EYIEL Monographs Studies in European and International Economic Law 2 Bajar Scharaw The Protection of Foreign Investments in Mongolia Treaties, Domestic Law, and Contracts on Investments in International Comparison and Arbitral Practice European Yearbook of International Economic Law EYIEL Monographs - Studies in European and International Economic Law Volume 2 Serieseditors MarcBungenberg,Saarbrücken,Germany ChristophHermann,Passau,Germany MarkusKrajewski,Erlangen,Germany J€orgPhilippTerhechte,Lüneburg,Germany AndreasR.Ziegler,Lausanne,Switzerland EYIEL Monographs is a subseries of the European Yearbook of International Economic Law (EYIEL). It contains scholarly works in the fields of European and international economic law, in particular WTO law, international investment law, international monetary law, law of regional economic integration, external tradelawoftheEUandEUinternalmarketlaw.Theseriesdoesnotincludeedited volumes.EYIELMonographsarepeer-reviewedbytheserieseditorsandexternal reviewers. Moreinformationaboutthisseriesathttp://www.springer.com/series/15744 Bajar Scharaw The Protection of Foreign Investments in Mongolia Treaties, Domestic Law, and Contracts on Investments in International Comparison and Arbitral Practice BajarScharaw FrankfurtamMain,Germany ISSN2364-8392 ISSN2364-8406 (electronic) EuropeanYearbookofInternationalEconomicLaw EYIELMonographs-StudiesinEuropeanandInternationalEconomicLaw ISBN978-3-319-66088-2 ISBN978-3-319-66089-9 (eBook) DOI10.1007/978-3-319-66089-9 LibraryofCongressControlNumber:2017951219 ©SpringerInternationalPublishingAG2018 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthis book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained hereinor for anyerrors oromissionsthat may havebeenmade. Thepublisher remainsneutralwith regardtojurisdictionalclaimsinpublishedmapsandinstitutionalaffiliations. Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Preface ThisbookistheresultofadoctoralthesisacceptedbytheUniversityofMannheim in Germany. It was written during my time as a research fellow at the Chair for Public Law and Legal Philosophy at that university. The manuscript reflects the legalsituationandcase-lawasofDecember2016. I wish to express my deep gratefulness to my doctoral supervisor, Professor Dr.Hans-JoachimCremer,whogavemetheopportunitytocombinemyacademic interestinpublicinternationallawwithatopicthatwasofpersonalimportanceto me.Withhisencouragementanddedicationasmysupervisorandmentoroverthe pastyears,hehasbecomearolemodelforme,bothpersonallyandprofessionally. ProfessorDr.EibeRiedelkindlyundertookthesecondevaluationofmydoctoral thesis,forwhichIamverythankful. I am very grateful for the excellent research opportunities granted at the Max PlanckInstituteforComparativePublicLawandInternationalLawinHeidelberg. AsmostofthisbookwaswritteninHeidelberg,Iwouldfurtherliketothankmy sisterSandraandherfamily,andallmyHeidelbergerfriendsandcolleaguesfora wonderfultime,theirmoralsupport,thenumerouslegaldiscussionswehadandfor alltheconstructivecritiqueIreceived. Finally, I want to thank my parents with all my heart for their unconditional supportduringmyeducationandthroughmylife.Idedicatethisbooktothem. FrankfurtamMain,Germany BajarScharaw June2017 v Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 ProblemDefinitionandResearchQuestion. . . . . . . . . . . . . . . . . 3 1.2 ObjectsoftheInvestigationandConceptualFramework. . . . . . . . 5 1.3 TheCourseoftheArgument. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2 InternationalInvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.1 InvestmentProtectionUnderInternationalInvestmentTreaties. . . 13 2.1.1 OverviewofProtectionStandardsinInternational InvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.1.2 DevelopmentofInvestmentProtectionUnderInternational Treaties. . .. . . . .. . . . .. . . . .. . . . .. . . .. . . . .. . . . .. 15 2.1.2.1 Friendship,CommerceandNavigationTreaties. .. 15 2.1.2.2 TheProliferationofBilateralInvestment Treaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.1.2.3 RecentDevelopmentsinInternationalInvestment Treaty-Making. . . . . .. . . . . . . . . .. . . . . . . . .. 21 2.1.3 EarlyFailuresofMultilateralInternationalInvestment TreatyAttempts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.1.3.1 TheAbs-ShawcrossDraftConvention onInvestmentsAbroad(1959). . . . . . . . . . . . . . 23 SubstantiveLawProtectionStandards. . . . . . . . . 24 ProceduralLawProtectionStandards. . . . . . . . . 25 2.1.3.2 TheOECDDraftConventionontheProtection ofForeignProperty(1967). . . . . . . . . . . . . . . . . 25 SubstantiveLawProtectionStandards. . . . . . . . . 26 ProceduralLawProtectionStandards. . . . . . . . . 27 2.1.4 SignificanceofLegalProtectionUnderInternational InvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.1.4.1 CreatingaFavourableandStableLegal Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . 28 vii viii Contents 2.1.4.2 EnforcementoftheInvestmentTreaty-Shaped LegalEnvironment. . . . . . . . . . . . . . . . . . . . . . 29 2.1.5 TheLegalEffectofInternationalLawinMongolia. . . . . . 29 2.1.5.1 CustomaryInternationalLawandInternational MinimumStandardofTreatmentofAliens. . . . . 29 2.1.5.2 GeneralPrinciplesofLaw. . . . . . . . . . . . . . . . . 32 2.1.5.3 International(Investment)Treaties. . . . . . . . . . . 33 2.2 BilateralInvestmentTreaties. . . .. . . . . . . .. . . . . . .. . . . . . . .. 35 2.2.1 BilateralInvestmentTreatiesEnteredintobyMongolia. . . 36 2.2.2 ApproachTowardsBilateralInvestmentTreaties. .. . . . .. 37 2.2.2.1 The1990s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2.2.2.2 The2000s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2.2.2.3 ApproachAnalysis. . . . . . .. . . . . . .. . . . . . . .. 38 2.2.3 BilateralInvestmentTreatiesEnteredintowithMember StatesoftheEuropeanUnion. . . . . . . . . . . . . . . . . . . . . . 39 2.2.3.1 TheEuropeanUnion’sExclusiveCompetence forForeignDirectInvestments. . . . . . . . . . . . . . 40 2.2.3.2 Regulation(EU)No.1219/2012ontheLegal StatusofExtra-EUBilateralInvestmentTreaties UnderEuropeanUnionLaw. . . . . . . . . . . . . . . . 41 2.2.3.3 FutureInternationalInvestmentTreatiesofthe EuropeanUnion. . . . .. . . . . . . . . .. . . . . . . . .. 42 2.3 Trade-RelatedandSectoralInternationalTreatieswithInvestment Chapters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.3.1 PreferentialTradeandInvestmentAgreements. . . . . . . . . 45 2.3.1.1 The(Re-)IntegrationofInvestmentRulesinto InternationalTradeAgreements. . . . . . . . . . . . . 45 2.3.1.2 ImplicationsfortheCurrentInternational InvestmentLawSystem. . . . . . . . . . . . . . . . . . . 46 2.3.1.3 PreferentialTradeandInvestmentAgreements andRegionalEconomicIntegrationin EastAsia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 2.3.2 TheJapan-MongoliaEconomicPartnershipAgreement (2015). . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . 51 2.3.2.1 ContentsoftheAgreementandEconomic Significance. . . . . . . . . . . . . . . . . . . . .. . . . . . . 51 2.3.2.2 Chapter10oftheAgreementGoverningMutual ForeignInvestments. . . . . . . . . . . . . . . . . . . . . . 52 2.3.2.3 RelationoftheAgreementtotheJapan-Mongolia BIT(2001). . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 2.3.3 TheEnergyCharterTreaty(1994). . . . . . . . . . . . . . . . . . 54 2.3.3.1 TreatyOrigin. .. . . . . . . . . . . .. . . . . . . . . . . .. 54 2.3.3.2 SectoralScopeofTreatyApplication. . . . . . . . . 55 Contents ix 2.3.3.3 InvestmentProtectionUndertheEnergyCharter Treaty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 2.4 StandardsofInvestmentProtectionandReflectioninthe InternationalInvestmentTreatiesofMongolia. . . . . . . . . . . . . . . 57 2.4.1 ScopeofApplicationofInternationalInvestment Treaties. . .. . . . .. . . . .. . . . .. . . . .. . . .. . . . .. . . . .. 58 2.4.2 SubstantiveLawProtectionStandardsinInternational InvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 2.4.2.1 NationalTreatment. . . . . . . . . . . . . . . . . . . . . . 59 OverviewofContentandApplicationofthe Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 EvaluationofInternationalInvestmentTreaties. . . 63 2.4.2.2 Most-Favoured-NationTreatment. . . . . . . . . . . . 64 OverviewofContentandApplicationofthe Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 TheExtensionofMost-Favoured-Nation TreatmenttoDisputeSettlementClauses. . . . . . 66 EvaluationofInternationalInvestmentTreaties. . . 68 2.4.2.3 FairandEquitableTreatment. . . . . . . . . . . . . . . 69 Fair-and-Equitable-TreatmentClausesLinked to(Customary)InternationalLaw. . . . . . . . . . . . 70 UnqualifiedFair-and-Equitable-Treatment ClausesasAutonomousLegalStandard. . . . . . . 71 PrinciplesofProtectionCommonlyAssociated withFairandEquitableTreatment. . . . . . . . . . . 73 TheDoctrineontheProtectionofLegitimate Expectations. . . . . . . . . . . . . . . . . . . . . . . . . . . 78 EvaluationofInternationalInvestmentTreaties. . . 82 2.4.2.4 FullProtectionandSecurity. . . . . . . . . . . . . . . . 83 OverviewofContentandApplicationofthe Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 EvaluationofInternationalInvestmentTreaties. . . 89 2.4.2.5 ExpropriationandCompensation. . . . . . . . . . . . 90 OverviewofContentandApplicationofthe Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 EvaluationofInternationalInvestmentTreaties. . . 93 2.4.2.6 FreeTransferofFundsandCapital. . . . . . . . . . . 94 OverviewofContentandApplicationofthe Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 EvaluationofInternationalInvestmentTreaties. . . 97 2.4.2.7 UmbrellaClausesinInternationalInvestment Treaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 2.4.2.8 InterimConclusion. . . . . . . . . . . . . . . . . . . . . . 98 x Contents 2.4.2.9 CompetingObligationsUnderHuman RightsLaw. . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 InternationalHumanRightsObligations. . . . . . . 101 DomesticHumanRightsObligations. . . . . . . . . 104 2.4.3 Investor-StateArbitrationOffersinInternational InvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 2.4.3.1 FormsofStateConsenttoInvestor-State Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 ConsentThroughDisputeSettlementClauses inInternationalInvestmentTreaties. . . . . . . . . . 107 ConsentThroughDisputeSettlementClauses inDomesticInvestmentLaws. . . . . . . . . . . . . . . 108 ConsentThroughArbitrationClauses inInvestor-StateContracts. . . . . . . . . . . . . . . . . 109 2.4.3.2 SignificanceofInvestmentTreaty-Based Investor-StateArbitration. . . . . . . . . . . . . . . . . . 109 2.4.3.3 FeaturesofDisputeSettlementClausesin InternationalInvestmentTreaties. . . . . . . . . . . . 110 ScopeofConsenttoInvestmentTreaty-Based Investor-StateArbitration. . . . . . . . . . . . . . . . . . 111 (Pre-)ConditionsofInvestmentTreaty-Based Investor-StateArbitration. . . . . . . . . . . . . . . . . . 112 2.4.3.4 EvaluationofInternationalInvestmentTreaties. . . 114 WideDisputeSettlementClausesinInternational InvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . 115 NarrowDisputeSettlementClausesin InternationalInvestmentTreaties. . . . . . . . . . . . 116 (Pre-)ConditionsforInvestor-StateArbitration inInternationalInvestmentTreaties. . . . . . . . . . 117 2.4.3.5 InterimConclusion. . . . . . . . . . . . . . . . . . . . . . 120 2.4.4 Investor-StateArbitrationsBasedonInternational InvestmentTreatiesofMongolia. . . . . . . . . . . . . . . . . . . 121 2.4.4.1 AlstomPowerItaliav.Mongolia. . . . . . . . . . . . 121 2.4.4.2 Paushokv.Mongolia. . . . . . . . . . . . . . . . . . . . . 121 2.4.4.3 ChinaHeilongjiangv.Mongolia. . . . . . . . . . . . . 123 2.4.4.4 KhanResourcesv.Mongolia. . . . . . . . . . . . . . . 129 2.5 InternationalConventionsSupportingtheEnforcement ofInternationalInvestmentTreaties. . . . . . . . . . . . . . . . . . . . . . 133 2.5.1 ConventionontheRecognitionandEnforcement ofForeignArbitralAwards(1958). . . . . . . . . . . . . . . . . . 133 2.5.1.1 InternationalObligationtoEnforceForeign ArbitralAwards. . . . . . . . . . . . . . . . . . . . . . . . . 134 2.5.1.2 ChallengeandReviewofForeignArbitral AwardsbyNationalCourts. . . . . . . . . . . . . . . . 135