Bilateral investment treaties

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Essay #1



Due to globalization tendency and the increasing relation between international markets, States have the necessity of establishing economic relations in order to develop its economy by stimulating investments in its territory. The mostimportant instrument utilized as a mechanism not only to ensure the protection but also to promote these foreign direct investments, are the Bilateral Investment Treaties, common known as BITs.
The first Bilateral Investment Treaty (BIT) was signed in 1959 between Germany and Pakistan in order to promote investments in Germany that has lost a large part of its investments after the Second World War andsearched a way to rebuild its economy by promoting foreign direct investments. The use of the BITs as a new method of establishing investment accords between countries has been followed by Switzerland that signed its first BIT in 1961 and France, in 1962. A not really significant number of BITs was concluded from the 1960’s until the1980’s.
However, the spectacular increase of the BITs onlyhappened in the 90’s, when the states realized that the necessity of development by emergency markets has grown. In order to develop its economy, the developing countries sought the safest instrument not only to protect, but also to promote the foreign direct investments, so the BITs. As an example, during the pass decade, the number of BITs quintuple, rising from 385 at the end of the 1980’s to 1.857at the end of the 1990’s[1]. In 2006 some 2.400 – 2.600 bilateral investment treaties were in effect, most between developed and developing countries but a substantial number between developing countries inter se[2].
The rise of the Bilateral Investment Treaties in the pass decade is explained by the need of an effective protection of these foreign investments by investor state. The regularexpropriation and nationalization by some countries demonstrated the necessity of more effective protection and led to a growing number of BITs.
As it has been mentioned, the BITs are the most advantaged investment mechanism for a foreign investor nowadays. These advantages includes even a minimum standard of treatment in accordance with international law by the NAFTA (article 1.105). Here are someadvantages that certainly contributed to the success and consequently the rise of the BITs in recent decades:

• it establishes how the rules should be applied in a case of dispute with the host state. Without a BIT the investor would first have to exhaust his local remedies before his own state could pursue his rights in international law;
• the BIT gives the right to foreign investorsto take host states to international arbitration and if a case that the host state breach of the BIT, the investor can take up the claim on his own, not being necessary to involve his own government to take it up;
• if the dispute is decided in favour of the investor, the BIT requires the award to be enforceable in the courts of the host state;
• the BIT requires the host state toaccord ‘fair and equitable treatment’ to inward investment, that means no discrimination by nationality or origin of the investor state;
• investments in BIT enjoy most-favoured-nation or national treatment. The most-favoured-nation treatment (MFN) gives the foreign investor the same rights as those granted by the host state to investors from the most-favoured third state and the nationaltreatment guarantees to the investor an equal treatment to that accorded to local nationals. Often a BIT provides for the standard to be whatever is most favourable to the investor, which is not necessarily national treatment;
• the BIT encourages investments by providing for the free transfer abroad of earnings and capital;
• the BIT regulates the conditions under which expropriation may...
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