by Sean Heather
As the Obama Administration concludes its review of the U.S. Model Bilateral Investment Treaty (BIT), today’s Manhattan federal court decision by Judge Leonard Sand in a case between Chevron and the government of Ecuador is welcome news. Moreover, it has broad implications for the business community and the protections afforded to international investors.
Some critics have called for U.S. BITs to be stripped of their provisions allowing investors who believe they have been treated unfairly by a foreign government to have their case decided by international arbitration. Arbitration allows them to avoid resolving their differences with a sovereign nation in that nation’s courts.
These criticisms were heard during the Obama Administration’s review of the Model BIT, which is apparently drawing to its conclusion. The contention is that foreign investors somehow have a right not afforded to U.S. citizens as they can take their claims against the U.S. government out of U.S. courts and into international arbitration.
Leaving aside the many constitutional arguments that counter this claim, as well as the fact that the U.S. government has never lost an investment dispute in arbitration, today’s ruling again sets the record straight. Ecuador was essentially asking a U.S. Court to negate Ecuador’s commitment under its BIT with United States and revoke Chevron’s right to have its investment dispute settled through international arbitration.
Had Judge Sand sided with Ecuador, it would have rendered every BIT that protects U.S. investment abroad essentially null and void. No longer would U.S. companies investing abroad be able to take comfort that their investments were protected and assured a fair hearing in the event a dispute with a foreign government arose.
Allowing the possibility of international arbitration helps ensure the rule of law is upheld and that companies making investments around the world aren’t subject to court systems that are often susceptible to political manipulation.
It might be wishful thinking, but today’s ruling should put to rest any further debate around the appropriateness of investor-state arbitration. If not for everyone, at least, it should be enough of an endorsement to keep it as part of the highly successful U.S. BIT program.