BIT Protections and Economic Crises: Limits to Their Coverage, the Impact of Multilateral Financial Regulation and the Defence of Necessity

The issue of application of Bilateral Investment Treaties (BITs) in time of major crisis in the host State and as a basis to challenge any measure taken to the prejudice of foreign investors has been raised in several cases where the Argentine Republic's conduct during and following the crisis of 2001 have been challenged under a number of its BITs. The issue has come again to the forefront in light of the current financial crisis affecting a number of States. This Article reviews first the type of measures that States have resorted to, such as limitation to current payments, capital movements, debt restructuring, selective rescue of financial institutions, against the BITs obligations which may be thereby breached, essentially fair and equitable or national treatment and protection against indirect expropriation. The Article then examines the defences a host State may invoke based on the text of a BIT itself: recognition of flexibilities in favour of a host State's general measures in exceptional circumstances, subject matter limits, general and specific exceptions to its coverage and necessity. Another relevant issue explored is the impact on BIT interpretation and application in time of crisis of multilateral agreements regulating financial matters, such as the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) Codes and the World Trade Organization (WTO) General Agreement on Trade in Services (GATS) and Annex on Financial Services. The relation can be viewed in terms of BITs representing lex specialis, or rather as those agreements being the framework in which BITs operate requiring systematic interpretation to coordinate them. As to the defence of necessity, the Article reviews the evolution of the case law concerning the Argentine Republic, especially as to necessity precluding wrongfulness under customary law, or rather as a balancing criterion of interpretation in light of the WTO jurisprudence.