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Workshop on economic and legal aspects of Workshop on economic and legal aspects of International Investment AgreementsInternational Investment Agreements
Kampala, UgandaKampala, Uganda10-14 November 2008 10-14 November 2008
International Rules on FDIInternational Rules on FDI
Thomas WestcottThomas WestcottLegal AdvisorLegal Advisor
UNCTADUNCTAD
22
Topics for discussionTopics for discussion
I.I. International framework on International framework on investmentinvestment
II.II. Trends in IIAsTrends in IIAs
33
I. The international framework I. The international framework on investmenton investment
• 20 years ago or more, many countries had reservations about 20 years ago or more, many countries had reservations about FDI and excluded or restricted FDI inflowFDI and excluded or restricted FDI inflow
• Today, every single country seeks to attract FDIToday, every single country seeks to attract FDI
• Unilateral efforts in FDI liberalization and promotion are Unilateral efforts in FDI liberalization and promotion are complemented by efforts at 3 levels: complemented by efforts at 3 levels:
• bilateral - eg. BITs, FTAsbilateral - eg. BITs, FTAs• regional – eg. COMESAregional – eg. COMESA• multilateral – eg. GATS, TRIMsmultilateral – eg. GATS, TRIMs
• IIAs have different purposes or objectives:IIAs have different purposes or objectives:• investment protectioninvestment protection• Investment promotionInvestment promotion• Investment liberalisation. Investment liberalisation. 6
Interface between national and Interface between national and international FDI policiesinternational FDI policies
55
Network of international Network of international investment rulesinvestment rules
• National laws and regulations, investment codesNational laws and regulations, investment codes
• State contracts, investment agreements, stabilization agreementsState contracts, investment agreements, stabilization agreements
• Bilateral investment treaties (BITs) for the promotion and protection Bilateral investment treaties (BITs) for the promotion and protection of investmentof investment
• Double taxation treaties (DTTs)Double taxation treaties (DTTs)
• Preferential trade and investment agreementsPreferential trade and investment agreements
• Regional (COMESA, OECD, APEC) and sectoral agreements Regional (COMESA, OECD, APEC) and sectoral agreements (Energy Charter Treaty)(Energy Charter Treaty)
• Multilateral disciplines and specific agreements (WTO GATS, TRIMs, Multilateral disciplines and specific agreements (WTO GATS, TRIMs, TRIPs; ICSID, NY Convention, MIGA)TRIPs; ICSID, NY Convention, MIGA)
66
Investment contracts are not IIAsInvestment contracts are not IIAs
• State contracts and investment agreements between State contracts and investment agreements between individual investors and the host State set rules, rights individual investors and the host State set rules, rights and obligations for both partiesand obligations for both parties
• These investment agreements are not treaties! (i.e. BITs)These investment agreements are not treaties! (i.e. BITs)
• Focus is on a specific investment project e.g. concessionFocus is on a specific investment project e.g. concession
77
Recent trends in IIAs - highlightsRecent trends in IIAs - highlights• Rapid proliferation at all levelsRapid proliferation at all levels
• International investment rules are increasingly being International investment rules are increasingly being formulated as part of agreements that encompass a formulated as part of agreements that encompass a broader range of issues (FTAs)broader range of issues (FTAs)
• Investment provisions in the new agreements tend to be Investment provisions in the new agreements tend to be increasingly sophisticated and complex in contentincreasingly sophisticated and complex in content
• South-South cooperation on international investment South-South cooperation on international investment policy is intensifyingpolicy is intensifying
• Increasing activity in international investment treaty-Increasing activity in international investment treaty-making has been paralleled by a rise in investor-State making has been paralleled by a rise in investor-State disputes.disputes.
88
The international investment legal The international investment legal framework: role and objectivesframework: role and objectives
International investment agreements (IIAs):International investment agreements (IIAs):
• Contribute to the creation of a Contribute to the creation of a stable, predictable and stable, predictable and transparent regulatory frameworktransparent regulatory framework for international investment for international investment
• Facilitate the Facilitate the coordination of investment relationscoordination of investment relations (relations (relations between host States, home States, international investors and between host States, home States, international investors and other development stakeholders) through internationally agreed other development stakeholders) through internationally agreed common denominatorscommon denominators
• Complement national lawsComplement national laws on investment (interface between on investment (interface between national and international investment policies)national and international investment policies)
• Impact of IIAs on FDI flows? Diverging viewsImpact of IIAs on FDI flows? Diverging views
99
Objectives of the legal Objectives of the legal investment frameworkinvestment framework
Restrictions
- Entry and establishment- Ownership and control- Operational restrictions- Authorization and reportingEtc..
Standards of treatment & protection
•Transparency
•Treatment (NT, MFN)
•Expropriation & compensation
•Transfer of funds
•Dispute settlement
•Etc.
RE
DU
CIN
G
BU
ILD
ING
These objectives can be achieved through:
•National policies
• Investment contracts/State contracts
• International investment agreements (IIAs)
1010
The international framework for investmentThe international framework for investmentIIAs have several possible objectives:IIAs have several possible objectives:
PromotionPromotion
BITs
Regional
establishment
agreements
US-CAN-JAP BITSFTAS
NAFTA
LiberalizationLiberalizationProtectionProtection
1111
Many IIAs cover more or less the same issues
•Scope and definition of foreign investment
•Admission of investment or pre-establishment NT and MFN
•Treatment of investment, i.e. national treatment, MFN
•FET
•Guarantees and compensation in respect of expropriation
•Transfer of funds and repatriation of capital and profits
•Dispute settlement, both State-State and investor-State
…but the concrete way in which they are addresseddiffers substantially
12
1212
II. Global trends in IIAsII. Global trends in IIAs
1313
The spaghetti bowl of IIAs The spaghetti bowl of IIAs
A. Bilateral Investment Treaties
1515
What are bilateral investment What are bilateral investment treaties (BITs) ?treaties (BITs) ?
Bilateral reciprocal agreements (between two Bilateral reciprocal agreements (between two
States) aimed at States) aimed at protectingprotecting and and promoting promoting foreign foreign investment through legally-binding rights and investment through legally-binding rights and obligations.obligations.
For host countries (traditionally developing) To improve their investment climate and to attract
foreign investors
To portray a positive international image of ‘openness’
For home countries (traditionally developed) To protect their investments abroad
Some countries are both capital importing and exporting (both home and host) - twin objectives: investment attraction and investment protection.
Why do countries sign BITs?Why do countries sign BITs?
The network of BITs continues to grow rapidly, there are now over
2500 BITs
0
50
100
150
200
250
Years
Ann
ual B
ITs
0
500
1000
1500
2000
2500
3000
Cum
ulat
ive
BIT
s
8%
10%
40%
25%
4%
13%
Between developing countries
Between developed and developing countries
Between developing countries and countries of SEE&CIS
Between developed countries
Between developed and countries of SEE&CIS
Between countries of SEE&CIS
BITs concluded by country group,
end 2007
The top ten signatories of BITs, end 2007
0 20 40 60 80 100 120 140
Number of BITs concluded
Republic of KoreaBelgium andNetherlands
FranceItaly
EgyptUnited Kingdom
SwitzerlandChina
Germany
2020
BITs signed by 11 African countries
• Botswana 9Botswana 9• Cameroon 14Cameroon 14• Central African Central African
Republic 4Republic 4• Ethiopia 22Ethiopia 22• Kenya 6Kenya 6• Lesotho 3Lesotho 3• Mauritius 34Mauritius 34• Rwanda 3Rwanda 3• Sudan 26Sudan 26• Tanzania 11Tanzania 11• Uganda 15Uganda 15
Intra-region BITs:Intra-region BITs:
• Botswana – Mauritius 2005Botswana – Mauritius 2005• Cameroon – Mauritius 2001Cameroon – Mauritius 2001• Ethiopia – Sudan 2000Ethiopia – Sudan 2000• Rwanda – Mauritius 2001Rwanda – Mauritius 2001
2121
Trend towards renegotiating BITs
109 BITs have been renegotiated109 BITs have been renegotiated
13 renegotiated in 2006 13 renegotiated in 2006
Albania and Romania renegotiated two BITs each Albania and Romania renegotiated two BITs each in 2006. in 2006.
A new generation of BITs since 2004: innovations
A new generation of BITs follows the trend set by some of the recent FTAs
These contain four main innovations:
A comprehensive, but finite definition of ‘investment’ (such as in the Canadian model).
Revisions to the wording of various substantive provisions.
A broader set of issues is addressed, including health, the environment, safety and labour rights.
Innovations regarding investor-State dispute settlement
procedures.
B. Free Trade Agreements
2424
Economic integration agreements (EIAs) Economic integration agreements (EIAs) with investment provisions (eg FTAs)with investment provisions (eg FTAs)
• International investment rules are increasingly being included in agreements that cover a broader range of issues including:
• trade, services, competition, intellectual property
• Free trade agreements, economic partnerhsip agreements, regional integration agreements,or economic cooperation agreements…
• Coverage of investment varies.
- in today’s group activity we will explore this further!
Over 250 EIAs with investment provisions by end 2007
0
50
100
150
200
250
300
Agr
eem
ents
oth
er th
an B
ITs
with
in
vest
men
t pro
visi
ons
By period Cumulative
EIAs with investment provisions by country group, end 2007
5%2% 10%
39%
8%
36%
South-SouthNorth-NorthNorth-SouthNorth-transition economiesTransition economies-transition economies South-transition economies
Recent FTAs with investment chapters
Free Trade Agreement between the United States of America and Peru
Free Trade Agreement between Singapore and Panama
Association Agreement between the European Community and Albania
Free Trade Agreement between Turkey and Morocco
Free Trade Agreement between the Hashemite Kingdom Jordan and the Republic of Singapore
Economic Partnership Agreement between Japan and Philippines
Economic Partnership Agreement between Japan and Chile
Economic Partnership Agreement between Japan and Thailand
2828
South-South cooperation: South-South cooperation: developing countries active in IIAsdeveloping countries active in IIAs
Many developing countries are active participants in Many developing countries are active participants in negotiating IIAsnegotiating IIAs
BITs BITs between developing countriesbetween developing countries leaped from leaped from 4747 in in 1990 to over 1990 to over 650650 by the end of 2006 by the end of 2006
Over Over 90 EIAs 90 EIAs among developing countries had been among developing countries had been signed by end of 2006.signed by end of 2006.
2929
South-South cooperation through South-South cooperation through IIAs is intensifyingIIAs is intensifying
0
100
200
300
400
500
600
700
Nu
mb
er
of
ag
reem
en
ts
0
100
200
300
400
500
600
700
800
900
1'000
FD
I o
utw
ard
sto
ck
Total BITs Total DTTs FDI outward stock
3030
Interregional agreementsInterregional agreements
The EU is negotiationing Economic Promotion Agreements (EPA) with all of the Africa Caribbean Pacific (ACP) regions.
EU-CARIFORUM EPA was signed in October 2008
It contains a chapter on commercial presence (investment)
ESA-EU EPA interim agreement SADC-EU EPA interim agreement
African regional agreements – no investment African regional agreements – no investment protection provisionsprotection provisions
Common Market for Eastern and Southern Africa (COMESA), (1993) contains framework provisions on investment promotion, with some general principles on investment protection.
The Treaty establishing the African Economic Community (AEC) (1991) contains provisions under which the parties agree to ensure the free movement of capital within the Community trough the elimination of restrictions on capital transfers.
Treaty for the Establishment of the East African Community (EAC) (1999) contains commitments by which States parties agreed to adopt measures to achieve the free movement of persons and services.
The South African Development Community (SADC, 1992), aims at the progressive establishment of free movement of goods, services, capital and persons.
3232
Plurilateral agreements:Plurilateral agreements:Investment Agreement for theInvestment Agreement for the
COMESA Common Investment AreaCOMESA Common Investment Area
CCIA signed in 2007
Not yet fully implemented?
Contains provisions that depart from standard provisions in BITs
Includes detailed language on some issues in light of recent arbitral decisions
Aims to find balance between the rights of investors and the state’s right to regulate.
3333
Investment in the multilateral contextInvestment in the multilateral context
Historical overview: Havana Charter, World Bank Historical overview: Havana Charter, World Bank Guidelines, UN Code of Conduct, OECD MAIGuidelines, UN Code of Conduct, OECD MAI
Investment in the WTO: a missed opportunity?Investment in the WTO: a missed opportunity?
Investment-specific agreements: Investment-specific agreements: dispute settlement dispute settlement (ICSID, NY Convention,..), insurance (MIGA)(ICSID, NY Convention,..), insurance (MIGA)
Limited membership: OECD rules, APECLimited membership: OECD rules, APEC
Limited scope: Energy Charter Treaty, GATS, TRIMS, TRIPs. Limited scope: Energy Charter Treaty, GATS, TRIMS, TRIPs.
3434
The increase in IIAs has been The increase in IIAs has been paralleled by an increase in paralleled by an increase in
investor-State disputesinvestor-State disputes
250 known claims by end 2006 (cumulative 250 known claims by end 2006 (cumulative number of treaty-based cases)number of treaty-based cases)
Awards given in these proceedings have helped Awards given in these proceedings have helped to clarify the meaning and content of individual to clarify the meaning and content of individual treaty provisions, some contradictory decisions treaty provisions, some contradictory decisions have also created uncertainty. have also created uncertainty.
3535
Known investment treaty arbitrations (cumulative and newly instituted cases, 1987-2006)
0
10
20
30
40
50
6019
87
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Ann
ual n
umbe
r of
cas
es
0
50
100
150
200
250
300
Cum
ulat
ive
num
ber
of c
ases
ICSID Non-ICSID All cases cumulative
3636
Thank you.Thank you.