Bangladesh needs to revisit old investment treaties

During the current pandemic, apart from all Covid-19 related disheartening news from in and outside of the country, Bangladesh has received some good news too. The rift between the United States and China resulted in problems for foreign investors in China. Many foreign-owned companies are reframing their business strategy to overcome the ongoing trouble. As a part of new business strategy, many companies have decided to relocate part or full of their production plant to some other countries with the favourable business environment. Fortunately, Bangladesh is in the list of those few countries where foreign investors from some capital-exporting countries are showing interest.

Recently, the Japanese entrepreneurs have expressed their interest to invest in Bangladesh. Bangladesh holds a friendly relationship with Japan since long. Japan International Cooperation Agency (JICA) has financed many significant development projects in Bangladesh. Worldwide Japan is renowned for its technological advancement and it owns global motor and techno giants like Toyota, Mitsubishi, Honda and Sony. If Bangladesh can provide the necessary support, investment from Japan will definitely open a new horizon in the job sectors of Bangladesh and developing knowledge and skills in sophisticated technologies.

The guarantee of protection that foreign investor looks into before it invests is a significant issue for countries that expect inward foreign direct investment. Generally, foreign investors take into consideration the level of protection they will get in the host State. In this case, they do not merely rely on the words of the Government; rather, they require legal protection under international law. In the last more than three decades, the world has witnessed a boom in the adoption of instruments protecting foreign investment under international law. These instruments are popularly known as Bilateral Investment Treaties (BITs), Multilateral Investment Treaties (MITs) and Free Trade Agreements (FTAs) with investment chapter. These instruments are signed between or among countries and provide the definition of investment, investors, and the level of protection investors from contracting parties will receive in the territory of host State and if anything adverse happens then what remedy the investor can resort. When such agreements are signed between a capital-exporting and a capital importing country, the trend so far has been to provide expensive unconditional protection in the treaty to foreign investors.

Treaties that provided expensive protection to the foreign investors have drawn much debate in the last decade or more and continued to be subject of criticism from a group of scholars mostly from developing countries. Foreign investors dragged many States to international forum based on the protection that the host State promised to it but did not provide or violated. One of the popular destinations of investors in resolving their dispute with the State is the International Centre for Settlement of Investment Disputes (ICSID). The ICSID arbitration has produced many awards in favour of investors upholding their claims against State. Bangladesh has also experienced such move by the foreign investor in Saipem v Bangladesh (ICSID Case No. ARB/05/07).

Due to the asymmetric nature of the investment treaties, foreign investors hold an advantageous position in investment arbitration. However, in the last several years, many countries have brought significant change in their foreign investment policy and treaties. They updated treaty provisions in rebalancing the system. Bangladesh has signed around 34 BITs so far. However, the provisions of most of these BITs are old fashioned and tilt too much towards the foreign investors. The current situation signals that in the coming years, Bangladesh will be able to attract and accommodate new foreign investments from different capital-exporting countries who want to avoid their damage due to rift between global powers. Therefore, Bangladesh needs to revisit its existing BITs to ensure in the one hand, just and adequate protection to the foreign investors is provided, and on the other hand, State's power to regulate also saved.

Based on the experience of the outcome of investment arbitration, new developments have taken place in the investment treaty drafting. These developments broadly include the insertion of specific provision relating to corruption, corporate social responsibility related obligations to the investors, human rights and labour protection-related provision, sustainable development and environmental protection related provision, limiting the scope of most favoured nation (MFN) provision, the provision on the scope of third party funding and inclusion counterclaim provision. In this process, some States have taken the extensive protectionist approach (for example, Brazil) and most others though brought change but cannot be labelled as too protectionist.

At present, almost all the BITs of Bangladesh belong to the categories of first and second generations BITs that hold less regulatory scope for the host State and provide only rights to the investors, impose no obligation on them. As there is a possibility of attracting new foreign investment in the coming days, therefore, it is the best time to revisit the BITs of Bangladesh to update and adjust their provisions considering the new developments and clarifying the meaning of some provisions considering their evolution in the arbitral jurisprudence. This update could be done either by holding fast track renegotiation of old BITs or by adopting additional protocol to the existing BITs and also by adopting joint interpretative note to the existing BITs.  

THE WRITER IS A MPHIL CANDIDATE (INTERNATIONAL INVESTMENT LAW), SOUTH ASIAN UNIVERSITY, NEW DELHI.