Writing Contest: Bilateral Investment Treaties and Foreign Direct Investments


    Bassel Omar

    Senior student at Law School – English Section, Cairo University 



    Bilateral Investment treaties, hereinafter; BITs, has occupied a very special part on the international sphere and recently it is the most famous legal instrument for attracting and governing the investment. The spread of BITs is driven by international competition among potential host countries—typically developing countries—for foreign direct investment (Hereinafter: FDI).[1]

    Numbers may show the importance of the BITs as a tool to attract the FDI and govern the investment disputes. Currently there are 2592 BITs and 2358 of them are in force.[2] Egypt is a party in a huge number of BITs, it is a party in 100 BITs where 72 of them are in force.[3]

    BITs are defined as international agreements establishing the terms and conditions of the private investment by national and companies of one state in another state.[4] So by definition, BITs are international treaties.

    The intentionality of the BITs raises questions related to the canons of interpretation that should be applicable on the BITs when such interpretation is required.

    In light of the nature of the BITs as an international instrument, international law governs its interpretation[5].

    The Vienna Convention on the law of the treaties (Hereinafter: VCLT) provided for rules on the interpretation of the international treaties, and since the BITs as aforementioned are international treaties, therefore those rules should be applied. The rules of (VCLT) on the interpretation of the international treaties are not optional, but mandatory as long as the instrument is an international treaty[6]. VCLT is not only binding on the general treaties, but also the investment treaties[7]. This has been confirmed in Sempra Energy v. Argentina[8]

    These rules contained in VCLT are not binding only when the treaty involves states that are signatories to VCLT, but also if the parties or one of the parties are non-signatory. This is because of the fact that the rules of interpretation in VCLT are driven from the customary international law[9].  This means if one of the contracting party to a given BIT is a non-party in VCLT, the following rules will still be relevant with regard to the interpretation of the BIT.

    The following is a brief on the interpretation rules under articles 31 and 32 of VCLT[10]:

    Firstly, ordinary meaning should be given to the text of the treaty; ordinary meaning is the starting point in determining the scope of the text. The ordinary meaning should be determined objectively without recourse to the intentions of the signatories.

    Secondly, resorting to the object and purpose of the treaties to confirm the correct meaning must result from the ordinary meaning principle. Usually the ordinary meaning would result in more than one interpretation to the given text, confirming the correct interpretation requires resorting to the object and purpose of a given text.

    Contracting states to the BITs, in the majority of cases, mention the object and purpose of the treaty. They usually use the similar words that could be summed up in achieving the economic cooperation, promoting the investment, and providing favorable conditions for investment by nationals and companies of one contracting party in the territory of the another contracting party[11].

    Thirdly, there is an exception to the rule of the ordinary meaning.  The tribunal may give the text “special meaning” if the parties so intended. The special meaning means that the meaning given to the text deviates from the interpretative result from applying the rule of ordinary meaning.

    Fourthly, Tribunals must consider any subsequent agreement and practice as to the interpretation of the treaty[12]. Recently in the field of the BITs, states followed the recommendation of many organization and researches concerning the Investor-State Dispute Resolution and sign subsequent agreements as for the interpretation of the BIT. Subsequent practice means the implied agreement results from the parties’ application of the BIT.

    Last but not least, the Travaux Préparatoires. It constitutes the materials used in preparing the ultimate form of an agreement or statute. This includes reports of discussion, hearing, and debates that were produced during the drafting of the convention.[13]

    VCLT provided for resorting to the Travaux Préparatoires if one of two cases exists: 1- If there is need for confirming one interpretation 2- where such interpretation leaves an ambiguous, obscure, or even manifestly absurd or unreasonable result.

    This article is not directed to the international tribunals, because they already apply the international law as a primary source applicable on the BITs in all its aspects including the issue of interpretation. But this article is directed to the domestic authorities of the host state to consider the relevant international rules while interpreting a given BIT for the implementation and refrain from applying the inconsistent domestic interpretive rules on the BIT to avoid being held liable by the international arbitration tribunals.



    [1] Zachary Elkins; Andrew T. Guzman; Beth Simmons, The backlash against investment (Part IV), Chapter16, Page.370.

    [2] http://investmentpolicyhub.unctad.org/IIA

    [3] http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu


    [5] Nigel Blackaby; J. Martin Hunter; and Alan Redfern, Redfern and Hunter on International Arbitration (Sixth Edition), Para 8.64, Page. 465.

    [6] Maximilian Clasmeier,  Arbitral Awards as Investments: Treaty Interpretation and the Dynamics of International Investment Law, Page.8

    [8] Previous Reference, Page.7.

    [9] Previous Reference, Page.8.

    [10] Maximilian Clasmeier, Arbitral Awards as Investments: Treaty Interpretation and the Dynamics of International Investment Law, Pages from 7 to 16.

    [11] See Egypt-Canada, Egypt-Germany, and Egypt-Japan BITs.

    [12].Maximilian Clasmeier, Arbitral Awards as Investments: Treaty Interpretation and the Dynamics of International Investment Law, Page.16.

    [13] https://definitions.uslegal.com/t/travaux-preparatoires/