The panel was convened at 9:00 a.m., Thursday, March 30, by its chair, Stephen M. Schwebel, former judge and president of the International Court of Justice, who introduced the panelists: Rudolf Dolzer of the University of Bonn; Florentino Feliciano, former justice of the Supreme Court of the Philippines and former president of the Appellate Body of the World Trade Organization; Vaughan Lowe of Oxford University; Howard Mann of the International Institute for Sustainable Development: and Andrea Menaker, Chief, NAFTA Arbitration Division, U.S. Department of State. *
REMARKS BY RUDOLF DOLZER ([dagger])
The central assumption underlying the debate within the North American Free Trade Agreement (NAFTA) is that a difference exists between a freestanding version of fair and equitable and a version which ties "fair and equitable" to the rules of international law. While the existence and the nature of the difference has never been articulated on a conceptual level in detail, it is true in any event that in contemporary bilateral investment treaty (BIT) practice the two different versions do exist. In particular, German, Dutch, Swedish, and Swiss BITs have relied on the freestanding version. Earlier BITs concluded by the United States also did not refer to international law and thus continue to raise the question of the difference between the two types.
The following remarks address some aspects of the manner and ways in which international tribunals have ruled in past years on the freestanding version. Remarkably, rulings such as OEPC v. Ecuador (1) and CMS v. Argentina (2) have had to elaborate on freestanding clauses, but the tribunals have also felt it was required, in view of the arguments of defendant governments, to explain their views on the type of standard tied to general international law. Against the background of current debates within NAFTA and of academic contributions, both tribunals concluded that, at least for purposes of the facts before them, no distinction between the two types was necessary or appropriate. While the comments on these two rulings so far have not focused on this aspect, it would not be surprising if they gave rise to a debate on the assumption regarding the difference between the two versions.
Of course, the proponents for a convergence of the two positions would face the task to identify the content of the standard as they understand it. Essentially, they could either point to the jurisprudence of NAFTA, elaborating on customary law, or to the rulings of tribunals which had to clarify the freestanding versions. A third viewpoint might attempt to find a common basis of these two lines of jurisprudence and to deduce an understanding common to both of them.
Such an evolution, rearranging the jurisprudence of the past years, would presuppose that the roots of the two versions are sufficiently close and that, on both the conceptual and practical levels, the commonalities and divergences of the two lines will allow a merger which captures the essence of both of them. For the time being, the dominant view remains that it is useful and appropriate to distinguish between the two lines.
My short remarks on the past jurisprudence on the freestanding versions concern the methodology, the vision of a functioning government underlying the jurisprudence, the relationship of the standard to the notion of good governance as it is used by governments and international financial institutions in the formulation of development policies, and on the impact on the sovereignty of the host state. As will be seen, all of these issues are interlinked. Indeed, one of the basic contemporary challenges facing international investment law is to ensure that the content of its rules is consistent with accepted notions of development policy and reinforces its objectives and conditions.
What seems to be common to all decisions on the freestanding version is the emphasis on the facts; all decisions underline that the standard is fact-driven. As to the broader methodology, however, there is no consensus. In fact, the decisions seem to go in different directions in their approach, and the different approaches may lead to different results. In a simplified perspective, three lines of reasoning may be diagnosed, which overlap in part, however.
One approach has been to resist a broad general definition or elaboration on the meaning of a standard, but instead to point to the general requirement of the need for stability, predictability, and respect for guarantees and specific commitments. An illustration may be seen in the CMS ruling which cites Metalclad and Tecmed on this point and states:
The Treaty Preamble makes it clear, however, that one principal
protection envisaged is that fair and equitable treatment is desirable
"to maintain a stable framework for investments and maximum effective
use of economic resources." There can be no doubt, therefore, that a
stable legal and business environment is an essential element of fair
and equitable treatment.
In addition to the specific terms of the Treaty, the significant
number of treaties, both bilateral and multilateral, that have dealt
with this standard also unequivocally shows that fair and equitable
treatment is inseparable from stability and predictability. Many
arbitral decisions and scholarly writings point in the same direction
It is not a question of whether the legal framework might need to
be frozen as it can always evolve and be adapted to changing
circumstances, but neither is it a question of whether the framework
can be dispensed with altogether when specific commitments to the
contrary have been made. The law of foreign investment and its
protection has been developed with the specific objective of avoiding
such adverse legal effects." (3)
We can also observe an attempt on the part of tribunals in a potentially different methodological direction. This second line of decisions attempts to set forth a broader abstract definition of fair and equitable treatment, covering a wide range of circumstances and types of actions which may serve as guideposts for individual decisions. As the tribunal in Tecmed v. Mexico stated:
The Arbitral Tribunal considers that this provision of the Agreement,
in light of the good faith principle established by international law,
requires the Contracting Parties to provide to international
investments treatment that does not affect the basic expectations that
were taken into account by the foreign investor to make the investment.
The foreign investor expects the host State to act in a consistent
manner, free from ambiguity and totally transparently in its relations
with the foreign investor, so that it may know beforehand any and all
rules and regulations that will govern its investments, as well as the
goals of the relevant policies and administrative practices or
directives, to be able to plan its investment and comply with such
regulations. Any and all State actions conforming to such criteria
should relate not only to the guidelines, directives or requirements
issued, or the resolutions approved there under, but also to the goals
underlying such regulations. The foreign investor also expects the host
State to act consistently, i.e. without arbitrarily revoking any
pre-existing decisions or permits issued by the State that were relied