Investment protection in international law

Although it is true that the treatment of investment protection in international law largely rests on investment arbitration, it is equally true that this represents an evolution of the classical institution of diplomatic protection—or, more accurately, a limitation of its scope. Indeed, investment arbitration arises and develops independently of diplomatic protection, from which it seeks to be an exception. The technique consists of excluding the potential recourse to diplomatic protection by the foreign investor against the host state of the investment when a conflict arises due to an international wrong committed by the latter. This is the starting point and one of the possible manifestations of the classical “Calvo doctrine.”

The so-called Calvo doctrine originates from the abuses and frictions caused by claims of European and North American investors against Latin American states and the exercise of diplomatic protection by their countries of origin. The independence of these states, during the last third of the 19th century, was not accompanied by the necessary economic and political stability typically required for peaceful economic and social development. Frequent civil wars and revolutions often caused changes in governments, which, combined with interference from foreign powers resulting from diplomatic claims by foreign investors—supported by international law that guaranteed the right of intervention without restriction—posed a barrier to the natural development of their sovereignty (F. TAMBURINI).

However, international law, and more specifically international investment law, evolves alongside the international community. In a globalized world, polarized around a “structural” north-south divide that seems to be increasing rather than disappearing, international law is oriented toward state development and a more anthropocentric approach focused on human rights and individual well-being. Indeed, international development law and the recognition of individual subjectivity are also related to the current perspective of international investment law. In the contemporary context, consideration of public interest in inter-state relations coexists with economic factors. The need to promote investments to foster economic development in states coexists with the interest (or necessity) to coordinate legal and political systems designed to regulate private economic relations (KUNDMÜLLER CAMINITI). The economic factor stands out and links countries that export with those that import investments, and even countries that import investments among themselves. This combination of economic factors and public interest, along with the scarcity of multilateral instruments regulating investments, has led to the decentralization of contemporary international investment law. Currently, there are several thousand international investment agreements, mostly bilateral, including bilateral treaties on the promotion and reciprocal protection of investments (BITs), as well as investment chapters in free trade agreements and international agreements on double taxation.

One consequence of this social and economic situation, and of the existence of such a multitude of international instruments, is the need for states to adapt their domestic laws to the obligations assumed internationally. That is, states must implement the corresponding domestic regulations, regardless of whether their constitutional system follows a monist or dualist model for the reception of international law, except in the case of self-executing provisions. This increasingly creates a close link between various legal and political systems, generating an “interaction space” that is not always peaceful. It is the public law of states—primarily administrative and tax law—that handles the transposition and regulation of international commitments domestically. This situation has been conducive to what some authors have called the globalization of administrative law (S. BATTINI) and even to discussions about the crisis of the modern concept of the state (S. CASSESE).

We can therefore assert that international investment law falls within the public framework regulating international trade, alongside multilateral and plurilateral trade agreements adopted under the World Trade Organization and contained in Annexes 1 and 4 of the Marrakech Agreement. Consequently, it also follows the same principles and foundations. In this regard, Sustainable Development Goal (SDG) 17 (“Partnerships for the Goals”), in targets 10, 11, and 12, refers to the need to promote a universal, rules-based, open, non-discriminatory, and fair multilateral trade system. Target 4 of the same SDG emphasizes the need to adopt and implement investment promotion systems in favor of least developed countries.

However, this constitutes one of the features of today’s partially organized international society. The existence of common interests and the need for state cooperation led to the creation of a large number of international organizations of varying scope and objectives, especially after World War II. The existence of these actors, particularly international integration organizations, also introduces a layer of complexity into international investment law. Indeed, we can affirm that integration processes are one of the defining features of the contemporary international community. The economic factor is at the origin of most of these processes, which also manage the public interest present in this branch of international law. Taking the European Union as a model, the adoption of a common commercial policy as one of the exclusive competences assigned by states to the organization under the Lisbon Treaty has subjected this regulatory sector (including foreign direct investment) to Union law. Accordingly, the CJEU considered that bilateral investment treaties concluded between member states (intra-EU), particularly their investor-state arbitration clauses, were contrary to Union law, leading to the May 5, 2020 agreement to terminate bilateral investment treaties between EU member states (OJ EU L 169, 29.5.2020). A total of 190 treaties were affected, nine of which involved Spain as a contracting state (Annex A of the Termination Agreement).

Indeed, the Luxembourg Court, in its judgment of 6 March 2018 (Case Achmea, C-284/16), concluded that the investment arbitration provided for in these bilateral agreements is contrary to the principle of “autonomy” of EU law, since one of these tribunals could interpret and apply Community law without the option of submitting a preliminary ruling to the Court of Justice, lacking the status of a judicial body.

It should be noted, therefore, that arbitration is one of the key elements of international investment law. In Spain, the clauses incorporated into BITs usually offer investors two options for international arbitration: a) an ad hoc arbitration based on the rules of the United Nations Commission on International Trade Law (UNCITRAL); or b) institutional arbitration administered by the International Chamber of Commerce (ICC) in Paris or the International Centre for Settlement of Investment Disputes (ICSID). In some cases, an additional option allows the investor to bring the dispute before the courts of the host state (e.g., bilateral treaties with China and Peru), or ad hoc arbitration regulated within the bilateral instrument itself, with the support of the International Court of Justice (e.g., treaties with Venezuela and Cuba).

The general content of investment protection agreements signed by Spain revolves around the following clauses: a) standards of fair and equitable treatment, national treatment, and most-favored-nation treatment; b) guarantee that measures of expropriation, nationalization, or similar effects may only be adopted non-discriminatorily, for reasons of public interest, and with prompt, adequate, and effective compensation; c) the right to free transfer of capital, profits, and payments related to the investment; d) guarantee of compliance with contractual obligations assumed by the host state; and e) arbitration mechanisms to resolve disputes between the contracting states, and between investors and the state regarding the latter’s failure to meet obligations under the agreement. Currently, Spain has over 60 BITs in force, in addition to EU investment protection agreements with Singapore and Vietnam, and the EU-Canada agreement (CETA).