Investor Responsibilities Under The Transformation Of International Investment Protection

In the last decades,international investment arbitration underwent significant development.For many years it had remained a rather secluded field of law but gradually grown out of the shades and appeared in the spotlight.A number of awards coupled with the rise of regional investment treaties attracted great attention of the academia and the practitioners.Attention naturally attracts criticisms.More recently,the so-called “legitimacy crisis” of investment arbitration has become the centre of discussion,and there has been a mounting appeal for more transparency,participation and the rule of law.This article mainly focuses on one aspect of the “legitimate crisis”which is the assertion that foreign investors only enjoy rights with no obligations attached whereas host states are put in an entirely opposite position.The modern concept of foreign investment protection originates from the protection of aliens.In the nineteenth century,aliens and their property were not protected on the basis of an autonomous standard,but by reference to the domestic laws of the host State,meaning that an alien should not be subjected to the protection provided by the host State if he or she violated its law.International investment law has undergone the few stages of transformations.At first,about two centuries ago,there was no autonomous standards of protection of aliens and their property were developed.Foreigners could only seek redress under domestic laws of the host state.Unjustified and unlawful treatments against foreigners such as expropriation constantly occurred.Early practitioners went through a great deal to overcome the theoretical and practical limitations and to come up with solutions to balance sovereign interest and practical needs to further investment protection.Gradually,the international standards of investment protection were established under the influence of regional and international trade and investment treaties,international jurisprudence and the academia.Statistics have shown that investment treaties with Investor-State Dispute Settlement System(hereinafter “ISDS”)increase states’ attraction to foreign investment,and it is a general finding that foreign investments are beneficial to the economic and social development,especially for less developed countries.Essentially,ISDS aims at depoliticalizing investor-state disputes which significantly reduces the legal and political risks born by foreign investors.Some critics suggested that investment law has been used by “hegemonic states” to exercise their economic control on other less well-off states,and ISDS is only a tool of economic and political intervention.This could be true as in the sense that the more resourceful party will always have stronger bargaining powers in every aspect in life.However,for states who voluntarily entered into investment treaties with other states,the advantages of doing so must have outweighed the disadvantages.From a macro perspective,investment law and ISDS reflect the fundamental interests of sovereign states and provide irreplaceable benefits to both states and investors by creating a more secured,stable,fair legal and political environment to regulate and operate investments.The level of investment protection continued to increase as IIAs and ISDS considerably restrict host states from mistreating foreign investors,which gave rise to the assertation that the current regime for investment protection is asymmetrical and therefore inherently flawed.The alleged asymmetry is demonstrated in two aspects:Substantively,the main object and purpose of investment treaties are to promote and protect foreign investments and the text of treaties mostly prescribe the rights of investors and obligations of States.Secondly,ISDS is said to be a “one-way” street under which private individuals enjoy the right to sue sovereign states whereas states are not permitted to sue investors under IIAs.The appearance that foreign investors only have rights but no responsibilities have generated a lot of criticism.Other than academia,many states,especially developing states who are usually the capital-imported parties have complaint that the level of investment protection is too high which is unfair to host states with less resources.The criticisms can be summarized in four aspects.Firstly,it seems that investors enjoy almost every right enshrined in the treaties and States bear almost every obligation.Secondly,investors have a strong mechanism—investor-state arbitration—to enforce their rights against states,which could potentially impair the sovereignty and regulatory interest of states.Thirdly,the alleged lack of boundary of investor’s right hinders the necessary promotion of human right protection and sustainable development.Lastly,other players in investment arbitration such as counsels,arbitrators or even third party-funders,also contribute to the asymmetry by promoting an ISDS system with a systematic bias towards a certain group of investors(usually originating from capital-exporting countries).The author does not side with the critics who assert that the system of investment protection is inherently asymmetrical and flawed.It may appear to be asymmetrical but if one looks deeper she will find that the system of investment protection is undergoing another stage of transformation,that investment protection must subject to restraint and investors’ responsibilities to comply with host states law and international norms must be taken into consideration when determining whether and to what extent the investors are entitled to treaty protection.On the one hand,it is not uncommon for a treaty to be drafted in vague language because most treaties parties would prefer “untailored” rules most of the time in most of their treaties are much more preferred for its cost-efficiency.As to the argument that investment treaties are used by capital-exported states to impose economic and political interventions on capital-imported states,it is rather dated now because the line between capital exporting and importing states are now less and less defined.The recent treaties and treaty models are trying to give more precise definition to protection standards which effect in restricting arbitral tribunals’ authority in interpreting the treaty.Moreover,every treaty is concluded on a reciprocal basis,and is concluded for the fundamental interest of treaty parties rather than private individuals.Even if inequality arises from unequal bargaining power,it still reflects the best of their interest at that specific period of time.On the other hand,international law and the international community have been focusing on promoting Corporate Social Responsibilities(hereinafter “CSR”)in the operation of cross-border businesses.Many international instruments aim at establishing universal standards and principles of CSR,binding or non-binding,direct or indirect,regulation or self-regulation,to which the behaviours of transnational corporations can adhere and develop sustainable business operations accordingly.It is worth noticing that CSRs have been incorporated into some of the more recent treaties and treaty templates,such as the CPFTA,the 2016 Morocco-Nigeria BIT,2016 Argentina-Qatar BIT,the 2016 Draft Pan-African Investment Code and the2012 South African Development Community Model BIT Template.These ground breaking reforms,although not widely-conducted yet,prove that the system of investment protection is transforming into a more rational,fair and responsible system that has the effect of eliminating the alleged asymmetry by the critics.Realistically,not all the treaties can be renegotiated and updated with more defined protection standards and CSR provisions instantly.It takes tremendous time and effort.Before comprehensive reform can take place,arbitration tribunal undertakes to fill in the gap between investment protection and state’s right to regulate by incorporating the concepts of investors’ responsibilities in individual investment disputes.The text of the treaty cannot be frequently updated to reflect practical needs but arbitral practice can.ISDS can self-adjust so as to rebalance the positions between investors and host states.Arbitral practice,especially in more recent years,has demonstrated clearly that investment protection is not without limitations.Due regards have been paid to host states;sovereign interest.The notion of investors’ responsibilities affects all aspects of arbitral decisions,i.e.,jurisdiction,admissibility and the merits.Arbitral tribunals will deny jurisdiction or render the claim inadmissible when the investment was made in violation of the law of host state,such as misrepresentation by the claimant,fraud or bribery/corruption.Substantive treaty protection only extends to investments that were made or created in accordance with the law and regulation of host States.By analysing relevant decisions in each category,the author finds that investors are responsible for high-level compliance of host states’ and due regards must be paid to host states’ sovereign interest.Before investing,investors must conduct due diligence into the economic and socio-political background and regulatory framework of the host state regarding the investment at issue.This is a prerequisite for investors to acquire treaty protection.In the course of investment,although investors can rely on the reasonable expectation that states would provide a relatively stable legal environment for foreign investment,investments must be operated in full compliance of host states’ laws,especially those regulating the public domain such as fundamental human rights and crucial environmental interest,otherwise the level of investment protection will be reduced or precluded completely.This article looks into the highly contentious issue of the alleged asymmetry of international investment law and investor-state arbitration.Most international investment treaties do not impose affirmative obligations on investors and accord rights to host states,which is highly criticized for infringing sovereign states’ regulatory interest.This issue has generated intense debates and requests for the reform and transformation of the system of investment protection.By analysing relevant international instruments,statistics,investment arbitration practice and academic discussions,the author aims to answer the questions of whether the system of investment protection is inherently asymmetrical,does foreign investor only have rights but no responsibilities and what can be done to improve the system.Specifically,the Author looks at China who is transitioning to a capital-exporting powerhouse under the Belt-and-Road Initiative(hereinafter “BRI”)but still lacks experience,awareness and exposure to the system of investment protection and what are the implications of investors’ responsibilities on China and Chinese outbound investors and provide a few recommendations.