Friendship, commerce and navigation treaties

Friendship, Commerce and Navigation (FCN) Treaties were common instruments throughout the 19th century and the beginning of the 20th century, primarily concerned with the trade and shipping rights of individuals. One important feature, sometimes regulated in separate treaties on establishment, was the reciprocal granting to citizens (but generally not to corporations) of the other party of rights to entry, commercial establishment, protection of property, access to courts and recognition of foreign legal personality. A series of treaties negotiated before World War II also gave corporations legal status and access to foreign courts. However, as corporate involvement in international trade and production expanded, old commercial treaties became insufficient and it became necessary to negotiate new treaties granting corporations legal status and the right to function abroad.

The postwar friendship, commerce and navigation treaties are broad in scope, dealing with such matter as the right to entry and sojourn, freedom of conscience, of information gathering and dissemination, the protection of persons, treatment of nationals and companies, ac­cess to domestic courts and tribunals, transparency and publication of laws and regulations, acquisition and disposal of property, protection of property and expropriation, taxation, competition, transfer of payments, shipping, social security and prevention and settlement of disputes. As under general international law the host state has the right to regulate the legal situation of aliens and foreign companies in its territory, within the boundaries of an uncodified, and thus controversial, 'international minimum standard', the purpose of friendship, commerce and navigation treaties was to extend and clearly define the rights of the contracting parties' nationals and companies beyond that minimum standard required by international law. The general aim was not to give foreign corporations greater rights than domestic companies, but rather to assure them of the right to conduct business on an equal basis without suffering discrimination due to their foreign origin.

BILATERAL INVESTMENT TREATIES

Starting in the 1960s, friendship, commerce and navigation treaties have gradually given way to more specialized instruments, the Bilateral Investment Treaties (BITs), mainly - if not entirely - focused on investment protection issues.

Bilateral investment treaties are designed to protect, promote and facilitate foreign investment and constitute to date the most widely used instrument for these purposes. Unlike friendship, commerce and navigation treaties, bilateral investment treaties have traditionally been negotiated between developing countries seeking to attract international investment and developed countries as the principal homes to foreign investors. Developing countries, as hosts to foreign direct investment (FD1), concluded bilateral investment treaties in order to create a favou­rable climate and in some cases to become eligible to participate in political risk insurance programmes organized by capital-exporting countries.:..A BIT's main provisions deal with the scope and definition of foreign investment; admission of investments; national and most-favoured-nation treatment; fair and equitable treatment; guarantees and compensation in respect of expropriation; guarantees of free transfer of funds and repatriation of capital and profits; and dispute-settlement provisions, both State-to-State and investor-to-State, This latter feature is one of the main innovations which differentiate significantly treaties, together with a curtailment of the wide right of entry which characterized many of the friendship, commerce and navigation treaties. The acceptability of investor-State arbitration was significantly advanced by the conclusion in 1965 of the Washington Convention.

SCOPE OF APPLICATION

The main objective of bilateral investment treaties is to protect investment made by investors of one party in the territory of the other party. In order to maximize such protection, there is a marked tendency in current bilateral investment treaties practice to use a broad, asset-based, definition of the term 'investment'. The latter typically includes movable and immovable property, tangible and intangible assets, intellectual property, as well as equity and other interest in companies. Most bilateral investment treaties do not distinguish between direct and portfolio investment] Both minority and controlling interests are generally protected. Furthermore, a broad definition may cover new forms of investment that parties did not consider specifically at the time of negotiation. Instead a more restricted definition may require re-negotiation of the treaty in order to enlarge the scope over time.

Bilateral investment treaties must also define to which investors the substantive provisions set out in a treaty apply. A capital importing country may be reluctant to grant the benefits of a bilateral investment treaty to persons and companies having only a tenuous relationship with its treaty partner (for example, so-called 'shell' or 'mail-box' compa­nies). Establishing the nationality of the investor is thus fundamental. The definition of the term 'investor' usually includes natural persons and juridical entities, often referred to generically as 'companies'.

Bilateral investment treaties have in recent years tried to address such complexities, often by combining the traditional nationality tests or criteria, namely the place of incorporation; the location of the 'seat' of the corporation (sometimes referred to as the siege social, real seat, or the principal place of management); and the nationality of the shareholders who own or control the corporation. The place of incorporation, organization or constitution of a company is a widely used criterion to determine nationality thanks to its ease of application. However, if used in isolation, such a test lends itself to granting nationality to a company that has only a formal link with the country of incorporation and does not engage in any economic activity there.