I. Introduction

Mega-regional treaties with investment protection provisions are newcomers to the investment treaty regime. After having failed to conclude multilateral investment protection rules since the early twentieth century,Footnote ¹ States instead focused on bilateral treaty making from around the 1960s onwards. A few regional agreements were concluded in the 1980s and 1990s, like the Arab Investment Agreement, the Energy Charter, and the North American Free Trade Agreement, but in recent years most effort has been directed towards a new type of investment treaty—the mega-regional.Footnote ² Major efforts have been undertaken in the Asia-Pacific and across Atlantic; specifically, the Regional Comprehensive Economic Partnership, the failed Transatlantic Trade and Investment Partnership, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Whereas bilateralism and multilateralism were the favoured approaches to investment protection in the twentieth century, mega-regional deals have recently offered a ‘third way’. The history is well-known, but incomplete.

This article documents how all members of the European Economic Community (EEC) and of the Arab League—33 in number—negotiated a draft mega-regional investment protection treaty from 1976 to the late 1980s. It came tantalisingly close to completion but ultimately ran into the political sands. Annex I to this article reproduces the draft Convention in full as it stood in 1985. Its conclusion would have enshrined the standard panoply of substantive investment protection rules found in bilateral investment treaties (BITs) as well as broad and binding consent to international investor–State arbitration among many of the largest capital-exporting States in the world. Ratification by 10 countries on each side would have made it equivalent to 100 BITs. By comparison, less than 200 BITs were then in force worldwide. The Convention would, therefore, have been the most significant investment protection treaty ever negotiated at the time, and one of the most significant to this day. Negotiations were conducted within the cloak of diplomatic confidentiality, so although officials involved did mention the negotiations at the timeFootnote ³ details have only emerged through recently opened archives.Footnote ⁴ The effort has therefore remained unknown to even specialised scholars and practitioners. Textbooks and monographs fail to mention it when outlining the historical origins of the regime,Footnote ⁵ and even comprehensive works on European investment protection policyFootnote ⁶ and the history of international investment lawFootnote ⁷ do not cover it.

This article therefore contributes to the emerging ‘turn to history’ in international investment law, but in different ways from most contributions. First, unlike many contributions that make historical claims about international investment law, it is rooted in primary sources through archival research into the negotiating history as well as the personal recollection of one of the negotiators.Footnote ⁸ Second, whereas much of the turn to history in investment law has been about the colonial origins of the regime, often from a critical lens,Footnote ⁹ we describe recent history exploring the drafting of a major investment convention in the 1970s and 1980s. Third, much recent work on the investment regime has focused on historical investor–State disputes, something that often requires archives as investor–State negotiations typically take place in secrecy.Footnote ¹⁰ Our article focuses on something more remarkable: a decade-long effort by 33 governments to conclude a mega-regional investment treaty, which to this day has remained largely secret.

Finally, our article is not intended to make broader normative claims about the investment treaty regime. Much scholarship seeks to use—and sometimes abuse—history to criticise or justify current investment protection arrangements.Footnote ¹¹ Our aim is instead to supplement the field's collective understanding of the ‘near history’ of the regime focusing on the objectives and achievements of those involved in the specific economic and political context of the period, which, notably, was before the large-scale arrival of investment treaty arbitration.

We describe the negotiations, as reflected in UK archives. These are particularly relevant as the UK was highly proactive in the negotiations. Together with the Germans, the UK led the European side throughout the negotiations and the 1985 draft closely followed the UK model BIT. The files give insights into intra-European deliberations as well as inter-departmental discussion in Whitehall, highlighting conflicting views on signing an investment protection treaty with major capital-exporting States. Confidential records mean that existing literature has almost never captured intra-governmental deliberations. We focus mainly on the European and specifically UK perspective, but we hope future work will provide complementary insights from other archives particularly from Arab States.

II. The Euro–Arab Dialogue and its Financial Cooperation Committee

The Euro–Arab Dialogue was formally launched at the European Council in Copenhagen in December 1973 as a result of a French initiative to set up a forum for cooperation between The League of Arab States on the one hand and the EEC and its Member States on the other. From the outset the Arab side saw it as a means of gaining European support for its political objectives – most notably in the context of the Arab–Israeli conflict. For the European side, the overriding objective was to have Arab States take a ‘kindlier view’ of Europe, or at least ‘make the Arabs think twice, if not three times, before taking discriminatory action against us’.Footnote ¹² The European concern was the ‘oil weapon’. Political hopes were high on both sides, but the initiative was vehemently opposed by the US. Although European diplomats saw American interest in the Dialogue as ‘slightly hysterical’,Footnote ¹³ fierce American opposition meant that the Dialogue could only succeed if it focused on ‘low-politics’ initiatives—economic, cultural, and technical cooperation—rather than the sensitive geopolitical agenda preferred by Arab League members.

This difference in aspirations meant progress was slow. The European side was frustrated with what they saw as political gesturing by their Arab counterparts. Palestine was the ‘only political issue, which they [the Arabs] are interested in discussing’,Footnote ¹⁴ one official complained, and it caused difficulty when the Arabs insisted that Palestine should participate as no European Member State recognised Palestine as a State. Eventually a procedure was agreed, known as the ‘Dublin Compromise’, under which the two sides would each sit as a group without disclosing national affiliations. On this basis, specialised Committees were set up for discussion of a wide range of topics under supervision of a General Commission. The agenda was broad—covering trade integration (Arab countries wanted better access to the Common Market), infrastructure and agricultural projects, as well as cultural and scientific exchanges.Footnote ¹⁵

The pillar that ultimately made most progress was the Financial Cooperation Committee, chaired initially by the UK Treasury. At a meeting of financial experts in Abu Dhabi in December 1975 it was agreed—largely in consequence of Arab pressure—to set up a Sub-Group of the Financial Cooperation Committee with the following terms of reference:

The two sides initially had rather different views on what this meant. ‘Measures’, ‘arrangements’, ‘collaboration’, and ‘joint action’ on investment protection could cover investment insurance and other financial arrangements, investment laws, informal codes of conduct, and investment protection treaties. The UK Treasury feared that even the specific terms of the sub-group could still result in discussions that would ‘ramble very widely’ given the Arab tendency to use the Dialogue mainly for a ‘political purpose, and efforts to develop technical co-operation [were] frequently foiled by a lack of real concern (and information) on the Arab side’.Footnote ¹⁶ The Treasury therefore suggested that the European Commission should prepare a background note on existing BITs of European and Arab members together with a summary of legislative and executive investment protection of non-resident investors. At the first coordination meeting among European experts in July 1976, the Treasury focused on BITs of European and Arab parties and whether it would be desirable to negotiate more such treaties, harmonise their terms or ‘whether there would be mutual advantage in establishing multilateral arrangements in this field and if so, in what form’.Footnote ¹⁷ This last proposal followed a suggestion made by the European Commission in its background note which favoured drawing up a code of good conduct.Footnote ¹⁸

Due to lack of enthusiasm from the UK Treasury, the chairmanship of the Financial Cooperation Committee and its investment protection sub-group was moved from the Treasury to the UK Foreign and Commonwealth Office (FCO). Internally, the Treasury would have liked the entire Financial Cooperation Committee to be shut down. ‘I have a slightly sinking feeling,’ one official noted, ’that this enterprise may prove in the end to be rather time-wasting. It is a feature of the Dialogue that the Arabs press many proposals upon the Europeans and from time to time the latter have to concede on some minor issue for the sake of peace; that is how this proposal came about.’Footnote ¹⁹ The UK sought, however, to show a constructive attitude to the Dialogue as a whole—particularly as it was about to take over the Presidency of the Dialogue.Footnote ²⁰ The FCO had more sympathy for the enterprise and agreed to assume the lead with Eileen Denza, a Legal Counsellor who had led inter-departmental co-ordination of the first UK model BIT, chosen as Co-chairman of the investment protection sub-group before its first European preparatory meeting.

At the first meeting of the sub-group the Arab side was chaired by Jordan's Ambassador to Germany, Denmark, Sweden, Norway, Luxembourg, and the EEC, Nijmeddin Dajani. The Europeans had expected Dajani, an economist by training and the Arab spokesperson for the Dialogue as a whole, to set a broader financial cooperation agenda than ‘the technical subject of investment protection’.Footnote ²¹ But it was made clear that the Arab side favoured a binding multilateral agreement on investment protection and sought some form of joint enterprise for the insurance of investment. The European side was receptive to the proposal of a multilateral agreement, which became the focus of discussions. All members agreed that BITs ‘had proved useful in practice, and in particular that they had helped to improve the investment climate and might have helped to increase the flow of investment between different countries’, but that a multilateral agreement could ‘supplement and fill the gaps in the bilateral agreements’.Footnote ²² It was further agreed to pursue a wide definition of the term investment, to include portfolio investment, short-term investment and monetary claims as in the 1975 Egypt–UK BIT.Footnote ²³ Consideration was also given to measures relating to investment cooperation—which today would fall under the ‘investment facilitation’—such as freer exchange of information about investment opportunities and cooperation among investment insurance agencies.Footnote ²⁴ But from then the main focus was the proposed Convention.Footnote ²⁵

It became clear, however, that while the Arabs wanted ‘the negotiation of some “multilateral agreement” between the EEC and the Arab League on investment protection’,Footnote ²⁶ they had a major interest in protection against monetary risks such as exchange rate fluctuations.Footnote ²⁷ Arab representatives from the General Committee noted in private that protection against monetary risks was their most important objective, whereas the European focus on non-monetary risks was a ‘secondary’ consideration. While accepting that the European proposal could induce further investment into the Arab members, the Arabs also wanted the Europeans to acknowledge that protection against monetary risks would result in further Arab investments in Europe.Footnote ²⁸ The Arabs did not follow up with specific proposals, however, such as a ban on devaluations of currencies in which they held assets (eg pounds) and the Europeans refused to even consider incorporating protection against monetary risks in such a convention. They argued it was beyond the competence of EEC members to discuss and sought guidance from the Financial Co-operation group.Footnote ²⁹ As no further specific proposals were made at that time by the Arabs on this issue, the main focus from then on was a mega-regional investment treaty similar to existing BITs.

This was a major initiative, sharply different from the investment negotiations reflected in agreements in force. First, the move away from bilateral negotiations meant that European and Arab States had to coordinate positions among themselves, thus highlighting national differences in approach. Secondly, there was a real balance of economic interest between the two sides. On the Arab side there were some developing States, and initially the Arab group considered it ‘unreasonable to expect reciprocity of treatment in the investment field, in view of disparities of economic development; [arguing that] it is unrealistic to expect from them the same undertakings in regard to European investment as they seek from us’.Footnote ³⁰ But there were also oil-rich States, such as Saudi Arabia, which held extensive investments of many kinds— property, shareholdings, loans and bonds—in Europe. These States were highly conscious of the risks of political interference by governments as well as currency fluctuations and were represented by experienced financial negotiators. Negotiations with the Arab League therefore were bound to be different from traditional ‘North–South’ negotiations as both sides sought ‘strong’ investment protection. European States would have to give closer consideration to possible liabilities arising from such an agreement, whereas most of their existing BITs were with States with negligible outward investment flows. The UK, in particular, had strong reasons to consider the implications of the treaty as most Arab investment in Europe was in the UK—so-called ‘petro-dollars’—while the UK had no comparable investment in Arab States.Footnote ³¹ An additional challenge was that much Arab investment came from governments as well as government-controlled agencies—something not traditionally covered by European BITs.

An initial complication was to determine who the parties to any treaty would be. The Arabs suggested an agreement between the Arab League and the EEC. The European Commission claimed competence to become a Party to any agreement on the basis of Article 113 of the EC Treaty (the provision which from the outset had given the EEC competence for its common commercial policy). Article 113, however, implied an exclusive competence for the EEC (thereby eliminating participation by Member States) and was strongly resisted in this as in many other contexts where the Commission sought to enlarge the scope of Article 113. The idea of joint EEC investment protection agreements were being discussed at the time, for instance in the context of mining investments, and some European States—like Italy and Belgium—thought ‘the conclusion of such agreements at a Community level would be more effective than national arrangements’.Footnote ³² By contrast, France, Germany, and the UK were strongly opposed to allowing their experience to be replaced by Commission negotiators who had at that time no direct experience in the field, and so the idea of EEC exclusive competence over a Euro–Arab investment treaty was firmly rejected. As regards the Arab League, Arab lawyers conceded that the League had no internal or external competence on investment protection.

If any convention was to be concluded among States, this raised the separate problem of how Palestine could become a Party.Footnote ³³ To resolve this, Denza suggested, and explored in London, the idea that instruments of signature and ratification might be deposited in either of two capitals—Brussels, where the EEC Member States would sign, or Cairo, then the headquarters of the Arab League, where the Arab States together with Palestine would sign. This followed the precedent first used in 1963 for the Partial Test Ban Treaty—where instruments might be deposited in London, Moscow or Washington so as to enable East Germany, North Vietnam and other entities not then generally recognised as States to become Parties. Palestine was a Member of the Arab League, so that it was believed that deposit of an instrument by it in Cairo would not be challenged there on grounds of non-recognition.Footnote ³⁴ This procedure was not initially rejected outright (though it was challenged at a later date).

At this point when European experts began to pool their experiences of negotiating BITs, Germany—which concluded its first BIT in 1959 with Pakistan—was party to the largest number, with France and The Netherlands some way behind. The UK entered the field later - mainly in response to challenges from developing countries such as the General Assembly Declaration and Programme of Action on the Establishment of a New International Economic OrderFootnote ³⁵ and the Charter of Economic Rights and Duties.Footnote ³⁶ There was however a shared approach to the basic issues and there had already been a degree of cross-fertilisation and common sources,Footnote ³⁷ so it was not difficult to agree on the outlines of a European model BIT to present to the Arab side. The European co-ordination meetings were also helpful in providing information and sharing experiences.

III. The Negotiations

Negotiations alternated between Brussels and the Arab League Headquarters – initially in Cairo. The European Commission was represented throughout and gave administrative support but was otherwise given a subsidiary position by the European Member States, who sent a first text on investment protection principles in 1977. The Arabs sent their response in August the following year, and a number of potential stumbling blocks were resolved a few months later at the November 1978 Cairo meeting.Footnote ³⁸ In particular, the document was to include:

• • A definition of investment that was ‘broadened to the maximum extent’.

• • Coverage of all investment, existing and new, though each State should retain the right to regulate the admission of new investment.

• • A general clause according to which each Party ‘would do its best both to promote and to protect other Parties’ investments; consistently with national economic policy’.

• • National and most-favoured-nation treatment, though with exceptions (including concessions granted in the framework of a customs/economic/monetary union or free trade zone; portfolio investment; taxation).

• • The right to review of the legality of any taking and of the valuation, by an independent judicial or administrative authority in the host country. Compensation should reflect the market value of an investment, assessed immediately before the expropriation or public knowledge of it, be paid without delay and be fully transferable.

• • Free transfer of payments and all income from an investment with exceptions for exceptional balance of payments difficulties and, possibly, sudden withdrawal of all investments.

• • Provision on subrogation.

• • Binding dispute resolution. Inter-state disputes should be referred to an arbitral tribunal and investor-state disputes ‘should also be referred to some form of international arbitration’.

Moreover, the provisions ‘should be considered in principle as minimum treatment’, and the more favourable provision for the investor should prevail in case of conflict with other bilateral agreements. Issues for future discussions included the relationship between national treatment and requirement for payment of compensation in the event of requisition or destruction not caused by the necessity of the situation. Importantly, there was also no agreement on whether reference to ICSID and its additional facility rules should be compulsory, and there was also to be further discussion of a possible non-judicial dispute settlement mechanism in the form of a Committee. But the skeleton of a mega-regional Euro–Arab investment treaty was emerging, and this only a few years after the Declaration for the Establishment of a New International Economic Order.

On this basis, the European side proceeded to formulate a draft convention ‘drawn up on the same lines as the usual type of bilateral investment promotion and protection agreement’.Footnote ³⁹ Although European States had a shared approach and common sources, this was ‘an exhausting’, and ‘at times acrimonious’, exercise for the EEC members.Footnote ⁴⁰ Nevertheless, by early 1979, a draft was forwarded to the Arabs.Footnote ⁴¹

Political events then put discussions to a halt as all Dialogue activities were suspended following Egypt's expulsion from the Arab League in the wake of the Camp David Agreement. Later that year, the League moved its headquarters to Tunis and sought to renew the Dialogue. Europeans accepted, but the Arab side wanted to shift the focus back to broader geopolitical political questions—including reviving demands for recognition of the PLO.Footnote ⁴² The Europeans rejected this, so although the Dialogue formally restarted, limited progress made one Arab delegate call it ‘nothing but a hoax’ that was ‘at a complete standstill’.Footnote ⁴³ For the Europeans, on the other hand, ‘the burden of failure to make any progress lay with the Arabs’.Footnote ⁴⁴ Either way, the broader objective of using the Dialogue as a major political and economic integration effort had by 1981 lost all momentum. The proposed trade agreement had stalled,Footnote ⁴⁵ and few expected any tangible successes. The major exception was the investment treaty.

The Financial Cooperation Committee, chaired by Germany, took over the Investment Protection Sub-Group. Dr Hans-Martin Burkhardt, an experienced investment protection negotiator from the Department of Economic Affairs in Bonn became European Co-Chairman, while Eileen Denza for the UK became European Rapporteur and worked closely with Dr Burkhardt. In terms of forming a collective position, however, the Arab League States were actually somewhat ahead of the Europeans. More than half of all South–South BITs from 1964 to 1986 were among Arab League members and in 1980, during the Eleventh Arab Summit Conference in Amman, agreement was reached on the Unified Agreement for the Investment of Arab Capital in Arab States, which entered into force on 7 September 1981.Footnote ⁴⁶ The Arab position in the Euro–Arab talks was closely based on this agreement, which gave extensive protection to government as well as to private investment as well as a guarantee that investment might be transferred out of a host country at any time. As in European BITs there were tight limits on expropriation and provision for compensation for the investor at fair market value. In 1985, the Arab League Agreement was further complemented by establishment of the Arab Investment Court.

There was no equivalent intra-EEC treaty, and the Europeans still had to address a number of critical questions. The position of the European States on Article 113 as the base for EEC participation had not changed.Footnote ⁴⁷ The Europeans were, however, content to allow the EEC to become a Party to any agreement along with its Member States and a different legal base for a mixed agreement was identified—the financial stake held by the European Investment Bank in several developing Arab States

Secondly, and much more difficult, was the UK demand to follow two aspects of its then model BIT. Most contentious was the transfer clause. The Treasury in particular, but also the Bank of England had ‘always attached the greatest important [sic] to maintaining our freedom to introduce exchange controls’.Footnote ⁴⁸ They were scarred by the experience of the so-called ‘Kuwait gap’, where tens of millions of dollars were lost during the 1950s through evasion of exchange controlsFootnote ⁴⁹ and strongly resisted the provision favoured by Germany and others entitling investors to free transfer to any other State of their investment and returns from it. Other European States saw no problem in permitting exchange controls to be imposed in exceptional financial or economic circumstances, but resisted proposals to limit the free transfer guarantee to the country of residence of the investor. Imposing exchange control restrictions on a basis of residence was seen as particularly important in the context of this Agreement given the inclusion of Saudi Arabia, Kuwait, and Qatar. The trouble for the UK, however, was ‘that none of our EC partners like our formula’.Footnote ⁵⁰ This became the largest obstacle to a joint European position, as the UK position was seen as ‘far too weak’ by European partners who expressed concern about the precedent it would set for future BITs.Footnote ⁵¹ Germany was particularly fierce in its opposition. UK negotiators noted that the ‘champion of a right for the investor to free transfer without limit is Germany.’Footnote ⁵² Dr Burkhardt was supported by most European Member States in making sure the draft followed the German, rather than UK, model BIT on this.Footnote ⁵³ Consistently with the Unified Arab Agreement mentioned above, the Arab side sought to entitle investors to free transfer of their capital and income from it without any restriction as to destination. This would secure the Arabs’ considerable portfolio investment in Europe (‘petro-dollars’).Footnote ⁵⁴ But the UK persisted, and in September 1981 the Europeans told the Arabs that this intra-European discussion remained unresolved.Footnote ⁵⁵

Another sticking point was that UK law had a few cases of nationality-based tax discrimination, and therefore sought to exclude taxation from non-discrimination provisions. UK BITs excluded taxation entirely—on the basis that it should be dealt with in double taxation agreements negotiated between experts in national tax laws. The Arabs should have agreed. Nationality-based tax discrimination was integral to the Saudi and Kuwaiti tax systems, for instance, as foreigners were subject to income tax whereas nationals were subject to (much lower) zakat.Footnote ⁵⁶ But to the surprise of London, the Arab side suggested that most-favoured nation and national treatment provisions should apply to taxation, something UK officials expected must be a mistake as it would ‘seriously inhibit the operation of their income tax laws’.Footnote ⁵⁷ Other European States, however, wanted to keep tax exceptions to national treatment to a minimum.

One UK official explained the situation thus:

These two issues notwithstanding, the Europeans could present a joint draft to the Arab side by 1981 with agreed text on almost all provisions. This also served a broader political purpose as the draft was explicitly used ‘as evidence of European interest in progress’ for the Dialogue as a whole.Footnote ⁵⁹

Europeans expected that the Iranian revolution had made clear to the Arabs ‘that investment protection was a real problem for them too’.Footnote ⁶⁰ But internally they accepted that the 1981 draft ‘would probably benefit the European side more than the Arabs’.Footnote ⁶¹ Although precision on stocks controlled by Europeans in the Arab region was not available, minority shareholding in a wide range of industries across the region was considerable and the expectation was that the protection of minority shareholdings would be considered helpful by ‘particularly large companies like Shell and RTZ’, and the agreement would be ‘much more of a sacrifice of their [Arab members] “national sovereignty” than for the European side, because the gap between how some of them treat investors and the provisions of the Convention is much wider’.Footnote ⁶² Yet, at the September 1981 meeting, the Arab side made clear that they also wanted the treaty ‘finalized as soon as possible’Footnote ⁶³ and with as little ‘fuss as possible’. The Saudis even said they would use aid flows to other Arab members ‘as a lever to exert pressure on these to sign and ratify promptly’.Footnote ⁶⁴ This referred to Libya and Syria, described as using the technical negotiations ‘only with the object of sabotage’.Footnote ⁶⁵

Important problems however remained. First, a large proportion of Arab investment in Europe—bonds, loans, real property and shareholdings—was held by Arab States or by government agencies, and the Arab side sought to include this investment in the guarantees to be provided. The controversy over foreign sovereign investment is not only a recent phenomenon. European public opinion had been alarmed over construction by Kuwait of a high-rise block in the Défense area of Paris and Arab stakes in firms like Fiat and Krupps.Footnote ⁶⁶ European BITs were typically silent on whether they covered only investment by private individuals or bodies—and some of the provisions giving rights to private investors were not appropriate for government-owned investment. An updated draft sent to the Arab side in March 1982 included investment by government agencies separate from the State itself, but the Europeans argued that to extend the Agreement to sovereign State Parties would raise difficulties due to the special status of States, and in particular the rules on restricted State immunity already applied by European States. These rules—given effect in the 1972 European Convention on State ImmunityFootnote ⁶⁷ to which several EC States were Parties—appeared to surprise Arab States. Privately, however, the European side accepted that if no provision was made for sovereign State investment, there would be a significant imbalance in any agreement.Footnote ⁶⁸ The German Chairman Dr Burkhardt admitted that the Europeans’ line of defence on this point was ‘really little more than a smoke screen’, and the UK noted that ‘the technical problems are not in fact insuperable given a genuine will on both sides’.Footnote ⁶⁹ To help the Arabs, a preliminary suggestion was made to consider a declaration on favourable treatment and non-discrimination against government investment.

Secondly, the Arabs sought to ban freezing of an investor's assets for political reasons. European members resisted express provision to this effect. Should the Arab countries resort to the ‘oil weapon’, for instance, Europeans wanted to be able to freeze Arab assets in self-defence.Footnote ⁷⁰ The UK was again particularly concerned, as it had recent experience of freezing in the context of Iran and of Argentina at the time of the latter's invasion of the Falkland Islands.Footnote ⁷¹ But the Europeans had some sympathy for the Arab proposal, and at the 1982 joint meeting it was accepted that this was a highly political issue which could only be resolved in the context of overall agreement on a Convention.

The Arabs made other suggestions which were seen as less important. First, in the 1978 meeting, initial discussions about ICSID—to which not all members of the Arab League were party—had shown that the Arabs preferred an entirely voluntary provision on investor–State arbitration.Footnote ⁷² The Arabs later accepted binding arbitration, but it is notable that there was not much discussion of the possible implications of investor–State arbitration in the records. One reason could be that investor–State arbitration was available in the 1980 investment treaty among members of the Organization of the Islamic Cooperation (OIC)—with considerable overlap in membership with the Arab League.Footnote ⁷³ In 1982 the Arabs proposed a requirement for exhaustion of local remedies before investors could access international arbitration, claiming this better reflected customary international law, but the proposal was rejected by Europeans on the grounds that practice was ‘now moving in the direction of providing swift and effective forms of international arbitration’.Footnote ⁷⁴ The Arabs conceded the point, perhaps because the OIC treaty had no exhaustion requirement. They also continued to resist excluding taxation, to the frustration of the UK.Footnote ⁷⁵ Yet, by November 1982 taxation experts had finally convinced other Europeans—even Germany—of the UK position that taxation should be excluded from the non-discrimination provisions.Footnote ⁷⁶ The Arabs conceded this as well, acknowledging that their proposal went against tax laws of several Arab League members.

On the European side, more than 50 proposals had to be discussed among the European partners in 1982, mostly from the French, Belgians, Dutch, and Germans.Footnote ⁷⁷ Two French concerns in particular became the subject of discussion. A forthcoming French Nationalisation Law—criticised by the Conseil d’État as not being justified by ‘public necessity’—made the French question provisions on review of legality of expropriation and of valuation. The French also sought to exclude earlier disputes from the Convention as it had a list of long-standing and unsettled disputes with Morocco, Tunisia and Algeria.Footnote ⁷⁸ The former point was not accepted by the other Europeans, but France prevailed on the second point and the Arabs accepted this in November 1982.

Negotiators now saw the Convention as ‘ripe to be pushed to conclusion’,Footnote ⁷⁹ and in December the following year there was a high-level meeting in Athens of the General Committee of the Dialogue to take stock of both the political and economic aspects of the work. The draft Convention featured strongly among the successes achieved by the economic side of the Dialogue. In the absence of substantial movement on the political aspects of the Dialogue, however, the Athens meeting barely addressed the outstanding issues.

By 1985, differences had been reduced to a few which could be resolved only by compromise at the political level. The Arabs still insisted that the Convention should ban freezing of investment unless taken in application of judicial measures (Article 5(3) in 1985 draft in Annex). They did not accept a European proposal for an Article permitting reservations to the Convention—even though limited to the transfer clause (Article 13 of 1985 draft).Footnote ⁸⁰ The UK Treasury insisted that if a reservation to the transfer clause was not accepted, they would rather abandon the agreement as offering ‘little to the UK’.Footnote ⁸¹ The Treasury even inquired with the FCO what would happen should the UK sign the Convention but ignore an adverse international arbitration award (‘FCO please advise on consequences of ignoring a decision against us here…’).Footnote ⁸²

As to potential Parties, the Europeans now strongly favoured a mixed agreement to which the European Community would become a Party along with its Member States on the basis of its holding investments in Arab States through the European Development Fund. The Arab side sought reciprocity on this—but the Europeans continued to resist the possibility of the Arab League becoming a Party since it had neither treaty-making capacity nor any basis of external competence. They were, however, open to participation by Arab bodies with appropriate legal capacity, such as the Arab Monetary Fund (square-bracketed proposal in Article 14(5) of the 1985 draft). This draft opened participation to ‘States Members of the Arab League’ and required instruments to be deposited both with the EEC Council and the headquarters of the Arab League—so excluding Palestine. Finally, and critically, the Arabs accepted inclusion of natural resources, and the Europeans allowed express inclusion of government investment (together with clarification that international law rules on State immunity should apply—Articles 1(d)(iii) and 2 of the 1985 draft).

The Convention was now close to agreement. And although the broader Dialogue stalled during the 1980s, it was in retrospect 1985 where the negotiations came closest to success. The year after, new EEC members Spain and Portugal would join any talks, which would probably cause delays,Footnote ⁸³ and the technical work had gone as far as was possible without a political push towards conclusion. A ‘denial of benefits clause’ had been drafted to exclude investments controlled by nationals of third States with which the denying State had not entered into diplomatic relations (Arab members were concerned mainly with possible control by Israeli nationals).Footnote ⁸⁴ The only remaining sticking points were the Arab concerns on freezing of assets and reservations to the transfer clause,Footnote ⁸⁵ both of which would require discussion at political level. In seeking guidance from Near East and North Africa Department and from European Communities Department (External), Eileen Denza set out the position thus:

The Arab States, under their new Co-chairman Dr. Osama Faquih, Saudi Arabian Deputy Minister for International Economic Cooperation, also wanted the agreement concluded but said this required political movement from the Europeans. During 1986, however, unrelated developments cooled the political climate between Europe and the Arab States. In April the UK and some other EC States offered support for the US bombing of Tripoli and Benghazi— claimed to be an exercise in self-defence following Libya's terrorist activities and in particular the bombing of the La Belle discotheque in Berlin which caused deaths and injuries to US servicemen. Several months later the UK broke diplomatic relations with Syria—making public its evidence that Syrian Embassy diplomats in London were involved in an attempt to sabotage an El Al aircraft by smuggling a bomb on board carried by an unwitting Irish passenger who believed she was travelling from Heathrow to Israel to join her Syrian boyfriend (later convicted and jailed for his part in the conspiracy). Libya and Syria were, of course, the two States earlier identified as having no genuine interest in the promotion or protection of Euro–Arab investment. Although both the European and the Arab States were divided over the issues involved, there was no overall political warmth pushing the Euro–Arab Dialogue towards conclusion of a major inter-regional deal.

In December 1989, the French Presidency made a determined effort to relaunch the Dialogue by convening a Ministerial Conference in Paris, followed by a meeting of the General Commission in June 1990. Any hope of progress on investment protection, however, was again overtaken by political events—in particular the invasion of Kuwait by Iraq and the subsequent military action to liberate Kuwait. The Euro–Arab Dialogue and the draft Investment Protection Convention ran into the sands and over time were largely forgotten.

IV. Discussion

Looking back over the Euro–Arab investment negotiations, a number of familiar themes stand out. First, and critically, the negotiations were explicitly seen as setting a precedent for future investment protection rules and, possibly, a worldwide investment treaty. From the European side, the negotiations were seen less as a benefit for specific European firms, and more as part of a broader effort to strengthen customary international law standards against the New International Economic Order: ‘If we can get the Arabs on board, then, in terms of economic weight, a major part of the developing world will have endorsed European views on the promotion and protection of investment.’Footnote ⁸⁷ The Europeans were particularly gratified by Arab acceptance of compensation at market value, which could set an important precedent in broader international debates.Footnote ⁸⁸ UK lawyers praised the text as showing ‘classical rules on compensation and non-discriminatory treatment being accepted by a wide cross-section of developed and developing States’.Footnote ⁸⁹ Broader standard-setting is a core argument in favour of mega-regional investment treaties in the twenty-first century, but it is not a new argument.

Secondly, like OECD's Multilateral Investment Agreement (MAI) in the following decade, this was an effort led mainly by mid-level officials in capital-exporting States with similar views about the principles and rules that should govern foreign investment protection. The technical obstacles were largely overcome—if sometimes helped by unrelated developments. But as with the MAI, the exercise ultimately lacked the necessary support at senior political levels to push the agreement to a conclusion.Footnote ⁹⁰ Negotiators believed that the talks were not so different from bilateral BITs which, once a text was completed, could await some high-level visit enabling Ministers to take the credit. But negotiations among capital-exporting States are more difficult, as has become clear in recent years, and once it became clear that a determined initiative at the political level would be a prerequisite for completion, the project stalled—as with the MAI (although there the controversy was caused by the investment rules themselves).

Third, the fact that the negotiations faltered so close to the finish did not lead to objections from the European or Arab business community. There was never much business interest in the negotiations in the first place—apart from an early proposal from UNICE to sit in on negotiations. This is similar to BIT negotiations at the time.Footnote ⁹¹ Although UK investors held most assets in the Arab region, the UK files include hardly any reference to input, or even interest from European firms in the Convention,Footnote ⁹² and as with the failed MAI the business cavalry never arrived to save the day for the Euro–Arab Investment Convention.Footnote ⁹³

Finally, it is interesting to consider the issues and provisions given most attention. Consider the investor–State arbitration clause. Given the truly reciprocal nature of the negotiations, with investment protection sought by both sides,Footnote ⁹⁴ it would almost certainly have resulted in investor–State claims against both European and Arab States. Dispute settlement under the ICSID Convention had barely begun at the time, of course, but it is still noteworthy just how little the investor–State arbitration provision featured in negotiations. When European parties discussed possible costs and benefits of the Convention, one does not find reference to arguments about the need to ‘de-politicise’ investment disputes, for instance, or discussions about the risks of offering broad and binding consent to international investor–State arbitration even in disputes involving sovereign investors. While today international arbitration has proved the most important component of the investment treaty regime, early negotiators saw the treaties mainly as constraints on government behaviour and guidance for diplomatic resolution of investment disputes.Footnote ⁹⁵ There was also little attention to provisions which have later proved crucial in investor–State arbitration; most notably those on fair and equitable treatment and indirect expropriation. By contrast, considerable effort was spent on concerns about exchange control, which were led by the UK Treasury even though the UK had actually abandoned exchange controls in 1979. Negotiators could hardly have predicted the far-reaching interpretations by arbitrators of vague provisions such as fair and equitable treatment, but the Euro–Arab negotiations do illustrate the gap between the focus of investment law in the 1970s and 1980s and that of recent decades.Footnote ⁹⁶ A notable exception is sovereign investment, which was—not surprisingly—crucial. Western negotiators had to strike a balance between welcoming sovereign investment, as an important source of finance, while also ensuring a level playing field between government-owned and private investors. What sometimes seems a cutting-edge issue in the modern investment treaty regimeFootnote ⁹⁷ was at the centre of the Euro–Arab negotiations during the 1970s and 1980s.

V. Conclusion

The Euro–Arab Dialogue produced an almost complete draft of what would have been the first mega-regional investment treaty. It would have remained one of the most important investment treaties to this day. The treaty could also have had broader political implications. As with modern mega-regionals, the negotiations were never just about investment protection but were part of a broader geopolitical attempt by both sides to address deeper socio-economic and diplomatic challenges. While few investors showed interest in the talks, the broader political objectives were clear. In contrast to recent years, however, where investment protection talks have complicated mega-regional negotiations, the draft Euro–Arab Investment Convention was one of the few tangible measures of progress from the Dialogue. Like most BITs negotiated at the time, the negotiations attracted little public attention or public scrutiny, but its conclusion could have provided a small but significant platform for further inter-regional cooperation.Footnote ⁹⁸

The treaty could also have had an impact on investment policies within the two regions. The European team was not led by the European Commission, in view of the lack of exclusive EEC competence, but they were a sustained effort among European Community members to negotiate a joint investment protection treaty. This experience was carried over to the separate negotiations for a new Lomé (and later Cotonou) Convention with provisions which did come into effect.Footnote ⁹⁹ Had the Euro–Arab agreement been finalised, it is likely that it would have prompted further European initiatives on international investment protection earlier than in fact happened.Footnote ¹⁰⁰ Whatever the ‘alternative histories’ of the investment regime had the agreement been finalised, this review has shown the potential importance of a major negotiationby some of the largest capital-exporting States in the world and which at the time seemed to be within a hair's breadth of completion. Whether the Arabs would have concluded the Convention without some grand concession from Europe is unclear, but the decade-long negotiations could very well have helped greater alignment on drafting of investment treaties across and within the two regions.

In retrospect, one of the most interesting aspects of the negotiations was the initial discussion between European and Arab States on their objective. Cooperation on investment insurance was at first a major objective for the Arabs, and it is worth recalling that at the time investment insurance was seen not just as a complement but also a possible substitute for investment protection treaties and investor–State arbitration.Footnote ¹⁰¹ And the Arabs initially sought to include protection against monetary risks such as currency fluctuation, which the Europeans did not see as controllable by treaty rules. The foundational nature of these early discussions is important. Observers of the investment treaty regime often see current arrangements as the result of a linear and inevitable historical development, but this is misguided. The regime has been shaped by choices made under uncertainty and where alternative institutions and treaty designs were possible. Current controversies over the direction of the investment treaty regime have reopened foundational questions that were prominent at the time of the Euro-Arab talks — ‘Why investment treaties, and what are they for?'.