Government Frame Model BITs & New Model BITs Case Study – Law Assignment Help

Task 

Government framed a Model BIT (Bilateral Investment Treaty)

From 1770 to 1970, Andora was a Spanish colony. Before the arrival of the Spanish in 1750, agriculture and pastoralism were the main sources of livelihood in Andora. Being a small country with abundant fertile land and dense forests, people were mostly engaged in agricultural activities and animal husbandry. Since the country was surrounded by sea in the North and the West, population living in coastal areas also engaged in fishing activities. As a sparsely populated country and with abundant natural resources, Andora was a self-sufficient and self-reliant country. While internal trade between different communities existed for centuries and seafaring was common among the coastal population, the country never felt the necessity of engaging in external trade. A lot of things, however, changed after 1750. Being surrounded by seas, the country became attractive to the Spanish explorers to engage in trading activities.

When the Spaniards arrived in the country in 1750, Andoran people had very little knowledge about foreign trade and the outside world, which created a significant barrier for the Spaniards to establish trading relationship. The Spanish explorers, however, were persistent in their endeavour, mainly because the country had abundant fertile land and natural resources. Thus, upon educating the local tribal leaders about the benefit of trading with other nations, the Spaniards was granted the permission to construct their settlement in the Northern part of the country and engage in trading activities. During the initial years, the Spaniards purchased agricultural produce and raw materials, such as sugarcane, cotton, tobacco, silk, and jute, from the local population and transported and sold them in the European market in high price that brought enormous fortune. 

Realising enormous profit from their trading activities in the Northern part of the country, the Spanish General sent his proposal to expand trade in other parts of the county to the King of Andora. Being refused, the Spaniards waged war and, in 1770, in the ‘Battle of Aguila’, defeated the King and gained control over the country.As Andora became a Spanish colony and was under colonial rule for 300 years, there was a radical transformation in the social, legal and economic structure of the country – European idea of private land ownership replaced the communal land holding system, commercial farming replaced the subsistence based farming, and Spanish laws and administration of justice

replaced the customary laws and traditional justice system. The Spaniards also introduced the revenue collection system and with the introduction of ‘modern’ scientific knowledge and technological advancements, the extraction of natural and mineral resources became the mainstay of colonial governance and economy. Consequently, there was massive poverty, exploitation, unemployment, massacre, famine, violence, extortion, destruction of land, cultural and biological diversity. In short, the 300 years of colonial rule not only brought cultural, legal and economic homogenisation, but also transformed the country into an extractive economy and integrated Andora with the capitalist world economy. 

It is also important to mention that from the 1900 onwards, the colonial government attempted to establish a European style federal structure in Andora and accordingly, the country was divided into a number of provinces and the existing tribal leaders were made the governments of the provinces, who were under the rule of and answerable to the colonial government – Governor- General, the head of the executive. Although, as provincial governments, the tribal leaders governed their own communities and societies, they had very little freedom and had to obey and follow the orders and proclamations of the colonial central administration. This is not to say that Andorans were submissive and always accepted colonial rule willingly without resistance.

Being proud of their culture, tradition and self-rule, Andorans frequently protested and resisted subversion, exploitation, destruction of biological resources, and introduction of foreign laws and legal systems without any success. However, in the 1940s, the extreme pressure for revenue exactions coincided with drought that led to a disastrous famine, which awakened the Andorans. What followed in the last 30 years of colonial rule is protracted struggle and massive movement for freedom and independence. Andora gained independence from colonial rule in 1971. The main catalyst in the struggle for independence was the ‘Organisation of Nations, Nationalities and Peoples Union’ (ONNPU), a loose coalition of heads of the provinces.

With much fanfare, the head of the ONNPU, who was also the leader of Ku Kan tribe, was elected as the President of the country. Although the Ku Kan tribe was a minority population in Andora, being a descendant of the last Emperor, the tribe had not only demonstrated its dominance over other tribes, but also opposed the colonial rule from the beginning, catalysed reforms in the political set-up and economic structure during colonialism, and subsequently, took a leading role in the struggle for independence. Thus, as an heir to the throne, his role in achieving independence and keen interest in the governance of the country, the leader of the Ku Kan tribe was a natural choice of the population to run the country. After coming to power, the immediate task of the government was to reinstate law and order, bring reforms in the ownership of land, natural resources and extractive sector, invest in the development of infrastructure and regenerate agricultural production, and create employment, thereby pulling the country out of poverty. 

To bring the desired reforms, the new government drafted a written Constitution, which came in to effect in 1973. Autocratic in nature, the new Constitution established an authoritarian form of governance and therefore, all powers were transferred to and became concentrated in the hand of the President. Accordingly, the state became the owner of all land and natural resources as well as the provider of all public utility services. Moreover, investments in infrastructure development, agricultural and industrial production, and in the financial and extractive sectors were promoted and controlled through state-owned enterprises. Since the new government had put emphasis on becoming self-reliant and self-sufficient through domestic production and investment, engaging in foreign trade and attracting foreign investment were not on the economic and development agenda of Andora.

However, the new government faced significant hurdles in implementing its economic and development policies in the long run. The main impediment for the government was the lack of required financial resources needed to invest in infrastructural, agricultural and industrial development. Thus, while the government managed to bring much needed social, legal and economic reforms in the last 30 years, many infrastructural and industrial projects remained incomplete, agricultural and domestic production stagnated, there was no foreign trade and state-owned enterprises monopolised the delivery of utility services that increased the prices of essential public services significantly. Further, corruption was rampant in public sector enterprises and in the extractive sector. 

The government also controlled the news media and a great deal of people’s lives. The voices and wishes of the public as well as opposition leaders were never considered in government decision-making. Moreover, to remain in power, the government not only repressed and imprisoned the opposition leaders but also allocated important political positions to those who were supportive of the regime and loyal to the government. There was no protection and guarantee of fundamental freedoms in the country. Frustration and dissatisfaction with the regime were widespread among the population. Thus, in 2000, in a violent coup, a rebel group, consisting of leaders from the Kela Ku tribe – the largest population of the country, with the help of military overthrown the authoritarian governmentand seized power in the country. The rebel group promised to conduct a democratic election in the beginning of 2001 and elect the head of the government through democratic processes.

In the democratic general election that followed, the leader of the Kela Ku ethnic group became the first democratically elected government of Andora. In his election manifesto, the incumbent Prime Minister promised to overhaul the country’s economic and development policies. More specifically, he emphasised the importance of foreign trade and investment in poverty alleviation and economic development, and to this end, he promised to transform the country into an export-oriented economy and a preferred destination for foreign investors. Hence, after coming to power, the new government enacted a democratic constitution that guaranteed fundamental freedoms and rights of all citizens, transformed the country into a ‘Secular, Democratic, Socialist, Republic’, and established a ‘multi-party’ political system. 

Further, he brought much needed reforms in government services that made essential public services accessible and affordable. To restore public confidence in government and to attract foreign investment, new economic and development policies were adopted to rejuvenate agricultural and industrial production, and infrastructure development. Extractive sector was also on government’s agenda for further reforms and development. However, being cash-strapped, much like the previous regime, the new government faced significant challenges to continue with the proposed economic reforms and development projects. Thus, in 2005, the government approached the ‘Global Bank for Economic Reconstruction’ (GBER) – a lender of last resort, for a loan of 5 billion US dollars. 

While the GBER agreed to provide the much-needed finance to complete the development projects, it also imposed a number of conditions directed, mainly, towards liberalisation, privatisation and legal reforms. To fulfil the conditions, the government in the next 5 years, opened the domestic market to foreign trade, goods and services, privatised and liberalised the public utility services, insurance, aviation, banking, defense, and extractive sectors, and brought legal and judicial reforms, mainly in country’s contract, tax and corporate laws. In 2010, the Democratic Republic of Andora became a member of the World Trade Organisation (WTO) and therefore, the government brought further reforms in a host of other legal areas, including IPRs, agricultural, labour, and investment laws. To augment its foreign currency reserve through increased export of domestic goods, the government negotiated and entered into a number of ‘preferential trade agreement’ (FTAs) with neighbouring countries and the EU (European Union).

Since attracting foreign investment into the country was also on the agenda, the government framed a Model BIT (Bilateral Investment Treaty) in 2012 that provided important guarantees and protections, and a host of other flexibilities and benefits to foreign investors. In a 2013 press statement, the government highlighted the country’s openness to foreign investment and directed the attention of international business communities towards its Model BIT as well as legal reforms in the areas of tax, corporate, IPRs, labour, contract, insurance and administrative laws. The press statement received positive response from many countries in Asia, Africa, North America and Europe. And in the next few years, the government not only signed BITs with 20 developed countries but also attracted massive foreign investment into the country, mainly in the extractive sector and infrastructure development projects. While foreign investment in the extractive sector and in infrastructure development brought the much needed financial and technological capital to spur economic and social development, most of the projects were located on tribal lands, which were considered as sensitive ecological and biologically diverse regions of the country. Accordingly, there were occasional reports of ecological damage, displacement of tribal

populations, destruction of agricultural lands and livelihood, environmental pollution, and human rights abuses. However, the government brushed aside these reports highlighting the enormous economic benefits brought by foreign investment and the intended welfare the projects would bring to the Andoran economy and society. In December 2021, a local NGO – Save the Ecology, published a detailed report on the ruinous economic, social and environmental impacts of extractive and infrastructure projects. There was also an allegation of corruption against several government departments and foreign investors in the Report. As such, the Report garnered considerable local and international media attention. Relying on the report, several ethnic groups launched a series of onslaughts against the government, vandalised government offices and destroyed government properties. 

The main opposition party – People of the Republic – a coalition of leaders from a number of ethnic groups, demanded a thorough enquiry of the issues highlighted and allegation made in the Report, and called for Prime Minister’s immediate resignation. Succumbing to pressure, the Prime Minister resigned in the next day. To fill the political void, the main opposition party formed a coalition government and constituted a committee to carry out a thorough enquiry of the issues reported. In addition, the coalition government also promised to initiate legal actions against the foreign investors if the charges of corruption, ecological damage, displacement, environmental pollution and human rights abuses are proved. 

However, the coalition government is also aware that BITs provide broad guarantees and protections to foreign investors that undermine the exercise of power of states to take measures to protect public interest. Further, BITs also contain inflexible and obligatory rules that not only impose onerous obligations on the host state but also take away regulatory autonomy of the government to pursue legitimate public policy objectives. Thus, in the beginning of 2022, the coalition government constituted an Expert Committee consisting of five members to conduct a detailed study of existing BITs entered or signed by the previous government, more specifically to provide detailed insights into the nature and scope of obligations imposed on the host state and the foreign investor, dispute settlement process, anti-corruption provision, and the nature and scope of the renegotiation clause.

The Expert Committee submitted its report in the end of March 2022 and the main findings of the Committee in brief are –

1. The existing BITs impose onerous obligations on the host state and no obligations are imposed on the foreign investor. The inflexible and obligatory rules provide no regulatory autonomy to the government to pursue and protect legitimate public interests.

2. None of the existing BITs contains any provision that imposes obligations on the investor to respect human rights, and protect the environment and ecology.

3. The provisions concerning dispute settlement also remain inflexible, since investor-state disputed should be resolved only though arbitration in a third country.

4. None of the BITs contain any ‘anti-corruption provisions’ (ACPs).

5. All the existing BITs contain a clause for ‘full scope renegotiation’ (generally called ‘sunset clause’) that permits the renegotiation of an agreement after the expiration of 10 years.

After going through the Expert Committee’s Report and relying on the fifth finding, the coalition government decided to frame a new Model BIT and go for a full scope renegotiation of all the existing BITs, since some of them will expire in the end of 2022 and others will expire in the middle of 2023.

You are an expert in international investment law and the coalition government has contacted you to provide advice on two aspects –

i. The possibility of and the justification for including a provision/clause that will impose obligation on the foreign investor to respect human rights and protect the environment. What should be the benefit and cost of including such a provision in the New Model BIT.

ii. The possibility of and the justification for including an ‘anti-corruption provision’. What should be the nature and scope (i.e., a soft law or a hard law), and benefits of such a provision.

Prepare an advice note of not more than 500 words (1 A4 page). Support your arguments, advice and justification with example from case laws (jurisprudence developed through ICSID and other arbitral decisions), new generation BITs practices, new Model BITs of any countries or recently concluded BITs that contain such provisions.