Midterm 3: Finance Flashcards
Bilateral Investment Treaty (BIT)
Binding international agreement between two countries that outlines how investments from one country’s investors will be treated in the other.
These treaties aim to create predictable and fair investment environments, offering protections for investors while safeguarding the host country’s regulatory rights.
Expropriation
Expropriation is the act of a government taking privately owned property for public use or national interest, often without the owner’s consent.
Direct Expropriation
The outright seizure of property by the government (e.g., nationalizing industries).
Indirect/Creeping Expropriation
Gradual actions by the government (e.g., regulatory changes, excessive taxation) that reduce the property’s value or ownership rights.
U.S. Model BIT
- Acts as a sample agreement used in negotiations.
- Updated in 2012 to strengthen investor protections while ensuring the U.S. retains the ability to regulate in the public interest.
- Incorporates input from Congress, businesses, labor groups, NGOs, and academics.
- exemplifies a balanced approach to investment treaties, protecting investors while promoting responsible regulation and governance
Calvo Doctrine
Equal treatment
Foreigners should receive the same treatment as citizens of the country they live in, and should not receive special treatment.
Local courts
Foreigners should seek legal recourse in the local courts of the country they live in, rather than through diplomatic channels.
Hull Formula
The U.S. standard that requires “prompt, adequate, and effective” compensation for expropriation, incorporated into U.S. investment treaties.
Mechanisms for Protecting Foreign Investments
- Insurance Mechanisms
- Overseas Private Investment Corporation (OPIC) and Multilateral Investment Guarantee Agency (MIGA) provide political risk insurance - BITs
- International Arbitration
- Treaties and agreements grant investors access to arbitration through bodies like the International Centre for Settlement of Investment Disputes (ICSID) or under the UNCITRAL rules.
Advantages of Arbitration
- reassures investors
- spares local courts
Disadvantages of Arbitration
- Expensive
- Rigid
- Predictability of awards
- Difficulty of collection
US Model BIT Article 3
National Treatment Article
US Model BIT Article 4
Most-Favored-Nation Treatment Article
US Model BIT Article 5
Minimum Standard of Treatment:
Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.
US Model BIT Article 6
Expropriation and Compensation:
Neither Party may expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization (“expropriation”), except:
(a) for a public purpose
(b) in a non-discriminatory manner;
(c) on payment of prompt, adequate, and effective compensation
(d) in accordance with due process of law and Article 5
US Model BIT Article 7
Transfers:
Each Party shall permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory. Such transfers include:
(a) contributions to capital
(b) profits, dividends, capital gains, and proceeds from the sale of all or any part of the covered investment or from the partial or complete liquidation of the covered investment
(c) interest, royalty payments, management fees, and technical assistance and other fees
(d) payments made under a contract, including a loan agreement
(e) payments made pursuant to Article 5 Minimum Standard of Treatment and (5) and Article 6 [Expropriation and Compensation]
(f) payments arising out of a dispute.
US Model BIT Article 10
Publication of Laws and Decisions Respecting Investment:
Each Party shall ensure that its:
(a) laws, regulations, procedures, and administrative rulings of general application
(b) adjudicatory decisions
are made publicly available
US Model BIT Article 11
Transparency
US Model BIT Article 12
Investment and Environment
Must consider the environmental impacts of investments
US Model BIT Article 18
Essential Security
Not required to disclose info related to essential security
US Model BIT Article 20
Financial Services
A Party shall not be prevented from adopting or maintaining measures relating to financial services for prudential reasons, including for the protection of investors, depositors, policy holders, or persons to whom a fiduciary duty is owed by a financial services supplier, or to ensure the integrity and stability of the financial system
US Model BIT Article 21
Taxation
Nothing in this Treaty shall affect the rights and obligations of either Party under any tax convention.
US Model BIT Article 24
Submission of a Claim to Arbitration
the claimant, on its own behalf, may submit to arbitration under this Section a claim:
that the respondent has breached
- an obligation under Articles 3 through 10
- an investment authorization
- an investment agreement
US Model BIT Article 34
Awards
the tribunal may award, separately or in combination, only:
(a) monetary damages and any applicable interest
(b) restitution of property, in which case the award shall provide that the respondent may pay monetary damages and any applicable interest in lieu of restitution.
US Model BIT Article 37
State-State Dispute Settlement
- Disputes unresolved through diplomacy are submitted to binding arbitration under UNCITRAL rules unless otherwise agreed.
- Tribunals have three arbitrators; if not formed in 75 days, the Secretary-General appoints missing members.
- Costs are shared equally unless the tribunal decides otherwise.
- Related provisions on amicus curiae, transparency, governing law, and annex interpretation apply.
- Excludes disputes under Articles 12 and 13.
Sabbatino Case Summary and Legal Question
Backdrop: After the Cuban Revolution, the Cuban government, under Fidel Castro, nationalized U.S.-owned property in retaliation for American sanctions, including a reduced sugar quota. This nationalization affected businesses like Farr, Whitlock & Co., an American commodity broker dealing in Cuban sugar.
Core Legal Question: Does the Act of State Doctrine prevent U.S. courts from adjudicating the validity of Cuba’s expropriation of property, even if it allegedly violates international law?
Act of State Doctrine
Precludes U.S. courts from questioning the validity of public acts by a recognized foreign government conducted within its own territory.
Rationale: Judicial intervention in such cases could undermine U.S. foreign policy and strain diplomatic relations.
Sabbatino Case Ruling
The Supreme Court reversed the lower court’s decision, ruling that the Act of State Doctrine barred U.S. courts from evaluating the validity of Cuba’s expropriation.
Dissent: Justice White argued for limited application of the doctrine
Congressional Limitation (Hickenlooper Amendment): In response, Congress narrowed the doctrine’s scope in cases of confiscation violating international law
Sabbatino Case Importance
Legal Precedent: Limits judicial review of foreign sovereign acts within their borders.
Foreign Policy: Reinforces separation of powers, deferring to the executive branch on international relations.
Sovereignty: Protects foreign governments from U.S. judicial interference, even in cases of alleged international law violations.
