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The Era of BIT’s

During the course of the ’60s, specific individual capital-exporting states entered into investment treaties with specific capital importing states, which ushered in the era of Bilateral Investment Treaties which was characteristic of the investing states being keen on protecting the foreign investment of its citizens in host states.

The conventional negotiating procedure for a Bilateral Investment treaty in between the host state on the one hand and the investing state on the other, which was primarily initially conceived by Aron Broches, who was counsel for the World Bank. The ICSID Convention also known as the Washington Convention,1965 as it is known in common parlance. The Washington convention essentially provided for a system for settlement by conciliation and arbitration of investment disputes from among a state party to the Convention and citizens of other states. When initially the Convention was opened up for signatures and ratification in the ’60s,it was lauded for being a special and innovative step characteristic of World Bank diplomacy, along with innovative and ingenious thinking in the pursuit of enhancing and developing international investment.

Provisions specifically pertaining to arbitration on the whole in lieu of the Washington convention increasingly became an intrinsic characteristic of international investment contracts. Beginning from the 1980s, major provisions began coming out in investment laws and treaties. This movement started gaining momentum and steam with the explosive growth in terms of numbers of bilateral investment treaties and agreements in the ’90s. By now there are more than 2,000 such treaties that provide for the submission to arbitration in consonance of the ICSID convention of disputes among state parties to the treaty and the nationals of other state parties.

After entering into a bilateral investment treaty, states have acted in their conventional public international role as treaty parties. Also by consenting, that disputes with investors of the home state will be on the whole determined by arbitration, the host state ends up accepting a process which quite closely resembles international commercial arbitration through the course of which the host state is the only respondent in claims that have been brought by the investor.

Modern international law to do with foreign investments has been shaped, not solely by the Washington convention of 1965, nor even by the conventional network of Bilateral Investment Treaties but solely by terms and conditions of Treaties of Friendship, Commerce and Navigation, which culminated with the United States of America along with a large number of nations soon after the end of Second World War. The FCN treaties that were initiated ended up guaranteeing of Fair and Equitable Treatment and also provided for the adoption of a Most favorable nations clause, for a rapid, appropriate and effective compensation for expropriation, and curbed discriminatory treatment. Under the FCN Treaties, the protection of an investor’s right of access to local courts was coupled with a provision that disputes concerning the interpretation or application of the treaty were to be only to the judicial organ of the United States which is the International Court of Justice.

Source: Harmony amidst Disharmony- Fali S Nariman

  • ICSID Convention
  • International Arbitration
  • FCN Treaties

BY : Kabir Dev

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