In a dispute with a foreign state-run enterprise? Maybe you can BIT(e) back. 

| Mar 12, 2021 | Business Litigation |

Southern California businesses do a substantial amount of overseas trade and commerce. They source raw materials in Africa and manufacture products in the Pacific Rim. They entrust their back-end and call center operations to subcontractors everywhere from Brazil to India to Eastern Europe.

In doing business abroad, California firms often find it necessary to enter into and navigate relationships with foreign state-run enterprises. Inevitably, some of those relationships sour and turn contentious, frequently due more to the whims of local and global politics than for any business-centric reason.

In these circumstances, business leaders can feel as if their hands are tied in obtaining any sort of fair resolution. Some may even be tempted to eat the cost of the fallout as an unavoidable downside risk of overseas commerce.

They needn’t lose hope, however. Oftentimes, California businesses may have the ability to seek justice and compensation under the terms of a Bilateral Investment Treaty (BIT).

What’s in a BIT?

A BIT is a two-party treaty establishing mutually-beneficial trade standards and practices between two nation states. The United States is currently party to more than forty BITs with countries around the globe.

Broadly speaking, a BIT seeks to foster cross-border investments by ensuring equal treatment and opportunity for businesses owned by citizens of one of the countries when doing business in the other. For example, a BIT will typically contain a mutual agreement not to regulate foreign-owned businesses differently than domestic business, and provide protections against acts of “political expropriation”, such as a government’s nationalization of foreign enterprises.

BITs and dispute resolution

Perhaps most significantly, BITs govern the behavior of virtually any arm of the government of the country where you do business overseas – including state-run enterprises. And, they have teeth. Rather than merely expressing general principles, they contain binding, enforceable, dispute resolution provisions. A California business aggrieved by the actions of the government in a country that has a BIT with the U.S. can file suit against that government, or a foreign government-run enterprise, in a neutral, international arbitration forum.

BITs, in other words, empower California businesses to obtain real, binding relief in a dispute with a foreign state-run entity without having to file suit in that country’s home courts. Among other benefits of this form of dispute resolution, an award in the business’s favor from an international arbitration panel has the effect of an enforceable judgment in U.S. courts, and in the courts of many other countries around the world.

How to BIT(e) back

Not all countries have BITs with the U.S., and not all disputes that arise in an overseas business relationship will implicate the terms of a BIT (for instance, a dispute between your business and a privately-owned-and-run foreign business).

However, the terms of BIT can give your business tremendous leverage and access to justice in the event they do apply to a dispute that arises in the course of an overseas commercial relationship.

To take advantage of a BIT in your business relationships, talk to a lawyer about including special terms in your contacts with overseas entities and about your rights in the event a dispute arises.

 

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