In the given case scenario, the chemical company has its headquarters in State A and has started its subsidiary in State B. However, the company fails to secure a contract with local buyers, causing possible bankruptcy. The two countries are bound by a treaty under which investments are protected from “unfair treatment as determined by local laws.” Therefore, the chemical firm can sue any government’s action that is unfair to it.
While there is no clear-cut trajectory on the definition of unfair treatment, it involves a biased action. Unfair treatment can mean any State B’s action or inaction that is biased against the chemical firm. The treatment would result in a different outcome if the company was treated the same as the local companies and other foreign investments (Sarker & Serieux, 2021). The chemical firm’s losses are based on its failure to secure contracts with the local buyers in State B. The situation will worsen if the environmental law that makes chemicals expensive is passed. There will be no legal consequences for State B since the decision to make chemicals expensive is based on the public interest and is unbiased.
Although there are no legal consequences, State B may take action that protects the interests of its citizens and the chemical firm. Consequently, State B’s authorities may intervene and buy the plant or expropriate its shares to protect the local workers. However, the action must be legal and with the consent of the chemical firm’s key decision-makers. State B’s decision can be allowed only if it is in good faith under international law, as was stated in the case of S.D. Myers, Inc. v. Canada (Ajibo et al., 2022). If it is established that State B’s legislation was done in bad faith and unfair against the chemical firm, the company can sue the state. Suing the state can be done by either the chemical firm’s shareholders or by itself in its legal entity capacity.
Foreign investors are significant for economic and social development since they bring activities that benefit the locals. While foreign companies’ interests are protected under various treaties, the local states must ensure that they are equitably treated. The chemical firm established in State B is beneficial to the local workers. Therefore, in the given scenario, the chemical firm would only sue State B if it is established that the environmental law was legislated in bad faith.
References
Ajibo, C. C., Oguejiofor, C. O., Egbom, C. C., Onyia, G. I., Okwulehie, I. V. E., & Nkokelonye, A. J. (2022). Standard of review in indirect expropriation: Reconciling the effect rule with the doctrine of intent. Global Journal of Comparative Law, 11(1), 36–56. Web.
Sarker, B., & Serieux, J. (2021). Foreign-invested and domestic firm attributes and spillover effects: Evidence from Brazil. Journal of Multinational Financial Management, 100719. Web.