Foreign Direct Investment (FDI) arbitration is a crucial mechanism in international economic law, designed to protect foreign investors and promote cross-border investment. This process allows foreign investors to seek redress against host states for alleged violations of international investment agreements. This is typically made under so-called investment arbitration, or ISDS.
Key aspects of FDI arbitration include:
- Investor-State Dispute Settlement (ISDS): This is the primary mechanism used in FDI arbitration, allowing investors to directly sue host states.
- Bilateral Investment Treaties (BITs): These agreements between two countries provide the legal framework for FDI protection and arbitration procedures.
- Arbitration forums: Common venues include the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL).
- Applicable law: Disputes are typically resolved based on the provisions of the relevant BIT, national laws, and principles of international law.
- Remedies: Arbitration tribunals can award monetary compensation to investors but usually cannot order states to change their laws or policies.
FDI arbitration aims to create a more secure environment for international investment by providing investors with a neutral forum for dispute resolution. However, it has faced criticism for potentially limiting states’ regulatory powers and favoring corporate interests over public policy concerns.
Mexico and China signed a BIT for the reciprocal protection of foreign direct investment back in 2008.
In accordance with a note by El Pais.
The Mexican government recently took a significant step by cancelling lithium mining permits that Bacanora Lithium, a Chinese-owned company, had held for over a decade. This decision, however, has not deterred the company from pursuing its interests. Bacanora, a subsidiary of the Chinese giant Ganfeng Lithium, intends to challenge this decision through the Mexican legal system and investment arbitration.
The El Pais note also notes that the Bacanora’s history in Mexico dates back to 2011, when it began operations in the state of Sonora. The company, which was originally British before being acquired by Ganfeng Lithium, secured 50-year permits for lithium exploration and extraction. At the time of obtaining these permits, the presence of lithium in the area was not confirmed, but geological indicators suggested high potential. Between 2011 and 2014, Bacanora conducted an extensive exploration program, drilling numerous test holes to assess the lithium deposits. Their efforts were rewarded with the discovery of an estimated 8.8 million tons of lithium carbonate equivalent, a finding that significantly bolstered the project’s viability. This discovery prompted Bacanora to construct a pilot plant, demonstrating their capability to extract and produce lithium, a critical component in the manufacturing of electric vehicle batteries. Building on this success, the company had ambitious plans to scale up operations with the construction of a large-scale production facility. This proposed facility, with an estimated cost of $800 million, was intended to establish Bacanora as a major player in the global lithium market, potentially transforming Mexico into a significant lithium producer on the world stage.
Now, after the cancellation of the lithium mining permits and what seems to be the lack of redress in Mexican courts, Bacanora has started investment arbitration proceedings against Mexico. The dispute will be decided under the Mexico-UUK BIT and Mexico-CChina BIT; the procedural rules will be the ICSID and ICSID Arbitration Rules 2002. The arbitrator appointed by the claimant is Donald Francis Donovan, and from the respondent (Mexico) is Pierre Mayer.
