1

The influence of International Trade on BIT & Int.Contract

Emmy Yuhassarieemmy_ruru@yahoo.com

2

Principles & Customary Int. Law captured in International Contracts

1, Customary international law governing the treatment of foreign investment has been reshaped to embody the principles of law found in more than 2000 concordant bilateral investment treaties. With the conclusion of such a cascade of parallel treaties, the international community has vaulted over the traditional divide between capital-exporting and capital-importing states and fashioned an essentially unified law of foreign investment.

3

• Treatment of aliens related to the treatment and taking of properties . If the property of a foreigner was expropriated by a state, the expropriation was lawful only if it was for a public purpose, not discriminatory, and accompanied by the payment of prompt, adequate, and effective compensation.

4

Host’s point a view

Capital-importing states tended to have another perspective. The foreign investor was governed by the law of the host state and the remedies afforded by that law alone; he was entitled to no more than national treatment, the treatment accorded by the host state to the investments of its own nationals.

5

•This fundamental doctrine division, illustrated by the Calvo Clause, the Russian Revolution, and the famous exchange between Cordell Hull and the Mexican Foreign Minister over Mexican oil expropriations, was carried into the post-World War II world –so much so that when the Supreme Court of the US in the Sabbatino case in 1964 invoked the act of state doctrine to decline to pass upon Cuban expropriation of American property, it stated that:

There are few of any issues in international law today on which opinion seems to be so divided as the limitations on a state’s power to expropriate the property of aliens…The disagreement as to relevant international law standards reflects an even more basic divergence between the national interests of capital importing and capital exporting nations and between the social ideologies of those countries that favor state control of a considerable portion of the means of production and those that adhere to free enterprise system.

6

Resolution 1803 (XVII) of General Assembly on Permanent Sovereignty over Natural Resources in 1962, followed by the New International Economic Order and the Charter of Economic Rights and Duties of States, 1974, asserted the dominance, indeed the exclusivity of national law. Those resolution basically stated :

7

• Every state has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources and economic activities.

• Each states has the right:…• …to nationalize, expropriate or transfer

ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent . In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals.

8

• Thus that charter excluded international law. Major capital-exporting states voted against it .

• The Charter of Economic Rights and Duties was the high water mark of disregard, if not denigration , of the international law relating to foreign investment.

9

Flow of Capital

For not long after 1974, the tide turned. Universal, multilateral agreement, expressed in a single international instrument, on which law governs foreign investment and on the content of that law remained unachievable, not only in the United Nations, but through the Organization for Economic Cooperation and Development (OECD). What is remarkable is that, in the last quarter century, more than 2000 BITs have been concluded.

10

• We have seen in the last twenty years or so, a huge increase in BITs. The fact, for instance that Pakistan has signed over 40 BITs and Egypt 34 reflects the political will in such countries to develop their economies.

• Along with this phenomenal growth of BITs there is a developing and fundamental paradox : the process is expanding and is designed to protect investors most particularly in developing countries, and yet it is precisely in those countries that there is a genuine lack of understanding and a growing suspicion of the process

11

• This is manifested in concerns that because international arbitration is a product of many years of experience in western countries, it is alien to local culture. Host governments feel that they are being made to participate in a process they do not understand.

• They feel the system is one-sided because the lawyers who negotiate and draft international rules and conventions on arbitration turn out to be the same lawyers who act as counsel and arbitrators, who do not understand the local language, culture, and legal traditions. Host states feel marginalized, on the one hand, and entirely reliant on foreign lawyers to represent them, on the other. The result is that they often try to get ot of the arbitration any way they can.

12

• The suspicion and lack of understanding is further compounded by the current global political situation, which is increasingly polarizing Islamic versus non- Islamic countries, so that the dimension now is not just developed versus developing but is in effect acquiring a a specific identity of Shari’ah versus no Shari’ah. This has a direct impact on international trade and investment in countries adhering to the Shari’ah.

• As an example, recent years have shown a marked increase in Islamic financial services. Islamic banks have fostered a rapidly growing market and are active both in commercial and investment banking. Last year, it was reported that an estimated $ 200 bilion were invested according to Shari’ah principles of banking.* ( Nudrat Majeed )

13

• Suspicion puts tensions on the system itself, which in turn may threaten a breakdown in the process. This has already been evidenced in private international arbitration. The same countries mentioned earlier as having opened their doors to foreign investment, Pakistan and India , are now better known as countries where arbitration will inevitably end up in local courts. The results in the arbitrations of Hubco in Pakistan , Dhabol in India , and Himpurna in Indonesia are poignant examples.

14

• If the gaps in the process are not addressed now, we have on our hands a time bombs. These concerns should be addressed, understood, and forestalled

15

• First, and most important, not just developing countries but all Islamic countries must understand that the process itself is not inherently unfair, and in particular is entirely compatible with the Shari’ah. Why should it not be? The Shari’ah, Islamic jurisprudence, began when the first Prophet Adam set foot in this earth. It then evolved along with the religions with the wisdom and practices of the messengers who followed. IN other words, the Quran recognizes and accepts the Devine Law laid down by earlier revealed religions. While Islamic jurisprudence finds its proper identification in the Quran, the foundation for the Shari’ah was laid long before.

16

Therefore, the process of arbitration, which traces it roots before and through

Judaism and Christianity, continued to be practiced in Islam. Ther are many examples of informal processes, e.g. when the Prophet Muhammad was asked by the Aws and Khazraj tribes to arbitrate –notably, a dispute between Arab and Jewish tribes—setting an exemplary standard for the independence of

arbitrators

17

• . Like hat between Imam Ali, the fourth caliph and Muawiyyah, the governor of Syria, when the parties agreed, in the middle of battle in Siffin, to arbitrate theire dispute. They drew up a treaty; reduced their oral arbitration agreement to writing; named the arbitrators, the applicable law, the place of arbitration, and a time limit for making the award; and had it attested by over four hundred witness, namely the soldiers in battle.

18

• Second, insofar as treaty arbitration is seen as a new form of arbitration or as the application of known principles in a new context, the Shari’ah has it in the ability to evolve. There is a common misconception that the Shari’ah like any old tradition, is set in stone because its sources are old, but one of the main sources of Islamic law is Ijtihad. This is legal reasoning arrived at by the consensus of scholars to determine the property of a thing when it cannot be found in the other sources of Quran and Sunnah

19

• It is what makes the Shari’ah a living law, because it is intended to respond to highly diverse cultures and situations that Muslims find themselves in. On one occasion, the reigning sultan, Harun al Rasjid, went to Imam Malik , the founder of one of the schools of Islamic jurisprudence, and said to him, “ Let me disseminate your book which you attended to in the country of Islam, in order to bring the community together.” The Imam said to him. “ O rightful leader, the disagreement of the ulama ( the scholars) is a mercy from the Almighty on this community, so everyone is in need of guidance and must strive for reality.”

20

• Third, developed countries must allow developing countries full involvement and must understand the problems that developing countries face , e.g. the simple lack of infrastructure to deal with investment arbitrations, the lack of lawyers with reasonable library facilities, the lack of access to sources , must be taken seriously at the beginning

21

• Finally, the essence of investment treaties is to build a protected environment of trust in which investments can safely be made, then each party must understand the other. This is not a plea for special treatment for developing countries or a complaint that the process is unfair or pro –investor. Rather, it is an attempt to remind international law and law makers of something uncontroversial and inherently right: that in order to uphold rights, such as equitable treatment, access to justice, and just compensation, we must ensure that there is a level playing field for all the parties.

22

• The fundamental objective of all procedural requirements and technicalities, rights and remedies, and rules is simple: that substantive truth should prevail. To follow the example of the Yemenis and see the past as ever-present, let me end up with the words of the Prophet Muhammad, who uttered this 1,425 years ago :

23

• I am only a man and when you come pleading before me, it may happen that one of you will be more eloquent in his pleading and as a result, I will adjudicate in his favor according to his speech. If it so happens, and I give an advantage to one of you by granting you a thing that belongs to your opponent, you had better not take it, for I would be giving you a portion of hell.

24

International law to be transformed thru ..?

• Treaty

• Customary law and

• General Principle of Law