The International Business Transactions Blog

Consequential Shifts in Adherence to International Investment Law Commitments

By BethEl Nager
Law Student Editor

Aaron Fellmeth
Faculty Co-Editor

Victoria Sahani
Faculty Co-Editor

The Convention establishing the International Centre for Settlement of Investment Disputes (ICSID) in 1966 (the “ICSID Convention”) added a dispute resolution forum to the World Bank Group.  Specifically, ICSID provides arbitration and concilliation services for resolving foreign direct investment (FDI) disputes between a host state and a foreign investor when the host state provides for ICSID arbitration in a treaty with the investor’s state of origin.  These treaties are typically bilateral investment treaties (BITs), free trade agreements, or investment protection agreements.  The advantage of the ICSID Convention touted by the World Bank Group is that, by providing a mandatory form of neutral dispute settlement, ICSID arbitration and concilliation reassure foreign investors that the host state cannot use sovereign immuity to avoid lawsuits or avoid paying judgments if it expropriates an FDI  or treats the investor unfairly.  Some investment treaties first require the investor to “exhaust local remedies” by purusing the dispute in the host state’s courts first before filing an ICSID case.  The disadvantage for a foreign investor is that the host state’s courts may side with the host state government due to political pressure or control.. ICSID provides an alternative, neutral, fair forum, and this stability  is expected to increase FDI.  Historically, developing countries with a history of political and economic instability were the targets for FDI, but now FDI flows to and from both capital-importing and capital-exporting countries.  Currently, there are 164 state parties to the ICSID Convention.

Only three state parties to the Convention have ever withdrawn from it, all in South America.  In 2007, Bolivia denounced the Convention, followed by Ecuador in 2009 and Venezuela in 2012.  In some cases, including that of Ecuador, denunciation of the Washington Convention was accompanied by withdrawals from many BITs between the host state and the investors’ home states that set international legal standards for the protection of FDI projects.  Withdrawal from a BIT may leave new foreign investors without international treaty protection, while denunciation of the ICSID Convention may remove the ability of foreign investors to initiate new arbitrations using the ICSID procedures against the denouncing state, although ICISD does promulgate “Additional Facility” arbitration rules that can be used in cases in which the host state is not a party to the ICSID Convention.  At the same time, the host state loses its voice in the ICSID Administrative Council regarding debates on the future of dispute resolution in international investment law.

Recently, Ecuador shifted back to a policy favoring foreign investment.  As a result, it signed the Washington Convention anew on June 20, 2021, and ratified it on August 4, 2021. One reason for this reversal of policy may have been slowed growth in the Ecuadorian economy caused by the global pandemic.

The pandemic has not inspired a pro-foreign investment policy everywhere, however. Also in 2021, Pakistan resolved to terminate 23 of the country’s 48 BITs, and further announced a decision not to ratify sixteen more BITs that the Pakistani government has signed. Pakistan had already begun to sour on BITs in 2013, announcing plans to review its existing BITs.  Recent losses in several major ICSID arbitrations brought by foreign investors, including a $5.8 billion claim by an Australian mining company, exacerbated Pakistan’s negative view.  Notably, Pakistan was the first state to sign a BIT in the modern era (with Germany in 1959), and it has a network of BITs remaining, some of which cannot be denounced at present by their terms.

These developments do not change the general substance of international investment law, including its facilities and procedures for dispute resolution, in any way.  However, they do illustrate how each state’s individual circumstances and experiences with international investment law and arbitration create a protean environment for foreign investors, who must be prepared to shift investment plans to respond to new geopolitical developments.

Facebook Penalized for Following Tech Pattern of H-1B Visa Abuse

By BethEl Nager
Law Student Editor

Among the non-immigrant entry visas granted to foreign workers, the H-1B is extremely popular with U.S. employers seeking employees with special skills due to its long duration (up to six years with an extension) and flexibility. To qualify for an H-1B visa, a foreign candidate must hold a bachelor’s degree or equivalent and must have highly specialized knowledge in a field required for employment.

An important condition for the grant of an H-1B visa is that the prospective employer must certify to the U.S. Department of Labor in a Labor Condition Application (LCA) that hiring the foreign worker is necessary because no comparable qualified candidate is available in the United States, and that the employment will not undermine salaries or the position of workers in the United States. In short, H-1B employees must fill an existing labor void rather than displace U.S. workers.

U.S. Citizenship and Immigration Services (USCIS) is tasked with enforcing these conditions through investigation and sanction powers. USCIS may conduct site visits, review documentation such as employment applications, and interview managers and employees to investigate whether an LCA has been filed to circumvent immigration regulations. For over twelve years, USCIS has implemented unannounced site visits to check compliance by employers and H-1B visa holders. These visits include an inspection of wages, work locations, and job tasks. USCIS also investigates allegations of “benching,” which entails an employer not paying an H-1B visa employee while the employee waits for work in violation of visa regulations. Beginning in February 2021, USCIS implemented a new strategy comparing U.S. employees with H-1B employees in businesses that commonly hire foreign workers through this program.

The H-1B program also impacts foreign spouses who wish to work, typically on an H-4 visa. The partners of H-1B visa holders typically experience exorbitant employment wait times because of delayed documentation. Even though the Obama Administration made H-4 visas available, subsequent government action and the pandemic have contributed to extreme delays in recent years. This red tape may result in U.S. companies struggling to acquire foreign workers with needed expertise. USCIS has attempted to address these challenges by reducing the wait time.

Recently, the Labor Department has determined that Facebook Corp. (since renamed Meta Platforms, Inc.) was one of several technology companies that abused the H-1B visa program by solely advertising jobs to international markets, without also offering the same opportunities to U.S. citizens. Jobs advertised only on foreign markets raised suspicions that Facebook was violating federal law by not even inquiring as to whether U.S. workers were eligible for these same positions. As a result, Facebook agreed to a $14 million settlement, the largest of its kind, although still modest relative to the company’s approximately $128 billion net worth. Facebook further agreed to implement an antidiscrimination training and monitoring program.

SCOTUS Limits the Expropriation Clause of the Foreign Sovereign Immunities Act

By BethEl Nager, Law Student Editor

On February 3, 2021, in Federal Republic of Germany v. Philipp, the United States Supreme Court unanimously ruled that the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. ch. 97, does not permit U.S. courts to exercise jurisdiction over a foreign country that expropriates the property of its citizens without compensation. This ruling explored the FSIA’s expropriation exception, 28 U.S.C. § 1605(a)(3), denies sovereign immunity in U.S. courts if rights in the property of foreign citizens are taken by their own (foreign) government.

The FSIA was created in 1976 with the intention of codifying the “restrictive theory” of foreign sovereign immunity, which defined certain exceptions to the general rule of such immunity, such as when the foreign sovereign waives its immunity. Other exceptions include commercial activities within the U.S., the expropriation of property in violation of international law, certain tortious activity within the United States, and the enforcement of arbitration agreements with foreign nations. 

This case involves the Guelph Treasure (Welfenschatz) a hoard of medieval reliquaries kept at the Brunswick Cathedral in Germany. In 1935, German art dealers, some of whom were Jewish, were allegedly forced to sell these antiquities to the Dresdner Bank at far below market value under pressure from the Nazi government. After the Second World War, Germany and Stiftung Preussischer Kulturbesitz (SPK), the Prussian Cultural Center, asserted ownership of the collection, which is displayed in a Berlin museum. In 2014, the heirs of the Jewish art dealers raised ownership claims with the German Advisory Commission in hopes of the collection’s return to their families. The German Commission determined there was no duress conditions and the sale was valid.

In 2015, when the collection was touring the United States, the heirs sued Germany in the U.S. District Court for the District of Columbia, arguing that the expropriation exception of the FSIA allowed them to proceed against the German government. The heirs claimed the forced sale qualified as an expropriation because it was done under compulsion and as part of a genocide against the Jewish people. The heirs demanded $250 million in damages and the return of the art collection. In contrast, Germany and SPK insisted the exception did not apply, because international law is not violated when a foreign country takes property from its own nationals, as occurred in 1935.

On certiorari to the U.S. Supreme Court, Chief Justice Roberts wrote the opinion, adopted unanimously by the court, that rejected the use of the expropriation exception to the FSIA in this case. He first explained the exception only applies to property law, rather than “the law of genocide or human rights.” The Court further held that international law is not concerned when states take the property of their own citizens. It appears that the Court did not realize that several instruments of international law establish a human right to own property, such as article 17 of the Universal Declaration of Human Rights, as well as article 1 of the first protocol to the European Convention on Human Rights. This body of law might be argued to include customary international law binding on both Germany and the United States, although this would not be the case at the time of the allegedly coerced sale, which preceded these instruments.

The litigation may continue regardless, however, because some heirs insist that their ancestors were not German nationals at the time of the sale, which would render this ruling moot for them.

Blog Editors

Faculty Editors
Prof. Aaron Fellmeth

Prof. Victoria Sahani

Law Student Editor
BethEl Nager

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