Bilateral Investment Treaties: An Underestimated Opportunity for Somaliland

The two main reasons why countries generally enter into bilateral or multilateral investment treaties (BIT or MIT) is to attract foreign investments, while at the same time protecting their own citizens’ investments abroad by reducing the political risk, inherently and inevitably attached to them. Arguably, there might be multiple added values on top of these reasons for a specific group of countries or quasi-countries, meaning States with a limited recognition as such. This contribution will explore these added values by providing theoretical foundation and a practical comparison.

Building up consensus for recognition

One of the four criteria that defines a State – according to Article 1 of the 1933 Montevideo Convention on the Rights and Duties of States – is the capacity to enter into relations with other States. Now, the most obvious way a State may enter into relations with other States is through the conclusion of international treaties, bilateral or multilateral ones. One particular type of international treaty – that happens to be one of the most successful international instruments in terms of diffusion – is indeed the so-called BIT, with over 3,000 different BITs having been negotiated, signed and ratified all around the world by many different State Parties.

For States with limited recognition, there might be several other reasons to conclude BITs, other than enticing reciprocal investments from and to other States. One of these reasons is to strengthen and increase the recognition of their statehood by the international community. In fact, should a State conclude a BIT with a country with limited recognition, that State would recognize the latter as a full-fledged State. Depending on whether the former State had previously recognized or not the latter, its recognition would be either express or implicit, respectively. Put differently, States’ opinio juris confirming the statehood of the new emerging country would be reflected in the State practice of concluding international agreements with the new international entity.

The good thing about this kind of treaties is that both capital-exporting States as well as capital-importing States are inclined to sign as many BITs as they can (or at least they used to be, until recent years), because of the legal certainty with which these BITs vest the investment of their nationals and because of their capacity of boosting foreign investments. Besides, many States – that once used to be regarded as capital-importing States – are increasingly becoming capital-exporting powers with the new need of protecting their own citizens’ investments abroad. Consequently, the foreign policy of countries with a limited recognition may use these BITs to leverage other States into recognize them (expressly or implicitly).

Control over national resources

Another of the four criteria that defines a State – always according to article 1 of the 1933 Montevideo Convention – is the capacity to exercise effective control over the territory claimed by a State. And, indeed, these BITs may additionally represent for these partially recognized States an opportunity to make clear, officially and internationally, their formal and effective control over key resources or lands disputed by neighboring countries. On one hand, these States would formally claim their sovereignty over national resources by signing these treaties with other States – that subsequently would back up this sovereignty – and on the other hand, these countries would exercise effective control by virtue of entering into investment agreements with foreign companies to develop such resources. This way foreign investors, instead of entering into investment agreements with the neighbor or competing country over the disputed territory, might feel more comfortable in dealing directly with the authorities of the State, whose universal recognition is underway.

Redefining international obligations

Further, the new BITs negotiated by these countries with limited recognition will clear any doubt about whether the BITs concluded by their bordering States, or predecessor State (or the State that allegedly continues to claim rights over their territories) are applicable or not to them. Obviously, a newly emerged State should not be bound by those treaties, unless, of course, that State expressed its consent to those BITs in writing and the other High Contracting Parties to those treaties agree to be bound by a BIT with a different Contracting Party.

Consequently, the negotiation of new BITs will reinforce the fact that an emerging country possesses a different international legal personality from its predecessor or eventual trespassing neighbor State, whose international obligations shall not bind the emerging or seceding State.

A practical comparison: Kosovo and Somaliland

An example of a country with a limited recognition that, consciously or unconsciously, adopted this policy of concluding BITs is the Republic of Kosovo, whose independence was declared on 17 February 2008. For instance, Kosovo entered into a BIT with Switzerland on 27 October 2011, in force as of 13 June 2012. Currently, 111 out of 193 United Nations Member States have recognized it as a full-fledge State. And according to some critics (whether rightly or wrongly), Kosovo enjoyed a somehow hasty recognition indeed.

Whereas an example of a country that is missing out on this opportunity (and, actually, is paying the price thereof) is the Republic of Somaliland, whose independence was proclaimed on 17 May 1991. This country has not concluded any BIT yet. Missing out on this opportunity has taken its toll on Somaliland, since no State or international organization have recognized it as a full-fledged State, despite a number of meetings and dealings between Somaliland’s and other States’ authorities have taken place. Concluding such bilateral investment treaties could be the ideal mechanism for Somaliland whereby these continuing contacts at the State level are officialized, thus reaffirming Somaliland’s openness to foreign investments, and most importantly, Somaliland’s statehood.

Conclusion

In a nutshell, the conclusion of BITs by countries with a limited recognition, such as the Republic of Somaliland, may: 1. strengthen their statehood, 2. boost their effective control over natural resources for the good of their people, 3. help to redefine new economic policies consistent with their actual needs, and 4. clarify their international obligations vis-à-vis other States.