THE COLOMBIAN BIT MODEL: A Balanced Treaty with NAFTA, OECD and Colombian Constitutional Elements

1. THE COLOMBIAN BIT MODEL: A Balanced Treaty with NAFTA, OECD and Colombian Constitutional Elements Twelfth Investment Treaty Forum Public ConferenceInvestment Treaties at 50: Host State Perspectives JOSE ANTONIO RIVAS Director of Foreign Investment and Services London, May 2009

2. INDEX • 1. Colombian Model BIT: Provisions to prevent i-S disputes • Substantive provisions • State Defense Clauses • 2. Government Strengthening for i-S Disputes.

3. PROVISIONS TO PREVENT i-S DISPUTES: The Colombian BIT Model What sorts of provisions are there in current International Investment Agreements that would allow states an appropriate defence? ESTRATEGIC DEFENCES TO ARBITRATION

4. PROVISIONS TO PREVENT I-S DISPUTES: The Colombian BIT Model Greater precision of certain substantive clauses enhances legal certainty of the investor – State dispute settlement mechanism. Such provisions may include: I. SUBSTANTIVE PROVISIONS OF MUTUAL COMMITMENT • Definition of investment • Fair and equitable treatment & full protection and security • Most Favored Nation Treatment & National Treatment • Free Transfers • Expropriation and Compensation • Investment & Environment

5. PROVISIONS TO PREVENT I-S DISPUTES: The Colombian BIT Model Procedural provisions of the Colombian BIT Model drafted with a view to encourage an appropriate defence by the State in case of an investor - State dispute: II. PROVISIONS ALLOWING STATES AN APPROPRIATE DEFENCE: • Rejection of the Maffezzini Doctrine • Obligation of exhausting local administrative remedies • Fork in the road • Reasonable time for the Government to respond to claims • Frivolous Claims • Umbrella Clause

6. 2. GOVERNMENT STRENGTHENING IN INVESTOR – STATE DISPUTES

7. GENERAL CONSIDERATIONS Issues to be thought of by developing States Parties to BITs or FTAs concerning i-S arbitration: • What model of defense should a developing country choose? • i. Outsourcing legal services • ii. In-house lawyers • iii. Combined system ? • Domestically, the agency involved, e.g. issuing the measure in question, should be liable if the Tribunal rules that the State is responsible. • Training on treaty implications to public servants : • - who are directly involved in i-S defense; and • - whose normal course of work relates to foreign investment. Criterion: The model of defense should lead to an institutional strengthening of its defense system

8. GOVERNMENT STRENGHTNING FOR IRD ADMINISTRATION The Colombian Strategy KNOWING THE INVESTMENT RELATED DISPUTE (IRD) : There must be a Lead Agency centralizing notifications and coordinating any response. Lead Agency MCIT INVESTOR I Notification of a dispute –NoD- Involved Agency NoD NoD Involved Agency CONSULTATIONS INVESTOR – STATE: Lead Agency must be in charge of coordinating the rest of governmental agencies involved in the Dispute. It also must be the front desk for contacts between the investor and the administration. Investment related Agency Investment related Agency II Lead Agency MCIT Inter-agency Committee INVESTOR Investment related Agency Coordination Consultations Other Relevant Agency INVESTOR ARBITRAL PROCEEDINGS Even during the arbitration the above stated roles of the Lead Agency must be maintained. Any non-judicial solution must be approved by the Inter-Agency Committee Dialogue III LEAD AGENCY MCIT ARBITRATION FORUM INTER-AGENCY COMMITEE Claimant’s submissions State’s submissions Coordination

9. GOVERNMENT STRENGHTNING FOR IRD ADMINISTRATION The Colombian Strategy KNOWING THE INVESTMENT RELATED DISPUTE (IRD) : There must be a Lead Agency (LA) centralizing notifications and coordinating any response. The Investor must submit any notification to the LA. INVESTOR – STATE CONSULTATIONS: Lead Agency must be in charge of coordinating the other governmental agencies involved in the dispute in order to conduct consultations. It also must be the front desk for contacts between the investor and the Government. ARBITRAL PROCEEDINGS Even during the arbitration, the above stated roles of the Leading Agency must be maintained. Any non-judicial solution must be approved by an inter-agency committee. The LA coordinates the State’s defense strategy.

10. PROVISIONS TO PREVENT I-S DISPUTES: The Colombian BIT Model CONCLUSIONS • Colombia's BIT Model does not follow a single model, but includes elements from OECD, NAFTA and its own constitution. • The BIT Model responds to the arbitration experience of other developing countries. • Colombia's BIT model intends to accord protection to investors under international law standards, while enabling the State to perform an appropriate defense in case of investor-State arbitration. • A balanced treaty is not enough. BITs require follow up and an implementation program.

11. THANK YOU! Ministry of Trade, Industry and Tourism www.mincomercio.gov.co

12. SUBSTANTIVE PROVISIONS • ARTICLE 2 : INVESTMENT 2.3. In accordance with paragraph 1 of this Article, the minimum characteristics of an investment shall be: a. The commitment of capital or other resources; b. The expectation of gain or profit; c. The assumption of risk for the investor. • Article 25 of ICSID Convention sets forth specific elements concerning the Jurisdiction of the Center: • Existence of an investment • The Parties • Existence of a dispute • The consent of the Parties • ICSID case Fedax N.V v. Venezuela. Paragraph 43: “The basic features of an investment have been described as involving a certain duration, a certain regularity of profit and return, assumption of risk, a substantial commitment and a significance for the host State’s development.” Back

13. SUBSTANTIVE PROVISIONS • ARTICLE 3: FAIR AND EQUITABLE TREATMENT & FULL PROTECTION AND SECURITY 3. (…) Each Party shall accord fair and equitable treatment in accordance with customary international law, and full protection and security in its territory to investments of investors of the other Contracting Party. (…) Colombia's BIT Model follows: On the Minimum Standard of Treatment of Aliens: Concerning Fair and Equitable Treatment (FET) the applicable standard is Customary International Law -Due Process of Law- FET does not require treatment in addition to that required by Customary International Law. It does not impair the exercise of the State’s regulatory powers in accordance with due process of law. A breach of another provision of the agreement, does not establish a violation of FET standard. Full Protection and Security, under the Model, applies a relative standard, i.e. to accord investors a protection and security no less favourable than that accorded to its own investors. Back

14. SUBSTANTIVE PROVISIONS • ARTICLE 4 : MOST FAVOURED NATION TREATMENT AND NATIONAL TREATMENT 1. Each Contracting Party shall grant to the investments of investors of the other Contracting Party made in its territory, a not less favourable treatment than that accorded, in like circumstances, to investments of its own investors or to investors of any other third State, whichever is more favourable to the investor. National Treatment in Colombia's BIT Model: The obligation to grant foreign investors and their investments a treatment not less favourable than that granted to domestic investors and their investments is conditioned to the requirement that both investors and their investments be in like circumstances*. *It refers to the comparison to be made between the foreign investors and the domestic investors operating in the same business or economic sector. Pope & Talbot v. Canada Back

15. SUBSTANTIVE PROVISIONS • ARTICLE 5:TRANSFERS 1. Each Contracting Party, prior fulfillment of the requirements under its law and without unjustified delay, shall allow investors of the other Contracting Party to effect, in a freely convertible currency, transfers of: (…) # 4 and # 5 In Colombia the Central Bank has constitutional powers to preserve the stability of Colombia´s currency, the normal functioning of internal and external payments. These powers are fully under the Constitution (art. 371 and 372) and are taken into account in all BIT negotiations. The powers to impose safeguards on transfers for macroeconomic and monetary stability included in Colombia´s BIT Model and its concluded BITs (i.e. Belgium – Colombia BIT), are similar to those recently referred to in the European Court of Justice’s decision on Swedish and Austrian treaty provisions. (Case C‑249/06 decided by the Grand Chamber on 3 March 2009) Back

16. SUBSTANTIVE PROVISIONS • ARTICLE 8: INVESTMENT AND ENVIRONMENT • Nothing in this Agreement shall be construed to prevent a Contracting Party from adopting, maintaining, or enforcing any measure that it considers appropriate to ensure that an investment activity in its territory is undertaken in accordance with the environmental law of the Party, provided that such measures are proportional to the objectives sought. This provision allows the State to ensure that investment activities are consistent with environmental concerns. The clause focuses on permitting the implementation of measures when the circumstances so require. However, the provision may not be abused given the proportionality test it contains. Back

17. PROCEDURALPROVISIONS • ARTICLE 4 : MOST FAVOURED NATION TREATMENT AND NATIONAL TREATMENT 2. The most favourable treatment to be granted in like circumstances referred to in this Agreement does not encompass mechanisms for the settlement of investment disputes, such as those contained in Articles IX and X of this Agreement, which are provided for in treaties or international investment agreements. – Maffezini Clause- Rejection of the Maffezini Doctrine in the Colombian BIT Model: • The decision on jurisdiction in the Maffezini v. Spain controversy made it clear for States negotiating BITs that, if they do not intend extending the MFN clause to dispute settlement, for certainty, an express carve out is required. • Colombia's BIT clarifies that the MFN clause ONLY covers substantive matters -Maffezini v. Spain- … “As the Tribunal has established, the BIT between the Argentine Republic and the Kingdom of Spain, does not specify the provisions for which the Most Favored Nation Clause applies. For this reason, and finding no fundamental question of public policy, the Tribunal has decided to extend the MFN clause to the procedural aspects of the Treaty”… Back

18. SUBSTANTIVE PROVISIONS • ARTICLE 6: EXPROPRIATION AND COMPENSATION 1. Investments of investors of a Contracting Party in the territory of the other Contracting Party will not be subject of nationalization, direct or indirect expropriation, or any measures having similar effects (hereinafter “expropriation”) except for reasons of public purpose or social interest, in accordance with due process of law, in a non-discriminatory manner, in good faith and accompanied by a prompt, adequate and effective compensation Important Definitions • ICSID case Feldman v. Mexico. Paragraph 112: “To paraphrase Azinian, not all government regulatory activity that makes it difficult or impossible for an investor to carry out a particular business, change in the law or change in the application of existing laws that makes it uneconomical to continue a particular business, is an expropriation….” • Non-discriminatory measures of a Party that are designed and applied for public purposes or social interest do not constitute indirect expropriation (IE) -such as public health, and environment protection-. • The determination of whether a measure of a Party constitute IE requires a case-by-case, fact-based inquiry considering: • The scope of the measure and their interference on the reasonable and distinguishable expectations concerning the investment and; • The economic impact of the measure. The sole fact of a measure or series of measures having adverse effects on the economic value of an investment does not imply that an indirect expropriation has occurred Back

19. PROCEDURAL PROVISIONS • ARTICLE 10: SETTLEMENT OF DISPUTES BETWEEN ONE CONTRACTING PARTY AND AN INVESTOR OF THE OTHER CONTRACTING PARTY. # 1 –Obligation of exhausting local administrative remedies- # 7 –Fork in the Road- # 4; 5; 10 –Reasonable time for the government in order to respond claimants- # 13 –Frivolous Claimants- With regard to acts of a governmental authority, in order to submit a claim to arbitration under this article or to a local court or administrative tribunal, local administrative remedies shall be exhausted, should it be required by the law of the Contracting Party. Back

20. PROCEDURAL PROVISIONS • ARTICLE 10: SETTLEMENT OF DISPUTES BETWEEN ONE CONTRACTING PARTY AND AN INVESTOR OF THE OTHER CONTRACTING PARTY. # 1 –Obligation of exhausting administrative remedies- # 7 –Fork in the Road- # 4; 5; 10 –Reasonable time for the government in order to respond claimants- # 13 –Frivolous Claimants- Once the investor has submitted the dispute to either competent tribunal of the Contracting Party in whose territory the investment has been admitted or any of the arbitration mechanisms stated above, the choice of the procedure shall be final. : Contentious Procedure -In any case the decision is final- 1. LOCAL COURTS 3. INTERNATIONAL ARBITRATION 2. NATIONAL ARBITRATION Back

21. Reasonable time for the Government to respond to claims Notice of dispute Notice of intent Request of arbitration “Según la vista fiscal, el sometimiento al CIADI no contraría en modo alguno la Constitución colombiana. Opina el Procurador que el concepto de soberanía, en el ámbito de las relaciones internacionales, ha evolucionado en el sentido de entender que, en la actualidad, éste se manifiesta en "la capacidad de los Estados para ejercer su actividad internacional por su propio poder; (...); en la capacidad de aceptar que existen reglas superiores a las que deben someterse todos los Estados para lograr la 'igualdad soberana' de los mismos". Es así como, hoy por hoy, el derecho internacional no se interpreta en función del Estado soberano sino de la comunidad internacional. "Los órdenes internos de las Naciones ya no son absolutos, todos miran a lograr el bien común al seno de sus propios Estados". El sometimiento de los Estados a tribunales internacionales se enmarca dentro de la "praxis" internacional antes descrita y, por ello, no presenta tacha alguna de constitucionalidad. Local Adm. Remedies • The State requires at least 12 months to avail itself the necessary information and coordinate with all agencies involved : • a mutually satisfactory solution with the investor, or • prepare its defense strategy .

22. FRIVOLOUS CLAIMS The Tribunal shall consider whether the claim is frivolous, and shall provide the disputing parties a reasonable opportunity for comments. In the event of a frivolous claim the Tribunal shall award costs against the claimant.

23. PROCEDURAL PROVISIONS Colombia's BIT model does not include an umbrella clause… As a matter of policy, in its BITs Colombia negotiates treaty provisions and not contractual provisions. However, nothing precludes its Agencies to include recourse to international arbitration as an appropriate means to settle disputes that arise under specific contracts they enter into with foreign investors. • ICSID case SGS v. Pakistan: …”Article 11 would amount to incorporating by reference an unlimited number of State contracts, as well as other municipal law instruments setting out State commitments including unilateral commitments to an investor of the other Contracting Party. Any alleged violation of those contracts and other instruments would be treated as a breach of the BIT… however, since the Claimants did not show how the alleged facts could constitute not only a breach of the contract, but also a breach of the BIT, this Tribunal does not have jurisdiction over SGS’s claims that Pakistan breached the PSI Agreement or over Pakistan’s claims that SGS breached the PSI Agreement.” Back