International Investment Treaties and the Protection of Foreign Investments
By Charles B. Rosenberg Attorney, White & Case LLP | June 19, 2016
"The Hotel is now in the hands of the government. It does not belong to the Hilton Company anymore." - Sri Lanka's Economic Development Minister Basil Rajapaksa, March 2011
Investing abroad may present lucrative opportunities in the form of new markets and customers. Hospitality companies, however, often face unique challenges when doing business abroad. For example, in 2009, Venezuelan President Hugo Chavez ordered the expropriation of a Hilton-run hotel on the resort island of Margarita in Venezuela to help develop tourism projects within a socialist framework. Similarly, in 2011, the Sri Lankan government declared ownership of a Hilton-run hotel in Colombo, Sri Lanka following a rent-related dispute with the foreign investor. Hospitality companies considering investing abroad thus should be aware of the tools that may be available to protect their international investments.
One such tool is an international investment agreement (IIA), which is an international treaty between two or more countries that protects international investments by creating substantive rights for foreign investors. IIAs may provide valuable leverage in negotiations with government officials and, perhaps most importantly, allow an investor direct recourse to international arbitration to resolve investment disputes. IIAs thus provide protection to international investors from political risk and even counterparty risk.
There currently is a global network of approximately 3,000 bilateral investment treaties (BITs), which are IIAs between two countries. For example, the United States has around 40 BITs, with countries such as Argentina, Croatia, Ecuador, Jamaica, and Panama. The U.S. also has a number of multilateral investment treaties (IIAs between more than two countries), including the North American Free Trade Agreement (NAFTA) between the U.S., Mexico, and Canada, and the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) between the U.S., Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
In addition, the U.S. has signed but not ratified the Trans-Pacific Partnership (TPP), which is a multilateral IIA between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Vietnam, and is in the process of negotiating the Transatlantic Trade and Investment Partnership (TTIP) with the European Union.
Who and What are Protected?