Source: https://www.iisd.org/itn/2020/06/20/moroccos-new-model-bit-innovative-features-and-policy-considerations-hamed-el-kady-yvan-rwananga/
Timestamp: 2020-07-10 13:48:53
Document Index: 434624187

Matched Legal Cases: ['Art. 3', 'Art. 3', 'Art. 3', 'Art. 25', 'Art. 6', 'Art. 7', 'Art. 8', 'Art. 9', 'Art. 10', 'Art. 10', 'Art. 10', 'Art. 18', 'Art. 18', 'Art. 19', 'Art. 20', 'Art. 28', 'Art. 28', 'Art. 28', 'Art. 32', 'Art. 31', 'Art. 1', 'Art. 2', 'Art. 1', 'Art. 7', 'Art. 7', 'Art. 7']

Morocco’s New Model BIT: Innovative features and policy considerations – Investment Treaty News
Analysis | June 20, 2020 | Hamed El-Kady & Yvan Rwananga
In the face of the increasing number of claims brought by investors against host states on the basis of BITs and the exorbitant amounts awarded to investors by arbitral tribunals, Morocco has undertaken a review of its model BIT using a flexible and rational approach with a view to making the necessary adjustments while at the same time maintaining the Kingdom’s policy of openness to FDI.
A working group was established in 2015 with the mandate to elaborate a new model BIT. It started with a general assessment of Morocco’s old-generation BITs and a review of recent developments in international investment law in order to identify areas for reform. A first revised draft model BIT was finalized in 2016 and submitted for national consultation in 2017. Following the completion of a consultation process that involved various stakeholders, the draft model was submitted to UNCTAD for review in July 2018. Following the completion of UNCTAD’s review in September 2018, the model was published by Morocco in December 2019.
Against this backdrop, we review selected core provisions of Morocco’s new model BIT,[1] which will likely serve as a basis for Morocco to (re)negotiate BITs and other regional investment agreements.
From the outset, Morocco’s new model BIT emphasizes that sustainable development is to be one of the cornerstones of its investment regime. The preamble clarifies that the desire of treaty parties to create and foster economic cooperation must be in line with the pursuit of sustainable development in its economic, social, and environmental dimensions In addition, the corollary right of states to retain sufficient space to adopt and implement policy measures in vital areas (such public health, environment, and labour) must not be compromised (preamble, para. 3). The preamble also emphasizes the key role to be played by investments in the promotion of sustainable development and in achieving the related objectives of poverty reduction, job creation, and human development.
Going beyond the mere mention of sustainable development in the preamble—and elevating it to one of the overarching objectives of the investment treaty—attests to the importance that Morocco attaches to sustainable development. While a treaty preamble does not lay down binding and enforceable obligations, it provides the context in light of which substantive obligations must be interpreted.[2] Therefore, placing sustainable development at the forefront of the preamble along with other objectives such as strengthening economic cooperation will inform the treaty interpreter of the parties’ intention to accord sustainable development a central place. This strategy comports with the policy options developed in UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD).[3]
3. Definition of Investment
Extending treaty protections and advantages exclusively to those foreign assets that bring concrete benefits to the host country is one way of targeting investments conducive to sustainable development. Doing so necessitates identifying indicators for assessing whether a given investment carries the benefits that the host country seeks and defining “investment” based on those indicators. This is the approach adopted in Morocco’s model BIT, in line with new generation BITs[4] and with IPFSD policy options.[5] An investment, pursuant to the model, is an asset that, over a certain duration, contributes to the sustainable development of the host party and entails the commitment of capital or other resources, the expectation of profits, and an assumption of risk (Art. 3.3).
While the criteria of commitment of capital, expectation of profits, and assumption of risk are now commonplace in modern IIAs, the requirement for an investment to contribute to the sustainable or economic development of the host state is still seldom used,[6] although there is a growing trend to include it. This is perhaps due to the lack of agreement on the definition and the exact contours of this criterion, an ambiguity that has resulted in tribunals either rejecting this characteristic or applying it inconsistently.[7] Anticipating this difficulty, Morocco’s model BIT proposes indicators for measuring an investment’s contribution to sustainable development: increased production capacity, economic growth, quality of jobs created, duration of the investment, technology transfer, and reduction of poverty (Art. 3.3). These non-exhaustive indicators will provide guidance to treaty interpreters, helping to avoid inconsistent interpretations and ensure legal certainty. The use of such indicators, a practice that is not yet widespread in new IIAs, attests to the innovative nature of Morocco’s model.
4. Definition of Investor
The definition of “investor” contained in Morocco’s model BIT is consistent with the recent IIA practice of refining the scope of covered investors. According to the model, natural persons who are nationals of both the home state and the host state do not qualify as investors unless at the time of making the investment in the host state their primary residence and their main activity are in the territory of the other state. As for legal persons, the treaty covers only those entities that are constituted or organized in accordance with the laws of a party, have their seat and conduct substantial business activity in that party. For greater clarity, the model further provides a non-exhaustive list of indicative criteria for defining substantial business activity (Art. 3.4).
The model also allows the parties to deny treaty benefits to an investor or investment owned or controlled by persons of a third party or the denying party (Art. 25). Including these limitations on the definition of investor will help eliminate the risk of abuse through the use of “mailbox” companies, treaty shopping, and free riding by investors not conceived to be beneficiaries of treaty advantages.[8]
5. Fair and Equitable Treatment (FET)
FET has been one of the most controversial and contentious clauses in investment arbitration. Because old-generation treaties contained broadly worded and unqualified FET clauses (and due to the lack of clear legal prescriptions in international investment law concerning the notions of fairness and equity[9]) investors have perceived them as blanket protection and systematically used them to challenge—with considerable success—host state measures that they deemed to adversely affect their investments. To limit this possibility and curtail abuse of FET, Morocco’s model BIT carefully clarifies the meaning and delineates the scope of the FET by exhaustively setting out the obligations the breach of which would constitute a violation of the FET (Art. 6): denial of justice in criminal, civil, or administrative proceedings; fundamental breach of due process; discrimination on wrongful grounds, such as gender, race, or religious belief; or abusive treatment of investors, such as harassment, coercion, and pressure.[10]
The model evidences a manifest effort to preserve states’ right to regulate by explicitly specifying certain government actions and other circumstances that cannot be deemed to amount to a breach of FET. Chief among these is the express stipulation that the FET clause shall not preclude states from adopting regulatory measures to pursue legitimate policy objectives such as the protection of public order, public health, or environment. Safeguarding parties’ policy space is paramount to achieving sustainable development objectives.[11]
6. Non-Discrimination Provisions
The non-discrimination provisions found in Morocco’s model are in accord with current international best practices, such as those compiled in UNCTAD’s IPFSD. As is now standard, both national treatment and MFN treatment are circumscribed to investors that are “in like circumstances.” Additionally, the model provides clear benchmark elements to be taken into account when carrying out an analysis of “like circumstances” (Art. 7.2).
In line with UNCTAD’s IPFSD policy option 4.1.2, the model clarifies, with respect to the national treatment clause, that the host party retains the right to extend to investors of the other party and their investment treatment that is different from that accorded to its own investors in certain economic sectors. In situations where the national development agenda foresees the development of new domestic industries and the need to protect them during their infancy, allowing for the flexibility to differentiate and grant preferential treatment to domestic investors or investments vis-à-vis foreign investors in those sectors may prove an instrumental tool for implementing that agenda.[12]
Similarly, as concerns MFN treatment, the model is mindful of the need to avert any indirect diminishment of regulatory space through the incorporation of obligations contained in other IIAs. In this view, the scope of the MFN clause is thoroughly demarcated to avoid any expansive interpretation that could lead to such a result. One important scope limitation—consonant with IPFSD policy option 4.2.2—is the exclusion from MFN treatment of procedures for the resolution of investment disputes between investors and states provided for in other IIAs and trade agreements (Art. 8.3). The model provides for further exceptions to the MFN and national treatment clauses to protect policy space (Art. 9).
As is established practice in investment treaty-making, Morocco’s model BIT preserves the states’ right to nationalize or expropriate, subject to the usual four conditions: the expropriation measure must be taken (i) in the public interest, (ii) following due process of law, (iii) in a non-discriminatory manner and (iv) against compensation (Art. 10.1). The expropriation provision in the model also reflects Morocco’s policy decision to cover both indirect and direct expropriation (Art. 10.8) in contrast with recent practice of some states to deliberately omit indirect expropriation.[13]
Concerned with the uncertainty often arising from the lack of an exact borderline between indirect expropriation and legitimate public policy-making,[14] Morocco’s model specifies indicative factors to be taken into account in determining whether a measure amounts to an indirect expropriation (Art. 10.8(b)). More importantly, however, it emphasizes that non-discriminatory measures adopted in good faith to protect legitimate public interests—such as the protection of public health, safety, environment, or labour rights—do not constitute indirect expropriation and may not lead to compensation claims. By offering investors protection against indirect expropriation while ensuring that this does not encroach on a state’s regulatory space, the model strikes a delicate balance between investor and state interests.
8. Investor Obligations and Responsibilities
Morocco’s model BIT contains a section detailing investors’ obligations and responsibilities. While the overarching principle of that section can be said to be that investors and investments must comply with the laws and regulations of the home state while present in its territory (Art. 18.1), the section imposes other specific and detailed obligations and responsibilities on investors. Two of these are notable: the obligation for investors to manage and operate their investments in accordance with the contracting parties’ international obligations in the fields of environment, labour, and human rights (Art. 18.7); and the obligation for investors not to engage in corruption, money laundering, or financing of terrorism, the violation of which will result in the deprivation of the right to have recourse to treaty-based dispute settlement mechanisms (Art. 19). Investors also have a responsibility to contribute to the sustainable development of the host state and the local community, to create employment and human capital formation, and to apply universally recognized norms, such as the International Labour Organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, and the OECD’s Guidelines for Multinational Enterprises (Art. 20).
The inclusion of a section devoted to investor obligations and responsibilities is a telling indicator of Morocco’s intention to place sustainable development at the centre of its investment regime. Morocco aims to redress the asymmetry of obligations between states and investors, a quintessential defect of the IIA regime that has compounded—or caused—the reduction of the policy space that states need to pursue sustainable development. While there may yet be a general agreement in international law on whether international obligations can be imposed on investors,[15] Morocco’s progressive policy in this regard merits commendation. Like the other provisions of the model, this section also is in accord with UNCTAD’s IPFSD policy options. [16]
9. Investor–State Dispute Settlement (ISDS)
Morocco’s model BIT features modern and forward-looking ISDS provisions that take into account the need to reform ISDS and do not shy away from incorporating innovative proposals. The model’s ISDS provisions significantly mirror the reform options contained in UNCTAD’s IPFSD.
For example, as suggested by IPFSD policy options 6.2.0 and 6.2.1, the model narrows the range of disputes that can be subject to ISDS and circumscribes the scope of ISDS: only disputes concerning a violation of the states’ treaty obligations are allowed (Art. 28.2) (as opposed to disputes that would be based on investment contracts), and there is a limitation period rendering ISDS unavailable for claims after three years have elapsed since the date the investor first acquired knowledge of the event giving rise to the claim (Art. 28.6). Another innovation worthy of note is that a host state may submit a counterclaim where the investor has not complied with its obligations, such as the obligations to comply with domestic laws and not to engage in corruption (Art. 28.4). Lastly, in accordance with IPFSD policy option 6.2.2, the model BIT requires the investor to exhaust local remedies before initiating international arbitration (Art. 32.2). By introducing this requirement,[17] Morocco’s model BIT may help reduce the inequality between foreign and domestic investors under BITs.[18]
10. Policy Considerations
Morocco’s new model meets the standards of a modern IIA. It contains concisely worded clauses and displays a high degree of innovation. Perhaps more importantly, it translates Morocco’s will to prioritize sustainable development by cautiously striking a balance between investor rights and the safeguarding of adequate regulatory space for states.
The model, developed in close consultation with UNCTAD, is the culmination of national efforts aimed at modernizing Morocco’s international investment policy strategy, which included a careful review of all of Morocco’s existing BITs. The model should now be put to the test as Morocco engages in various IIA negotiations at the bilateral and regional levels.
Perhaps even more importantly, Morocco (and developing countries in general) could use opportunities such as this one (the elaboration of a new model) to reform their outdated BITs[19] that include broadly drafted provisions that may seriously limit their right (and duty) to implement measures needed to achieve the country’s sustainable development objectives. In this endeavour, developing countries could be guided by UNCTAD’s Roadmap for IIA Reform,[20] specifically Phase II of the reform, and the proposed actions that could be undertaken at the bilateral, regional, and multilateral levels. Because these actions are geared toward the reform of the existing stock of treaties, they would require enhanced collaboration and coordination between treaty partners. One strategy, for instance, would be for a developing country to identify among its current treaty partners those that are the most reform-oriented and that may be interested in modernizing existing treaties; or the treaty partners of those IIAs for which reform needs are most pressing. In doing so, countries could consider the extent of reform to be pursued, including whether to pursue a limited number of changes in a given treaty or opt for a more comprehensive overhaul of the treaty.
Depending on the approach chosen, a solution must be found on the matter of survival clauses and how to manage transition between treaties. In all of this, consideration would need to be given to the best possible “policy level” of reform action—that is, whether and which changes may best be pursued bilaterally (for example, modernizing a specific BIT), or at the regional level (for example, replacing intra-African and intra-Arab BITs with more modern instruments).
Ultimately, the success of the new model BIT is not the extent to which it will be reflected in Morocco’s bilateral or regional (re)negotiations. Its true success is that it was driven by a transparent domestic process involving all stakeholders and that it raised domestic awareness of the urgent need for reform. The second advantage of the model is that it provides strong guidance and enhances the position of Morocco in future investment negotiations, be it for BITs, regional agreements, or even investment chapters in FTAs—such as the new Arab Regional Investment Agreement, currently under discussion—as well as for the negotiations for the new Investment Protocol of the African Continental FTA (AfCFTA).
Hamed El-Kady is International Investment Policy Officer at UNCTAD in Geneva. Yvan Rwananga is a consultant at UNCTAD in Geneva. The views presented here are those of the authors and do not necessarily represent those of UNCTAD.
[1] Throughout this article, parenthetical references to articles refer to: Kingdom of Morocco. (2019, June). Accord entre le Royaume du Maroc et … pour la promotion et la protection réciproques des investissements. [Moroccan Model BIT] https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5895/download.
[2] Vienna Convention on the Law of Treaties, signed May 23, 1969, entered into force January 27, 1980 [VCLT], Art. 31. https://treaties.un.org/doc/publication/unts/volume%201155/volume-1155-i-18232-english.pdf.
[3] United Nations Conference on Trade and Development. (2015). Investment policy framework for sustainable development. UNCTAD [UNCTAD’s IPFSD], policy options 1.1.0 to 1.1.2. https://unctad.org/en/PublicationsLibrary/diaepcb2015d5_en.pdf.
[4] See, for example, Netherlands Model Investment Agreement, Art. 1. https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5832/download; Belgium–Luxembourg Economic Union Model BIT, Art. 2. https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5854/download; and EU–Vietnam Investment Protection Agreement, Art. 1.2. https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5868/download.
[5] UNCTAD’s IPFSD, supra note 3, policy options 2.1.1 and 2.1.2..
[6] Examples of other recent model BITs that do not use this characteristic include the Netherlands Model Investment Agreement and the Belgium-Luxembourg Economic Union Model BIT; see supra, note 4. See also the Burkina Faso–Turkey BIT. https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/5910/download.
[7] Hussein, D. (2015). Contribution to the host state development: A marginalised criterion? BCDR International Arbitration Review, 2(2), 289–304. https://www.kluwerlawonline.com/preview.php?id=BCDR2015015.
[8] UNCTAD’s IPFSD, supra note 3, p. 94. See also IPFSD policy options 2.2.1 and 2.2.2.
[9] UNCTAD’s IPFSD, supra note 3, p. 83.
[10] Earlier model BITs with similar FET formulations include those of the Belgium–Luxembourg Economic Union, Netherlands and Slovakia. All of them are available at https://investmentpolicy.unctad.org/international-investment-agreements/model-agreements.
[11] UNCTAD’s IPFSD, supra note 3, policy options 4.3.2 and 4.3.3.
[12] UNCTAD’s IPFSD, supra note 3, p. 96.
[13] Brazil’s Cooperation and Facilitation Investment Agreements (CFIAs) systematically and explicitly exclude indirect expropriation. See for example Brazil–Guyana CFIA, Art. 7; Brazil–United Arab Emirates CFIA, Art. 7; Brazil–Suriname CFIA, Art. 7; all available at https://investmentpolicy.unctad.org/international-investment-agreements/countries/27/brazil; see also Brauch, M.D. (2020). The best of two worlds? The Brazil–India investment cooperation and facilitation treaty. Investment Treaty News, 11(1).
[14]UNCTAD’s IPFSD, supra note 3, p. 99.
[15] See López, C. (2019, October 2). The revised draft of a treaty on business and human rights: Ground-breaking improvements and brighter prospects. Investment Treaty News, 10(4), 11–14. https://www.iisd.org/itn/2019/10/02/the-revised-draft-of-a-treaty-on-business-and-human-rights-ground-breaking-improvements-and-brighter-prospects-carlos-lopez.
[16]UNCTAD’s IPFSD, supra note 3, policy options 7.1.1, 7.1.3, and 7.1.4.
[17]See Brauch, M.D. (2017, January). Exhaustion of local remedies in international investment law (IISD Best Practices Series). IISD. https://www.iisd.org/library/iisd-best-practices-series-exhaustion-local-remedies-international-investment-law.
[18]United Nations Conference on Trade and Development. (2015). World investment report 2015: Reforming international investment governance. UNCTAD, p. 149. https://unctad.org/en/PublicationsLibrary/wir2015_en.pdf.
[19]Morocco has concluded over 80 treaties, 60 of which are more than 15 years old. See https://investmentpolicy.unctad.org/international-investment-agreements/countries/142/morocco.
[20]United Nations Conference on Trade and Development (UNCTAD). (2018). UNCTAD reform package for the international investment regime. UNCTAD. https://investmentpolicy.unctad.org/uploaded-files/document/UNCTAD_Reform_Package_2018.pdf.
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