Walter Bau case a lesson on investment treaties

Baker & McKenzie said the protections allocated to investors by BITs could necessitate huge compensation in business disputes. To date, the government has signed such treaties with 35 countries, with another 49 countries set to join BITs in the future.

Baker & McKenzie partner Wynn Pakdeejit said the Walter Bau case should be considered a lesson that signatories to BITs must carefully proceed on their commitments. Private enterprises also have to be more aware that they have the right to sue a government if they believe they have not been fairly treated.

The Thai government was sued for compensation to the German construction firm Walter Bau over a conflict related to the Don Muang Tollway project. Walter Bau took the case to the US District Court in New York on March 26 last year, seeking payment under the New York Convention. The New York court backed Walter Bau, but the Thai government appealed against the decision this July. The company has also asked a court in Berlin to enforce the arbitration findings. That court is now considering the case.

Wynn said the government must be careful when it enacts policies or regulations that could lead to disputes in the future or destroy the investment environment. For instance, the Map Ta Phut case soured some foreign investors on the Kingdom.

On the other hand, Thai businesses, which are investing abroad more now, must also realise their rights under these agreements.

BITs are agreements between countries for the purposes of providing protection for each other's foreign investments. The contracts provide protection against the threats of expropriation, guarantee of the free transfer of means, and the assurance of fair and equitable treatment. These BITs, therefore, ensure that Thai investors and foreign investors will be afforded full protection by the host countries of the investments.

BITs also help to promote investor confidence of Thai and foreign nationals by guaranteeing an international standard of protection.

Wynn pointed out that many private companies that had contracted with the government had consulted more with his firm about their rights and called for fairer protection under BITs. The company has attempted to resolve disputes by negotiations.

Businesses that have consulted more about disputes with host countries are mainly construction, petroleum-exploration and telecommunications companies.

LEGAL CHANGES NEEDED

To increase confidence among foreign investors, Pisut Attakamol, another partner at Baker & McKenzie, suggested that the Thai government streamline relevant laws and regulations.

Pisut said the frequent changes in the government's policies had affected investors' confidence. Policies should be stabilised and laws properly enforced.

He added that the government should think twice about announcing policies that could lead to problems in the future. For instance, he warned that uncertainty over such policies as the first-car scheme could destroy foreign investors' confidence. As the previous government had a policy to promote eco-car production, the first-car tax privilege granted to both eco-cars and small passenger cars could affect investors in eco-cars, as foreign firms may not benefit fairly from the policy. Investors may have the right to complain about an unfair or inconsistent rule.

Moreover, the policy to lower fuel prices could affect the investment environment. The government has a policy to promote investment in alternative energy, but the reduction of prices for petroleum-based fuel will increase their consumption, at the expense of lowering consumption of alternative energy sources such as gasohol.

At present, Thailand maintains BITs with 35 economies including Germany, mainland China, South Korea, India, Switzerland, Taiwan, the United Kingdom, Bangladesh, Cambodia and Vietnam. Five agreements are waiting to come into force, while the Kingdom is negotiating with six countries. Thailand has also expressed plans to start negotiations with 38 countries.