3 Ways the Philippines Can Better Position Itself vis-à-vis Its Bilateral Investment Treaties

Elpidio V. Peria
5 April 2014

Recent news reports and commentaries especially from  Martin Khor of South Centre show that countries rich and poor from Germany, France, South Africa, Indonesia and India are waking up to the iniquities and unfairness of bilateral investment agreements that give foreign investors the right to sue governments and even greater rights than its nationals and these countries have either given notice that they will terminate their bilateral investment agreements or have laid out preconditions towards renegotiating these agreements, especially the provisions of these agreements on how investors may sue the state for the latter’s actions particularly those actions that may be seen by the investor as affecting the investments it made in the country.

Should the Philippines, now currently on the hook for allegedly failing to protect investors’ rights in the NAIA 3 construction and the Pasig River dredging project, among others, also follow suit ?

There’s not much the Philippines can do except to fight off these cases under litigation in various international investment tribunals, but for the agreements that are currently in place and for those that it plans to enter into with other countries, the question for the Philippines in the light of these recent developments in other countries is, how it should strengthen itself against the application of the provisions in investor-state dispute settlement (ISDS) provisions and mechanisms in bilateral investment treaties (BITs)?

First off, it should undertake a review of all BITs it has entered into and see which of these BITs treaties are being utilized by Filipino investors or whether it has been able to directly contribute to its total FDI stock; this analytical work should show which of these BITs have contributed well to the country’s economic development and has resulted in investments that are beneficial to the country’s long-term interest and broad societal and economic goals, among other elements of the relationship with the partner country in the bilateral agreement.

Doing this review should be easy since data from UNCTAD as of June 2013 show only some thirty-five (35) bilateral investment treaties signed by the Philippines with developed and developing countries alike.

From the results of the review, here are the ways the country can better position itself vis-à-vis these bilateral investment treaties:

One way is to insert a provision in the pending Omnibus Investments Bill in the Senate that will guarantee protection of the foreign investor in the current administrative and judicial processes of the country; this provision should allow for the exhaustion of all local remedies before the Philippines will consider giving its consent to arbitration (allowed in art. 26 of the Convention of the International Center for the Settlement of International Disputes or ICSID); another way the provision in the Omnibus Investments Bill can be written is to identify the classes of disputes that will be subjected to international arbitration (provided for in art. 25 (4) of the same ICSID Convention) and the country can identify only those egregious cases of abuse of governmental authority that have substantially affected the investments of a foreign entity as only those types of cases that can be brought to international arbitration. In this manner, this will limit the kinds of cases where the Philippines can be sued to only those where there is a clear and glaring abuse of governmental authority and the investments are substantial.

Secondly, the Philippines can insert a provision in the Philippine Constitution, riding along on the Cha-Cha train being pushed by the House of Representatives, ensuring the primacy of local administrative and judicial processes over these international investment tribunals. What this will do is fortify any law or executive action that may be undertaken by the government to protect itself in these investor-state disputes.

Thirdly, and this is an act of supreme statesmanship and courage, the Philippines can issue an Executive Order terminating all other BITs that do not incorporate the above-mentioned provisions, in the same manner as what Indonesia is planning to do with all its BITs, starting with the Netherlands.

Finally, this is not actually a different suggestion but an implementation of the three suggestions, that in future BITs negotiations, the Philippines should push a specific provision or a chapter in these agreements that ensures primacy of domestic administrative and judicial processes over all disputes arising from the bilateral agreement.

While this may be interpreted as something that privileges the institutions of the state, its purpose really is to give assurance to the investor that it will protect its investments in whatever way possible but not in a manner that detract from the country’s primary obligations to its citizens through its existing economic, social or environmental policies.

Should the Philippines take these steps notwithstanding its reputation as the investment laggard in the Southeast Asia region?

The Philippines shoud take this positive step, if only to review this one area of its investment policy and bring it up to date and aligned with the country’s priorities and needs.

After all, if one examines closely the main reasons why investors don’t invest in the Philippines, most of them center on the high cost of doing business in the Philippines mainly brought about by corruption, high costs of power and labor. These reasons have nothing to do with whatever privileges or rights are given to investors, and given the lack of awareness of most local businessmen to these investment treaties and the low rate of utilization of these agreements, there must be something else that motivates investors other than the legal security or certainty provided by these agreements.

These suggestions can be pie-in-the-sky impossible, for now, but if the political climate can be worked on such that these things are eventually perceived as necessary and even doable, then this should give the Philippines a more level playing field vis-à-vis these BITs.


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