In spite of the political instability and violence experienced in the last few years, Ethiopia remains an important destination for foreign investment, including for those originating in the United States. The country, which according to UNCTAD Rep 2024 (p. 16) is the second top recipient of foreign investment among Least Developed Countries (LDCs), has certainly a huge potential considering inter alia a population of 120 million (the second largest in Africa), the programme of reforms and privatisation underway, the strategic location in the Horn of Africa, and untapped sectors, including telecommunications, agribusiness, green energy, pharmaceutical and banking. This holds true even if, from an international trade perspective, Ethiopia has lost its AGOA beneficiary status (effective as from 1 January 2022).
Ethiopia has attracted investments from US corporations, including PepsiCo, Coca-Cola, General Electric, Cargill, Caterpillar, Boeing, Dow Chemicals. Yet, there is currently no bilateral investment treaty (BIT) the between the two countries. There is instead the Agreement Between the United States of America and the Common Market for Eastern And Southern Africa (COMESA) Concerning the Development of Trade and Investment Relations concluded and entered into force on 29 October 2021. The agreement is largely hortatory and has established the Council on Trade and Investment, whose functions are limited to promoting and facilitating the flow of foreign investment in the area.
As a matter of treaty law, therefore, the Treaty of Amity and Economic Relations (206 UNTS 60), concluded at Addis Ababa on 7 September 1951 and entered into force on 8 October 1953, remains the most important legal instrument governing the protection of investments made by US companies in Ethiopia. It replaced the earlier Treaty of Commerce signed at Addis Ababa on 27 June 1914 and has been concluded in Amharic and English texts, with the latter text prevailing in case of discrepancies.
The treaty is representative of those concluded mostly at the time of the League of Nations, under different denominations (frequently called Treaty of Friendship, Commerce and Navigation), in order to promote the economic relations between States as well as to protect the respective nationals. Their contents varied significantly as they typically covered a variety of issues ranging from protection of persons and property to regulation of commerce, from freedom of worship to compulsory military service, or from navigation to consular relations. Yet they may be considered the precursors of modern investment treaties for they normally provided for some rudimentary protection of the nationals of the parties and their property.
The treaty between the US and Ethiopia is one of the most sophisticated of these treaties. Its importance goes beyond the historical interest, not only because it is still applied, but also for the interesting analogies and differences with subsequent investment treaties. To start with, the scope is broader than standard investment treaties – and bilateral investment treaties (BITs) in particular – as it includes diplomatic and consular relations as well as the treatment of individuals. As far as economic relations are concerned, the preamble accords a predominant place to the encouragement of “mutually beneficial investments and closer economic intercourse between [the] people” of the two countries. Apart from this rhetoric, however, the main focus of the treaty was to provide a favorable, stable and clear legal framework for American companies – in particular the Sinclair Petroleum Company, that had obtained concessions to explore for and produce petroleum throughout all Ethiopia, – as is clear from a Policy Statement of the State Department dated 1 March 1951 (V Foreign Relations of the United States 1951, 1238).
Not surprisingly, the treaty does not contain any provision on investment-State arbitration. Instead, Art. XVII confers jurisdiction on the International Court of Justice (ICJ) to settle disputes concerning the interpretation and the application of the treaty.
A comparison with standard BITs reveals a surprising set of analogies. Art. VIII is the key provision and is quite remarkable for several reasons. It reads:
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Each High Contracting Party shall at all times accord fair and equitable treatment to nationals and companies of the other High Contracting Party, and to their property and enterprises; shall refrain from applying unreasonable or discriminatory measures that would impair their legally acquired rights and interests; and shall assure that their lawful contractual rights are afforded effective means of enforcement, in conformity with the applicable laws.
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Property of nationals and companies of either High Contracting’ Party, including interests in property, shall receive the most constant protection and security within the territories of the other High Contracting Party. Such property shall not be taken except for a public purpose, nor shall it be taken without the prompt payment of just and effective compensation.
Art. VIII(1) anticipates the obligation to ensure investors fair and equitable treatment (FET), which become one of the cornerstones of modern investment treaties and the most litigated treaty provision alongside expropriation. It also linked the obligation to refrain from applying unreasonable or discriminatory to the legal protection of acquired rights, which was proclaimed inter alia in the UN General Assembly resolution 1803 (1966). Interestingly, the legal protection of acquired right was lately challenged by developing States, especially with regard to international contracts, in the context of the establishment of a New International Economic Order. Furthermore, Art. VIII(1) extended the treaty protection to contractual rights in what could be considered an ancestor of umbrella clauses, although it does not pave the way to international arbitration for alleged breaches of the obligation incumbent upon States. More modestly, it assures that investors could resort to effective means of enforcement at the domestic level.
Under Art. VIII(2), States are bound to protect investors and in case of expropriation, which can occur only for public purpose and against prompt, just and efficient compensation. Although it does not expressly mention respect of due process and non-discrimination as requirements for lawful expropriation, Art. VIII(2) is aligned with the Hull formula, an element which must be stressed given the fact that expropriation remained for decades one of the most controversial issues of international law, see US Supreme Court, Banco Nacional de Cuba v. Sabbatino.
With regard to the contingent standards of protection of investors, namely national treatment (NT) and most-favoured-nation treatment (MFN), the treaty confines their scope to specific issues, more precisely access to courts (Art. VII.2), hiring of personnel (Art. VIII.5), taxes fees (Art. X.1), and return of profits (Art. XI.3). Traditional investment treaties normally provide for the application of those standards to all relevant provisions contained in those treaties. Interesting, recent treaty practice reveals a return to the limited approach adopted in the treaty under discussion, as in the case, for instance, 2015 Indian Model BIT.
An assessment of the relevance of the treaty under discussion must distinguish the substantive and procedural dimensions. With regard to substantive provisions, the treaty remains highly significant despite its age as it embodies provisions on the two most important issues (FET and expropriation) comparable to traditional BITs. Perhaps surprisingly, the FET clause offers investors a much better protection than some most recent investment treaties, including the EU – Canada Comprehensive Economic and Trade Agreement, which have drastically squeezed the standard. As far as expropriation is concerned, investors cannot certainly complain. The fact that Art. VII(2) does not expressly mention non-discrimination and due process should be without consequences as both requirement are considered as applicable as customary international law. Investor must however be aware that Ethiopian Investment Law (Proclamation No. 1180/2020), while reiterating the requirements of public interest, due process and non-discrimination, provides for “adequate compensation corresponding to the prevailing market value.” It remains to be seen how the treaty and the legislation will be applied.
From the standpoint of States, furthermore, the treaty remains silent on the exercise of regulatory powers. The inadequate protection of such powers has been one of the main cause of criticism of traditional investment treaties. In recent practice, States have almost systematically reasserted their regulatory powers in different ways, including special and general exceptions as well as increasingly sophisticated provisions on indirect expropriation.
As far as the remedies are concerned, the protection of investors offered by the treaty is clearly unsatisfactory compared with the access to investment arbitration normally granted in investment treaties. Investors must therefore vindicate their rights before domestic tribunals and possibly seek diplomatic protection. In the case of contractual rights, they are entitled to effective means of protection, which inter alia means, as held in White Industries Australia Limited v. India, relying on Chevron Corporation and Texaco Petroleum Company v Ecuador, that States have an obligation to establish a proper system of laws and institutions which works effectively in any given case and that such obligation is to be measured against an objective, international standard (1.3.11, lett. (b) and (f) respectively).
Finally, it remains to be seen whether States will resort to the jurisdictional clause to bring investment disputes before the ICJ, a traditional unlikely course of events. Such a possibility, nonetheless, could be an incentive to comply with the obligations imposed by the treaty.
In conclusion, it is clear that the treaty, far from having only historical interest, is still highly relevant. While the remedies are certainly weaker than in most modern investment treaties, the substantive provisions offer quite a solid protection to investors. On the contrary, the treaty does not adequately safeguard the regulatory powers of the States. It is up to the States themselves to consider amending the treaty, or even replacing it with a new one.
