Legal Definitions - bilateral investment treaty

A Bilateral Investment Treaty (BIT) is an international agreement between two countries that sets out the rules and protections for private investments made by individuals and companies from one country into the other. These treaties are designed to encourage foreign investment by providing a stable and predictable legal framework, ensuring that investors receive fair treatment and their assets are protected.

Key features of a BIT often include:

• Fair and Equitable Treatment: Ensuring that foreign investors are treated fairly and not subjected to arbitrary or discriminatory measures by the host government. This can mean treatment no less favorable than that given to domestic investors (national treatment) or investors from any other country (most-favored-nation treatment).
• Protection from Expropriation: Safeguarding against a host government taking over foreign-owned assets without prompt, adequate, and effective compensation.
• Free Transfer of Funds: Allowing investors to freely transfer profits, dividends, and other funds related to their investment out of the host country.
• Dispute Resolution: A crucial aspect of many BITs is the provision for international arbitration. This allows an investor who believes their rights under the treaty have been violated to bring a claim directly against the host government before an independent international tribunal, rather than having to sue in the host country's domestic courts.

Examples:

• Imagine a large electronics manufacturer from Country A decides to build a new factory in Country B, creating jobs and bringing new technology. If Country A and Country B have a BIT, this treaty would protect the manufacturer's investment. For instance, if Country B's government later decided to seize all foreign-owned factories without compensation, the BIT would provide a legal basis for the manufacturer to challenge this action and seek fair payment through international arbitration. This illustrates the protection from expropriation and the dispute resolution mechanisms of a BIT.

• A venture capital firm from Country X invests a significant sum in a promising renewable energy startup in Country Y. The BIT between Country X and Country Y would ensure that Country Y's government cannot suddenly impose discriminatory taxes or regulations specifically targeting foreign-backed energy projects, making the investment unprofitable compared to domestic ones. It also guarantees the venture capital firm can repatriate its profits or the proceeds from selling its stake in the startup back to Country X. This highlights the principles of fair and equitable treatment and the free transfer of funds.

• An individual investor from Country P buys a substantial stake in a tourism resort development in Country Q. If Country Q's government, after a change in leadership, begins to unfairly revoke permits or impose arbitrary operational restrictions that specifically target foreign-owned businesses, the investor could invoke the BIT. The treaty would allow the investor to initiate an international arbitration process to seek compensation for the damages caused by Country Q's actions, demonstrating the BIT's role in providing recourse for violations of fair and equitable treatment and access to an independent dispute resolution forum.