Bilateral investment treaties (BITs) are of particular utility when investing into China, given the level of government regulation of the economy, and the authorizations required for foreign investments in China. Around the world, over 180 countries have entered into over 2,400 BITs, which are specifically designed to protect foreign investors and their investments. BITs therefore provide a powerful shield and sword to foreign investors whose investments are negatively affected by the activities (or inactivity) of states and state entities (including central, regional and municipal governments; government departments and ministries; local councils; industry regulators; courts; and government authorities and institutions).
A BIT is a treaty entered into between two states providing for the promotion and protection of the investments of the nationals of each state in the territory of the other. They are usually entered into between capital-exporting nations and capital-importing nations as part of trade negotiations. Among other things, the two contracting states typically each promise to treat private investors from the other signatory state “fairly and reasonably”, not to “discriminate” against them and not to nationalize or expropriate their investments without reasonable compensation.
The advent of international arbitration to resolve disputes arising under BITs means that foreign investors can think beyond the dispute resolution options previously available to them (contract; tort; local or foreign courts; or arbitration under the investment contract) to international legal rights enshrined in a treaty that provides for an international law arbitration.
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Stuart Dutson is a partner, and Amin Batada is a solicitor, at Eversheds
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