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View this email in your browser <https://mailchi.mp/law/perspective-368?e=dd153d6a25> 哥伦比亚大学国际直接投资展望中文版都可以在我们的网站查看: https://ccsi.columbia.edu/content/columbia-fdi-perspectives <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=886560a3e7&e=dd153d6a25> . *Columbia FDI Perspectives* Perspectives on topical foreign direct investment issues Editor-in-Chief: Karl P. Sauvant ([log in to unmask]) Managing Editor: Matthew Conte ([log in to unmask]) *The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.* No. 368 October 16, 2023 *Rethinking umbrella clauses in international investment agreements* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=d960e9b602&e=dd153d6a25> by Julien Chaisse* <#m_-7408395182980625947_m_2829349960315755525__edn1> While umbrella clauses are a common feature in international investment agreements (IIAs), their implications are far from straightforward or universally beneficial. These clauses allow private investors to escalate contract breach claims arising from the exercise of sovereign authority or power, to treaty violation claims, thus making international arbitration a possible route for dispute resolution. However, the assumption that such clauses invariably fortify protection for foreign investors is not without contention. In fact, the incorporation of umbrella clauses often leads to a complex entanglement of legal and contractual obligations, creating an environment ripe for potential misuse and misunderstanding. As such, the perceived value and efficacy of these clauses merit closer examination and a more critical discourse. The key concern is the determination of whether commercial commitments are encompassed within an umbrella clause’s scope. In some cases, such as *Salini v Jordan* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=2e8f3eec05&e=dd153d6a25>, *El Paso v Argentina* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=e1a64d5642&e=dd153d6a25> and *Siemens v Argentina* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=d4795de058&e=dd153d6a25>, the tribunals held that only when states exercise sovereign authority do they assume obligation under IIAs. Not all rely on this “sovereign authority” requirement; but when they do, tribunals have conflicting views on sovereign authority, especially regarding attribution. In *Hamester v Ghana* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=d79da6fb09&e=dd153d6a25>, Cocoabod’s breach was not attributable to Ghana, while in *Kardossopoulos v Georgia* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=8b666882f2&e=dd153d6a25>, it was held that contractual commitments entered into by state-owned entities could be attributed to Georgia. In both cases, tribunals relied on Articles on Responsibility of States for Internationally Wrongful Acts <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=285095fde3&e=dd153d6a25>. If there is a forum-selection clause in a contract, the umbrella clause must be superseded to establish jurisdiction. However, at present, the applicability of contractual forum-selection clauses is uncertain. The tribunal in *SGS v Pakistan* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=2d3eedafa7&e=dd153d6a25> held that an umbrella clause does not automatically elevate a contract breach to a treaty violation when a contract contained a valid forum-selection clause. The tribunal in *SGS v Philippines* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=68817bf999&e=dd153d6a25> determined that the exclusive forum-selection clause in the contract rendered the contractual claims inadmissible before the tribunal, although it did not otherwise deprive it of jurisdiction. The tribunal in *BIVAC v Paraguay* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=a586a93553&e=dd153d6a25> permitted the use of a forum-selection clause to prevent the misuse of an umbrella clause. Finally, there is the question of whether investors that are parties to contracts with sub-national entities can use umbrella clauses. In *Azurix v Argentina* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=29d12f5b42&e=dd153d6a25>, the tribunal held that the Province of Buenos Aires was party to the contract, and Argentina had not undertaken any obligations due to the lack of privity between itself and the investor. Umbrella clauses breed unpredictability and inconsistent outcomes, influenced by external factors. Case-by-case interpretations by tribunals have resulted in conflicting rulings and ignited extensive debates, intensifying legal complexity. Accordingly, and as a prudent policy recommendation, new IIAs should steer clear of umbrella clauses. Encouragingly, recent IIAs increasingly omit these clauses, reflecting a positive trend. However, complete elimination in the near future is unlikely due to their interaction with most-favored-nation clauses, enabling investors to incorporate comprehensive umbrella clauses into other agreements. Therefore, countries should prioritize refining the negotiation, formulation and implementation of umbrella clauses with three main considerations in mind: *Aspects related to inter-departmental coordination and negotiation:* - As state contracts are negotiated by line ministries, IIA negotiators should liaise with these ministries to monitor potential interactions between state contracts and IIAs. Moreover, line ministries should negotiate state contracts in light of a country’s existing IIAs and umbrella clauses. *Clarity in drafting IIAs:* - Reforming IIAs going forward, umbrella clauses should explicitly state which types of breach are outside the scope of the clause. - IIAs should clearly state that a forum-selection clause supersedes an umbrella clause. - The inclusion of an MFN clause in a new IIA should explicitly state that it does not apply to umbrella clauses in other agreements. - All terms used should be properly defined, leaving little doubt as to whether a state is a party to contracts between sub-national entities and investors. However, the language should be carefully chosen to clearly show intent. *Scope of IIAs in protecting different interests:* - IIAs should enshrine the possibility of excluding certain investor protection standards from specific types of state contracts, for example, those based on industry or investment size. - The inclusion of national security and public policy exceptions within an IIA may be sufficient to protect regulatory discretion <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=7626995594&e=dd153d6a25>, even in a treaty regime that is otherwise expansively protective of state contracts. In conclusion, two strategic policy directions are suggested. The first emphasizes the crucial need for host countries to exercise prudence before signing IIAs, ensuring they negotiate the provisions that are essential to protect their interests, which may include the explicit avoidance of an umbrella clause. The second strategy suggests that, if the omission of an umbrella clause is unattainable, any forthcoming clause of this kind should be meticulously crafted to navigate the inherent intricacies and uncertainties that it entails. This presents a significant challenge for policymakers. Collectively, the recommendations outlined above aim to bolster the transparency, predictability and precision of these agreements, thereby reducing potential legal ambiguities and fostering a more predictable investment environment. ------------------------------ * <#m_-7408395182980625947_m_2829349960315755525__ednref1> Julien Chaisse ( [log in to unmask]) is Professor of Law, City University of Hong Kong, and President, Asia Pacific FDI Network. The author wishes to thank three anonymous peer reviewers for their helpful peer reviews. *The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Julien Chaisse,** ‘**Rethinking umbrella clauses in international investment agreements,**’ Columbia FDI Perspectives, No. 368, October 16, 2023. Reprinted with permission from the Columbia Center on Sustainable **Investment (*http://ccsi.columbia.edu <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=632f7081be&e=dd153d6a25>*).” 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, Matthew Conte, [log in to unmask] *Most recent Columbia FDI Perspectives* <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=76446d8ba9&e=dd153d6a25> - No. 367, Brian Egan and Katie Clarke, ‘CFIUS part II? The US moves to restrict outbound FDI to China <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=7356430a3d&e=dd153d6a25>,’ *Columbia FDI Perspectives*, October 2, 2023 - No. 366, Gary Gereffi, ‘Navigating 21st century industrial policy <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=290bf70b98&e=dd153d6a25>,’ *Columbia FDI Perspectives*, September 18, 2023 - No. 365, Gaurav Pundir, ‘How can governments help small enterprises integrate into global value chains? <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=2307b10a76&e=dd153d6a25>’ *Columbia FDI Perspectives*, September 4, 2023 *All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=3d1e5d3798&e=dd153d6a25>* . *Other relevant CCSI news and announcements* - *October 17, 2023:* CCSI will host a webinar entitled, "Europe's Decarbonization Transition Plan: Addressing Gas Supply Turbulence and Implementing a Robust Permitting Framework." *For more details, and to register, visit our website <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=8dbbc47379&e=dd153d6a25>.* - *October 18, 2023:* CCSI's Fall 2023 International Investment Law and Policy Speaker Series begins on October 18th. Focusing on the perspective of policy makers on central topics in investment law and policy, the virtual series will include panels on "Beyond Economics: The DCF Method Applied to ISDS," "Impact of Foreign Investment Projects and Disputes on Local Communities," and "The Reform and Role of ISDS in the Legalization and Legitimacy of the Investment Treaty Regime." *For more details, and to register, visit our website <https://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=32f20c7ef2&e=dd153d6a25>.* Karl P. Sauvant, Ph.D. Senior Fellow Columbia Center on Sustainable Investment Columbia Law School - Columbia Climate School *Copyright © 2023 Columbia Center on Sustainable Investment (CCSI), All rights reserved.* [log in to unmask] *Our mailing address is:* Columbia Center on Sustainable Investment (CCSI) Columbia Law School - Columbia Climate School, Columbia University 435 West 116th Street New York, NY 10027 Add us to your address book <https://columbia.us6.list-manage.com/vcard?u=ab15cc1d53&id=a61bf1d34a> unsubscribe from this list <https://columbia.us6.list-manage.com/unsubscribe?u=ab15cc1d53&id=a61bf1d34a&e=dd153d6a25&c=f8605b9e19> update subscription preferences <https://columbia.us6.list-manage.com/profile?u=ab15cc1d53&id=a61bf1d34a&e=dd153d6a25&c=f8605b9e19> [image: Email Marketing Powered by Mailchimp] <http://www.mailchimp.com/email-referral/?utm_source=freemium_newsletter&utm_medium=email&utm_campaign=referral_marketing&aid=ab15cc1d53&afl=1> -- *Karl P. 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Second Edition <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830031>,* "Agenda for Practice-oriented Research <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4103768>", "How Would a Future WTO Agreement on Investment Facilitation for Development Encourage Sustainable FDI Flows, and How Could it be Further Strengthened? <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4084032>”, "Green FDI: Encouraging Carbon-neutral Investment <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3943705>", "More Attention to Policies! Improving the Distribution of FDI Benefits <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3818974>", "Facilitating Sustainable FDI in a WTO Investment Facilitation Framework: Four Concrete Proposals <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3496967>", "An Inventory of Concrete Measures to Facilitate the Flow of Sustainable FDI: What? Why? 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