MASTER’S THESIS
THE DIGITAL ECONOMY: AN EVOLUTION OF INTERNATIONAL
INVESTMENTS AND NATIONAL SECURITY CONCERNS
Submitted in partial fulfilment of the requirements for the award of the
degree of Masters in International Trade and Investment Law
(International and European Law)
Submitted By
Dullo Adan Ware Dullo
Student Number 12727407
Prepared under the supervision of: Prof. Dr. Stephan Schill
ACKNOWLEDGEMENT
I would like to express my sincere gratitude to my supervisor, Prof. Stephan Schill for his patience, continued support and guidance throughout my research and writing. His encouragement towards embracing an analytical mind and sharing his thirst for international investment law and arbitration were fundamental towards achieving my success at the University of Amsterdam and in writing my thesis. My friends and I often exclaimed that, if the University had several versions of him, we would practically be the top university in the world.
To my mother, who has been my biggest cheerleader, my mentor in the legal profession and my supporter throughout my life, I am most grateful for you. I am who I am because of you. Indeed, you epitomise the true meaning of sacrifice and love. To my sisters, Khadija and Jamila, thank you for the support, love and encouragement. To my brother Owiso, my senior in the legal profession, I am most grateful for your never-ending support, encouragement and being a sounding board for my legal thoughts. To my uncle Ismail, I am grateful for your love, care and support throughout this period.
I would certainly be remiss if I did not express my deep gratitude to the great friends and connections I made while at the University of Amsterdam, including Natalie, Marlene, Zohair, Mix, Elizabeth and the rest, for the laughs, memories and good times.
Finally, to my late father, a man I take after and endeavour to emulate. I will remain most grateful for your love, sacrifice, wisdom and inspiration.
LIST OF ABBREVIATIONS
BIT Bilateral Investment Treaty
ECT The Energy Charter Treaty
FET Fair and Equitable Treatment GDPR General Data Protection Legislation
ICSID International Centre for Settlement of Investment Disputes ISDS Investor State Dispute Settlement
IP Intellectual Property
MFN Most Favoured Nation
MIT Multilateral Investment Treaty
NAFTA The North American Free Trade Agreement
OECD The Organisation for Economic Co-operation and Development
TPA Trade Promotion Agreement
UK United Kingdom
US United States of America
UNCTAD United Nations Conference on Trade and Development VCLT Vienna Convention on the Law of Treaties
TABLE OF CONTENTS
ACKNOWLEDGEMENT I
LIST OF ABBREVIATIONS II
CHAPTER ONE 5
INTRODUCTION 5
1.1 BACKGROUND AND PROBLEM STATEMENT 5
1.2 RESEARCH QUESTIONS 7 1.3 RELEVANCE 8 1.4 LITERATURE REVIEW 8 1.5 METHODOLOGY 10 1.6 ROADMAP 10 CHAPTER TWO 12
INVESTMENTS IN THE DIGITAL ECONOMY 12
2.1 INTRODUCTION 12 2.2 THE CONCEPT OF INVESTMENT 14 2.2.1 THE DEFINITION OF AN INVESTMENT 14 2.3 TERRITORIAL NEXUS 19 2.4 CONCLUSION 20 CHAPTER THREE 22
THE APPLICATION OF NATIONAL SECURITY MEASURES ON INVESTMENTS
IN THE DIGITAL ECONOMY 22
3.1 INTRODUCTION 22
3.2 SYNOPSIS OF SUBSTANTIVE PROTECTIONS IN BITS 22
3.3 NATIONAL SECURITY MEASURES 23
3.2.1 PRE-ESTABLISHMENT STAGE 23
3.2.2 POST-ESTABLISHMENT STAGE 26
3.2.2.1 Data Protection Legislation 26
3.2.2.2 The Ban and Block on Online Platforms 28
3.2.2.3 Intrusion of online platforms by host States 31
3.3CONCLUSION 31
CHAPTER FOUR 33
ESSENTIAL SECURITY PROVISIONS AND THE STANDARD OF REVIEW FOR
4.1 INTRODUCTION 33
4.2 ESSENTIAL SECURITY INTEREST PROVISIONS WITH BITS AND THE PRINCIPLE OF
NECESSITY 33
4.3 SELF-JUDGING NATURE OF THE ESSENTIAL SECURITY INTEREST CLAUSE 36
4.4 STANDARD OF REVIEW 38
4.5 CONCLUSION 38
CHAPTER ONE
INTRODUCTION
1.1 Background and Problem Statement
The permeation of digitisation and digital technology into international trade and investment systems has led to the emergence of the digital economy. I surmise that this may be viewed as an evolution of traditional forms of international trade and investments, or their devolution into the digital sector. Regardless, there are cogent doctrinal questions that remain unanswered given that these ‘novel’ investments significantly diverge from the traditional ‘brick and mortar investments’; largely due to their digital nature and their lack of physical presence in the host States. 1 Indeed, a preponderance of arbitral awards deal with the latter and it is therefore unclear as to whether they would be considered as ‘covered’ or ‘protected’ investments and what substantive protections are available to them under bilateral investment treaties.2
However, in light of the globalisation of the digital economy, it is conceivable that tribunals will soon be called upon to answer these questions. In any case, these investments are vulnerable to host State measures as any other forms of covered investments.3 This assertion is predicated upon the emanation of disputes between investors and host States. Take, for example, Uber’s threat to institute treaty-based arbitration against the Republic of Colombia.4 They asserted that Colombia had violated its obligations under the US - Colombia Trade Promotion Agreement5 when its regulatory agency, the Superintendency of Industry and Commerce (SIC), issued a decision banning the ride-sharing application in December 2019.6
Although Uber subsequently resumed its operations in Colombia in February 2020, following a remodelling of its services, the Superior Tribunal of Bogota overturned the SIC’s decision in
1 E. Horváth and S. Klinkmüller, ‘The Concept of ‘Investment’ in the Digital Economy: The Case of Social Media Companies’,
(2019) 20.4 The Journal of World Investment and Trade 577, 580.
2 Ibid. 3 Ibid.
4 Lisa Bohmer and Luke Peterson, ‘Uber threatens Colombia with Treaty-based Arbitration after ban on use of its ride-sharing
app,’ (Investment Arbitration Reporter, 9 January 2020) < https://www.iareporter.com/articles/uber-threatens-colombia-with-treaty-based-arbitration-after-ban-on-use-of-its-ride-sharing-app/ > accessed on 3 July 2020.
5 Entered into force on 15 May 2012. 6 Bohmer and Peterson (n 3).
June 2020.7 In its findings, the national tribunal indicated that the actions taken by SIC were based on an application by the local taxi union that was time barred and thus of no legal effect.8 Supposing the dispute went to arbitration, it can be assumed that the tribunal would have also found in Uber’s favour.
The challenges faced by Uber in the above case are emblematic of the arduous systemic and normative constraints that investments in the digital economy come across around the world.9 It highlights a lacuna in various national legislations or their innovative incompatibility with these investments. Invariably, some of the measures taken by host States on the basis of these legislations, as seen above, will result in disputes that will soon become the subject matter of international investment arbitration.
Of particular importance are a myriad of legislative and administrative measures taken by host States under the auspices of national security. For instance, TikTok - a popular social networking and video-sharing application – has recently borne the brunt of such measures within the United States (hereinafter, US).10 Despite the current owners of the platform, ByteDance Ltd., being registered in the Cayman Islands,11 the US has expressed concerns about the Chinese government’s possible surreptitious access to the sensitive personal data collected by the firm from its users within the US and their influence on content moderation.12
This suspicion has resulted in the Committee on Foreign Investment in the United States (hereinafter CFIUS) undertaking an official national security inquiry into the risk posed by the firm and the application.13 The US Department of Defence banned its use on
government-7 Reuters, ‘Colombia court overturns restriction on Uber’ (Reuters, 20 June 2020) < https://www.reuters.com/article/uber-colombia/colombia-court-overturns-restriction-on-uber-idUSL1N2DW2IS > accessed 3 June 2020.
8 Loren Moss, ‘Anti-Uber Order Struck Down in Colombia by Superior Court of Bogota’ (Finance Colombia, 20 June 2020)
< https://www.financecolombia.com/anti-uber-order-struck-down-in-colombia-by-superior-court-of-bogota/ > accessed on 3 July 2020.
9 Isabell Koske et al, ‘The Internet Economy – Regulatory Challenges and Practices,’ (2014) OECD Economics Department
Working Papers, No.1171, OECD Publishing, Paris < https://www.oecd-ilibrary.org/economics/the-internet-economy-regulatory-challenges-and-practices_5jxszm7x2qmr-en?crawler=true> accessed 1 July 2020.
10 Jack Nicas, Mike Isaac and Ana Swanson, ‘Tiktok Said to be under National Security Review’ (New York Times, 1
November 2019) <https://www.nytimes.com/2019/11/01/technology/tiktok-national-security-review.html> accessed 2June 2020.
11 ByteDance Limited, ByteDance.com <https://www.bytedance.com/en/ > accessed 2 July 2020.
12 Paige Leskin, ‘Inside the rise of TikTok, the viral video-sharing app whose ties to China are raising concerns in the U.S’
(Business Insider, 23 January 2020) < https://www.businessinsider.nl/tiktok-app-online-website-video-sharing-2019-7?international=true&r=US > accessed 1 July 2020.
13 Lauren Hirsch, ‘TikTok national security inquiry is the latest US show of force on Chinese access to American data’ (CNBC,
4 November 2019) < https://www.cnbc.com/2019/11/04/tiktok-inquiry-is-the-latest-example-of-us-focus-on-china-access-to-data.html > accessed on 1 July 2020.
issued smartphones and advised its military personnel to delete it on their personal phones.14 Recently, the US Secretary of State, Mike Pompeo hinted at a possible ban of the application together with several other Chinese social media applications.15
Notwithstanding the fact that most investors are third parties to the deterioration of foreign relations between the US and China, such geopolitical tension will inevitable affect their investments and this situation is not peculiar to the aforementioned.16 More recently, the Indian government banned fifty-nine (59) Chinese applications including TikTok.”17 Imposed under section 69A of the Information Technology Act, India claimed the actions were necessary against activities that were “prejudicial to the sovereignty and integrity of India, defence of India, security of state and public order.”18
The measures described above expose fissures within the jurisprudence of international investment law, particularly with respect to whether they violate substantive investment protections. Tribunals will also have to contend with what standard of review they will exercise with regards to such measures or violations thereof as well as the application of the essential interest provisions within international investment treaties and the principle of necessity in customary international law as possible justifications thereto.
1.2 Research Questions
The following questions will be addressed in the Thesis:
i. Are investments in the digital economy protected under bilateral investment treaties? ii. Do national security measures violate substantive protections under bilateral
investment treaties and in what circumstances?
14 Neil Vigdor, ‘U.S Military Branches Block Access to TikTok App Amid Pentagon Warning’ (New York Times, 4 January
2020) < https://www.nytimes.com/2020/01/04/us/tiktok-pentagon-military-ban.html > accessed 2 June 2020.
15 Jill Disis and Jennifer Hansler, ‘The United States is ‘looking at’ banning TikTok and other Chinese social media apps,
Pompeo says,’ (CNN Business, 7 July 2020) <https://edition.cnn.com/2020/07/07/tech/us-tiktok-ban/index.html > accessed 9 July 2020.
16 Keith Johnson and Robbie Gramer, ‘The Great Decoupling’ (The Financial Policy, 14 May 2020)
< https://foreignpolicy.com/2020/05/14/china-us-pandemic-economy-tensions-trump-coronavirus-covid-new-cold-war-economics-the-great-decoupling/ > accessed 10 July 2020; P. Domm, ‘US-China tensions could become a bigger headwind for the stock market’ (CNBC, 22 May 2020) < https://www.cnbc.com/2020/05/22/us-china-tensions-could-become-a-bigger-headwind-for-the-stock-market.html>accessed 10 July 2020.
17 ET Bureau, ‘India bans 59 Chinese apps including TikTok, WeChat, Helo,’ (Economic Times, 10 July 2020)
< https://economictimes.indiatimes.com/tech/software/india-bans-59-chinese-apps-including-tiktok-helo-wechat/articleshow/76694814.cms>accessed on 10 July 2020.
iii. Do arbitral tribunals have the power to sit in determination of national security measures taken by host States against protected investments and to what extent?
1.3 Relevance
Progressively, host States are implementing a broad range of national security measures which seem to negatively impact investments in the digital economy. Given the current legal uncertainty and the endemic use of such measures, it is therefore necessary to determine the place of such investments in international investment law and their protections under international investment treaties. This clarity will elucidate the respective roles of the parties and their obligations under the investment treaties, and prevent further violations.
1.4 Literature review
Initial research indicates that arbitral tribunals are yet to deal with investments in the digital economy and the application of national security measures to these investments. However, available research has been highlighted below.
Horváth and Klinkmüller, suggest that there are parts of investments in the digital economy that are protected under international investment treaties.19 In order to make this assertion, they conduct a comprehensive analysis that focuses on the digital operation of social media companies.20 In their view, such an analysis would effectively cater for all digital investments since they all share the online element of social media companies.21 However, they indicate that data, which is a crucial asset for these investments may not satisfy current international investment treaties.22
Chaisse and Bauer come to the same conclusion.23 However, they emphasise that the uncertainty and risk relating to such investments could be cured if States take a proactive approach of drafting appropriate bilateral investment treaties to address these digital assets.24
19 Horváth and Klinkmüller (n 1), p. 616. 20 Ibid.
21 Ibid. 22 Ibid.
23 Julien Chaisse and Cristen Bauer, ‘Cybersecurity and the Protection of Digital Assets: Assessing the Role of International
Investment Law and Arbitration’ (2019) 21 Vand J Ent & Tech L 549, 587.
Significantly, they suggest that a digital-friendly BIT has to balance the state’s right to regulate and protect public interest while at the same time efficiently protecting digital assets.25
Like Horváth and Klinkmüller, they acknowledge that the territorial link between these forms of investments and the host States are tenuous at best and predict that this will be a major bone of contention between disputants.26 With regards to the national security exception within investment treaties, they consider these provisions as impediment to the protection of digital assets or any claims raised in relation thereto.27 They suggest that states may utilise these broad self-judging provisions to evade their responsibilities under international investment treaties.28
Eisenhut posits that security and state sovereignty are intertwined and it is within the States’ prerogative to determine what is essential for its own national security.29 He delineates between the self-judging clauses that allow for the invocation of national security exceptions and those that require that the measure be a necessity.30 He undertakes a comparative analysis of these types of clauses within the broader realm of international dispute settlement.31 He suggests that these national security measures are not beyond review and tribunals can effectively interrogate them.32
Yannaca-Small conducts an in-depth review of bilateral investment treaties signed by OECD Member States upto the year 2005 and identifies 38 that include essential security interests.33 She suggests that it is established from the treaty practice of its Member States that they have the right to protect their essential security interests.34 She argues, with support from arbitral findings, that absent an explicit self-judging clause, tribunals do have the mandate to review what is essential security for the State.35
25 Ibid. 26 Ibid. 27 Ibid, 588. 28 Ibid.
29 Dominik Eisenhut, ‘Sovereignty, National Security and International Treaty Law. The Standard of Review of International
Courts and Tribunals with regards to ‘Security Exceptions’’ (Archiv des Völkerrechts, 2010) 431, 465.
30 Ibid. 31 Ibid. 32 Ibid.
33 Katia Yannaca-Small, ‘Essential security interests under international investment law’ ORGANISATION FOR
ECONOMIC CO-OPERATION AND DEVELOPMENT. International Investment Perspectives: Freedom of Investment in a Changing World. (2007) Paris OECD 94, 105.
34 Ibid. 35 Ibid.
Gruszczynski and Werner argue that the amount of deference that international courts and tribunals give to state measures and their exercise of standard of review are unclear and suggest the use of public policy justifications contained in the respective regimes reveal how they should act.36 They further argue that arbitral tribunals ought not to give complete deference to the host State and all actions claimed as public policy measures should be justified.
1.5 Methodology
Research for this thesis will be based on primary and secondary sources. Primary sources will entail the analysis of sample clauses from various international investment treaties and relevant provisions of international treaties such as the ICSID Convention. Where appropriate, it will also include the analysis of various national security provisions contained in domestic legislation of certain host States. Additionally, an analysis of arbitral awards will be conducted targeting those that addressed possible national security interests and the application of essential security provisions.
Secondary sources will be drawn from textbooks, journals, newspapers and electronic resources in order to identify and clarify certain principles of international investment law and general principles of international law. This will be essential for constructing sound legal arguments and preparing a reasoned conclusion.
1.6 Roadmap
The first chapter provides a brief introduction of digitisation and digital technology in the context of the digital economy. It also introduces certain challenges that investments in the sector have faced in respect of the varying and strict national security measures. It outlines the research questions and the relevance of such questions and the research topic in international investment law and arbitration.
The second chapter seeks to determine whether investments in the digital economy can be found as protected investments under international investment treaties. In doing so, it
36 Lukasz Gruszczynski and Wouter Werner, ‘Deference in International Courts and Tribunals’ (Oxford University Press,
recognizes that only protected investments can benefit from the protections afford under international investment treaties.
The third chapter explores whether national security measures taken by host States will violate substantive protections under bilateral investment treaties. It will also identify such recent measures and analyse them in the context of the research topic. In doing so, it will determine whether there are obligations owed to investors in the digital economy and what actions or omissions may result in the breach of such obligations.
The fourth chapter explores how international arbitral tribunals may handle disputes that involve national security measures and what standard of review they will exercise in respect to those measures. In doing so, it will predict how tribunals may decide and whether they ought to tackle issues to do with national security.
CHAPTER TWO
INVESTMENTS IN THE DIGITAL ECONOMY
2.1 Introduction
Founded on digital data, digital technologies and digital infrastructure, the digital economy has created immense wealth for actors in the sector.37 In 2019, digital companies such as Google, Amazon and Facebook were ranked among the most valuable corporate brands in the world.38 In fact, it has been lauded as a pathway for developing countries to achieve their sustainable development goals (SDGs).39 Despite this, it remains unclear whether investments in the digital economy would fit within the current international investment law regime due to their novelty.
However, given that disputes are arising between host States and foreign investors, as was illustrated in the previous chapter, it is crucial to pre-emptively determine how tribunals would establish their jurisdiction over these investments, particularly since only protected investments would be able to seek recourse under the relevant bilateral investment treaties and the protections availed therein. This chapter will identify the divergence between these ‘novel’ investments and ‘brick and mortar’ investments as well as determine whether any typology exists in the digital economy. It will also chart out how tribunals would interrogate the place of these investments in bilateral investment treaties.
2.2 The Divergence of Investments in the Digital Economy from Traditional Investments
Before delving into the question of the compatibility of these investments with bilateral investment treaties, this part highlights the differences between these ‘novel’ forms of investments and ‘brick and mortar’ investments.
37 Digital Economy Report 2019 – Value Creation and Capture: Implications for Developing Countries (UNCTAD, 2019),
UNCTAD/DER/2019 (Overview) 1.
38 Lucy Handley, ‘Amazon beats Apple and Google to become the world’s most valuable brand,’ (CNBC, 11 June 2019)
<https://www.cnbc.com/2019/06/11/amazon-beats-apple-and-google-to-become-the-worlds-most-valuable-brand.html> accessed on 8 July 2020.
Generally, the core objective of all business enterprises, including those within the digital economy, is value creation.40 This is defined as “the performance of actions that increase the
worth of goods, services or even a business.”41 Whereas traditional forms of investments derive their value from physical goods and services, the digital economy achieves this by the collection and processing of personal, social and commercial data of its users.42 Thereby, digital data is converted into digital intelligence, which is then used by the business enterprise to create value.43
Secondly, Value creation also affects how a business organizes itself.44 Enterprises create, change and adopt business models that maximize value creation.45 Studies suggest that the digital economy has given rise to new forms of business models.46 These models can be broadly categorized into online platforms and platform-enabled services.47 For instance, social media and streaming companies such as Twitter, Tiktok, Facebook and Netflix, fall within the first category whereas e-commerce and e-service companies such as Amazon and Airbnb fall within the latter.48
The commonality between the two business models lies in the fact that they both rely on online platforms to conduct parts of their business operations.49 Essentially, this affords them the ability to make significant strides in foreign markets while at the same time maintaining minimal physical presence.50 This is what differentiates the new business models with those commonly addressed in international investment law and arbitrations.51
However, the difference between the two categories lies in the fact that the first performs a substantial amount of their operations online and the services they offer are similarly online based, whereas the second category only relies on online platforms to organize its physical operations and services.52
40 E. Jorgenson, ‘Why Value Creation is the Foundation of Business: How to define it, measure it, and manage it,’ (Evergreen
Business Weekly, 14 September 2015) < https://medium.com/evergreen-business-weekly/why-value-creation-is-the-foundation-of-business-how-to-define-it-measure-it-and-manage-it-147c92b87aca > accessed 1 June 2020.
41 Business dictionary < http://www.businessdictionary.com/definition/value-creation.html > accessed 1 June 2020. 42 UNCTAD Report (n 20) 1. 43 Ibid. 44 Jorgenson (n 22). 45 Ibid. 46 OECD Publication (n 2) 73. 47 Ibid.
48 Horváth and Klinkmüller (n 4), 578. 49 Ibid.
50 Ibid. 51 Ibid. 52 Ibid.
For the purpose of my analysis, I will largely focus on the former based on two factors. First, these activities represent a new challenge in international investment law given that tribunals have not tackled such possible investments. Second, by tackling the former, it will also address any possible challenges that online-enabled platforms my face since the commonality and issue to be addressed is the online element.
2.2 The Concept of Investment
There is no single definition for the concept of investment in international investment law.53 Thus, BITs bear varying but similar definitions depending on what kind of investments the contracting parties may want to protect. This part looks at the common definitions of investments within BITs and determines whether digital investments can satisfy these definitions.
2.2.1 The definition of an investment
The definition of an investment within BITs are commonly broad and asset-based, and include a non-exhaustive list of covered assets and/or investments.54 An investment usually consists of:
“every kind of asset invested by the investors of one Contracting Party in the territory
of the other Contracting Party in accordance with the laws, and regulations of the
Contracting Party in whose territory the investment is made and in particular, though not exclusively, includes:
i. Movable and immovable property as well as any other property rights in rem such as mortgages, liens, pledges, usufruct and similar rights;
ii. Shares, stocks, bonds, debentures and any other similar forms of participation in a company and other debts and loans and securities issued by an investor of a Contracting Party;
iii. Rights or claims to money or to any performance under contract having financial or economic value;
53 R. Dolzer and C. Schreuer, ‘The Principle of International Investment Law’ (2nd Edition, OUP) 58. 54 M. Houde, ‘Novel Features in Recent OECD Bilateral Investment Treaties,’ (OECD, 2006) 146.
iv. Intellectual, commercial and industrial property rights such as copyrights
patent licenses trade mark and goodwill;
v. Any concessions conferred by law, under contract or by virtue of any licenses or permits granted pursuant to law. Natural sources shall not be covered by this Agreement.
Any change of the form in which assets are invested or reinvested does not affect their character as investment provided that in case of such change, the investor will get the legal permission from the competent authority of the host Contracting Party.”55 (Emphasis added)56
It is incumbent upon the claimants to establish that their dispute involves an investment within either the general category of “every kind of asset” or one of the categories specified above.
2.2.1.1 General Category – ‘Every Kind of Asset’
A salient feature in most investment treaties, the phrase “every kind of asset” has been interpreted by some tribunals as a non-exhaustive list that allows for the protection of assets in general.57 The tribunal in Saipem S.p.A v. Bangladesh58 made such a determination. Bangladesh had raised a preliminary objection claiming that the dispute did not involve an investment as required by Art. 1.1. of the 1990 Italy-Bangladesh BIT.59
The phrase used therein referred to “any kind of property” and the tribunal found this to be a broad definition that corresponded to “every kind of asset” and subsequently affirmed its jurisdiction over the dispute.60 In this case, the tribunal solely relied on the general term “any
kind of property” to base its jurisdiction over the investment.61
55 Ibid, Art. 1(1).
56 Agreement between the Government of the Republic of Kenya and the Government of the United Arab Emirates on the
Promotion and Protection of Investments (Signed on 23 November 2014).
57 Mahnaz Malik, ‘Definition of Investment in International Investment Agreements’ (International Institute for Sustainable
Development, 2011) 4.
58 Saipem S.p.A v. The People’s Republic of Bangladesh, ICSID Case No. ARB/05/7 Decision on Jurisdiction and
Recommendation on Provisional Measures, 21 March 2007.
59 Agreement between the Government of the Republic of Italy and the Government of the People’s Republic of Bangladesh
on the Promotion and Protection of Investments (20 March 1990), Art. 1.1.
60 Decision on Jurisdiction (n 48), para. 121 – 122. 61 Malik (n 47) 4.
In line with this, it is therefore conceivable that the phrase “every kind of asset” would encompass digital assets such as digital data and online platforms.62 The OECD recognises this stating that digital data represents an increasingly crucial strategic asset for most enterprises.63 Moreover, UNCTAD lends credence to this idea where it suggests that the phrase “embraces
everything of economic value, virtually without limitation.” 64
As was illustrated above, the business models of enterprises in the digital economy, create value through the collection and processing of digital data. Therefore, digital data has both an intrinsic and extrinsic value for these enterprises.65 Intrinsic value is derived from the unprocessed data and it is in itself valuable for enterprises.66 It is for this reason that digital data can be sold and purchased for money.67 The extrinsic value of data is derived from digital data that has been processed and is now intelligent data or metadata.68 Metadata can be sold although it is more valuable for enterprises.69 This is because metadata (or data about data) relates to the habits and interests of consumers and purchasers as well as what might be in demand.70 This is crucial as it affords enterprises the ability to drive their businesses based on current market information.71
2.2.1.2 Specific Category
As stated above, tribunals have the discretion to decide whether to rely on the general category “every kind of asset” or require that the assets fall within the list of categories provided in the respective BITs. In some cases, it may also be a requirement of the BIT as a result of its wording.72 For instance, the tribunal in Jan De Nul N.V. v. Arab Republic of Egypt73 faced
such a situation. The two applicable BITs74 had the general phrase “any kind of asset” followed by a list of sectors. The 1977 BIT provided inter-alia that:
62 J. Chaisse and C. Bauer, ‘Cybersecurity and the Protection of Digital Assets: Assessing the Role of International Investment
Law and Arbitration,” (2019) 21 Vand J Ent & Tech L 549, 554.
63 OECD Publication (n 2) 7.
64 UNCTAD Series on Issues in International Investment Agreements II: Scope and Definition (UNCTAD, 2011),
UNCTAD/DIAE/IA/2010/2, 24.
65 Chaisse and Bauer (n 52) 554. 66 Ibid. 67 Ibid, 558. 68 Ibid, 559. 69 Ibid. 70 Ibid. 71 Ibid. 72 Ibid.
73 ICSID Case No. ARB/04/13, The Decision on Jurisdiction, 16 June 2006.
74 Agreement between the Belgo-Luxembourg Economic Union on the one hand, and the Arab Republic of Egypt on the other
Belgo-“The term “investments” shall comprise every direct or indirect contribution of
capital and any other kind of assets, invested or reinvested in enterprises in the field of agriculture, industry, mining forestry, communications, and tourism.”
In its interpretation, the tribunal took cognisance of the fact that even though the definition provided a general category, the application of such capital or asset had to be in the specific sectors listed above, that is, agriculture, industry, mining, forestry, communications and tourism.75
However, the tribunal found the contrary in respect to the 2002 BIT. In their view, the definition therein did not specifically limit itself to particular sectors like the 1977 BIT. The relevant section provided as follows:
“The term “investments” means any kind of assets and any direct or indirect
contribution in cash, in kind or in services, invested or reinvested in any sector of economic activity in the territory of one Contracting Party in accordance with its laws and regulations by an investor of the other Contracting Part…….”
With this in mind, it is therefore crucial to ensure that assets also fall within a specific category in case the wording requires it or the tribunal determines as such. These will be discussed below.
a) Intellectual Property Rights
Most international investment treaties contain provisions that recognise intellectual property as protected or covered investments.76 Ordinarily, these provisions are open ended and usually provide a non-exhaustive list.77 These may include copyright, patents, trademarks, technical processes and know-how.78 Some also include goodwill in this category.79
Luxembourg Economic Union on the one hand, and the Arab Republic of Egypt on the other hand, on encouragement and reciprocal protection of investments of 28 February 1999.
75 Ibid, para. 97 – 104.
76 Horváth and Klinkmüller (n 4), 600. 77 Ibid.
78 Ibid. 79 Ibid.
For example, the 1995 Italy – Turkey BIT80 has such a comprehensive and non-exhaustive list under the category intellectual property. Therefore, if enterprises have registered IP rights, these rights would be considered as protected investments. This is particularly important when dealing with online platforms and digital products developed by such enterprises.
In A11Y Ltd. v. Czech Republic81, the tribunal affirmed its jurisdiction over intellectual
property rights under the United Kingdom – Czech Republic BIT82, albeit under the chapeau of the definition of an ‘investment’ - “every kind of asset belonging to an investor.” The claimants were a British company that developed and provided assistive technologies for persons who are visually impaired.83 They contended that the Czechian authorities had taken regulatory measures that amounted to indirect or creeping expropriation over its investment. i.e. know-how and goodwill. Although the tribunal decided in favour of the respondents, it recognized that intellectual property rights were protected investments.
However, there is a significant pitfall with respect to intellectual property protection under BITs.84 This is due to the fact that such rights are subject to domestic legislation. Common in investment treaties, the Contracting Parties often expressly indicate that investments are dealt with in conformity with the laws and regulations of the host State. Thus, if a host State does not have adequate IP protection under its legislation, protections under the respective BIT would also be inadequate.85
b) Tangible Property
Tangible property remains one of the major categories of assets protected under investment treaties.86 Like ‘brick and mortar’ investments, the digital economy also requires real property in order to operate.87 This may include storage facilities for e-commerce companies, servers and data storage facilities for online platforms as well as physical office space if need be. Therefore, such tangible property would be protected investments under most investment treaties.
80 Agreement between the Government of the Republic of Turkey and the Government of the Italian Republic on the Reciprocal
Promotion and Protection of Investments, 22March 1995, Art. 1.1(d).
81 ICSID Case No. UNCT/15/1, The Award, 29 June 2018.
82 Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of
the Czech and Slovak Federal Republic for the Promotion and Protection of Investments with Protocol, 10 July 1990.
83 Ibid, para. 32 – 36.
84 Horváth and Klinkmüller (n 4), 603. 85 Ibid.
86 Dolzer and Schreuer (n 35) 63 – 64. 87 Horváth and Klinkmüller (n 4) 604.
c) Corporate participation
Prominent in most treaties, shares and other forms of corporate participation are protected investments. In Parkerings-Compaigniet AS v. the Republic of Lithuania,88 the tribunal confirmed that the claimant’s shares in UAB Baltijos Parkingas (BP), a Lithunian company, constituted an investment in accordance with Art. 1 of the 1992 Lithuania – Norway BIT.89 In holding this position, it reiterated that of the annulment committee’s in the Vivendi case90, where that committee stated that “foreign shareholding is by definition an investment and its
holder an investor….”
In this regard, if foreign investors were to obtain or own shares in a digital company or one that operates in the digital economy, those shares would also be considered as investments.91 The same runs true for those that incorporate domestic subsidiaries.92
2.3 Territorial Nexus
Some investment treaties do require a territorial nexus or a territorial link between an investment and a host State, in order to establish jurisdiction ratione materiae and these usually refer to investments ‘in the territory’ of the host state.93 Such provisions would inevitably present challenges given the ‘extra-territorial’ nature of investments in the digital economy.94 Unlike ‘brick and mortar’ investments, the business models within the digital economy are online based and do not have a physical presence in most countries, especially, for social media and video streaming companies.95
Therefore, it is predictable that territorial nexus will be a major bone of contention with respect to digital assets and other investments in the sector. In spite of this, claimants could still establish that a protected investment exists within a host State and the reason for this was
88 ICSID Case No. ARB/05//8, The Award, 11 September 2007. 89 Ibid, para. 249 – 254.
90 Compañia de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic, ICSID Case No. ARB/97/3, Decision
on Annulment, 3 July 2002, para. 50.
91Horváth and Klinkmüller (n 4) 605. 92 Ibid.
93 Dolzer and Schreuer (n 35) 76. 94 Chaisse and Bauer (n 52) 563. 95 Ibid.
addressed by the tribunal in Abaclat v. Argentina.96 The Tribunal was required to determine whether bonds would satisfy the definition of an investment under Art. 1(1) of the Argentina – Italy BIT which established a territorial nexus requirement.97
In its decision, it first stated that the determination on territorial nexus was dependent on the nature of the investment and thus, the same criteria for the determination of “investments
consisting of business operations and/or involving manpower and property” could not be
applied to investments of a financial nature.98 Therefore, it determine that the relevant question in the case would be whether the funds (the bonds in question) were made available to the host State and whether it supported its economic development.99
Thus, if the foregoing were to be applied to investments in the digital economy, the relevant question would therefore be whether those assets or investments supported the economic development of the host State. Since this has been addressed in the analysis on value creation, the territorial nexus could be affirmed by tribunals.
2.4 Conclusion
Evidently, investments in the digital economy are protected under current BITs either through the general chapeau “every kind of asset” or within the categories of intellectual property rights, tangible property or corporate participation. However, it is incumbent upon the contracting States, especially those that export such investments, to negotiate investment treaties that are favourable for their investors. In any case, BITs are not immutable but contort to the will and needs of the parties involved.
Notably, it would also be beneficial to include within the definition of investments, categories that cater for digital assets such as online platforms and platform enabled services. This will alleviate the danger of tribunals finding that no protected investments exist or going through the painstaking process of determining whether they satisfy the economic characteristics of investments such as substantial commitment, certain duration, assumption of risk and a
96 ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011. 97 Ibid, para. 130.
98 Ibid, para. 374. 99 Ibid.
significance for the host State’s development. This is particularly important given that contemporary BITs have adopted these economic characteristics espoused in the salini test in their definitions of investments.100
Since it has been established that investments in the digital economy are protected under the current framework of bilateral investment treaties, the next chapter will analyse the effects of national security measures on these protected investments.
100 Investment Cooperation and Facilitation Treaty between the Federative Republic of Brazil and the Republic of India (Signed
on 25 January 2020), Art.2; Agreement between the Kingdom of Morocco and Japan for the Promotion and Protection of Investment (Signed on 8 January 2020), Art. 1; Agreement between the Government of the Republic of Singapore and the Government of the Republic of the Union of Myanmar on the Promotion and Protection of Investments (Signed on 24 September 2019, Art. 1.
CHAPTER THREE
THE APPLICATION OF NATIONAL SECURITY MEASURES ON INVESTMENTS IN THE DIGITAL ECONOMY
3.1 Introduction
As was illustrated in Chapter 1, States are increasingly implementing a plethora of legislative and administrative measures aimed at foreign investments they deem as sensitive to their national security. In spite of this, it remains unclear whether these unfettered national security measures violate substantive investor rights conferred under BITs. Therefore, this Chapter explores this question both at the pre and post-establishment phases of foreign investments and discusses it in light of the essential security interest provisions contained in BITs. Generally, this analysis will focus on actual national security measures investments in the digital economy have faced in the recent past.
3.2 Synopsis of Substantive Protections in BITs
Essentially, there are certain substantive investor rights conferred under BITs that have become commonplace.101 Although these are not identical, they usually include, non-discriminatory provisions such as MFN and national treatment, requirements on fair and equitable treatment (FET), restrictions on direct and indirect expropriation (without prompt, adequate and effective compensation), provisions on full protection and security, and finally, the free transfer of capital.102
The provisions on non-discriminatory treatment often require host States to treat covered foreign investments no less favourably than investments of its own nationals and those of third States.103 However, unlike the international trade law regime, its scope and standard of comparison, among other things, remain abstruse in international investment law.104
101 Stephan W. Schill, ‘The Multilateralization of International Investment Law’, (Cambridge University Press), 74. 102 Ibid.
103 Ibid, 76. 104 Ibid, 77.
Fair and equitable treatment obligate States (nomen est omen) to treat covered investments in a fair and equitable manner in all its actions.105 Interestingly, this provision is supranatural and thus, forms the basis of a majority of claims in international investment arbitration. Direct and indirect expropriation refer to the transfer of an investor’s title to and the deprivation of control by the host State, respectively.106 The restriction on these two forms of expropriation usually requires that it be done for public interest, according to the laws of the host State and prompt, adequate and effective compensation must be made.107
The requirement on full protection and security usually requires the host State’s affirmative action in preventing interferences with the protected investment and an obligation on its part not to interfere with it.108 Finally, the provision on free capital transfer require that refrain from hindering the repatriation of the investor’s capital or profits.109
Throughout my analysis, I will interrogate whether there are any national security measures that would breach these standard substantive protections conferred under BITs.
3.3 National Security Measures 3.2.1 Pre-establishment stage
At this stage, States usually enforce national security measures aimed at reviewing certain or all foreign investments in pre-determined sectors and/or prevent such investments being admit into these sectors or limit them to certain non-sensitive areas. These measures are almost always sanctioned by national legislation within the host State. In the US, for example, the Foreign Investment Risk Review Modernization Act of 2018 (hereinafter, FIRRMA) espouses such provisions.110 Extremely comprehensive, these provisions extend the CFIUS’s mandate to unilaterally review transactions that involve countries of “special concern” that want to acquire critical technology or infrastructure that affects the US’s leadership in national security as well as foreign direct investments in sensitive areas such as the energy, communications and banking sectors.111 105 Ibid, 79. 106 Ibid, 80. 107 Ibid. 108 Ibid, 81. 109 Ibid. 110 28 U.S.C § 2018. 111 Ibid, Section 1702.
Notably, the FIRRMA retroactively applies to all pending mergers, acquisitions or takeovers after 23 August 1988 and seeks to apply such review and/or restrictions to licenses, concession or purchases of private or public real property located within the US.112 In particular, the Act places mandatory filing requirements seeking to perform any of the covered transactions within a prescribed time limit. 113 The CFIUS then conducts it investigations and refers the matter to the President who has the sole discretion to suspend or prohibit covered transactions.114
These national security review measures and possible restrictions have been brought to the forefront in light of TikTok’s case and it has been suggested that the legislative provisions were amended following the deterioration of the US-China relations.115 However, from an international investment law perspective, it raises the question of whether such pre-establishment measures would breach the substantive protections highlighted above.
Generally, within international law a host State is under no obligation to admit foreign investments and it is therefore their discretion to decide what type of investment to admit and what restrictions and/or limitation to place on foreign investments.116 Moreover, the host State can also place conditions that foreign investors must meet before they are admitted. This has been defined as the ‘economic dimension of the territorial sovereignty of host States.’117
Conversely, States can decide to limit this expression of territorial sovereignty by include pre-establishment obligations within BITs.118 These would normally manifest either as a national treatment obligation or within the definition of an investor.119 The former has featured in the 1997 US-Jordan BIT120, the 2004 Canadian Model BIT, the 2004/2012 US Model BITs and may read as follows:
112 Ibid, Section 1703.
113 Aimen Mir, “United States - Foreign Investment Regulation Review – Edition 7’ (The Law Reviews, October 2019)
<https://thelawreviews.co.uk/edition/the-foreign-investment-regulation-review-edition-7/1209434/united-states> accessed on 9th July 2020.
114 Ibid. 115 Ibid. 116 Ibid.
117 Dolzer and Schreuer (n 35) 87. 118 Ibid, 87.
119 Vrinda Vinayak, ‘The Pre-Establishment National Treatment Obligation: How Common is it?’ (EFILA blog)
<https://efilablog.org/2019/01/14/the-pre-establishment-national-treatment-obligation-how-common-is-it/> accessed on 9th
July 2020.
120 Treaty between the Government of the United States of America and the Government of the Hashemite Kingdom of Jordan
Concerning the Encouragement and Reciprocal Protection of Investment, with Annex and Protocol (signed 2 July 1997), Art. 2.
“With respect to the establishment, acquisition, expansion, management, conduct,
operation and sale or other disposition of covered investments, each Contracting Party shall accord treatment no less favourable than that it accords, in like situations, to investments in its territory of its own nationals or companies (hereinafter “national treatment”) or to investments in its territory of nationals or companies of a third country (hereinafter “most favoured nation treatment”), whichever is most favorable (hereinafter “national and most favoured nation treatment”). Each contracting Party shall ensure that its state enterprises, in the provision of their goods and services, accord national and most favoured nation treatment to covered investments.”121
Similar provisions are contained in chapter 8 of CETA122 and other agreements the EU has entered with Georgia123, Moldova124 and Ukraine.125
With regards to the latter form of pre-establishment obligations, there are a number of investment treaties that utilise definitions of investments that place such obligations on host States. For example, the Japan – Mongolia EPA defines an investor as “a natural person who
is a national of a Party under the law of the Party; or an enterprise of that Party, that seeks to
make, is making or has made investments in the Area of the other Party.”126 (Emphasis added)
Interestingly, although these two methods provide impressive pre-establishment obligations, States seem reluctant to fully liberalize their investments especially in the pre-admission stage.127 They have watered down these provisions with restrictions that seek to apply such obligations on pre-determined negative128 and positive lists129; negative lists being sectors that these obligations do not apply to such as banking and defence and positive lists being sectors that these obligations only apply to.130
121Ibid.
122 The Comprehensive Economic and Trade Agreement (Signed on 30 October 2016), Art. 8.6.
123 Association Agreement between the European Union and the European Atomic Energy Community and their Member
States, of the one part, and Georgia, of the other part (signed 27 June 2014), Art. 79.
124 Association Agreement between the European Union and the European Atomic Energy Community and their Member
States, of the one part, and the Republic of Moldova, of the other part (signed 27 June 2014), Art. 205.
125 Association Agreement between the European Union and its Member States, of the one part, and Ukraine, of the other part
(signed on 27 June 2014), Art. 88.
126 Agreement between Japan and Mongolia for an Economic Partnership (signed on 10 February 2015), Art. 1.2 (l). 127 Vinayak (n 119).
128 EU-Canada CETA (n 122), Art. 8.2. 129 Japan – Mongolia EPA (n 126), Art. 15.1. 130 Ibid.
Since FIRRMA endorses the negative list approach, it is adducible that if the US and China were to enter into a BIT with pre-establishment obligations, they would similarly adopt this method. In fact, in 2013 both parties indicated that any future negotiations between them would proceed on this premise.131
3.2.2 Post-establishment stage 3.2.2.1 Data Protection Legislation
Within the post-establishment stage, there are number of national security measures that have been mentioned as possible violations of substantive protections under BITs. Among these are data protection legislations and regulations. Essentially, investments in the digital economy are reliant on digital data and metadata – in fact, digital data is a strategic asset for these investments as was illustrated in the previous chapter.132 However, there have been growing national security concerns about the collection, storage and use of digital data by foreign entities.133 In the case of Tiktok, discussed in the first chapter, the US has argued that the user data collected by the firm would be accessible to the Chinese government and subject to its content moderation.134
Therefore, in order to alleviate these perceived risks, most States have enacted comprehensive data protection legislations and regulations.135 The General Data Protection Regulations (hereinafter GDRP) falls within this category.136 Some commentators have suggested that the principles of data localisation and data minimisation espoused within these provisions would breach protections afforded under BITs.137
The principle on data localisation entails strict provisions relating to the storage of personal data. It requires that data collected from a particular country be stored within its territory and
131 U.S. Department of the Treasury, ‘Joint U.S. – China Economic Track Fact Sheet of the Fifth Meeting of the U.S. – China
Strategic and Economic Dialogue’ (12 July 2013) < https://www.treasury.gov/press-center/press-releases/Pages/jl2010.aspx> accessed 9 July 2020.
132 Gestrin, Michael V. and Julia Staudt, ‘The digital economy, multinational enterprises and international investment policy,’
(OECD Paris, 2018) < http://www.oecd.org/investment/investment-policy/The-digital-economy-multinational-enterprises-and-international-investment-policy.pdf > accessed on 9July 2020.
133 Ibid.
134 Leskin (n 12).
135 Gestrin and Staudt (n 132).
136 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural
persons with regards to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC.
137 Vishaka Ramesh, ‘Data Protection Principles Around the World: Do They Violate International Investment Law’
(Völkerrechtsblog, 8 October 2018) <https://voelkerrechtsblog.org/data-protection-principles-around-the-world/> accessed 9th
limits its cross-border transfer.138 The arguments surrounding this principle suggest that the limitation of cross-border flow of digital data would result in ‘substantial internet censorship
and fragmentation.’139
This principle would breach FET requirement if it was applied in an arbitrary manner or contrary to the reasonable and legitimate expectation of an investor.140 The idea here is that if the State implicitly or explicitly created a legitimate expectation not to implement such a principle, and it subsequently did so, this requirement would be breached.141 However, it is untenable to presume that a State would not exercise its right to regulate so as to protect its citizen’s inherent right to privacy - a fundamental right in all jurisdictions.142
Nevertheless, this does not mean that a State can exercise this right in an erratic and unstable manner.143 This issue was discussed in CMS v. Argentina144 where the tribunal brilliant explained that:
“The Treaty Preamble makes it clear, however, that one principal objective of
protection envisaged is that fair and equitable treatment is desirable “to maintain a stable framework for investments and maximum effective use of economic resources.” There can be no doubt, therefore, that a stable legal and business environment is an essential element of fair and equitable treatment.
The measures that are complained of did in fact entirely transform and alter the legal and business environment under which the investment was decided and made. The discussion above, about the tariff regime and its relationship with a dollar standard and adjustment mechanisms unequivocally shows that these elements are no longer present in the regime governing the business operations of the Claimant. It has also been established that the guarantees given in this connection under the legal framework and its various components were crucial for the investment decision.”145
138 Ibid.
139 Chaisse and Bauer (n 23) 573.
140 Erik Tuchtfeld and Lars Borchardt, ‘Why International Investment Law is not violated by the GDPR’ (Völkerrechtsblog, 5
November 2018) <https://voelkerrechtsblog.org/why-international-investment-law-is-not-violated-by-the-gdpr/> accessed 10th July 2020.
141 Chaisse and Bauer (n 23) 570. 142 Tuchtfeld and Borchardt (n 140). 143 Dolzer and Schreuer (n 35) 147.
144 CMS Gas Transmission Company v. The Argentine Republic, ICSID Case No. ARB/01/8, The Award, 12 May 2005. 145 Ibid, para. 274 – 275.
The same position was expressed by the tribunal in PSEG Global v. Turkey,146 where the Claimants contended that the FET provisions had been breached under the 1985 Turkey – USA BIT.147 Finding against the Respondents, the tribunal noted that Turkey had seriously breached the FET requirements within the treaty when it enacted various legislation that continuously changed “the conditions governing the corporate status of the Project.”148 In its view, although there existed no reasonable expectation that circumstances prevailing at the time of investment would remain ‘totally unchanged’, an expectation existed that the Respondents would maintain “a stable and predictable business environment for investors to operate in, as required not only
by the Treaty but also by the Turkish Constitution [….].”149
The foregoing applies to the principles on data minimisation where protagonists have suggested that it would similarly breach FET requirements.150 This principle requires that the processing of data be restricted to adequate, relevant and limited information.151 They have argued that this limitation would result in subsequent loss of contextual data and thus, curtailing its value creation.152
3.2.2.2 The Ban and Block on Online Platforms
Significant States have in the past instituted bans on online platforms on the basis of national security concerns. Illustrated in the first chapter, TikTok faces a possible ban in the U.S. whereas India has already banned 59 mobile applications including TikTok following a breakdown in foreign relations between itself and China.153 Notably, such measures are not unique to Chinese applications; for instance, YouTube and Twitter were blocked by the Turkish government in 2014 on the basis of national security.154 The European Court of Human Rights on 1 December 2015, found that the YouTube ban violated article 10 of the Convention for the Protection of Human Rights and Fundamental Freedoms which concerns the freedom of
146 ICSID Case No. ARB/02/05, The Award, 19 January 2007.
147 Treaty between the United States of America and the Republic of Turkey concerning the Reciprocal Encouragement and
Protection of Investments (Signed on 3 December 1985 and entered into force on 18 May 1990), Art. II (3).
148 PSEG Global v. Turkey (n 146), para. 250. 149 Ibid, 256 – 257.
150 Ramesh (n 137). 151 GDPR (n 136), Art. 5. 152 Ramesh (n 137).
153 Disis and Hansler (n 15); ET Bureau (n 17).
154 Constanze Letsch and Dominic Rushe, ‘Turkey blocks YouTube amid ‘national security’ concerns’ (The Guardian, 28
March 2014) <https://www.theguardian.com/world/2014/mar/27/google-youtube-ban-turkey-erdogan> accessed on 10th July
expression.155 Despite this, the question begs, would these measures amount to violations of substantive protections under BITs?
An argument can be raised that the banning or blocking of online platforms amounts to a violation of the full protection and security provisions. Although this provision has been used with reference to the physical security of the physical investments, the same can be raised with respect to the security of intangible assets or digital assets such as digital platforms.156 Referring to the decision of the tribunal in Occidental v. Ecuador,157 among other, the tribunal in Azurix v. Argentina158 stated that the mere inter-relation between the standard on full protection and security and the FET, indicated that full protection and security would be breached even though no physical violence or damage had occurred.159 Therefore, the State ought to refrain from actions that violate the economic integrity of the investment such as national security measures.
Additionally, if these actions are taken in a manner that is arbitrary and contrary to the expectation on due process, it would also breach the FET requirements. In February 2014, Turkey enacted legislation that would afford its telecommunications authority to unilaterally block websites without a court order.160 Such provisions would effectively rid investors of their right to be heard in judicial proceedings. In fact, it could be argued that it is arbitrary and thus a violation of FET requirements.
Finally, it has been suggested that blocking or banning of online platforms would also amount to violations on the restriction on indirect expropriation.161 The banning of applications like TikTok, depicted above, deprives investors of the opportunity of getting value from their investments. It is expected that Bytedance, Tiktok’s parent company, will lose out on $1 Billion in advertisement revenue follow its ban in India.162
155 Cengiz and others v. Turkey, App. Nos. 48226/10 and 14027/11 (ECtHR, 1 December 2015). 156 Chaisse and Bauer (n 23) 578.
157 Occidental Exploration and Production Company v. Ecuador, LCIA Administered Case No. UN 3467, The Award, 1 July
2004, para. 187.
158 Azurix Corp. v. the Argentine Republic, ICSID Case No. ARB/01/12, the Award, 14 July 2006. 159 Ibid, para. 407 – 409.
160 Letsch and Rushe (n 154).
161 Shreya Jha and Vivek Sharma, ‘Social media platforms as expropriated investors,’ (Völkerrechtsblog, 3 December 2019)
<https://voelkerrechtsblog.org/social-media-platforms-as-expropriated-investors/ > accessed on 10th July 2020.
162 Sherisse Pham, ‘TikTok ban undercuts ByteDance in one of the world’s biggest digital markets’ (CNN Business, 6 July
Sometimes defined as ‘a measure or measures having effects equivalent to nationalisation or
expropriation,’163 it remains unclear whether the banning or blocking of online platforms would reach this threshold.164 However, past arbitral awards are indicative of this possibility. In CME v. Czech Republic, the tribunal was required to determine whether the interference by the Respondent’s state agency, violated the 1991 Dutch – Czech Republic BIT165 that restricted the deprivation of investments.166 Finding in the affirmative, the tribunal stated that:
“The Claimant’s expropriation claim under Article 5 of the Treaty is justified. The
Respondent, represented by the Media Council, breached its obligation not to deprive the Claimant of its investment. The Media Council’s action and omissions, as described above, caused the destruction of CNTS’ operations, leaving CNTS a company with assets, but without business. The Respondent’s view that the Media Council ‘s actions did not deprive the Claimant of its worth, as there has been no physical taking of the property by the State or because the original License granted to CET 21 always has been held by the original Licensee and kept untouched, is irrelevant. What was touched and indeed destroyed was the Claimant’s and its predecessor’s investment as protected by the Treaty. What was destroyed was the commercial value of the investment in CNTS by reason of coercion exerted by the Media Council against CNTS in 1996 and its collusion with Dr. Zelenzny in 1991.”167 Notably, attention must be drawn to the fact that the 1991 Dutch – Czech Republic BIT contained a uniquely broad definition of what would constitute an expropriation, and it is therefore, conceivable that other tribunals would find it difficult to establish expropriation given stricter provisions. Moreover, a distinction must be drawn between a temporary blocking of an online platform and its ban, as only the latter would constitute a ‘substantial and
permanent economic deprivation’ of an investment or an investor’s right of its enjoyment.168 One must also take into account the whether these measures were done for the public interest, within the bounds of the laws of the host State and that the measures were not taking in a discriminatory manner. Inevitably, this distinction would be necessary in order to determine the legality of the expropriation.169
163 The Energy Charter Treaty (signed on 17 December 1994 and entered into force on 16 April 1998), Art. 14. 164 Jha and Sharma (n 161).
165 Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the
Czech and Slovak Federal Republic (signed on 29 April 1991), Art. 5.
166 CME Czech Republic B.V. (The Netherlands) vs. The Czech Republic, Partial Award, 13 September 2001. 167 Ibid, para. 591.
168 Jha and Sharma (n 161); Dolzer and Schreuer (n 35) 111. 169 Schill (n 101) 82 – 83.
