Challenging “Buy National” Clauses under BITs

(Bridges Monthly – Marie Wilke)

The ‘buy national’ clauses that numerous governments have included in their economic stimulus packages are causing growing concern. For many developing countries, bilateral investment treaties may be the best option for legal recourse against such provisions.

Despite their likely trade-distorting effects, buy national requirements appear to be consistent with WTO rules on trade in goods and services (the GATT and the GATS), although they may well breach commitments made under the plurilateral Government Procurement Agreement (GPA). The GPA, however, applies to signatories only, which leaves the many developing countries that have refrained from joining the agreement without a possibility for legal recourse. For emerging markets, such as Argentina, Brazil and India, this causes major distress.

Turning away from the multilateral trading system, about 2,800 bilateral investment treaties (BITs) that provide for investor-state arbitration in international fora, such as the International Centre for the Settlement of Investment Disputes (ICSID), might serve as a basis for legal challenges. It is conceivable that investors engaged in the importation of products manufactured abroad, possibly even directly involved in bidding processes for government procurement contracts, will challenge buy national clauses under bilateral investment agreements with reference to (i) the substantive assurance of national treatment and (ii) the general principle of fair and equitable treatment. Read more here.