Bilateral investment treaties treatment of international capital movement: time for reform?
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While the freedom to move capital is necessary for foreign investors, the power of the state to
regulate capital transfers is necessary to prevent volatile capital from causing financial crises as
well as to mitigate such crises when they occur. Thus, in regulating international capital
movement, a balance should be made between the right to transfer funds and the state’s right to
protect the stability of its economy. It is in relation to achieving this balance that this thesis
argues that bilateral investment treaties’ (BITs) regulation of capital transfers is deficient, both
substantively and procedurally.
On substance, this thesis identifies three substantive defects that affect obligations under BITs:
absoluteness, immediacy, and breadth. First, many BITs adopt an absolute approach in
liberalizing capital that does not permit any restrictions or exceptions, nor does it distinguish
between different kinds of capital, or between the right to import capital and the right to
repatriate capital. Second, the obligation to permit transfers is immediate and does not allow for
a gradual liberalization of capital. Third, many BITs’ terms and obligations are broad and
therefore vague, such as the broad definition of investment, or the obligation to grant fair and
equitable treatment, which is also broad and interpreted in a manner that restricts the regulatory
powers of the host state.
Such results could have been partly mitigated if there were a dispute settlement mechanism with
the power to create precedent and with it a clearer and more coherent body of rules. But BITs’
investor-state arbitration is also deficient since it consists of ad hoc tribunals, which are not
bound by precedent; and their decisions are not generally subject to substantive review. This
leads to an inconsistent and incoherent body of law that protects neither the state’s regulatory
powers nor the legitimate expectation of investors
Authors
Hussein, Amr Abbas Mohamed Adel Abbas AlyCollections
- Theses [3711]