Bilateral Investment Treaties - a Potential Trap for Developing Economies: A Lesson from Thailand

• Main Authors: Robert Brian Smith, Nucharee Nuchkoom Smith
• Format: Article
• Language: English
• Published: Athens Institute for Education and Research 2018-07-01
• Series: Athens Journal of Business & Economics
• Subjects: walter bau ag (in liquidation); investor-state dispute settlement; public private partnership; free trade agreements; bilateral investment treaties
• Online Access: https://www.athensjournals.gr/business/2018-4-3-3-Smith.pdf

There is a growing concern amongst both developing and developed countries concerning the potential impact of Investor-State Dispute Settlement (ISDS) awards on the ability of a government to act in the best interest of its citizens. ISDS clauses are included in Bilateral Investment Treaties (BITs) and increasingly, but not always, in Free Trade Agreements (FTAs). The potential impacts on the ISDS clauses may considerable and affect the decision-making ability of the government. Unfortunately, the government officers making those decisions may not be aware of the potential conflict with the requirements of a BIT or FTA. This paper focuses on the litigation between Walter Bau AG (in liquidation) and the Government of Thailand in relation to a concession agreement to design, construct, operate and maintain the Don Muang Tollway in Bangkok. Walter Bau alleged the lack of Fair and Equitable Treatment (FET) in relation to its investment due to the Thai government reducing tolls; continuing to improve roads in the vicinity of the toll road thus affecting traffic volumes and subsequently closing the Bangkok International Airport at Don Muang. Arbitral proceedings were conducted in Switzerland and resulted in a significant award to Walter Bau which was unsuccessfully challenged by Thailand. It describes the circumstances that led to the government’s actions and the lessons that have been learnt from them. It also discusses how these issues have been addressed in Investor State Dispute Settlement in recent Free Trade Agreements entered into by Thailand and its trading partners, including Australia. Walter Bau provides a significant lesson for government’s developing Public Private Partnership (PPP) projects which can have multiple investors at both the construction and operations stages. These investors are often foreign companies who have no other interest other than the return on capital from their investment.