In Also, in CMS v Argentina, the Tribunal suggested


In this essay, I am going to analyse the above mentioned BIT in terms of the meaning of investors and investment. Furthermore, I am looking at the effectiveness of Fair and Equitable Treatment along with direct and indirect expropriations. 
International investment treaties in general do not contain express rules, but as their function is to resolve any disputes arising due to opposing rights and interest by applying a specific provision of law. Although, it is not clear whether international investment law has become lex general but the judgement delivered by the International Court of Justice in the Diallo Case suggests, that “….. in contemporary international law, the protection of the rights of companies and the rights of their shareholders, and the settlements of the associated disputes, are essentially governed by bilateral or multilateral agreements ….In that context, the role of diplomatic protection somewhat faded ….” Diallo was the first case since Barcelona Traction in 1970 which has reached the International Court. Also, in CMS v Argentina, the Tribunal suggested that the fact is that lex specialis is so prevalent that it could be considered as the general rule. 
The purpose of investment treaties are to benefit the host country and the investor, to promote foreign investments and to remove obstacles to allow more foreign investments into the host state. “Under customary international law, states are not under the obligation to admit foreign investments in its territory or in any particular segment of its economy.” Once the foreign investment is allowed the host country become a subject to a minimum standard owed to the foreign investor.
“BITs give guarantees to investors, but do not normally address obligations of investors, although some BITs provide that investments, in order to be protected , must be in accordance with host state law.” 

The definition of investment and investors
There are two main approaches to define investment (ratione materiae). The first is called “enterprise-based” definition of investment, “akin to the traditional concept of a direct investment and which excludes portfolio investment and real estate”. The second approach is the “asset-based” definition of investment, which is generally used in bilateral investment protection treaties including intangible assets such as intellectual property and portfolio investment. 
The BIT between Japan and Papua New Guinea use a hybrid approach to define investments. The Energy Charter Treaty (ECT), which is used by in this particular BIT provides a list of assets to illustrate the term “investment” which, under the treaty, refers to any investment associated with an economic activity in the energy sector. ECT Article 6(1) contains the same definition of investments as the BIT in Article 1(1). ” “Investment” means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:
(a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;
(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;
(c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;
(d) Intellectual Property;
(e) Returns;
(f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.”
The broad definition of investment suggest that non-discrimination, investment protection and national treatment are applicable to all form of investments listed in the BIT. In the case of Servier v Poland it has been granted that the investor sell imported pharmaceutical products. The significance of this case is as it operates as an example of how broadly investment can be defined. Further examples can be found in Petrobart v Kyrgyz Republic and in Eureko v Poland cases. Although, the Salini criteria states that there are certain aspect which need to be met in order to define an investment. Those criteria are given by ICSID Article 25 “(1) The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally.” The five criteria are commitment of capital, assumption of risk, profit expectations, duration, contribution to development. The decision of the strict application of those criteria has been challenged in few cases on that basis that “they do not appear on the ICSID convention”. On the other hand, the decision in Quiborax v Bolivia has triggered to reach a middle ground that even if the Salini criteria has not been applied it does not mean that there is no investment. It can be said that there is no strictly used definition of investment. It would be illogical in the lights of that there are many treaties in force nowadays which are defining investment on a different way. I tend to think that as long as the definition used by a BIT is equivalent to one appears in a Treaty under international customary law the investment is correctly defined. 

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In terms of investor the BIT between Japan and Papua New Guinea define it as follows: “(2) The term “investor of a Contracting Party” means:
     (a)  a natural person having the nationality of that
          Contracting Party in accordance with its
          applicable laws and regulations; or
     (b)  an enterprise of that Contracting Party,
that seeks to make, is making or has made investments in
the Area of the other Contracting Party.” 
Investors either can be an individual as a natural person or a company as a legal person. If the investor relies on a BIT it needs to be proved that the investor’s nationality is one of the contracting parties. 
To look at the legislation of Japan in terms of being a Japanese national it states that nationality can be acquired by birth, by an acknowledged child or by naturalisation. The problem may arise when an investor has more then one nationality due to Japan nationality law does not permit dual citizenship. According to The Nationality Law Article 14.: “A Japanese national having a foreign nationality shall choose either of the nationalities before he or she reaches twenty two years of age if he or she has acquired both nationalities on and before the day when he or she reaches twenty years of age or, within two years after the day when he or she acquired the second nationality if he or she acquired such nationality after the day when he or she reached twenty years of age. 
2. Choice of Japanese nationality shall be made either by depriving himself or herself of the foreign nationality or by the declaration provided for in the Family Registration Law in which he or she swears that he or she chooses to be a Japanese national and that he or she renounces the foreign nationality (hereinafter referred to as “declaration of choice “).” The similar issue has arisen in a the case of Soufraki v UAE, where a private person investor has lost his Italian nationality upon acquiring a citizenship of Canada. On the other hand, the investor who has ineffective Japanese nationality still can rely on the ICSID convention due to Japan is a member state. The decision in Champion Trading v Egypt illustrates this situation. In this case the Tribunals found that if the individual wishes to rely on the ICSID convention cannot has a nationality of the member state. 
The Citizenship Act 1975 of Papua New Guinea says that nationality can be acquired by birth or by naturalisation. In terms of dual citizenship, the new legislation permits to Papua New Guinean has more then one nationality. To have dual citizenship the investor is excluded to bring a claim under the ICSID convention. It has been supported by the decision in the Fakes v Turkey case. “The ICSID convention , in Article 25(2)(a), explicitly excludes dual nationals if one of their nationalities is that of the host country.”
To look at the legal personality of corporations it can be said that it is a more complex issue then determining an individual’s nationality. The criteria is used for corporate nationality are the place of incorporation or the place of the main seat of the business. The BIT between Japan and Papua New Guinea defines corporate investors similarly as The US Model BIT of 2012. “(3) The term “enterprise of a Contracting Party” means public or private entity duly constituted or incorporated under the applicable laws and regulations of that Contracting Party, whether or not with limited liability, whether or not with legal personality and whether or not for pecuniary profit, including any corporation, trust, partnership, sole proprietorship, joint venture, association, organisation or company.” To determine the nationality of corporation the Tribunal is willing to look at the nationality of its owner or its shareholders. The wording is similar to the BIT between Egypt and the United States, therefore dual nationality is not excluded to rely on the BIT.  

Fair and Equitable Treatment Standard
BITs are providing standard of protection to investors. The most relevant standard is Fair and Equitable Treatment (FET) requirement. FET protects investors against serious instances of arbitrary, discriminatory or abusive conduct by host States. “It is an “absolute”, “non-contingent” standard of treatment, i.e. a standard that states the treatment to be accorded in terms whose exact meaning has to be determined, by reference to specific circumstances of application, as opposed to the “relative” standards embodied in “national treatment” and “most favoured nation” principles which define the required treatment by reference to the treatment accorded to other investment.” Most of the claims are based on the violation of Fair and Equitable Treatment. Treaties in which the standard appears may regard different definition of it. To analysing a treat in terms of interpretation Article 31(1) of the Vienna Convention shall be used. The article expresses that the ordinary meaning is regarded first. Tribunal in the MTD case quoted the Oxford Concise English Dictionary: “In their ordinary meaning, the terms “fair” and “equitable” … mean “just”, “even-handed”, “unbiased”, “legitimate”.” Also, preambular statements define the purpose of the standard. Although, in Article 32 of the Vienna Convention contains reference to travaux preparatories, it seems unlikely that the terms could be used as a tool to interpret a bilateral treaty. 
The OECD has referred FET as “the minimum standard required by international law and general principles of international law”. The standard can be divided into two parts, fairness and equity, but still remains an unified standard.
Equitable treatment has appeared in the 1948 Havana Charter for an International Trade Organisation. Article 11(2) guarantees that foreign investments are secured by the standard that the International Trade Organisation (ITO) could:
“(a) make recommendations for and promote bilateral or multilateral agreements on measures designed.
(i) to assure just and equitable treatment for the enterprise, skills, capital, arts and technology brought from one Member country to another;
(ii) to avoid international double taxation in order to stimulate foreign private investments;
(iii) to enlarge to the greatest possible extent the benefits to Members from the fulfilment of the obligations under this Article;
(b) make recommendations and promote agreements designed to facilitate an equitable distribution of skills, arts, technology, materials and equipment, with due regard to the needs of all Members;
(c) formulate and promote the adoption of a general agreement or statement of principles regarding the conduct, practices and treatment of foreign investment,”
The standard had extensively been discussed in the OECD in the early 60′ and been adopted to the Draft Convention on the Protection of Foreign Property by the OECD Council in 1967. Article 1 of the Draft Convention expressed that all member state shall guarantee the fair and equitable treatment to properties belong to a national of any member state. Although, the Draft convention has never been signed but it demonstrates the allied view of OECD countries. The standard of Fair and Equitable Treatment is included most of the BITs. However, the language used in treaties may differ but it has no effect of its meaning. Tribunals have reflected to the lack of definition of FET. On the other hand, it would be impossible to determine the standard in a single definition due to it is covering a wide range of infringements. In terms of the scope of the FET, arbitral practice shows that all types of governmental conduct – legislative, administrative and judicial alike – can potentially be found to breach the FET obligation. In the case of ADF Group the Tribunal emphasised that tribunals cannot depart from sources of customary international law or general international law when FET standard is being applied. In practice International Investment Agreements are using the following criteria to approach FET standard:
“(a) Unqualified obligation to accord fair and equitable treatment;
(b) FET obligation linked to international law;
(c) FET obligation linked to the minimum standard of treatment of aliens under customary international law;
(d) FET obligation with additional substantive content such as denial of justice.”
There is a debate with regards to FET refers only the minimum standard of international customary law or to general international law. Academics have suggested that the scope of the standard goes beyond customary international law. The wordings of international treaties may differ also in terms of reference. The first test about the standard has occurred in the Neer case. Although, the case was concerned about a murder of an US citizen in Mexico, not about foreign investment, the Commission highlighted that lack of investigation, an insufficient governmental action would amount to the infringement of Fair and Equitable Treatment. Thus, the Commission dismissed the case. The threshold of applying the FET standard used by arbitrator tribunals are generally high. “The State’s conduct needs to be egregious or outrageous in accordance with the Neer case.” The governmental action must be “outrage, to bad faith, to wilful neglect of duty”, or insufficient and every “reasonable and impartial man would readily recognise its insufficiency.” Moreover, the Tribunal in Glamis Gold has pointed out that the Neer decision was the case to establish the minimum standard of international law, therefore the Neer standard is still applicable in relation to NAFTA Article 1105. 
Other NAFTA Tribunal in Merrill v Ring has expressed the view that the standard of Fair and Equitable Treatment can be found in customary international law due to the broader meaning of the definition than stated in the Neer case. Further development or evaluation has been presented in the case of Lemire v Ukraine. In this case the Tribunal has explained that there must be a balance between the investors’ rights and the host state’s interest with regards to public interest and the state’s right to regulate domestic matters. The reached conclusion is that NAFTA and ICSID tribunals nearly without exceptions opposing the Neer test in terms of a proxy for Minimum Standard of Treatment and Fair and Equitable Treatment. Rather, the test is that the tribunal’s conclusion based on the facts that the governmental decision was undoubtedly improper and discreditable, which consequence was that the investment has been treated unfairly and inequitably. Although, this formulation is broad but it is involved to cover a wide range of disputes. 
The second test has been given in the Waste Management v Mexico case. The tribunal has expressed the view that FET standard can be infringed by “arbitrary, grossly unfair, unjust idiosyncratic act of the State”. 
The BIT between Japan and Papua New Guinea -similarly to NAFTA Article 1105- says; 
“1. Each Contracting Party shall in its Area accord to investments of investors of the other Contracting Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.
2. Neither Contracting Party shall, within its Area, in any way impair investment activities of investors of the other Contracting Party by arbitrary measures.
3.   Each Contracting Party shall observe any obligation it may have entered into with regard to investments and investment activities of investors of the other Contracting Party.
4. Each Contracting Party shall take appropriate measures to further improve investment environment in its Area for the benefit of investors of the other Contracting Party and their investments. In this regard, each Contracting Party shall endeavour to reduce or eliminate its restrictive measures, existing on the date of the entry into force of this Agreement, vis-à-vis the investors of the other Contracting Party and their investments with respect to investment activities as well as the establishment, acquisition and expansion of investments.” 
Due to the wording of the BIT is similar to the wording in NAFTA, I use the official interpretation given by NAFTA Free Trade Commission (FTC). According to it, he wording refers to customary international law rather then general international law due to going beyond the minimum standard is not required. “Nonetheless, a reference in an FET clause to the minimum standard of treatment of aliens conveys a clear message that only the very serious acts of maladministration can be seen as violating the treaty. In contrast, arbitral tribunals applying unqualified FET clauses have not limited themselves to the most serious breaches and have found violations of the FET standard where they considered the State’s conduct in question to be simply unfair towards the claimant.”
Having given a broad definition of Fair and Equitable Treatment the Preamble of the BIT between Japan and Papua New Guinea assists to understand the meaning and expresses the main purpose of the standard such as “Recognising the importance of foreign investment for national development, economic growth and general welfare of the citizens:….to promote investment in order to strengthen the economic relationship between the Contracting Parties:……to create stable, equitable and favourable conditions for greater investment by investors of a Contracting Party in the Area of the other Contracting Party;……Recognising that economic development, social development and environmental protection:…..Recognising also that these objectives can be achieved without relaxing health, safety and environmental measures of general application;…..Acknowledging the importance of the cooperative relationship between labour and management in promoting investment between the Contracting Parties;” The tribunal has considered similar goals in the Tecmed v Mexico case, when the Spanish-Mexican BIT was applied. To clarify, Fair and Equitable Treatment shall cover the good faith principle as a guarantee that the investors’s expectation in relation with the investment, the act of the State shall be free from ambiguity, consistent with the governing regulation of the investment, moreover the host state shall conduct accordingly with further fundamental principles, such as non-discrimination, due process. This view has been stated in the case of MTD v Chile, in which a foreign investment contract for contraction failed due to zoning regulation inconsistency and the wording of the applicable BIT is similar with the BIT is being analysed in this essay. Furthermore, similar pro-active statements has been pointed out in the decision which are appearing in the preamble of the BIT between Japan and Papua New Guinea, such as ‘to promote’, ‘to create’, ‘to stimulate’. I would base my opinion around this judgement due to “prescriptions of passive behaviour of the State or avoidance of prejudicial conduct” would not reach the objects of Fair and Equitable Treatment. The willingness of improvement and to reach the main goal of the BIT in relation to the standard. On the other hand, Article 4(2) of the BIT under analysation contains a prohibitory statement which expresses the avoidance of arbitrary measures.  The term arbitrary has been defined in the ELSI case. There was an issue with acquisition of industrial plant belonged to an Italian company and was owned by an US citizen shareholders. The International court has expressed the view that “Arbitrariness is not much something opposed to a rule of law, as something opposed to the rule of law….It is wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.” In Pope & Talbot, the Tribunal concerned arbitrary actions with regard to the standard of Fair and equitable treatment. The ELSI decision has beed quoted and the Tribunal stated that “That formulation leaves out any requirement that every reasonable and impartial person be dissatisfied and perhaps permits a bit less injury to the psyche of the observer, who need no longer be outraged, but only surprised by what the government has done.” The case of Enron v Argentina subjective criteria has been expressed of the concept of arbitrariness: “They were not, however, arbitrary in that they responded to what the Government believed and understood to be the best response to the unfolded crisis. Irrespective of the question of intent, a finding of arbitrariness requires that some important measure of impropriety be manifest. This is not found in the process which, although far from desirable, is nonetheless not entirely surprising in the context in which it took place.” The following categories need to be consider to determine what amount to arbitrary measure:
“1. a measure that inflict damage on the investor without serving any apparent legitimate purpose. The decisive criterion for the determination of the unreasonable or arbitrary nature of a measure harming the investor would be whether it can be justified in terms of rational reasons that are related to the facts. Arbitrariness would be absent if the measure is reasonable and proportionate reaction to objectively verifiable circumstances.
2. a measure that is not based on legal standards but on discretion, prejudice, or personal preference
3. a measure taken for reasons that are different from those put forward by the decision maker. This conclusion applies, in particular, where a public interest is put forward as a pretext to take a measures that are designed to harm the investor
4. a measure taken in wilful disregard of due process and proper procedure.”


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