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Author

Dr Paolo Vargiu

Lecturer - University of Leicester

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Contribution to the Development of the Host State Economy

I. Definition

1.

The “contribution to the development of the host State’s economy” is one, and arguably the most contested,1 of the criteria applied for identification of an “investment” (Salini test)2 in particular in the ICSID context.3 See further Salini test, Contribution of money or assets, Certain duration, Risk, Legality of investment.

2.

The preambles to the ICSID Convention, the Energy Charter Treaty, NAFTA and the 2012 US Model Bilateral Investment Treaty, among other instruments, refer to “international cooperation”,4 “economic growth”,5 “harmonious development and expansion of world trade”6 and “the economic development of the Parties” respectively.7 A number of tribunals have recognized that the above mentioned and similarly worded provisions in other investment treaties, particularly in the ICSID Convention, require an investment to provide a substantial contribution to the development of the host State’s economy in order to enjoy the protection of the relevant treaty.8

II. Arbitral practice

A. Tribunals integrating the contribution to the development of the host State as a criterion of the definition of investment

3.

The Salini test is often cited as the necessary features of a qualified investment in an ICSID arbitration.9 Among such criteria, the tribunal in Salini v. Morocco found—with reference to the Preamble to the ICSID Convention—that a qualified investment is required to contribute to the economic development of the host State.10 The tribunal in Joy Mining v. Egypt subsequently confirmed the requirement.11

1. Size of the contribution to the development of the host State

4.

The sole arbitrator in MHS v. Malaysia further added that contribution to the economic development of the host State had to be significant rather than merely nominal.12 The tribunal in CSOB v. Slovak Republic had reached the same conclusion earlier.13 See further paragraph 2, footnote 8 above. 

5.

However, some tribunals undertook a different approach: while holding that a contribution to the development of the host State is indeed required, they did not impose that the contribution be sizable or successful14 or direct.15

2. Examples of accepted contributions to the development of the host State

6.

Although there is no set criteria of what constitutes a contribution to the development of the host State, tribunals have accepted that among others, aquiring loans,16 significantly enhancing the State’s gross domestic product,17 serving the public interest,18 providing (consistent)19 know-how20 and promoting the State’s work force and industries21 fulfil this requirement.

7.

Contribution to the development of the host State’s economy is therefore commonly considered among the criteria for a qualified investment by ICSID22 as well as non-ICSID23 tribunals.

B. Tribunals rejecting the contribution to the development of the host State as a criterion of the definition of investment

8.

Notable exceptions, however, exist where the tribunals either outrightly rejected24 or significantly downplayed the significance of the criterion.25

9.

It is worth noting that tribunals have found that analyzing whether an investor has contributed to the development of the host State is a difficult and subjective exercise.26 In line with this view, tribunals have held that a contribution to the development of the host State is rather an “expected consequence” of the investment instead of a requirement in itself.27

10.

Tribunals have furthermore rejected or nuanced this criterion in the context of failed investments, which may remain investments despite the absence of contribution to the development of the host State or its economy.28

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