BITs restricting Egypt’s regulatory space post-2011: Theory and practice

Post-2011, the main regulatory concern stemmed from the impact of BITs on the ability of Egypt to regulate the economy in line with its efforts to reform the failed economic liberalisation policies of the ousted regime. Another major concern was the extent to which these treaties will allow Egypt to take measures to combat corruption when it involves deals between foreign investors and the previous regime.The substantive protection clauses in BITs come with limited safeguards to allow host country governments to regulate in order to protect the public interest. This section will focus on the extensive nature of some of the substantive provisions in BITs and how they empower foreign investors. Two of the most problematic clauses, FET and expropriation, will be addressed, and some ot the other substantive protections that have implications on the regulatory space of the Egyptian government will also be touched upon.

Fair and equitable treatment

A significant challenge faced by Egyptian governments post-2011 is what is termed as ‘legitimate expectations’ ot foreign investors arising from previous government policies and measures to attract investment before the revolution (El-Kady, 2012). Arbitration tribunals have consistently identified these expectations as a critical aspect of FET standard found in BITs (UNCTAD, 2012). FET is considered to be one ot the most important substantive protection clauses contained in BITs (Bonnitcha, 2014; Dolzer and Schreuer, 2012, p. 133; Newcombe and Paradell, 2009, p. 255), as it provides the most extensive rights and has permitted investors to bring disputes against a wide range of government activities that can affect their investments.12 Furthermore, the FET provision has the best record for successful claims by foreign investors (Dolzer and Schreuer, 2012, p. 130). In practice, it is difficult to predict when the actions of a government will breach the FET standard. The wording of the clause itself typically gives no detailed guidance, and tribunals considering this obligation have delivered widely differing interpretations, with some tribunals interpreting the FET standard as a guarantee against all significant changes to the laws and policies governing a foreign investment (Bonnitcha, 2014).

This concept is particularly important in times of political and social change and uncertainty (El-Kady, 2012). As El-Kady (2012, p. 6) argued, the ‘legitimate expectations’ of foreign investors under FET reduced the ability of the Egyptian government to implement new FDI- related policies without increasing the risks of breaching the clause, even if those measures are implemented to serve legitimate public purposes. Accordingly, this posed a serious challenge to Egyptian policymakers who were expected to intervene in the economy and introduce regulatory changes to pursue economic and social justice by ensuring that FDI serves a national development strategy that creates more jobs, contributes to fairer income distribution and develops local sectors/industries (El-Kady, 2012).

The FET standard has triggered several investment claims against Egypt and in this particular context, that is, post-2011, one example ot a claim triggered by the incoming Egyptian government’s efforts to redress the economic policies of the previous regime (Bonnitcha, 2014), and introduce progressive economic policies, is the Veolia v. Egypt (2012) case.1’ French multinational Veolia had an ICSID arbitration claim tor €82 million registered against Egypt in 2012. Veolia signed a contract in 2001 tor waste management in Alexandria. However, the 15- year contract was terminated early in 201 las a result of a series of disputes between the local authority and Veolia (Peterson, 2012). One of the main issues in this dispute was the company’s demand to be compensated tor changes to local labour laws, which include an increase in minimum wages (Peterson, 2012).The company contended that provisions in the contract between the authority and company stipulated that the authority should compensate the company for financial implications of such changes in legislation (Peterson, 2012).

More importantly, the FET standard can also be considered as one ot the main drivers of the regulatory chill effect as it threatens any new regulatory measures that may affect the profitability or interests of foreign investors (Mossallam, 2018).


As currently drafted, Egypt’s BITs do not allow scope for an incoming regime to renationalise foreign investments or cancel concessions, except on payment of full market value compensation.

The protection extends to investments acquired from the host state in a transaction that was not at arm’s length or acquired at a price that is significantly below their market value (Bonnitcha, 2014). Furthermore, these investments would be entitled to full market value compensation, as the principle ot full market value compensation does not allow a tribunal to adjust compensation to reflect the circumstances in which investment was originally acquired (Bonnitcha,2014). As Bonnitcha (2014, p. 985) noted, this raises concerns over the fairness ot the application ot these investment treaties for countries in transition. He further elaborated that by granting foreign investors a right to full market value compensation, even if they were originally acquired for a small fraction of their market value from the previous regime, these treaties ‘restrict the ability of an incoming regime to recover assets transferred to associates of the authoritarian regime, and to engage in more radical forms ot redistribution’ (Bonnitcha, 2014, p. 1008).

Egypt’s experience post- 2011 is a case in point as the Mubarak legacy of corruption led to efforts by incoming regimes to recover public assets that were privatised or acquired by investors at rates that were significantly below their market value (Mossallam, 2018). Egyptian courts issued at least 11 rulings in the few years following the revolution and more than a dozen lawsuits followed. These court decisions ordered the state to reverse deals signed by the former president’s administration (Fick, 2013). Such deals included privatisations as well as concessions and acquisitions ot public assets by foreign investors.14 The decision by the state to implement the court rulings triggered several treaty-based and commercial arbitration cases. Eventually, the threat of these cases led the state to back down from its efforts to recover these assets and instead resort to settlements in order to appease foreign investors and avoid arbitration.1

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