Bilateral Investment Treaties (BITs) are entered into between two States. They provide a basic regulatory framework for the promotion and protection of foreign investments.

The key purposes of BITs are to:

  • Establish confidence in the host-state’s economic and political framework,
  • Avoid lengthy and costly legal disputes,
  • Establish legal certainty,
  • Create a favourable investment climate,
  • Open access to international financial markets.

The specific contents of BITs vary greatly from one BIT to another:

  • While some BITs contain provisions on the market entry and admission of foreign businesses and investors, most leave market entry conditions to domestic law, and are only concerned with post-entry issues.
  • As to the post-entry treatment of investors, a set of substantive standards has been developed which, although details will always vary, are contained in many BITs, such as Most-Favoured Nation Treatment (MFN), Fair and Equitable Treatment (FET), Full Protection and Security (FPS), or National Treatment (NT).
  • These standards will only apply if an investment is as such protected, for which BITs contain diverging definitions. An actual on-premise investment in tangible goods or land is not always necessary; tribunals have considered that intangibles, even mere receivables, may, under certain circumstances, constitute relevant investments.
  • Most BITs confer individual rights upon investors, against host-states, and foresee a dispute-resolution system in case of non-compliance.

EU Member States no longer have the power to enter into BITs with third countries. The competence now lies with the EU exclusively, and CETA is an example of an EU BIT (with Canada) which has been signed recently. Existing BITs between EU Member States and third countries remain in place. Following the Achmea judgement of the European Court of Justice, the new understanding is that the EU law prohibits the establishment of a second layer of protection through BITs within the EU. As a result, EU Member States are no longer allowed to conclude intra-EU BITs.

BITs are instruments for the benefit of third parties because the investors who may invoke them are not signatories to them. Host States may enter into (typically: private law) agreements with such investors, and if the relevant BIT contains an umbrella clause, then the terms of the agreement between the investor and the host become invokable under the BIT as well. However, neither the existence of a specific agreement between an investor and a host State nor an umbrella clause are necessary in order for a BIT to operate in the favour of an investor.

Relevant Experience of BODENHEIMER Attorneys

Axel Benjamin Herzberg and Dr Rouven F Bodenheimer routinely advise both, investors and governments on international investment law issues. Mr Herzberg also handled a number of ISDS cases as Deputy Counsel at the Secretariat of the ICC International Court of Arbitration in Paris.

Dr Nicolas Klein worked for German Federal Constitutional Court Justice Professor Dr Andreas Paulus, himself a renowned public international law specialist who represented Germany, inter alia, before the International Court of Justice in the LaGrand case against the United States. Both, Dr Klein’s doctoral thesis and his LL.M. studies at Columbia University (New York) revolved around issues of international investment law, in particular the scope of application ratione personae of bilateral investment treaties.