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Author

Dr Paolo Vargiu

Lecturer - University of Leicester

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, of the criteria applied for identification of an “investment” (Salini test1), in particular in the ICSID context.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”,3 “economic growth”,4 “harmonious development and expansion of world trade”5 and “the economic development of the Parties” respectively.6 A number of tribunals have recognized that the above mentioned and similarly worded provisions in othere 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.7

II. Arbitral practice

2.

The Salini test is often cited as the necessary features of a qualified investment in an ICSID arbitration.8 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.9 The tribunal in Joy Mining v. Egypt subsequently confirmed the requirement.10 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.11 The tribunal in CSOB v. Slovak Republic had reached the same conclusion earlier.12 Contribution to the development of the host State’s economy is therefore commonly considered among the criteria for a qualified investment by ICSID13 as well as non-ICSID14 tribunals.

3.

Notable exceptions, however, exist where the tribunals either outrightly rejected15 or significantly downplayed the significance of the criterion.16

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