Arbitral tribunals' expansive interpretation of key disciplines in international investment law in recent years has prompted a number of developing countries to implement strategies aimed at exiting the system. These range from denouncing the ICSID Convention and withdrawing consent to jurisdiction by other arbitral bodies, to denouncing the Bilateral Investment Treaties (BITs) to which they are parties. The purported objective of these initiatives is to reduce the legal exposure of these countries to international claims before arbitral tribunals, either by eliminating a forum for foreign investors' claims or by eliminating their rights under the treaties. Whether any of these strategies will be successful in meeting this goal is still hard to say, as both the ICSID Convention and BITs have “immune systems” – i.e., a set of built-in self-defense mechanisms – that render them somewhat resilient to change or termination.
The effects of denouncing the Convention are unclear when jurisdiction of ICSID tribunals is envisaged in other instruments, i.e., IIAs. The difficulty is that IIAs usually provide for a State's unilateral offer to arbitration, while the investor has not yet expressed his consent. There has been a significant amount of literature discussing this issue, in response to the decision of an important group of Latin American countries to denounce the ICSID Convention. Different opinions prevail to date. Some academics argue that investors can still bring claims against governments' measures. Others are convinced that this is not the case, since States may unilaterally withdraw their offer.
This is, however, not the only available “exit door” to the system. A more direct, unambiguous (and, so far, rarely discussed) way to shield States from international investment arbitration is to terminate existing BITs. This strategy is not without its own drawbacks. BITs may include fixed opportunities to denounce them, tacit renewal clauses that may make denunciation not possible until a number of years into the future and, more important, “survival clauses” that extend the effects of the BIT for existing investments for a period of up to 15 years after they are denounced. As a result, the effects of unilateral termination of BITs may be postponed.
Against this background, we are of the opinion that developing States seeking to reduce their exposure to international investment arbitration, are better off by renegotiating their BITs instead. Renegotiation does not require the termination of the treaty, it may be implemented at any time and does not trigger the application of “survival clauses”, thus making changes to the BIT immediately applicable. In order to be successful, this strategy requires tackling both legal and political challenges. First, it requires that Most-Favoured-Nation clauses be redesigned, as their traditional drafting would have a neutralizing effect on BIT amendments (since it would take a long time for the State to renegotiate or withdraw from all other more “protective” BITs). Second, it requires the willingness to renegotiate by the other State who is party to the respective BIT. Third, the question remains as to whether investors that have made their investments prior to the amendment may have a claim under the disciplines of the original version of the treaty.
Still, if implemented successfully, this strategy would more effectively achieve the goals of developing States while at the same time being more considerate of treaty partners' interests. The most rational way for countries seeking to exit the system seems to be, ironically, to stay in it.
This discussion note is based on Federico M. Lavopa, Lucas E. Barreiros and Victoria Bruno, "How to Kill a BIT and Not Die Trying: Legal and Political Challenges of Denouncing or Renegotiating Bilateral Investment Treaties", available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102683.
See also IPFSD clauses:
UNCTAD IIA Issues Note: "Denunciation of the ICSID Convention and BITs: Impact on Investor-State Claims".