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M. Danilo Di Bella

Principal - Bottega Di Bella law firm

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Bilateral Conventions of Establishment

I. Definition

1.

Bilateral Conventions of Establishment (BCEs) – at times referred to as Treaties of Establishment – are international instruments concluded between the 19th and 20th centuries to establish and safeguard the rights of foreign nationals with respect to their property.

II. Treaty practice

2.

BCEs were concluded approximately around the same period during which Friendship, Commerce and Navigation Treaties (FCN treaties) were also negotiated. However, unlike the FCN treaties (that dealt predominately with trade and shipping), the BCEs were meant to encourage mutual investments between States through the “establishment provisions.”1 These provisions stipulated the right of nationals of a country to establish and carry on business activities within another country and to receive due protection there for their persons and property, thus effectively creating foreign investors’ rights. FCN treaties dealt with these issues only incidentally to international trade, as a by-product thereof. On the other hand, Conventions of Establishment pivoted on establishment provisions (hence, their name). In the words of Professor and US Diplomat Herman Walker Jr. – contrasting BCEs to FCN treaties – “Here the context is different: "investment" rather than trade and shipping”. Hence, it could be argued that, contrary to common belief,2 BITs do not originate directly from FCN treaties. These BCEs would instead be BITs’ direct precursors. Indeed, the first-ever modern age BIT (the Germany-Pakistan BIT)3 expressly referred to a BCE to be entered into between the parties – using the term “establishment treaty” – directly in its Protocol. In the 1960’s the term “Convention of Establishment” was interchangeably used to designate both international bilateral treaties between two countries as well as genuine investment contracts between one country and the foreign private companies coming from another country.4

3.

These Conventions were not focused exclusively on foreign investments protection, though. They had a broader scope than BITs, covering for instance also consular rights.

4.

Some of the typical substantive standards of protection of BITs can be traced back to these BCEs. This includes – word for word – the full protection and security standard (e.g. Article 6 of the 1868 Switzerland-Italy BCE)5 or the fair and equitable treatment (FET) standard (e.g. Article 1 of the 1959 Franco-American BCE),6 or the prohibition of expropriation without compensation (e.g. Article 4 of the 1951 France-Italy BCE).7

5.

Drafted in a period of more liberal economic policies – straddling the dawn of the second industrial revolution and the aftermath of WWII – these BCEs offered at times even higher guarantees8 with respect to foreign investments when compared to some BITs. This includes, for instance, rights to market access and unfettered national and most-favoured-nation treatments.

III. Case law

6.

The first known case in which an investor invoked a BCE to supplement or extend the investment protection provided in a BIT is Human Rights Defenders Inc., as assignee of Mr. Natale Palazzo, Mr. Rodolfo Scodeller and Mr. Antonio Basile v. Swiss Confederation, registered by the ICSID Secretary-General on 17 August 2020.9 In this ICSID arbitration, the claimant has invoked the application of the Switzerland-Italy BCE in conjunction with the Switzerland-Hungary BIT by relying on the most-favoured nation (MFN) clause of the BCE at Article 10,10 which allows to import “all advantages”, and Article 31(3) of the Vienna Convention on the Law of Treaties

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