investigation of the Investment’s conduct

was unfair and inequitable because it violated its minimal standard of treatment obligation

under international law.76

The Investor originally sought US$ 508 million in compensation to cover damages

resulting from Canada’s breaches. This amount was reduced to approx. US$ 2.2 million in the

damages phase.77 The tribunal issued an award on the merits on April 10, 2001 where it found

that Canada breached Article 1105.78

74
North American Free Trade Agreement (NAFTA), Article 1105, Para 1: Each Party shall accord to
investments of investors of another Party treatment in accordance with international law, including fair and
equitable treatment and full protection and security.
75
Pope & Talbot, supra note 72, at para 1
76
Id. at para 68.
77
Id. at paras 81-90
78
Id. at paras 91-92

25
 The tribunal found that Canada breached Article 1105 of the NAFTA, and on May 31,

2002, issued an award in respect of damages.79 Canada argued that the principles of customary

international law were frozen in amber at the time of the Neer decision and it was on this basis

that it urged the Tribunal to award damages only if its conduct was found to be an “egregious”

act or failure to meet the internationally required standards.80 In rejecting Canada’s argument,

the tribunal ruled that, there has been evolution in customary international law concepts since

the 1920's and added that customary international law evolves through state practice and that

international agreements constitute practice of states and contribute to the grounds of customary

international law.81

According to the Tribunal, Canada's views on the appropriate standard of customary

international law for today were shaped by its erroneous belief that only 70 BITs have been

negotiated; while the true number, now acknowledged by Canada, is in excess of 1800. With

the above consideration, the Tribunal applying the ordinary rules for determining the content

of custom, concluded that the practice of states is now represented by those treaties.82

If we analyze the decision in Pope and Talbot, the Tribunal is in the view that the

presence of FET standard in so many BITs established the element of State practice necessary

to prove the existence of a rule of customary international law. The next case of ADF Group

79
Id.
80
Id. at para 57
81
Id. at para 59.
82
Id.. at para 62

26
Inc. criticized the findings of the Tribunal in Pope and Talbot with respect to the above

conclusion.

3.1.2 ADF Group Inc. v United States (Award, 9 January 2003) ICSID Case No ARB

(AF)/00/1

ADF Group Inc. ("ADF"), a Canadian corporation that designs, engineers, fabricates

and erects structural steel, has filed a claim under the ICSID Arbitration Rules on its own behalf

and on behalf of ADF International Inc., its Florida subsidiary.83 ADF claims damages for

alleged injuries resulting from the federal Surface Transportation Assistance Act of 1982 and

the Department of Transportation's implementing regulations, which require that federally-

funded state highway projects use only domestically produced steel.84

The tribunal dismissed ADF's claims against the United States including its claim of

violation of the minimum standard of treatment requirement of NAFTA’s Article 1105(1).85

In its award issued on January 9, 2003, the Tribunal criticized the pronouncement of

tribunal in Pope & Talbot with regard to the customary status of FET obligation by adopting

the argument of United States and Mexico.86 In the memorial submitted by the United States, it

argued that the Tribunal in Pope & Talbot was not in position to state whether any particular

BIT obligation such as FET obligation has crystallized into a rule of customary international

83
ADF Group Inc. v United States (Award, 9 January 2003) ICSID Case No ARB (AF)/00/1, para 1, available at
https://www.state.gov/s/l/c3754.htm
84
Id. at para 45.
85
Id. at para 199 (5)
86
Id. at para 112

27
law as the said Tribunal failed to examine the mass of existing BITs to determine whether those

treaties represent concordant state practice and whether they constitute evidence of the opinio

juris which are the elements of customary international law.87 Similarly, Mexico argued that

given the absence of “a careful analysis of state practice and opinio juris,” the sheer number of

extant BITs today does not suffice to show that conventional international law has become

customary international law.88

Examining the above decision, the tribunal in ADF did not explicitly rule that the

obligation to provide FET has not developed as customary rule, it merely agreed with the

arguments of United States and Mexico that the declaration made in Pope and Talbot was

immature because the tribunal in the latter case failed to provide a careful analysis of the

elements of customs which are the state practice and opinio juris.

3.1.3 Mondev International Ltd v United States (Award, 2 October 2002) ICSID Case No

ARB(AF)/99/2

In this case, Mondev International Ltd., a Canadian real-estate development

corporation, has submitted a claim under the ICSID Rules on its own behalf for losses allegedly

suffered by Lafayette Place Associates ("LPA"), a Massachusetts limited partnership it owns

and controls. Mondev alleges that these losses arise from a decision by the Supreme Judicial

87
Id.
88
Id. at para 125

28
Court of Massachusetts and from Massachusetts state law.89 It argued that Massachusetts'

statutory immunization from intentional tort liability of the Boston Redeveloment Authority is

incompatible with international law, and that the decision of the Supreme Judicial Court was

arbitrary and capricious and amounted to a denial of justice.90

Mondev also alleges that the United States failed to meet its Chapter Eleven obligations

by not according LPA national treatment (Art. 1102); by not according it treatment in

accordance with international law (Art. 1105); and by expropriating its investment without

compensation (Art. 1110).

The tribunal dismissed Mondev’s claims against the United States including its claim

of violation of the minimum standard of treatment requirement of NAFTA’s Article 1105(1).91

In its Award issued on October 2, 2002, the Tribunal considered the question raised by

three NAFTA Parties (United States, Mexico, Canada), in their post-hearing submissions where

they challenged the holdings of the Tribunal in Pope and Talbot which fnd that the content of

contemporary international law reflects the concordant provisions of many hundreds of bilateral

investment treaties.92 In particular, attention was drawn to what those three States saw as a

failure of the Pope & Talbot Tribunal to consider a necessary element of the establishment of

a rule of customary international law, namely opinio juris. These States appear to question

89
Mondev International Ltd v United States (Award, 2 October 2002) ICSID Case No ARB(AF)/99/2 para 1.
Available at https://www.state.gov/s/l/c3758.htm
90
Id.
91
Id. at 58
92
Id. at para 110

29
whether the parties to the very large numbers of bilateral investment treaties have acted out of

a sense of legal obligation when they include provisions in those treaties such as that for “fair

and equitable” treatment of foreign investment.93

The Tribunal however did not provide for its own conclusion as to the issue but rather

considered the question legitimate and acknowledged the difficulty in international practice to

establish at what point obligations accepted in treaties, multilateral or bilateral, come to

condition the content of a rule of customary international law binding on States not party to

those treaties.94

The Tribunal in this case instead stated that the question is not that of a failure to show

opinio juris or to amass sufficient evidence demonstrating it. The question rather is: what is the

content of customary international law providing for fair and equitable treatment and full

protection and security in investment treaties?95

While the Tribunal in the present case seem to avoid giving direct position as to the

issue on whether the obligation to provide FET has crystallized as customs, some part of the

decision would show that it recognized the possibility of such obligation to develop as custom.

In fact, the Tribunal recognized that vast number of bilateral and regional investment treaties

(more than 2000) almost uniformly provide for fair and equitable treatment of foreign

investments.96 Investment treaties run between North and South, and East and West, and

93
Id.
94
Id. at para 111
95
Id. at para 113
96
Id. at para 117

30
between States in these spheres inter se. It added that, on a remarkably widespread basis, States

have repeatedly obliged themselves to accord foreign investment such treatment. 97 In the

Tribunal’s view, such a body of concordant practice will necessarily have influenced the content

of rules governing the treatment of foreign investment in current international law.98

3.1.4 Merrill & Ring Forestry LP v Canada (Award, 31 March 2010) UNCITRAL

In this case, Merrill & Ring Forestry L.P., a forestry and land management company

incorporated under the laws of the state of Washington, filed a claim against the Government

of Canada, alleging that measures imposed by the federal and provincial government, i.e., the

federal surplus testing procedure and the provincial surplus testing procedure in British

Columbia requiring that logs from both private and public land must be deemed surplus to

provincial needs before they can be exported, caused private landowners such as Claimant loss

and damage.99

Claimant alleges that Canada has violated NAFTA Article 1102 (national treatment),

Article 1103 (most favored nation treatment), Article 1105 (minimum standard of treatment),

Article 1106 (prohibition on performance requirements), and Article 1110 (expropriation).100

97
Id.
98
Id.
99
Merrill & Ring Forestry LP v Canada (Award, 31 March 2010) UNCITRAL, para 1. [hereinafter Merrill &
Ring]
100
Id.

31
 In its decision, the tribunal rejected the claims of the Claimant including the claim of

violation of the minimum standard of treatment under Article 1105.101

In its award issued on March 31, 2010, the Tribunal explicitly stated that the fair and

equitable treatment has become a part of customary law.102 It explained that, a requirement that

aliens be treated fairly and equitably in relation to business, trade and investment is the outcome

of this changing reality and as such it has become sufficiently part of widespread and consistent

practice so as to demonstrate that it is reflected today in customary international law as opinio

juris.103 The tribunal held that, the name assigned to the standard does not really matter. What

matters is that the standard protects against all such acts or behavior that might infringe a sense

of fairness, equity and reasonableness.104 Of course, the concepts of fairness, equitableness and

reasonableness cannot be defined precisely: they require to be applied to the facts of each

case.105 In fact, the concept of fair and equitable treatment has emerged to make possible the

consideration of inappropriate behavior of a sort, which while difficult to define, may still be

regarded as unfair, inequitable or unreasonable.106

3.1.5 Cargill, Inc v Mexico (Award, 18 September 2009) ICSID Case No ARB (AF)/05/02

Cargill, Inc., a U.S. corporation, filed a notice of arbitration against Mexico under the

ICSID Additional Facility Rules on behalf of itself and its wholly-owned subsidiary, Cargill de

101
Id. at para 266.
102
Id. at para 211
103
Id. at Para 210
104
Id.
105
Id.
106
Id.

32
Mexico S.A. de C.V., a Mexican company.107 Cargill claims that its investments in the high

fructose corn syrup industry in Mexico have been adversely impacted by Mexico's 2002

adoption of a tax on high fructose corn syrup.108 Cargill alleges that the tax is aimed at

protecting Mexico's domestic sugar producers and excluding high fructose corn syrup from the

soft drink sweetener market.109 Cargill asserts that Mexico's tax on high fructose corn syrup

violates the national treatment obligation under NAFTA Article 1102, the most-favored-nation

obligation under NAFTA Article 1103, the minimum standard of treatment obligation under

NAFTA Article 1105, the prohibition on performance requirements in NAFTA Article 1106

and the expropriation obligation under NAFTA Article 1110.110 Cargill seeks damages in

excess of $100 million.111

In this case, the Arbitral Tribunal did not expressly make any pronouncement as to the

customary status of the obligation to provide FET, however it acknowledged the possibility that

a treaty-based rule found in the BITs particularly the obligation to provide FET may develop

as a rule of customary international law. The Tribunal noted that the extensive adoption of

identical treaty language by many States may in and of itself serve-again with care--as evidence

107
Cargill, Inc v Mexico (Award, 18 September 2009) ICSID Case No ARB (AF)/05/02, para 12 (hereinafter
Cargill, Inc v Mexico), Available at https://www.state.gov/s/l/c42198.htm [hereinafter Cargill]
108
Id. at para 1
109
Id.
110
Id.
111
Id.

33
of customary international law.112 The Tribunal observes that the requirement to provide "fair

and equitable treatment" is included in many BITs.113

3.2. Role of Arbitral Tribunals in the Development of Customary Rule

While judicial decisions and arbitral awards are not formal sources of international law,

judicial decisions count both as a form of State practice within the meaning of Article 38 of the

Statute of the ICJ, and as a “subsidiary means for the determination of rules of law” within

paragraph (d) of that Article.114

While some of the writers disagree that international tribunal decisions reflect state

practice, Max Planck Encyclopedia of Public International Law maintains that, since the

authority of international courts and tribunals to settle a dispute between States derives from

agreement of the States involved, judgments of such courts and tribunals may be seen,

indirectly, as manifestations of the practice of the States that have agreed to confer on them

such authority and the mandate to apply international including customary law.115

There are also commentators and arbitral tribunals which consider the arbitral decisions

as evidence of custom."116 For instance, in the case of Cargill, Inc. v. United Mexican States,

the Tribunal emphasized that the awards of international tribunals do not create customary

international law but rather, at most, reflect customary international law. Moreover, in both the

112
Id. at para 276
113
Id.
114
Statute of International Court of Justice, Article 38.
115
Tullio Treves, Customary International Law, in Max Planck Encyclopedia of Pub. Int’l Law para 53 (2006).
116
Cargill, supra note 118, at para 277

34
case of scholarly writings and arbitral decisions, the evidentiary weight to be afforded such

sources is greater if the conclusions therein are supported by evidence and analysis of custom.117

The foregoing show that arbitral decisions play an important role in the formation of

custom. It could either be a manifestation of state practice just like what Max Planck suggests

or an evidence of custom as recognized by some of the International Tribunals.

It could be observed from the cases discussed that even the arbitral tribunals have

different stands as to the customary status of the obligation to provide FET to foreign investors.

Pope and Talbot Tribunal, the first to openly adopt the view that FET obligation has developed

as custom supported its view by saying that, the fact that the FET obligation was found in so

many BITs basically established the element of State practice necessary to prove the existence

of a rule of customary international law.118 Similarly, in the case of Merrill & Ring Forestry LP

v Canada, the Tribunal stated that fair and equitable treatment has become a part of customary

law’.119 On the other hand, ADF Tribunal disagreed with the pronouncement made in Pope and

Talbot and stated that it was not convinced that the obligation to accord fair and equitable

treatment to foreign investments is now a rule of customary international law. The Tribunal

however did not make any further explanation to support such conclusion.

117
Id.
118
Pope & Talbot, para 62
119
Merrill & Ring, para 211

35
 In sum, majority of the arbitral awards which examined the customary status of FET

adopted the position that FET obligation has become a rule of custom while the reasoning of

some may be interpreted as an endorsement of such possibility.

36
 CHAPTER IV

Application of the Elements of Customs

It was already established that for the Treaty obligation to develop as rules of customary

law, it must; (1) generally and uniformly placed in the BITs by different States to establish State

Practice and (2) that the States recognized the obligation to provide FET to foreign investors

even outside the BIT to establish opinion juris. This chapter will show that both of the elements

of customs are present making the FET obligation in and of itself develop as customs.

4.1 Examination of State Practice

To prove the generality of the practice, the Author examined the BITs entered into by

different States to check whether the inclusion of the FET provision is general and uniform

based on the latest BITs recorded by the United Nations Conference on Trade and Development

(UNCTAD).120

One might question this approach in proving state practice to prove the customary status

of the obligation to provide FET to foreign investors considering that the act of including the

FET obligation in the BITs is different from the obligation to provide FET per se to foreign

investors-- as the former reflects the States expression of what the rule is while the latter pertains

to the act of providing FET per se (which is the subject of this study). Suffice it to say, virtually

120
UNCTAD is the main U.N. body dealing with trade, investment and development issues, available at
investmentpolicyhub.unctad.org/IIA

37
authorities consider the firm statement by the state of what the law is as a better evidence of

state practice.121 This position was discussed under Chapter 2.3.

In examining the practice to provide FET, the Author intentionally chose to include both

the developed and developing countries BITs to show the trend that BITs with no FET provision

are more popular in developing countries.

4.1.1 Table showing the number of States Which BITs contain FET provision and

those that without FET

State/Total With FET provision Without FET

no. of provision

BITs in

force

Philippines Argentina, Australia, Austria, Bangladesh, BLEU (Belgium- Korea, Myanmar,

(32 BITs) Luxembourg Economic Union), Canada, Chile, China, Czech Spain

Republic, Denmark, Finland, France, Germany, India, Italy,

Republic of Kuwait, Mongolia, Netherlands, Portugal,

Romania, Russian Federation, Saudi Arabia, Switzerland,

Syrian Arab Republic, Taiwan Province of China, Thailand,

Turkey, United Kingdom, Vietnam

121
R. Baxter, supra note 81, at 275

38
Romania Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Senegal, Albania,

(78 BITs) Bangladesh, Belarus, BLEU (Belgium-Luxembourg Cameroon, Egypt,

Economic Union), Bolivia, Plurinational State of, Bosnia and Pakistan

Herzegovina, Bulgaria, Canada, Chile, China, Croatia, Cuba,

Cyprus, Czech Republic, Finland, France, France, Gabon,

Georgia, Germany, Greece, Hungary, India, Indonesia, Iran,

Islamic Republic of Israel, Jordan, Kazakhstan, Korea,

Republic of Kuwait, Latvia, Lebanon, Lithuania, Macedonia,

The former Yugoslav, Republic of Malaysia, Mauritania,

Mauritius, Moldova, Republic of Mongolia, Montenegro,

Morocco, Netherlands, Nigeria, Norway, Paraguay, Peru,

Philippines, Poland, Portugal, Qatar, Russian Federation,

Serbia, Slovakia, Slovenia, Spain, Sri Lanka, Sweden,

Switzerland, Syrian Arab Republic, Thailand, Tunisia,

Turkey, Turkmenistan, Ukraine, United Arab Emirates,

United Kingdom, United States of America, Uruguay,

Uzbekistan, Viet Nam

Albania Belgium, Bosnia and Herzegovina, Bulgaria, China, Cyprus, Austria, Republic

(35 BITs) Denmark, Czech Republic, France, Germany, Hungary, Of Croatia, Egypt,

Finland, Israel, Italy, Lithuania, Korea, Malaysia, Greece, Moldova

39
 Netherlands, Poland, Portugal, Russia, Yugoslavia, Slovenia, Macedonia,

Spain Romania

Australia Argentina, China, Czech Republic, Egypt, Hong Kong, China

(20 BITs) SAR, Hungary, Indonesia, Lao People's Democratic N/A

Republic, Lithuania, Mexico, Pakistan, Papua New Guinea,

Peru, Philippines, Poland, Romania, Sri Lanka, Turkey,

Uruguay, Vietnam

United Albania, Antigua and Barbuda, Argentina, Armenia,

Kingdom Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Belize,

(95 BITs) Benin, Bolivia, Plurinational State of, Bosnia and

Herzegovina, Bulgaria, Burundi, Cameroon, Chile, China,

Colombia, Congo, Côte d'Ivoire, Croatia, Cuba, Czech

Republic, Dominica, Ecuador, Egypt, El Salvador, Estonia,

Georgia, Ghana, Grenada, Guyana, Haiti, Honduras, Hong N/A

Kong, China SAR, Hungary, India, Indonesia, Jamaica,

Jordan, Kazakhstan, Kenya, Korea, Republic of, Kyrgyzstan,

Lao People's Democratic Republic, Latvia, Lebanon,

Lesotho, Lithuania, Malaysia, Malta, Mauritius, Mexico,

Moldova, Republic of, Mongolia, Morocco, Mozambique,

Nepal, Nicaragua, Nigeria, Oman, Pakistan, Panama, Papua

40
 New Guinea, Paraguay, Peru, Philippines, Poland, Romania,

Russian Federation, Saint Lucia, Senegal, Serbia, Sierra

Leone, Singapore, Slovakia, Slovenia, Sri Lanka, Swaziland,

Tanzania, United Republic of, Thailand, Tonga, Trinidad and

Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine,

United Arab Emirates, Uruguay, Uzbekistan, Venezuela,

Bolivarian Republic of, Vietnam, Yemen,

Germany Afghanistan, Albania, Algeria, Angola, Antigua and Iran, Liberia,

(129 BITs) Barbuda, Argentina, Armenia, Azerbaijan, Bahrain, Malaysia, Niger,

Bangladesh, Barbados, Belarus, Benin, Bosnia and Rwanda, Senegal,

Herzegovina, Botswana, Brunei Darussalam, Bulgaria, Singapore, Togo

Burkina Faso, Burundi, Cabo Verde, Cambodia, Cameroon,

Central African Republic, Chad, Chile, China, Congo,

Democratic Republic of the Congo, Costa Rica, Côte d'Ivoire,

Croatia, Cuba, Czech Republic, Dominica, Ecuador, Egypt,

El Salvador, Estonia, Ethiopia, Gabon, Georgia, Ghana,

Greece, Guatemala, Guinea, Guyana, Haiti, Honduras, Hong

Kong, China SAR, Hungary, Islamic Republic of, Jamaica,

Jordan, Kazakhstan, Kenya, Korea, Republic of, Kuwait,

Kyrgyzstan, Lao People's Democratic Republic, Latvia,

Lebanon, Lesotho, Libya, Lithuania, Macedonia, The former

41
 Yugoslav Republic of, Madagascar, Mali, Malta, Mauritania,

Mauritius, Mexico, Moldova, Republic of, Mongolia,

Montenegro, Morocco, Mozambique, Namibia, Nepal,

Nicaragua, Nigeria, Occupied Palestinian territory, Oman,

Pakistan, Panama, Papua New Guinea, Paraguay, Peru,

Philippines, Poland, Portugal, Qatar, Romania, Russian

Federation, Saint Lucia, Saint Vincent and the Grenadines,

Saudi Arabia, Serbia, Sierra Leone, Slovakia, Slovenia,

Somalia, Sri Lanka, Sudan, Swaziland, Syrian Arab Republic,

Tajikistan, Tanzania, United Republic of Thailand, Trinidad

and Tobago, Tunisia, Turkey, Turkmenistan, Uganda,

Ukraine, United Arab Emirates, Uruguay, Uzbekistan,

Venezuela, Bolivarian Republic of, Viet Nam, Yemen,

Zambia, Zimbabwe

Japan Cambodia, Colombia, Hong Kong, China SAR, Iraq, Pakistan, Sri Lanka,

(24 BITs) Kazakhstan, Kenya, Korea, Republic of, Kuwait, Lao Turkey,

People's Democratic Republic, Mozambique, Myanmar, Bangladesh, China,

Papua New Guinea, Peru, Russian Federation, Saudi Arabia, Egypt

Ukraine, Uzbekistan, Viet Nam

42
 Egypt Algeria, Argentina, Armenia, Australia, Austria, Bahrain, Japan, Romania,

(73 BITs) Belarus, BLEU, (Belgium-Luxembourg Economic, Union), United States,

Bosnia, and, Herzegovina, Bulgaria, Canada, China, Albania

Comoros, Croatia, Cyprus, Czech, Republic, Denmark,

Ethiopia, Finland, France, Germany, Greece, Hungary,

Iceland, Italy, Jordan, Kazakhstan, Korea Dem. People's Rep.

of, Korea, Republic of Kuwait, Latvia, Lebanon, Libya,

Malawi, Malaysia, Mali, Malta, Mauritius, Mongolia,

Morocco, Netherlands, Occupied Palestinia territory, Oman,

Poland, Portugal, Qatar, Russian, Federation, Serbia,

Singapore, Slovakia, Slovenia, Somalia, Spain, Sri Lanka,

Sudan, Sweden, Switzerland, Syrian Arab Republic,

Thailand, Tunisia, Turkey Turkmenistan, Ukraine, United

Arab Emirates, United Kingdom, Uzbekistan, Vietnam,

Yemen

Pakistan Australia, Bahrain, BLEU (Belgium-Luxembourg Economic Japan, Romania

(33 BITs) Union), Bosnia and Herzegovina, China, Denmark, France,

Germany, Iran, Islamic Republic of, Italy, Kazakhstan,

Korea, Republic of, Kuwait, Lao People's Democratic

Republic, Lebanon, Mauritius, Netherlands, Oman,

Portugal, Singapore, Spain, Sri Lanka, Sweden, Switzerland,

43
 Syrian Arab Republic, Tajikistan, Turkey, United Arab

Emirates, United Kingdom, Uzbekistan

4.1.2 General and Widespread State Practice

For a customary rule to emerge, state practice must be general, widespread and

sufficiently extensive and convincing.122 The number of BITs which contain provisions for

FET, as seen above, tend to establish a general and widespread practice among states of

providing FET to foreign investors.

That some BITs do not contain a FET provision negate the consistency and effectiveness

of the practice of States in providing FET, because complete consistency is required to establish

state practice. It has been opined that there is no precise number of percentage of States required

to demonstrate general practice.123 ICJ decisions also show that generality of practice is

sufficient to establish the element of state practice. In the Nicaragua Case (Nicaragua v US)

the question of uniformity and consistency of practice was examined where the ICJ indicated

that it was not, in order to establish a rule of custom, necessary that all state practice be

rigorously consistent.124 In the Frontier Dispute, the ICJ also considered uti possideti or a

principle which requires that a newly independent State respect pre-existing external borders as

a rule of general customary international law, despite the fact that the principle was supported

122
North Sea Continentals Shelf, supra note 36, at para 74.
123
M. Mendelson, supra note 42, at 219-224
124
Nicaragua case, supra note 49, at para 186

44
only in the practice of Spanish American and African States which did not constitute a majority

of the international community.125

The data would show that significant number of States entered into BITs which contain

a FET provision. While some States omitted the provision in some of their BITs, the omission

have done only in minority of their BITs. For instance, Philippines has thirty-two (32) existing

BITs, out of which, only three (3) BITs with Korea, Myanmar and Spain do not contain FET

provisions. In the case of Romania which has existing 78 BITs, only five (5) BITs with Senegal,

Albania, Cameroon, Egypt and Pakistan do not contain FET provisions. On other hand, both

Australia’s and United Kingdom’s BITs all contain FET provisions.

Overall, the practice of States to include FET provisions in their BITs is general and

widespread.

4.1.3 State Practice is Representative

The requirement of representativeness of the practice of States in the formation treaty

provision into customary rules is recognized in the case of North Sea Continental Shelf.126

Representative practice means that it includes those states from all major political and social

economic systems.127 The ICJ has indicated that the most important practice is that of

125
Frontier Dispute (Burk. Faso/Mali), 1986 I.C.J. 554, at 564–65, paras 19–20 (Jan. 10)
126
North Sea Continentals Shelf, supra note 36, at para 73.
127
M. Villiger, supra note 61, at 29

45
“States whose interests are specially affected.”128 In other words, the practice is considered

representative so long as it includes States whose interests are specially affected. Which States

are specially affected will vary depending on the circumstances.129

While the FET standard was first developed by western States to provide protection to

their companies when investing in developing countries, it remains that today it has also been

embraced by developing States.130 Thus, the standard was included in regional multilateral

instruments related to the protection of foreign investments not only in Europe (Energy Charter

Treaty) and in North America (NAFTA) but also in Latin America, Asia and Africa and in

model BITs of developing States.131 FET clauses have also been included in BITs entered into

between developing countries.132

Considering the foregoing, the practice of States to include FET clauses in their BITs

meets the representative criteria of state practice.

4.1.4 State Practice is Uniform and Consistent

Some writers misinterpreted the requirement of consistency and uniformity of state

practice in the formation of custom. The opposition to the idea that the obligation to provide

FET protection to foreign investors argued that there is no uniformity considering that there are

128
North Sea Continental Shelf, supra note 36, at par 74.
129
International Law Association, Statement of Principles Applicable to the Formation of General Customary
International Law (2000), Final Report of the Committee on the Formation of Customary Law, Conference
Report London, 26 [hereinafter ILA Final Report]
130
P. Dumberry, 2016, supra note 11, at 17
131
Id.
132
Id.

46
different FET models.133 Perhaps, they applied the required constant and uniform usage in its

literal sense disregarding the pronouncement and clarification made by the Court that perfect

consistency is no required.134 In fact, in Continental Shelf cases, the court determined that

although various proclamations of an exclusive economic zone were not identical, they were

sufficiently similar for the Court to hold that it had become part of customary international

law.135

Therefore, the fact that FET provision is worded in different ways does not negate the

uniformity and consistency of the practice as long as the States generally includes FET

provision with the intention to provide such standard of protection to foreign investors.

To determine the uniformity and consistency of practice, what’s important is that

different States engaged in substantially similar conduct,136 it doesn’t have to be perfectly

consistent and uniform in the sense that the provision must be identically worded. Upon

examination of the arbitral decisions137 interpreting FET provisions, majority of the arbitral

tribunals applied the minimum standard of treatment under international law despite the

differences in the wordings of the FET provisions in the applicable treaties. The minimum

standard of treatment includes the obligation to act in good faith, due process, transparency,

133
Id. at 19
134
M. Scharf, supra note 61, at 315
135
Continental Shelf (Tunisia/Libya), 1982 I.C.J. 18, at 74, para 100 (Feb. 24); Continental Shelf supra note 41,
at para 34.
136
ILA, Final Report, supra note 141, at 21
137
Waste Management v. Mexico, supra note 10, at par. 98; GAMI Investment, supra note 10, at para 97.;
International Thunderbird Gaming Corporation v. Mexico, UNCITRAL (NAFTA), Award, 26 January 2006;
Glamis Gold, Ltd. v. United States, UNCITRAL (NAFTA), Award, 8 June 2009.

47
candor, fairness and protection from arbitrariness, grossly unfair, unjust or idiosyncratic, and

discriminatory conduct. Clearly, Arbitral Tribunals have acknowledged that the phrase “fair

and equitable treatment” whether takes an autonomous meaning or a meaning under customary

international law, provides for the same substantive elements required to be satisfied by the

States.

In addition, as what Tudor argued, there is enough uniformity in State practice for the

emergence of customary rule because the language differences contained in FET provisions

refer to the level of the treatment to be accorded to the investor not to the standard within its

content.138

4.1.5 Duration of Practice

While it was recognized that there is no precise length of time during which a practice

must exist, some authors suggest that in determining state practice as element of customs

duration of practice must still be considered.

In North Sea Continental Shelf Case the ICJ stated that “although the passage of only a

short period of time is not necessarily, or of itself, a bar to the formation of a new rule of

customary international law on the basis of what was originally a purely conventional rule, an

indispensable requirement would be that within the period in question, short though it might

be, State practice, including that of States whose interests are specially affected, should have

been both extensive and virtually uniform in the sense of the provision invoked;- and should

138
I. Tudor, supra note 79, at 77

48
moreover have occurred in such a way as to show a general recognition that a rule of law or

legal obligation is involved.”139 As regards the time element of FET, leading

commentators often trace the history of FET to treaty negotiations that followed the Second

World War.140 As early as the 1920s and 1930s, the United States petitioned other States to

provide compensation for injuries to US nationals as a matter of ‘just and equitable treatment’

(which it also called ‘fair and equitable treatment’).141 The reference to FET obligation however

was general as it applies to all foreign nationals not particularly to foreign investors.

The first reference to “equitable” treatment standard specific to foreign investors and

their investment was found in the 1948 Havana Charter for International Trade Organization.142

Its Article 11(2) contemplated that foreign investments should be assured “just and equitable

treatment”.143

This shows that the practice to provide FET protection as a rule in international

investment has been exercised for a considerable length of time.

In conclusion, the first condition for a treaty based rule to generate into customary rule

is present as the practice of States to include FET provisions in their BITs is general and

widespread, representative, consistent and uniform.

139
North Sea Continental Shelf Case, supra note 36, at para 74
140
See Dolzer & Schreuer, supra note 1, at 119–20
141
Andrew C. Blandford, ICSID Review - Foreign Investment Law Journal, Volume 32, Issue 2, 1 May 2017,
available at https://doi.org/10.1093/icsidreview/six002
142
OECD (2004), “Fair and Equitable Treatment Standard in International Investment Law”, OECD Working
Papers on International Investment, 2004/03, OECD Publishing. Available at
http://dx.doi.org/10.1787/675702255435
143
Id.

49
4.2 Examination of Opinio Juris

Opinio Juris or the subjective element has been described as “the philosopher’s stone

which transmutes the inert mass of accumulated usage into the gold of binding legal rules.”144

To determine the existence of opinion juris with respect to the obligation to provide FET to

foreign investors, this study will show that States provide FET protection to foreign investors

even outside of treaty obligations, as shown in the FET provisions found in numerous domestic

laws. This is to show that States believe that they have legal obligation to provide FET

protection to each foreign investor despite having no formal treaty obligation to do so.145

The purpose of the subjective element, known as opinio juris, is to differentiate

State actions that give rise to legal norms from actions that do not.146 Some commentators

argued that, the very fact that States are still consistently signing BITs today containing FET

clauses can equally be interpreted as evidence that no such standard of protection exist under

custom.147 This act allegedly negates their belief that there is such legal obligation existing

under international law. That, if the FET truly existed under custom, it may be argued that States

would not need to include such protection in their BITs.148 However, as what Villiger stressed,

one cannot simply deduce from the fact that States have entered into a treaty that they

144
H. Thirlway, International Customary Law and Codification 47 (1972)
145
See, ILC, Second Report, supra note 38, at 55.
146
INT’L LAW ASS’N, LONDON CONFERENCE: COMMITTEE ON FORMATION OF CUSTOMARY
(GENERAL) INTERNATIONAL LAW 25 (2000), available at http://www.ila-hq.org/en/
committees/index.cfm/cid/30 (last visited May 9, 2014) [hereinafter INT’L LAW ASS’N].
147
T Weiler, The Interpretation of International Investment Law: Equality, Discrimination and Minimum
Standards of Treatment in Historical Context 236 (Martinus Nijhoff 2013)
148
P. Dumberry, 2016, supra note 11, at 1

50
necessarily consider that no customary rules exist at all.149 In facts, there are States who sign a

treaty and at the same time consider some specific provisions contained in that treaty as

codifying existing custom.150

For purposes of this study, the author will prove the opinio juris of according FET

protection: First, by showing that States are actually providing FET to foreign investors in their

own practice, outside the treaty framework; and Second, that in including FET clauses in their

BITs, the States believe that they have an obligation under international law to provide FET

protection to each other’s investors notwithstanding the fact that such protection is set out in

the BIT.151

To show that States are actually providing FET to foreign investors in their own practice

outside the treaty framework, the author has recently undertaken an analysis of the different

domestic laws of both developed and developing states to determine whether there is a

widespread and general guarantee of FET protection to foreign investors.

An in-depth examination of the domestic laws of all the states is beyond the scope of

this study.152 Suffice it to say, in the study conducted by Tudor, she was able to present different

domestic laws of different states guaranteeing FET and concluded that majority of the states

149
M. Villiger, supra note 61, at 189.
150
Id.
151
P. Dumberry, 2016, supra note 11 at 22
152
See Chapter 1.4, Scope and Limitations

51
worldwide guarantees FET protection embodied in their domestic laws in favor of the foreign

investors.153

The author examined (100) domestic laws of both developed and developing countries

and found that 90% of which contain a provision guaranteeing FET protection in favor of the

foreign investors—twenty (20) of theses domestic provisions will be presented in this study to

show the actual clauses used by different States in guaranteeing FET which would be essential

in proving that the content of FET obligation in the domestic sphere is substantially similar to

that FET standard under the BITs. The study will be presented in a table which contains the

name of the States, the domestic laws granting the same and the specific provisions which

contain the FET obligation.

4.2.1 Table Representing Domestic Laws Which Guarantee FET Protection

STATE DOMESTIC LAW/S PROVISION

GRANTING FET GUARANTEEING FET
PROTECTION
MYANMAR Myanmar Investment The Government guarantees to
Law (Chapter XI) the investors fair and equitable
treatment in respect of the
followings:
a) the right to obtain the
relevant information on
any measures or decision
which has a significant
impact for an investor
and their direct
investment;
b) the right to due process
of law and the right to
153
Id.

52
 appeal on similar
measure, including any
change to the terms and
conditions under any
license or permit and
endorsement granted by
the Government to the
investor and their direct
investment (Par. 48)
PEOPLE’S REPUBLIC OF Foreign Investment Chapter 7: Investment
CHINA Law of The People’s protection
Republic of China
 Transparency - The
State will timely publish
foreign investment-
related laws, regulations
and judicial decisions in
accordance of the law
(Art 113)
 Protection of the IP of
foreign investors (Art
116)
 Dispute resolution (Art
118)
INDONESIA Law of The Republic of Rights, Obligations and
Indonesia, No. 25/2007 Liabilities of The Investors
Concerning Capital Each investor is entitled to:
Investment a. certainty of rights, law
Chapter IX and protection;
b. transparent information
on the business sectors
being operated;
c. rights to service; and
d. all facilities under
prevailing laws and
regulations. (Article 14)

UNITED ARAB EMIRATES Constitution of 1971 Foreigners shall enjoy, within

with Amendments the Union, the rights and
through 2004 freedoms stipulated in

53
 international charters which are
in force, or in treaties and
agreements to which the
Union is party. They shall be
subject to the equivalent
obligations (Article 40)
PAKISTAN Foreign Private Equal treatment
Investment (Promotion Industrial undertakings having
and Protection) Act, foreign private investment shall
1976 Act No. XLII of be accorded the same treatment
1976 as accorded to similar
industrial undertakings, having
no such investment in the
application of laws, rules and
regulation, relating to
importation and exportation of
goods. (Section 9)
EGYPT Law No. 72 of 2017 All the investments established
Promulgating the within the Arab Republic of
Investment Law Egypt shall receive fair and just
Section II treatment. The State shall
ensure to the foreign investor the
same treatment given to the
national investor. Under a
decree issued by the Council of
Ministers, an exception can be
made granting the foreign
investors a preferential
treatment in application of the
principle of reciprocity. The
invested funds shall not be
governed by any arbitrary
procedures or discriminatory
decisions (Investment
Safeguards and Incentives,
Chapter 1, Investment
Safeguards
Article 3)
REPUBLIC OF Law of the Republic of The state guarantees and
UZBEKISTAN Uzbekistan protects the rights of foreign
On Guarantees and investors who carry out
Measures of Protection investment activity on the

54
of Foreign Investors' territory of the Republic of
Rights Uzbekistan.
April 30,1998, N 611-I
It is not allowed to discriminate
foreign investors based on their
nationality, place of residence,
religion, a place of execution of
economic activity, country of
origin of investors or
investments
Legislative acts including
departmental normative acts
shall not have retroactive effect
if their execution causes damage
to foreign investor or foreign
investments.

-If the subsequent legislation of

the Republic of Uzbekistan
worsens investment conditions,
the legislation effective on the
date of investment shall be
applied to foreign investments
within ten years from the date
of investment. The foreign
investor has the right at its own
discretion to apply those
provisions of new legislation
that are more advantageous to
the investor’s investment
conditions. (Article 3.
Guarantees of foreign investors'
rights)

In addition to the common

guarantees and measures of
protection of foreign investors,
additional guarantees and
measures of protection may be
granted by the legislation,
including the ones providing the
absolute fulfillment by the

55
 partners of their obligations to
foreign investors.

Additional guarantees and

measures of protection can be
granted to foreign investors in
every particular case
investment is made in the
following: in priority branches
providing stable economic
growth and progressive
structural changes of country's
economy; (Article 4. Additional
guarantees and measures of
protection granted to foreign
investors)

REPUBLIC OF LAW ON FOREIGN Should the basic law be

MACEDONIA INVESTMENTS amended upon the conclusion of
(FOREIGN the investment agreement, the
INVESTMENT LAW) establishment of a mixed
enterprise or the statute for
(Published in the establishing a private enterprise,
Official Gazette of the the provisions of the agreement
Republic of Macedonia or statute effective on the date
No. 31/93-732) of the legal enforcement of the
(Unofficial Translation) agreement or statute are
applicable, under condition that
those provisions are more
favorable for the investor or
founder or unless the investors,
i.e. founders settle certain issues
in compliance with the amended
basic Law. (Article 7)

Enterprises in which foreign

investments have been made are
entitled the same rights and
liabilities as domestic
enterprises on the territory of the
Republic of Macedonia. (Article
8)

56
REPUBLIC OF ALBANIA Law No. 7764, dated The People’s Assembly of the
02.11.1993 “For Republic of Albania
Foreign Investments" Decided:
2. In all cases and at any
time, investments have
an equal and impartial
treatment and enjoy
complete protection and
security.
3. In any case, foreign
investments have
treatment not less
favorable than the one
provided by generally
accepted norms of
international law (Article
No 2: Permission and
treatment)
KOSOVO Law No. 02/L-33 General Treatment
on Foreign Investment
3.1 Kosovo shall accord fair and
equitable treatment to foreign
investors and their investments
in Kosovo. Kosovo shall also
provide foreign investors and
their investments
with full and constant protection
and security. In no case shall the
treatment, protection or
security required by this Article
3.1 be less favorable than that
required by international
law or any provision of the
present law. (Chapter 2
Fundamental Rights,
Guarantees and Privileges
Article 3)
FEDERAL REPUBLIC OF Law on Foreign With regard to its investment,
YUGOSLAVIA Investments (Official any foreign investor shall enjoy
Gazette of the Federal the same status, rights and duties
Republic of Yugoslavia as domestic individuals and

57
 Nos. 3/2002 and legal entities, unless otherwise
5/2003) provided by this Law.

Any enterprise in which a

foreign investment has been
made shall enjoy the same legal
status and operate under the
same conditions and in the same
way as Yugoslav enterprises in
which no foreign investment has
been made. (Article 8)

IRAN Law on Encouragement Chapter IV: Guaranteeing

and Protection of and Transfer of Foreign
Foreign Investment Capital
Organ of the Ministry
of Finance and Foreign investment subject to
Economic Affairs June this law shall enjoy all rights,
3, 2002, Vol. 1, No. 4 support and facilities provided
for domestic investors on an
equal footing. (Article 8)

Foreign investment shall not be

exposed to dispossession of
property or nationalization
except for cases involving
national interests and according
to legal process and through
non-discriminatory methods in
return for paying compensations
in proportion to the real value of
the investment immediately
before dispossession of
property. (Article 9)

CUBA Chapter III. Guarantees for

Law No. 118
investors
Foreign Investment Act The Cuban State shall see to it
that the benefits granted to
foreign investors and their

58
 investments are maintained
throughout the entire period for
which they were granted.
(Article 3)
REPUBLIC OF LATVIA On Foreign Investment Section 8. Protection of Foreign
in the Republic of Investments
Latvia 3. In case of a dispute, the extent
of loss shall be determined by a
court.

4. If subsequent Republic of
Latvia legislative enactments
worsen investment conditions,
such legislative enactments as
were in force at the time the
investment was made shall apply
to the foreign investment for ten
years.
CHILE Foreign Investment Foreign investors receive
Statute Decree Law 600 treatment similar to Chilean
(DL600) nationals, and there is no overall
economic or industrial strategy
that has discriminatory effects
on foreign investors or foreign-
owned investments.
BANGLADESH The Foreign Private Protection and equitable
Investment (Promotion treatment
and Protection) Act, 4. The Government shall
1980 accord fair and equitable
(Act No. XI of 1980) treatment to foreign private
investment which shall enjoy
full protection and security in
Bangladesh.
BULGARIA Private and Regulatory Guarantees for foreign investor:
Framework for Guarantee that the overall
Domestic Foreign approach of the legislator
Investment towards foreign
investments may not result in a
discriminatory legal
environment.
BURUNDI Law No. 1/24 of The New Investment Code
September 10, 2008, protect and facilitate the
59
 establishing the acquisition and disposition of all
Investment Code of property rights. The law also
Burundi (Investment guarantees adequate protection
Code) for such intellectual property as
patents, copyrights and
trademarks.

TURKEY Foreign Direct Foreign investors shall be

Investment Law subject to equal treatment with
Law No. 4875 domestic investors. (Article 39
Date of Passage: 5 June (a) (2))
2003
Date of Official
Gazette: 17 June, 2003
ALGERIAN The Algerian The investor can benefit from
Investment Code (Code the guarantees of stability and
des Investissements), security that are provided for
amended by Ordinance by law. Said guarantees are:
01-03 of August 20,
2001 - Non-discrimination;
- Legal security and inviolability
of the law;
- Settlement of disputes.

4.2.2 General and Widespread Practice of States to Provide FET Outside the Treaty

Framework

To prove opinio juris, it must be shown that States have adopted ‘a practice in-line with

that prescribed (or authorized) by the treaty, but which is in fact independent of it because of

the general rule that treaties neither bind nor benefit third parties’.154

154
ILA, Final Report, supra note 141, at 46.

60
 While admittedly as shown in the table presented, the guarantees to provide FET

protection are expressed in different ways in different jurisdictions, this however does not affect

the conclusion that there is indeed general and widespread practice of states to provide FET

outside the treaty framework. In fact, according to Tudor, as regards the obligation to provide

FET protection to foreign investors, the situation as it stands today is that most developed and

developing countries do recognize in their domestic laws that FET is to be applied to foreign

investors.155 This is the case even though the term FET itself may not be employed as such but

the content of FET, namely procedural and substantive guarantees for foreign investors, is

found in national provisions.156

Upon examination of the domestic laws, while the guarantees are worded in different

languages, the substantial obligation refers to the obligation to provide FET protection. Arbitral

Tribunals recognized that the obligation to provide FET to foreign investors substantially

includes the obligation to grant treatment no less favorable than the domestic investors and

nationals of other States, treatment that is not discriminatory157, arbitrary and unreasonable158,

155
I. Tudor, supra note 79, at 104.
156
Id.
157
Enron Corporation and Ponderosa Assets v Argentina, ICSID Case No ARB/01/3, Decision on Jurisdiction
(Ancillary Claim) (2 August 2004) para 281
158
National Grid PLC v. Argentine Republic, UNCITRAL Award (3 November 2008) para 197

61
as well as the obligation to be transparent,159 to provide legal stability160 and to accord due

process protection.161

These substantial FET protections are embodied in the domestic laws of most of the

states worldwide.162 For instance, the Law of the Republic of Uzbekistan on Guarantees and

Measures of Protection of Foreign Investors' Rights did not use the wordings “fair and equitable

treatment” it expressly prohibits discrimination of foreign investors based on their nationality,

place of residence, religion, a place of execution of economic activity, country of origin of

investors or investments and guarantees legal stability. Similarly, countries like Cuba, Latvia,

Federal Republic of Yugoslavia, Iran and Republic of Macedonia while did not expressly used

the words “fair and equitable” they all consistently guarantee legal stability and non-

discriminatory treatment in favor of the foreign investors. On the other hand, Bangladesh, Egypt

and Myanmar used the words “fair and equitable treatment” in their foreign investment laws as

a standard of protection granted to the foreign investors.

The grant of legal stability in most of the domestic laws is similar to that under the

regime of a BIT, where changes in the host State’s legislation is examined primarily against the

standard of FET treatment.163 In CMS v. Argentina the tribunal stated that the legislative

159
See Saluka v. Czech Republic, supra note 10, at para 304
160
Philip Morris Brands Sarl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of
Uruguay, ICSID Case No. ARB/10/7, Award, 8 July 2016
161
White Industries Australia Ltd. V. The Republic of India, UNCITRAL Award (30 November 2011) para
10.4.7
162
I. Tudor, supra note 79, at 104
163
CHRISTOPH H. SCHREUER with LORETTA MALINTOPPI, AUGUST REINISCH and ANTHONY
SINCLAIR, THE ICSID CONVENTION: A Commentary on the Convention on the Settlement of Investment
Disputes between States and Nationals of Other States (2nd ed,2009) 592.

62
framework existing at the time of the investment will often be the basis for legitimate

expectations of the investor.164 Arbitral Tribunals have recognized that any drastic change in

that framework, that seriously affects the investment, is likely to constitute a breach of the BITs

fair and equitable treatment.165

In conclusion, the practice of the States to provide FET protection to the foreign

investors outside BITs is general and widespread demonstrating their recognition and belief

that there is legal obligation to grant such treatment to foreign investors even without any formal

treaty obliging them to do so. Therefore, such practice reflects that there is opinio juris in

according FET protection to foreign investors.

4.2.3 Recognition of the States to accord FET protection as a legal obligation under

international law

It has already been established that the act of entering into a treaty does not equate to a

belief that no customary rules exist with respect to the obligation provided therein. Again,

States can sign a treaty and at the same time consider some specific provisions contained in that

treaty as existing custom. More so, such practice does not prohibit the development of a treaty-

based rule to emerge as a customary rule.

Those who do not support the proposition that there is recognition of the legal obligation

to provide FET under international law argued that there is no indication in treaty text (or in the

164
See e.g., CMS v. Argentina, Award, 12 May 2005, paras. 274–276; LG&E v. Argentina, Decision on
Liability, 3 October 2006, paras. 124–133; PSEG v. Turkey, Award, 19 January 2007, paras. 240, 250.
165
Id.

63
travaux preparatoires or anywhere else) showing that States include FET clauses in their BITs

out of a sense of conviction that this is the type of protection they should provide to foreign

investors under international law.166 Contrary to the above position, the author argues that the

repetition of FET clauses in the BITs and the subsequent practice of complying to such clauses

support an inference that States in fact recognized that the content of such clause is obligatory

under international law and thus can be an expression of opinio juris.

This conclusion is supported by Professor D’Amato, of Northwestern University, who

proposed an alternative formulation to explain the formation of customary rules, focusing on

what he calls “articulation” and “act.”167 In D’Amato’s view, the articulation can either

accompany the initial act, or it can be embodied in a treaty, draft instruments of the ILC, or

resolutions of the U.N. General Assembly.168 Acts that follow and are consistent with the

articulation will crystallize the policy into a principle that takes on life as a rule of customary

international law.169 In other words, once there is a consensus articulation that States ought to

conform to a given rule of conduct, a legal custom can emerge when some level of spontaneous

compliance with the rule is manifest.170

166
P. Dumberry 2016, supra note 2016, at 23.
167
M. Scharf, supra note 61, at 314 citing Anthony A. D’amato, Concept of Custom in International Law 88
(1971).
168
Id.
169
Id.
170
Id.

64
Therefore, the act of including the FET clauses in the BITs with the intention of complying

therein creates an inference that the States recognized the legal obligation to accord FET

protection under international law, a practice that could emerged into a custom.

65
 CHAPTER V

States customary adoption of the Minimum FET Standard as seen in Treaty and

Domestic Laws

Having established that an obligation to provide FET to foreign investors customarily

exists in both treaty and domestic law obligations, this chapter will show that the FET accorded

to foreign investors by states, whether by treaty or domestic law, point to the minimum standard

of FET which has been well-established in international law.

5.1 BITs FET standard- The minimum standard of treatment under customary

international law

Majority of the FET provision in the BIT linked FET to the minimum standard of

treatment under customary international law. For instance, in Croatia- Oman BIT (2004),

Article 3 (2) contains the FET provision which provides that:

Investments or returns of investors of either Contracting Party in the territory of the

other Contracting Party shall be accorded fair and equitable treatment in accordance

with international law.171

Also, most of the model BITs and foreign investment promotion and protection

agreements linked the FET obligation to the minimum standard of treatment under international

law such as the US Model BIT and the Canada’s new FIPA Model.

171
Art. 3 (2) Croatia-Oman BIT (2004)

66
 The new 2004 US Model BIT in its Article 5172 and the recently concluded US Free

Trade Agreements in their Chapter on Investment go further and attempt to define the minimum

standard of treatment. It stated that, the obligation to provide “fair and equitable treatment”

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 the world…”173

Similarly, Canada’s new Foreign Investment Protection and Promotion Agreement

(FIPA) model174, contains similar language and links the “fair and equitable treatment” to the

minimum standard of treatment under international law.175

The United Nations Centre on Transnational Corporations has issued a study which

stated that “fair and equitable treatment is a classical international law standard” and “classical

international law doctrine considers certain elements to be firm ingredients of fair and equitable

treatment, including non-discrimination, the international minimum standard and the duty of

protection of foreign property by the host State”.176

172
Article 5, 2004 US Model BIT; “Each Party shall accord to covered investments treatment in accordance
with customary international law, including fair and equitable treatment and full protection and security.
173
Ibid
174
“The Minimum Standard of Treatment ensures investments of investors, fair and equitable treatment and full
protection and security in accordance with the principles of customary international law. The minimum standard
provides a “floor” to ensure that the treatment of an investment cannot fall below treatment considered as
appropriate under generally accepted standards of customary international law”, For the text of the new FIPA
model see http://www.dfait-maeci.gc.ca/tna-nac/what_fipa-en.asp,
175
OECD (2004), supra note 157
176
Ibid

67
 In interpreting the FET provision in these BITs, Arbitral tribunals were able to provide

the substantive content of the FET standard. At this point of the development of the FET

obligation, it is possible to single out certain types of improper and discreditable State conduct

that would constitute a violation of the standard. Such relevant concepts include: (a) Defeating

investors’ legitimate expectations (in balance with the host State’s right to regulate in public

interest); (b) Denial of justice and due process; (c) Manifest arbitrariness in decision-making;

(d) Discrimination; and (e) Outright abusive treatment.177

In view of the existing arbitral jurisprudence on fair and equitable treatment, seven

specific normative elements can be discerned that occur in recurring fashion in the reasoning

of arbitral tribunals and are presented as elements of fair and equitable treatment. 178 These

elements are (1) the requirement of stability, predictability and consistency of the legal

framework, (2) the principle of legality, (3) the protection of investor confidence or legitimate

expectations, (4) procedural due process and denial of justice, (5) substantive due process or

protection against discrimination and arbitrariness, (6) the requirement of transparency and (7)

the requirement of reasonableness and proportionality.179

5.2 FET standard under Domestic Laws

As discussed in the previous chapter, the FET provision found in most of the Domestic

laws contain substantially similar protection to that of the FET obligation under the BITs. For

177
UNCTAD, FAIR AND EQUITABLE TREATMENT, Series on Issues in International Investment
Agreements II, 2012, p. 62
178
See S. Schill, supra note 7, at 11
179
Id.

68
instance, Myanmar’s Investment Law guarantees to the investors fair and equitable treatment in

respect of the right to due process of law and the right to appeal on similar measure, including

any change to the terms and conditions under any license or permit and endorsement granted

by the Government to the investor and their direct investment.180

Similarly, Egypt’s Law No.72 of 2017, Promulgating the Investment Law provides that:

“All the investments established within the Arab Republic of Egypt shall receive fair and just

treatment. The State shall ensure to the foreign investor the same treatment given to the national

investor. Under a decree issued by the Council of Ministers, an exception can be made granting

the foreign investors a preferential treatment in application of the principle of reciprocity. The

invested funds shall not be governed by any arbitrary procedures or discriminatory

decisions.”181

Other Domestic Laws governing foreign investment guarantees protection against

discrimination, arbitrary conduct and unreasonableness of treatment from the government of

the host state.

5.3 Content of the Standard

Considering the above discussions, the author concludes that the FET standard applied

both in the BITs and domestic laws contain substantially similar elements. This standard has

developed as customary rule by general and widespread application of the States in their BITs

180
Par. 48, Chapter XI, Myanmar Investment Law
181
Investment Safeguards and Incentives, Chapter 1, Section II, Investment Safeguards Article 3, Law No. 72 of
2017 Promulgating the Investment Law

69
and consistently making it a rule under their domestic laws as the standard of treatment to be

accorded to the foreign investors. Majority of the FET provisions in the BITs, the interpretation

of the arbitral tribunals and the FET standard applied in the domestic spheres show that the

minimum standard of treatment under customary international law includes the obligation to

act in good faith, due process, transparency, candor, fairness and protection from arbitrariness,

grossly unfair, unjust or idiosyncratic, and discriminatory act of the host state.

70
 CHAPTER VI

Conclusion

Given the foregoing discussions, it can be seen that the obligation to provide a minimum

standard of FET to foreign investors and their investments exists as a matter of custom. The

inclusion of FET provisions in an overwhelming number of BITs,182 provision of FET to foreign

investors in the realm of domestic laws, outside of treaty obligations, 183 and the various

decisions of tribunals upholding a customary obligation to provide FET to foreign investors /

investments,184 all show a general, widespread, uniform, consistent and representative state

practice of providing FET to foreign investors, observed by states as a matter of opinio juris.

The existence of the customary character of the obligation to provide FET provision is

likewise supported by the fact that both the FET standard as seen in most of the treaties and

domestic laws contain substantially similar elements which point to the minimum standard of

FET which has been well-established in international law.185

Few words should be said about the practical consequences of considering the obligation

to provide FET protection to foreign investors as customary international rule. First, this new

development would surely contribute in the growth of Foreign Direct Investments

internationally and would strengthen the relationship of the foreign investors and the host states.

182
See Chapter IV, 4.1.1
183
See Chapter IV, 4.2.1
184
See Chapter III
185
See Chapter V

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Foreign investors can now legitimately expect that they and their investments are protected

under international law despite the absence of the BIT or despite the absence of the FET

provision in the governing BITs. Second, my conclusion regarding the customary status of FET

protection in foreign investors would grant foreign investors remedy under international law

for the violation of FET obligation as customs bind all States.

72
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79