Assets of foreign investors into host countries are vulnerable to actions by the host government. The recent wave of nationalizations in Venezuela and Ecuador, and the Russian government's treatment of oil giant Yukos are examples of how regime or governmental changes imperil these investments. These acts have triggered the recent rise in investor-state arbitration with tens of billions of dollars in claims against host governments at stake.
In the 20th Century, claims against states began with the Soviet nationalizations following the Russian Revolution, through the Mexican nationalizations in the early part of the 20th Century, and to the current day. Until relatively recently, claims were brought under direct contracts or arrangements with States.
Today, the majority of these claims arise within a network of treaties that protect investors against the political risk of improper actions by host governments. This network includes multilateral treaties trade and investment treaties like the North American Free Trade Agreement (“NAFTA”), the Energy Charter Treaty, over 2,700 bilateral investment treaties (“BITs”), and the Washington (or ICSID) Convention. The treaties protect against expropriation, unfair treatment, and discrimination. Procedural protections include arbitration against the State itself, outside the host country.
Most recently, the Argentine economic crisis of 2001-2001 led to tens of claims based on the government’s actions in response. Beyond economic crises, host governments will sometimes seek to change the terms of the foreign investor’s deal when commodity prices change. This has occurred in recent years with special frequency in the energy sectors. Bolivia announced nationalizations of foreigners’ oil and gas interests there. Venezuela has taken over foreign companies’ oil and gas projects as well as foreign-owned banks. Ecuador took similar actions against foreign investors. Indeed, Argentina made world headlines this year in expropriating the interest of a Spanish company, after significant unconventional oil and gas was discovered in that country. In short, the front page of any international newspaper daily recounts such acts and political changes that may presage such moves.
Investor-state arbitration has had an obvious impact on foreign governments. As governments contemplate policies, they are concerned because they can now be sued, directly, by foreign investors. Awards are paid from the national treasury. Many states have begun to question the wisdom of the entire investment protection scheme as it is currently configured, and they have begun to curtail their commitments in investment-protection treaties. The course will therefore address the inevitable political, economic, and policy questions raised by this significant cession of sovereignty to private actors.
The course will introduce students to investor-state arbitration. With a brief introduction of cases that arise from contracts, the course will then turn to the network of treaty protection and its practical implementation. Students will be taken through the identical arbitration process as that experienced by investors in some of the most important cases in recent years. Core materials for this course include the United Nations Conference on Trade and Development and arbitral awards involving claims against foreign governments. To provide the business background of energy deals, guest speakers from major international companies will clarify the real stakes of this emerging area of international arbitration.
Assessment will be based on class participation and a final exam.