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Is the cost of bilateral investment treaties in kenya and developing countries worth it?

Few taxpayers are aware of investment arbitration proceedings that occur behind the scenes due to lack of media coverage and the discreet nature of arbitration proceedings. Most people will only know of the outcome of the proceedings after the final decision and publication of the case transcript. However the fact of the matter is these arbitration proceedings have a significant impact on the budget and finances of Kenya and other developing nations.

Arbitration Proceedings are unbelievably costly. The costs of suits can range from 1-5 Million US dollars. The award itself is even greater. With such a price, developing countries have questioned the value of these BIT's and if they are really necessary to attract FDI. Most literature dictates that BITs, by guaranteeing certain rights to foreign investors, will encourage increased investment in the developing country by the nationals of the other country. The effect of the treaty is to improve the investment climate in the host country and thereby heighten investor confidence, factors which presumably have a positive impact on the investment decision.

BITs were originally designed by developed countries to protect their investments in developing countries that had a questionable rule of law and system of governance. They became popular after the decline of the hull rule which was rejected by developing countries from the 1970s. The rejection of the doctrine resulted in the adoption of several resolutions by the United nations that appeared to threaten the interests of capital exporting countries.

These resolutions were all passed due to the large voting numbers of developing countries however, at the time this ‘New International Economic Order’ movement failed and BITs developed by capital-exporting countries secured a temporary foot hold.

The issue that has triggered a major policy overhaul in most developing countries is most of these countries still have these archaic BITs in force. The BITs are not balanced and to some extent they can be construed as having 'unfair contractual terms'.

At the turn of the millennium, developing countries expressed their discontent with the current BITs in place. This led to Bolivia withdrawing from the Settlement of Investment Disputes Convention(ICSID) in 2007, the termination of nine BITs by Ecuador and its withdrawal from ICSID in 2007, South Africa refusing to renew some of the BITs in 2012 and the withdrawal from ICSID by Venezuela in 2012.There is a growing dissatisfaction among developing countries on the current investment law regime and the investment dispute mechanisms in place.

The legal and political climate in most developing countries has improved and so should the terms of FDI. All BITs have a National Treatment clause in them and this means host countries should treat foreign investments in the same way they treat their own companies. In this case it is only just that investors should be subjected to the laws and regulations of the host country.

The government of Kenya is undertaking major policy changes to reflect this change by promoting the Nairobi Centre for International Arbitration. This is necessary as there are major questions being asked about the investment arbitration regime such as; third party funding, cost of awards, impartiality of arbitrators and inconsistency of awards.

The European Commission is also advocating for a single European Investment Court that will hear investment arbitration disputes because investment arbitration is fragmented and this creates opportunity for abuse of process, frivolous claims and profiteering from investment arbitration proceedings.

There is a paradigm shift in the use and implementation of BIT's in Africa and other developing countries. However, the Key is having a policy that ensures there is balance between FDI and the protection of governments against frivolous ISDS claims.



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