The Forgotten Purpose of ‘Fair and Equitable Treatment’ Clauses in Post-War United States’ Commercial Treaties

Abstract

To understand the purpose of the ‘fair and equitable treatment’ (FET) clause, contained in many international investment treaties (IIAs), this paper is the first to provide a detailed account of the archived record of negotiations preceding the conclusion of post-war United States’ Treaties of Friendship, Commerce and Navigation (FCN), the precursors to modern IIAs. This paper examines how these negotiations clearly provide basis for including a generally-worded FET obligation in investment protection. It focuses on the parties’ expectations and concerns, the input of private enterprises, and intra-governmental discussions as to how this particular language was chosen.

This paper makes three contributions. First, this paper finds that the FET clause was never intended to provide a substantive standard of treatment, such as national or most-favoured-nation treatment, to foreign investors. In fact, the ‘fair and’ ‘equitable treatment’ clause in the context of U.S. investment protection was intended to serve as a guiding principle in the treaty; while it was possible for FET to serve as a basis for a treaty protest, this would only be in extreme or unusual circumstances. Second, the historical record advances the debate about how investor-State dispute settlement impacted both the purpose and function of the FET standard in IIAs through arbitral interpretation and application. Third, this paper presents policy-makers and treaty negotiators with a historical foundation to determine whether undefined FET clauses continues to serve a function within IIAs, or whether they are best removed altogether.

Keywords: Legal History, International Investment Law, FCN Treaties, United States Commercial Treaties, Fair and Equitable Treatment, FET