*Karl P. Sauvant, PhD*
*Resident Senior Fellow*
*Columbia Center on Sustainable Investment**
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
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* Formerly the Vale Columbia Center on Sustainable international Investment.

"Policy options for promoting FDI in the LDCs", “The negotiations of
the United Nations Code of Conduct on Transnational Corporations:
Experience and lessons learned” and *Improving the International
Investment Law and Policy Regime: Options for the Future are*
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*Columbia FDI Perspectives*

Perspectives on topical foreign direct investment issues
No. 164  January 4, 2015
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Maree Newson ([log in to unmask])

*International investment law and decentralized targeted sanctions: *
*an uneasy relationship*
Anne van Aaken*** <#152184420c6bb1d8__edn1>

Since March 2014, several countries, including the United States (US), the
European Union (EU), Japan, and Canada, have implemented sanctions
(including travel bans and asset freezes) against Russian and Ukrainian
individuals and firms due to the Ukrainian crisis. This form of
decentralized smart sanctions could also be applied against other
countries’ nationals (e.g., due to human rights violations). Those
sanctions are an important means of effectuating international law,
particularly if the United Nations (UN) does not adopt centralized

Nevertheless, those sanctions may possibly conflict with international
investment law, rendering them less effective. For example, Russian
citizens whose accounts are frozen pursuant to such sanctions could sue for
expropriation, as well as for a breach of fair and equitable treatment
(FET), under the Canadian-Russian international investment agreement (IIA).
If successful, Canada would need to pay damages to the sanctioned
investors, nullifying the sanctions’ purpose. Russia has 59 IIAs in force,
while Ukraine has 56. A key inquiry, therefore, concerns the circumstances
and legal assumptions under which this scenario could occur, given the many
legal grey zones in those cases.

Although in some circumstances a sole bank account may not count as an
“investment” under the terms of an IIA, in most cases, especially if firms
are targeted, the satisfaction of this requirement will be unproblematic.
Furthermore, there is little doubt that a longer-term asset freezing,
without due process, is an expropriation even if the legal title is not
taken and a violation of FET. How can a sanctioning host country defend

New US and Canadian BITs contain non-precluded-measures clauses, including
measures for the maintenance or restoration of international peace and
security that permit resorting to sanctions. Most current European IIAs do
not contain this clause. Thus, the only possibility for the host country to
defend itself against a claim is through reference to customary
international law, namely the law of countermeasures as promulgated by the
International Law Commission in the Articles on the Responsibility of
States for Intentionally Wrongful Acts (ARSIWA). Two cases have to be
distinguished in this context: (1) injured states taking measures to react
to the injury (Art. 42, 49 ARSIWA) and (2) non-injured states taking
measures to effectuate obligations owed to the international community as a
whole (Art. 48). Whereas in the former case, the measures can (within
certain limits) violate international law, as e.g. targeted sanctions under
an IIA, in the latter case it is heavily disputed whether non-injured
states can only use lawful reprisals. Absent this restriction, any
(powerful) state may have an excuse to take countermeasures outside of the
UN. Following the International Law Commission, the sanctions against
Russia by non-injured states would likely be violating the IIAs, and the
sanctioning states would need to pay damages.

Were a tribunal to follow academic opinions[1] <#152184420c6bb1d8__edn2>
that countermeasures by non-injured states are allowed, certain limits
would have to be respected. Any countermeasure has to respect obligations
regarding the protection of fundamental human rights. Accordingly, if the
legal obligations in IIAs are considered an objective human rights regime,
expropriation would not be accepted; if IIAs are viewed as a reciprocal
inter-state regime, probably the sanction would be excused.[2]

A further contentious issue is the nature of investors’ rights. If those
are merely derived by being third-party beneficiaries,[3]
<#152184420c6bb1d8__edn4> or they are viewed as belonging only to states,
sanctioning would be possible. But if IIAs give a direct right to
investors, they would be a third-party who, therefore, in principle, cannot
be sanctioned.[4] <#152184420c6bb1d8__edn5> Tribunals have so far
overwhelmingly followed the direct rights approach and, thus, denounced
sanctioning investors in order to punish the home state.[5]

In short, this legal conflict has been largely overseen by policymakers.
Unless states write explicitly in their IIAs that measures for the
restoration of international peace and security are permissible, they risk
rendering large parts of decentralized targeted sanctions useless by being
held liable for damages, endangering the effectuation of international law.


* <#152184420c6bb1d8__ednref1> Anne van Aaken ([log in to unmask]) is
Professor for Law and Economics, Legal Theory, Public International Law,
and European Law at the University of St. Gallen, Switzerland. The author
is grateful to Laurence Boisson de Chazournes, Tillmann Braun and Krista
Nadakavukaren Schefer for their helpful peer reviews. *The views expressed
by the author of this **Perspective** do not necessarily reflect the
opinions of Columbia University or its partners and supporters. **Columbia
FDI Perspectives** (ISSN 2158-3579) is a peer-reviewed series.*

[1] <#152184420c6bb1d8__ednref2> *See* Christian Tams, *Enforcing
Obligations Erga Omnes in International Law* (Cambridge: CUP, 2010);
Institute of International Law, Resolution on obligations and rights erga
omnes in international law, IDI Resolution I/2005 (2005), 71(2) Ann IDI
286, Art. 5.

[2] <#152184420c6bb1d8__ednref3> Martins Paparinskis, “Investment
arbitration and the law of countermeasures”, * British Yearbook of
International Law*, vol. 79, p. 264-352 (2008).

[3] <#152184420c6bb1d8__ednref4> See Anthea Roberts, “Triangular treaties:
the nature and limits of investment treaty rights”, *Harvard International
Law Journal*, vol. 56 (2015).

[4] <#152184420c6bb1d8__ednref5> *See *Tillmann Braun,
“Globalization-driven innovation”, *Journal of World Investment & Trade*,
vol. 15 (2014), pp. 73-116

[5] <#152184420c6bb1d8__ednref6>*See Archer Daniels Midland Company v.
Mexico*, ICSID Case No. ARB(AF)/04/05 (NAFTA), September 26, 2007 (investor
has only procedural, not substantial rights), but Separate Opinion (rights
of the investor are, in all cases, fundamentally individual rights); *Corn
Products v. Mexico *(Decision on Responsibility), ICSID Case No.
ARB(AF)/04/01, January 15, 2008 (individual rights of the investor,
possibility of the justification of the Mexican tax as a countermeasure
rejected); *Cargill v. Mexico*, ICSID Case No. ARB(AF)/05/2, September 18,
2009 (right to take countermeasures does not justify measures which
infringe upon the rights of third parties).

*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Anne van Aaken, ‘International investment law
and decentralized targeted sanctions: an uneasy relationship,’ Columbia FDI
Perspectives, No. 164, January 4, 2016. Reprinted with permission from the
Columbia Center on Sustainable Investment (
<>).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at [log in to unmask]
<[log in to unmask]>. *

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Maree Newson, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 163, Moataz Hussein, “Toward balanced Arab regional investment
   regulations” December 21, 2016.
   - No. 162, Robert Basedow, “Preferential investment liberalization under
   bilateral investment treaties: How to ensure compliance with WTO law?”
   December 7, 2015.
   - No. 161, Wenhua Shan, “The case for a multilateral or plurilateral
   framework on investment,” November 23, 2015.

*All previous **FDI Perspectives** are available at
<>**. *

*Other relevant CCSI news and announcements*

·  *On January 19, 2016 *from 6:30-8:30pm, CCSI, the Sabin Center for
Climate Change Law, and the Earth Institute will host a panel discussion at
Columbia Law School on “What Effect Will the Transpacific Partnership Have
on Domestic and International Climate Change Action?” Panelists include *Ben
Beachey*, Senior Policy Advisor, Responsible Trade Program, Sierra
Club and *Claire
E. Reade*, Senior Counsel, Arnold & Porter LLP. The event will be moderated
by *Lise Johnson*, Head, Investment Law and Policy, Columbia Center
on Sustainable Investment. *To register, and for more information, please
visit our website

·  *On* *January 21, 2016 *from 4-6pm, CCSI and the Center on Global Legal
Transformation will co-host a joint event at Columbia Law School that
combines a book launch of Governing Access to Essential Resources, edited
by Katharina Pistor and Olivier De Schutter, and a preview of CCSI’s
forthcoming report, Land Deal Dilemmas: Addressing grievances in the
context of international law. This interactive event, with speakers *Susan
Karamanian, Katharina Pistor, Kaitlin Cordes, *and* Lise Johnson*, draws on
the research contained in the book and report to consider how we govern
“essential” resources – those necessary for the survival of human beings –
and whether existing property rights regimes are adequate for the task. *To
register, and for more information, please visit our website

·  *On January 29, 2016*, the CCSI/Global Economic Governance Programme at
Oxford University online forum on New Thinking on Investment
Treaties continues with a talk by *Lauge Poulsen* on “The Politics of
Investment Treaties in Developing Countries.” *For more information and for
the schedule of speakers, please visit our website **here
presentations will be posted here
Please subscribe to the channel and visit our website for updates*.

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946

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