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International Business Disputes with Foreign States

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A. Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (ICSID Convention), March 18, 1965

1. Provides for comprehensive, self-sufficient system of international arbitration of investment disputes only between states and investors.

2. Objective. Improve investment climate by creating facilities for voluntary settlement of investment disputes through conciliation or arbitration proceeding to which host country would be party on equal procedural footing without requiring or permitting intervention of investor's government; depoliticizes investment disputes.

3. Ratification

a. Approximately 100 countries throughout world; except in Latin America due largely to Calvo Doctrine.

b. Ratification only implies willingness to use ICSID machinery on a case-by-case basis; can exclude certain classes of disputes.

c. Each State party agrees to enforce pecuniary award as a final judgment of its courts. Contracting States cannot refuse to enforce award; may not assert public policy defense.

B. International Center for Settlement of Investment Disputes (ICSID)

1. Created in 1966 by ICSID Convention as separate institution of World Bank.

2. Administers ICSID arbitrations, solely on basis of Convention and its Rules and Regulations; excludes application of national arbitration law.

3. ICSID provides facilities and rules for arbitrations; does not engage in arbitration, conducted by separately constituted tribunals.

4. Jurisdiction of ICSID

a. Any legal dispute arising from an investment between a contracting state and a national of another contracting state based on mutual written consent, which once granted cannot be withdrawn.

b. It can only be used if host State is member of ICSID Convention, or one of the parties to dispute is (or is from) a non-ICSID member and non-member agrees to use of ICSID Additional Facility for Non-Members.

c. Consent usually given in investment or arbitration agreement, but could also be provided in State's investment code or bilateral investment treaty (over 150 treaties refer to ICSID arbitration).

d. ICSID clauses sometimes require exhaustion of local remedies.

e. Convention provides parties can agree that a local company is treated as a foreign company for ICSID purposes if foreign-controlled.

C. Additional Facility

1. Established in 1978 to administer proceedings for settlement of certain legal disputes between States and nationals of other States that fall outside scope of ICSID Convention:

a. Investment disputes when one party is not contracting member or national thereof; and

b. Disputes that do not directly arise out of an investment, provided underlying transaction has features that distinguish it from "ordinary commercial transaction."

2. Cannot rely on existing laws that provide for enforcement of awards rendered pursuant to Convention to enforce awards rendered by Additional Facility.

3. Additional Facility rules require that the arbitration be held only in countries that are party to the New York Convention.
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excerpted from information current as of mid '94

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