Corporate investors’ nationality and reforming investment treaties: Can older-generation treaties undermine substantive reforms?

Scrolling through the UNCTAD investment dispute settlement database, one can detect—even without reading the awards or decisions—that some businesses publicly known to be corporate nationals of a particular state seek protection under investment treaties of other states. For instance, the UNCTAD database shows a claim filed by Chevron against the Philippines in 2019.[1] One would expect this claim to be filed under the U.S.–Philippines investment treaty, as Chevron Corporation is incorporated and headquartered in the United States. But it appears from the UNCTAD investment agreements database that there is no investment treaty between the United States and the Philippines. Instead, Chevron filed this claim under the Philippines–Switzerland investment treaty utilizing its Swiss subsidiary Chevron Overseas Finance GmbH.

One investor, convenient nationalities

This practice of nationality shopping is relatively common and largely permitted in investment treaty practice. It is enabled by investment treaty texts and generous arbitral interpretations of a corporation’s link to its alleged home state.[2] In the example of Chevron, while it certainly has a corporate presence in Switzerland, through which it may have channelled its investments to the Philippines, the question remains as to whether this alone makes Chevron a Swiss investor. The relevant investment treaty defines a protected Swiss “investor” to include any company incorporated under Swiss law. According to this definition, Chevron in the Philippines is a Swiss investor and not a U.S. investor. However, according to two prior investment treaty claims that Chevron filed against Ecuador, it is a U.S. investor.[3] This is not an isolated instance. In its 2011 claim against Australia, Philip Morris argued it was a Hong Kong investor,[4] while at the same time arguing in a 2010 claim against Uruguay that it was a Swiss investor.[5] Philip Morris is a well-known, U.S.-headquartered tobacco company. But in investment treaty claims, it has never been a U.S. investor. Similarly, Mobil initiated a claim against Venezuela in 2007 as a Dutch investor[6] and against Argentina in 1999 as a U.S. investor.[7] Total was a French investor in its claim against Argentina in 2004[8] but a Dutch investor in a claim against Uganda in 2015.[9]

Good governance and development narratives no longer justify manufactured nationalities

There are many similar instances of less well-known corporate investors relying on manufactured corporate identities or nationalities in order to invoke investment treaty protections—and all of this is often permitted within the boundaries of investment treaty law and corporate law. Taking a page from Katharina Pistor’s Code of Capital, we can understand investment treaties and corporate law principles as offering a legal coding of foreign investment that enables investors to change identity so as to increase the durability and priority of their interests.[10] Those in favour of this flexibility of investment treaty law argue that we should focus on the bigger picture: the objective of investment law to enhance good governance, and economic development would be better achieved if all investors had access to treaty protections and investment arbitration, regardless of their origin or nationality.[11] Thus, it is in line with the objectives of investment treaties to interpret the concept of investor or corporate nationality expansively and flexibly—so much so that an investor can be a national of one state for the purpose of one claim and a national of another state for the purpose of another claim.

The good governance and development narratives of investment treaties, however, have been challenged by recent empirical work.[12] After 20 years of proliferation of investment treaty claims, there is little evidence to support these narratives as justification for expanding the personal scope of investment treaty protections. States have begun to pay some attention to the personal scope of their investment treaties, especially for corporate investors, in newly negotiated investment treaties. Increasingly, states are adopting more detailed clauses that require a corporate investor to have a stronger connection to its home state than merely being incorporated in that jurisdiction.[13] The question of personal scope of investment treaty protection is also considered by the UNCITRAL Working Group III as one of the reform areas to overcome consistency and correctness problems in investor–state dispute settlement.[14] The recently published UNCTAD IIA Reform Accelerator also identifies “investor” definitions among the eight key provisions of investment treaties in most need for reform. The objectives of these reform efforts are to tighten the definition of “investor” and introduce “denial of benefits” clauses to prevent corporate investors’ reliance on tenuous links with a home state to access treaty protection.

Reform and the pitfalls ahead

Reform is crucial in the area of personal coverage of treaties to (1) restore the reciprocal nature of investment treaty protections and (2) to avoid the reforms pursued by states on substantive investment treaty standards being sidestepped by investors by relying on the remaining older-generation investment treaties. The permissive definitions of investor in older treaties and expansive interpretations of even the tighter definitions by arbitral tribunals[15] have resulted in an undermining of the reciprocal nature of investment treaty commitments among states. There is no barrier for a U.S. investor to rely on investment treaty protections for its investments in the Philippines, despite the two countries not having committed to extending such protection to each other’s investors. The definitions of investor, coupled with the convenience of creating corporate entities, artificially transform the standards of protection included in investment treaties into pseudo-erga omnes obligations for states which can be invoked by any investor, whether or not they are genuinely covered by a treaty. While reform of treaties is necessary to reverse this trend, treaty wording alone may not offer the tightening of standards the states are aiming for. Investment arbitration tribunals continue to have decisive input over the interpretation of treaty standards.[16] This means that even tighter standards can be loosened in the process of arbitral interpretation. One of the key reforms added to investor definitions is to require that a protected investor has its real seat or substantial business activities in the home state. Yet, in a recent arbitral award in Mera Investment v. Serbia, the tribunal interpreted the concept of real seat as the place of incorporation and permitted a shell corporation indirectly owned by nationals of the host state to benefit from the investment treaty, despite the investor lacking the genuine connections to the home state sought in the investment treaty.[17] Thus, textual reform of treaties may not achieve the outcomes desired with the current model of investment arbitration.

The second consequence of the current definitions of investor and arbitral interpretations is that they can undermine substantive investment treaty reforms pursued by host states. This is due to investors’ ability to adopt a new (or rely on an existing) corporate nationality, established using subsidiaries or mailbox companies and based on tenuous links with a home state that has an older-generation treaty with the host state. In this way, investors who may genuinely be nationals of a home state that has recently signed a reformed treaty with the host state can sidestep the reformed treaty and rely on an older-generation treaty to bring their claims against the host state. Many new investment treaties introduce more nuanced substantive standards of protection and exceptions to the application of standards such as the FET standard or indirect expropriation in the areas of policies and measures introduced in the public interest.[18] If, for instance, a Canadian investor within the EU wishes to avoid the provisions safeguarding the host state’s right to regulate to achieve legitimate public policy objectives,[19] it can rely on an older-generation investment treaty signed by the relevant EU member state and a third state in whose territory the investor can set up a shell corporation or has an existing subsidiary to reroute its investment before filing a claim and before a dispute becomes reasonably foreseeable.[20]


Many states are working on reforming their investment treaties to curb the excesses of the older-generation investment treaties. Unlike their first-generation counterparts, these newer generation treaties are being negotiated with greater attention to detail and lessons learned. The process for any state to reform its entire investment treaty program can take a significant amount of time. In the meantime, investor definitions in treaties and expansive interpretation of this notion by arbitral tribunals can allow backdoor access for investors to older-generation treaties via subsidiaries or shell corporations based in third countries. Even if a state reforms all its treaties and tightens investor definitions and includes denial of benefits clauses, there will still be a risk of arbitral tribunals undermining the objectives of the parties by interpreting the concepts incorrectly, as was done in Mera Investment v. Serbia. The problems with both investment treaty texts and the decisive interpretative influence exercised by arbitral tribunals over those texts indicate that even serious change to one aspect of the investment treaty system, in isolation, can be undermined in the absence of more systemic reform.


Anil Yilmaz Vastardis is Lecturer and Co-Director of the Essex Business and Human Rights Project, School of Law and Human Rights Centre, University of Essex. The author would like to thank Daria Davitti, Nathalie Bernasconi, Paolo Vargiu, and Zoe Phillips Williams for their helpful comments.


[1] Chevron Overseas Finance GmbH v. The Republic of the Philippines (PCA Case No. 2019-25)

[2] Yilmaz Vastardis, A. (2020). The nationality of corporate investors under international investment law. Hart Publishing, pp. 1-12.

[3] Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (I) (PCA Case No. 2007-02/AA277); Chevron Corporation and Texaco Petroleum Company v. The Republic of Ecuador (II) (PCA Case No. 2009-23)

[4] Philip Morris Asia Limited v. The Commonwealth of Australia (PCA Case No. 2012-12)

[5] Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7)

[6] Mobil Cerro Negro Holding, Ltd., Mobil Cerro Negro, Ltd., Mobil Corporation and others v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/27)

[7] Mobil Argentina S.A. v. Argentine Republic (ICSID Case No. ARB/99/1)

[8] Total S.A. v. Argentine Republic (ICSID Case No. ARB/04/1)

[9] Total E&P Uganda BV v. Republic of Uganda (ICSID Case No. ARB/15/11)

[10] Pistor, K. (2019). The code of capital: How the law creates wealth and inequality. Princeton University Press 2019), p. 3; See also Yilmaz Vastardis, A. (2020). Investment treaty arbitration as justice bubbles for the privileged. In T. Schultz & F. Ortino (Eds.) The Oxford handbook of international arbitration. Oxford University Press.

[11] Schill, S.W. (2009). The multilateralization of international investment law. Cambridge University Press, 17–18; Dolzer, R. & Schreuer, C. (2012). Principles of international investment law (2nd Ed.). Oxford University Press, p. 25.

[12] Sattorova, M. (2018). The impact of investment treaty law on host states: Enabling good governance? Hart Publishing, at 196: “The principal finding of our empirical investigation is that host states do not necessarily respond to their encounter with investment treaty law by becoming more risk-averse and compliant with good governance norms.”; On the contribution of IIL to economic development see Bonnitcha, J., Poulsen, L., & Waibel, M. (2017). The political economy of the investment treaty regime. Oxford University Press. pp. 46–47.

[13] See, e.g., EU–Singapore Investment Agreement adopting incorporation and real seat tests combined with substantive business operations (Art. 1 (2)(5)).

[14] UNCITRAL Working Group III (Investor-State Dispute Settlement Reform) 36th Session Vienna, 29 October-2 November 2018. Possible reform of investor–state dispute settlement (ISDS): Consistency and related matters, A/CN.9/WG.III/WP.150 [17]; UNCITRAL Working Group III (Investor–State Dispute Settlement Reform) 38th session Vienna, 14–18 October 2019. Possible reform of investor-state dispute settlement (ISDS): Shareholder claims and reflective loss, A/CN.9/WG.III/WP.170.

[15] Yilmaz Vastardis, supra note 2, pp. 199–206.

[16] Some new treaties have taken steps to establish bilateral treaty committees or other procedures to offer joint interpretations of treaty texts; See e.g. CETA, Korea–Uzbekistan BIT, Article 15.

[17] Mera Investment Fund Limited v. Republic of Serbia, ICSID Case No. ARB/17/2.

[18] See, e.g., CETA Article 8.9, Hong Kong- Australia BIT Articles 8 and 15.

[19] CETA Article 8.9.

[20] The question of when nationality shopping this way becomes an abuse of rights is a contentious issue in arbitral awards. For more, see A Yilmaz Vastardis, The Nationality of Corporate Investors under International Investment Law pp. 221-222.