Research On Full Protection And Security Clauses In International Investment Agreements

It is an absolute standard that is contained in almost all international investment agreements and that has been established through arbitration practice.The full protection and security clause(FPS)can supplement the non-discriminatory treatment protection standard and provide more comprehensive legal protection standard for investors and their investment.FPS clause claims cover a wide range of factual backgrounds,from civil unrest to environmental damage.Although FPS standard has a rich history and legal practice,the diversity of its clause structure still leads to the arbitral tribunal in interpreting and applying the clause.Therefore,it is necessary to make a review of FPS legislative form structure and characteristics,explain its application conditions and legal dilemmas in the application,and put forward countermeasures combined with the practice of China’s international investment treaty.The statement structure of FPS clauses has a potential impact on the scope of protection.A review of FPS clauses in the current BIT model agreements in 41 countries between 1990 and 2022 shows that the sentence structure of these clauses is becoming increasingly sophisticated.Generally speaking,the semantic structure of FPS clause has four modes: Mode 1,when FPS clause first appeared in the International investment Agreement,its sentence structure was represented by only the phrase "protection and security".Mode 2,the contracting parties add prefix qualifiers such as "full","adequate" and "constant" in the sentence for the purpose of protecting investment.The broad definition of qualifiers makes it difficult for the tribunal to define the scope of protection.The sentence structure of FPS clauses involved in most national(regional)investment agreements is in the third mode,that is,adding "accordance to international law" or "accordance to domestic law" to FPS sentence structure.The use of such a structure to define the scope and degree of protection is less effective because the "accordance to customary international law" structure creates a discussion of the common-law protection obligation as the "upper limit","lower limit" or "equivalent level of protection" of FPS standard clauses."accordance to national law" must not only be in accordance with the applicable domestic law,but also must not fall below the obligations recognized by international law.It cannot be used to invoke national law to derogate from the protection obligations of the investors.Therefore,this wording does not make sense to define the scope of the FPS clause.In recent ten years,FPS clause sentence structure has begun to move towards the fourth mode,that is,FPS clause adds the prefix qualifier "Physical" to the sentence structure in a way that,if continued,may change the scope of application and protection of FPS clauseIn arbitration practice,only when the host state fails to protect acquired values of foreign citizens,the damage falls within the scope of FPS treatment,and the host state fails to perform the duty of diligence,the arbitration tribunal may apply the FPS standard to support the investor’s claim.However,there are three dilemmas in the application of FPS standard: First,whether the FPS clause covers the risk brought by the host State action when applied,and whether the protection provided by the host state is purely Physical protection or has been extended to legal protection,etc.,resulting in disputes over the scope of application of FPS clause.Second,Practice and theory support that under the FPS standard the host state cannot constitute a strict liability only a due diligence,the parameters for determining the lack of a due diligence by the host state are unclear.Third,FPS clause as an independent standard of treatment,the arbitral court is faced with great difficulties in assessing the possible overlap between FPS clause,in particular the Standard of Fair and Equitable treatment standard(FET)and stability clause,and it is not always successful in distinguishing the difference between clauses or in making a meaningful distinction.The resolution of the triple dilemma in the application of the FPS clause.First,the semantic structure of FPS clauses should adopt more explicit qualifiers to prevent scope disputes when applying this standard.The explicit prefixes of the FPS clause limit the arbitral Tribunal’s discretion and add other factors and criteria that the court may use to determine the scope of the FPS clause,limiting its interpretation of the FPS standard in an overly broad way.Secondly,the judgment of FPS in arbitration practice concludes that the capacity difference between countries,the stability of the overall political order of countries,the caution in treating oneself,and the reasonable expectation of investors can be used as important parameters to determine the due diligence.Finally,the FPS treatment clause is distinguishable from the FET treatment and the stability clause.FET treatment require that host state cannot alter the legal framework within which investors are legally entitled or expect.The stability clause guarantees that investors are not adversely affected by legislative uncertainty in the host country.Whereas the FPS clause provides legal protection,the host state is obliged to provide the investor and his investment with a legal system in which they can exercise their right of action and to take the necessary measures to protect the investment from adverse action by private and state authorities.The FPS clause structure of the BITs agreement signed by China,which is still in force,is still simple and attached to minimum standards of treatment and FET treatment.As a separate treatment clause,it should no longer exist in the same term as the FET treatment clause.For the purpose of protecting China’s foreign investment,China can add the prefix adjective "Legal" to the FPS clause when concluding the bilateral investment treaty or re-signing the BITs Agreement,so as to make it clear that the other contracting party shall provide legal protection for Chinese investors and their investment in its territory.