UNIVERSITY NAME
The world is facing an unprecedented situation with the COVID-19 pandemic. This health crisis is affecting economies worldwide, including international agreements and treaties. The pandemic is having a lasting impact on international agreements, including treaties related to investment and trade. This paper aims to explore how the global health issue (COVID-19) is influencing international agreements.
Impact on Bilateral Treaties:
A study on unilateral termination of bilateral investment treaties (BITs) shows that the pandemic is altering the trajectory of these agreements. The global health crisis has led to a slowdown in the creation of new treaties, such as BITs and trade and investment protection agreements (TIPs). Governments are reevaluating their development strategies and mitigation plans. Another study reveals that countries are leveraging investment agreements to achieve their economic goals, particularly the Sustainable Development Goals (SDGs). These agreements provide legal stability for foreign investors. However, challenges arise in enforcing agreements during economic uncertainties.
Effect on Investment Agreements:
UNCTAD predicts that the pandemic will disrupt existing policies and agreements. Force majeure clauses might be invoked to relieve parties from liability due to uncontrollable circumstances. Investment agreements could be reshaped to prioritize public interest, especially in essential sectors. The pandemic’s economic toll may lead to reduced compliance with these agreements.
Economic Recession and Investment:
Research indicates that economic recessions disrupt supply chains, prompting governments to focus on bilateral agreements to restore trade. Investment treaties will aim to attract investments in struggling economies for economic recovery. Hard-hit countries include China, America, Brazil, and others. The goal of future international treaties will be to allocate resources for investments and economic growth.
Developing Countries’ Challenges:
Developing countries like Africa are severely impacted by the pandemic and economic challenges. The decline in economic growth is affecting their ability to comply with agreements. Developing countries will likely prioritize state interests, adjusting their agreements accordingly. Governments will seek to incentivize private sector investments to stimulate economic growth.
Importance of Police Power:
Police play a crucial role in enforcing executive orders and political decisions. If police forces are affected, investors might perceive risks, impacting agreements. Governments need to maintain law and order to ensure investor safety and agreement adherence.
Challenges to Fair and Equitable Treatment (FET):
The pandemic’s extreme situations could lead to violations of fair and equitable treatment (FET) clauses. Governments might prioritize public interest over investors’ rights, leading to conflicts. This scenario could lead to more disputes and investor withdrawals.
State of Necessity and International Law:
The state of necessity justifies violating international law during extreme situations. The pandemic is a similar situation. Countries may prioritize their interests over agreements, possibly leading to more violations. Force majeure might be invoked, absolving parties from liability.
Future of International Agreements:
The pandemic is altering the landscape of international agreements. Countries may review and violate agreements to safeguard their interests and economies. Bilateral agreements will likely focus on sectors like healthcare and internal production. Priorities will shift as countries work to recover from the pandemic’s impact.
Conclusion:
The COVID-19 pandemic is reshaping international agreements and treaties. Countries are adapting their policies to address the crisis and prioritize their interests. The long-term effects of the pandemic on agreements will likely persist as governments navigate economic challenges and strive to protect their economies and populations.
IMPACT OF GLOBAL HEALTH ISSUE (COVID 19)
Introduction
The world is experiencing unprecedented times of COVID-19 pandemic. The health crisis is affecting economies across the world including international treaties and agreements. It will continue impacting international agreements even in the future. It has affected international treaties and agreements such as BIT, TIPs, IIAs, force majure, FET, and state of necessity. The purpose of the paper is to examine the literature review on the impact of the global health issue (COVID-19) on international agreements.
Global Health Crisis and Bilateral International Treaties
A study on the unilateral bilateral investment treaties termination shows that treaties will take a different turn due to the prevailing pandemic. It continues to state that the global health issue is slowing down the rate of new treaties such as BITs as well as TIPs scheduled for 2020 after most of them were canceled or postponed. The findings of the study also indicate that governments are using various mitigation plans and reassessing their development plans as well as strategies. Another study on international investment agreements shows that countries are using the investment agreements to promote the achievement of their economic targets. According to the findings, it is evident that International Investment Agreements (IIAs) are vital in the attainment of Sustainable Development Goals (SDGs). The study also recommends that interventional investors rely on International Investment Agreements (IIAs) to provide the legal predictability and stability to various foreign investors and also affects other parties to the agreement. The study recommends that regulatory powers also need to be in place to regulate the public interest due to the constraints to adopting health policies that may affect foreign investors. It indicates that the economic uncertainties may trigger a lack of full compliance with the agreements. The research recommends that states should strive to abide by their agreements to protect investors. The prevailing risk is due to economic recessions such as the current health pandemic that can trigger a change in current and future negotiations of international agreements.
According to UNCTAD, the pandemic will trigger a severe effect on various policies. With the postponement and cancellation of the agreements that were due in 2020, the existing policies will inevitably be affected. One of the major ICSID cases in the world demonstrates that states can invoke the force majeure concept. Force majeure is also likely to be enforced to avoid laying responsibility on states or investors at a time when they had no control over the condition. The case study shows that previous governments during recessions or hard situations used extraordinary measures to protect the interest of the state. A study on international investments hints out that during tough situations such as health or economic recession, governments may create a trend of restrictive admission measures for various foreign direct investments.
The findings of the case study indicate that the purpose of creating restrictions is to avoid committing to agreements they cannot observe. Similarly, the improved restrictions may apply for industries that a host country considers essential in its operations. For example, tourism is one of the hard-hit industries after the World Health Organization (WHO) induced travel restrictions to prevent further spread of the virus. Due to the hardships experienced during the pandemic, future investment treaties will inevitably be affected as countries will either pay heavy claims for their lack of commitment to their agreements. Countries will thus be careful in signing agreements due to the lessons they have learned during the health crisis.
A study on the FDI in South Korea demonstrates that supply chains are disrupted by economic recessions thus prompting governments across the world to prioritize bilateral agreements that will reestablish the trade. It also recommends that countries will also strive to attract investments in the hard-hit economies to induce economic recovery. According to a study during the current health crisis, some of the hard-hit countries are China, America, Brazil, and other developing countries in Europe, Asia, and Africa. The purpose of the international treaties during and after the health crisis will be to induce the deployment of sufficient resources in different states to facilitate investments and economic growth. According to the study, it is evident that the economic crisis will affect the current and future international treaties since they will focus on boosting the recovery of the economy. The focus on boosting the economy will facilitate
A report by the World Bank shows that Africa and other developing countries will be severely affected the pandemic and other economic challenges that may arise. The financial institution estimates that developing countries may face a recession due to a decline in economic growth from 2.4 percent in 2019 is -2.1 to 5.1 percent in 2020. Some of the factors leading to an economic crash are the overreliance in exports and travel restrictions. Therefore, after the pandemic, the world will experience an increase in efforts to adjust their IIAs to promote state interest. According to the report, it is evident that prioritization may last for several years due to the lasting impact of the health crisis. Therefore, countries will be careful about how they sign international agreements in the future.
According to UNCTAD governments will balance their efforts to incentivize private sector investment since it is crucial in rebuilding the economy. The process will expand the production capacity to enhance economic growth. The incentives also enhance access to quality products and services at an affordable to support vulnerable populations. The purpose is to limit the negative effects such high prices that may lead to further stress on the economy. Governments also need to consider improving police power since they are crucial civil servants in ensuring the health measures are followed. If they are affected countries will lose talented people who ensure law and order.
A study carried out on police power shows that police have the responsibility of enforcing executive orders or political decisions. Their responsibility is to ensure the protection of international investors as awarded in the international investors. If the police are not committed to maintaining peace and order, it is hard for the investors to feel their safety. The study also shows that in some countries, the police are inclined to political decisions. Therefore, in case of unrest, the investors cannot be assured of their safety or protection of their assets. It is also evident from the case study involving the Czech Republic and Saluka investments that countries are hesitant to bow to international agreements. They, however, prefer to gain the highest amount of profit or assets in any dispute. According to the case study, it is evident that the Japan-based and Netherlands-based companies were going at a loss due to the unlawful actions of the state. The state also did not accept to comply with the legal documents signed by previous regimes.
Another study demonstrates the importance of various regimes to protect the investors to spur a long-term relationship. The requirement according to the study is despite the fluctuating market dynamics such as recessions. However, although the requirement is clear according to the bilateral agreements, many governments across the world do not comply. The article points out the challenges that investors may encounter in unstable economies or political leadership. The current economic and health crisis is one of the factors that trigger the inability of states to comply with international agreements.
Economic and health factors according to a study may trigger measures that may also limit the production of goods locally thus limiting the revenue generated across various sectors. The limitations impact the ability of governments to implement their bilateral agreements. For example, most countries have not generated the revenue they expected thus cutting down on various investment budgets. The restrictions are essential to prevent depravity since there is no estimation on when the pandemic will end. The negative impact of the pandemic will also continue past the end of the health crisis. Countries are also careful since previous pandemics lasted between 2-3 years. Therefore, investment decisions should consider the impact of a prolonged period of investment problems.
Bilateral Investment Treaties
According to an analysis of bilateral agreements, countries are taking drastic measures to curb the negative impacts of the economic crisis on the economy. The measures include stimulus programs to boost the economy and prevent the collapse of small businesses. Other measures such as travel restrictions and closure of companies may violate the BIT obligations. One of the major obligations is for states to act non-discriminatorily, yet the obligation may be violated during the pandemic. The reason is that countries are focusing on public interest compared to foreign investments. The article also demonstrates that investors will be careful in the future to ensure the commitment of the countries.
Previous pandemics such as Ebola Virus Disease (EVD) and economic downturns have triggered similar impacts on the economy. Some of the effects include the withdrawal of foreign investors by various companies according to a previous study. The purpose of withdrawing the investors is because the prevailing conditions are not favouring their investment priorities. Governments in the worst-hit regions are unable to observe the BIT agreement obligations. For example, during the current pandemic, governments require extra funds that they did not anticipate in their budgeting. Therefore, they cannot freely observe the BIT obligation to allow free transfer of funds to various investments. An article shows that Argentina is one of the countries that have previously failed to observe the free foreign exchange of investments. The restrictions by the governments are due to the rising economic hardships.
Treaty of FCN
The treaty is one of the oldest agreements between the United States and the Republic of China. According to the convention, it is essential to note that it was an improvement to earlier treaties that had not given both countries equal rights. It is unlike the unequal treaty signed between the Qing dynasty and western powers after China suffered military defeats from foreign imperialist powers. The resolution of China to sign the unequal treaties is an indication that countries will strive to sign agreements to cushion their economy or military prowess from failure. The unequal treaties were insufficient since they did not serve the interests of all the parties. Some parties such as Japan and Korea later lamented that the treaty did not lead to the development of their countries. However, the convention of friendship, commerce, and navigation gives the countries freedom to carry out economic activities without any restriction. However, the relationship between the two countries has been wavering over the last few years. The study states that the wavering commitment between the two countries requires improvements to promote better implementation of the treaties in the future. The study also estimates that if administrations do not commit to implementing previously signed treaties they are at risk of losing the benefits predicted in the treaties. The findings of the studies also indicate that while some treaties may be improving, some are dwindling, thus requiring better measures in the future. For example, the research shows that while bilateral treaties between China and the western countries may be dwindling, China is making aggressive efforts to sign treaties with Africa and other developing countries.
Fair and Equitable Treatment (FET)
FET involves the regulation of conduct between a host state and foreign investor. Investors pride in the full implementation of FET since it protects all their investments against disturbance by the state . The law is also important in regulating the interests of the states and investors. During the unchartered waters of the pandemic, the level of conflicting results is likely to rise. In some cases, when the host states realize that investments are not favoring their interest they are likely to denounce the relationship. For example, during the pandemic, the world is likely to experience cases similar to Mondev v. U.S.A. The ruling of the case stated that a host country can violate the FET without necessarily acting in bad faith . The reason for the ruling is since FET hangs on various requirements that give the state an upper hand to act indifferently if it is faced by an extreme situation.
Fair and equitable treatment is one of the requirements by nations that are members of a bilateral agreement that they will uphold protection and security to foreign investments. The agreement is being challenged by the health crisis since it has prompted an economic collapse. Therefore, countries are unable to uphold the FET to all the investors. For example, due to failure to uphold FET during the EVD in West Africa, many foreign investors pulled out and stopped their operations. Some of them including ArcelorMittal and London Mining affected the mining industry triggering a 15 percent drop in economic performance. Similarly, during the current pandemic, investors are pulling out and terminating operations to protect their staff and further loss.
Countries consented to the restrictions due to their sovereignty concerning investment regulations. The purpose is to safeguard their freedom of action and freedom to regulate economic activities. One of the aspects of sovereignty is to freely choose the political, social, cultural, and economic system within the barriers of international law. According to the Wena case study, it was evident that the Egyptian government had violated fair and equitable treatment for taking over the hotels. The ruling of the case awarded Wena hotels $20 million payable by the Egyptian government for their violation. Although the Egyptian government contested the decision, it is a clear example of the challenges that companies go through while investing overseas. The landmark case reflects the interpretation and importance of international agreements to prevent such occurrences. It also hints the possibilities of the current treaties that trigger disagreements due to the inability of countries to pay for claims.
A study on contingent credibility shows that in future countries are likely to violate treaties thus leading to a negative impact on foreign direct investments. One of the major reasons identified by the scholars is that the surge in the number of treaties may be hard to implement for developed and developing countries. The study shows that when states were entering the IIAs, they did not want to denounce their sovereignty to pursue public policies that do not enhance states’ interests. Therefore, in light of the elements of FET states may issue economic regulations that may favor or fail to support the interests of investors. The study thus recommends that it is important for states to adopt a flexible policy framework that can be adjusted to favor foreign investors. One of the flexible measures is to allow investors to launch claims against states that violate their agreements through the International Centre for the Settlement of Investment Disputes (ICSID), an arbitral institution that is part of the World Bank. The reason is that when investors perceive protection and commitment from the state, they will invest massively leading to a massive growth of the economy. The study also suggests that some countries form arbitral tribunals to ensure a critical balance between the interests of the investors and the state. However, some like in the case of Wena vs. Egyptian government contest the rulings of the arbitral tribunals thus triggering disagreements.
Due to the current pandemic, two scenarios are likely to occur. During the health crisis, countries may not favor international investors since their priority is the citizens. As such, foreign investments may decline with a rise in the number of claims across the world. However, when the pandemic will recede, governments across the world will formulate favorable policies embedded on FET to attract foreign investors. Therefore, the health crisis has altered the current and future international agreements and treaties. It is also important to note that the economic downturn due to the pandemic will require support from foreign investors. For example, countries such as the USA and China will focus their attention on investing in various countries across the world. The purpose is to reap the benefits of the rising economy while the host country will enjoy the luxury of boosting their economic performance.
State of Necessity International Law
The state of necessity involves the legal justification of a state to violate international law while faced by an extreme situation that will require prioritizations of the state’s interest. According to Article 25 of the ILC Articles, the state of necessity is invoked if a state faces grave and imminent peril, the peril threatens interest of the state and the act is the only way to safeguard their interest. Similarly, the pandemic is an imminent peril that threatens the interests of a state. Therefore, the actions of a state will prioritize safeguarding their interest while foreign direct investments and bilateral agreements remain secondary. The situation may lead to force majeure where both parties can be freed of any liability due to the extreme situation beyond their control. Therefore, investors and states can expect a surge in the violations since states will prioritize their interests compared to those of foreign investors. In some states in the USA, a new spike in the cases has been reported in over 23 states. The spike means that governments will provide extra stimulus money to boost the economy. They will also require more funds to expand the capacity of the healthcare system. Therefore, they will disregard international obligations for the sake of the interests of the state and the country at large.
According to it is evident that until 2019, 10 percent of all the ratified bilateral investment treaties had been terminated. In 2017, more treaties were canceled compared to the number of new treaties that were adopted. Similarly. The same trend may be evident in 2020 and the subsequent years due to the negative effects of the pandemic. It is also evident from the analysis that unilateral and bilateral agreements create a conducive environment for economic prosperity. Therefore, the cancelation of the treaties will negatively affect the economic conditions necessary for foreign direct investments. According to it is evident that some of the treaties have been canceled due to the consideration by host companies on the impact of the policies on economic development and better foreign direct investment inflows. The study also shows there is an existing research gap in the relationship between foreign direct investments and bilateral investment treaties. The existing gap may impact countries negatively due to a lack of necessary information to make critical decisions about investments.
Bhasin and Manocha carried out a study in India to investigate the relationship between bilateral investment treaties and foreign direct investment flows. Using the regression method, the study demonstrates that BIT is a sign of commitment and protection that promotes FDI in countries such as India. The researchers also indicate that other factors may influence the success of the BIT in fostering FDI such as FDI regime and other existing policies that may negatively affect international investors. The size and performance of the economy such as that of India is also another factor that determines the success opportunities of the investments. Additionally, the researchers note that when the economy is not performing well, BIT will be affected as well as FDI. The conclusions reflect the current situation in the country that may impede the actualization of treaties across the world. The study also finds that although countries such as India, that have a developing economy will desire to attract FDI, the commitment to BIT may be a challenge. One of the major reasons is that the government may be focused on other priorities that are necessary for boosting the economy. Therefore, although the signing of the agreements may continue in the future, there will be a huge difference between the BIT before and after the pandemic both in developing and developed countries.
According to Bhasin and Rinku developing countries that experience financial struggles regularly have been competing for FDI for the last three decades. The rush to get FDI is due to the benefits that the study outlines. FDIs are highly preferred forms of investments since they are non-debt creating, they facilitate the transfer of knowledge, skills, and technology, and they are less volatile. The study also notes that in times of crisis countries are likely to seek FDI since they are essential tools that can revolutionize the economy. Past studies indicate that the escalation of international agreements occurs after a recession, a pandemic, or a major economic disruption. The studies hint towards the escalation of international agreements after World War I and II. The purpose was to adopt restorative measures that are essential in boosting the economy. Pandemics such as 1918 Spanish flu also triggered collaborations across countries to promote recovery and boost trade.
According to evidence from a past study on international investment treaties, the expected spike in cases during a crisis will be followed by a slowdown or termination of the agreements. The purpose of terminating the agreements is to reduce the number of BITs based on investor-state arbitration claims. The study thus cautious countries against making several BITs that they cannot cope up with in the future. It also provides information about India’s case study and the reasons behind the termination of the agreements.
International Investment Agreement (IIA)
IIA is a type of convention between states that protects cross-border investments to support and liberalize economic activities. The purpose of IIA is to boost the confidence and certainty of international investors and to encourage companies to invest overseas. Developing countries have in the past few decades signed various IIA treaties to welcome developed countries and international organizations to invest in their country. However, due to the current pandemic, countries will review their IIA treaties based on the impact that foreign investors are making to their economic growth. Companies that are not supporting growth may not be treated equally as those that are fostering growth. It will also depend on the main economic activity of the countries where foreign companies have made investments. For example, foreign investors in sectors that do not directly support economic growth may receive little support. Therefore, it is likely that in the future, countries will go back to the drawing board to analyze their IIA treaties. The analysis will also affect the other opportunities that will be open to other foreign investors based on the opportunities that will arise.
One of the major areas that will receive much attention in designing IIAs in the healthcare system. Countries have learned their lessons and they want to invest more in health to avoid future challenges in dealing with pandemics. Similar to the priority given to the healthcare expenditure, other projects may be sidelined. For example, direct foreign investments focusing on healthcare infrastructure will receive special attention in government policies. For example, due to the lessons from the health crisis, governments may provide funding and incentives to develop the healthcare infrastructure. International treaties may also focus on developing the capacity of member states to improve their readiness to deal with similar calamities in the future. For instance, several bilateral agreements emerged after previous recessions. Similarly, IIAs will focus on boosting economic growth through foreign direct investments.
One of the great lessons during the coronavirus pandemic is internal production. Countries have learned that they need to boost the ability of their industries to produce goods locally. For example, testing reagents, Personal Protective Equipment (PPE), and ventilators have been crucial in the fight against the pandemic. It is thus a priority in the future bilateral agreements and IIAs. They will encourage investments that boost internal production to minimize overreliance on the imports. Bilateral agreements will also focus on generating job opportunities to solve the mounting crisis of unemployment. Countries such as the United States will prioritize bilateral agreements that will lead to employment opportunities. The reason is that the USA is suffering from high unemployment cases. For example, agreements will welcome foreign companies to invest in various states to create job opportunities. However, the surge in the number of foreign investments should not override the national interest. The national interest will ensure competition of the local companies is not affected negatively by the foreign companies. They should also avoid interfering with the politics of the country.
Huawei Inc. is one of the Chinese companies that has been denied entry into the United States after years of investment. The reason for the government decided to stop the operations of the company and the sale of their products is because they felt their interests such as national security were at stake without proper bilateral agreements. The government accused the company of interfering with its cybersecurity by acquiring data critical to the nation’s security. The introduction of the internet 5-G has thus been halted until the current crisis is resolved. Bilateral agreements will be affected in the same way as countries strive to collaborate with nations that will help them to improve their health capacity compared to taking advantage of them.
Conclusion
International agreements regulate the actions of countries and protect the investments of foreign companies. Countries become members of international treaties to provide a safety net to foreign direct investment. It is important to recognize that the health crisis has triggered an impact on international agreements. The long-term impact is that more countries will violate or review the agreements to prevail in the current pandemic due to economic hardships and considerations of states’ interests.
Bibliography
Cases
Emilio Agustin Maffezini v Kingdom of Spain ICSID [2004] ARB/02/08
Mondev v. USA [2002], ICSID ARB(AF)/99/2
Saluka Investments BV v The Czech Republic UNICITRAL Partial Award [2006]
Wena Hotels v Egypt ICSID [2000] ARB/98/4
Legislation
Protection of Investment Act 22 of 2015
International Instruments
International Convention on the Settlement of Investment Disputes between States and Nationals of other States (1965) 4 ILM 532
Treaty of Friendship, Commerce, and Navigation between the United States of America and the Republic of China 63 Stat 1299 (1948)
Journals
Allee, T, and Clint, P. 2011. ‘Contingent credibility: The Impact of Investment Treaty Violations on Foreign Direct Investment’. JIO (401): 432-462.
Bull, A, C, Jagjit, P, and Lachlan, G. 2019. ‘International Investment Agreements and the Escalation of Private Power in the Global Agri-Food System’. BE (5): 15-38.
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Jung, H, J, and Eun M, K. 2019. ‘International treaties and foreign direct investment: an empirical analysis of the effects of bilateral investment treaties on South Korea’s FDI’. APE (4): 16-52.
Lermyte, E. 2019. ‘The Fair and Equitable Treatment Principle in Investor-State Dispute Settlement Cases’. Diss (5): 16-28.
Bhasin, N., & Manocha, R. 2016. ‘Do bilateral investment treaties promote FDI inflows? Evidence from India’. Vikalpa, 41(4), 275-287.
Books
Frenkel, M, and Benedikt, W, Do bilateral investment treaties attract foreign direct investment? The role of international dispute settlement provisions (2nd edn) Oxford University Press (2019)
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Treaties
Free Trade Agreement between Central America, the Dominican Republic, and the United States of America (CAFTA), signed August 5, 2004.
