Multijurisdiction: Part I of a Trilogy - Investment treaty protection and COVID-19 driven state intervention

In brief

States around the world have adopted measures in reaction to the unprecedented nature and scale of the COVID-19 pandemic to curb the spread of the virus, ensure healthcare systems are not overrun and, more recently, balance reviving the economy and keeping control of the virus. These wide-ranging and far-reaching measures are not without consequences, particularly on foreign investments. 

We highlight examples of measures that may have the potential — and for some have already started — to give rise to claims under investment treaties.
 


Suspension of activities

Many states have temporarily suspended the activities they deemed nonessential. Ukraine suspended all nonessential commerce. Italy shut down all businesses, save 'strategic' ones. South Africa closed bars, nightclubs and prohibited sale of alcohol. Others have taken measures to change the normal course of some activities. France postponed payment of water, gas or electricity bills and rents for small firms. Singapore suspended contractual obligations under a range of 'scheduled contracts'. Russia adopted a law entitling the government to set maximum prices for drugs and medical devices. In South America, Peru adopted an emergency law suspending the collection of tolls on roads under concession to facilitate the transport of essential goods; which a road concessionaire has already branded as an "unconstitutional measure." Two French airport operators threatened proceedings against Chile as a result of the closure of flight routes and additional sanitary measures in Santiago's international airport. 

Restrictions on foreign investments in strategic areas

The pandemic has also caused several states to restrict foreign investments. In France, a decree added "biotechnologies" (possibly including research for COVID-19 vaccine) to the list of critical technologies where a foreign investment needs a prior government authorization. The US Committee on Foreign Investment was also given greater powers to limit foreign investments in the health and pharmaceutical sectors, as well as those that may threaten supply security. The UK is introducing the National Security and Investment Bill to expand the government's existing powers to review transactions concerning foreign control of national businesses in "sensitive" sectors. 

Nationalization of businesses or compelling them to manufacture specific goods

To tackle the pandemic, some states have nationalized businesses. Spain, for example, nationalized all of its private hospitals and healthcare providers overnight, and their facilities were requisitioned for patients specifically suffering from COVID-19. The US government used its power under the Defense Production Act to compel companies (General Motors, General Electric, Medtronic and 3M among others) to manufacture medical items that were in short supply, such as personal protective equipment, ventilators and hospital beds. 

Broader government intervention during state of chaos

The chaos and disruption of the pandemic has sometimes been used as an opportunity to introduce drastic measures. Mexico adopted two energy policies that were said to be in response to the fall in energy demand caused by COVID-19. The policies have had the practical effect of curbing renewable energy production by suspending all testing on solar and wind farms, giving enhanced grid access to non-renewable electricity generators, and strengthening the Federal Electricity Commission's role in electricity planning. In response, several investors are reportedly considering bringing a claim against Mexico amid a doubt over the motive of these measures. Similarly, an investor brought an SCC arbitration against Moldova, accusing the state of using the pandemic to cancel its concessions to operate the country's main international airport. An SCC emergency tribunal has recently restrained the state from terminating the concession. 

Next time we will tell you more about the actions investors can take to enforce their rights.

Related alert:

Multijurisdiction: Part II of a Trilogy - Investor claims in response to the State's protective measures


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