Study On The Legal Issues Of Treaty Shopping In International Investment

In order to seek to maximize investment protection, the investor established a company in a third country or restructured of the investment to “shopping” the treaty between the third country and the host country. With the increase in the treaty shopping, the debate of its legitimacy is Increasingly fierce. On the one hand, in academic, for the scholars who agree that treaty shopping is illegal argue that treaty shopping violates the principle of reciprocity;for the scholars who agree that treaty shopping is legal argue that treaty shopping is neither illegal nor unethical. On the other hand, International investment arbitration Tribunals also have debates on the legitimacy of treaty shopping. For example, in Tokios Tokeles v. Ukraine, Aguas del Tunari v. Bolivia, Mobil v. Venezuela, the Tribunals agree to the treaty shopping by investor, while in Phoenix v. Czech, the Tribunal rejected the treaty shopping by investor.This paper discusses this subject from four parts.The first part is a overview for the treaty shopping. This section describes the concept, characteristics, causes, methods and influence of the treaty shopping. The behavior of treaty shopping by the investors who change its nationality is not only destroy the fair competition environment, but also blow the nations’ enthusiasm to conclude investment treaties, and hindering the development of investment liberalization and international investment market. The second part focuses on the analysis of the problem of investors’ eligibility under the treaty shopping. This section first discusses the doctrinal controversy of the legitimacy of treaty shopping. Then from the international investment arbitration to discusses the legitimacy of treaty shopping. The Controversy on the legality of treaty shopping lies in whether the investors who search for the protection of investment treaties and the jurisdiction of international investment arbitration are eligibility investors. As to arbitral tribunals, to judge the legality of treaty shopping should consider the motivation and time factors. If the motives are illegal, it is possible to violate the principles of good faith and apply the principles of the corporate veil. while from the national perspective, the country is the subject of the treaty, the legality of treaty shopping is considered acceptable in the country’ agreement, which emphasizes the importance of improving the definition of the terms.The third part summarizes the existing method to prevent treaty shopping, and evaluates of the effect of these methods. Major existing methods to prevent the treaty shopping are limiting the definition of "investor", setting the clauses of denial of benefits, and claiming the appliance of the corporate veil principle and the good faith to limit investors shopping treaties. However, although these methods has affect to prevent treaty shopping, but for those who wish to be strictly controlled treaty shopping is still not enough.The fourth part analysis the “investor” definition and the clause of “denial of benefits” in China’s investment treaty. And conclude that China’s investment treaty provide investors a huge space to treaty shopping. So China should Strengthen prevention to prevent investor to treaty shopping. At last, the author put forward some recommendations.