Are you familiar with Bilateral Investment Treaty, or BIT? This is an agreement signed between two countries to promote and protect investments made by their respective companies within each other’s territories. These treaties play a vital role in creating a favorable investment climate, a stable framework for investors, and most importantly, resolving disputes that may arise. In this blog post, we will explore what bilateral investment treaties are all about and how they are related to international disputes.
1) What Is Bilateral Investment Treaty?
Bilateral investment treaties or BITs are agreements made between two countries to promote and protect investments made by their companies within each other’s borders. These treaties are bilateral agreements that aim to provide investors with protection against losses through government action that may lead to expropriation, unfair treatment, or other forms of discriminatory practices.
BITs provide a predictable and transparent legal framework for investors and governments alike. This includes setting out the rules and obligations that apply to investors, outlining the scope of government authority and discretion, and providing for dispute resolution mechanisms.
2) How Do Bilateral Investment Treaties Work?
BITs function as a binding legal agreement between two countries and their respective investors. These treaties lay out the rules of engagement between two parties by defining the standards of protection investors can expect in the host country, such as fair and equitable treatment and protection against expropriation without compensation.
The treaties also outline the remedies available to investors if their investments are subjected to unfair or discriminatory treatment. For instance, investors may seek compensation for damages, including the loss of profits, arising from government actions that violate the standards of protection enshrined in the BIT. To find the proper BIT visit International Investment Agreements Navigator | UNCTAD Investment Policy Hub. In addition, for more information regarding about unfair or discriminatory treatment, please visit International Arbitration: Fair and Equitable Treatment – Transnational Matters
3) What is Investor-state Dispute Settlement?
Investor-State Dispute Settlement (ISDS) is the mechanism used to settle disputes under BITs. ISDS mechanisms typically involve the formation of a tribunal panel, comprising three independent arbitrators. During this process, an investor can challenge a foreign government’s action through binding arbitration. This mechanism is significant, particularly in resolving investment disputes that may arise between a foreign investor and the host state.
4) Why are BITs Important for International Disputes Settlement?
Investment is a crucial driver for economic growth and development, particularly in emerging markets. When investors know that their investments are protected, they are more likely to venture into new markets and create jobs where they are needed most. BITs have been successful in creating the favorable climate for foreign investors, increasing foreign direct investments (FDIs), and building investor trust.
Moreover, when disputes arise between investors and the host governments, BITs provide a legally binding dispute resolution mechanism that is impartial and independent, meaning neither party has an advantage. This provides a level playing field for resolving disputes. Additionally, it offers investors the assurance that their investments will be protected by impartial and independent arbitration panels.
Bilateral Investment treaties have become a critical tool in promoting investment protection and economic growth. They provide the necessary legal framework for investments, ensuring investors are protected from unfair treatment and discriminatory practices. Furthermore, BITs offer an impartial and independent dispute resolution mechanism, providing investor assurance and maintaining trust between the investor and the host state. Therefore, governments must adapt to changing times by forming and updating BITs to create an enabling legal environment and promote economic growth and stability. To learn about our Investor-State Dispute Settlement practice, visit International Investment Disputes Lawyer – Transnational Matters