15 March 2012
A new UNCTAD publication, sequel to the 1999 Pink Series paper on fair and equitable treatment (FET), analyses the FET clause in international investment agreements (IIAs), drawing on past experiences to assist States in drafting IIA clauses that suit their specific policy objectives and help promote sustainable development.
A new UNCTAD paper, the sequel to the 1999 Pink Series paper on fair and equitable treatment (FET), explores how the concept of FET has been defined in international investment agreements (IIAs) and how different formulations have been interpreted by arbitral tribunals. The paper moves beyond a merely descriptive role, and considers how to respond to arbitral awards. It offers policy options for IIA negotiators that better take into account the sustainable development needs of host countries and that enhance the stability and predictability of the legal system.
The FET standard in IIAs has gained particular prominence, as it has been regularly - and often successfully - invoked by claimants in investor-State dispute settlement proceedings. The wide application of FET by arbitral tribunals has revealed its protective value for foreign investors, but has also exposed a number of uncertainties and risks, including for domestic policy space.
For example, some tribunals have interpreted the FET provision broadly to include a variety of specific requirements, which can be quite taxing on any State but especially so on developing and least developed countries. Another issue concerns the appropriate threshold of liability, that is to say, how grave or manifest a State’s conduct must be in order to become FET-inconsistent. In addition, the application of FET provisions has brought to light the need to balance investment protection with the competing policy objectives of the host State, and in particular, with its right to regulate in the public interest.
The substantive content of the FET standard has been framed by arbitral tribunals on a case-by-case basis. This is a continuing development, which is reinforced by the practice of tribunals to refer to, and discuss, earlier awards. Although each tribunal interprets a FET provision from the investment treaty applicable in that specific case, there has been a certain convergence in terms of the elements that the FET standard includes. At the same time, arbitral practice has revealed important differences in the application of the standard, which depend on the type of FET formulation used.
Against this background, the last section of the paper offers policy options for negotiators. They include FET clauses with or without reference to sources and qualifications (e.g. minimum standard of treatment under customary international law), an option to replace the general FET obligation with more specific substantive requirements, and an option to omit the FET clause, as well as additional clarifications designed to provide more legal certainty and ensure that the right of States to regulate in the public interest is not compromised.
