Ministry of Trade, Industry and Tourism Republic of Colombia THECOLOMBIAN BIT MODEL 1st Annual Forum...

Ministry of Trade, Industry and Tourism Republic of Colombia

Ministry of Trade, Industry and Tourism Republic of Colombia

THECOLOMBIAN BIT MODEL1st Annual Forum of Developing Country Investment

Negotiators

Singapore, October 2007

Pilar V. Cerón FOREIGN INVESTMENT AND SERVICES DIRECTORATE

Ministry of Trade, Industry and Tourism

Republic of Colombia

THE COLOMBIAN BIT MODELTHE COLOMBIAN BIT MODEL

¿What sorts of provisions are there in current International Investment Agreements that would allow states an appropriate defence?

ESTRATEGIC DEFENCES TO ESTRATEGIC DEFENCES TO ARBITRATIONARBITRATION




Greater precision of certain substantive clauses enhance the legal certainty of the investor – State dispute settlement mechanism. Such provisions may include:

I. SUBSTANTIVE PROVISIONS OF MUTUAL I. SUBSTANTIVE PROVISIONS OF MUTUAL COMMITMENTCOMMITMENT

Definition of investmentFair and equitable treatment & full protection and securityMost Favoured Nation Treatment & National TreatmentFree TransfersExpropriation and CompensationInvestment & Environment



SUBSTANTIVE PROVISIONSSUBSTANTIVE PROVISIONS

Article 2 : Investment2.3. In accordance with paragraph 1 of this Article, the minimum characteristics of an investment shall be:

a. The commitment of capital or other resources;

b. The expectation of gain or profit;

c. The assumption of risk for the investor.Article 3: Fair and Equitable Treatment & Full Protection and Security3. (…) Each Party shall accord fair and equitable treatment in accordance with customary international law, and full protection and security in its territory to investments of investors of the other Contracting Party. (…)Article 4 : Most Favoured Nation Treatment and National Treatment1. Each Contracting Party shall grant to the investments of investors of the other Contracting Party made in its territory, a not less favourable treatment than that accorded, in like circumstances, to investments of its own investors or to investors of any other third State, whichever is more favourable to the investor.



SUBSTANTIVE PROVISIONSSUBSTANTIVE PROVISIONS

Article 5:Transfers1. Each Contracting Party, prior fulfillment of the requirements under its law and without unjustified delay, shall allow investors of the other Contracting Party to effect, in a freely convertible currency, transfers of: (…) # 4 and # 5

Article 7: Expropriation and Compensation1. Investments of investors of a Contracting Party in the territory of the other Contracting Party will not be subject of nationalization, direct or indirect expropriation, or any measures having similar effects (hereinafter “expropriation”) except for reasons of public purpose or social interest, in accordance with due process of law, in a non-discriminatory manner, in good faith and accompanied by a prompt, adequate and effective compensation



InvestmentInvestmentArt. II # 2.3 Art. II # 2.3

“Según la vista fiscal, el sometimiento al CIADI no contraría en modo alguno la Constitución colombiana. Opina el Procurador que el concepto de soberanía, en el ámbito de las relaciones internacionales, ha evolucionado en el sentido de entender que, en la actualidad, éste se manifiesta en "la capacidad de los Estados para ejercer su actividad internacional por su propio poder; (...); en la capacidad de aceptar que existen reglas superiores a las que deben someterse todos los Estados para lograr la 'igualdad soberana' de los mismos". Es así como, hoy por hoy, el derecho internacional no se interpreta en función del Estado soberano sino de la comunidad internacional. "Los órdenes internos de las Naciones ya no son absolutos, todos miran a lograr el bien común al seno de sus propios Estados". El sometimiento de los Estados a tribunales internacionales se enmarca dentro de la "praxis" internacional antes descrita y, por ello, no presenta tacha alguna de constitucionalidad.

Consequently, the Colombia's BIT Model has listed minimum characteristics of an Investment giving objective criteria to establish whether there is an investment dispute, which is key to determine jurisdiction – see Articles 25 and 36 of the ICSID Convention.

Article 25 of ICSID Convention sets forth specific elements concerning Article 25 of ICSID Convention sets forth specific elements concerning the Jurisdiction of the Center:the Jurisdiction of the Center:• Existence of an investmentExistence of an investment• The Parties The Parties • Existence of a disputeExistence of a dispute• The consent of the PartiesThe consent of the Parties

ICSID case Fedax N.V v. Venezuela. Paragraph 43:“The basic features of an investment have been described as involving a certain duration, a certain regularity of profit and return, assumption of risk, a substantial commitment and a significance for the host State’s development.”



Fair and Equitable TreatmentFair and Equitable TreatmentArt. III # 3 and 4Art. III # 3 and 4


On the Minimum Standard of Treatment of Aliens:i) Concerning Fair and Equitable Treatment (FET) the applicable

standard is Customary International Law -Due Process of Law-ii) FET does not require treatment in addition to that required by

Customary International Lawiii) A breach of another provision of the agreement, does not establish a

violation of FET standardiv) Full Protection and Security, under the Model, applies a relative

standard, i.e. to accord investors a protection and security no less favourable than that accorded to its own investors

Colombia's BIT Model followsColombia's BIT Model follows::



National TreatmentNational TreatmentArt. IV # 1Art. IV # 1

* It refers to the comparison to be made between the foreign investors and the domestic investors operating in the same business or economic sector. Pope & Talbot v. Canada


National Treatment in Colombia's BIT Model:The obligation to grant to foreign investors and their investments a treatment no less favourable than that granted to domestic investors and their investments is conditioned to the requirement that both investors and investment must be in like circumstances* for the obligation to apply



TransfersTransfersArt. V # 4,5 Art. V # 4,5


New mandatory reserve measures were recently imposed by the Colombian Government to control short-term capital inflows and the Colombian Peso appreciation, since foreign investment inflows have foreign investment inflows have dramatically increased in our countrydramatically increased in our country in the last 4 years

In Colombia the Central Bank has constitutional powers set out In Colombia the Central Bank has constitutional powers set out among others, in articles 371 and 372 of the Colombian Constitution. -among others, in articles 371 and 372 of the Colombian Constitution. -Fully recognized by the Constitutional Court-. Fully recognized by the Constitutional Court-. Those Constitutional Those Constitutional powers have to be reflected in all BIT negotiations.powers have to be reflected in all BIT negotiations.

IN ADDITION



Expropriation & CompensationExpropriation & CompensationArticle VIArticle VI


Non-discriminatory measures of a Party that are designed and applied for public purposes or social interest do not constitute indirect expropriation (IE) -such as public health, and environment protection-.

The determination of whether a measure of a Party constitute IE requires a case-by-case, fact-based inquiry considering:

i) The scope of the measure and their interference on the reasonable and distinguishable expectations concerning the investment and

ii) The economic impact of the measure. The sole fact of a measure or series of measures having adverse effects on the economic value of an investment does not imply that an indirect expropriation has occurred

Important DefinitionsImportant Definitions

ICSID case Feldman v. Mexico. Paragraph 112:“To paraphrase Azinian, not all government regulatory activity that makes it difficult or impossible for an investor to carry out a particular business, change in the law or change in the application of existing laws that makes it uneconomical to continue a particular business, is an expropriation….”




Those procedural provisions of Colombia´s BIT model that give the State the possibility of an appropriate defence in case of an Investor - State dispute:

II. PROVISIONS ALLOWING STATES AN II. PROVISIONS ALLOWING STATES AN APPROPRIATE DEFENCE:APPROPRIATE DEFENCE:

Maffezzini ClausePossibility of exhausting local administrative remediesFork in the roadReasonable time for the Government in order to respond claimsFrivolous ClaimantsUmbrella Clause



PROCEDURAL PROVISIONSPROCEDURAL PROVISIONS

Article 4 : Most Favoured Nation Treatment and National Treatment2. The most favourable treatment to be granted in like circumstances referred to in this Agreement does not encompass mechanisms for the settlement of investment disputes, such as those contained in Articles IX and X of this Agreement, which are provided for in treaties or international investment agreements. – Maffezini Clause-

Article 10: Settlement of Disputes Between the Contracting Parties# 1 –Possibility of exhausting administrative remedies-# 7 –Fork in the Road-# 4; 5; 10 –Reasonable time for the government in order to respond claimants-# 13 –Frivolous Claimants-



Most Favored NationMost Favored NationArt. IV # 2Art. IV # 2

MFN in Colombian BIT Model:Maffezini made it clear for States negotiating BITs that, if they do not intend extending the MFN clause to dispute settlement, for certainty, an express carve out is required.

Colombia´s BIT clarifies that the MFN clause ONLY covers substantive matters

-Maffezini v. Spain-… “As the Tribunal has established, the BIT between the Argentine Republic and the Kingdom of Spain, does not specify the provisions for which the Most Favored Nation Clause applies. For this reason, and finding no fundamental question of public policy, the Tribunal has decided to extend the MFN clause to the procedural aspects of the Treaty”…



Local Administrative RemediesLocal Administrative RemediesArt. 10 # 1Art. 10 # 1


With regard to acts of a governmental authority, in order to submit a claim to arbitration under this article or to a local court or administrative tribunal, local administrative remedies shall be exhausted, should it be required by the law of the Contracting Party.



Fork in the roadFork in the roadArt. 10 # 7Art. 10 # 7

However, if an agreement is not reached, investors may make an exclusive choice of forum among 3 possibilities:

1. LOCAL COURTS1. LOCAL COURTS

2. NATIONAL 2. NATIONAL ARBITRATIONARBITRATION

3. INTERNATIONAL 3. INTERNATIONAL ARBITRATIONARBITRATION

Disputes arising between the Parties shall be settled, at first, amicably or by means of negotiation or mediation

Contentious ProcedureContentious Procedure--In any case the decision is final-In any case the decision is final-



Reasonable time for the Government Reasonable time for the Government in order to respond claimsin order to respond claims


0 1 2 3 4 5 6 7 8 9 10 11 12

LocalAdm. Remedies

Notice of intent

Request of arbitration

Notice of dispute



Umbrella ClauseUmbrella Clause


Given that a BIT should precisely determine the treaty provision where the Estate is committing itself to as opposed to including a general provision for contract breaches not defined in BITs

Colombia's BIT model does not include Colombia's BIT model does not include an umbrella clause…an umbrella clause…

ICSID case SGS v. Pakistan:…”Article 11 would amountto incorporating by reference an unlimited number of State contracts, as wellas other municipal law instruments setting out State commitments including unilateral commitments to an investor of the other Contracting Party. Any

alleged violation of those contracts and other instruments would be treated as

a breach of the BIT… however, since the Claimants did not show how the alleged facts could constitute not only a breach of the contract, but also a breach of the BIT, this Tribunal does not have jurisdiction over SGS’s claims that Pakistan breached the PSI Agreement or over Pakistan’s claims that SGS breached the PSI Agreement.”



FINAL REMARKSFINAL REMARKS

CONCLUSIONSCONCLUSIONS

• Colombia's BIT Model does not follow a particular model.

• Instead, it has built a BIT model attentive to arbitration experience of other developing countries, and following its particular constitutional needs.

• It intends balancing out according international protection standards to investors and provisions enabling the State to perform an appropriate defense if it is ever brought to international arbitration.





ECHANDI, Roberto. A new Generation of International Investment Agreements in the Americas: Impact of Investor-state dispute settlement over investment rule –making. ELSNIT. 2007.

Investor-State Dispute Settlement and Impact on Investment Rulemaking: The Asia-Pacific Perspective. UNCTAD-APEC-SE. 2006

RIPINSKY, Sergey. Expropriation. British Institute of International and Comparative Law. London, UK. 2006

www.worldbank.org/icsid/ www.unctad.org

Main Sources / bibliographyMain Sources / bibliography::





THANK YOU!!Ministry of Trade, Industry and Tourismwww.mincomercio.gov.co

Ministry of Trade, Industry and Tourism Republic of Colombia THECOLOMBIAN BIT MODEL 1st Annual Forum...

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