Enabling Private Ordering - the University of Minnesota Law School

2009] UMBRELLA CLAUSES 41
statute or regulation, by itself, would suffice to constitute a
treaty violation on the part of a Contracting Party and engage
the international responsibility of the Party.” 102
Likewise, the Tribunal in El Paso v. Argentina considered
that:
it would be sufficient to include a so-called “umbrella clause” and a
dispute settlement mechanism, and no other articles setting standards
for the protection of foreign investment in any BIT. If any violation of
any legal obligation of a State is ipso facto a violation of the treaty,
then that violation needs not amount to a violation of the high
standards of the treaty of “fair and equitable treatment” or “full
protection and security.” 103
The Tribunal’s argument disregards that other investors’
rights—including fair and equitable treatment, indirect
expropriation, and nondiscrimination—concern obligations of
host States that are normally not addressed by investor-State
contracts. 104 Host States usually do not promise, for example,
nondiscrimination in contracts. Already from this point of view,
umbrella clauses do not make other investors’ rights
superfluous. The argument further disregards that not all
foreign investment projects are based on a contract between a
foreign investor and a host State. Instead, foreign investment
also takes place by the unfolding of economic activity on the
basis of the host State’s general legislation or by capital
investment in foreign companies. These types of investments
are therefore not covered by the scope of application of umbrella
clauses because no investor-State contracts or similar
instruments serve as a basis of the investor’s economic activity.
In fact, these types of foreign investments regularly generate
investment treaty disputes that are exclusively concerned with
the conformity of changes in the host State’s general regulatory
framework or administrative conduct and do not involve
breaches of promises made vis-à-vis the foreign investor. 105
102. Id.
103. El Paso Energy Int’l Co. v. Argentine Republic, ICSID (W. Bank) Case No.
ARB/03/15, Decision on Jurisdiction, para. 76 (Apr. 27, 2006).
104. Schreuer, supra note 4, at 253; see also Eureko, supra note 6, para. 258
(“[R]eliance by the Tribunal in SGS v. Pakistan on the maxim in dubio mitius so as
to effectively presume that sovereign rights override the rights of a foreign investor
could be seen as a reversion to a doctrine that has been displaced by contemporary
customary international law . . . .”).
105. See generally International Thunderbird Gaming Corp. v. The United
Mexican States, UNCITRAL/NAFTA, Arbitral Award (Jan. 26, 2006) (alleging that
Mexico breached its NAFTA obligations); Methanex Corp. v. United States of
America, UNCITRAL/NAFTA, Final Award (Aug. 3, 2005) (alleging that the United