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11 Treatment of State Obligations (the ‘Umbrella Clause’)

From: The Law of Investment Treaties (3rd Edition)

Jeswald W. Salacuse

From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved.date: 17 June 2021

International investment law — Law of treaties — Umbrella clause

This chapter explores umbrella clauses. In order to protect investor–state commitments and obligations from obsolescence, many investment treaties contain a clause defining the treatment that the host state will give to obligations it has made to investors or investments covered by the treaty. Known commonly as ‘umbrella clauses’, such provisions generally stipulate that ‘each Contracting Party shall observe any obligation it may have entered into with regard to the investments of investors of the other Contracting Party’. The umbrella clause creates an exception to a well-established principle of international law concerning state contracts with, and obligations to, foreign investors. Its intent is to impose an international treaty obligation on host countries that requires them to respect obligations they have entered into with respect to investments protected by the treaty. This places such obligations under the protective umbrella of international law, not just the domestic law that would otherwise normally apply exclusively. The chapter then looks at the formulations and application of the umbrella clause.

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