Research On The Controversial Issues Concerning The Application Of The Denial Of Benefits Clause In The International Investment Agreements

In today’s world,cross-border capital flows continue to increase,and the number of bilateral,multilateral,and regional investment agreements has increased significantly.By signing international investment agreements,countries and regions can enjoy preferential treatment given to each other’s investors,achieving the purpose of attracting and encouraging foreign investment.However,for investors,where there is profit,there will be the pursuit of maximizing interests Treaty planning is understandable,but the malicious selection of treaties in an attempt to evade responsibility after the dispute occurs violates the principles of reciprocity and fairness in international law.It enables investors to obtain benefits that they should not have obtained or to evade the domestic judicial process of the host country.In this regard,the host country can only set strict investor definition clauses ordenial of benefits clauses in investment agreement.The former may lead investors to invest cautiously in the country,which is not in line with the general trend of encouraging crossborder investment and promoting the free flow of capital,and although the latter setting can effectively circumvent investors’ choice of treaties in theory and is also adopted in many IIAs in practice,the concept of the denial of benefits clause has not yet been clarified,the text of the clause is vague,so that the arbitral tribunal has greater discretion,and some controversial issues have emerged in the specific application of the clause.First,the host country faces two problems before invoking the denial of benefits clause:first,whether the invoking clause requires pre-procedures and second,whether it is subject to the time limit for invoking.Regarding the issue of pre-procedures,most investment agreements have no provisions,and only a few investment agreements stipulate that the host country needs to be notified or negotiated,but there is still a lack of specific requirements for objects and methods.In this regard,when improving or upgrading IIAs,it is necessary to indicate in the refusal of interest clause that the host country is required to notify and consult before invoking it,and to make it clear that the target of the notification and consultation is the investor and his home country,which may be a letter,a public announcement or a message.The question about the time when the clause is invoked is whether the host country should invoke the denial of benefits clause before the investor makes an investment and before the investor submits for arbitration,or whether it can invoke the denial of benefits clause at any time.Due to the lack of clear provisions on the above issues in the denial of benefits clause,the arbitral tribunal has greater discretion,and contrary opinions are presented in the award.In this regard,it is suggested that the host state may invoke the denial of benefits clause at any time,but it should not be later than the time of the final reply,and should be consistent with the principle of good faith,it should propose whether to invoke the denial of benefits clause within one year of knowing or should know the identity of the investor.Secondly,the identification of investment and investors is the key issue in determining the scope of the application of the denial of benefits clause.In practice,the actual situation of each case is different and the denial of benefits clause is not clearly stated.Therefore,the criteria for determining whether investors have carried out “substantial business activities”and “ownership or control” cannot be unified,and the responsibilities of qualified investment and investors are not clear enough,which makes the interests of investors and the host country in a state of uncertainty.Regarding the criteria for determining investment and investor status,the denial of benefits clause should be positively listed on the basis of authenticity and sustainability,and temporary operations can also be excluded from the negative;Judge ownership from the number of shares owned,and comprehensively analyze control rights from a qualitative and quantitative perspective.At the same time,if the contracting states have different levels of economic development,consider the protection of different contracting states for the application of domestic law,notes can be added to the clauses to give different contracting states room for interpretation.Regarding the burden of proof,the host country may conduct preliminary proof,apply to the arbitration tribunal when proof is difficult,and the investor shall bear the responsibility of refuting the unfavorable presumption,and proactively disclose information to balance the burden of proof on both sides.Furthermore,disputes over whether the scope of the benefits denied by the clause covered procedural interests and whether they included treaty benefits previously acquired by investors prior to the notification of refusal also made it difficult for the denial of benefits clause to play its proper role.Whether the scope of the benefits denied include a procedural interest is often the key to determining whether the arbitral tribunal has jurisdiction over the investment dispute in question,while the retroactivity of the clause often determines the effect of the actual application of the denial of benefits clause.In investment arbitration practice,most cases involving the Energy Charter Treaty consider that the application of the denial of benefits clause cannot be applied.Excluding the jurisdiction of the arbitration tribunal,and in order to protect the expected interests of investors and promote the realization of the purpose of the treaty,the application of the denial of benefits clause should not be retroactive;however,almost all arbitral tribunals involving other investment agreement cases consider the applicationof denial of benefits clause will deprive investors of the right to initiate arbitration under the dispute settlement mechanism,and the exercise of the right to deny interest should be retroactive.In view of the fact that the original intention of the denial of benefits clause is to force investors to disclose the true status of their ownership,control and other real conditions when planning investments,and to deprive investors of treaty rights they should not enjoy when they maliciously select treaties,the denial of benefits clause should clearly stipulate that the benefits denied include procedural benefits,and the application of the clauses is retroactive.In order to reduce the ambiguity in the text of the denial of benefits clause and enhance the applicability of the denial of benefits clause,the controversial issues in the above three aspects need to be clarified and resolved urgently.In the future,when China revises,upgrades or signsan investment agreement,based on the consideration of balancing the protection of the interests of the host country and investors,it is necessary to design denial of benefits clauses with complete constituent elements,clear expressions and clear positions,so as to ensure that China’s legitimate interests based on the IIAs are not infringed under the dual identity of both the home country of the investor and the host country.