International | New Spain-Colombia BIT

Latest trends in modernizing bilateral investment treaties 

International | New Spain-Colombia BIT
July 6, 2022

On May 27, the Spanish Senate approved the Agreement on the promotion and reciprocal protection of investments between the Kingdom of Spain and the Republic of Colombia and its interpretative note (“Spain-Colombia BIT” or “Treaty”). This BIT’s legislative approval marks a turning point, since the Treaty is the first new generation BIT concluded by both States; the first step of an ambitious initiative to modernize current investment treaties.

The Spain-Colombia BIT will replace the one concluded in 2005 (“2005 BIT”). It is noteworthy for being the first Spanish BIT to align its foreign investment commitments with the European Union’s current investment protection policy. The European Commission authorized Spain to negotiate the Treaty, and further approved its text and the accompanying interpretative note. This interpretative note seeks to comply with the Colombian Constitutional Court’s demands, which in previous cases has required, as a pre-condition for ratifying BITs, that the scope for interpretation of the substantive protections be limited.

The Spain-Colombia BIT is innovative and will probably become a model for future BITs. In view of this, it is worth highlighting some of its essential aspects, which exemplify the current trends regarding the negotiation and conclusion of BITs.

The “right to regulate:” extending the host State’s regulatory powers

The Spain-Colombia BIT expressly acknowledges the “right to regulate,” i.e., both Parties’ right to adopt reasonable regulations to achieve public policy objectives (article 14). The Treaty includes a non-exhaustive list of legitimate objectives, including the right to social security, health, or the protection of natural resources and the environment (article 14). The Treaty specifies that solely adopting, modifying or enforcing a State measure that negatively impacts an investment does not constitute, by itself, a breach of the Treaty (article 15).

Along these lines, the Spain-Colombia BIT (i) provides that nothing in the Treaty will prevent the States from maintaining or enforcing any measures necessary for the protection of their own essential security interests (article 15); and (ii) extends the Parties’ regulatory discretion in other matters, e.g., taxation (article 1.4), finance (article 1.5) and the granting of aid and subsidies.

The ultimate goal is that the Parties preserve a certain degree of regulatory discretion in matters of public interest, minimizing the risk of arbitration claims arising from the effect of the host State’s public policy measures over the other Party’s investors. Despite this, the Treaty limits this scope of discretion, thus opening the door for claims. In fact, the Treaty (i) only protects State measures that are “reasonable” for attaining “legitimate objectives” (article 14.1); and (ii) expressly precludes the Parties from applying their environmental, labor or human rights legislation in a manner that would constitute a covert restriction on investment or an unjustifiable discrimination (article 16.3).

Further, note the “non-lowering of standards” provisions for labor, environmental, and human rights matters, aimed at preventing social dumping. The Parties recognize that it is inappropriate to promote investment by weakening or curtailing the protections granted by their legislation in these matters (article 16.1). Therefore, the Treaty expressly prohibits the innaplication of existing environmental, labor or human rights legislation as a strategy to attract or retain investment (article 16.2). This rule shows the growing importance of ESG criteria in foreign investment arbitration.

Review of the substantive standards of protection

>The Spain-Colombia BIT includes a comprehensive review and a detailed explanation of the standards of protection that are usually included in most BITs, including: (i) National Treatment; (ii) Most Favored Nation (MFN); (iii) Fair and Equitable Treatment (FET); (iv) Full Protection and Security; (v) Compensation for losses; (vi) Free transfer of funds; and (vii) Protection against expropriation (articles 4 to 13). By accurately defining the scope of these standards, the Parties seek to reduce the Tribunals’ margin of interpretation. Some of the most remarkable modifications include:

> The Treaty fully reviews the FET standard (article 7). In line with the European Union’s investment protection policy and the recommendations of the United Nations Conference on Trade and Development (UNCTAD), the Parties have adopted a narrow scope for FET. They have provided an exhaustive list of actions or measures that could entail a breach of the FET standard, including: (i) the denial of justice in criminal, civil or administrative proceedings; (ii) a fundamental breach of due process, including an essential breach of the transparency principle in judicial or administrative procedures; (iii) manifest arbitrariness; (iv) unfair discrimination on grounds like race, gender or religion; and (v) abusive treatment (including coercion, duress and harassment) to investors. Additionally, the interpretative note further defines the scope of “denial of justice,” “manifest arbitrariness” and “abusive treatment,” laying down mandatory interpretation parameters.

> The Treaty expressly provides that, when applying the FET standard, the Tribunal may consider a diligent investor’s reasonable and objective expectations (article 7.3). However, while acknowledging these expectations, the Treaty expressly limits the scope of protection granted to them, clarifying that a State measure interfering with investors’ expectations -including profit expectations- does not constitute, by itself, a breach of the standard (article 15). 

>The interpretative note concluded by the Parties specifies that the protections of the Treaty cannot justify a more favorable or unreasonable treatment towards foreign investors than that afforded to national investors. In this way, the clause seeks to stop the application of the Treaty from leading to a discriminatory treatment of domestic investors in relation to foreigners placed in comparable situations.

Higher barriers to access the investment protection framework

The Spain-Colombia BIT provides new restrictions to access the foreign investment protection framework, excluding certain investors and investments from the scope of the Treaty’s protections:

> As opposed to the 2005 BIT, the Treaty includes a “denial of benefits” clause, under which the Parties may deny the protections of the treaty to certain investors, including: (i) companies directly or indirectly controlled by investors of a third State (in certain cases); (ii) companies directly or indirectly controlled by nationals of the host State; (iii) companies that have no substantial business activities in the territory of the other Party; and (iv) investors that have been convicted by international courts or other judicial authorities for international crimes under the International Criminal Court’s Rome Statute, or for sponsoring or financing organizations or persons that have committed international crimes or acts of terrorism (article 18.1). The State may exercise its right to deny benefits in writing through any means that allow acknowledgment of receipt by the investor, including any briefs in response to judicial or arbitration claims filed by the investor (article 18.2).

> Along these lines, the Treaty expressly excludes from the concept of “investor” companies that merely hold financial interests (article 2.5).

> The Treaty also limits the type of investments that are afforded protection. The Treaty relies on the influential Salini test to define “investment,” and therefore it provides that protected investments must fulfill three cumulative requirements: (i) a contribution of money or assets; (ii) a certain duration for the project (at least one year); and (iii) an element of risk for the investor. Furthermore, the definition of “investment” under the Treaty is supplemented by a non-exhaustive list of covered investments and a list of expressly excluded investments. The latter list includes: (i) public debt transactions; and (ii) claims to money arising solely from: (a) commercial transactions for the sale of goods and services; (b) loans granted in connection with any commercial transaction; or (c) any judgment or arbitral award.

Seeking greater transparency and trust in the arbitration procedure

 Several provisions of the Spain-Colombia BIT are aimed at promoting transparency and generating trust in the arbitration procedure. Below are some of the most remarkable provisions:

> According to the Treaty, the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration will apply to any arbitration procedures initiated under the Treaty. This is the first time Spain agrees to include these rules in its foreign investment arbitrations.

> In line with the recent amendment to the ICSID Arbitration Rules, the Treaty requires the parties to investment arbitrations to disclose to their counterparty and to the Arbitral Tribunal any third-party funding covering the costs of the arbitration, stating the third-party funder’s name, address, and the amount of funding (article 22.4). If a party does not fulfill this obligation, it will be required to pay the arbitration fees and expenses regardless of the outcome of the award (article 33.5). 

> The Treaty implements various measures to ensure the independence and impartiality of arbitrators. More specifically, it provides that arbitrators: (i) cannot be affiliated with or receive instructions from any of the Parties or their legal counsel; (ii) cannot participate in any other dispute that could give rise to a direct or indirect conflict of interest; (iii) must comply with the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (it is the first time Spain agrees on the application of this soft law instrument); and, throughout the entire arbitration (iv) must not act as counsel, party-appointed experts or witnesses in any new or ongoing investment disputes under the Treaty or any international treaty (article 25.1 and 25.2). The Parties have agreed to adopt a binding Code of conduct for arbitrators as soon as possible (article 25.3).

 Adaptability and continuous monitoring in response to the constant development of investment arbitration

Mindful of the constant evolution of international trade and of the need to adapt foreign investment protection instruments to new developments, the Parties to the Spain-Colombia BIT have established a monitoring and periodic review mechanism. In particular, they have agreed to create a Bilateral Investment Council (“Council”) to administer the Treaty. This is the first time Spain agrees to create a permanent body responsible for monitoring a BIT. The Council will be composed of Party representatives and must session at least once every three years to perform the following duties: (i) monitoring the application and enforcement of the Treaty; and (ii) adopting binding Treaty interpretations (article 37).

This monitoring and periodic review mechanism has the advantage of allowing the Parties to adjust the Treaty without a formal amendment process (thus avoiding the practical, legal and political difficulties entailed by this process). To this end, the Treaty expressly provides that the Council may adopt Treaty interpretations that will be binding on the Arbitral Tribunals established under the Treaty (article 39.2).

Finally, the Treaty anticipates the initiatives to reform the investment protection framework that are currently being promoted by the European Union and Spain in the Working Group III of the United Nations Commission on International Trade Law (UNCITRAL). With this aim, the Parties anticipate that the Treaty’s bilateral dispute settlement mechanisms will be eventually replaced by a multilateral mechanism ratified by both Parties, i.e., a new multilateral investment tribunal and a multilateral appellate mechanism for the resolution of investment disputes (article 38).


In sum, the Treaty is a new instrument which is at the forefront of BIT reform trends. However, it raises doubts about its ability to attract and protect foreign investment. If the greater restrictions on the protection of investors and the broad regulatory powers become barriers for attracting investment, the Spain-Colombia BIT will have been a failure. However, if the application of the Treaty proves to be an effective and balanced protection instrument, it could become a reference for future BITs.


July 6, 2022