Briefings Shaping Future UK Trade Policy: Investment Protection Provisions

READING TIME 30 mins mins

Shaping Future UK Trade Policy: Investment Protection Provisions

As the UK adopts its own independent trade policy for the first time in nearly 50 years, the government will need to make a number of policy decisions to shape the kind of agreements it wants to have with partner countries. This briefing note gives an overview of investment protection provisions – one of the key areas where policy will need to be developed – and sets out the options available to the UK.

Investment protection provisions are primarily found in Bilateral Investment Treaties (BITs) and in a small number of Free Trade Agreements (FTAs). When originally signed, the intention of these provisions was to provide investors with legal certainty when investing overseas: they offer a range of broadly defined protections, including those of fair and equitable treatment, protection from expropriation (including indirect expropriation), and to national and most favoured nation treatment. These rights are enforceable through Investor to State Dispute Settlement (ISDS) mechanisms which allow investors to seek compensation from governments for measures that they consider to have negatively impacted on the profitability of their investment, using ad-hoc arbitration tribunals.

The UK currently has 96 of its own BITs, mostly signed in the 1980s and 1990s, and is party to four EU agreements that contain ISDS provisions. In recent years questions have increasingly been raised regarding the appropriateness of ISDS as a tool to protect international investment. This has been prompted by:

• The kinds of government measures that have been challenged under ISDS, including: raising water quality standards, the introduction of a sugar tax, a ban on a toxic fuel additive and the introduction of plain packaging on cigarette packets.The significant awards that have been made to investors, generally in the hundreds of millions of dollars.

• The high legal costs, averaging US$8 million, faced by governments even when they are successful in defending a claim.

• Evidence that governments are being deterred from introducing new policies because they are concerned that it will trigger an ISDS claim.

• The lack of obligations on investors, for example to comply with human rights or environmental standards in the host country, as a condition of accessing treaty protections. The following outlines a number of concerns that we believe provide a strong case for rethinking the system.

As the UK regains full responsibility for its trade and investment policy post-Brexit, it must seriously consider its approach to international investment protection. Existing agreements have not kept pace with developments in human rights and environmental protections, create a parallel legal system and offer significant benefits to investors with no corresponding obligations. Their vague wording has allowed for broad interpretation by tribunals without any requirement to follow case law, making the system unpredictable. There is little evidence to support the proposition that BITs lead to increased investment in partner countries. Finally, there is a serious possibility that countries are challenged for measures taken to protect their populations during the Covid-19 pandemic.

Given the range of alternative options that are available and the continuing rejection of ISDS by countries around the world, the UK must use this opportunity to rethink its approach.


Investment protection Brexit Trade deals UK trade deals