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Investment Policy Framework for Sustainable Developmentii

Note

The Division on Investment and Enterprise of UNCTAD is a global centre of excellence dealing with issues related to investment and enterprise development in the United Nations System. It builds on three-and-a-half decades of experience and international expertise in research and policy analysis, fosters intergovernmental consensus-building, and provides technical assistance to developing countries.

The terms country/economy as used in this Report also refer, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgment about the stage of development reached by a particular country or area in the development process. The major country groupings used in this Report follow the classification of the United Nations Statistical Office. These are:

Developed countries: the member countries of the OECD (other than Chile, Mexico, the Republic of Korea and Turkey), plus the new European Union member countries which are not OECD members (Bulgaria, Cyprus, Latvia, Lithuania, Malta and Romania), plus Andorra, Bermuda, Liechtenstein, Monaco and San Marino.

Transition economies: South-East Europe and the Commonwealth of Independent States.

Developing economies: in general all economies not specified above. For statistical purposes, the data for China do not include those for Hong Kong Special Administrative Region (Hong Kong SAR), Macao Special Administrative Region (Macao SAR) and Taiwan Province of China.

Reference to companies and their activities should not be construed as an endorsement by UNCTAD of those companies or their activities.

The boundaries and names shown and designations used on the maps presented in this publication do not imply official endorsement or acceptance by the United Nations.

The following symbols have been used in the tables:

• Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have been omitted in those cases where no data are available for any of the elements in the row.

• A dash (–) indicates that the item is equal to zero or its value is negligible.

• A blank in a table indicates that the item is not applicable, unless otherwise indicated.

• A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year.

• Use of a dash (–) between dates representing years, e.g. 1994–1995, signifies the full period involved, including the beginning and end years.

• Reference to “dollars” ($) means United States dollars, unless otherwise indicated.

• Annual rates of growth or change, unless otherwise stated, refer to annual compound rates.

Details and percentages in tables do not necessarily add to totals because of rounding.

The material contained in this study may be freely quoted with appropriate acknowledgement.

iii

At a time of persistent crises and pressing social and environmental challenges, harnessing economic growth for sustainable and inclusive development is more important than ever. Investment is a primary driver of such growth. Mobilizing investment and ensuring that it contributes to sustainable development objectives is therefore a priority for all countries and for developing countries in particular.

Against this background, a new generation of investment policies is emerging, pursuing a broader and more intricate development policy agenda, while building or maintaining a generally favourable investment climate. “New generation” investment policies place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment. Although these concepts are not new in and by themselves, to date they have not been systematically integrated in mainstream investment policymaking. “New generation” investment policies aim to operationalize sustainable development in concrete measures and mechanisms at the national and international level, and at the level of policy making and implementation.

Broadly, “new generation” investment policies strive to:

• create synergies with wider economic development goals or industrial policies, and achieve seamless integration in development strategies;

• foster responsible investor behavior and incorporate principles of corporate social responsibility (CSR);

• ensure policy effectiveness in their design and implementation and in the institutional environment within which they operate.

To help policymakers address the challenges posed by this new agenda, this report takes a fresh look at investment policymaking, and does so by taking a systemic approach, examining the universe of national and international policies through the lens of today’s key investment policy challenges. It explicitly focuses on the development dimension, and presents a comprehensive Investment Policy Framework for Sustainable Development (IPFSD).

The IPFSD consists of a set of Core Principles for investment policymaking, guidelines for national investment policies, and guidance for policymakers on how to engage in the international investment policy regime, in the form of options for the design and use of international investment agreements (IIAs).

The IPFSD is built on the experience of UNCTAD and other organizations in designing investment policies for development, and it incorporates lessons learned on what policies and measures work well, or not so well, under what circumstances. It represents the best endeavour by the UNCTAD secretariat, in collaboration with numerous international experts and investment stakeholders. It is the result of collective wisdom.

It is hoped that the IPFSD may serve as a reference for policymakers in formulating national investment policies and in negotiating investment agreements or revising existing ones. It can also serve as the basis for capacity building on investment policy and for UNCTAD’s technical assistance work. And it may come to act as a point of convergence for international cooperation on investment issues.

The IPFSD has been designed as a “living document”. UNCTAD will continuously update its contents based on feedback from its numerous policy forums and from its work in the field, and it will provide a platform for “open sourcing” of best practice investment policies.

Towards a New Generation of Investment Policies

Preface

Investment Policy Framework for Sustainable Developmentiv

Acknowledgements

UNCTAD’s Investment Policy Framework for Sustainable Development (IPFSD) was prepared by a team led by James Zhan. The team members included Richard Bolwijn, Quentin Dupriez, Joachim Karl, Sergey Ripinsky, Elisabeth Türk, and Jörg Weber. Wolfgang Alschner, Anna-Lisa Brahms, Hamed El Kady, Diana Rosert and Thomas van Giffen also contributed to the work.

At various stages of preparation, in particular during a series of expert group meetings organized to discuss drafts of the framework, the team benefited from comments and inputs received from Michael Addo, Yuki Arai, Nathalie Bernasconi, Jeremy Clegg, Zachary Douglas, Roberto Echandi, Lorraine Eden, Alejandro Faya, Stephen Gelb, Robert Howse, Christine Kaufmann, Jan Kleinheisterkamp, John Kline, Markus Krajewski, Arvind Mayaram, Yuki Arai, Kate Miles, Ted Moran, Peter Muchlinski,

Rajneesh Narula, Federico Ortino, Joost Pauwelyn, Stephan Schill, Andrea Saldarriaga, Karl Sauvant, Pierre Sauvé, Jorge Vinuales, Stephen Young, and Zbigniew Zimny. Comments were also received from numerous UNCTAD colleagues, including Kiyoshi Adachi, Chantal Dupasquier, Torbjörn Fredriksson, Masataka Fujita, Hafiz Mirza, Fiorina Mugione, Paul Wessendorp, Richard Kozul-Wright and colleagues from the Division on Globalization and Development Strategies and the Division on International Trade and Commodities.

The IPFSD benefited from review and discussion at several intergovernmental meetings, including the International Investment Agreements Conference and the Ministerial Round Table at the World Investment Forum 2012 (WIF2012) and UNCTAD XIII in Doha, Qatar.

v

Table of Contents

Preface: Towards a New Generation of Investment Policies ..........................................................iii

Acknowledgements .............................................................................................................................iv

Introduction: Investment Policy Framework for Sustainable Development .................................. 1

I. A “New Generation” of Investment Policies .............................................................................. 3

1. The changing investment policy environment ......................................................................... 3

2. Key investment policy challenges ........................................................................................... 6

3. Addressing the challenges: UNCTAD’s Investment Policy Framework

for Sustainable Development ................................................................................................... 8

II. Core Principles for Investment Policymaking .......................................................................... 10

1. Scope and objectives of the Core Principles ........................................................................ 10

2. Core Principles for Investment Policymaking for Sustainable Development ......................... 11

3. Annotations to the Core Principles ......................................................................................... 11

III. National Investment Policy Guidelines .................................................................................... 15

1. Grounding investment policy in development strategy .......................................................... 15

2. Designing policies for responsible investment and sustainable development ....................... 20

3. Implementation and institutional mechanisms for policy effectiveness ................................. 22

4. The IPFSD’s national policy guidelines .................................................................................. 25

IV. Elements of International Investment Agreements: Policy Options ...................................... 36

1. Defining the role of IIAs in countries’ development strategy and investment policy.............. 36

2. Negotiating sustainable-development-friendly IIAs ............................................................... 39

3. IIA elements: policy options ................................................................................................... 43

4. Implementation and institutional mechanisms for policy effectiveness ................................. 64

V. The Way Forward ........................................................................................................................ 65

1

The policy environment for cross-border investment is subject to constant change. At the national level, governments continue to adopt investment policy measures (at a rate of around 150 annually over the past decade according to UNCTAD’s monitoring of such measures), not to speak of countless measures taken every year that influence the overall business environment for investors. At the international level, new investment agreements have been concluded at a rate of more than one per week for the past few years. At the level of “soft law”, the universe of codes and standards that govern the behavior of corporate investors also continues to expand.

Over the last two decades, as more and more governments have come to realize the crucial role of private investment, including FDI, in fuelling economic growth and development, great strides have been made to improve both national and international investment policies. Very significant efforts have been made by governments in developing countries in particular, often aided by the international development community through policy frameworks, model treaties and technical assistance (such as UNCTAD’s Investment Policy Reviews). A lot of experience has been gained and documented that now helps policymakers identify measures that work well, or less well, under what circumstances and in what context.

Despite the progress made, and despite the lessons learned, important questions remain unanswered for policymakers. Some perceived or acknowledged shortcomings in investment policy regimes are addressed only partially, or not at all, by existing models and frameworks intended to support policymakers.

This report takes a fresh look at investment policymaking – focusing on direct private investment in productive assets (i.e. excluding

other capital flows which should be addressed by the financial system and policies) – by taking a systemic approach that examines the universe of national and international policies through the lens of today’s key investment policy challenges. It also aims explicitly to strengthen the development dimension of investment policies, and presents a comprehensive Investment Policy Framework for Sustainable Development (IPFSD).

Encouragement to pick up this gauntlet comes from discussions with senior policymakers in numerous forums, including at UNCTAD’s biennial World Investment Forum; at its Commission on Investment, Enterprise and Development; and at its regular intergovernmental expert group meetings on investment and enterprise. It also stems from discussions with academics and business advisors in UNCTAD’s round tables on investment policy, and from UNCTAD’s technical assistance work with developing countries. Further encouragement has emerged from other important policy platforms, most notably the G-20, which in its Seoul Declaration in 2010 and the accompanying Multi-Year Action Plan for Development specifically refers to the need to strengthen the sustainable development dimension of national and international investment policies.

The IPFSD also comes at a time when many other investment stakeholders are putting forward suggestions for the future of investment policymaking. At UNCTAD’s 2012 World Investment Forum the International Chamber of Commerce (ICC) launched its contribution in the form of (revised) Guidelines for International Investment. The OECD has announced its intention to start work on an update of its policy framework for investment. The recently adopted European Union-United States Statement on Shared Principles for International Investment and the release of the new

Investment Policy Framework for Sustainable Development

Introduction

Investment Policy Framework for Sustainable Development2

United States’ model BIT are also testimony of policy dynamism. These developments appear to signal a window of opportunity to strengthen the sustainable development dimension of investment policies.

The remainder of this report first details the drivers of change in the investment policy environment – introducing a “new generation” of investment policies – and the challenges that need to be addressed in a comprehensive IPFSD (chapter I). It then proposes a set of Core Principles for investment policymaking,

which serve as “design criteria” for national and international investment policies (chapter II). Chapter III presents a framework for national investment policy. Chapter IV focuses on IIAs and translates the Core Principles into options for the formulation and negotiation of such instruments, with a particular focus on development-friendly options. The final chapter looks at the way forward, suggesting how policymakers and the international development community could make use of the IPFSD, and how it could be further improved.

I. A “New Generation” of Investment Policies 3

I. A “New Generation” of Investment Policies

1. The changing investment policy environment

Investment policy is not made in a vacuum. It is made in a political and economic context that, at the global and regional levels, has been buffeted in recent years by a series of crises in the areas of finance, food security and the environment, and that faces persistent global imbalances and social challenges, especially with regard to poverty alleviation. These crises and challenges are having profound effects on the way policy is shaped at the global level. First, the economic and financial crisis has accentuated a longer-term shift in economic weight from developed countries to emerging markets. Global challenges such as food security and climate change, where developing country engagement is an indispensable prerequisite for any viable solution, have further added to a greater role for those countries in global policymaking. Second, the financial crisis in particular has boosted the role of governments in the economy, both in the developed and the developing world. Third, the nature of the challenges, which no country can address in isolation, makes better international coordination imperative. And fourth, the global political and economic context and the challenges that need to be addressed – with social and environmental concerns taking center stage – are leading policymakers to reflect on an emerging new development paradigm that places inclusive and sustainable development goals on the same footing as economic growth and development goals.

Trends in investment policy naturally mirror these developments.

There have been fundamental changes in the investment and investor landscape.

Developing countries and economies in transition are now primary FDI destinations, and their importance as FDI recipients continues to increase. In 2010, for the first time, developing countries received more than half of global FDI flows – in part as a result of the fall in investment in developed countries. This increases the opportunities, but also multiplies the stakes, for strategic investment

targeting, promotion and protection policies in developing countries.

Emerging economies have not only become important recipients of FDI, they are increasingly large investors themselves, with their share in world outflows approaching 30 per cent. While these countries might previously have been more concerned with the pressure they faced to provide protection for investments made by others, they now also consider the security and treatment of their own investors’ interests abroad.

There are also new types of investors on the scene. State-owned enterprises (SOEs) are becoming important FDI players; UNCTAD counted some 650 multinational SOEs in 2010, operating about 8,500 foreign affiliates (WIR11). Although SOEs account for only 1 per cent of the total number of multinational enterprises, their overseas investments amount to roughly 11 per cent of global FDI flows. Sovereign wealth funds (SWFs), similarly, are gaining importance as FDI players. Their total FDI stock amounted to some $110 billion in 2011, and their overseas investments make up less than 1 per cent of global FDI flows. But with total assets under management of $4-5 trillion, the scope for further direct investment in productive assets is significant.

Clearly the patterns and types of investment of these new players (in terms of home and host countries and in terms of investors) are different, and so are their policy priorities. Furthermore, it is necessary to be vigilant concerning waning support for open investment climates in developed market economies in the face of competition from increasingly active developing-country investors.

Governments are playing a greater role in the economy and are giving more direction to investment policy.

Governments have become decidedly less reticent in regulating and steering the economy. More and more governments are moving away from the hands-off approach to economic growth and development that prevailed previously.1 Industrial policies and industrial development strategies are proliferating in developing and developed countries


alike (WIR11). These strategies often contain elements of targeted investment promotion or restriction, increasing the importance of integrated and coherent development and investment policies.

Governments are also becoming more active in their efforts to integrate domestic companies into global value chains (GVCs). They promote such integration through local capacity building, technological upgrading and investment promotion activities, such as matchmaking or the establishment of special economic zones. Expectations of governments’ promotion efforts have become higher as they increasingly focus on the quality – and not only on the quantity – of investment.

Fears and, to some extent, evidence of a job-less (or job-poor) recovery in many regions are also adding pressure on governments to look for “the right types” of investment, and to adopt measures to maximize the job-creation impact of investment. In developed countries, such fears have at times sparked debate on whether and how to discourage domestic companies from investing abroad or to promote the repatriation of foreign investment back home. In developing countries, the same fears are fuelling the debate on whether investment is bringing enough jobs for the poor and is sufficiently inclusive.

A stronger role of the State also manifests itself with regard to other sustainability issues. New social and environmental regulations are being introduced or existing rules reinforced – all of which has implications for investment. In addition to regulatory activities, governments are increasing efforts to promote actively the move towards sustainable development, for example through the encouragement of low-carbon FDI. They are also placing more emphasis on corporate responsibility by promoting the adoption of private codes of corporate conduct.

The trend for policymakers to intervene more in the economy and, to an extent, to steer investment activity, is visible in the constantly increasing share of regulatory and restrictive policies in total investment policy measures over the last five years. This trend reflects, in part, a renewed realism about the economic and social costs of unregulated market forces but it also gives rise to concerns that an accumulation of regulatory activities may

gradually increase the risk of over-regulation or investment protectionism that hinders inward and outward FDI (see box 1).

There is a greater need for global coordination on investment policy.

The need to address common sustainable development challenges and to respond effectively to global economic and financial turmoil to avoid future crises, has instigated calls for new models of global economic governance. In the area of investment, there are compelling reasons for such improved international coordination. It could help keep protectionist tendencies and discriminatory treatment of foreign investors in check. Further, in a world in which governments increasingly “compete” for their preferred types of investment it could help avoid a “race to the bottom” in regulatory standards or a ‘race to the top’ in incentives.

A number of specific investment issues accentuate the need for better global coordination on investment policy as, by their nature, they can be addressed effectively only in a cooperative manner. For one, better international coordination would help overcome coherence problems posed by the highly atomized system of IIAs, consisting of more than 3,100 core treaties (i.e. bilateral investment treaties (BITs) and other agreements with investment provisions). Another example where policymakers are increasingly engaged in international dialogue is international tax cooperation. Unsustainable levels of public deficits and sovereign debt have made governments far more sensitive to tax avoidance, manipulative transfer pricing, tax havens and similar options available to multinational firms to unduly reduce their tax obligations in host and home countries.

Other, non-financial, global challenges also require better coordination on investment, as witnessed by efforts to promote green investment in support of environmentally friendly growth, and international collaboration on investment in agriculture to help improve food security (WIR09, WIR10).

A new generation of investment policies is emerging.

As a result of the developments described above, a new generation of investment policies is emerging, pursuing a broader and more intricate development policy agenda within a framework that seeks to


Box 1. Defining Investment Protectionism

Despite the fact that international policy forums at the highest level (e.g. the G202) frequently make reference to “investment protectionism”, there is no universally agreed definition of the term. Different schools of thought take different approaches.

Broadly, protectionist measures related to investment would include: (1) measures directed at foreign investors that explicitly or “de facto” discriminate against them (i.e. treating them differently from domestic investors) and that are designed to prevent or discourage them from investing in, or staying in, the country. And (2) measures directed at domestic companies that require them to repatriate assets or operations to the home country or that discourage new investments abroad.3 In this context, “measures” refer to national regulatory measures, but also include the application of administrative procedures or, even less tangible, political pressure.

The above reasoning ignores any possible justification of investment protectionism – i.e. measures may be motivated by legitimate policy concerns such as the protection of national security, public health or environmental objectives, or a desire to increase the contribution of FDI to economic development. It also does not refer to any assessment of proportionality of measures relative to such legitimate policy concerns. Nor does it attempt to assess the legality of relevant measures under any applicable international normative framework (whether investment-specific, i.e. international investment agreements; trade-related, e.g. WTO rules; or otherwise). Disregarding these considerations is analogous to the situation in trade, where a tariff may be applied to imports for legitimate policy reasons and may be legal under WTO rules, but is often still considered a protectionist measure.

From a development perspective this approach is clearly unsatisfactory: measures taken for legitimate public policy objectives, relevant and proportional to those objectives and taken in compliance with relevant international instruments, should not be considered protectionist. The challenge lies in defining the boundaries of legitimacy, relevance and proportionality, in order to distinguish between measures taken in good faith for the public good and measures with underlying discriminatory objectives.

For many policymakers the term “protectionism” has a negative connotation. The lack of a common language among policymakers and the investment community – one country’s protectionism is another country’s industrial policy – is not helpful to efforts to maintain an international investment policy environment that aims to balance openness and pursuit of the public good while minimizing potentially harmful distortionary effects on investment flows.

Source: UNCTAD.

maintain a generally favourable investment climate. This new generation of investment policies has been in the making for some time, and is reflected in the dichotomy in policy directions over the last few years – with simultaneous moves to further liberalize investment regimes and promote foreign investment, on the one hand, and to regulate investment in pursuit of public policy objectives on the other. It reflects the recognition that liberalization, if it is to generate sustainable development outcomes, has to be accompanied – if not preceded – by the establishment of proper regulatory and institutional frameworks. The key policy challenge is to strike the right balance between regulation and openness (Epilogue WIR10).

“New generation” investment policies place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment.

Sustainable development issues – including environmental, social and poverty alleviation concerns – as well as investor responsibility in these areas, are not “new” in and by themselves. However, to date, the myriad of solutions and options developed over the years to address sustainable development concerns have not been part and parcel of mainstream investment policymaking, and the international consensus on sustainable development is not reflected in it. “New generation” investment policies aim to systematically integrate sustainable development and operationalize it in concrete measures and mechanisms at the national and international level, and at the level of policy making and implementation.

Broadly, “new generation” investment policies are characterized by (i) a recognition of the role of investment as a primary driver of economic growth


Table 1. National investment policy challenges

Integrating investment policy in development strategy

• Channeling investment to areas key for the build-up of productive capacity and international competitiveness

• Ensuring coherence with the host of policy areas geared towards overall development objectives

Incorporating sustainable development objectives in investment policy

• Maximizing positive and minimizing negative impacts of investment• Fostering responsible investor behaviour

Ensuring investment policy relevance and effectiveness

• Building stronger institutions to implement investment policy• Measuring the sustainable development impact of investment

and development and the consequent realization that investment policies are a central part of development strategies; and (ii) a desire to pursue sustainable development through responsible investment, placing social and environmental goals on the same footing as economic growth and development objectives. Furthermore, (iii) a shared recognition of the need to promote responsible investment as a cornerstone of economic growth and job creation is giving renewed impetus to efforts to resolve, in a comprehensive manner, long-standing issues and shortcomings of investment policy that may hamper policy effectiveness and risk causing uncertainty for investors. These three broad aspects of “new generation” investment policies translate into specific investment policy challenges at the national and international levels.

2. Key investment policy challenges

At the national level, key investment policy challenges are (table 1):

• To connect the investment policy framework to an overall development strategy or industrial development policy that works in the context of national economies, and to ensure coherence with other policy areas, including overall private sector or enterprise development, and policies in support of technological advancement, international trade and job creation. “New generation” investment policies increasingly incorporate targeted

objectives to channel investment to areas key for economic or industrial development and for the build-up, maintenance and improvement of productive capacity and international competitiveness.

• To ensure that investment supports sustainable development and inclusiveness objectives. Investment policymaking will focus increasingly on qualitative aspects of investment. Because the behaviour of firms, including international investors, with respect to social and environmental issues is driven in part by corporate responsibility standards developed outside the traditional regulatory realm, one aspect of this challenge is finding the right balance between regulatory and private sector initiatives. A focus on sustainable development objectives also implies that investment policy puts increasing emphasis on the promotion of specific types of investment, e.g. ‘green investments’ and ‘low-carbon investment’ (WIR10).

• To ensure continued investment policy relevance and effectiveness, building stronger institutions to implement investment policy and to manage investment policy dynamically, especially by measuring the sustainable development impact of policies and responding to changes in the policy environment. With the greater role that governments are assuming in


Table 2. International investment policy challenges

Strengthening the development dimension of IIAs

• Safeguarding policy space for sustainable development needs• Making investment promotion provisions more concrete and consistent with sustainable

development objectives

Balancing rights and obligations of states and investors

• Reflecting investor responsibilities in IIAs• Learning from and building on CSR principles

Managing the systemic complexity of the IIA regime

• Dealing with gaps, overlaps and inconsistencies in IIA coverage and content and resolving institutional and dispute settlement issues

• Ensuring effective interaction and coherence with other public policies (e.g. climate change, labour) and systems (e.g. trading, financial)

steering investment to support sustainable development objectives, and with the selective departure from an open and liberal approach to investment, comes greater responsibility on the part of policymakers to ensure the effectiveness of their measures, especially where such measures imply restrictions on the freedom of economic actors or outlays of public funds (e.g. in the case of incentives or the establishment of special economic zones).

Similarly, at the international level, the changing investment policy environment is giving rise to three broad challenges (table 2):

• To strengthen the development dimension of the international investment policy regime. In the policy debate this development dimension principally encompasses two aspects:

− Policymakers in some countries, especially those seeking to implement industrial development strategies and targeted investment measures, have found that IIAs can unduly constrain national economic development policymaking.

− Many policymakers have observed that IIAs are focused almost exclusively on protecting investors and do not do enough to promote investment for development.

• To adjust the balance between the rights and obligations of States and investors, making

it more even. IIAs currently do not set out any obligations on the part of investors in return for the protection rights they are granted. Negotiators could consider including obligations for investors to comply with national laws of the host country. In addition, and parallel to the debate at the level of national policies, corporate responsibility initiatives, standards and guidelines for the behaviour of international investors increasingly shape the investment policy landscape. Such standards could serve as an indirect way to add the sustainable development dimension to the international investment policy landscape, although there are concerns among developing countries that they may also act as barriers to investment and trade.

• To resolve issues stemming from the increasing complexity of the international investment policy regime. The current regime is a system of thousands of treaties (mostly bilateral investment treaties, free trade agreements with investment provisions, and regional agreements), many ongoing negotiations and multiple dispute-settlement mechanisms, which nevertheless offers protection to only two-thirds of global FDI stock, and which covers only one-fifth of bilateral investment relationships (WIR 11). Most governments continue to participate in


Figure 1. Structure and components of the IPFSD

Core Principles“Design criteria” for investment

policies and for the other IPFSD components

National investmentpolicy guidelines

Concrete guidance for policymakers on how to formulate investment policies and regulations and on how to ensure their effectiveness

IIA elements: policy options

Clause-by-clause options for negotiators to strengthen the sustainable development dimension of IIAs

the process of adding ever more agreements to the system, despite the fact that many are not fully satisfied with its overall design. It has a number of systemic problems, including gaps, overlaps and inconsistencies in coverage and content; ambiguities in treaty interpretation by arbitral tribunals; onerous arbitration procedures and unpredictability of arbitration awards. Also, the “interconnect” between international investment policies and other policy areas such as trade, finance, competition or environmental (e.g. climate change) policies, is absent.

3. Addressing the challenges: UNCTAD’s Investment Policy Framework for Sustainable Development

To address the challenges discussed in the previous section, UNCTAD proposes a comprehensive Investment Policy Framework for Sustainable Development (IPFSD), consisting of a set of Core Principles for investment policymaking, guidelines for national investment policies, and guidance for policymakers on how to engage in the international investment policy regime, in the form of options for the design and use of IIAs (figure 1 and box 2). These build on the experience and lessons learned of UNCTAD and other organizations in

designing investment policies for development. By consolidating good practices, the IPFSD also attempts to establish a benchmark for assessing the quality of a country’s policy environment for foreign investment – taking into account that one single policy framework cannot address the specific investment policy challenges of individual countries (see boxes 4, 6 and 7 on the need for custom-designed investment policy advice).

Although there are a number of existing international instruments that provide guidance to investment policymakers,4 UNCTAD’s IPFSD distinguishes itself in several ways. First, it is meant as a comprehensive instrument dealing with all aspects of national and international investment policymaking. Second, it puts a particular emphasis on the relationship between foreign investment and sustainable development, advocating a balanced approach between the pursuit of purely economic growth objectives by means of investment liberalization and promotion, on the one hand, and the need to protect people and the environment, on the other hand. Third, it underscores the interests of developing countries in investment policy making. Fourth, it is neither a legally binding text nor a voluntary undertaking between States, but expert guidance by an international organization, leaving national policymakers free to “adapt and adopt” as appropriate.


Box 2. Scope of the IPFSD

This box addresses a number of key questions relating to the scope, coverage and target audience of the IPFSD:

What policies are covered by the IPFSD?The IPFSD is meant to provide guidance on investment policies, with a particular focus on foreign direct investment (FDI). This includes policies with regard to the establishment, treatment and promotion of investment. In addition, a comprehensive IPFSD needs to look beyond investment policies per se and include investment-related aspects of other policy areas.

Does the IPFSD deal with national and international investment policies? Investment policies and related policy areas covered by the IPFSD comprise national and international policies, as coherence between the two is fundamental.

Does the IPFSD cover domestic and foreign investment? The IPFSD’s focus on FDI is evident in sections on, for example, the entry and establishment of investment, the promotion of outward investment and the chapter on international investment policies. However, many of the guidelines in the chapter on national investment policies have relevance for domestic investment as well.

Does the IPFSD consider portfolio investment? The IPFSD focuses on direct investment in productive assets. Portfolio investment is considered only where explicitly stated in the context of IIAs, which in many cases extend coverage beyond direct investment.

Is the IPFSD concerned with inward and outward investment? The IPFSD primarily offers policy advice for countries where the investment – domestic or foreign – is made, as this is typically the principal concern of investment policies. However, the IPFSD does not ignore the fact that policies with regard to outward investment may also be part of a country’s development strategy.

Is the IPFSD addressed to policymakers from developing and developed countries? The addressees of the IPFSD are, in principle, both developing and developed countries. It has been designed with the particular objective to assist the former in the design of investment policies in support of sustainable development objectives, but is equally relevant for developed countries.

Does the IPFSD focus on the attraction of investment or on its impact?The policy guidelines of the IPFSD serve a dual purpose. On the one hand, they intend to assist governments in improving the attractiveness of their countries as investment locations. To this end, they contain specific recommendations concerning the institutional set-up, the general business climate and the treatment of investors. On the other hand, they also provide guidance on how countries can maximize the sustainable development benefits from investment, in particular foreign investment.

Source: UNCTAD.


Box 3. The origins of the Core Principles in international law

The Core Principles can be traced back to a wide range of existing bodies of international law, treaties and declarations.

The UN Charter (Article 55) promotes, inter alia, the goal of economic and social progress and development. The UN Millennium Development Goals call for a Global Partnership for Development. In particular, its Goal 8 (Target 12) encourages the further development of an open, rule-based, predictable, non-discriminatory trading and financial system, which includes a commitment to good governance, development, and poverty reduction, both nationally and internationally – concepts that apply equally to the investment system. The “Monterrey Consensus” of the UN Conference on Financing for Development of 2002 acknowledges that countries need to continue their efforts to achieve a transparent, stable and predictable investment climate, with proper contract enforcement and respect for property rights, embedded in sound macroeconomic policies and institutions that allow businesses, both domestic and international, to operate efficiently and profitably and with maximum development impact. The UN Johannesburg Plan of Implementation of September 2002, following up on the “Rio Declaration”, calls for the formulation and elaboration of national strategies for sustainable development, which integrate economic, social and environmental aspects. The 4th UN Conference on LDCs in May 2011 adopted the Istanbul Programme of Action for the LDCs 2011-2020 with a strong focus on productive capacity-building and structural transformation as core elements to achieve more robust, balanced, equitable, and sustainable growth and sustainable development. Finally, the 2012 UNCTAD XIII Conference – as well as previous UNCTAD Conferences – recognized the role of FDI in the development process and called on countries to design policies aimed at enhancing the impact of foreign investment on sustainable development and inclusive growth, while underlining the importance of stable, predictable and enabling investment climates.

Several other international instruments relate to individual Core Principles. They comprise, in particular, the Universal Declaration of Human Rights and the UN Guiding Principles on Business and Human Rights, the Convention on the Establishment of the Multilateral Investment Guarantee Agency, the World Bank Guidelines on the Treatment of Foreign Direct Investment, the UN Global Compact, the OECD Guidelines for Multinational Enterprises and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and several WTO-related agreements, including the GATS, the TRIMs Agreement and the Agreement on Government Procurement.

Source: UNCTAD.

II. Core Principles for Investment Policymaking

1. Scope and objectives of the Core Principles

The Core Principles for investment policymaking aim to guide the development of national and international investment policies. To this end, they translate the challenges of investment policymaking into a set of “design criteria” for investment policies. Taking the challenges discussed in the previous chapter as the starting point, they call for integrating investment policy in overall development strategies, enhancing sustainable development as part of investment policies, balancing rights and obligations of States and investors in the context of investment protection and promotion, including CSR into investment policymaking, and encouraging international cooperation on investment-related challenges.

The Core Principles are not a set of rules per se. They are an integral part of the IPFSD, as set out in this report, which attempts to convert them, collectively and individually, into a concrete set of policy guidelines

for national investment policymakers and for negotiators of IIAs (chapters III and IV). As such, they do not always follow the traditional “policy areas” of a national investment policy framework, nor the usual articles of IIAs.

The Core Principles are grouped as follows:• Principle 1 states the overarching objective of

investment policymaking.• Principles 2, 3 and 4 relate to the general process

of policy development and the policymaking environment as relevant for investment policies.

• Principles 5 through 10 address the specifics of investment policymaking.

• Principle 11 refers to cooperation in investment-related matters at the international level.

The design of the Core Principles has been inspired by various sources of international law and politics. Some of these instruments have importance for the entire set of the Core Principles as they relate – to various degrees – to sustainable development. Several other international instruments relate to individual Core Principles (see box 3).

II. Core Principles for Investment Policymaking 11

2. Core Principles for investment policymaking for sustainable development

Area Core Principles

1 Investment for sustainable development

• The overarching objective of investment policymaking is to promote investment for inclusive growth and sustainable development.

2 Policy coherence • Investment policies should be grounded in a country’s overall development strategy. All policies that impact on investment should be coherent and synergetic at both the national and international level.

3 Public governance and institutions

• Investment policies should be developed involving all stakeholders, and embedded in an institutional framework based on the rule of law that adheres to high standards of public governance and ensures predictable, efficient and transparent procedures for investors.

4 Dynamic policymaking • Investment policies should be regularly reviewed for effectiveness and relevance and adapted to changing development dynamics.

5 Balanced rights and obligations

• Investment policies should be balanced in setting out rights and obligations of States and investors in the interest of development for all.

6 Right to regulate • Each country has the sovereign right to establish entry and operational conditions for foreign investment, subject to international commitments, in the interest of the public good and to minimize potential negative effects.

7 Openness to investment • In line with each country’s development strategy, investment policy should establish open, stable and predictable entry conditions for investment.

8 Investment protection and treatment

• Investment policies should provide adequate protection to established investors. The treatment of established investors should be non-discriminatory in nature.

9 Investment promotion and facilitation

• Policies for investment promotion and facilitation should be aligned with sustainable development goals and designed to minimize the risk of harmful competition for investment.

10 Corporate governance and responsibility

• Investment policies should promote and facilitate the adoption of and compliance with best international practices of corporate social responsibility and good corporate governance.

11 International cooperation

• The international community should cooperate to address shared investment-for-development policy challenges, particularly in least developed countries. Collective efforts should also be made to avoid investment protectionism.

3. Annotations to the Core Principles

Principle 1: Investment for sustainable development

This overarching principle defines the overall objective of the Investment Policy Framework for Sustainable Development. It recognizes the need to promote investment not only for economic growth as such, but for growth that benefits all, including

the poorest. It also calls for the mainstreaming of sustainable development issues – i.e. development that meets the needs of the present without compromising the ability of future generations to meet theirs – in investment policymaking, both at the national and international levels.

Principle 2: Policy coherence

This principle recognizes that investment is a means to an end, and that investment policy should thus be


integrated in an overarching development strategy. It also acknowledges that success in attracting and benefiting from investment depends not only on investment policy “stricto sensu” (i.e. entry and establishment rules, treatment and protection) but on a host of investment-related policy areas ranging from tax to trade to environmental and labour market policies. It recognizes that these policy areas interact with each other and that there is consequently a need for a coherent overall approach to make them conducive to sustainable development and to achieve synergies. The same considerations apply with respect to the interaction between national investment policies and international investment rulemaking. Successful experiences with investment for development often involved the establishment of special agencies with a specific mandate to coordinate the work of different ministries, government units and policy areas, including the negotiation of IIAs.

Principle 3: Public governance and institutions

The concept of good public governance refers to the efficiency and effectiveness of government services, including such aspects as accountability, predictability, clarity, transparency, fairness, rule of law, and the absence of corruption. This principle recognizes the importance of good public governance as a key factor in creating an environment conducive to attracting investment. It also stresses the significance of a participatory approach to policy development as a basic ingredient of investment policies aimed at inclusive growth and fairness for all. The element of transparency is especially important, as in and by itself it tends to facilitate dialogue between public and private sector stakeholders, including companies, organized labour and non-governmental organizations (NGOs).

Principle 4: Dynamic policymaking

This principle recognizes that national and international investment policies need flexibility to adapt to changing circumstances, while recognizing that a favourable investment climate requires stability and predictability. For one, different policies are needed at different development stages. New factors may emerge on the domestic policy scene, including government changes, social pressures or

environmental degradation. International dynamics can have an impact on national investment policies as well, including through regional integration or through international competition for the attraction of specific types of foreign investment. The increasing role of emerging economies as outward investors and their corresponding desire better to protect their companies abroad drives change in investment policies as well.

The dynamics of investment policies also imply a need for countries continuously to assess the effectiveness of existing instruments. If these do not achieve the desired results in terms of economic and social development, or do so at too high a cost, they may need to be revised.

Principle 5: Balanced rights and obligations

Investment policies need to serve two potentially conflicting purposes. On the one hand, they have to create attractive conditions for foreign investors. To this end, investment policies include features of investment liberalization, protection, promotion and facilitation. On the other hand, the overall regulatory framework of the host country has to ensure that any negative social or environmental effects are minimized. More regulation may also be warranted to find appropriate responses to crises (e.g. financial crisis, food crisis, climate change).

Against this background, this core principle suggests that the investment climate and policies of a country should be “balanced” as regards the overall treatment of foreign investors. Where and how to strike this balance is basically an issue for the domestic law of host countries and therefore requires adequate local capacities. International policies vis-à-vis foreign investors likewise play a role and – if not carefully designed – might tilt the balance in favour of those investors. The principle does not mean that each individual investment-related regulation of a host country would have to be balanced.

Principle 6: Right to regulate

The right to regulate is an expression of a country’s sovereignty. Regulation includes both the general legal and administrative framework of host countries as well as sector- or industry-specific rules. It also entails effective implementation of rules, including

II. Core Principles for Investment Policymaking 13

the enforcement of rights. Regulation is not only a State right, but also a necessity. Without an adequate regulatory framework, a country will not be attractive for foreign investors, because such investors seek clarity, stability and predictability of investment conditions in the host country.

The authority to regulate can, under certain circumstances, be ceded to an international body to make rules for groups of states. It can be subject to international obligations that countries undertake; with regard to the treatment of foreign investors this often takes place at the bilateral or regional level. International commitments thus reduce “policy space”. This principle advocates that countries maintain sufficient policy space to regulate for the public good.

Principle 7: Openness to investment

This principle considers a welcoming investment climate, with transparent and predictable entry conditions and procedures, a precondition for attracting foreign investment conducive for sustainable development. The term “openness” is not limited to formal openness as expressed in a country’s investment framework and, possibly, in entry rights granted in IIAs. Equally important is the absence of informal investment barriers, such as burdensome, unclear and non-transparent administrative procedures. At the same time, the principle recognizes that countries have legitimate reasons to limit openness to foreign investment, for instance in the context of their national development strategies or for national security reasons.

In addition, the issue of “openness” reaches beyond the establishment of an investment. Trade openness can be of crucial importance, too; in particular, when the investment significantly depends on imports or exports.

Principle 8: Investment protection

This principle acknowledges that investment protection, although only one among many determinants of foreign investment, can be an important policy tool for the attraction of investment. It therefore closely interacts with the principle on investment promotion and facilitation (Principle 9). It has a national and an international component. Core elements of protection at the

national level include, inter alia, the rule of the law, the principle of freedom of contract and access to courts. Key components of investment protection frequently found in IIAs comprise the principle of non-discrimination (national treatment and most-favoured nation treatment), fair and equitable treatment, protection in case of expropriation, provisions on movement of capital, and effective dispute settlement.

Principle 9: Investment promotion and facilitation

Most countries have set up promotion schemes to attract and facilitate foreign investment. Promotion and facilitation measures often include the granting of fiscal or financial incentives, the establishment of special economic zones or “one-stop shops”. Many countries have also set up special investment promotion agencies (IPAs) to target foreign investors, offer matchmaking services and provide aftercare.

The principle contains two key components. First, it stipulates that in their efforts to improve the investment climate, countries should not compromise sustainable development goals, for instance by lowering regulatory standards on social or environmental issues, or by offering incentives that annul a large part of the economic benefit of the investment for the host country. Second, the principle acknowledges that, as more and more countries seek to boost investment and target specific types of investment, the risk of harmful competition for investment increases; i.e. a race to the regulatory bottom or a race to the top of incentives (with negative social and environmental consequences or escalating commitments of public funds). Investment policies should be designed to minimize this risk. This underlines the importance of international coordination (see Principle 11 below).

Principle 10: Corporate governance and responsibility

This principle recognizes that corporate governance and CSR standards are increasingly shaping investment policy at the national and international levels. This development is reflected in the proliferation of standards, including several intergovernmental organization standards of the United Nations, the ILO, the IFC and the OECD, providing guidance on fundamental CSR issues;5


dozens of multi-stakeholder initiatives; hundreds of industry association codes; and thousands of individual company codes (WIR11). Most recently, the UN Human Rights Council adopted a resolution endorsing the Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises.

CSR standards are voluntary in nature and so exist as a unique dimension of “soft law”. The principle calls on governments to actively promote CSR standards and to monitor compliance with them. Promotion also includes the option to adopt existing CSR standards as part of regulatory initiatives, turning voluntary standards into mandatory requirements.

Principle 11: International cooperation

This principle considers that investment policies touch upon a number of issues that would benefit from more international cooperation. The principle also advocates that particular efforts should be made to encourage foreign investment in LDCs.

Home countries can support outward investment conducive to sustainable development. For a long time, developed countries have provided investment guarantees against certain political risks in the host country or offered loans to companies investing abroad. The Multilateral Investment Guarantee Agency (MIGA) provides investment insurance at the international level. The principle builds upon examples of countries that have started to condition the granting of investment guarantees on an assessment of social and environmental impacts.

The importance of international cooperation also grows as more and more countries make use of targeted investment promotion policies. Better international coordination is called for to avoid a global race to the bottom in regulatory standards, or a race to the top in incentives, and to avoid a return of protectionist tendencies.

More international coordination, in particular at the regional level, can also help to create synergies so as to realize investment projects that would be too complex and expensive for one country alone. Another policy area that would benefit from more international cooperation is investment in sensitive sectors. For example, recent concerns about possible land grabs and the crowding out of local farmers by foreign investors have resulted in the development by the FAO, UNCTAD, the World Bank and IFAD of Principles for Responsible Investment in Agriculture (PRAI).

* * *

Some Core Principles relate to a specific investment policy area (e.g. openness to investment, investment protection and promotion, corporate governance and social responsibility) and can therefore relatively easily be traced to specific guidelines and options in the national and international parts of the framework. Other Core Principles (e.g. on public governance and institutions, balanced rights and obligations, the right to regulate) are important for investment policymaking as a whole. As a consequence, they are reflected in guidelines dispersed across the entire range of relevant policy issues covered by the framework.

The Core Principles interact with each other. The individual principles and corresponding guidelines therefore must not be applied and interpreted in isolation. In particular, Principle 1 – as the overarching rule within the policy framework – has relevance for all subsequent principles. Integrating investment policies into sustainable development strategies requires a coherent policy framework. Good public governance is needed in its design and implementation. Sustainable development is an ongoing challenge, which underlines the importance of policymaking dynamics. And an IPFSD needs to comprise elements of investment regulation and corporate governance, on the one hand, and openness, protection and promotion, on the other hand, thereby contributing to an investment climate with balanced rights and obligations for investors.

III. National Investment Policy Guidelines 15

III. National Investment Policy Guidelines

This chapter translates the Core Principles for investment policymaking into concrete guidelines at the national level, with a view to addressing the policy challenges discussed in chapter I. To address these policy challenges – ensuring that investment policy is coherent with other policy areas supporting a country’s overall development strategy; enhancing the sustainable development impact of investment and promoting responsible investment; and improving policy effectiveness, while maintaining an attractive investment climate – this chapter, including the detailed policy guidelines it contains, argues for policy action at three levels:

1. At the strategic level, policymakers should ground investment policy in a broad road map for economic growth and sustainable development – such as those set out in formal economic or industrial development strategies in many countries.

2. At the normative level, through the setting of rules and regulations, on investment and in a range of other policy areas, policymakers can promote and regulate investment that is geared towards sustainable development goals.

3. At the administrative level, through appropriate implementation and institutional mechanisms, policymakers can ensure continued relevance and effectiveness of investment policies.

The following sections will look at each of these levels in turn.

1. Grounding investment policy in development strategy

Many countries have elaborated explicit development strategies that set out an action plan to achieve economic and social objectives and to strengthen international competitiveness. These strategies will vary by country, depending on their stage of development, their domestic endowments and individual preferences, and depending on the degree to which the political and economic system allows or requires the participation of the

State in economic planning. Because investment is a key driver of economic growth, a prerequisite for the build-up of productive capacity and an enabler of industrial development and upgrading, investment policy must be an integrated part of such development strategies (see box 4).

Defining the role of public, private, domestic and foreign direct investment

Mobilizing investment for sustainable development remains a major challenge for developing countries, particularly for LDCs. Given the often huge development financing gaps in these countries, foreign investment can provide a necessary complement to domestic investment, and it can be particularly beneficial when it interacts in a synergetic way with domestic public and private investment. Agriculture, infrastructure and climate change-related investments, among others, hold significant potential for mutually beneficial interaction between foreign and domestic, and public and private investment. For example, public-private partnerships (PPPs) have become important avenues for infrastructure development in developing countries, although experience has shown that high-quality regulatory and institutional settings are critical to ensure the development benefits of such infrastructure PPPs (WIR08).

Given the specific development contributions that can be expected from investment – private and public, domestic and foreign – policymakers should consider carefully what role each type can play in the context of their development strategies. In particular the opportunities and needs for foreign investment – intended as direct investment in productive assets (i.e. excluding portfolio investment) – differ from country to country, as does the willingness to open sectors and industries to foreign investors. Examples include the improvement of infrastructure, investment in skills and education, investments to secure food supply, or investments in other specific industries that are of crucial importance for a country.

Even looking at the role of foreign investment per se policymakers should be aware of different types, each with distinct development impacts.


Box 4. Integrating Investment Policy in Development Strategy:UNCTAD’s Investment Policy Reviews

UNCTAD’s Investment Policy Review (IPR) program was launched in 1999 in response to growing demand from member States for advice on FDI policy. The IPRs aim to provide an independent and objective evaluation of the policy, regulatory and institutional environment for FDI and to propose customized recommendations to governments to attract and benefit from increased flows of FDI. To date IPRs have been undertaken for 34 countries, including 17 developing countries, 4 transition economies and 13 LDCs, of which 5 in post-conflict situations (box table 1).

Box table 1. Beneficiaries of the UNCTAD IPR program, 1999 – 2011

Categories Countries

Developing countries Algeria, Botswana, Colombia, Dominican Republic, Ecuador, Egypt, El Salvador, Ghana, Guatemala, Kenya, Mauritius, Morocco, Mongolia, Nigeria, Peru, Sri Lanka, Viet Nam

Transition economies Belarus, The FYR of Macedonia, Republic of Moldova, Uzbekistan

Least Developed Countries

Benin, Burkina Faso, Burundi, Ethiopia, Lesotho, Mauritania, Mozambique, Nepal, Rwanda, Sierra Leone, United Republic of Tanzania, Uganda, Zambia

UNCTAD coordinates its IPR activities with the work of other development partners (including other UN agencies such as the UNDP and UNIDO, the OECD, the World Bank, national and regional development banks, local development institutions and NGOs) in order to create synergies.

IPRs are carried out through a structured process, starting with (i) a formal request from the national government to UNCTAD expressing commitment to policy reforms; (ii) preparation of the IPR advisory report and its presentation at a national workshop where government and national stakeholders review findings; (iii) intergovernmental peer review and sharing of best practices in investment policy in Geneva; (iv) implementation and follow-up technical assistance and capacity building; and (v) preparation of an implementation assessment and additional follow-up actions.

Substantively, key areas of recommendations common to nearly all IPRs conducted to date include: (i) Defining the strategic role of investment (and in particular FDI) in countries’ development strategies; (ii) Reforming investment laws and regulations; (iii) Designing policies and measures for attracting and benefitting from FDI; and (iv) Addressing institutional issues related to FDI promotion and facilitation.

A number of case-specific areas for recommendations or themes have included privatizations, the promotion of investment in target industries, promotion and facilitation of infrastructure investment, private sector development initiatives and business linkages, skill building and technology transfer, and regional cooperation initiatives.

Recently, the IPR approach has been strengthened further with the inclusion of sections on specific priority industries, containing a quantitative assessment of the potential for investment in those industries and the potential development impact of investment through such indicators as value added, employment generation, and export generation, with a view to helping governments attract and negotiate higher value added types of investment.

Source: UNCTAD; www.unctad.org/diae/ipr.

Greenfield investment has different impacts than investment driven by mergers and acquisitions (M&As). The former will generally imply a greater immediate contribution to productive capacity and job creation; the latter may bring benefits such as technology upgrading or access to international markets (or survival in case of troubled acquisition targets), but may also have negative effects (e.g. on employment in case of restructurings). Similarly, efficiency-seeking investments will have different development impacts than market-seeking

investments, both with potential positive and negative contributions. And foreign investment also comes in different financial guises: FDI does not always imply an influx of physical capital (e.g. reinvested earnings), nor does it always translate into actual capital expenditures for the build-up of productive assets (e.g. retained earnings) and can sometimes behave in a manner not dissimilar to portfolio investment.

Furthermore, the role of foreign investors and multinational firms in an economy is not limited


to FDI. They can also contribute to economic development through non-equity modes of international production (NEMs), such as contract manufacturing, services outsourcing, licensing, franchising or contract farming. Because this form of involvement is based on a contractual relation between the foreign company and domestic business partners, it requires that the host country has sufficiently qualified local entrepreneurs, which calls for coordinated policies on investment, enterprise development and human resource development (WIR11).

A key aspect in defining the role of investment in economic growth and development strategies is the need for calibrated policies to stimulate job creation and to maximize the job content of investment, both quantitatively and qualitatively. This has become especially urgent in light of the cumulative employment losses during the global financial crisis, and the relatively low job content of economic growth since, leading to a global employment deficit estimated at over 200 million workers.6

Harnessing investment for productive capacity building and enhancing international competitiveness

The potential contribution of foreign investment to building or reinforcing local productive capacities should guide investment policy and targeting efforts. This is particularly important where investment is intended to play a central role in industrial upgrading and structural transformation in developing economies. The most crucial aspects of productive capacity building include human resources and skills development, technology and know-how, infrastructure development, and enterprise development.

Human resources and skills. Human resources development is a crucial determinant of a country’s long-term economic prospects. In addition, the availability of skilled, trainable and productive labour at competitive costs is a major magnet for efficiency-seeking foreign investors. As such, education and human resource development policy should be considered a key complement to investment policy. Particular care should be given to matching skills needs and skills development, including in terms of

vocational and technical training. Vocational training that prepares trainees for jobs involving manual or practical activities related to a specific trade or occupation is a key policy tool, for instance, to enhance the capacity of local suppliers.

As economies develop, skills needs and job opportunities evolve, making a constant adaptation and upgrading of education and human development policies a necessity. The latter are essential not just to provide the necessary skills to investors, but more crucially to ensure that the population can gain access to decent work opportunities.

FDI – as well as NEMs – are particularly sensitive to the availability of local skills, which can frequently be a “make or break” factor in investment location decisions. Where local skills are partially lacking, foreign and national investors may wish to rely on expatriate workers to fill the gaps. Although particular care should be paid to promoting employment by nationals and to protecting national security, countries have a lot to gain from enabling investors to tap foreign skills readily and easily where needed. Well-crafted immigration and labour policies have had demonstrated benefits in countries that have allowed foreign skills to complement and fertilize those created locally. Knowledge spillovers also occur through international employees. An adequate degree of openness in granting work permits to skilled foreign workers is therefore important not only to facilitate investments that may otherwise not materialize for lack of skills, but also to support and complement the national human resource development policy through education.

Technology and know-how. An important policy task is to encourage the dissemination of technology. For example, governments can promote technology clusters that promote R&D in a particular industry and that can help upgrading industrial activities by bringing together technology firms, suppliers and research institutes. Disseminating and facilitating the acquisition of technology can also improve the involvement of domestic producers in GVCs (e.g. call centers, business processing operations or contract farming).

Appropriate protection of intellectual property rights is an important policy tool because it is often a


precondition for international investors to disclose technology to licensees in developing countries, especially in areas involving easily imitable technologies (e.g. software, pharmaceuticals), and hence can affect chances of attracting equity investments (e.g. joint ventures) or non-equity modes of involvement (e.g. licensing). At the same time the level of protection should be commensurate with the level of a country’s development and conducive to the development of its technological capacities. It can be a means of encouraging independent research activities by local companies, because businesses are more likely to invest resources in R&D and technological upgrading if their innovations are protected.

Infrastructure. The development of domestic infrastructure may necessitate investments of such magnitude that it is impossible for domestic companies to undertake them alone. Infrastructure development may also require certain technological skills and know-how, which domestic firms do not have (e.g. telecommunication, energy, exploration of natural resources in remote areas). Likewise, the move to a low-carbon economy will often necessitate bringing in the technological capacities of foreign investors.

Most developing countries, especially LDCs, continue to suffer from vast deficiencies in infrastructure, in particular electricity, water and transport, and to a lesser extent telecommunications. Following technological progress and changes in regulatory attitudes, many countries have succeeded in introducing private (foreign) investment and competition in what used to be public sector monopolies, e.g. mobile telecommunications or power generation.

Given the potential contribution of FDI to build high-quality infrastructure, countries should consider the extent to which certain sectors or sub-sectors could be opened to (foreign) private investment, and under what conditions – balancing considerations of public service provision, affordability and accessibility. National security-related concerns with regard to the liberalization of critical infrastructure can be taken care of by screening procedures. A clear vision of what is doable and desirable socially, technically and from a business perspective is

essential given the dependence of economic growth on infrastructure development.

All too many developing countries have attempted to privatize infrastructure or public services only to fail or achieve less than optimal outcomes.7

Governments need to develop not only a clear assessment of what can be achieved and at what costs, but also a comprehensive understanding of the complex technicalities involved in infrastructure investments and their long-term implications in terms of cost, quality, availability and affordability of services. A sound legal framework to guide concessions, management contracts and all forms of public-private partnerships is a key piece in the infrastructure development and investment strategies (WIR08).

Enterprise development. Domestic enterprise development is a key transfer mechanism for the development benefits of investment to materialize. At the same time, especially for foreign investors, the presence of viable local enterprise is a crucial determinant for further investment and for partnerships in NEMs. A comprehensive discussion of policy options to foster domestic entrepreneurial development – including in areas such as the regulatory environment, access to finance, education and training, and technological development – can be found in UNCTAD’s Entrepreneurship Policy Framework (box 5).

Enterprise development policies aimed at enhancing the benefits from investment focus on building capacity to absorb and adapt technology and know-how, to cooperate with multinational firms, and to compete internationally.

Another important policy task is the promotion of linkages and spillover effects between foreign investment and domestic enterprises (WIR01). Policy coordination is needed to ensure that investment promotion is targeted to those industries that could have the biggest impact in terms of creating backward and forward linkages and contribute not just to direct, but also to indirect employment creation. At the same time, policymakers in developing countries need to address the risk of foreign investment impeding domestic enterprise development by crowding out local firms, especially SMEs. Industrial policies may


Box 5. UNCTAD’s Entrepreneurship Policy Framework

Entrepreneurship is vital for economic growth and development. The creation of new business entities generates value added, fiscal revenues, employment and innovation, and is an essential ingredient for the development of a vibrant small- and medium-sized business sector. It has the potential to contribute to specific sustainable development objectives, such as the employment of women, young people or disadvantaged groups. Entrepreneurship development can also contribute to structural transformation and building new industries, including the development of eco-friendly economic activities.

UNCTAD’s Entrepreneurship Policy Framework (EPF) aims to support developing-country policymakers in the design of initiatives, measures and institutions to promote entrepreneurship. It sets out a structured framework of relevant policy areas, embedded in an overall entrepreneurship strategy, which helps guide policymakers through the process of creating an environment that facilitates the emergence of start-ups, as well as the growth and expansion of new enterprises.

The EPF recognizes that in designing entrepreneurship policy “one size does not fit all”. Although the national economic and social context and the specific development challenges faced by a country will largely determine the overall approach to entrepreneurship development, UNCTAD has identified six priority areas that have a direct impact on entrepreneurial activity (box figure 1). In each area the EPF suggests policy options and recommended actions.

Box figure 1. Key components of UNCTAD’s Entrepreneurship Policy Framework

The EPF further proposes checklists and numerous references in the form of good practices and case studies. The case studies are intended to equip policy makers with implementable options to create the most conducive and supportive environment for entrepreneurs. The EPF includes a user guide, a step-by-step approach to developing entrepreneurship policy, and contains a set of indicators that can measure progress. An on-line inventory of good practices in entrepreneurship development, available on UNCTAD’s web-site, completes the EPF. This online inventory will provide an opportunity for all stakeholders to contribute cases, examples, comments and suggestions, as a basis for the inclusive development of future entrepreneurship policies.

Source: UNCTAD; www.unctad.org/diae/epf.

1

2 3 4 5 6

Formulating national entrepreneurship strategy

Optimizing the regulatory

environment

Enhancing entrepreneurship

education and skills

Facilitating technology

exchange and innovation

Improving access to finance

Promoting awareness and

networking

play a role in protecting infant industries or other sensitive industries with respect to which host countries see a need to limit foreign access.

In the long run, enterprise development is essential for host countries to improve international competitiveness. Promotion efforts should therefore not be limited to low value-added activities within international value chains, but gradually seek to move to higher-value added segments. This is

crucial for remaining competitive once developing countries lose their low labour cost advantage. However, switching from labour-intensive low-value activities to more capital-intensive higher value production methods may raise unemployment in the transition phase and thus calls for vigilant labour market and social policies. This confirms the important dynamic dimension of investment and enterprise development strategies, calling for regular reviews and adaptation of policy instruments.


Ensuring coherence between investment policies and other policy areas geared towards overall development objectives

The interaction between investment policy and other elements of a country’s overall economic development and growth strategy – including human resource development, infrastructure, technology, enterprise development, and others – is complex. It is critical that government authorities work coherently towards the common national objective of sustainable development and inclusive growth, and seek to create synergies. This requires coordination at the earliest stages of policy design, as well as the involvement of relevant stakeholders, including the investor community and civil society.

2. Designing policies for responsible investment and sustainable development

From a development perspective, FDI is more than a flow of capital that can stimulate economic growth. It comprises a package of assets that includes long-term capital, technology, market access, skills and know-how (WIR99). As such, it can contribute to sustainable development by providing financial resources where such resources are often scarce; generating employment (WIR94); strengthening export capacities (WIR02); transferring skills and disseminating technology; adding to GDP through investment and value added, both directly and indirectly; and generating fiscal revenues. In addition, FDI can support industrial diversification and upgrading, or the upgrading of agricultural productivity (WIR09) and the build up of productive capacity, including infrastructure (WIR08). Importantly, it can contribute to local enterprise development through linkages with suppliers (WIR01) and by providing access to GVCs (WIR11) – the growing importance of GVCs can have an important pro-poor dynamic to the extent that marginalized communities and small suppliers can integrate into global or regional value chains as producers, suppliers or providers of goods and services.

These positive development impacts of FDI do not always materialize automatically. And the effect of FDI can also be negative in each of the impact areas listed above. For example, it can lead

to outflows of financial resources in the form of repatriated earnings or fees; it can, under certain circumstances, crowd out domestic investment and domestic enterprise (WIR97); it can at times reduce employment by introducing more efficient work practices or through restructurings (WIR94, WIR00), or jobs created may be unstable due to the footloose nature of some investment types; it can increase imports more than exports (or yield limited net export gains), e.g. in case of investment operations requiring intermediate inputs or for market-seeking investments (WIR02, WIR11); technology dissemination might not take place, or only at high cost (e.g. through licensing fees) (WIR11), and local technological development may be slowed down; skills transfers may be limited by the nature of jobs created; fiscal gains may be limited by tax avoidance schemes available to international investors, including transfer pricing; and so forth.

The balance of potential positive and negative development contributions of FDI is proof that investment policy matters in order to maximize the positive and minimize the negative impacts. Reaping the development benefits from investment requires not only an enabling policy framework that combines elements of investment promotion and regulation and that provides clear, unequivocal and transparent rules for the entry and operation of foreign investors (see box 6), it also requires adequate regulation to minimize any risks associated with investment.

The host of different impact types listed above indicates that such regulations need to cover a broad range of policy areas beyond investment policies per se, such as trade, taxation, intellectual property, competition, labour market regulation, environmental policies and access to land. The coverage of such a multitude of different policy areas confirms the need for consistency and coherence in policymaking across government.

Fostering sustainable development and inclusive growth through investment requires a balance of promotion and regulation. On the promotion side, attracting low-carbon investment, for example, may imply the need to set up new policy frameworks for a nascent renewable energy sector, which may also require government assistance in the start-up


Box 6. Designing Sound Investment Rules and Procedures:UNCTAD’s Investment Facilitation Compact

UNCTAD’s Investment Facilitation Compact combines a number of programs aimed at assisting developing countries in strengthening their policy and institutional framework for attracting and retaining foreign investment, and in developing a regulatory climate in which investors can thrive.

The UNCTAD-ICC Investment Guides aim to provide accurate and up-to-date information on regulatory conditions in participating countries (as well as on the investment climate and emerging investment opportunities). They are prepared in collaboration with governments, national chambers of commerce and investors and are distributed by investment promotion agencies, foreign missions and other government departments, as well as by the International Chamber of Commerce.

The guides aim to provide a reliable source of third-party information for investors looking to invest in countries that are rarely covered by commercial publishers. They highlight often under-reported economic and investment policy reform efforts, including fiscal incentives, regional integration, easier access to land, establishment of alternative dispute settlement mechanisms, simplified border procedures, facilitation of permits and licenses and laws enabling private investment in power generation and infrastructure. Because the guides are produced through a collaborative process they also build capacities of governments to promote investment opportunities and understand investors’ needs.

UNCTAD’s Business Facilitation program aims to help developing countries build a regulatory and institutional environment that facilitates investment and business start-ups. It works through a methodology that first provides full transparency on existing rules and procedures for investors; it does so by offering online detailed, practical and up-to-date descriptions of the steps investors have to follow for procedures such as business or investment registration, license and permit issuance, payment of taxes, or obtaining work permits. Once full transparency has been created, the program helps governments simplify procedures by identifying unnecessary steps or developing alternatives.

The program promotes good governance by increasing the awareness of administrative rules and procedures, establishing the conditions for a balanced dialogue between the users of the public services, including investors, and civil servants. It also sets a basis for regional or international harmonization of rules by facilitating the exchange of good practices among countries.

Individual programs within the Investment Facilitation Compact have to date been undertaken in more than 35 countries and regions, with a strong focus on LDCs (box table 1).

Box table 1. Beneficiaries of selected programs of UNCTAD’s Investment Facilitation Compact

Categories Countries/regions

Investment Guides Bangladesh, Benin, Bhutan, Burkina Faso, Cambodia, Comoros, East African Community, Ethiopia, Kenya, Lao PDR, Mali, Morocco, Oriental Region of Morocco, Mauritania, Mozambique, Nepal, Rwanda, Tanzania, Silk Road Region, Uganda, Uzbekistan, Zambia

Business Facilitation Benin, Burkina Faso, Cape Verde, Cameroon, Colombia, Comoros, Costa Rica, El Salvador, Guatemala, Mali, Nicaragua, Togo, Russian Federation (City of Moscow), Rwanda, Viet Nam

Source: UNCTAD; www.unctad.org; www.theiguides.org; www.eregulations.org.

phase, be it through tax incentives or measures aimed at creating a market (WIR10). Encouraging investment in sectors that are crucial for the poor may imply building sound regulatory frameworks and facilitation of responsible investment in agriculture (including contract farming), as agriculture continues to be the main source of income in many developing countries (WIR09).

At the same time, on the regulatory side, sustainability considerations should be a key consideration when deciding on the granting of investment incentives. The short-term advantages of an investment need to be weighed against the potential long-term environmental effects. And the sensitive issue of access to land requires careful balancing of the rights and obligation of agricultural investors. For many developing countries, it is a


key challenge to strengthen such environmental and social protection while maintaining an attractive investment climate.

Sustainability issues should also be a main consideration in investment contracts between the host country and individual investors. Such contracts can be a means to commit investors to environmental or social standards beyond the level established by the host country’s general legislation, taking into account international standards and best practices.

While laws and regulations are the basis of investor responsibility, voluntary CSR initiatives and standards have proliferated in recent years, and they are increasingly influencing corporate practices, behaviour and investment decisions. Governments can build on them to complement the regulatory framework and maximize the development benefits of investment (WIR11).

Because CSR initiatives and voluntary standards are a relatively new area that is developing quickly and in many directions, the management of their policy implications is a challenge for many developing countries. In particular, the potential interactions between soft law and hard law can be complex, and the value of standards difficult to extract for lack of monitoring capacity and limited comparability. A number of areas can benefit from the encouragement of CSR initiatives and the voluntary dissemination of standards; for example, they can be used to promote responsible investment and business behaviour (including the avoidance of corrupt business practices), and they can play an important role in promoting low-carbon and environmentally sound investment. Care needs to be taken to avoid these standards becoming undue barriers to trade and investment flows.

3. Implementation and institutional mechanisms for policy effectiveness

Investment policy and regulations must be adequately enforced by impartial, competent and efficient public institutions, which is as important for policy effectiveness as policy design itself. Policies to address implementation issues should be an integral part of the investment strategy and should strive to achieve both integrity across government

and regulatory institutions and a service orientation where warranted. As a widely accepted best-practice principle, regulatory agencies should be free of political pressure and have significant independence, subject to clear reporting guidelines and accountability to elected officials or representatives. These principles are particularly relevant for investors in institutions including courts and judiciary systems; sectoral regulators (e.g. electricity, transport, telecommunications, banking); customs; tax administration or revenue authority; investment promotion agency; and licensing bodies.

As stated in the fourth Core Principle, managing investment policy dynamically is of fundamental importance to ensure the continued relevance and effectiveness of policy measures. Revisions in investment policy may be driven by changes in strategy – itself caused by adaptations in the overall development strategy – or by external factors and changing circumstances. Countries require different investment policies at different stages of development, policies may need to take into account those in neighbouring countries, and be cognizant of trade patterns or evolving relative shares of sectors and industry in the economy. Policy design and implementation is a continuous process of fine-tuning and adaptation to changing needs and circumstances.

Beyond such adaptations, investment policy may also need adjustment where individual measures, entire policy areas, or the overall investment policy regime is deemed not to achieve the intended objectives, or to do so at a cost higher than intended. Understanding when this is the case, understanding it in time for corrective action to be taken, and understanding the reasons for the failure of measures to have the desired effect, is the essence of measuring policy effectiveness.

A significant body of academic literature exists on methodologies for evaluating policy effectiveness. Specifically in the area of investment policy, there are three objective difficulties associated with the measurement of policy effectiveness:

• It is often difficult to assess the effectiveness of discrete investment policy measures, such as the provision of incentives, let alone the effectiveness of the overall investment policy


framework. Many exogenous factors and investment determinants beyond policy drive the investment attraction performance of a country – e.g. market size and growth, the presence of natural resources, the quality of basic infrastructure, labour productivity, and many others (see UNCTAD’s Investment Potential Index).

• Investment policy effectiveness measures should also provide an indication of the extent to which policies help realize the benefits from investment and maximize its development impact. However, it is often difficult to find solid evidence for the discrete impact on various dimensions of investment, let alone for the impact of the policies that led to that investment or that guide the behaviour of investors.

• Much of the impact of investment policies and thus their effectiveness depends on the way such policies are applied, and on the capabilities of institutions charged with the implementation and enforcement of policies and measures, rules and regulations.

Given these objective difficulties in measuring the effectiveness of investment policies, and to ensure that potentially important policy changes are not delayed by complex analyses of the impact of individual measures, policymakers may be guided by a few simplifying rules in evaluating the effectiveness of their policies:

• Investment policy should be based on a set of explicitly formulated policy objectives with clear priorities, a time frame for achieving them, and the principal measures intended to support the objectives. These objectives should be the principal yardstick for measuring policy effectiveness.

• The detailed quantitative (and therefore complex) measurement of the effectiveness of individual policy measures should focus principally on those measures that are most costly to implement, such as investment incentives.

• Assessment of progress in policy implementation and verification of the application of rules and regulations at all

administrative levels is at least as important as the measurement of policy effectiveness. A review process should be put in place to ensure that policies are correctly implemented as a part of the assessment of policy effectiveness.

Goals and objectives for investment policy, as set out in a formal investment strategy in many countries, should be SMART:8

• Specific: they should break down objectives for investment attraction and impact for priority industries or activities as identified in the development strategy.

• Measurable: investment goals and objectives should identify a focused set of quantifiable indicators.

• Attainable: as part of investment policy development, policymakers should compare investment attraction and investment impact with peer countries to inform realistic target setting.

• Relevant: objectives (and relevant indicators) should relate to impacts that can be ascribed to investment (and by implication investment policy), to the greatest extent possible filtered for ‘general development strategy’ impacts.

• Time-bound: objectives should fall within a variety of time frames. Even though broad development and investment-related objectives are of a long-term nature (e.g. 10-20 years), intermediate and specific objectives should refer to managerially and politically relevant time frames, e.g. 3-4 years. In addition, short-term benchmarks should be set within shorter time periods (a few quarters or a year) to ensure effective progress and implementation.

Objectives of investment policy should ideally include a number of quantifiable goals for both the attraction of investment and the impact of investment. To measure policy effectiveness for the attraction of investment, UNCTAD’s Investment Potential and Performance Matrix can be a useful tool. This matrix compares countries with their peers, plotting investment inflows against potential based on a standardized set of economic determinants, thereby providing a proxy for the effect of policy determinants.


Table 3. Possible indicators for the definition of investment impact objectives and the measurement of policy effectiveness

Area Indicators Details and examples

Economic Value Added

1. Total value added • Gross output (GDP contribution) of the new/additional economic activity resulting from the investment (direct and induced)

2. Value of capital formation • Contribution to GFCF

3. Total and net export generation • Total export generation; net export generation (net of imports) is also captured by the value added indicator

4. Number of formal business entities • Number of businesses in the value chain supported by the investment; this is a proxy for entrepreneurial development and expansion of the formal (tax-paying) economy

5. Total fiscal revenues • Total fiscal take from the economic activity resulting from the investment, through all forms of taxation

Job creation 6. Employment (number) • Total number of jobs generated by the investment, both direct and induced (value chain view), dependent and self-employed

7. Wages • Total household income generated, direct and induced

8. Typologies of employee skill levels • Number of jobs generated, by ILO job-type, as a proxy for job quality and technology-levels (including technology transfer)

Sustainable development

9. Labour impact indicators • Employment of women (and comparable pay) and of disadvantaged groups• Skills upgrading, training provided • Health and safety effects, occupational injuries

10. Social impact indicators • Number of families lifted out of poverty, wages above subsistence level • Expansion of goods and services offered, access to and affordability of basic goods and

services

11. Environmental impact indicators • GHG emissions, carbon off-set/credits, carbon credit revenues• Energy and water consumption/efficiency hazardous materials• Enterprise development in eco-sectors

12. Development impact indicators • Development of local resources• Technology transfer

Source: “Indicators for measuring and maximizing economic value added and job creation arising from private sector investment in value chains”, Report to the G20 Cannes Summit, November 2011; produced by an inter-agency working group coordinated by UNCTAD. UNCTAD has included this methodology in its technical assistance work on investment policy, see box 4.

Similarly, for the measurement of policy effectiveness in terms of impact, UNCTAD’s Investment Contribution Index may be a starting point. Also important is the choice of impact indicators. Policymakers should use a focused set of key indicators that are the most direct expression of the core development contributions of private investments, including direct contributions to GDP growth through additional value added, capital formation and export generation; entrepreneurial development and development of the formal sector and tax base; and job creation. The indicators could also address labour, social, environmental and development sustainability aspects.

The impact indicator methodology developed for the G-20 Development Working Group by UNCTAD, in collaboration with other agencies, may provide guidance to policymakers on the choice of indicators of investment impact and, by extension, of investment policy effectiveness (see table 3). The indicator framework, which has been tested in a number of developing countries, is meant to serve as a tool that countries can adapt and adopt in accordance with their national economic development priorities and strategies. At early stages of development, pure GDP contribution and job creation impacts may be more relevant; at more advanced stages, quality of employment and technology contributions may gain relevance.


Table 4. Structure of the National Investment Policy Guidelines

Investment and sustainable development strategy

• Integrating investment policy in sustainable development strategy• Maximizing the contribution of investment to productive capacity building and international

competitiveness

Investment regulation and promotion

• Designing investment-specific policies regarding:– Establishment and operations– Treatment and protection of investments– Investor responsibilities– Investment promotion and facilitation

Investment-related policy areas

• Ensuring coherence with other policy areas, including: trade, taxation, intellectual property, competition, labour market regulation, access to land, corporate responsibility and governance, environmental protection, and infrastructure and public-private partnerships

Investment policy effectiveness

• Building effective public institutions to implement investment policy• Measuring investment policy effectiveness and feeding back lessons learned into new rounds

of policymaking

4. The IPFSD’s national policy guidelines

The national investment policy guidelines are organized in four sections, starting from the strategic level, which aims to ensure integration of investment policy in overall development strategy, moving to investment policy ‘stricto sensu’, to investment-related policy areas such as trade, taxation, labour and environmental regulations, and intellectual property policies, to conclude with a section on investment policy effectiveness (table 4).

While the national guidelines in the IPFSD are meant to establish a generally applicable setting for investment-related policymaking, it cannot provide a “one-size-fits-all” solution for all economies. Countries have different development strategies and any policy guide must acknowledge these

divergences. Governments may have different perceptions about which industries to promote and in what manner, and what role foreign investors should play in this context. Social, cultural, geographical and historical differences play a role as well. Furthermore, the investment climate of each country has its individual strengths and weaknesses; therefore, policies aimed at building upon existing strengths and reducing perceived deficiencies will differ. Thus investment policies need to be fine-tuned based on specific economic contexts, sectoral investment priorities and development issues faced by individual countries. The IPFSD’s national investment policy guidelines establish a basic framework. Other tools are available to complement the basic framework with customized best practice advice (box 7).


Box 7. Investment Policy advice to “adapt and adopt”: UNCTAD’s Series on Best Practices in Investment for Development

As with UNCTAD’s IPR approach (see box 4), in which each IPR is custom-designed for relevance in the specific context of individual countries, the UNCTAD work program on Best Practices in Investment for Development acknowledges that one size does not fit all.

The program consists of a series of studies on investment policies tailored to:

– specific sectors of the economy (e.g. infrastructure, natural resources,…);

– specific development situations (e.g. small economies, post-conflict economies,…);

– specific development issues (e.g. capacity building, linkages,…).

The program aims to build an inventory of best policy practices in order to provide a reference framework for policy makers in developing countries through concrete examples that can be adapted to their national context. Each study therefore looks at one or two specific country case studies from which lessons can be drawn on good investment policy practices related to the theme of the study. The following studies are currently available:

– How to Utilize FDI to Improve Transport Infrastructure: Roads – Lessons from Australia and Peru;

– How to Utilize FDI to Improve Transport Infrastructure: Ports – Lessons from Nigeria;

– How to Utilize FDI to Improve Infrastructure: Electricity – Lessons from Chile and New Zealand;

– How to Attract and Benefit from FDI in Mining – Lessons from Canada and Chile;

– How to Attract and Benefit from FDI in Small Countries – Lessons from Estonia and Jamaica;

– How Post-Conflict Countries can Attract and Benefit from FDI – Lessons from Croatia and Mozambique;

– How to Integrate FDI and Skill Development – Lessons from Canada and Singapore;

– How to Create and Benefit from FDI-SME Linkages – Lessons from Malaysia and Singapore;

– How to Prevent and Manage Investor-State Disputes – Lessons from Peru.

Source: UNCTAD; www.unctad.org.

III. National Investment Policy Guidelines 27U

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a c

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Investment Policy Framework for Sustainable Development28S

ecti

ons

Sub

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stm

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on

(con

tinue

d)

Scr

eeni

ng a

nd e

ntry

re

stric

tions

2.1.

2O

wne

rshi

p re

stric

tions

or l

imita

tions

on

the

entr

y of

fore

ign

inve

stm

ent,

in fu

ll ac

cord

ance

with

cou

ntrie

s’ ri

ght t

o re

gula

te, s

houl

d be

just

ified

by

legi

timat

e na

tiona

l pol

icy

obje

ctiv

es a

nd s

houl

d no

t be

influ

ence

d by

spe

cial

inte

rest

s. T

hey

are

best

lim

ited

to a

fe

w e

xplic

itly

stat

ed a

ims,

incl

udin

g:-

prot

ectin

g th

e na

tiona

l inte

rest

, nat

iona

l sec

urity

, con

trol o

ver n

atur

al re

sour

ces,

crit

ical

infra

stru

ctur

e, p

ublic

hea

lth, t

he e

nviro

nmen

t; or

- pr

omot

ing

natio

nal d

evel

opm

ent o

bjec

tives

in a

ccor

danc

e w

ith a

pub

lishe

d de

velo

pmen

t str

ateg

y or

inve

stm

ent s

trat

egy.

Suc

h re

stric

tions

nee

d to

be

in c

onfo

rmity

with

inte

rnat

iona

l com

mitm

ents

.2.

1.3

Res

tric

tions

on

fore

ign

owne

rshi

p in

spe

cific

ind

ustr

ies

or e

cono

mic

act

iviti

es s

houl

d be

cle

arly

spe

cifie

d; a

lis

t of

spe

cific

in

dust

ries

whe

re r

estr

ictio

ns (e

.g. p

rohi

bitio

ns, l

imita

tions

) app

ly h

as t

he a

dvan

tage

of a

chie

ving

suc

h cl

arity

whi

le p

rese

rvin

g a

polic

y of

gen

eral

ope

nnes

s to

FD

I.2.

1.4

A p

erio

dic

revi

ew s

houl

d ta

ke p

lace

of a

ny o

wne

rshi

p re

stric

tions

and

of t

he le

vel o

f ow

ners

hip

caps

to

eval

uate

whe

ther

the

y re

mai

n th

e m

ost a

ppro

pria

te a

nd c

ost-

effe

ctiv

e m

etho

d to

ens

ure

thes

e ob

ject

ives

.2.

1.5

Scr

eeni

ng p

roce

dure

s fo

r inv

estm

ent e

ntry

and

est

ablis

hmen

t, w

here

app

licab

le, s

houl

d be

con

duct

ed fo

llow

ing

pre-

esta

blis

hed

obje

ctiv

e cr

iteria

.P

rope

rty

regi

stra

tion

2.1.

6In

vest

ors

shou

ld b

e ab

le t

o re

gist

er o

wne

rshi

p of

or

title

s to

land

and

oth

er f

orm

s of

pro

pert

y se

cure

ly, e

ffect

ivel

y an

d tim

ely,

in

clud

ing

in o

rder

to

faci

litat

e ac

cess

to

debt

fina

nce,

bea

ring

in m

ind

spec

ific

deve

lopm

ent

chal

leng

es in

thi

s re

gard

(see

als

o 3.

6 be

low

). Fr

eedo

m o

f op

erat

ions

2.1.

7G

over

nmen

ts s

houl

d av

oid

dire

ct o

r in

dire

ct in

trus

ions

in b

usin

ess

man

agem

ent

and

resp

ect

the

freed

om o

f op

erat

ions

of

priv

ate

com

pani

es,

subj

ect

to c

ompl

ianc

e w

ith d

omes

tic la

ws.

Thi

s in

clud

es t

he fr

eedo

m o

f inv

esto

rs t

o de

cide

whe

ther

the

y w

ant t

o in

vest

at h

ome

or a

broa

d.

Per

form

ance

re

quire

men

ts2.

1.8

Per

form

ance

req

uire

men

ts a

nd r

elat

ed o

pera

tiona

l con

stra

ints

sho

uld

be u

sed

spar

ingl

y an

d on

ly t

o th

e ex

tent

tha

t th

ey a

re

nece

ssar

y to

ach

ieve

legi

timat

e pu

blic

pol

icy

purp

oses

. The

y ne

ed to

be

in c

ompl

ianc

e w

ith in

tern

atio

nal o

blig

atio

ns a

nd w

ould

ty

pica

lly b

e im

pose

d pr

inci

pally

as

cond

ition

s fo

r sp

ecia

l priv

ilege

s, in

clud

ing

fisca

l or

finan

cial

ince

ntiv

es.

2.2

Trea

tmen

t an

d

pro

tect

ion

of

inve

sto

rsTr

eatm

ent u

nder

the

rule

of l

aw2.

2.1

Est

ablis

hed

inve

stor

s an

d in

vest

men

ts, f

orei

gn o

r do

mes

tic, s

houl

d be

gra

nted

trea

tmen

t tha

t is

base

d on

the

rule

of l

aw.

Cor

e st

anda

rds

of

trea

tmen

t2.

2.2

As

a ge

nera

l prin

cipl

e, fo

reig

n in

vest

ors

and

inve

stm

ents

sho

uld

not b

e di

scrim

inat

ed a

gain

st v

is-à

-vis

nat

iona

l inv

esto

rs in

the

post

-est

ablis

hmen

t pha

se a

nd in

the

cond

uct o

f the

ir bu

sine

ss o

pera

tions

. Whe

re d

evel

opm

ent o

bjec

tives

requ

ire p

olic

ies

that

di

stin

guis

h be

twee

n fo

reig

n an

d do

mes

tic in

vest

men

t, th

ese

shou

ld b

e lim

ited,

tran

spar

ent a

nd p

erio

dica

lly re

view

ed fo

r effi

cacy

ag

ains

t tho

se o

bjec

tives

. The

y ne

ed to

be

in li

ne w

ith in

tern

atio

nal c

omm

itmen

ts, i

nclu

ding

RE

IOs.

2.2.

3W

hile

rec

ogni

zing

tha

t co

untr

ies

have

not

onl

y th

e rig

ht b

ut t

he d

uty

to r

egul

ate,

reg

ulat

ory

chan

ges

shou

ld t

ake

into

acc

ount

th

e ne

ed to

ens

ure

stab

ility

and

pred

icta

bilit

y of

the

inve

stm

ent c

limat

e.Tr

ansf

er o

f fun

ds2.

2.4

Whe

re t

he le

vel o

f de

velo

pmen

t or

mac

ro-e

cono

mic

con

side

ratio

ns w

arra

nt r

estr

ictio

ns o

n th

e tr

ansf

er o

f ca

pita

l, co

untr

ies

shou

ld s

eek

to t

reat

FD

I-re

late

d tr

ansa

ctio

ns d

iffer

ently

fro

m o

ther

(pa

rtic

ular

ly s

hort

-ter

m)

capi

tal

acco

unt

tran

sact

ions

. C

ount

ries

shou

ld g

uara

ntee

the

freed

om to

tran

sfer

and

repa

tria

te c

apita

l rel

ated

to in

vest

men

ts in

pro

duct

ive

asse

ts, s

ubje

ct to

re

port

ing

requ

irem

ents

(inc

ludi

ng to

figh

t mon

ey la

unde

ring)

and

prio

r co

mpl

ianc

e w

ith ta

x ob

ligat

ions

, and

sub

ject

to p

oten

tial

tem

pora

ry re

stric

tions

due

to b

alan

ce o

f pay

men

t cris

es a

nd in

com

plia

nce

with

inte

rnat

iona

l law

. Con

trol

s sh

ould

be

perio

dica

lly

revi

ewed

for

effic

acy.

III. National Investment Policy Guidelines 29S

ecti

ons

Sub

-sec

tio

nsP

olic

y G

uid

elin

es

Inve

stm

ent

reg

ulat

ion

and

p

rom

oti

on

(con

tinue

d)

2.2.

5C

ount

ries

shou

ld g

uara

ntee

the

fre

e co

nver

tibilit

y of

the

ir cu

rren

cy f

or c

urre

nt a

ccou

nt t

rans

actio

ns,

incl

udin

g FD

I-re

late

d ea

rnin

gs a

nd d

ivid

ends

, int

eres

ts, r

oyal

ties

and

othe

rs. A

ny r

estr

ictio

n to

con

vert

ibilit

y fo

r cu

rren

t ac

coun

t tr

ansa

ctio

ns s

houl

d be

in a

ccor

danc

e w

ith e

xist

ing

inte

rnat

iona

l obl

igat

ions

and

flex

ibilit

ies,

in p

artic

ular

the

IMF

Art

icle

s of

Agr

eem

ent.

Con

trac

t en

forc

emen

t and

di

sput

e se

ttle

men

t

2.2.

6A

ll in

vest

ors

shou

ld b

e en

title

d to

equ

al t

reat

men

t in

the

enf

orce

men

t of

con

trac

ts.

Mec

hani

sms

and

proc

eedi

ngs

for

the

enfo

rcem

ent o

f con

trac

ts s

houl

d be

tim

ely,

effi

cien

t and

effe

ctiv

e, a

nd a

vaila

ble

to a

ll in

vest

ors

so a

s to

dul

y op

erat

e un

der

the

rule

of l

aw.

Inve

stm

ent c

ontr

acts

2.2.

7S

tate

s sh

ould

hon

our t

heir

oblig

atio

ns d

eriv

ing

from

inve

stm

ent c

ontr

acts

with

inve

stor

s, u

nles

s th

ey c

an in

voke

a fu

ndam

enta

l ch

ange

of c

ircum

stan

ces

or o

ther

legi

timat

e re

ason

s in

acc

orda

nce

with

nat

iona

l and

inte

rnat

iona

l law

.E

xpro

pria

tion

2.2.

8W

hen

war

rant

ed f

or l

egiti

mat

e pu

blic

pol

icy

purp

oses

, ex

prop

riatio

ns o

r na

tiona

lizat

ion

shou

ld b

e un

dert

aken

in

a no

n-di

scrim

inat

ory

man

ner

and

conf

orm

to

the

prin

cipl

e of

due

pro

cess

of l

aw,

and

com

pens

atio

n sh

ould

be

prov

ided

. D

ecis

ions

sh

ould

be

open

to re

cour

se a

nd re

view

s to

avo

id a

rbitr

arin

ess.

Inte

rnat

iona

l co

mm

itmen

ts2.

2.9

Gov

ernm

ent

shou

ld a

ssig

n ex

plic

it re

spon

sibi

lity

and

acco

unta

bilit

y fo

r th

e im

plem

enta

tion

and

perio

dic

revi

ew o

f m

easu

res

to e

nsur

e ef

fect

ive

com

plia

nce

with

com

mitm

ents

und

er II

As.

Str

ong

alte

rnat

ive

disp

ute

reso

lutio

n (A

DR

) mec

hani

sms

can

be

effe

ctiv

e m

eans

to a

void

inte

rnat

iona

l arb

itrat

ion

of d

ispu

tes.

2.3

Inve

sto

r o

blig

atio

nsR

espo

nsib

le

inve

stm

ent

2.3.

1In

vest

ors’

firs

t and

fore

mos

t obl

igat

ion

is to

com

ply

with

a h

ost c

ount

ry’s

law

s an

d re

gula

tions

. Thi

s ob

ligat

ion

shou

ld a

pply

and

be

enf

orce

d in

disc

rimin

atel

y to

nat

iona

l and

fore

ign

inve

stor

s, a

s sh

ould

san

ctio

ns fo

r no

n-co

mpl

ianc

e.S

tand

ards

2.3.

2G

over

nmen

ts s

houl

d en

cour

age

adhe

renc

e to

int

erna

tiona

l st

anda

rds

of r

espo

nsib

le i

nves

tmen

t an

d co

des

of c

ondu

ct b

y fo

reig

n in

vest

ors.

Sta

ndar

ds w

hich

may

ser

ve a

s re

fere

nce

incl

ude

the

ILO

Tri-

part

ite D

ecla

ratio

n, t

he O

EC

D G

uide

lines

for

M

ultin

atio

nal E

nter

pris

es,

the

UN

CTA

D,

FAO

IFA

D a

nd W

orld

Ban

k P

rinci

ples

for

Res

pons

ible

Agr

icul

tura

l Inv

estm

ent,

the

UN

G

uidi

ng P

rinci

ples

on

Bus

ines

s an

d H

uman

Rig

hts

and

othe

rs. I

n ad

ditio

n, c

ount

ries

may

wis

h to

tran

slat

e so

ft ru

les

into

nat

iona

l le

gisl

atio

n.

2.4

Pro

mo

tio

n an

d

faci

litat

ion

of

inve

stm

ent

Inve

stm

ent a

utho

rity

and

inve

stm

ent

prom

otio

n ag

ency

2.4.

1E

xplic

it re

spon

sibi

lity

and

acco

unta

bilit

y sh

ould

be

assi

gned

to a

n in

vest

men

t pro

mot

ion

agen

cy (I

PA) t

o en

cour

age

inve

stm

ent

and

to a

ssis

t in

vest

ors

in c

ompl

ying

with

adm

inis

trat

ive

and

proc

edur

al r

equi

rem

ents

with

a v

iew

tow

ards

fac

ilitat

ing

thei

r es

tabl

ishm

ent,

oper

atio

n an

d de

velo

pmen

t.2.

4.2

The

mis

sion

, ob

ject

ives

and

str

uctu

re o

f th

e IP

A s

houl

d be

gro

unde

d in

nat

iona

l inv

estm

ent

polic

y ob

ject

ives

and

reg

ular

ly

revi

ewed

. The

cor

e fu

nctio

ns o

f IPA

s sh

ould

incl

ude

imag

e bu

ildin

g, ta

rget

ing,

faci

litat

ion,

afte

rcar

e an

d ad

voca

cy.

2.4.

3A

s th

e pr

ime

inte

rface

bet

wee

n G

over

nmen

t and

inve

stor

s, IP

As

shou

ld s

uppo

rt e

ffort

s to

impr

ove

the

gene

ral b

usin

ess

clim

ate

and

elim

inat

e re

d ta

pe.

2.4.

4W

here

scr

eeni

ng o

r pre

limin

ary

appr

oval

are

impo

sed

on fo

reig

n in

vest

ors,

resp

onsi

bilit

y an

d ac

coun

tabi

lity

for s

uch

proc

edur

es

shou

ld b

e cl

early

sep

arat

e fro

m in

vest

men

t pro

mot

ion

and

faci

litat

ion

func

tions

in o

rder

to a

void

pot

entia

l con

flict

s of

inte

rest

.2.

4.5

IPA

s sh

ould

be

in a

pos

ition

to re

solv

e cr

oss-

min

iste

rial i

ssue

s th

roug

h its

form

al a

nd in

form

al c

hann

els

of c

omm

unic

atio

n, a

nd

by r

epor

ting

at a

suf

ficie

ntly

hig

h le

vel o

f G

over

nmen

t. Its

gov

erna

nce

shou

ld b

e en

sure

d th

roug

h an

ope

ratio

nal b

oard

tha

t in

clud

es m

embe

rs fr

om re

leva

nt m

inis

trie

s an

d fro

m th

e pr

ivat

e se

ctor

.2.

4.6

The

effe

ctiv

enes

s of

the

IPA

in a

ttra

ctin

g in

vest

men

t sh

ould

be

perio

dica

lly r

evie

wed

aga

inst

inve

stm

ent

polic

y ob

ject

ives

. The

ef

ficie

ncy

of th

e IP

A a

nd it

s w

orki

ng m

etho

ds s

houl

d al

so b

e re

view

ed in

ligh

t of i

nter

natio

nal b

est p

ract

ice.


ecti

ons

Sub

-sec

tio

nsP

olic

y G

uid

elin

es

Inve

stm

ent

reg

ulat

ion

and

p

rom

oti

on

(con

tinue

d)

2.4.

7Th

e w

ork

of n

atio

nal a

nd s

ub-n

atio

nal I

PAs,

as

wel

l as

that

of

auth

oriti

es p

rom

otin

g in

vest

men

t in

spe

cial

eco

nom

ic z

ones

, sh

ould

be

clos

ely

coor

dina

ted

to e

nsur

e m

axim

um e

ffici

ency

and

effe

ctiv

enes

s.2.

4.8

Bei

ng a

t the

cor

e of

Gov

ernm

ent e

ffort

s to

pro

mot

e an

d fa

cilit

ate

inve

stm

ent,

the

IPA

sho

uld

esta

blis

h cl

ose

wor

king

rela

tions

hips

(in

clud

ing

thro

ugh

seco

ndm

ent

of s

taff)

with

reg

ulat

ory

agen

cies

dea

ling

dire

ctly

with

inve

stor

s. It

sho

uld

seek

to

prom

ote

a cl

ient

-orie

nted

att

itude

in p

ublic

adm

inis

trat

ion.

It m

ay e

nlis

t the

dip

lom

atic

ser

vice

to s

tren

gthe

n ov

erse

as p

rom

otio

n ef

fort

s.In

vest

men

t in

cent

ives

and

gu

aran

tees

2.4.

9In

vest

men

t inc

entiv

es, i

n w

hate

ver f

orm

(fisc

al, fi

nanc

ial o

r oth

er),

shou

ld b

e ca

refu

lly a

sses

sed

in te

rms

of lo

ng-t

erm

cos

ts a

nd

bene

fits

prio

r to

impl

emen

tatio

n, g

ivin

g du

e co

nsid

erat

ion

to p

oten

tial d

isto

rtio

n ef

fect

s. T

he c

osts

and

ben

efits

of

ince

ntiv

es

shou

ld b

e pe

riodi

cally

revi

ewed

and

thei

r ef

fect

iven

ess

in a

chie

ving

the

desi

red

obje

ctiv

es th

orou

ghly

eva

luat

ed.

2.4.

10W

here

inv

estm

ent

ince

ntiv

es a

re g

rant

ed t

o su

ppor

t na

scen

t in

dust

ries,

sel

f-su

stai

ned

viab

ility

(i.e.

with

out

the

need

for

in

cent

ives

) sh

ould

be

the

ultim

ate

goal

so

as t

o av

oid

subs

idiz

ing

non-

viab

le in

dust

ries

at t

he e

xpen

se o

f th

e ec

onom

y as

a

who

le.

A p

hase

-out

per

iod

built

in t

he in

cent

ive

stru

ctur

e is

goo

d pr

actic

e, w

ithou

t pr

eclu

ding

per

man

ent

tax

mea

sure

s to

ad

dres

s po

sitiv

e or

neg

ativ

e ex

tern

aliti

es.

2.4.

11Th

e ra

tiona

le a

nd ju

stifi

catio

n fo

r inv

estm

ent i

ncen

tives

sho

uld

be d

irect

ly a

nd e

xplic

itly

deriv

ed fr

om th

e co

untr

y’s

deve

lopm

ent

stra

tegy

. The

ir ef

fect

iven

ess

for a

chie

ving

the

obje

ctiv

es s

houl

d be

fully

ass

esse

d be

fore

ado

ptio

n, in

clud

ing

thro

ugh

inte

rnat

iona

l co

mpa

rabi

lity.

2.4.

12Th

e gr

antin

g an

d ad

min

istr

atio

n of

ince

ntiv

es s

houl

d be

the

resp

onsi

bilit

y of

an

inde

pend

ent e

ntity

or m

inis

try

that

doe

s no

t hav

e co

nflic

ting

obje

ctiv

es o

r pe

rform

ance

targ

ets

for

inve

stm

ent a

ttra

ctio

n.2.

4.13

Env

ironm

enta

l, la

bour

and

oth

er r

egul

ator

y st

anda

rds

shou

ld n

ot b

e lo

wer

ed a

s a

mea

ns t

o at

trac

t in

vest

men

t, or

to

com

pete

fo

r in

vest

men

t in

a “r

egul

ator

y ra

ce to

the

bott

om”.

2.4.

14In

vest

men

t inc

entiv

es s

houl

d be

gra

nted

on

the

basi

s of

a s

et o

f pre

-det

erm

ined

, obj

ectiv

e, c

lear

and

tran

spar

ent c

riter

ia. T

hey

shou

ld b

e of

fere

d on

a n

on-d

iscr

imin

ator

y ba

sis

to p

roje

cts

fulfi

lling

thes

e cr

iteria

. C

ompl

ianc

e w

ith t

he c

riter

ia (

perfo

rman

ce

requ

irem

ents

) sho

uld

be m

onito

red

on a

regu

lar

basi

s as

a c

ondi

tion

to b

enefi

t fro

m th

e in

cent

ives

.2.

4.15

Inve

stm

ent i

ncen

tives

ove

r and

abo

ve p

re-d

efine

d in

cent

ives

mus

t be

show

n to

mak

e an

exc

eptio

nal c

ontr

ibut

ion

to d

evel

opm

ent

obje

ctiv

es, a

nd a

dditi

onal

requ

irem

ents

sho

uld

be a

ttac

hed,

incl

udin

g w

ith a

vie

w to

avo

idin

g a

“rac

e to

the

top

of in

cent

ives

”.2.

4.16

Inve

stm

ent

ince

ntiv

es o

ffere

d by

sub

-nat

iona

l ent

ities

whi

ch h

ave

the

disc

retio

n to

gra

nt in

cent

ives

ove

r an

d ab

ove

the

pre-

defin

ed li

mits

, sho

uld

be c

oord

inat

ed b

y a

cent

ral i

nves

tmen

t aut

horit

y to

avo

id in

vest

ors

“sho

ppin

g ar

ound

”.P

rom

otio

n of

bu

sine

ss li

nkag

es

and

spillo

vers

2.4.

17A

s bu

sine

ss li

nkag

es b

etw

een

fore

ign

inve

stor

s an

d na

tiona

l com

pani

es d

o no

t alw

ays

deve

lop

natu

rally

, Gov

ernm

ents

and

IPA

s sh

ould

act

ivel

y nu

rtur

e an

d fa

cilit

ate

them

. U

ndue

intr

usio

n in

bus

ines

s pa

rtne

rshi

ps s

houl

d be

avo

ided

as

mut

ually

ben

efici

al

and

sust

aina

ble

linka

ges

cann

ot b

e m

anda

ted.

2.4.

18M

easu

res

that

Gov

ernm

ents

sho

uld

cons

ider

to p

rom

ote

linka

ges

incl

ude:

(1) d

irect

inte

rmed

iatio

n be

twee

n na

tiona

l and

fore

ign

inve

stor

s to

clo

se in

form

atio

n ga

ps; (

2) s

uppo

rt (fi

nanc

ial a

nd o

ther

) to

natio

nal c

ompa

nies

for p

roce

ss o

r tec

hnol

ogy

upgr

adin

g;

(3)

sele

ctiv

e FD

I ta

rget

ing;

(4)

est

ablis

hmen

t of

nat

iona

l nor

ms

and

stan

dard

s, a

long

the

line

s of

inte

rnat

iona

l one

s (e

.g I

SO

st

anda

rds)

; and

(5) i

ncen

tives

for

fore

ign

inve

stor

s to

ass

ist i

n up

grad

ing

of lo

cal S

ME

s an

d pr

omot

ion

of e

ntre

pren

eurs

hip.

2.4.

19M

anda

tory

pra

ctic

es to

pro

mot

e lin

kage

s, s

uch

as jo

int-

vent

ure

requ

irem

ents

, sho

uld

be u

sed

spar

ingl

y an

d ca

refu

lly c

onsi

dere

d to

avo

id u

nint

ende

d ad

vers

e ef

fect

s.2.

4.20

Exp

licit

resp

onsi

bilit

y an

d ac

coun

tabi

lity

shou

ld b

e as

sign

ed to

the

inve

stm

ent a

utho

rity

or IP

A to

nur

ture

and

pro

mot

e bu

sine

ss

linka

ges

esta

blis

hed

by fo

reig

n in

vest

ors

as p

art o

f its

afte

rcar

e m

anda

te.

2.4.

21S

peci

fic p

olic

ies

shou

ld e

ncou

rage

bus

ines

ses

to o

ffer t

rain

ing

to e

mpl

oyee

s in

ski

ll ar

eas

deem

ed c

ruci

al in

the

coun

try’

s po

licy

on h

uman

reso

urce

dev

elop

men

t, in

clud

ing

thro

ugh

perfo

rman

ce re

quire

men

ts li

nked

to in

vest

men

t inc

entiv

es.


ecti

ons

Sub

-sec

tio

nsP

olic

y G

uid

elin

es

3In

vest

men

t-re

late

d

po

licie

s

3.1

Trad

e p

olic

yIn

tern

atio

nal t

rade

ag

reem

ents

3.1.

1A

cces

s to

glo

bal

mar

kets

is

esse

ntia

l fo

r re

sour

ce-

and

effic

ienc

y-se

ekin

g fo

reig

n in

vest

ors,

and

the

siz

e of

loc

al/r

egio

nal

mar

kets

is e

qual

ly im

port

ant f

or m

arke

t-se

ekin

g in

vest

ors.

Act

ive

part

icip

atio

n in

inte

rnat

iona

l tra

de a

gree

men

ts (i

n pa

rtic

ular

the

WTO

) and

enh

ance

d in

tegr

atio

n at

the

reg

iona

l lev

el s

houl

d be

con

side

red

an in

tegr

al p

art

of d

evel

opm

ent

stra

tegy

and

a k

ey

fact

or in

pro

mot

ing

inve

stm

ent.

Trad

e re

stric

tion

and

prom

otio

n3.

1.2

Trad

e po

licie

s, in

clud

ing

tarif

fs a

nd n

on-t

ariff

bar

riers

, an

d tr

ade

prom

otio

n/fa

cilit

atio

n m

easu

res

(e.g

. ex

port

fina

nce,

impo

rt

insu

ranc

e sc

hem

es, s

uppo

rt to

obt

ain

com

plia

nce

with

inte

rnat

iona

l sta

ndar

ds a

nd n

orm

s) c

an s

elec

tivel

y pr

omot

e or

dis

cour

age

inve

stm

ent i

n sp

ecifi

c in

dust

ries.

The

y sh

ould

be

defin

ed in

line

with

(ind

ustr

ial)

deve

lopm

ent o

bjec

tives

and

inve

stm

ent p

olic

y.C

usto

ms

and

bord

er

proc

edur

es3.

1.3

Com

plia

nce

cost

s an

d ef

ficie

ncy

of b

orde

r pr

oced

ures

sho

uld

be p

erio

dica

lly b

ench

mar

ked

agai

nst

inte

rnat

iona

l bes

t pr

actic

e an

d sh

ould

avo

id a

s m

uch

as p

ossi

ble

form

ing

an o

bsta

cle

to t

he a

ttra

ctio

n of

exp

ort-

orie

nted

inve

stm

ent

or in

vest

men

t th

at

relie

s on

impo

rts

of in

term

edia

te g

oods

.

3.2

Tax

po

licy

Cor

pora

te ta

xatio

n3.

2.1

A p

erio

dic

revi

ew, i

nclu

ding

inte

rnat

iona

l ben

chm

arki

ng, o

f cor

pora

te ta

xatio

n (a

nd fi

scal

ince

ntiv

es) f

or e

ffect

iven

ess,

cos

ts a

nd

bene

fits

shou

ld b

e an

inte

gral

par

t of i

nves

tmen

t pol

icy.

Rev

iew

s sh

ould

con

side

r cos

ts li

nked

to th

e st

ruct

ure

of th

e ta

x re

gim

e,

incl

udin

g (1

) adm

inis

trat

ive

and

com

plia

nce

cost

s fo

r in

vest

ors,

(2) a

dmin

istr

ativ

e an

d m

onito

ring

cost

s fo

r th

e ta

x au

thor

ities

, an

d (3

) for

gone

reve

nue

linke

d to

tax

evas

ion

and/

or ta

x en

gine

erin

g.3.

2.2

Und

ue c

ompl

exity

of i

ncom

e ta

x la

w a

nd r

egul

atio

ns s

houl

d be

avo

ided

and

the

y sh

ould

be

acco

mpa

nied

by

clea

r gu

idel

ines

, as

tran

spar

ency

, pre

dict

abilit

y an

d im

part

ialit

y of

the

tax

regi

me

are

esse

ntia

l for

all

inve

stor

s, fo

reig

n an

d na

tiona

l alik

e.3.

2.3

The

tax

syst

em s

houl

d te

nd to

neu

tral

ity in

its

trea

tmen

t of d

omes

tic a

nd fo

reig

n in

vest

ors.

Fi

scal

ince

ntiv

es3.

2.4

In li

ne w

ith a

cou

ntry

’s d

evel

opm

ent s

trat

egy,

ince

ntiv

es c

an b

e us

ed fo

r the

enc

oura

gem

ent o

f inv

estm

ent i

n sp

ecifi

c in

dust

ries

or in

ord

er t

o ac

hiev

e sp

ecifi

c ob

ject

ives

(e.g

. reg

iona

l dev

elop

men

t, jo

b cr

eatio

n, s

kills

upg

radi

ng, t

echn

olog

y di

ssem

inat

ion)

. Fi

scal

ince

ntiv

es fo

r inv

esto

rs s

houl

d no

t by

natu

re s

eek

to c

ompe

nsat

e fo

r an

unat

trac

tive

or in

appr

opria

te g

ener

al ta

x re

gim

e.3.

2.5

The

gene

ral c

orpo

rate

inco

me

tax

regi

me

shou

ld b

e th

e no

rm a

nd n

ot th

e ex

cept

ion

and

prol

ifera

tion

of ta

x in

cent

ives

sho

uld

be

avoi

ded

as th

ey q

uick

ly le

ad to

dis

tort

ions

, gen

erat

e un

inte

nded

tax

avoi

danc

e op

port

uniti

es, b

ecom

e di

fficu

lt to

mon

itor,

crea

te

adm

inis

trat

ive

cost

s an

d m

ay e

nd u

p pr

otec

ting

spec

ial i

nter

ests

at t

he e

xpen

se o

f the

gen

eral

pub

lic.

Tran

sfer

pric

ing

and

inte

rnat

iona

l co

oper

atio

n

3.2.

6W

ell-e

stab

lishe

d an

d cl

early

defi

ned

tran

sfer

pric

ing

rule

s ar

e es

sent

ial t

o m

inim

ize

tax

engi

neer

ing

and

tax

evas

ion.

Dev

elop

ing

coun

trie

s ca

n bu

ild o

n in

tern

atio

nal b

est p

ract

ices

. Int

erna

tiona

l coo

pera

tion

betw

een

tax

auth

oriti

es is

key

to fi

ght m

anip

ulat

ive

tran

sfer

pric

ing

prac

tices

.D

oubl

e ta

xatio

n tr

eatie

s3.

2.7

Dou

ble

taxa

tion

trea

ties

are

an e

ffect

ive

tool

to p

rom

ote

inw

ard

and

outw

ard

FDI.

Dev

elop

ing

coun

trie

s sh

ould

car

eful

ly n

egot

iate

su

ch tr

eatie

s to

ens

ure

that

the

prin

cipl

e of

“ta

xatio

n at

the

sour

ce”

prev

ails

. 3.

2.8

A c

ount

ry’s

inte

rnat

iona

l tax

tre

aty

netw

ork

shou

ld fo

cus

on m

ajor

cou

ntrie

s of

orig

in fo

r th

e ty

pes

of in

vest

men

t pr

iorit

ized

in

its in

vest

men

t pol

icy.

3.3

Inte

llect

ual p

rop

erty

3.3.

1La

ws

and

regu

latio

ns fo

r th

e pr

otec

tion

of in

telle

ctua

l pro

pert

y rig

hts

and

mec

hani

sms

for

thei

r en

forc

emen

t sh

ould

mee

t th

e ne

ed o

f pr

ospe

ctiv

e in

vest

ors

(esp

ecia

lly w

here

inv

estm

ent

polic

y ai

ms

to a

ttra

ct i

nves

tmen

t in

IP

-sen

sitiv

e in

dust

ries)

and

en

cour

age

inno

vatio

n an

d in

vest

men

t by

dom

estic

and

for

eign

firm

s, w

hile

pro

vidi

ng f

or s

anct

ions

aga

inst

the

abu

se b

y IP

R

hold

ers

of IP

rig

hts

(e.g

. the

exe

rcis

e of

IP r

ight

s in

a m

anne

r th

at p

reve

nts

the

emer

genc

e of

legi

timat

e co

mpe

ting

desi

gns

or

tech

nolo

gies

) and

allo

win

g fo

r th

e pu

rsui

t of

the

pub

lic g

ood.

As

natio

nal i

nves

tors

are

fre

quen

tly le

ss a

war

e of

the

ir IP

rig

hts

they

sho

uld

be s

ensi

tized

on

the

issu

e.


ecti

ons

Sub

-sec

tio

nsP

olic

y G

uid

elin

es

Inve

stm

ent-

rela

ted

p

olic

ies

(con

tinue

d)

3.3.

2D

evel

opin

g co

untr

ies

are

enco

urag

ed t

o in

tegr

ate

the

flexi

bilit

ies

in IP

pro

tect

ion

gran

ted

unde

r in

tern

atio

nal t

reat

ies,

incl

udin

g th

e W

TO’s

TR

IPS

agr

eem

ent,

into

nat

iona

l leg

isla

tion

and

cons

ider

the

exte

nt to

whi

ch th

ese

flexi

bilit

ies

can

crea

te o

ppor

tuni

ties

for

inve

stm

ent a

ttra

ctio

n (e

.g. i

n th

e pr

oduc

tion

of p

harm

aceu

tical

s).

3.4

Co

mp

etit

ion

po

licy

Com

petit

ion

law

s an

d re

gula

tions

Coo

rdin

atio

n of

inve

st-

men

t and

com

petit

ion

auth

oriti

es

M&

As

and

priv

atiz

atio

ns

3.4.

1

3.4.

2

3.4.

3

3.4.

4

3.4.

5

Com

petit

ion

law

s an

d re

gula

tions

, co

verin

g pr

actic

es i

n re

stra

int

of c

ompe

titio

n, a

buse

of

mar

ket

pow

er a

nd e

cono

mic

co

ncen

trat

ion

toge

ther

with

effe

ctiv

e m

onito

ring

and

enfo

rcem

ent

mec

hani

sms,

are

ess

entia

l to

rea

p th

e be

nefit

s fro

m

inve

stm

ent a

nd s

houl

d pr

ovid

e fa

ir ru

les

and

a le

vel p

layi

ng fi

eld

for

all i

nves

tors

, for

eign

and

dom

estic

.In

vest

men

t pol

icy

mak

ers

shou

ld c

oope

rate

clo

sely

with

com

petit

ion

auth

oriti

es, w

ith a

vie

w to

add

ress

ing

any

anti-

com

petit

ive

prac

tices

by

incu

mbe

nt e

nter

pris

es t

hat

may

inhi

bit

inve

stm

ent.

Par

ticul

ar a

tten

tion

shou

ld b

e pa

id t

o pr

iorit

y in

dust

ries

and

inve

stm

ent t

ypes

.W

here

inve

stm

ent p

olic

y pu

rsue

s ob

ject

ives

for

sect

ors

that

may

be

cons

ider

ed to

fall

unde

r a

publ

ic s

ervi

ces

oblig

atio

n or

for

regu

late

d se

ctor

s (e

.g. p

ublic

tran

spor

t, ut

ilitie

s, te

leco

mm

unic

atio

ns),

com

petit

ion

auth

oriti

es s

houl

d be

act

ivel

y in

volv

ed in

the

shap

ing

of re

leva

nt p

olic

ies

and

mea

sure

s, c

oord

inat

ing

clos

ely

with

sec

tora

l reg

ulat

ors.

Com

petit

ion

law

s an

d de

cisi

ons

rela

ted

to M

&A

s, a

s w

ell a

s th

e po

licy

fram

ewor

k fo

r priv

atiz

atio

ns, s

houl

d su

ppor

t dev

elop

men

t st

rate

gy a

nd i

nves

tmen

t po

licy

obje

ctiv

es,

and

shou

ld e

nsur

e co

ntin

ued

attr

activ

enes

s of

the

rel

evan

t se

ctor

for

fur

ther

in

vest

men

t by

avoi

ding

mar

ket e

xclu

sivi

ty a

nd p

reve

ntin

g ab

use

of d

omin

ant m

arke

t pow

er.

Clo

se c

oord

inat

ion

betw

een

com

petit

ion

auth

oriti

es in

nei

ghbo

urin

g co

untr

ies

shou

ld b

e pu

rsue

d in

cas

e of

cro

ss-b

orde

r M&

As,

pa

rtic

ular

ly in

sm

all e

cono

mie

s.

3.5

Lab

our

mar

ket

reg

ulat

ion

Bal

anci

ng la

bour

m

arke

t flex

ibilit

y an

d pr

otec

tion

of e

mpl

oyee

s

3.5.

1La

bour

mar

ket r

egul

atio

ns s

houl

d su

ppor

t job

cre

atio

n ob

ject

ives

in in

vest

men

t pol

icy,

incl

udin

g th

roug

h an

app

ropr

iate

deg

ree

of la

bour

mar

ket fl

exib

ility.

At t

he s

ame

time,

em

ploy

ees

shou

ld b

e pr

otec

ted

from

abu

sive

labo

ur p

ract

ices

.

Cor

e la

bour

st

anda

rds

3.5.

2C

ount

ries

need

to

guar

ante

e in

tern

atio

nally

rec

ogni

zed

core

labo

ur s

tand

ards

, in

part

icul

ar r

egar

ding

chi

ld la

bour

, the

rig

ht fo

r co

llect

ive

repr

esen

tatio

n an

d ot

her

core

pro

tect

ions

as

guar

ante

ed b

y th

e IL

O c

onve

ntio

ns t

he c

ount

ry is

a p

arty

to.

Effe

ctiv

e m

echa

nism

s to

pro

mot

e co

re la

bour

sta

ndar

ds s

houl

d be

put

in p

lace

and

app

lied

equa

lly to

fore

ign

and

dom

estic

firm

s.A

djus

tmen

t cos

ts o

f in

vest

men

t pol

icy

3.5.

3A

djus

tmen

t co

sts

or fr

ictio

n ca

used

by

shift

ing

prod

uctiv

e ca

paci

ty a

nd e

mpl

oym

ent

to p

riorit

y in

vest

men

t ar

eas,

indu

strie

s or

ac

tiviti

es a

s pe

r in

vest

men

t po

licy

shou

ld b

e ad

dres

sed

both

in la

bour

mar

ket

polic

ies

(e.g

. re

-tra

inin

g, s

ocia

l sup

port

) and

in

inve

stm

ent p

olic

y (e

.g. e

ncou

ragi

ng in

vest

ors

to h

elp

ease

tran

sitio

n co

sts)

.H

iring

of i

nter

natio

nal

staf

f3.

5.4

Exp

atria

te s

taff

can

at ti

mes

be

criti

cal t

o th

e su

cces

s of

indi

vidu

al in

vest

men

t pro

ject

s. L

abou

r pol

icy

and/

or im

mig

ratio

n po

licy

shou

ld a

void

und

uly

rest

rictin

g or

del

ayin

g th

e em

ploy

men

t of

for

eign

per

sonn

el,

incl

udin

g in

ski

lled

trad

es/a

rtis

an jo

bs,

by

inve

stor

s in

ord

er n

ot to

hin

der t

he b

uild

-up

of p

rodu

ctiv

e ca

paci

ty. A

t the

sam

e tim

e, e

mpl

oym

ent o

ppor

tuni

ties

for n

atio

nals

in

jobs

they

can

ade

quat

ely

fill s

houl

d be

pro

mot

ed.

3.5.

5Tr

ansf

er o

f sk

ills f

rom

exp

atria

te s

taff

to n

atio

nals

sho

uld

be a

ctiv

ely

enco

urag

ed,

incl

udin

g th

roug

h te

chni

cal a

nd v

ocat

iona

l tr

aini

ng re

quire

men

ts a

t the

com

pany

leve

l whe

neve

r exp

atria

tes

are

empl

oyed

. The

use

of f

orei

gn e

mpl

oyee

s in

ski

lled

trad

es/

artis

an jo

bs m

ay b

e tim

e-bo

und

in o

rder

to e

ncou

rage

fore

ign

inve

sted

firm

s to

est

ablis

h lo

cal l

inka

ges.


ecti

ons

Sub

-sec

tio

nsP

olic

y G

uid

elin

es

Inve

stm

ent-

rela

ted

p

olic

ies

(con

tinue

d)

3.6

Acc

ess

to la

ndTi

tles

3.6.

1M

ore

than

the

nat

ure

of la

nd t

itles

(fu

ll ow

ners

hip,

long

-ter

m le

ase,

land

-use

rig

hts

or o

ther

), pr

edic

tabi

lity

and

secu

rity

are

para

mou

nt f

or in

vest

ors.

Gov

ernm

ents

sho

uld

aim

to

ease

acc

ess

to la

nd t

itles

, ad

equa

tely

reg

iste

r an

d pr

otec

t th

em,

and

guar

ante

e st

abilit

y. D

evel

opin

g an

d pr

oper

ly a

dmin

iste

ring

a na

tiona

l cad

astr

e sy

stem

can

be

an e

ffect

ive

tool

to

enco

urag

e in

vest

men

t.3.

6.2

Full

owne

rshi

p of

land

or

trad

able

land

titl

es c

an h

elp

com

pani

es s

ecur

e fin

anci

ng f

or in

vest

men

t, as

land

can

be

used

as

colla

tera

l. Tr

ansf

erab

le ti

tles

shou

ld b

e en

cour

aged

whe

re s

peci

fic c

ount

ry c

ircum

stan

ces

do n

ot p

reve

nt th

is o

ptio

n.

Agr

icul

tura

l lan

d3.

6.3

Fore

ign

owne

rshi

p or

use

r tit

les

over

agr

icul

tura

l la

nd i

s pa

rtic

ular

ly s

ensi

tive

in m

ost

coun

trie

s, i

n pa

rtic

ular

tho

se w

ith

larg

e ru

ral p

opul

atio

ns a

nd w

here

foo

d se

curit

y is

an

issu

e. G

over

nmen

ts s

houl

d pa

y pa

rtic

ular

car

e in

put

ting

in p

lace

and

en

forc

ing

regu

latio

ns t

o pr

otec

t th

e lo

ng-t

erm

nat

iona

l int

eres

t an

d no

t co

mpr

omis

e it

for

shor

t-te

rm g

ains

by

spec

ial i

nter

est

grou

ps. A

dher

ence

to

the

UN

CTA

D, F

AO

, IFA

D, a

nd W

orld

Ban

k P

rinci

ples

for

Res

pons

ible

Agr

icul

tura

l Inv

estm

ent

shou

ld b

e en

cour

aged

.In

dust

rial l

and

and

indu

stria

l par

ks3.

6.4

The

deve

lopm

ent

of in

dust

rial,

tech

nolo

gy o

r se

rvic

es p

arks

as

publ

ic-p

rivat

e pa

rtne

rshi

ps h

as w

orke

d w

ell i

n a

num

ber

of

coun

trie

s an

d ca

n be

an

effe

ctiv

e to

ol to

faci

litat

e ac

cess

to fu

lly-s

ervi

ced

land

by

(fore

ign)

inve

stor

s.

3.7

Cor

pora

te re

spon

si-

bilit

y an

d go

vern

ance

CS

R s

tand

ards

3.7.

1G

over

nmen

ts s

houl

d en

cour

age

com

plia

nce

with

hig

h st

anda

rds

of re

spon

sibl

e in

vest

men

t and

cor

pora

te b

ehav

iour

, inc

ludi

ng

thro

ugh:

(1)

cap

acity

bui

ldin

g an

d te

chni

cal

assi

stan

ce t

o lo

cal

indu

stry

to

impr

ove

thei

r ab

ility

to a

cces

s m

arke

ts o

r w

ork

with

inve

stor

s th

at p

refe

r or

req

uire

cer

tified

pro

duct

s; (2

) pub

lic p

rocu

rem

ent

crite

ria;

(3) i

ncor

pora

ting

exis

ting

stan

dard

s in

to

regu

lato

ry in

itiat

ives

, and

/or

turn

ing

volu

ntar

y st

anda

rds

(sof

t law

) int

o re

gula

tion

(har

d la

w).

Cor

pora

te

gove

rnan

ce3.

7.2

Cou

ntrie

s sh

ould

aim

to a

dopt

inte

rnat

iona

l sta

ndar

ds o

f cor

pora

te g

over

nanc

e fo

r lar

ge fo

rmal

bus

ines

ses

unde

r the

ir co

mpa

ny

law

or

com

mer

cial

cod

e, i

n pa

rtic

ular

: (1

) pr

otec

tion

of m

inor

ity s

hare

hold

ers;

(2)

tra

nspa

renc

y an

d di

sclo

sure

on

a tim

ely,

re

liabl

e an

d re

leva

nt b

asis

; (3)

ext

erna

l aud

iting

of a

ccou

nts;

and

(4) a

dopt

ion

of h

igh

stan

dard

s an

d co

des

of g

ood

prac

tices

on

corr

uptio

n, h

ealth

, env

ironm

ent,

and

safe

ty is

sues

. The

OE

CD

Prin

cipl

es o

f Cor

pora

te G

over

nanc

e an

d th

e U

NC

TAD

Gui

danc

e on

Goo

d P

ract

ices

in C

orpo

rate

Gov

erna

nce

Dis

clos

ure

may

ser

ve a

s gu

idan

ce.

Rep

ortin

g st

anda

rds

3.7.

3C

orpo

rate

rep

ortin

g st

anda

rds

shou

ld p

rovi

de f

or d

iscl

osur

e by

for

eign

-con

trol

led

firm

s on

loc

al o

wne

rshi

p an

d co

ntro

l st

ruct

ures

, fina

nces

and

ope

ratio

ns, a

nd h

ealth

, saf

ety,

soc

ial a

nd e

nviro

nmen

tal i

mpa

cts,

follo

win

g in

tern

atio

nal b

est p

ract

ice.

R

ecom

men

datio

ns b

y th

e U

NC

TAD

Inte

rgov

ernm

enta

l Wor

king

Gro

up o

f Exp

erts

on

Inte

rnat

iona

l Sta

ndar

ds o

f Acc

ount

ing

and

Rep

ortin

g (IS

AR

) may

ser

ve a

s gu

idan

ce.

3.8

Env

iron

men

tal p

olic

yE

nviro

nmen

tal

impa

ct o

f inv

estm

ent

3.8.

1E

nviro

nmen

tal i

mpa

ct a

sses

smen

ts (E

IA) s

houl

d be

par

t of i

nves

tmen

t pol

icie

s; it

is u

sefu

l to

clas

sify

pro

ject

s ba

sed

on a

num

ber

of p

re-d

efine

d cr

iteria

, in

clud

ing

sect

or,

natu

re,

size

and

loca

tion

to p

lace

mor

e st

ringe

nt o

r le

ss s

trin

gent

req

uire

men

ts o

n pr

elim

inar

y en

viro

nmen

tal i

mpa

ct a

sses

smen

ts (o

r ab

senc

e th

ereo

f).3.

8.2

Env

ironm

enta

l no

rms,

inc

ludi

ng E

IA r

equi

rem

ents

, sh

ould

be

tran

spar

ent,

non-

disc

rimin

ator

y vi

s-à-

vis

fore

ign

inve

stor

s,

pred

icta

ble

and

stab

le;

Gov

ernm

ents

sho

uld

ensu

re t

hat

envi

ronm

enta

l lic

ensi

ng p

roce

dure

s ar

e co

nduc

ted

with

out

undu

e de

lay

and

in fu

ll te

chni

cal o

bjec

tivity

.E

nviro

nmen

tal

dum

ping

3.8.

3Fo

reig

n in

vest

ors

shou

ld b

e en

cour

aged

to

adhe

re t

o in

tern

atio

nal s

tand

ards

of

envi

ronm

enta

l pro

tect

ion

and

com

mitt

ed n

ot

to e

ngag

e in

env

ironm

enta

l dum

ping

; in

spec

ific

case

s (e

.g. m

inin

g or

oil

extr

actio

n), G

over

nmen

ts m

ay w

ish

to le

gally

req

uire

in

tern

atio

nal b

est p

ract

ices

(inc

ludi

ng th

e us

e of

tech

nolo

gies

) to

be s

tric

tly a

dher

ed to

.


Sec

tio

nsS

ub-s

ecti

ons

Po

licy

Gui

del

ines

Inve

stm

ent-

rela

ted

p

olic

ies

(con

tinue

d)

3.9

Infr

astr

uctu

re,

conc

essi

oni

ng a

nd

PP

P p

olic

ies

Ope

ning

in

frast

ruct

ure

sect

ors

to in

vest

ors

3.9.

1G

iven

the

pote

ntia

l con

trib

utio

n of

priv

ate

inve

stm

ent t

o bu

ildin

g hi

gh-q

ualit

y in

frast

ruct

ure,

cou

ntrie

s sh

ould

con

side

r the

ext

ent

to w

hich

bas

ic in

frast

ruct

ure

sect

ors

can

be o

pene

d to

dom

estic

and

fore

ign

priv

ate

inve

stm

ent,

and

unde

r w

hat c

ondi

tions

.

3.9.

2In

sec

tors

ope

ned

to p

rivat

e in

vest

men

t, ca

refu

l effo

rts

shou

ld g

o in

to id

entif

ying

spe

cific

pro

ject

s to

be

take

n up

by

priv

ate

inve

stor

s. S

hort

lists

of

proj

ects

for

con

cess

ioni

ng a

re a

use

ful

tool

, an

d G

over

nmen

ts s

houl

d in

itial

ly f

ocus

on

proj

ects

of

mod

erat

e co

mpl

exity

, whe

re c

omm

erci

al g

ains

are

eas

ier t

o re

aliz

e fo

r inv

esto

rs, a

nd w

here

the

soci

o-ec

onom

ic g

ains

are

cle

arly

m

easu

rabl

e.C

once

ssio

ning

rul

es

and

regu

latio

ns3.

9.3

Follo

win

g st

rate

gic

deci

sion

s on

whi

ch s

ecto

rs t

o op

en t

o pr

ivat

e in

vest

men

t, G

over

nmen

ts s

houl

d pu

t in

pla

ce a

car

eful

ly

craf

ted

lega

l fra

mew

ork

for

conc

essi

on c

ontr

acts

and

pub

lic-p

rivat

e pa

rtne

rshi

ps.

Giv

en t

he lo

ng-t

erm

nat

ure

of c

once

ssio

n ag

reem

ents

in

infra

stru

ctur

e, t

he l

egal

fra

mew

ork

shou

ld p

rovi

de s

igni

fican

t as

sura

nces

to

inve

stor

s, i

nclu

ding

reg

ardi

ng

cont

ract

ual t

erm

s an

d th

eir

enfo

rcem

ent,

and

prop

erty

rig

hts.

3.9.

4Th

e le

gal f

ram

ewor

k fo

r co

nces

sion

con

trac

ts n

eeds

to

adeq

uate

ly p

rote

ct t

he lo

ng-t

erm

nat

iona

l int

eres

t an

d co

nsum

ers,

en

surin

g ad

equa

te s

harin

g of

ris

ks b

etw

een

the

priv

ate

and

publ

ic p

artn

ers.

Com

petit

ive

outc

omes

3.9.

5W

here

ver

poss

ible

, co

nces

sion

ing

to p

rivat

e in

vest

ors

shou

ld a

im t

o in

trod

uce

com

petit

ion

so a

s no

t to

rep

lace

a p

ublic

m

onop

oly

with

a p

rivat

e on

e. P

laci

ng n

atur

al m

onop

olie

s un

der p

rivat

e co

nces

sion

sho

uld

be li

mite

d to

cas

es w

here

it in

crea

ses

effic

ienc

y an

d th

e de

liver

y of

ser

vice

s. P

uttin

g in

pla

ce a

ppro

pria

te c

ompe

titio

n an

d se

ctor

al r

egul

atio

ns s

houl

d be

con

side

red

a pr

e-re

quis

ite fo

r th

e su

cces

sful

con

cess

ioni

ng o

f inf

rast

ruct

ure

serv

ices

.In

stitu

tiona

l fra

mew

ork

for

conc

essi

onin

g an

d P

PP

s

3.9.

6G

iven

the

com

plex

ity o

f co

ntra

ctua

l ter

ms

invo

lved

in la

rge

infra

stru

ctur

e co

nces

sion

s, s

tron

g in

stitu

tions

nee

d to

be

put

in

plac

e fir

st in

ord

er t

o ac

hiev

e de

sira

ble

outc

omes

; in

add

ition

to

stre

ngth

enin

g se

ctor

al r

egul

ator

s, c

ount

ries

shou

ld c

onsi

der

the

esta

blis

hmen

t of a

ded

icat

ed P

PP

uni

t.

4In

vest

men

t p

olic

y ef

fect

iven

ess

4.1

Pub

lic g

ove

rnan

ce

and

inst

itut

ions

From

fram

ewor

k to

im

plem

enta

tion

4.1.

1In

the

im

plem

enta

tion

of i

nves

tmen

t po

licie

s G

over

nmen

ts s

houl

d st

rive

to a

chie

ve:

(1)

inte

grity

and

im

part

ialit

y ac

ross

G

over

nmen

t and

inde

pend

ence

of r

egul

ator

y in

stitu

tions

, sub

ject

to c

lear

repo

rtin

g lin

es a

nd a

ccou

ntab

ility

to e

lect

ed o

ffici

als;

(2

) tra

nspa

renc

y an

d pr

edic

tabi

lity

for

inve

stor

s; (3

) a s

ervi

ce-o

rient

atio

n to

war

ds in

vest

ors,

whe

re w

arra

nted

.In

ter-

agen

cy

coop

erat

ion

4.1.

2C

lose

coo

pera

tion

and

form

al c

omm

unic

atio

n ch

anne

ls s

houl

d be

in

plac

e be

twee

n in

stitu

tions

and

age

ncie

s de

alin

g w

ith

inve

stor

s. T

he IP

A s

houl

d pl

ay a

coo

rdin

atin

g ro

le g

iven

its

com

preh

ensi

ve p

ersp

ectiv

e on

issu

es c

onfro

ntin

g in

vest

ors.

Ant

i-cor

rupt

ion

effo

rts

4.1.

3G

over

nmen

ts s

houl

d ad

opt e

ffect

ive

anti-

corr

uptio

n le

gisl

atio

n an

d fig

ht c

orru

ptio

n w

ith a

ppro

pria

te a

dmin

istr

ativ

e, in

stitu

tiona

l an

d ju

dici

al m

eans

, for

whi

ch in

tern

atio

nal b

est p

ract

ices

sho

uld

serv

e as

gui

danc

e. In

vest

ors

shou

ld b

e he

ld to

adh

ere

to g

ood

corp

orat

e go

vern

ance

prin

cipl

es, w

hich

incl

ude

refra

inin

g fro

m p

ayin

g br

ibes

and

den

ounc

ing

corr

upt p

ract

ices

.

IV. Elements of International Investment Agreements: Policy Options 35

Sec

tio

nsS

ub-s

ecti

ons

Po

licy

Gui

del

ines

Inve

stm

ent

po

licy

effe

ctiv

enes

s(c

ontin

ued

)

4.2

Dyn

amic

pol

icy

deve

lopm

ent

4.2.

1P

olic

y de

sign

an

d im

plem

enta

tion

is

a co

ntin

uous

pr

oces

s of

fin

e-tu

ning

an

d ad

apta

tion

to

chan

ging

ne

eds

and

circ

umst

ance

s. P

erio

dic

revi

ew (

ever

y 3-

4 ye

ars)

of

perfo

rman

ce a

gain

st o

bjec

tives

sho

uld

take

pla

ce,

with

a v

iew

to:

-

verif

ying

con

tinue

d co

here

nce

of in

vest

men

t pol

icy

with

ove

rall

deve

lopm

ent s

trat

egy

- as

sess

ing

inve

stm

ent p

olic

y ef

fect

iven

ess

agai

nst o

bjec

tives

thro

ugh

a fo

cuse

d se

t of i

ndic

ator

s-

iden

tifyi

ng a

nd a

ddre

ssin

g un

derly

ing

caus

es o

f und

erpe

rform

ance

- ev

alua

ting

“ret

urn

on in

vest

men

t” o

f the

mor

e co

stly

inve

stm

ent p

olic

y m

easu

res

(e.g

. inc

entiv

es).

4.3

Mea

surin

g in

vest

men

t po

licy

effe

ctiv

enes

s4.

3.1

Obj

ectiv

es f

or in

vest

men

t po

licy

shou

ld b

e th

e ya

rd s

tick

for

mea

sure

men

t of

pol

icy

effe

ctiv

enes

s. (

Whe

re c

ount

ries

have

a

form

al in

vest

men

t str

ateg

y it

shou

ld s

et o

ut s

uch

obje

ctiv

es, s

ee 1

.1 a

bove

.) Th

ey s

houl

d br

eak

dow

n ob

ject

ives

for i

nves

tmen

t at

trac

tion

and

deve

lopm

ent

impa

ct,

and

set

clea

r pr

iorit

ies.

Per

form

ance

(esp

ecia

lly in

ter

ms

of in

vest

men

t at

trac

tion)

sho

uld

be b

ench

mar

ked

agai

nst p

eers

.

4.3.

2In

dica

tors

for

obje

ctiv

es re

late

d to

the

attr

actio

n of

inve

stm

ent m

ay in

clud

e:

- in

vest

men

t infl

ows

(tota

l, by

indu

stry

, act

ivity

,…),

- in

vest

men

t flow

s as

a s

hare

of g

ross

out

put a

nd c

apita

l for

mat

ion

(idem

), -

gree

nfiel

d in

vest

men

t as

a sh

are

of to

tal i

nves

tmen

t, -

posi

tioni

ng o

n U

NC

TAD

’s “

inve

stm

ent p

oten

tial/p

erfo

rman

ce m

atrix

”.

4.3.

3In

dica

tors

for

obje

ctiv

es re

late

d to

the

impa

ct o

f inv

estm

ent m

ay in

clud

e:

- va

lue

adde

d of

inve

stm

ent a

ctiv

ity,

- va

lue

of c

apita

l for

mat

ion,

-

expo

rt g

ener

atio

n,

- co

ntrib

utio

n to

the

crea

tion

of fo

rmal

bus

ines

s en

titie

s,

- fis

cal r

even

ues,

-

empl

oym

ent g

ener

atio

n an

d w

age

cont

ribut

ion,

-

tech

nolo

gy a

nd s

kills

con

trib

utio

n (e

.g. a

s m

easu

red

thro

ugh

the

skill-

type

s of

jobs

cre

ated

),

- so

cial

and

env

ironm

enta

l mea

sure

s,-

posi

tioni

ng o

n U

NC

TAD

’s “

inve

stm

ent c

ontr

ibut

ion

mat

rix”.


IV. Elements of International Investment Agreements: Policy Options

The guidance on international investment policies set out in this chapter aims to translate the Core Principles into concrete options for policymakers, with a view to addressing today’s investment policy challenges. While national investment policymakers address these challenges through rules, regulations, institutions and initiatives, at the international level policy is translated through a complex web of treaties (including, principally, bilateral investment treaties, free trade agreements with investment provisions, economic partnership agreements and regional agreements).9 As discussed in chapter I, the complexity of that web, which leads to gaps, overlaps and inconsistencies in the system of IIAs, is itself one of the challenges to be addressed. The other is the need to strengthen the development dimension of IIAs, balancing the rights and obligations of States and investors, ensuring sufficient policy space for sustainable development policies and making investment promotion provisions more concrete and aligned with sustainable development objectives.

International investment policy challenges must be addressed at three levels:

1. When formulating their strategic approach to international engagement on investment, policymakers need to embed international investment policymaking into their countries’ development strategies. This involves managing the interaction between IIAs and national policies (e.g. ensuring that IIAs support industrial policies (WIR11)) and that between IIAs and other international policies or agreements (e.g. ensuring that IIAs do not contradict international environmental agreements (WIR10) or human rights obligations). The overall objective is to ensure coherence between IIAs and sustainable development needs.

2. In the detailed design of provisions in investment agreements between countries, policymakers need to incorporate sustainable development considerations, addressing concerns related to policy space (e.g.,

through reservations and exceptions), balanced rights and obligations of States and investors (e.g., through encouraging compliance with CSR standards), and effective investment promotion (e.g., through home-country measures).

3. Multilateral consensus building on investment policy, in turn, can help address some of the systemic challenges stemming from the multi-layered and multi-faceted nature of the IIA regime, including the gaps, overlaps and inconsistencies in the system, its multiple dispute resolution mechanisms, and its piecemeal and erratic expansion.

This chapter, therefore, first discusses how policymakers can strategically engage in the international investment regime at different levels and in different ways in the interest of sustainable development. It then provides a set of options for the detailed design of IIAs. The final chapter of this report (chapter V) will suggest an avenue for further consensus building and international cooperation on investment policy.

UNCTAD’s proposed options for addressing the challenges described above come at a time when a multitude of investment stakeholders are putting forward suggestions for the future of IIA policymaking. With the recently adopted European Union-United States Statement on Shared Principles for International Investment, the revision of the International Chamber of Commerce (ICC) Guidelines for International Investment, and the release of the new United States model BIT, IIA policymaking is in one of its more dynamic evolutionary stages, providing a window of opportunity to strengthen the sustainable development dimension of IIAs.

1. Defining the role of IIAs in countries’ development strategy and investment policy

International investment instruments are an integral part of investment policymaking that supports investment promotion objectives but that can


also constrain investment and development policymaking. As a promotion tool, IIAs complement national rules and regulations by offering additional assurances to foreign investors concerning the protection of their investments and the stability, transparency and predictability of the national policy framework. As to the constraints, these could take many forms: they could limit options for developing countries in the formulation of development strategies that might call for differential treatment of investors, e.g. industrial policies (see WIR11); or they could hinder policymaking in general, including for sustainable development objectives, where investors could perceive new measures as unfavourable to their interests and resort to IIA-defined dispute settlement procedures outside the normal domestic legal process.

Given such potential constraints on policymaking, it is important to ensure the coherence of IIAs with other economic policies (e.g. trade, industrial, technology, infrastructure or enterprise policies that aim at building productive capacity and strengthening countries’ competitiveness) as well as with non-economic policies (e.g. environmental, social, health or cultural policies).10 Policymakers should carefully set out an agenda for international engagement and negotiation on investment (including the revision and renegotiation of existing agreements).

When considering the pros and cons of engaging in IIAs, policymakers should have a clear understanding of what IIAs can and cannot achieve.

• IIAs can, by adding an international dimension to investment protection and by fostering stability, predictability and transparency, reinforce investor confidence and thus promote investment. From an investor’s perspective, IIAs essentially act as an insurance policy, especially important for investments in countries with unfavourable country-risk ratings.

• IIAs can promote investment in other ways beyond granting investor protection. Some IIAs include commitments on the part of home countries to promote outward investment or to engage in collaborative initiatives for this purpose (although this is currently a small minority of treaties).11

• IIAs can help to build and advertise a more attractive investment climate. By establishing international commitments, they can foster good governance and facilitate or support domestic reforms.

• On the other hand, IIAs alone cannot turn a bad domestic investment climate into a good one and they cannot guarantee the inflow of foreign investment. There is no mono-causal link between the conclusion of an IIA and FDI inflows; IIAs play a complementary role among many determinants that drive firms’ investment decisions.12 Most importantly, IIAs cannot be a substitute for domestic policies and a sound national regulatory framework for investment.

Host countries’ engagement in the current IIA system may not be solely driven by a clear and explicit design that grounds their treaties in a solid development purpose, but rather influenced by the negotiation goals of their treaty partners or other non-economic considerations.13 As such, there is a risk that IIAs, in number and substance, become largely a vehicle for the protection of interests of investors and home countries without giving due consideration to the development concerns of developing countries. Not surprisingly, a detailed analysis of the substance of model treaties of major outward investing countries shows that, on average, treaty provisions are heavily skewed towards providing a high level of protection, with limited concessions to development aspects that can be a trade-off against investor protection (i.e. leaving countries more policy space generally implies granting less protection to investors). This trade-off suggests that there may be an inherent development challenge in IIAs: developing countries with the most unfavourable risk ratings are most in need of the protecting qualities of IIAs to attract investment, but they are generally also the countries most in need of flexibility (or policy space) for specific development policies.

Moreover, not only low-income developing countries may experience IIAs as a straightjacket, but also higher income countries, and even developed market economies, are sometimes faced with unexpected consequences of their own treaties. As more and more countries with sound and credible


domestic legal systems and stable investment climates continue to conclude IIAs granting high levels of investor protection, they risk being confronted themselves with investor-State dispute settlement (ISDS) rules originally intended to shield their investors abroad. This risk is exacerbated by the changing investor landscape, in which more and more developing countries, against whose policies the IIA protective shield was originally directed, are becoming important outward investors in their own right, turning the tables on the original developed country IIA demandeurs. Spelling out the underlying drivers and objectives of a country’s approach to IIAs thus becomes important not only for developing countries, but also for developed ones.

In addition to taking into account the development purpose of IIAs, in defining their agenda for international engagement and negotiation on investment, IIA policymakers should:

• Consider the type of agreements to prioritize, and whether to go for dedicated agreements on investment or for investment provisions integrated in broader agreements, e.g. covering also trade, competition and/or other policy areas. The latter option provides for comprehensive treatment of inter-related issues in different policy areas. It also recognizes the strong interaction between trade and investment and the blurring boundaries between the two (due to the phenomenon of non-equity modes of international production; see WIR11), as well as the FDI and trade inducing effect of enlarged markets.

• Consider whether to pursue international engagement on investment policy in the context of regional economic cooperation or integration or through bilateral agreements. For smaller developing countries, with limited potential to attract market-seeking investment in their own right, opportunities for regional integration and collaboration on investment policy, particularly when combined with potentially FDI-inducing regional trade integration (UNCTAD 2009), may well take priority over other types of investment agreements. The benefits of this approach may be largest when combined with technical

assistance and efforts towards regulatory cooperation and institution building.

• Set priorities – where countries pursue bilateral collaboration on investment – in terms of treaty partners (i.e. prioritize the most important home countries of international investors in sectors that are key in the country’s development strategy and where foreign involvement is desired).

Furthermore, international engagement on investment policy should recognize that international agreements interact with each other and with other bodies of international law. Policymakers should be aware, for example, that commitments made to some treaty partners may easily filter through to others through most-favoured nation (MFN) clauses, with possibly unintended consequences. Commitments may clash, or hard-won concessions in a negotiation (e.g. on policy space for performance requirements) may be undone through prior or subsequent treaties.

Finally, a particularly sensitive policy issue is whether to include liberalization commitments in IIAs by granting pre-establishment rights to foreign investors. Most IIAs grant protection to investments from the moment they are established in the host State; the host country thus retains discretion with respect to the admission of foreign investors to its market. However, in recent years an increasing number of IIAs include provisions that apply in the pre-establishment phase of investment, contributing to a more open environment for investment, at the cost of a lower degree of discretion in regulating entry matters domestically. When granting pre-establishment rights, managing the interaction between international and national policies is particularly crucial: policymakers can use IIAs to bind – at the international level – the degree of openness granted in domestic laws; or they can use IIA negotiations as a driving force for change, fostering greater openness at the national level (WIR04).14 Granting pre-establishment rights also adds new complexities to the interaction between agreements. For example, a question may arise whether an unqualified MFN clause of a pre-establishment IIA could allow investors to enforce host countries’ obligations under the WTO GATS agreement through ISDS.15


The following section, which discusses how today’s investment policy challenges can be addressed in the content and detailed provisions of IIAs, covers both pre- and post-establishment issues. Policymakers have so far mostly opted for agreements limited to the post-establishment phase of investment; where they opt for pre-establishment coverage, numerous tools are available to calibrate obligations in line with their countries’ specific needs.

2. Negotiating sustainable-development-friendly IIAs

Addressing sustainable development challenges through the detailed design of provisions in investment agreements principally implies four areas of evolution in treaty-making practice. Such change can be promoted either by including new elements and clauses into IIAs, or by taking a fresh approach to existing, traditional elements.

1. Incorporating concrete commitments to promote and facilitate investment for sustainable development: Currently, IIAs mostly promote foreign investment only indirectly through the granting of investment protection – i.e. obligations on the part of host countries – and do not contain commitments by home countries to promote responsible investment. Most treaties include hortatory language on encouraging investment in preambles or non-binding provisions on investment promotion. Options to improve the investment promotion aspect of treaties include concrete facilitation mechanisms (information sharing, investment promotion forums), outward investment promotion schemes (insurance and guarantees), technical assistance and capacity-building initiatives targeted at sustainable investment, supported by appropriate institutional arrangements for long-term cooperation.

2. Balancing State commitments with investor obligations and promoting responsible investment: Most IIAs currently provide for State obligations but do not specify investor obligations or responsibilities. Legally binding obligations on companies and individuals are stipulated by national law but are absent in international treaties, which traditionally do

not apply to private parties directly.16 However, there are examples where IIAs impose obligations on investors (e.g. COMESA Investment Agreement of 200717) or where international conventions establish criminal responsibility of individuals (e.g. the Rome Statute of the International Criminal Court). These examples, together with the changes in the understanding of the nature and functions of international law, would suggest that international treaties can, in principle, impose obligations on private parties.18 While stopping short of framing IIAs so as to impose outright obligations on investors, a few options may merit consideration.

For example, IIAs could include a requirement for investors to comply with investment-related national laws of the host State when making and operating an investment, and even at the post-operations stage (e.g., environmental clean-up), provided that such laws conform to the host country’s international obligations, including those in the IIA.19 Such an investor obligation could be the basis for further stipulating in the IIA the consequences of an investor’s failure to comply with domestic laws, such as the right of host States to make a counter-claim in ISDS proceedings with the investor.

In addition, IIAs could refer to commonly recognized international standards (e.g. the UN Guidelines on Business and Human Rights). This would not only help balance State commitments with investor obligations but also support the spread of CSR standards – which are becoming an ever more important feature of the investment policy landscape (WIR11). Options for treaty language in this regard could range from commitments to promote best international CSR standards to ensuring that tribunals consider an investor’s compliance with CSR standards when deciding an ISDS case.

3. Ensuring an appropriate balance between protection commitments and regulatory space for development: IIAs protect foreign investment by committing host country governments to grant certain


standards of treatment and protection to foreign investors; it is the very nature of an IIA’s standards of protection, and the attendant stabilizing effect, to place limits on government regulatory freedom. For example, where host governments aim to differentiate between domestic and foreign investors, or require specific corporate behaviour, they would be constrained by IIA provisions on non-discrimination or on performance requirements. In addition, to the extent that foreign investors perceive domestic policy changes to negatively affect their expectations, they may challenge them under IIAs by starting arbitration proceedings against host States. Countries can safeguard some policy space by carefully crafting the structure of IIAs and by clarifying the scope and meaning of particularly vague treaty provisions such as the fair and equitable treatment standard and expropriation as well as by using specific flexibility mechanisms such as general or national security exceptions and reservations. More recent IIA models, such as the one adopted by the United States in 2004, offer examples in this regard. The right balance between protecting foreign investment and maintaining policy space for domestic regulation should flow from each country’s development strategy, ensuring that flexibility mechanisms do not erode a principal objective of IIAs – their potentially investment enhancing effect.

4. Shielding host countries from unjustified liabilities and high procedural costs: Most IIAs reinforce their investment protection provisions by allowing investors directly to pursue relief through investor-State dispute settlement (ISDS). The strength of IIAs in granting protection to foreign investors has become increasingly evident through the number of ISDS cases brought over the last decade, most of which are directed at developing countries. Host countries have faced claims of up to $114 billion20 and awards of up to $867 million.21 Added to these financial liabilities are the costs of procedures, all together putting a significant burden on defending countries and

exacerbating the concerns related to policy space. Host countries – both developed and developing – have experienced that the possibility of bringing ISDS claims can be used by foreign investors in unanticipated ways. A number of recent cases have challenged measures adopted in the public interest (e.g. measures to promote social equity, foster environmental protection or protect public health), and show that the borderline between protection from political risk and undue interference with legitimate domestic polices is becoming increasingly blurred. Shielding countries from unjustified liabilities and excessive procedural costs through treaty design thus involves looking at options both in ISDS provisions themselves and in the scope and application of substantive clauses (see below).

These areas of evolution are also relevant for “pre-establishment IIAs”, i.e. agreements that – in addition to protecting established investors – contain binding rules regarding the establishment of new investments. While a growing number of countries opt for the pre-establishment approach, it is crucial to ensure that any market opening through IIAs is in line with host countries’ development strategies. Relevant provisions opt for selective liberalization, containing numerous exceptions and reservations designed to protect a country from over-committing and/or ensuring flexibilities in the relevant treaty obligations (see box 8).

These four types of evolution in current treaty practice filter through to specific clauses in different ways. The following are examples of how this would work, focusing on some of the key provisions of current treaty practice – scope and definition, national treatment, most-favoured nation treatment, fair and equitable treatment, expropriation and ISDS. In addition to shaping specific clauses, sustainable development concerns can also be addressed individually, e.g. through special and differential treatment (SDT), a key aspect of the multilateral trading system but largely unknown in IIA practice (see box 9).

• Scope and Definition: An IIA’s coverage determines the investments/investors that


Box 8. Pre-establishment commitments in IIAs

Pre-establishment IIAs signal that a country is generally committed to an open investment environment, although the fact that a country “only” concludes post-establishment IIAs does not necessarily mean that it follows a restrictive FDI policy. Also, pre-establishment commitments in IIAs do not necessarily have to mirror the actual degree of openness of an economy. Establishment rights in IIAs can remain below this level or go beyond it, i.e. IIAs can be used to open up hitherto closed industries to foreign investors.

Pre-establishment IIAs typically operate by extending national treatment and MFN treatment to the “establishment, acquisition and expansion” of investments. This prevents each contracting party from treating investors from the other contracting party less favourably than it treats its own investors and/or investors from other countries in these matters.

Properly defining the scope of pre-establishment commitments is key. The two main mechanisms are the positive and negative listing of sectors/industries. Under the latter, investors benefit from pre-establishment commitments in all industries except in those that are explicitly excluded. The negative-list approach is more demanding in terms of resources: it requires a thorough audit of existing domestic policies. In addition, under a negative-list approach and in the absence of specific reservations, a country commits to openness also in those sectors/activities, which, at the time the IIA is signed, may not yet exist in the country, or where regulatory frameworks are still evolving. In contrast, a positive-list approach offers selective liberalization by way of drawing up a list of industries in which investors will enjoy pre-establishment rights. Another, more limited method is to include a positive list of “committed” industries and complement it by a list of reservations preserving certain measures or aspects in those industries (“hybrid”, or GATS-type approach).

Pre-establishment treaties display a range of options – typically through country-specific reservations – for preserving policy flexibility even in “committed” industries (see the IPFSD IIA-elements table, Part B, on pre-establishment options).

Source: UNCTAD.

benefit from the protection offered by the IIA. Past disputes have demonstrated the potential of IIAs to be interpreted broadly, so as to apply to types of transactions that were originally not envisaged to benefit from the IIA (such as government debt securities).22 When negotiating an IIA with a stronger sustainable development dimension, it may thus be appropriate to safeguard policy space and exclude some types of financial transactions (e.g. portfolio investment or short-term, speculative financial flows) from a treaty’s scope and to focus application of the treaty to those types of investment that the contracting parties wish to attract (e.g. direct investment in productive assets).

Whether IIAs should exclude portfolio investment is a policy choice that has been subject to intense debate. Portfolio investment can make a contribution to development by providing financial capital. However, the sometimes volatile nature of portfolio investment flows can be damaging. At the practical level, portfolio and direct investment are often difficult to differentiate, both in

terms of identifying relevant financial flows of either type, and in terms of targeted policy instruments.

It may also be appropriate to exclude from a treaty’s scope specific areas of public policy or specific (sensitive) economic sectors. Or, in order to limit liability and to avoid “treaty shopping” and “roundtrip investment”, it may be appropriate to confine application to genuine investors from the contracting parties, excluding investments that are only channelled through legal entities based in the contracting parties.

• National Treatment (NT): National treatment protects foreign investors against discrimination vis-à-vis comparable domestic investors, with a view to ensuring a “level playing field”. Non-discriminatory treatment is generally considered conducive to good governance and is, in principle, enshrined in many countries’ domestic regulatory frameworks. Nevertheless, even if national treatment is provided under domestic legislation, countries may be reluctant to “lock in” all aspects of their domestic regulatory


Box 9. Special and differential treatment (SDT) and IIAs

A large number of IIAs are concluded between developed and developing countries. SDT gives legal expression to the special needs and concerns of developing countries and/or least developed countries in international (economic) agreements. It is based on the notion that treaty parties at different stages of development should not necessarily be bound by the same obligations.

Expression of the principle can be found in a multilateral context in over 145 provisions of WTO agreements23

essentially i) granting less onerous obligations to developing countries – either permanently or temporarily; and/or ii) imposing special obligations on developed countries vis-à-vis developing countries.24 Over time, SDT has found its way into other aspects of international relations, most prominently international environmental law, including the climate change framework.

Thus far, SDT has largely been absent from IIAs. Despite incorporating the general concepts of policy space and flexibility for development, IIAs – being mostly of a bilateral nature – are based on legal symmetry and reciprocity, meaning that the rights and obligations of the parties are generally the same. Moreover, IIAs typically do not deal with pre-establishment/market access issues, for which SDT considerations are particularly relevant.

Exceptionally, however, the COMESA Investment Agreement contains an SDT clarification with respect to the fair and equitable treatment standard: “For greater certainty, Member States understand that different Member States have different forms of administrative, legislative and judicial systems and that Member States at different levels of development may not achieve the same standards at the same time.”25

Reinvigorating SDT with a view to making IIAs work better for sustainable development could take a number of forms. For example, lower levels of obligations for developing countries could be achieved through i) development-focused exceptions from obligations/commitments; ii) best endeavour commitments for developing countries; iii) asymmetrically phased implementation timetables with longer time frames for developing countries; or iv) a development-oriented interpretation of treaty obligations by arbitral tribunals. Best endeavour commitments by more advanced countries could, for example, relate to: i) technical assistance and training (e.g. assisting in the handling of ISDS cases or when putting in place appropriate domestic regulatory systems to ensure compliance with obligations); ii) promotion of the transfer/dissemination of technology; iii) support and advice for companies from developing countries (e.g. to become outward investors or adopt CSR standards); iv) investment promotion (e.g. provide outward investment incentives such as investment guarantees, tax breaks).

While SDT remains largely absent from IIAs, negotiators could consider adding SDT elements, offering a further promising tool for making IIAs more sustainable-development-friendly, particularly for least-developed and low-income countries.

Source: UNCTAD.

framework at the international level (e.g. private sector development initiatives, including regulatory, financial or fiscal incentives) and, depending on their development strategy, States may wish to afford preferential treatment to national investors/investments as part of industrial development policies or for other reasons. In such cases, negotiators could circumscribe the scope of national treatment clauses and/or allow for derogations (e.g. through the lodging of reservations excluding sectors, policy areas or specific measures from its application (see WIR11)).

• Most-Favoured-Nation (MFN) Treatment: MFN clauses aim to prevent discrimination between

comparable investors of different foreign nationality. The meaning of such treatment has been subject to diverging and unanticipated interpretations by tribunals. Several arbitral decisions interpreted MFN as allowing investors to invoke more investor-friendly language from treaties between the respondent State and a third country, thereby effectively sidelining the “base” treaty (i.e. the actual treaty between the investor’s home and host country on the basis of which the case was brought). This practice can be seen in a positive light as “upward harmonization” of IIA standards or in a negative one as “cherry picking” best clauses from different treaties, endangering individual treaty bargains. MFN treatment


needs to be carefully considered, particularly in light of countries’ growing networks of IIAs with different obligations and agreements including pre-establishment issues. To avoid misinterpretation, IIAs have started explicitly to exclude dispute settlement issues as well as obligations undertaken in treaties with third States from the scope of the MFN obligation. Other options include limiting the clause’s reach through country-specific reservations.

• Fair and Equitable Treatment (FET): The obligation to accord fair and equitable treatment to foreign investments appears in the great majority of IIAs. Investors (claimants) have frequently – and with considerable success – invoked it in ISDS. There is a great deal of uncertainty concerning the precise meaning of the concept, because the notions of “fairness” and “equity” do not connote a clear set of legal prescriptions in international investment law and allow for a significant degree of subjective judgment. Some tribunals have read an extensive list of disciplines into the FET clause, which are taxing on any State, but especially on developing and least-developed countries; lack of clarity persists regarding the appropriate threshold of liability. The use of FET to protect investors’ legitimate expectations can indirectly restrict countries’ ability to change investment-related policies or to introduce new policies – including those for the public good – that may have a negative impact on individual foreign investors. Options to reduce uncertainty regarding States’ liabilities and to preserve policy space include qualifying or clarifying the FET clause, including by way of an exhaustive list of State obligations under FET, or even considering omitting it.

• Expropriation: An expropriation provision protects foreign investors/investments against dispossession or confiscation of their property by the host country without compensation. As most IIAs also prohibit indirect expropriation (i.e. apply to regulatory takings), and as some arbitral tribunals have tended to interpret this broadly (i.e. including legitimate regulatory measures in the pursuit of the public interest), the expropriation clause has the potential to pose undue constraints on a State’s regulatory

capacity. To avoid this, policymakers could clarify the notion of indirect expropriation and introduce criteria to distinguish between indirect expropriation and legitimate regulation that does not require compensation.

• Investor-State Dispute Settlement (ISDS): Originally, the system of international investor-State arbitration was conceived as an effective tool to enforce foreign investors’ rights. It offered direct access to international arbitration for investors to avoid national courts of host countries and to solve disputes in a neutral forum that was expected to be cheap, fast, and flexible. It was meant to provide finality and enforceability, and to depoliticise disputes. While some of these advantages remain valid, the ISDS system has more recently displayed serious shortcomings (e.g. inconsistent and unintended interpretations of clauses, unanticipated uses of the system by investors, challenges against policy measures taken in the public interest, costly and lengthy procedures, limited or no transparency), undermining its legitimacy. While some ISDS concerns can be addressed effectively only through a broader approach requiring international collaboration, negotiators can go some way to improving the institutional and procedural aspects of ISDS and to limiting liability and the risk of becoming embroiled in costly procedures. They can do so by qualifying the scope of consent given to ISDS, promoting the use of alternative dispute resolution (ADR) methods, increasing transparency of procedures, encouraging arbitral tribunals to take into account standards of investor behaviour when settling investor-State disputes, limiting resort to ISDS and increasing the role of domestic judicial systems, providing for the possibility of counterclaims by States, or even refraining from offering ISDS.26

3. IIA elements: policy optionsThe IPFSD table on IIA-elements (see page 47-62) contains a comprehensive compilation of policy options available to IIA negotiators, including options to operationalize sustainable development objectives (also see table 5). The


options include both mainstream IIA provisions as well as more idiosyncratic treaty language used by fewer countries. In some instances, the IPFSD IIA-elements table contains new suggestions by UNCTAD.27

As a comprehensive set of policy options, the IPFSD IIA-elements table aims to represent two different approaches on the design of IIAs. At one side of the spectrum is the school of thought that prefers IIAs with straightforward provisions focusing on investment protection and limiting clarifications and qualifications to the minimum. At the other side, a comprehensive approach to investment policymaking adds a host of considerations – including on sustainable development – in the wording of IIA clauses.

The objective of the IPFSD IIA-elements table is to provide policymakers with an overview of options for designing an IIA. It offers a broad menu from which IIA negotiators can pick and choose. This table is not meant to identify preferred options for IIA negotiators or to go so far as to suggest a model IIA. However, the table briefly comments on the various drafting possibilities with regard to each IIA provision and highlights – where appropriate – their implications for sustainable development. It is hoped that these explanations will help IIA negotiators identify those drafting options that best suit their countries’ needs, preferences and objectives.

The IPFSD IIA-elements table includes various options that could be particularly supportive of sustainable development. Examples are:

• Including a carefully crafted scope and definitions clause that excludes portfolio, short-term or speculative investments from treaty coverage.

• Formulating an FET clause as an exhaustive list of State obligations (e.g. not to (i) deny justice in judicial or administrative procedures, (ii) treat investors in a manifestly arbitrary manner, (iii) flagrantly violate due process, etc.).

• Clarifying – to the extent possible – the distinction between legitimate regulatory activity and regulatory takings (indirect expropriations) giving rise to compensation.

• Limiting the Full Protection and Security (FPS) provision to “physical” security and protection only and specifying that protection shall be commensurate with the country’s level of development.

• Limiting the scope of a transfer of funds clause by providing an exhaustive list of covered payments/transfers; including exceptions in case of serious balance-of-payments difficulties; and conditioning the transfer right on the investor’s compliance with its fiscal and other transfer-related obligations in the host country.

• Including carefully crafted exceptions to protect human rights, health, core labour standards and the environment, with well working checks and balances, so as to guarantee policy space while avoiding abuse.

• Considering, in light of the quality of the host country’s administrative and judicial system, the option of “no ISDS” or of designing the dispute settlement clause to make ISDS the last resort (e.g. after exhaustion of local remedies and ADR).

• Establishing an institutional set-up that makes the IIA adaptable to changing development contexts and major unanticipated developments (e.g. ad hoc committees to assess the effectiveness of the agreement and to further improve its implementation through amendments or interpretations).

The IPFSD IIA-elements table recognizes that specific policy objectives can be pursued by different treaty elements, thereby inviting treaty drafters to choose their “best-fit” combination. For example, a country that wishes to preserve regulatory space for policies aimed at ensuring access to essential services can opt for (i) excluding investments in essential services from the scope of the treaty; (ii) excluding essential services policies from the scope of specific provisions (e.g. national treatment); (iii) scheduling reservations (for national treatment or the prohibition of performance requirements) for specific (existing and/or future) essential services policies; (iv) including access to essential services as a legitimate policy objective in the IIA’s general exceptions; or (v) referring to the importance of ensuring access to essential services in the preamble of the agreement.


Table 5. Policy options to operationalize sustainable development objectives in IIAs

Options Mechanisms Examples

Adjusting existing/ common provisionsto make them more sustainable-development-friendly through clauses that:• safeguard policy

space • limit State liability

Hortatory language

- Preamble: stating that attracting responsible foreign investment that fosters sustainable development is one of the key objectives of the treaty.

Clarifications - Expropriation: specifying that non-discriminatory good faith regulations pursuing public policy objectives do not constitute indirect expropriation.

- FET: including an exhaustive list of State obligations.

Qualifications/ limitations

- Scope and definition: requiring covered investments to fulfill specific characteristics, e.g., positive development impact on the host country.

Reservations/ carve-outs

- Country-specific reservations to NT, MFN or pre-establishment obligations, carving out policy measures (e.g. subsidies), policy areas (e.g. policies on minorities, indigenous communities) or sectors (e.g. social services).

Exclusions from coverage/exceptions

- Scope and definition: excluding portfolio, short-term or speculative investments from treaty coverage.

- General exception for domestic regulatory measures that aim to pursue legitimate public policy objectives.

Omissions - Omit FET, umbrella clause.

Adding new provisions or new, stronger paragraphs within provisions for sustainable development purposes to:• balance investor

rights and responsibilities

• promote responsible investment

• strengthen home-country support

Investor obligations and responsibilities

- Requirement that investors comply with host State laws at both the entry and the post-entry stage of an investment.

- Encouragement to investors to comply with universal principles or to observe applicable CSR standards.

Institutional set-up for sustainable development impact

- Institutional set-up under which State parties cooperate to e.g. review the functioning of the IIA or issue interpretations of IIA clauses.

- Call for cooperation between the Parties to promote observance of applicable CSR standards.

Home-country measures to promote responsible investment

- Encouragement to offer incentives for sustainable-development-friendly outward investment; investor compliance with applicable CSR standards may be an additional condition.

- Technical assistance provisions to facilitate the implementation of the IIA and to maximize its sustainable development impact, including through capacity building on investment promotion and facilitation.

Introducing Special and Differential Treatment for the less developed Party – with effect on both existing and new provisions – to:• calibrate

the level of obligations to the country’s level of development

Lower levels of obligations

- Pre-establishment commitments that cover fewer economic activities.

Development-focused exceptions from obligations/commitments

- Reservations, carving out sensitive development related areas, issues or measures.

Best endeavour commitments

- FET, NT commitments that are not legally binding.

Asymmetric implementation timetables

- Phase-in of obligations, including pre-establishment, NT, MFN, performance requirements, transfer of funds and transparency.

Source: UNCTAD.


The IPFSD IIA-elements table likewise reflects that negotiators can determine the normative intensity of IIA provisions: they can ensure the legally binding and enforceable nature of some obligations while at the same time resorting to hortatory, best endeavour language for others. These choices can help negotiators design a level of protection best suited to the specific circumstances of negotiating partners and in line with the need for proper balancing between investment protection and policy space for sustainable development.

The ultimate shape of an IIA is the result of a specific combination of options that exist in respect of each IIA provision. It is this blend that determines where on a spectrum between utmost investor protection and maximum policy flexibility a particular IIA is located. The same holds true for the IIA’s impact on sustainable development. Combinations of and interactions between IIA provisions can take a number of forms:

• Interaction between a treaty’s scope/definitions and the obligations it establishes for the contracting parties: An agreement’s “protective strength” stems not only from the substantive and procedural standards of protection it offers to investors, but also from the breadth and variety of categories of investors and investments it covers (i.e. that benefit from the standards of protection offered by the IIA). Hence, when designing a particular IIA and calibrating the degree of protection it grants, negotiators can use different combinations of the two. For example, (i) a broad open-ended definition of investment could be combined with few substantive obligations, or with obligations formulated in a manner reducing their “bite”; or (ii) a narrow definition of investment (e.g. covering direct investments in a few priority sectors only) could be combined with more expansive protections such as an unqualified FET standard or the prohibition of numerous performance requirements.

• Interaction between protection-oriented clauses: Some IIAs combine narrowly drafted clauses in some areas with “broad” provisions in others. An example is the combination between a carefully circumscribed

expropriation clause and an unqualified FET provision. Another option is to limit the impact of ISDS by either formulating substantive standards of protection as best endeavour (i.e. hortatory) clauses, or by precluding the use of ISDS in respect of particularly vague treaty articles, such as the FET standard.28 Under such scenarios, protective standards may still have a good-governance-enhancing effect on host countries’ regulatory framework, while reducing the risk to be drawn into ISDS. Consideration also has to be given to the interaction with the MFN provision: with the inclusion of a “broad” MFN clause, investors may be tempted to circumvent “weak” protection clauses by relying on more protective (i.e. “stronger”) clauses in treaties with third parties.

• Interaction between protection and exceptions: Strong protection clauses and effective flexibilities for contracting parties are not mutually exclusive; rather, the combination of the two helps achieve a balanced agreement that meets the needs of different investment stakeholders. For example, an IIA can combine “strong” substantive protection (e.g. non-discrimination, capital transfer guarantees) with “strong” exceptions (e.g. national security exceptions or general exceptions to protect essential public policy objectives).29

The policy options presented in the IPFSD IIA-elements table are grounded in the Core Principles. For example, (i) the principle of investment protection directly manifests itself in IIA clauses on FET, non-discrimination, capital transfer, protection in case of expropriation or protection from strife; (ii) the principle of good governance is reflected, amongst others, in IIA clauses that aim at increasing host State’s transparency regarding laws and regulations or in IIA clauses that foster transparency by the foreign investor vis-à-vis the host State; (iii) the right to regulate principle is reflected, amongst others, in IIA clauses stating that investments need to be in accordance with the host country’s laws, allowing countries to lodge reservations (including for future policies); clarifying and circumscribing the content of indirect expropriation or general exceptions.


UNCTAD’s Investment Policy Framework for Sustainable Development

Elements of International Investment Agreements: Policy OptionsSummary of contents

Sections Description

Part A. Post-establishment

1 Preamble … sets out objectives of the treaty and the intentions of the Contracting Parties

2 Treaty scope… defines the investment and investors protected under the treaty and its temporal application

3 Admission … governs entry of investments into the host State

4Standards of treatment and protection

… prescribe the treatment, protection and rights which host States are required to accord foreign investors/investments

5 Public policy exceptions ... permit public policy measures, otherwise inconsistent with the treaty, to be taken under specified, exceptional circumstances

6 Dispute settlement… governs settlement of disputes between the Contracting Parties and those between foreign investors and host States

7Investor obligations and responsibilities

… promote compliance by investors with domestic and/or international norms at the entry and operation stage

8Relationship to other agreements

… establishes a hierarchy in case of competing international norms

9Not lowering of standards clause

… discourages Contracting Parties from attracting investment through the relaxation of labour or environmental standards

10 Investment promotion… aims to encourage foreign investment through additional means beyond investment protection provisions in IIAs

11 Institutional set-up … establishes an institutional platform for collaboration between the Contracting Parties

12 Final provisions … define the duration of the treaty, including its possible prolongation

Part B. Pre-establishment

1 Pre-establishment obligations … govern establishment of foreign investments in the host State

Part C. Special and Differential Treatment (SDT)

1 Asymmetrical obligations … enable imposition of less onerous obligations on a less developed Contracting Party

2 Additional tools … encourage positive contributions by a more developed Contracting Party

Investment Policy Framework for Sustainable Development48U

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ic re

latio

ns-

mus

t be

mad

e in

“ac

cord

ance

with

hos

t cou

ntry

law

s an

d re

gula

tions

” -

deliv

ers

a po

sitiv

e de

velo

pmen

t im

pact

on

the

host

cou

ntry

(i.e

. Par

ties

coul

d lis

t spe

cific

cr

iteria

acc

ordi

ng to

thei

r ne

eds

and

expe

ctat

ions

).


2.2

Defi

niti

on

of

inve

sto

r …

set

s ou

t th

e ty

pes

of in

vest

ors

prot

ecte

d un

der

the

trea

ty

2.2.

0O

ffer

cove

rage

of

any

natu

ral a

nd le

gal p

erso

ns o

rigin

atin

g fro

m t

he o

ther

Con

trac

ting

Par

ty.

With

res

pect

to

lega

l ent

ities

, co

ver

all t

hose

est

ablis

hed

in t

he o

ther

Con

trac

ting

Par

ty.

A b

road

defi

nitio

n of

“in

vest

or”

can

resu

lt in

una

ntic

ipat

ed o

r un

inte

nded

co

vera

ge o

f per

sons

(nat

ural

or l

egal

). Fo

r exa

mpl

e, if

a tr

eaty

det

erm

ines

the

natio

nalit

y of

a le

gal e

ntity

sol

ely

on t

he b

asis

of

the

plac

e of

inco

rpor

atio

n,

it cr

eate

s op

port

uniti

es f

or t

reat

y sh

oppi

ng o

r fre

e rid

ing

by i

nves

tors

not

co

ncei

ved

to b

e be

nefic

iarie

s (e

.g. a

third

-cou

ntry

/hos

t-co

untr

y in

vest

or m

ay

chan

nel it

s in

vest

men

t thr

ough

a “m

ailb

ox” c

ompa

ny e

stab

lishe

d in

the

terr

itory

of

a P

arty

, in

ord

er t

o ob

tain

tre

aty

prot

ectio

n).

A r

elat

ed s

et o

f iss

ues

aris

es

with

res

pect

to

dual

nat

iona

ls w

here

one

nat

iona

lity

is t

hat

of t

he h

ost

Sta

te.

Ther

e ar

e va

rious

opt

ions

to

narr

ow t

he r

ange

of

cove

red

pers

ons.

For

ex

ampl

e, t

o el

imin

ate

the

risk

of a

buse

and

enh

ance

leg

al p

redi

ctab

ility,

a

trea

ty m

ay a

dd a

req

uire

men

t th

at a

com

pany

mus

t ha

ve it

s se

at in

the

ho

me

Sta

te a

nd c

arry

out

rea

l eco

nom

ic a

ctiv

ities

the

re.

An

alte

rnat

ive

is t

o su

pple

men

t the

cou

ntry

-of-

inco

rpor

atio

n ap

proa

ch to

det

erm

inin

g na

tiona

lity

of a

com

pany

with

a d

enia

l-of-

bene

fits

clau

se.

2.2.

1E

xclu

de c

erta

in c

ateg

orie

s of

nat

ural

or

lega

l per

sons

from

trea

ty c

over

age,

e.g

.:-

inve

stor

s w

ith d

oubl

e na

tiona

lity

(of w

hich

one

is th

e ho

st c

ount

ry n

atio

nalit

y)

- pe

rman

ent r

esid

ents

of t

he h

ost c

ount

ry-

lega

l ent

ities

that

do

not h

ave

thei

r sea

t or a

ny re

al e

cono

mic

act

ivity

in th

e ho

me

coun

try.

2.2.

2In

clud

e a

deni

al-o

f-be

nefit

s cl

ause

tha

t en

able

s th

e ho

st S

tate

to

deny

tre

aty

prot

ectio

n to

:-

lega

l ent

ities

that

are

ow

ned/

cont

rolle

d by

third

-cou

ntry

nat

iona

ls o

r hos

t Sta

te n

atio

nals

an

d th

at d

o no

t hav

e re

al e

cono

mic

act

ivity

in th

e of

the

hom

e P

arty

(“m

ailb

ox” c

ompa

nies

) -

lega

l ent

ities

ow

ned/

cont

rolle

d by

inve

stor

s fro

m c

ount

ries

with

whi

ch th

e ho

st c

ount

ry

does

not

hav

e di

plom

atic

rel

atio

ns o

r th

ose

coun

trie

s th

at a

re s

ubje

ct t

o an

eco

nom

ic

emba

rgo.

2.3

Exc

lusi

ons

fr

om

the

sc

op

e …

car

ve o

ut

spec

ific

polic

y ar

eas

and/

or

indu

strie

s fro

m

the

scop

e of

th

e tr

eaty

2.3.

0N

o ex

clus

ions

.Th

e br

oade

r a

trea

ty’s

sc

ope,

th

e w

ider

its

pr

otec

tive

effe

ct

and

its

pote

ntia

l co

ntrib

utio

n to

th

e at

trac

tion

of

fore

ign

inve

stm

ent.

How

ever

, a

broa

d tr

eaty

al

so

redu

ces

a ho

st

Sta

te’s

po

licy

spac

e an

d fle

xibi

lity

and

ultim

atel

y he

ight

ens

its

expo

sure

to

in

vest

ors’

cl

aim

s.

Sta

tes

can

tailo

r th

e sc

ope

of

the

agre

emen

t to

m

eet

the

coun

try’

s S

D

agen

da.

By

carv

ing

out

spec

ific

polic

y ar

eas

and

sect

ors/

indu

strie

s fro

m

trea

ty

cove

rage

, S

tate

s pr

eser

ve fl

exib

ility

to im

plem

ent

natio

nal p

olic

ies,

suc

h as

in

dust

rial p

olic

ies

(e.g

. to

gra

nt p

refe

rent

ial t

reat

men

t to

dom

estic

inve

stor

s or

to

impo

se p

erfo

rman

ce r

equi

rem

ents

), or

to

ensu

re a

cces

s to

ess

entia

l/pu

blic

ser

vice

s.

2.3.

1E

xclu

de s

peci

fic p

olic

y ar

eas

from

trea

ty c

over

age,

e.g

.:-

subs

idie

s an

d gr

ants

- pu

blic

pro

cure

men

t-

taxa

tion.

2.3.

2E

xclu

de s

peci

fic s

ecto

rs a

nd in

dust

ries

from

trea

ty c

over

age,

e.g

.:-

esse

ntia

l soc

ial s

ervi

ces

(e.g

. hea

lth, e

duca

tion)

- sp

ecifi

c se

nsiti

ve in

dust

ries

(e.g

. cu

ltura

l ind

ustr

ies,

fish

erie

s, n

ucle

ar e

nerg

y, d

efen

ce

indu

stry

, nat

ural

reso

urce

s).

2.4

Tem

po

ral

sco

pe

… d

eter

min

es

whe

ther

the

trea

ty a

pplie

s to

inve

stm

ents

an

d/or

m

easu

res

pre-

datin

g th

e tr

eaty

2.4.

0E

xten

d th

e tr

eaty

sco

pe t

o in

vest

men

ts e

stab

lishe

d bo

th b

efor

e an

d af

ter

the

trea

ty’s

en

try

into

forc

e.Th

e tr

eaty

’s s

cope

will

be w

ides

t if i

ts a

pplic

atio

n is

ext

ende

d to

all i

nves

tmen

ts,

rega

rdle

ss o

f th

e tim

e of

the

ir es

tabl

ishm

ent

in t

he h

ost

Sta

te.

Ano

ther

ap

proa

ch i

s to

exc

lude

alre

ady

“att

ract

ed”

(i.e.

pre

-tre

aty)

inv

estm

ents

: it

coul

d be

see

n as

pre

vent

ing

free-

ridin

g by

“ol

d” in

vest

ors

but

at t

he s

ame

time

wou

ld r

esul

t in

dis

crim

inat

ion

betw

een

“old

” an

d “n

ew”

inve

stm

ents

. M

oreo

ver,

this

can

cre

ate

unce

rtai

nty

with

resp

ect t

o re

-inve

stm

ents

by

“old

” in

vest

ors.

2.4.

1Li

mit

tem

pora

l sco

pe t

o in

vest

men

ts m

ade

afte

r th

e co

nclu

sion

/ent

ry in

to f

orce

of

the

trea

ty.

2.4.

2C

larif

y th

at th

e tr

eaty

sha

ll no

t allo

w II

A c

laim

s ar

isin

g ou

t of a

ny S

tate

act

s w

hich

cea

sed

to e

xist

prio

r to

the

IIA’

s en

try

into

forc

e, e

ven

thou

gh it

may

stil

l hav

e an

ong

oing

effe

ct

on th

e in

vest

or.

2.4.

3C

larif

y th

at t

he t

reat

y sh

all

not

allo

w I

IA c

laim

s ba

sed

on m

easu

res

adop

ted

prio

r to

co

nclu

sion

of t

he tr

eaty

.

Pol

icym

aker

s sh

ould

con

side

r th

e ef

fect

of t

he tr

eaty

on

Sta

te a

cts,

ado

pted

pr

ior

to t

he t

reat

y’s

entr

y in

to f

orce

, bu

t w

ith a

las

ting

effe

ct:

«con

tinui

ng»

brea

ches

(e.

g. m

aint

enan

ce o

f an

ear

lier

legi

slat

ive

prov

isio

n w

hich

com

es

into

con

flict

with

tre

aty

oblig

atio

ns),

indi

vidu

al a

cts

who

se e

ffect

s co

ntin

ue

over

tim

e (e

.g.

effe

ct o

f a

dire

ct e

xpro

pria

tion

on t

he f

orm

er o

wne

r of

the

as

set)

and

“com

posi

te”

acts

, i.e

. a s

erie

s of

act

ions

or o

mis

sion

s w

hich

, tak

en

toge

ther

, ar

e w

rong

ful.

It is

use

ful

to p

rovi

de a

dditi

onal

lan

guag

e to

cla

rify

whe

ther

the

trea

ty w

ould

cov

er o

r ex

clud

e su

ch la

stin

g ac

ts o

r ef

fect

s.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


An

expr

ess

prov

isio

n th

at p

recl

udes

app

licat

ion

of t

he t

reat

y to

act

s th

at

ceas

ed t

o ex

ist

befo

re t

he t

reat

y’s

entr

y in

to f

orce

wou

ld e

nhan

ce l

egal

ce

rtai

nty,

esp

ecia

lly w

ith r

egar

d to

the

per

iod

betw

een

the

date

of

the

trea

ty’s

sig

natu

re a

nd it

s en

try

into

forc

e. T

his

appr

oach

wou

ld n

ever

thel

ess

keep

ope

n to

cha

lleng

e th

ose

prio

r la

ws

and

regu

latio

ns t

hat

com

e in

to

cont

radi

ctio

n w

ith t

he n

ew t

reat

y on

ce it

ent

ers

into

for

ce.

An

alte

rnat

ive

is

to a

pply

the

trea

ty o

nly

to th

ose

mea

sure

s th

at a

re a

dopt

ed a

fter

the

trea

ty’s

en

try

into

for

ce:

this

wou

ld a

utom

atic

ally

pre

clud

e al

l of

the

Sta

te’s

ear

lier

non-

conf

orm

ing

mea

sure

s fro

m b

eing

cha

lleng

ed (e

.g.,

pref

eren

tial t

reat

men

t to

dom

estic

inv

esto

rs i

n a

part

icul

ar i

ndus

try

in v

iola

tion

of t

he N

atio

nal

Trea

tmen

t ob

ligat

ion)

, el

imin

atin

g th

e ne

ed t

o id

entif

y an

d sc

hedu

le s

uch

mea

sure

s in

divi

dual

ly.

3A

dm

issi

on

…

gov

ern

en

try

inve

stm

ents

in

to th

e ho

st

Sta

te (s

ee a

lso

“P

art B

: Pre

-es

tabl

ism

ent”

)

3.1.

0P

rovi

de

that

inve

stm

ents

are

ad

mitt

ed in

acc

ord

ance

with

do

mes

tic la

ws

of

the

ho

st S

tate

.

Mos

t IIA

s pr

ovid

e fo

r ad

mis

sion

of

inve

stm

ents

in

acco

rdan

ce w

ith t

he

host

Sta

te’s

nat

iona

l la

ws.

Thu

s, u

nlik

e in

the

tre

atie

s th

at b

elon

g to

the

“p

re-e

stab

lishm

ent”

typ

e, i

n th

is c

ase

Sta

tes

do n

ot g

ive

any

inte

rnat

iona

l gu

aran

tees

of

adm

issi

on a

nd c

an c

hang

e re

leva

nt d

omes

tic l

aws

as t

hey

deem

app

ropr

iate

. How

ever

, the

pro

mis

e to

adm

it in

vest

men

ts in

acc

orda

nce

with

dom

estic

law

stil

l has

a c

erta

in v

alue

as

it af

ford

s pr

otec

tion

to in

vest

ors

in c

ase

a ho

st S

tate

refu

ses

adm

issi

on in

con

trad

ictio

n or

by

disr

egar

ding

its

inte

rnal

law

s.

3.1.

1N

o cl

ause

.

4S

tand

ard

s o

f tr

eatm

ent

and

pro

tect

ion

4.1

Nat

iona

l tr

eatm

ent

(NT

) …

pro

tect

s fo

reig

n in

vest

ors/

inve

stm

ents

ag

ains

t di

scrim

inat

ion

vis-

à-vi

s do

mes

tic

inve

stor

s

4.1.

0P

rohi

bit

less

fav

oura

ble

trea

tmen

t of

cov

ered

for

eign

inv

esto

rs/in

vest

men

ts v

is-à

-vis

co

mpa

rabl

e do

mes

tic in

vest

ors/

inve

stm

ents

, with

out r

estr

ictio

ns o

r qu

alifi

catio

ns.

NT

guar

ante

es f

orei

gn i

nves

tors

a l

evel

-pla

ying

fiel

d vi

s-à-

vis

com

para

ble

dom

estic

in

vest

ors

and

is

gene

rally

co

nsid

ered

co

nduc

ive

to

good

go

vern

ance

. 4.

1.1

Circ

umsc

ribe

the

scop

e of

the

NT

clau

se (

for

both

/all

Con

trac

ting

Par

ties)

, no

ting

that

it,

e.g

.:-

subo

rdin

ates

the

right

of N

T to

a h

ost c

ount

ry’s

dom

estic

law

s-

rese

rves

the

right

of e

ach

Par

ty to

der

ogat

e fro

m N

T-

does

not

app

ly to

cer

tain

pol

icy

area

s (e

.g. s

ubsi

dies

, gov

ernm

ent p

rocu

rem

ent).

Yet

unde

r so

me

circ

umst

ance

s, a

nd in

acc

orda

nce

with

the

ir S

D s

trat

egie

s,

Sta

tes

may

wan

t to

be

able

to

acco

rd p

refe

rent

ial

trea

tmen

t to

nat

iona

l in

vest

ors/

inve

stm

ents

(e.

g. t

hrou

gh t

empo

rary

gra

nts

or s

ubsi

dies

) w

ithou

t ex

tend

ing

the

sam

e be

nefit

s to

for

eign

-ow

ned

com

pani

es.

In t

his

case

, N

T pr

ovis

ions

nee

d to

allo

w fl

exib

ility

to re

gula

te fo

r S

D g

oals

.

4.1.

2In

clud

e co

untr

y-sp

ecifi

c re

serv

atio

ns to

NT,

e.g

. car

ve-o

ut:

-

cert

ain

polic

ies/

mea

sure

s (e

.g.

subs

idie

s an

d gr

ants

, go

vern

men

t pr

ocur

emen

t, m

easu

res

rega

rdin

g go

vern

men

t bon

ds)

- sp

ecifi

c se

ctor

s/in

dust

ries

whe

re th

e ho

st c

ount

ries

wis

h to

pre

serv

e th

e rig

ht to

favo

ur

dom

estic

inve

stor

s-

cert

ain

polic

y ar

eas

(e.g

. iss

ues

rela

ted

to m

inor

ities

, rur

al p

opul

atio

ns, m

argi

naliz

ed o

r in

dige

nous

com

mun

ities

)-

mea

sure

s re

late

d to

com

pani

es o

f a s

peci

fic s

ize

(e.g

. SM

Es)

.

For

exam

ple,

co

untr

ies

with

a

nasc

ent/

emer

ging

re

gula

tory

fra

mew

ork

that

are

rel

ucta

nt t

o re

scin

d th

e rig

ht t

o di

scrim

inat

e in

fav

our

of d

omes

tic

inve

stor

s ca

n m

ake

the

NT

oblig

atio

n “s

ubje

ct t

o th

eir

dom

estic

law

s an

d re

gula

tions

”. T

his

appr

oach

giv

es f

ull

flexi

bilit

y to

gra

nt p

refe

rent

ial

(e.g

. di

ffere

ntia

ted)

trea

tmen

t to

dom

estic

inve

stor

s as

long

as

this

is in

acc

orda

nce

with

the

coun

try’

s le

gisl

atio

n. H

owev

er, s

uch

a si

gnifi

cant

lim

itatio

n to

the

NT

oblig

atio

n m

ay b

e pe

rcei

ved

as a

dis

ince

ntiv

e to

fore

ign

inve

stor

s. E

ven

mor

e so

, om

ittin

g th

e N

T cl

ause

fro

m t

he t

reat

y m

ay s

igni

fican

tly u

nder

min

e its

pr

otec

tive

valu

e.4.

1.3

Om

it N

T cl

ause

.Th

ere

can

be a

mid

dle

grou

nd b

etw

een

full

polic

y fre

edom

, on

the

one

hand

, an

d a

rigid

gua

rant

ee o

f non

-dis

crim

inat

ion,

on

the

othe

r. Fo

r exa

mpl

e, S

tate

s m

ay e

xem

pt s

peci

fic p

olic

y ar

eas

or m

easu

res

as w

ell a

s se

nsiti

ve o

r vi

tal

econ

omic

sec

tors

/indu

strie

s fro

m th

e sc

ope

of th

e ob

ligat

ion

in o

rder

to m

eet

both

cur

rent

and

futu

re re

gula

tory

or p

ublic

-pol

icy

need

s su

ch a

s ad

dres

sing

m

arke

t fa

ilure

s (th

is c

an b

e do

ne e

ither

as

an e

xcep

tion

appl

icab

le t

o bo

th

Con

trac

ting

Par

ties

or a

s a

coun

try-

spec

ific

rese

rvat

ion)

.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


4.2

Mo

st-

favo

ured

na

tio

n (M

FN)

trea

tmen

t …

pro

tect

s fo

reig

n in

vest

ors/

inve

stm

ents

ag

ains

t di

scrim

inat

ion

vis-

à-vi

s ot

her

fore

ign

inve

stor

s

4.2.

0P

rohi

bit l

ess

favo

urab

le tr

eatm

ent o

f cov

ered

inve

stor

s/in

vest

men

ts v

is-à

-vis

com

para

ble

inve

stor

s/in

vest

men

ts o

f any

third

cou

ntry

.Th

e M

FN p

rovi

sion

ens

ures

a le

vel-p

layi

ng fi

eld

bet

wee

n in

vest

ors

from

the

IIA

hom

e co

untr

y an

d c

omp

arab

le in

vest

ors

from

any

thi

rd c

ount

ry.

How

ever

, co

mp

etin

g ob

ject

ives

and

im

plic

atio

ns m

ay c

ome

into

pla

y w

hen

des

igni

ng

an M

FN c

laus

e. W

hile

an

MFN

cla

use

may

be

used

to

ensu

re u

pw

ard

ha

rmon

izat

ion

of I

IA t

reat

y st

and

ard

s, it

can

als

o re

sult

in t

he u

nant

icip

ated

in

corp

orat

ion

of s

tron

ger

inve

stor

rig

hts

from

IIA

s w

ith t

hird

cou

ntrie

s an

d

com

plic

ate

cons

ciou

s tr

eaty

des

ign.

Thi

s is

par

ticul

arly

the

cas

e if

the

MFN

cl

ause

ex

tend

s to

p

re-e

stab

lishm

ent

issu

es

or

whe

n th

e tr

eaty

in

clud

es

care

fully

bal

ance

d p

rovi

sion

s th

at c

ould

be

rend

ered

inef

fect

ive

by

an o

verly

b

road

MFN

cla

use.

An

exam

ple

of t

he la

tter

are

rec

ent

arb

itral

dec

isio

ns t

hat

have

rea

d t

he M

FN

oblig

atio

n as

allo

win

g in

vest

ors

to in

voke

mor

e in

vest

or-f

riend

ly p

rovi

sion

s fro

m

third

tre

atie

s, e

.g.

to in

corp

orat

e st

and

ard

s no

t in

clud

ed in

the

bas

e tr

eaty

, to

b

enefi

t fro

m h

ighe

r p

rote

ctio

n st

and

ard

s co

mp

ared

to

the

ones

fou

nd in

the

b

ase

trea

ty o

r to

circ

umve

nt p

roce

dur

al (

ISD

S-r

elat

ed)

req

uire

men

ts i

n th

e b

ase

trea

ty.

Sho

uld

a c

ount

ry w

ish

to p

recl

ude

the

MFN

cla

use

from

ap

ply

ing

to a

ny

rele

vant

int

erna

tiona

l ag

reem

ent,

it

can

do

so b

y ex

clud

ing

spec

ific

typ

es

of i

nstr

umen

ts f

rom

the

sco

pe

of t

he M

FN c

laus

e (s

ee s

ectio

n 4.

2.1)

or,

in

a b

road

er m

anne

r, b

y re

stric

ting

the

scop

e of

the

MFN

cla

use

to d

omes

tic

trea

tmen

t (s

ee s

ectio

n 4.

2.2)

. C

arvi

ng o

ut c

erta

in s

ecto

rs/in

dus

trie

s or

pol

icy

mea

sure

s th

roug

h co

untr

y-sp

ecifi

c re

serv

atio

ns, c

ater

ing

for

bot

h cu

rren

t and

fu

ture

reg

ulat

ory

need

s, is

an

add

ition

al t

ool t

hat

allo

ws

man

agin

g th

e sc

ope

of t

he M

FN c

laus

e in

a m

anne

r ta

rget

ed t

o th

e sp

ecifi

c ne

eds

of in

div

idua

l IIA

P

artie

s.

4.2.

1Li

mit

the

appl

icat

ion

of t

he M

FN c

laus

e, n

otin

g th

at M

FN d

oes

not

appl

y to

mor

e fa

vour

able

trea

tmen

t gra

nted

to th

ird-c

ount

ry in

vest

ors

unde

r, e.

g.:

- E

cono

mic

inte

grat

ion

agre

emen

ts-

Dou

ble

taxa

tion

trea

ties

- IIA

s co

nclu

ded

prio

r to

(and

/or a

fter)

the

conc

lusi

on o

f the

IIA

in q

uest

ion

(e.g

. if t

he la

tter

co

ntai

ns r

ules

that

are

less

favo

urab

le to

inve

stor

s, a

s co

mpa

red

to e

arlie

r IIA

s)-

ISD

S c

laus

es /

pro

cedu

ral r

ight

s.

4.2.

2Li

mit

the

appl

icat

ion

of th

e M

FN c

laus

e to

trea

tmen

t acc

orde

d to

fore

ign

inve

stor

s un

der

dom

estic

law

s, re

gula

tions

, adm

inis

trat

ive

prac

tices

and

de

fact

o tr

eatm

ent.

4.2.

3In

clud

e co

untr

y-sp

ecifi

c re

serv

atio

ns to

MFN

, e.g

. car

ve o

ut:

- ce

rtai

n po

licie

s/m

easu

res

(e.g

. sub

sidi

es, e

tc.)

- sp

ecifi

c se

ctor

s/in

dust

ries

- ce

rtai

n po

licy

area

s (e

.g. i

ssue

s re

late

d to

min

oriti

es, r

ural

pop

ulat

ions

, mar

gina

lized

or

indi

geno

us c

omm

uniti

es)

4.3

Fair

and

eq

uita

ble

tr

eatm

ent

(FE

T)

... p

rote

cts

fo

reig

n in

vest

ors/

inve

stm

ents

ag

ains

t, e.

g. d

enia

l of

just

ice,

ar

bitr

ary

and

abus

ive

trea

tmen

t

4.3.

0G

ive

an u

nqua

lified

com

mitm

ent t

o tr

eat f

orei

gn in

vest

ors/

inve

stm

ents

“fa

irly

and

equi

tabl

y”.

FET

is a

crit

ical

sta

ndar

d of

tre

atm

ent:

whi

le it

is c

onsi

dere

d to

hel

p at

trac

t fo

reig

n in

vest

ors

and

fost

er g

ood

gove

rnan

ce i

n th

e ho

st S

tate

, al

mos

t al

l cl

aim

s br

ough

t to

date

by

inve

stor

s ag

ains

t Sta

tes

have

incl

uded

an

alle

gatio

n of

the

brea

ch o

f thi

s al

l-enc

ompa

ssin

g st

anda

rd o

f pro

tect

ion.

Thro

ugh

an u

nqua

lified

pro

mis

e to

tre

at i

nves

tors

“fa

irly

and

equi

tabl

y”,

a co

untr

y pr

ovid

es m

axim

um p

rote

ctio

n fo

r in

vest

ors

but

also

ris

ks p

osin

g lim

its o

n its

pol

icy

spac

e, r

aisi

ng it

s ex

posu

re to

fore

ign

inve

stor

s’ c

laim

s an

d re

sulti

ng fi

nanc

ial

liabi

litie

s. S

ome

of t

hese

im

plic

atio

ns s

tem

fro

m t

he f

act

that

the

re is

a g

reat

dea

l of

unce

rtai

nty

conc

erni

ng t

he p

reci

se m

eani

ng o

f th

e co

ncep

t, be

caus

e th

e no

tions

of “f

airn

ess”

and

“eq

uity

” do

not

con

note

a

clea

r se

t of

lega

l pre

scrip

tions

and

are

ope

n to

sub

ject

ive

inte

rpre

tatio

ns.

A p

artic

ular

ly p

robl

emat

ic i

ssue

con

cern

s th

e us

e of

the

FE

T st

anda

rd t

o pr

otec

t in

vest

ors

“legi

timat

e ex

pect

atio

ns”,

whi

ch m

ay r

estr

ict

the

abilit

y of

co

untr

ies

to c

hang

e po

licie

s or

to in

trod

uce

new

pol

icie

s th

at -

whi

le p

ursu

ing

SD

obj

ectiv

es -

may

hav

e a

nega

tive

impa

ct o

n fo

reig

n in

vest

ors.

S

ever

al o

ptio

ns e

xist

to a

ddre

ss th

e de

ficie

ncie

s of

unq

ualifi

ed F

ET

stan

dard

, ea

ch w

ith i

ts p

ros

and

cons

. Th

e re

fere

nce

to c

usto

mar

y in

tern

atio

nal

law

m

ay r

aise

the

thr

esho

ld o

f S

tate

liab

ility

and

help

to

pres

erve

Sta

tes’

abi

lity

to a

dapt

pub

lic p

olic

ies

in l

ight

of

chan

ging

obj

ectiv

es (

exce

pt w

hen

thes

e m

easu

res

cons

titut

e m

anife

stly

arb

itrar

y co

nduc

t th

at a

mou

nts

to e

greg

ious

m

istr

eatm

ent o

f for

eign

inve

stor

s), b

ut th

e ex

act c

onto

urs

of M

ST/

CIL

rem

ain

elus

ive.

An

omis

sion

of

the

FET

clau

se w

ould

red

uce

Sta

tes’

exp

osur

e to

in

vest

or c

laim

s, b

ut fo

reig

n in

vest

ors

may

per

ceiv

e th

e co

untr

y as

not

offe

ring

a so

und

and

relia

ble

inve

stm

ent c

limat

e. A

noth

er s

olut

ion

wou

ld b

e to

repl

ace

the

gene

ral F

ET

clau

se w

ith a

n ex

haus

tive

list

of m

ore

spec

ific

oblig

atio

ns.

Whi

le a

gree

ing

on s

uch

a lis

t m

ay t

urn

out

to b

e a

chal

leng

ing

ende

avou

r, its

ex

haus

tive

natu

re

wou

ld

help

av

oid

unan

ticip

ated

an

d fa

r-re

achi

ng

inte

rpre

tatio

ns b

y tr

ibun

als.

4.3.

1Q

ualif

y th

e FE

T st

anda

rd b

y re

fere

nce

to:

- m

inim

um s

tand

ard

of tr

eatm

ent o

f alie

ns u

nder

cus

tom

ary

inte

rnat

iona

l law

(MS

T/C

IL)

- in

tern

atio

nal l

aw o

r pr

inci

ples

of i

nter

natio

nal l

aw.

4.3.

2In

clud

e an

exh

aust

ive

list o

f Sta

te o

blig

atio

ns u

nder

FE

T, e

.g. o

blig

atio

n no

t to

- de

ny ju

stic

e in

judi

cial

or

adm

inis

trat

ive

proc

eedi

ngs

- tr

eat i

nves

tors

in a

man

ifest

ly a

rbitr

ary

man

ner

- fla

gran

tly v

iola

te d

ue p

roce

ss-

enga

ge i

n m

anife

stly

abu

sive

tre

atm

ent

invo

lvin

g co

ntin

uous

, un

just

ified

coe

rcio

n or

ha

rass

men

t-

infri

nge

inve

stor

s’ l

egiti

mat

e ex

pect

atio

ns b

ased

on

inve

stm

ent-

indu

cing

rep

rese

nta-

tions

or

mea

sure

s.

4.3.

3C

larif

y (w

ith a

vie

w to

giv

ing

inte

rpre

tativ

e gu

idan

ce to

arb

itral

trib

unal

s) th

at:

- th

e FE

T cl

ause

doe

s no

t pr

eclu

de S

tate

s fro

m a

dopt

ing

good

faith

reg

ulat

ory

or o

ther

m

easu

res

that

pur

sue

legi

timat

e po

licy

obje

ctiv

es-

the

inve

stor

’s c

ondu

ct (

incl

udin

g th

e ob

serv

ance

of

univ

ersa

lly r

ecog

nize

d st

anda

rds,

se

e se

ctio

n 7)

is re

leva

nt in

det

erm

inin

g w

heth

er th

e FE

T st

anda

rd h

as b

een

brea

ched

-

the

coun

try’

s le

vel o

f dev

elop

men

t is

rele

vant

in d

eter

min

ing

whe

ther

the

FET

stan

dard

ha

s be

en b

reac

hed

- a

brea

ch o

f an

othe

r pr

ovis

ion

of t

he II

A o

r of

ano

ther

inte

rnat

iona

l agr

eem

ent

cann

ot

esta

blis

h a

clai

m fo

r br

each

of t

he c

laus

e.

4.3.

4O

mit

FET

clau

se.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


4.4

Full

pro

tect

ion

and

sec

urit

y (F

PS

) …

requ

ires

host

Sta

tes

to e

xerc

ise

due

dilig

ence

in

pro

tect

ing

fore

ign

inve

stm

ents

4.4.

0In

clud

e a

guar

ante

e to

pro

vide

inve

stor

s/in

vest

men

ts fu

ll pr

otec

tion

and

secu

rity.

Mos

t IIA

s in

clud

e a

guar

ante

e of

ful

l pr

otec

tion

and

secu

rity

(FP

S),

whi

ch

is g

ener

ally

reg

arde

d as

cod

ifyin

g cu

stom

ary

inte

rnat

iona

l la

w o

blig

atio

ns

to g

rant

a c

erta

in le

vel o

f po

lice

prot

ectio

n an

d ph

ysic

al s

ecur

ity.

How

ever

, so

me

trib

unal

s m

ay in

terp

ret t

he F

PS

obl

igat

ion

so a

s to

cov

er m

ore

than

just

po

lice

prot

ectio

n: if

FP

S is

und

erst

ood

to in

clud

e ec

onom

ic,

lega

l and

oth

er

prot

ectio

n an

d se

curit

y, it

can

con

stra

in g

over

nmen

t reg

ulat

ory

prer

ogat

ives

, in

clud

ing

for

SD

obj

ectiv

es.

P

olic

ymak

ers

may

fol

low

a r

ecen

t tr

end

to q

ualif

y th

e FP

S s

tand

ard

by

expl

icitl

y lin

king

it to

cus

tom

ary

inte

rnat

iona

l law

or i

nclu

ding

a d

efini

tion

of th

e st

anda

rd c

larif

ying

tha

t it

is li

mite

d to

“ph

ysic

al”

secu

rity.

Thi

s w

ould

pro

vide

pr

edic

tabi

lity

and

prev

ent

expa

nsiv

e in

terp

reta

tions

tha

t w

ould

con

stra

in

regu

lato

ry p

rero

gativ

es.

4.4.

1C

larif

y th

e FP

S c

laus

e by

:

- sp

ecify

ing

that

the

stan

dard

refe

rs to

“ph

ysic

al”

secu

rity

and

prot

ectio

n-

linki

ng it

to

cust

omar

y in

tern

atio

nal l

aw (e

.g. s

peci

fyin

g th

at t

his

oblig

atio

n do

es n

ot g

o be

yond

wha

t is

requ

ired

by C

IL)

- pr

ovid

ing

that

the

expe

cted

leve

l of p

olic

e pr

otec

tion

shou

ld b

e co

mm

ensu

rate

with

the

leve

l of d

evel

opm

ent o

f the

cou

ntry

’s p

olic

e an

d se

curit

y fo

rces

.

4.4.

2O

mit

FPS

cla

use.

4.5

Exp

rop

riat

ion

…

pro

tect

s fo

reig

n in

vest

ors

in c

ase

of

disp

osse

ssio

n of

thei

r in

vest

men

ts

by th

e ho

st

coun

try

4.5.

0P

rovi

de th

at a

n ex

prop

riatio

n m

ust c

ompl

y w

ith/r

espe

ct fo

ur c

ondi

tions

: pub

lic p

urpo

se,

non-

disc

rimin

atio

n, d

ue p

roce

ss a

nd p

aym

ent o

f com

pens

atio

n.A

n ex

prop

riatio

n pr

ovis

ion

is a

fun

dam

enta

l el

emen

t of

an

IIA.

IIAs

with

ex

prop

riatio

n cl

ause

s do

not

take

aw

ay S

tate

s’ r

ight

to e

xpro

pria

te p

rope

rty,

bu

t p

rote

ct i

nves

tors

aga

inst

arb

itrar

y or

unc

ompe

nsat

ed e

xpro

pria

tions

, co

ntrib

utin

g to

a s

tabl

e an

d pr

edic

tabl

e le

gal f

ram

ewor

k, c

ondu

cive

to fo

reig

n in

vest

men

t.

IIA p

rovi

sion

s ty

pica

lly c

over

“ind

irect

” exp

ropr

iatio

n, w

hich

refe

rs to

regu

lato

ry

taki

ngs,

cre

epin

g ex

prop

riatio

n an

d ac

ts “

tant

amou

nt t

o” o

r “e

quiv

alen

t to

” ex

prop

riatio

n. S

uch

prov

isio

ns h

ave

been

use

d to

cha

lleng

e ge

nera

l re

gula

tions

with

an

alle

ged

nega

tive

effe

ct o

n th

e va

lue

of a

n in

vest

men

t. Th

is r

aise

s th

e qu

estio

n of

the

pro

per

bord

erlin

e be

twee

n ex

prop

riatio

n an

d le

gitim

ate

publ

ic p

olic

y m

akin

g (e

.g.

envi

ronm

enta

l, so

cial

or

heal

th

regu

latio

ns).

To a

void

und

ue c

onst

rain

ts o

n a

Sta

te’s

pre

roga

tive

to r

egul

ate

in t

he p

ublic

in

tere

st, a

n IIA

may

set

out

gen

eral

crit

eria

for S

tate

act

s th

at m

ay (o

r may

not

) be

con

side

red

an in

dire

ct e

xpro

pria

tion.

Whi

le t

his

does

not

exc

lude

liab

ility

risks

alto

geth

er, i

t allo

ws

for

bett

er b

alan

cing

of i

nves

tor

and

Sta

te in

tere

sts.

Th

e st

anda

rd o

f co

mpe

nsat

ion

for

law

ful e

xpro

pria

tion

is a

noth

er im

port

ant

aspe

ct.

The

use

of t

erm

s su

ch a

s “a

ppro

pria

te”,

“ju

st”

or “

fair”

in r

elat

ion

to

com

pens

atio

n gi

ves

room

for

flex

ibilit

y in

the

cal

cula

tion

of c

ompe

nsat

ion.

S

tate

s m

ay fi

nd i

t be

nefic

ial

to p

rovi

de f

urth

er g

uida

nce

to a

rbitr

ator

s on

ho

w to

cal

cula

te c

ompe

nsat

ion

and

clar

ify w

hat f

acto

rs s

houl

d be

take

n in

to

acco

unt.

4.5.

1Li

mit

prot

ectio

n in

cas

e of

indi

rect

exp

ropr

iatio

n (re

gula

tory

taki

ng) b

y-

esta

blis

hing

crit

eria

that

nee

d to

be

met

for

indi

rect

exp

ropr

iatio

n to

be

foun

d-

defin

ing

in g

ener

al t

erm

s w

hat

mea

sure

s do

not

con

stitu

te in

dire

ct e

xpro

pria

tion

(non

-di

scrim

inat

ory

good

faith

regu

latio

ns re

latin

g to

pub

lic h

ealth

and

saf

ety,

pro

tect

ion

of th

e en

viro

nmen

t, et

c.)

- cl

arify

ing

that

cer

tain

spe

cific

mea

sure

s do

not

con

stitu

te a

n in

dire

ct e

xpro

pria

tion

(e.g

. co

mpu

lsor

y lic

ensi

ng in

com

plia

nce

with

WTO

rul

es).

4.5.

2S

peci

fy th

e co

mpe

nsat

ion

to b

e pa

id in

cas

e of

law

ful e

xpro

pria

tion:

-

appr

opria

te, j

ust o

r eq

uita

ble

com

pens

atio

n-

prom

pt,

adeq

uate

and

effe

ctiv

e co

mpe

nsat

ion,

i.e.

full

mar

ket

valu

e of

the

inve

stm

ent

(“H

ull f

orm

ula”

).4.

5.3

Cla

rify

that

only

exp

rop

riatio

ns

vio

latin

g a

ny

of

the

thre

e su

bst

antiv

e co

nditi

ons

(pub

lic p

urpo

se, n

on-d

iscr

imin

atio

n, d

ue p

roce

ss),

enta

il fu

ll re

para

tion.

4.6

Pro

tect

ion

fro

m s

trife

…

pro

tect

s in

vest

ors

in

case

of l

osse

s in

curr

ed a

s a

resu

lt of

arm

ed

confl

ict o

r ci

vil

strif

e

4.6.

0G

rant

non

-dis

crim

inat

ory

(i.e.

NT,

MFN

) tr

eatm

ent

with

res

pect

to

rest

itutio

n/co

mpe

n-sa

tion

in c

ase

of a

rmed

con

flict

or

civi

l str

ife.

IIAs

ofte

n co

ntai

n a

clau

se o

n co

mpe

nsat

ion

for

loss

es i

ncur

red

unde

r sp

ecifi

c ci

rcum

stan

ces,

suc

h as

arm

ed c

onfli

ct o

r ci

vil s

trife

. Som

e co

untr

ies

have

exp

ande

d th

e co

vera

ge o

f suc

h a

clau

se b

y in

clud

ing

com

pens

atio

n in

ca

se o

f nat

ural

dis

aste

rs o

r for

ce m

ajeu

re s

ituat

ions

. Suc

h a

broa

d ap

proa

ch

incr

ease

s th

e ris

k fo

r a

Sta

te t

o fa

ce fi

nanc

ial l

iabi

litie

s ar

isin

g ou

t of

IS

DS

cl

aim

s fo

r ev

ents

out

side

of t

he S

tate

’s c

ontr

ol.

Mos

t IIA

s on

ly c

onfe

r a

rela

tive

right

to

com

pens

atio

n on

for

eign

inve

stor

s,

mea

ning

that

a h

ost c

ount

ry u

nder

take

s to

com

pens

ate

cove

red

inve

stor

s in

a

man

ner

at le

ast e

quiv

alen

t to

com

para

ble

host

Sta

te n

atio

nals

or

inve

stor

s fro

m t

hird

cou

ntrie

s. S

ome

IIAs

prov

ide

an a

bsol

ute

right

to

com

pens

atio

n ob

ligin

g a

Sta

te t

o re

stitu

te o

r pa

y fo

r ce

rtai

n ty

pes

of l

osse

s (e

.g.

thos

e ca

used

by

the

requ

isiti

onin

g of

the

ir pr

oper

ty b

y go

vern

men

t fo

rces

or

auth

oriti

es).

The

latt

er a

ppro

ach

is m

ore

burd

enso

me

for

host

Sta

tes

but

prov

ides

a h

ighe

r le

vel o

f pro

tect

ion

to in

vest

ors.

4.6.

1G

uara

ntee

– u

nder

cer

tain

circ

umst

ance

s –

com

pens

atio

n in

cas

e of

loss

es in

curr

ed a

s a

resu

lt of

arm

ed c

onfli

ct o

r ci

vil s

trife

as

an a

bsol

ute

right

(e.g

. by

req

uirin

g re

ason

able

co

mpe

nsat

ion)

.

4.6.

2D

efine

civ

il st

rife

as n

ot in

clud

ing

“act

s of

God

”, n

atur

al d

isas

ters

or

forc

e m

ajeu

re.

4.6.

3O

mit

prot

ectio

n-fro

m-s

trife

cla

use.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


4.7

Tran

sfer

of

fund

s …

gra

nts

the

right

to fr

ee

mov

emen

t of

inve

stm

ent-

rela

ted

finan

cial

flow

s in

to a

nd o

ut

of th

e ho

st

coun

try

4.7.

0G

rant

fore

ign

inve

stor

s th

e rig

ht to

free

ly tr

ansf

er a

ny in

vest

men

t-re

late

d fu

nds

(e.g

. op

en e

nded

list

) int

o an

d ou

t of t

he h

ost c

ount

ry.

IIAs

virt

ually

alw

ays

cont

ain

a cl

ause

reg

ardi

ng in

vest

men

t-re

late

d tr

ansf

ers.

Th

e ob

ject

ive

is t

o en

sure

tha

t a

fore

ign

inve

stor

can

mak

e fre

e us

e of

in

vest

ed c

apita

l, re

turn

s on

inv

estm

ent

and

othe

r pa

ymen

ts r

elat

ed t

o th

e es

tabl

ishm

ent,

oper

atio

n or

dis

posa

l of a

n in

vest

men

t.

How

ever

, an

unq

ualifi

ed t

rans

fer-

of-f

unds

pro

visi

on s

igni

fican

tly r

educ

es a

ho

st c

ount

ry’s

abi

lity

to d

eal w

ith s

udde

n an

d m

assi

ve o

utflo

ws

or in

flow

s of

cap

ital,

bala

nce-

of-p

aym

ents

(BoP

) diffi

culti

es a

nd o

ther

mac

roec

onom

ic

prob

lem

s. A

n ex

cept

ion

incr

easi

ngly

fou

nd i

n re

cent

IIA

s al

low

s S

tate

s to

im

pose

res

tric

tions

on

the

free

tran

sfer

of

fund

s in

spe

cific

circ

umst

ance

s,

usua

lly q

ualifi

ed b

y ch

ecks

and

bal

ance

s (s

afeg

uard

s) t

o pr

even

t m

isus

e.

Cou

ntrie

s m

ay a

lso

need

to

rese

rve

thei

r rig

ht t

o re

stric

t tr

ansf

ers

if th

is is

re

quire

d fo

r th

e en

forc

emen

t of

the

Par

ty’s

law

s (e

.g.

to p

reve

nt f

raud

on

cred

itors

etc

.), a

gain

with

che

cks

and

bala

nces

to p

reve

nt a

buse

.

4.7.

1P

rovi

de a

n ex

haus

tive

list o

f typ

es o

f qua

lifyi

ng tr

ansf

ers.

4.7.

2In

clud

e ex

cept

ions

(e.g

. tem

pora

ry d

erog

atio

ns):

- in

the

eve

nt o

f ser

ious

bal

ance

-of-

paym

ents

and

ext

erna

l fina

ncia

l diffi

culti

es o

r th

reat

th

ereo

f-

whe

re m

ovem

ents

of

fund

s ca

use

or t

hrea

ten

to c

ause

ser

ious

diffi

culti

es in

mac

ro-

econ

omic

man

agem

ent,

in p

artic

ular

, rel

ated

to m

onet

ary

and

exch

ange

rat

e po

licie

s.C

ondi

tion

thes

e ex

cept

ions

to

prev

ent

thei

r ab

use

(e.g

. app

licat

ion

in li

ne w

ith IM

F ru

les

and

resp

ectin

g co

nditi

ons

of t

empo

ralit

y, e

quity

, no

n-di

scrim

inat

ion,

goo

d fa

ith a

nd

prop

ortio

nalit

y).

4.7.

3R

eser

ve t

he r

ight

of

host

Sta

tes

to r

estr

ict

an in

vest

or’s

tra

nsfe

r of

fun

ds in

con

nect

ion

with

the

cou

ntry

’s (e

quita

ble,

non

-dis

crim

inat

ory,

and

goo

d fa

ith a

pplic

atio

n of

its)

law

s,

rela

ting

to, e

.g.:

- fi

scal

obl

igat

ions

of t

he in

vest

or/in

vest

men

t in

the

host

cou

ntry

- re

port

ing

requ

irem

ents

in re

latio

n to

cur

renc

y tr

ansf

ers

- ba

nkru

ptcy

, ins

olve

ncy,

or

the

prot

ectio

n of

the

right

s of

cre

dito

rs-

issu

ing,

trad

ing,

or

deal

ing

in s

ecur

ities

, fut

ures

, opt

ions

, or

deriv

ativ

es-

crim

inal

or

pena

l offe

nces

(e.g

. im

posi

ng c

rimin

al p

enal

ties)

- pr

even

tion

of m

oney

laun

derin

g-

com

plia

nce

with

ord

ers

or ju

dgm

ents

in ju

dici

al o

r ad

min

istr

ativ

e pr

ocee

ding

s.

4.8

Tran

spar

ency

…

fost

ers

acce

ss to

in

form

atio

n

4.8.

0R

equi

re C

ontr

actin

g P

artie

s to

pro

mpt

ly p

ublis

h do

cum

ents

whi

ch m

ay a

ffect

cov

ered

in

vest

men

ts, i

nclu

ding

e.g

. -

law

s an

d re

gula

tions

- pr

oced

ures

/adm

inis

trat

ive

rulin

gs o

f gen

eral

app

licat

ion

- IIA

s.

Som

e IIA

s in

clud

e a

clau

se r

equi

ring

coun

trie

s to

pro

mpt

ly p

ublis

h la

ws

and

regu

latio

ns.

Pro

vidi

ng i

nves

tors

(pr

ospe

ctiv

e an

d es

tabl

ishe

d on

es)

with

ac

cess

to

such

inf

orm

atio

n im

prov

es a

cou

ntry

’s i

nves

tmen

t cl

imat

e. T

his

mig

ht,

how

ever

, al

so p

ose

adm

inis

trat

ive

diffi

culti

es f

or s

ome

coun

trie

s th

at

do n

ot h

ave

the

hum

an r

esou

rces

and

tec

hnol

ogic

al in

frast

ruct

ure

requ

ired.

Th

e tr

eaty

may

inco

rpor

ate

com

mitm

ents

to

prov

ide

tech

nica

l ass

ista

nce

to

deve

lopi

ng c

ount

ries

to s

uppo

rt im

plem

enta

tion.

The

adm

inis

trat

ive

burd

en

impo

sed

by t

rans

pare

ncy

oblig

atio

ns c

ould

be

less

ened

by

usin

g ph

rase

s su

ch a

s “t

o th

e ex

tent

pos

sibl

e”.

The

few

IIA

s th

at c

onta

in s

o-ca

lled

“prio

r-co

mm

ent

proc

edur

es”

requ

ire a

n ev

en h

ighe

r le

vel o

f ac

tion

by g

over

nmen

ts a

nd m

ay e

xpos

e S

tate

s to

lob-

byin

g an

d pr

essu

re in

the

proc

ess

of d

evel

opin

g th

ose

law

s.

Tran

spar

ency

obl

igat

ions

are

ofte

n ex

clud

ed f

rom

the

sco

pe o

f IS

DS

(se

e 6.

2.4)

. Th

ey c

an s

till b

e us

eful

, gi

ven

that

any

rel

ated

pro

blem

s ca

n be

dis

-cu

ssed

on

a S

tate

-Sta

te le

vel a

nd a

ddre

ssed

thro

ugh

tech

nica

l ass

ista

nce.

Tran

spar

ency

pro

visi

ons

gene

rally

do

not

incl

ude

any

refe

renc

e to

tra

nspa

-re

ncy

oblig

atio

ns a

pplic

able

to

inve

stor

s. T

his

cont

ribut

es t

o th

e pe

rcep

tion

that

IIA

s la

ck i)

cor

pora

te g

over

nanc

e en

hanc

ing

feat

ures

; an

d ii)

bal

ance

in

the

right

s an

d ob

ligat

ions

. IIA

s co

uld

enco

urag

e S

tate

s to

str

engt

hen

dom

es-

tic t

rans

pare

ncy

requ

irem

ents

(e.

g. in

clud

ing

mec

hani

sms

for

due

dilig

ence

pr

oced

ures

).

4.8.

1R

equi

re c

ount

ries

to g

rant

inve

stm

ent-

rela

ted

info

rmat

ion

upon

requ

est.

4.8.

2R

equi

re c

ount

ries

to p

ublis

h in

adv

ance

mea

sure

s th

at th

ey p

ropo

se to

ado

pt re

gard

ing

mat

ters

co

vere

d by

th

e IIA

an

d to

pr

ovid

e a

reas

onab

le

oppo

rtun

ity

for

affe

cted

st

akeh

olde

rs (i

nves

tors

) to

com

men

t (pr

ior-

com

men

t pro

cedu

res)

.4.

8.3

Exp

licitl

y re

serv

e ho

st S

tate

s’ r

ight

s an

d/or

enc

oura

ge S

tate

Par

ties

- to

impl

emen

t pol

icie

s pl

acin

g tr

ansp

aren

cy a

nd d

iscl

osur

e re

quire

men

ts o

n in

vest

ors

- to

see

k in

form

atio

n fro

m a

pot

entia

l (or

alre

ady

esta

blis

hed)

inve

stor

or

its h

ome

Sta

te-

to m

ake

rele

vant

info

rmat

ion

avai

labl

e to

the

publ

icQ

ualif

y w

ith a

n ob

ligat

ion

upon

the

Sta

te to

pro

tect

con

fiden

tial i

nfor

mat

ion.

4.8.

4N

o cl

ause

.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


4.9

Per

form

ance

re

qui

rem

ents

…

regu

late

th

e ex

tent

to

whi

ch h

ost

Sta

tes

can

impo

se c

erta

in

oper

atio

nal

cond

ition

s on

fore

ign

inve

stor

s/in

vest

men

ts

4.9.

0P

recl

ude

Con

trac

ting

Par

ties

from

pla

cing

tra

de-r

elat

ed p

erfo

rman

ce r

equi

rem

ents

(e.g

. lo

cal c

onte

nt re

quire

men

ts) o

n in

vest

men

ts o

pera

ting

in th

e go

ods

sect

or (i

n ac

cord

ance

w

ith/in

corp

orat

ing

the

WTO

TR

IMs

Agr

eem

ent).

Per

form

ance

req

uire

men

ts (

PR

s) r

efer

to

the

impo

sitio

n of

con

ditio

ns o

n bu

sine

sses

lim

iting

the

ir ec

onom

ic c

hoic

es a

nd m

anag

eria

l dis

cret

ion

(e.g

. re

quire

men

ts to

use

loca

lly p

rodu

ced

inpu

ts o

r to

expo

rt a

cer

tain

per

cent

age

of

prod

uctio

n).

Whi

le

PR

s m

ay

be

cons

ider

ed

as

crea

ting

econ

omic

in

effic

ienc

ies,

the

y ca

n al

so b

e a

pote

ntia

lly i

mpo

rtan

t to

ol f

or i

ndus

tria

l or

ot

her e

cono

mic

dev

elop

men

t pol

icie

s. F

rom

the

tran

sfer

of t

echn

olog

y to

the

empl

oym

ent

of lo

cal w

orke

rs,

PR

s ca

n he

lp m

ater

ializ

e ex

pect

ed s

pill-

over

ef

fect

s fro

m fo

reig

n in

vest

men

t.

Thus

, to

rea

p th

e fu

ll be

nefit

s of

for

eign

inve

stm

ent

and

to a

lign

inve

stm

ent

polic

y w

ith S

D o

bjec

tives

, po

licym

aker

s ne

ed t

o ca

refu

lly c

onsi

der

the

need

fo

r po

licy

flexi

bilit

y w

hen

devi

sing

cla

uses

on

PR

s. T

his

is im

port

ant,

even

if

the

IIA s

impl

y re

fers

to th

e W

TO T

RIM

s A

gree

men

t (be

caus

e ev

en th

ough

this

do

es n

ot a

dd a

ny n

ew o

blig

atio

ns o

n S

tate

s w

ho a

re a

lso

WTO

mem

bers

, the

in

corp

orat

ion

of T

RIM

s in

to a

n IIA

giv

es in

vest

ors

the

oppo

rtun

ity t

o di

rect

ly

chal

leng

e a

TRIM

s vi

olat

ion

thro

ugh

ISD

S).

It is

par

ticul

arly

impo

rtan

t w

hen

cons

ider

ing

the

proh

ibiti

on o

f an

ext

ensi

ve li

st o

f P

Rs

beyo

nd T

RIM

s (e

.g.

requ

irem

ents

to

tran

sfer

tec

hnol

ogy

or e

mpl

oy lo

cal w

orke

rs).

The

rele

vant

ex

cept

ions

and

res

erva

tions

sho

uld

be c

onsi

dere

d fro

m t

he p

oint

of

view

of

bot

h cu

rren

t an

d fu

ture

reg

ulat

ory

need

s. F

inal

ly, e

ven

if th

e IIA

doe

s no

t co

ntai

n a

clau

se e

xplic

itly

rulin

g ou

t P

Rs,

the

NT

clau

se w

ould

pro

hibi

t th

e di

scrim

inat

ory

impo

sitio

n of

PR

s on

fore

ign

inve

stor

s on

ly.

4.9.

1P

recl

ude

Con

trac

ting

Par

ties

from

pla

cing

per

form

ance

req

uire

men

ts o

n in

vest

men

ts,

beyo

nd tr

ade-

rela

ted

ones

, e.g

. req

uire

men

ts to

tran

sfer

tech

nolo

gy, t

o ac

hiev

e a

cert

ain

leve

l of R

&D

ope

ratio

ns o

r to

em

ploy

a c

erta

in p

erce

ntag

e of

loca

l per

sonn

el (T

RIM

s +

).

4.9.

2P

recl

ude

Con

trac

ting

Par

ties

from

impo

sing

per

form

ance

req

uire

men

ts u

nles

s th

ey a

re

linke

d to

the

gran

ting

of in

cent

ives

(usu

ally

in c

ombi

natio

n w

ith th

e ab

ove

TRIM

s +

opt

ion)

.

4.9.

3In

clud

e co

untr

y-sp

ecifi

c re

serv

atio

ns to

the

TRIM

s+ o

blig

atio

n, e

.g. c

arvi

ng o

ut:

- ce

rtai

n po

licie

s/m

easu

res

(e.g

. sub

sidi

es)

- sp

ecifi

c se

ctor

s/in

dust

ries

(e.g

. ba

nkin

g,

defe

nce,

fis

herie

s,

fore

stry

, tr

ansp

ort,

infra

stru

ctur

e, s

ocia

l ser

vice

s)-

cert

ain

polic

y ar

eas

(e.g

. iss

ues

rela

ted

to m

inor

ities

, rur

al p

opul

atio

ns, m

argi

naliz

ed o

r in

dige

nous

com

mun

ities

)-

mea

sure

s re

late

d to

com

pani

es o

f a s

peci

fic s

ize

(e.g

. SM

Es)

.4.

9.4

No

clau

se p

rohi

bitin

g im

posi

tion

of p

erfo

rman

ce re

quire

men

ts

4.10

«Um

bre

lla»

clau

se

… e

stab

lishe

s a

com

mitm

ent

on th

e pa

rt o

f th

e ho

st S

tate

to

resp

ect i

ts

oblig

atio

ns

rega

rdin

g sp

ecifi

c in

vest

men

ts

(incl

udin

g in

in

vest

men

t co

ntra

cts)

4.10

.0In

clud

e a

clau

se t

hat

requ

ires

each

Par

ty t

o ob

serv

e an

y ob

ligat

ion

(e.g

. co

ntra

ctua

l) w

hich

it h

as a

ssum

ed w

ith re

spec

t to

an in

vest

men

t of a

cov

ered

inve

stor

.A

n “u

mbr

ella

” cl

ause

requ

ires

a ho

st S

tate

to re

spec

t any

obl

igat

ion

assu

med

by

it

with

reg

ard

to a

spe

cific

inv

estm

ent

(for

exam

ple,

in

an i

nves

tmen

t co

ntra

ct).

The

clau

se th

us b

rings

con

trac

tual

and

oth

er in

divi

dual

obl

igat

ions

un

der

the

“um

brel

la”

of t

he II

A, m

akin

g th

em p

oten

tially

enf

orce

able

thr

ough

IS

DS

. B

y su

bjec

ting

cont

ract

ual

vito

latio

ns t

o IIA

arb

itrat

ion

an u

mbr

ella

cl

ause

the

refo

re m

akes

it

even

mor

e im

port

ant

for

coun

trie

s to

hav

e th

e te

chni

cal c

apac

ity t

o ca

refu

lly c

raft

the

resp

ectiv

e co

ntra

ctua

l arr

ange

men

ts

(e.g

. whe

n th

ey e

nter

into

inve

stm

ent o

r co

nces

sion

con

trac

ts).

4.10

.1C

larif

y th

at a

bre

ach

of t

he “

umbr

ella

” cl

ause

may

onl

y re

sult

from

an

exer

cise

of

sove

reig

n po

wer

s by

a g

over

nmen

t (i.

e. n

ot a

n or

dina

ry b

reac

h of

con

trac

t by

the

Sta

te)

and

that

dis

pute

s ar

isin

g fro

m s

uch

brea

ches

sha

ll be

set

tled

in th

e fo

rum

pre

scrib

ed b

y th

e co

ntra

ct.

4.10

.2In

trod

uce

a “t

wo-

way

” um

brel

la c

laus

e th

at r

equi

res

both

the

Sta

te a

nd t

he in

vest

or t

o ob

serv

e th

eir

spec

ific

oblig

atio

ns re

late

d to

the

inve

stm

ent.

4.10

.3N

o “u

mbr

ella

” cl

ause

.Th

e m

ain

diffi

culti

es w

ith “

umbr

ella

” cl

ause

s ar

e th

at t

hey

(1)

effe

ctiv

ely

expa

nd t

he s

cope

of

the

IIA b

y in

corp

orat

ing

non-

trea

ty o

blig

atio

ns o

f th

e ho

st S

tate

into

the

tre

aty,

whi

ch m

ay in

crea

se t

he r

isk

of b

eing

fac

ed w

ith

cost

ly le

gal p

roce

edin

gs, a

nd (2

) hav

e gi

ven

rise

to c

onfli

ctin

g in

terp

reta

tions

by

inve

stor

-Sta

te tr

ibun

als

resu

lting

in a

hig

h de

gree

of u

npre

dict

abilit

y.

One

way

of

solv

ing

thes

e pr

oble

ms

– fo

llow

ed b

y m

any

coun

trie

s –

wou

ld

be t

o om

it th

e “u

mbr

ella

” cl

ause

from

the

ir IIA

s. T

his

mea

ns t

hat

an in

vest

or

part

y to

an

inve

stm

ent

cont

ract

wou

ld a

lway

s ha

ve t

o sh

ow a

bre

ach

of a

n IIA

obl

igat

ion,

and

not

a b

reac

h of

the

con

trac

t. A

ltern

ativ

ely,

a c

ount

ry m

ay

clar

ify th

e sc

ope

of th

e um

brel

la c

laus

e an

d th

e co

mpe

tent

dis

pute

set

tlem

ent

foru

m t

o av

oid

confl

ictin

g in

terp

reta

tions

. Fi

nally

, th

ere

is a

n op

tion

to m

ake

the

umbr

ella

cla

use

wor

k bo

th w

ays,

tha

t is

, to

use

it to

inco

rpor

ate

into

the

IIA

not

onl

y a

Sta

te’s

obl

igat

ions

but

als

o th

ose

of a

n in

vest

or,

whi

ch w

ould

gi

ve S

tate

s an

opp

ortu

nity

to

brin

g co

unte

rcla

ims

agai

nst

inve

stor

s in

the

re

leva

nt IS

DS

pro

ceed

ings

.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


4.11

Per

sonn

el

and

sta

ffing

…

faci

litat

es

the

entr

y,

sojo

urn

and

empl

oym

ent

of fo

reig

n pe

rson

nel

4.11

.0P

rovi

de f

or t

he f

acilit

atio

n of

ent

ry,

sojo

urn

and

issu

ing

of w

ork

perm

its f

or n

atio

nals

of

one

Par

ty (

or i

ndiv

idua

ls r

egar

dles

s of

nat

iona

lity)

int

o th

e te

rrito

ry o

f th

e ot

her

Par

ty

for

purp

oses

rel

atin

g to

an

inve

stm

ent,

subj

ect

to n

atio

nal i

mm

igra

tion

and

othe

r la

ws,

co

verin

g:-

all p

erso

nnel

, inc

ludi

ng fa

milie

s-

only

sen

ior

man

agem

ent a

nd k

ey p

erso

nnel

.

Faci

litat

ing

the

entr

y an

d so

jour

n of

for

eign

em

ploy

ees

and

the

right

to

hire

ex

patr

iate

per

sonn

el (

incl

udin

g se

nior

man

agem

ent

and

mem

bers

of

the

boar

d of

dire

ctor

s) c

an h

elp

to a

ttra

ct fo

reig

n in

vest

men

t.

At t

he s

ame

time

thes

e pr

ovis

ions

inte

ract

with

hos

t Sta

te’s

imm

igra

tion

law

s -

a pa

rtic

ular

ly s

ensi

tive

area

of p

olic

y m

akin

g. It

is im

port

ant t

hat h

ost S

tate

s re

tain

con

trol

ove

r th

eir

imm

igra

tion

polic

ies

or e

nsur

e co

here

nce

betw

een

rele

vant

inte

rnat

iona

l and

nat

iona

l reg

ulat

ions

.

Mor

eove

r, S

tate

s m

ay w

ish

to e

ncou

rage

SD

-rel

ated

spi

ll-ov

ers

such

as

empl

oym

ent

for

dom

estic

or

indi

geno

us w

orke

rs a

nd t

rickl

e-do

wn

effe

cts

with

resp

ect t

o te

chno

logi

cal k

now

ledg

e (e

.g. b

y re

quiri

ng fo

reig

n in

vest

men

ts

to e

mpl

oy i

ndig

enou

s pe

rson

nel

or b

y lim

iting

the

num

ber

of e

xpat

riate

pe

rson

nel w

orki

ng fo

r th

e in

vest

or).

Car

eful

ly c

hoos

ing

the

right

nor

mat

ive

inte

nsity

(e.g

. opt

ing

for

a be

st-e

ffort

s ap

proa

ch),

and

othe

r m

echa

nism

s fo

r pr

eser

ving

flex

ibilit

y (e

.g.

ensu

ring

the

prio

rity

of n

atio

nal l

aws)

are

key

.

4.11

.1E

nsur

e th

e rig

ht o

f in

vest

ors

to m

ake

appo

intm

ents

to

seni

or m

anag

emen

t po

sitio

ns

with

out r

egar

d to

nat

iona

lity.

4.11

.2In

clud

e co

untr

y-sp

ecifi

c re

serv

atio

ns

to

the

seni

or-m

anag

emen

t ob

ligat

ion

(sec

tion

4.11

.1),

e.g.

car

ve o

ut:

- ce

rtai

n po

licie

s/m

easu

res

- sp

ecifi

c se

ctor

s/in

dust

ries

- ce

rtai

n po

licy

area

s (m

inor

ities

, ind

igen

ous

com

mun

ities

)-

mea

sure

s re

late

d to

com

pani

es o

f a s

peci

fic s

ize.

4.11

.3N

o cl

ause

.

5P

ublic

po

licy

exce

pti

ons

...

per

mit

publ

ic p

olic

y m

easu

res,

ot

herw

ise

inco

nsis

tent

w

ith th

e tr

eaty

, to

be

take

n un

der

spec

ified

, ex

cept

iona

l ci

rcum

stan

ces

5.1.

0N

o pu

blic

pol

icy

exce

ptio

ns.

To d

ate

few

IIA

s in

clud

e pu

blic

pol

icy

exce

ptio

ns.

How

ever

, m

ore

rece

nt

trea

ties

incr

easi

ngly

rea

ffirm

Sta

tes’

rig

ht t

o re

gula

te in

the

pub

lic in

tere

st b

y in

trod

ucin

g ge

nera

l exc

eptio

ns. S

uch

prov

isio

ns m

ake

IIAs

mor

e co

nduc

ive

to

SD

goa

ls,

fost

er c

oher

ence

bet

wee

n IIA

s an

d ot

her

publ

ic p

olic

y ob

ject

ives

, an

d re

duce

Sta

tes’

exp

osur

e to

cla

ims

aris

ing

from

any

con

flict

tha

t m

ay

occu

r be

twee

n th

e in

tere

sts

of a

for

eign

inv

esto

r an

d th

e pr

omot

ion

and

prot

ectio

n of

legi

timat

e pu

blic

-inte

rest

obj

ectiv

es.

Exc

eptio

ns a

llow

for m

easu

res,

oth

erw

ise

proh

ibite

d by

the

agre

emen

t, to

be

take

n un

der

spec

ified

circ

umst

ance

s. G

ener

al e

xcep

tions

iden

tify

the

polic

y ar

eas

for

whi

ch fl

exib

ility

is to

be

pres

erve

d.

A n

umbe

r of

fea

ture

s de

term

ine

how

eas

y or

diffi

cult

it is

for

a S

tate

to

use

an e

xcep

tion.

To

avoi

d re

view

of

the

rele

vant

mea

sure

by

a co

urt

or a

tr

ibun

al,

the

gene

ral e

xcep

tion

can

be m

ade

self-

judg

ing

(i.e.

the

nec

essi

ty/

appr

opria

tene

ss

of

the

mea

sure

is

ju

dged

on

ly

by

the

invo

king

S

tate

its

elf).

Thi

s ap

proa

ch g

ives

a w

ide

mar

gin

of d

iscr

etio

n to

Sta

tes,

red

uces

le

gal c

erta

inty

for

inve

stor

s an

d po

tent

ially

ope

ns p

ossi

bilit

ies

for

abus

e. I

n co

ntra

st,

exce

ptio

ns d

esig

ned

as n

ot s

elf-

judg

ing

impl

y th

at i

n ca

se o

f a

disp

ute,

a c

ourt

or

trib

unal

will

be a

ble

to d

eter

min

e w

heth

er t

he m

easu

re in

qu

estio

n is

allo

wed

by

the

exce

ptio

n.

In o

rder

to fa

cilit

ate

the

use

of e

xcep

tions

by

Sta

tes,

the

prov

isio

n m

ay a

djus

t th

e re

quire

d lin

k be

twee

n th

e m

easu

re a

nd t

he a

llege

d po

licy

obje

ctiv

e pu

rsue

d by

this

mea

sure

. For

exa

mpl

e, in

stea

d of

pro

vidi

ng th

at th

e m

easu

re

mus

t be

“nec

essa

ry”

to a

chie

ve th

e po

licy

obje

ctiv

e, th

e IIA

cou

ld re

quire

that

th

e m

easu

re b

e “r

elat

ed”

to th

e po

licy

obje

ctiv

e.

Fina

lly,

in o

rder

to

prev

ent

abus

e of

exc

eptio

ns,

it is

use

ful

to c

larif

y th

at

“exc

eptio

nal”

mea

sure

s m

ust

be a

pplie

d in

a n

on-a

rbitr

ary

man

ner

and

not

as d

isgu

ised

inve

stm

ent p

rote

ctio

nism

.

5.1.

1In

clud

e ex

cept

ions

for

nat

iona

l se

curit

y m

easu

res

and/

or m

easu

res

rela

ted

to t

he

mai

nten

ance

of i

nter

natio

nal p

eace

and

sec

urity

:-

form

ulat

e th

e ex

cept

ion

as n

ot s

elf-

judg

ing

(can

be

subj

ect t

o ar

bitr

al re

view

)-

form

ulat

e th

e ex

cept

ion

as s

elf-

judg

ing.

5.1.

2B

road

en t

he e

xcep

tion

by c

larif

ying

tha

t na

tiona

l se

curit

y m

ay e

ncom

pass

eco

nom

ic

secu

rity.

5.1.

3Li

mit

the

exce

ptio

n by

spe

cify

ing:

-

that

the

exc

eptio

n on

ly r

elat

es t

o ce

rtai

n ty

pes

of m

easu

res,

e.g

. th

ose

rela

ting

to

traf

ficki

ng in

arm

s or

nuc

lear

non

-pro

lifer

atio

n; o

r tak

en in

pur

suan

ce o

f Sta

tes’

obl

igat

ions

un

der

the

UN

Cha

rter

for

the

mai

nten

ance

of i

nter

natio

nal p

eace

and

sec

urity

- th

at it

onl

y ap

plie

s in

tim

es o

f w

ar o

r ar

med

con

flict

or

an e

mer

genc

y in

inte

rnat

iona

l re

latio

ns.

5.1.

4In

clud

e ex

cept

ions

for d

omes

tic re

gula

tory

mea

sure

s th

at a

im to

pur

sue

legi

timat

e pu

blic

po

licy

obje

ctiv

es, e

.g. t

o:-

prot

ect h

uman

rig

hts

- pr

otec

t pub

lic h

ealth

- pr

eser

ve th

e en

viro

nmen

t (e.

g. b

iodi

vers

ity, c

limat

e ch

ange

)-

prot

ect p

ublic

mor

als

or m

aint

ain

publ

ic o

rder

-

pres

erve

cul

tura

l and

/or

lingu

istic

div

ersi

ty-

ensu

re c

ompl

ianc

e w

ith la

ws

and

regu

latio

ns th

at a

re n

ot in

cons

iste

nt w

ith th

e tr

eaty

- al

low

for

prud

entia

l mea

sure

s (e

.g. t

o pr

eser

ve th

e in

tegr

ity a

nd s

tabi

lity

of th

e fin

anci

al

syst

em)

- en

sure

the

prov

isio

n of

ess

entia

l soc

ial s

ervi

ces

(e.g

. hea

lth, e

duca

tion,

wat

er s

uppl

y)-

allo

w f

or b

road

er s

afeg

uard

s, i

nclu

ding

on

deve

lopm

enta

l gr

ound

s (to

add

ress

hos

t co

untr

ies’

trad

e, fi

nanc

ial a

nd d

evel

opm

enta

l nee

ds)

- pr

even

t tax

eva

sion

- pr

otec

t na

tiona

l tr

easu

res

of a

rtis

tic,

hist

oric

or

arch

aeol

ogic

al v

alue

(or

“cu

ltura

l he

ritag

e”).

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


5.1.

5P

reve

nt a

buse

of t

he e

xcep

tions

by

host

Sta

tes:

-

prov

ide

that

«ex

cept

iona

l» m

easu

res

shal

l not

be

appl

ied

in a

man

ner

that

w

ould

con

stitu

te a

rbitr

ary

or u

njus

tifiab

le d

iscr

imin

atio

n be

twee

n in

vest

men

ts o

r in

vest

ors,

or

a di

sgui

sed

rest

rictio

n on

inte

rnat

iona

l tra

de o

r in

vest

men

t-

choo

se th

e ap

prop

riate

thre

shol

d w

hich

an

“exc

eptio

nal”

mea

sure

mus

t mee

t, e.

g. th

e m

easu

re m

ust

be “

nece

ssar

y” (i

ndis

pens

able

) to

achi

eve

the

alle

ged

polic

y ob

ject

ive,

or

be “

rela

ted”

(mak

ing

a co

ntrib

utio

n) to

this

pol

icy

obje

ctiv

e.

6D

isp

ute

sett

lem

ent

6.1

Sta

te-S

tate

...

gov

erns

di

sput

e se

ttle

men

t be

twee

n th

e C

ontr

actin

g P

artie

s

6.1.

0E

stab

lish

that

any

unr

esol

ved

IIA-r

elat

ed d

ispu

tes

can

be s

ubm

itted

to

Sta

te-S

tate

di

sput

e se

ttle

men

t (ar

bitr

atio

n).

To d

ate,

Sta

te-S

tate

arb

itrat

ions

und

er I

IAs

have

bee

n ve

ry r

are.

Thi

s is

a

natu

ral c

onse

quen

ce o

f in

clud

ing

ISD

S in

to I

IAs

(and

inve

stor

s th

emse

lves

ta

king

hos

t S

tate

s to

arb

itrat

ion)

to

com

plem

ent

the

syst

em o

f di

plom

atic

pr

otec

tion.

How

ever

, if a

que

stio

n ab

out t

he m

eani

ng o

f a s

peci

fic II

A o

blig

atio

n ar

ises

, and

th

e C

ontr

actin

g P

artie

s fa

il to

reso

lve

the

unce

rtai

nty

thro

ugh

cons

ulta

tions

, a

Sta

te-S

tate

arb

itrat

ion

can

be a

use

ful m

echa

nism

to

clar

ify it

. In

this

sen

se,

Sta

te-S

tate

pro

cedu

res

reta

in th

eir

“sup

port

ive”

func

tion

for

ISD

S.

6.1.

1P

rovi

de a

n op

tion

or re

quire

that

the

Sta

tes

enga

ge in

prio

r con

sulta

tions

and

neg

otia

tions

an

d/or

reso

rt to

con

cilia

tion

or m

edia

tion.

6.2

Inve

sto

r-S

tate

…

pro

vide

s fo

reig

n in

vest

ors

with

ac

cess

to

inte

rnat

iona

l ar

bitr

atio

n to

reso

lve

inve

stm

ent-

rela

ted

disp

utes

with

th

e ho

st S

tate

6.2.

0G

rant

inve

stor

s th

e rig

ht to

brin

g an

y in

vest

men

t-re

late

d di

sput

e w

ith th

e ho

st c

ount

ry to

in

tern

atio

nal a

rbitr

atio

n.IS

DS

allo

ws

fore

ign

inve

stor

s to

sue

a h

ost

Sta

te if

the

latt

er v

iola

tes

its II

A

oblig

atio

ns.

Mos

t IIA

s al

low

inv

esto

rs t

o by

pass

dom

estic

cou

rts

of h

ost

Sta

tes

and

brin

g in

tern

atio

nal a

rbitr

atio

n pr

ocee

ding

s (e

.g. t

o co

nstit

ute

an a

d ho

c 3-

pers

on tr

ibun

al, m

ost o

ften

at IC

SID

or u

nder

the

UN

CIT

RA

L ar

bitr

atio

n ru

les)

. Th

e go

al is

to

take

the

dis

pute

out

of t

he d

omes

tic s

pher

e, t

o en

sure

in

depe

nden

ce a

nd im

part

ialit

y of

the

arb

itrat

ors,

spe

ed a

nd e

ffect

iven

ess

of

the

proc

ess

and

final

ity a

nd e

nfor

ceab

ility

of a

rbitr

al a

war

ds.

As

the

num

ber

of IS

DS

cas

es in

crea

ses,

que

stio

ns h

ave

aris

en w

ith r

egar

d to

the

effe

ctiv

enes

s an

d th

e S

D im

plic

atio

ns o

f IS

DS

. Man

y IS

DS

pro

cedu

res

are

very

exp

ensi

ve a

nd o

ften

take

sev

eral

yea

rs t

o re

solv

e. I

SD

S c

ases

in

crea

sing

ly

chal

leng

e do

mes

tic

regu

lato

ry

mea

sure

s im

plem

ente

d fo

r pu

blic

pol

icy

obje

ctiv

es.

Alm

ost

all

ISD

S c

ases

lea

d to

the

bre

ak d

own

of

the

rela

tions

hip

betw

een

the

inve

stor

and

the

hos

t S

tate

. D

ue t

o th

e la

ck

of a

sin

gle,

uni

fied

mec

hani

sm,

diffe

rent

trib

unal

s ha

ve i

ssue

d di

verg

ent

inte

rpre

tatio

ns o

f sim

ilarly

wor

ded

trea

ty p

rovi

sion

s, re

sulti

ng in

con

trad

icto

ry

outc

omes

of

case

s in

volv

ing

iden

tical

/sim

ilar

fact

s an

d/or

tre

aty

lang

uage

. M

any

ISD

S p

roce

edin

gs a

re c

ondu

cted

con

fiden

tially

, w

hich

has

rai

sed

conc

erns

whe

n tr

ibun

als

addr

ess

mat

ters

of p

ublic

pol

icy.

A n

umbe

r of

pol

icy

optio

ns a

re a

vaila

ble

to d

eal w

ith t

hese

pro

blem

s. If

the

C

ontr

actin

g P

artie

s co

nsid

er e

ach

othe

r’s ju

dici

al s

yste

ms

to b

e ef

fect

ive

and

effic

ient

, IS

DS

can

be

omitt

ed fr

om t

heir

IIA a

ltoge

ther

. The

Par

ties

may

als

o ch

oose

to s

ubje

ct o

nly

the

mos

t fun

dam

enta

l IIA

pro

tect

ions

to IS

DS

(e.g

. the

pr

otec

tion

agai

nst

unco

mpe

nsat

ed e

xpro

pria

tion)

, re

serv

e th

e rig

ht t

o gi

ve

cons

ent t

o ar

bitr

atio

n on

a c

ase-

by-c

ase

basi

s or

min

imiz

e S

tate

s’ e

xpos

ure

to I

SD

S b

y ot

her

mea

ns (

e.g.

by

rem

ovin

g ce

rtai

n ar

eas

from

its

pur

view

, in

trod

ucin

g lim

itatio

n pe

riods

). P

artie

s m

ay a

lso

cons

ider

pro

mot

ing

the

use

of a

ltern

ativ

e di

sput

e re

solu

tion

(AD

R) m

etho

ds, s

uch

as c

onci

liatio

n an

d m

edia

tion.

If e

mpl

oyed

at

the

early

st

ages

of a

dis

pute

, AD

R c

an h

elp

to p

reve

nt e

scal

atio

n of

the

confl

ict,

6.2.

1D

efine

the

rang

e of

dis

pute

s th

at c

an b

e su

bjec

t to

ISD

S:

- an

y in

vest

men

t-re

late

d di

sput

es (

rega

rdle

ss o

f th

e le

gal

basi

s fo

r a

clai

m,

be i

t IIA

, co

ntra

ct, d

omes

tic la

w o

r ot

her)

-

disp

utes

aris

ing

from

spe

cific

ally

lis

ted

inst

rum

ents

(e.

g. I

IAs,

con

trac

ts,

inve

stm

ent

auth

oris

atio

ns/li

cens

es)

- di

sput

es re

gard

ing

IIA v

iola

tions

onl

y-

Sta

tes’

cou

nter

clai

ms.

6.2.

2P

rom

ote

the

use

of a

ltern

ativ

e di

sput

e re

solu

tion

(AD

R) m

etho

ds-

enco

urag

e re

sort

to c

onci

liatio

n (e

.g. I

CS

ID o

r UN

CIT

RA

L co

ncilia

tion

rule

s) o

r med

iatio

n-

agre

e to

coo

pera

te in

dev

elop

ing

disp

ute

prev

entio

n m

echa

nism

s (in

clud

ing

by c

reat

ing

inve

stm

ent o

mbu

dsm

en o

r “o

mbu

ds”

offic

es).

6.2.

3C

larif

y th

at in

vest

ors

can

only

reso

rt to

inte

rnat

iona

l arb

itrat

ion

- af

ter l

ocal

rem

edie

s ha

ve b

een

exha

uste

d or

a m

anife

st in

effe

ctiv

enes

s/bi

as o

f dom

estic

co

urts

has

bee

n de

mon

stra

ted

- if

the

inve

stor

agr

ees

not t

o br

ing

(“fo

rk-in

-the

-roa

d”),

or u

nder

take

s to

dis

cont

inue

(“no

U

-tur

n”),

the

sam

e ca

se in

ano

ther

foru

m

- w

ithin

a li

mita

tion

perio

d, in

ord

er to

pre

vent

cla

ims

resu

lting

from

«ol

d» m

easu

res

(e.g

. cl

aim

has

to b

e br

ough

t with

in th

ree

year

s)-

with

resp

ect t

o cl

aim

s th

at a

rose

afte

r th

e tr

eaty

’s e

ntry

into

forc

e (s

ee s

ectio

n 2.

4).

6.2.

4Li

mit

Sta

tes’

exp

osur

e to

ISD

S, e

.g.:

- cl

arify

that

cer

tain

trea

ty p

rovi

sion

s an

d/or

sen

sitiv

e ar

eas

are

excl

uded

from

ISD

S, e

.g.

natio

nal s

ecur

ity is

sues

, in

clud

ing

revi

ew o

f in

com

ing

inve

stm

ents

; m

easu

res

to p

rote

ct

the

envi

ronm

ent,

heal

th a

nd h

uman

rig

hts;

pru

dent

ial

mea

sure

s; m

easu

res

rela

ting

to

tran

sfer

of

fund

s (o

r re

spec

tive

IIA p

rovi

sion

s);

tax

mea

sure

s th

at d

o no

t am

ount

to

expr

opria

tion;

IIA

pro

visi

ons

on tr

ansp

aren

cy-

spec

ify o

nly

thos

e is

sues

/pro

visi

ons

to w

hich

IS

DS

sho

uld

appl

y (e

.g.

only

to

the

expr

opria

tion

prov

isio

n).

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


6.2.

5R

eser

ve S

tate

’s c

onse

nt t

o ar

bitr

atio

n, s

o th

at i

t w

ould

be

give

n se

para

tely

for

eac

h sp

ecifi

c di

sput

e.pr

eser

ve

the

inve

stm

ent

rela

tions

hip,

an

d fin

d a

wor

kabl

e co

mm

on-

sens

e so

lutio

n in

a f

aste

r, ch

eape

r an

d m

ore

flexi

ble

man

ner.

As

part

of

the

IIA r

ebal

anci

ng,

a tr

eaty

may

ref

er t

o th

e po

ssib

ility

of S

tate

s br

ingi

ng

coun

terc

laim

s fo

r in

vest

ors’

non

-com

plia

nce

with

the

hos

t S

tate

’s n

atio

nal

law

s (s

ectio

n 7.

1.1)

or

brea

ch o

f inv

esto

r’s s

peci

fic o

blig

atio

ns u

nder

take

n in

re

latio

n to

its

inve

stm

ent (

sect

ion

4.10

.3).

6.2.

6O

mit

inve

stor

-Sta

te a

rbitr

atio

n (i.

e. d

o no

t co

nsen

t to

inv

esto

r-S

tate

arb

itrat

ion

in t

he

trea

ty) a

nd n

omin

ate

host

Sta

te’s

dom

estic

cou

rts

as th

e ap

prop

riate

foru

m.

6.3

ISD

S

inst

itut

ions

an

d

pro

ced

ures

…

pro

pose

im

prov

emen

ts

of a

n in

stitu

tiona

l an

d pr

oced

ural

na

ture

6.3.

0Im

prov

e th

e in

stitu

tiona

l set

-up

of IS

DS

, e.g

.:Th

e in

stitu

tiona

l set

-up

of th

e IS

DS

sys

tem

is th

e ca

use

of n

umer

ous

conc

erns

in

clud

ing

perc

eive

d la

ck o

f le

gitim

acy,

inc

onsi

sten

t de

cisi

ons,

sec

recy

or

part

icip

ator

y ch

alle

nges

for

deve

lopi

ng c

ount

ries.

IIA p

olic

ymak

ers

can

impr

ove

the

inst

itutio

nal s

et-u

p of

IS

DS

in t

he t

reat

y.

An

appe

llate

mec

hani

sm c

ould

con

trib

ute

to m

ore

cohe

rent

int

erpr

etat

ion

and

fost

er t

rust

in t

he s

yste

m. E

nhan

ced

tran

spar

ency

of I

SD

S c

laim

s co

uld

enab

le b

road

er a

nd i

nfor

med

pub

lic d

ebat

e as

wel

l as

a m

ore

adeq

uate

re

pres

enta

tion

of s

take

hold

er i

nter

ests

, pr

even

t no

n-tr

ansp

aren

t de

als

and

stim

ulat

e ba

lanc

ed a

nd w

ell-r

easo

ned

arbi

tral

dec

isio

ns.

Pro

cedu

ral i

mpr

ovem

ents

suc

h as

sim

plifi

ed d

ispo

sals

of

«friv

olou

s» c

laim

s,

cons

olid

atio

n of

cla

ims

and

caps

on

arbi

trat

or fe

es, c

ould

hel

p st

ream

line

the

arbi

tral

pro

cess

and

mak

e it

less

exp

ensi

ve a

nd m

ore

effe

ctiv

e. A

ref

eren

ce

to c

usto

mar

y in

tern

atio

nal l

aw a

s co

ntro

lling

inte

rpre

tatio

n of

the

IIA, c

oupl

ed

with

a p

ossi

bilit

y fo

r th

e S

tate

Par

ties

to i

ssue

joi

nt i

nter

pret

atio

ns,

wou

ld

ensu

re a

com

mon

inte

rpre

tativ

e fra

mew

ork

and

the

abilit

y of

the

con

trac

ting

Sta

tes

to in

fluen

ce th

is p

roce

ss, t

here

by li

miti

ng th

e di

scre

tion

of a

rbitr

ator

s.

- co

nsid

er a

sys

tem

with

per

man

ent

or q

uasi

-per

man

ent

arbi

trat

ors

and/

or a

n ap

pella

te

mec

hani

sm-

fost

er a

cces

sibi

lity

of d

ocum

ents

(e.g

. in

form

atio

n ab

out

the

case

, pa

rty

subm

issi

ons,

de

cisi

ons

and

othe

r re

leva

nt d

ocum

ents

)-

fost

er p

ublic

par

ticip

atio

n (e

.g. a

mic

us c

uria

e an

d pu

blic

hea

rings

)-

spec

ify t

hat

disp

utes

con

cern

ing

cert

ain

sens

itive

pol

icy

area

s, s

uch

as t

ax a

nd/o

r pr

uden

tial m

easu

res,

sha

ll be

sub

mitt

ed to

the

com

pete

nt a

utho

ritie

s of

the

Par

ties

for

a pr

elim

inar

y jo

int d

eter

min

atio

n of

whe

ther

they

are

in b

reac

h of

the

trea

ty-

cons

ider

coo

pera

tion

on t

rain

ing

and

assi

stan

ce f

or a

dequ

ate

Sta

te r

epre

sent

atio

n in

in

vest

or-S

tate

dis

pute

s, in

clud

ing

thro

ugh

esta

blis

hing

an

inve

stm

ent a

dvis

ory

cent

re.

6.3.

1A

dd fe

atur

es th

at w

ould

impr

ove

the

arbi

tral

pro

cess

, e.g

.:

- m

echa

nism

for

prom

pt/s

impl

ified

dis

posa

l of “

frivo

lous

” cl

aim

s-

mec

hani

sm fo

r co

nsol

idat

ion

of c

laim

s-

requ

irem

ent

to i

nter

pret

the

IIA

in

acco

rdan

ce w

ith c

usto

mar

y in

tern

atio

nal

law

(as

co

difie

d in

the

Vie

nna

Con

vent

ion

on th

e La

w o

f Tre

atie

s)-

mec

hani

sm f

or jo

int

inte

rpre

tatio

n of

the

tre

aty

by t

he P

artie

s in

cas

e of

am

bigu

ities

-

caps

on

arbi

trat

or fe

es.

6.4

Rem

edie

s an

d

com

pen

sati

on

… d

eter

min

es

rem

edie

s av

aila

ble

in c

ase

of

trea

ty b

reac

h an

d gi

ves

guid

ance

on

com

pens

atio

n

6.4.

0N

o cl

ause

.M

ost

IIAs

are

sile

nt o

n th

e is

sue

of r

emed

ies

and

com

pens

atio

n. I

n th

eory

th

is p

erm

its a

rbitr

al t

ribun

als

to a

pply

any

rem

edy

they

dee

m a

ppro

pria

te,

incl

udin

g, f

or e

xam

ple,

an

orde

r to

the

cou

ntry

to

mod

ify o

r an

nul i

ts la

w o

r re

gula

tion.

Rem

edie

s of

the

latt

er ty

pe c

ould

und

uly

intr

ude

into

the

sove

reig

n sp

here

of a

Sta

te a

nd im

pede

its

polic

y-m

akin

g po

wer

s; t

hus,

Par

ties

to a

n IIA

may

con

side

r lim

iting

ava

ilabl

e re

med

ies

to m

onet

ary

com

pens

atio

n an

d re

stitu

tion

of p

rope

rty

(or

com

pens

atio

n on

ly).

As

rega

rds

the

amou

nt o

f com

pens

atio

n fo

r a tr

eaty

bre

ach,

inte

rnat

iona

l law

re

quire

s co

mpe

nsat

ion

to b

e “f

ull”,

whi

ch m

ay in

clud

e m

oral

dam

ages

, lo

ss

of fu

ture

pro

fits

and

cons

eque

ntia

l dam

ages

.

Sta

tes

may

find

it b

enefi

cial

to

prov

ide

guid

ance

to

arbi

trat

ors

on a

pplic

able

re

med

ies

and,

sim

ilar

to t

he c

ase

of e

xpro

pria

tion

abov

e, o

n ca

lcul

atio

n of

co

mpe

nsat

ion.

If th

e C

ontr

actin

g P

artie

s be

lieve

that

cer

tain

type

s of

dam

ages

sh

ould

not

be

reco

vera

ble

by in

vest

ors

(e.g

. pun

itive

or m

oral

dam

ages

), th

ey

can

expl

icitl

y ru

le th

em o

ut in

thei

r IIA

. The

y ca

n al

so re

stric

t rec

over

abilit

y of

fu

ture

pro

fits

and

prov

ide

that

com

pens

atio

n sh

ould

cov

er a

cla

iman

t’s d

irect

lo

sses

and

not

exc

eed

the

capi

tal i

nves

ted

plus

inte

rest

. How

ever

, suc

h ru

les

may

be

seen

as

unde

rmin

ing

the

prot

ectiv

e qu

ality

of t

he II

A.

6.4.

1Li

mit

avai

labl

e re

med

ies

to m

onet

ary

com

pens

atio

n an

d re

stitu

tion

of p

rope

rty

(or

to

com

pens

atio

n on

ly).

6.4.

2P

rovi

de t

hat

the

amou

nt o

f com

pens

atio

n sh

all b

e eq

uita

ble

in li

ght

of c

ircum

stan

ces

of

the

case

and

set

out

spe

cific

rul

es o

n co

mpe

nsat

ion

for

a tr

eaty

bre

ach,

e.g

.:-

excl

ude

reco

vera

bilit

y of

pun

itive

and

/or

mor

al d

amag

es-

limit

reco

vera

bilit

y of

lost

pro

fits

(up

to th

e da

te o

f aw

ard)

- en

sure

that

the

amou

nt is

com

men

sura

te w

ith th

e co

untr

y’s

leve

l of d

evel

opm

ent.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


7In

vest

or

ob

ligat

ions

an

d r

es-

po

nsib

iliti

es

… p

rom

ote

com

plia

nce

by

inve

stor

s w

ith

dom

estic

and

/or

inte

rnat

iona

l no

rms

at th

e en

try

and

oper

atio

n st

age

7.1.

0N

o cl

ause

.M

ost

IIAs

only

set

out

obl

igat

ions

for

Sta

tes.

To

corr

ect

this

asy

mm

etry

, an

IIA

cou

ld a

lso

set o

ut in

vest

or o

blig

atio

ns/r

espo

nsib

ilitie

s. N

otin

g th

e ev

olvi

ng

view

s on

the

cap

acity

of

inte

rnat

iona

l law

to

impo

se o

blig

atio

ns o

n pr

ivat

e pa

rtie

s, II

A p

olic

ymak

ers

coul

d co

nsid

er a

num

ber

of o

ptio

ns,

each

with

its

adva

ntag

es a

nd d

isad

vant

ages

.

Thes

e IP

FSD

opt

ions

(i)

cond

ition

tre

aty

prot

ectio

n up

on c

erta

in i

nves

tor

beha

viou

r; (

ii) r

aise

the

obl

igat

ion

to c

ompl

y w

ith d

omes

tic l

aws

to t

he

inte

rnat

iona

l lev

el (i

ncre

asin

g its

rele

vanc

e in

arb

itrat

ion)

; and

(iii)

take

a b

est-

ende

avou

r ap

proa

ch t

o un

iver

sally

rec

ogni

sed

stan

dard

s or

app

licab

le C

SR

st

anda

rds.

A fa

r-re

achi

ng o

ptio

n is

to

incl

ude

an o

blig

atio

n fo

r in

vest

ors

to c

ompl

y w

ith

law

s an

d re

gula

tions

of t

he h

ost S

tate

at b

oth,

the

entr

y an

d po

st-e

ntry

sta

ge.

Whi

le i

nves

tors

’ ob

serv

ance

of

dom

estic

law

s ca

n ge

nera

lly b

e en

forc

ed

thro

ugh

natio

nal c

ourt

s, in

clud

ing

this

obl

igat

ion

in a

n IIA

cou

ld fu

rthe

r im

prov

e m

eans

to e

nsur

e co

mpl

ianc

e (e

.g. b

y w

ay o

f den

ying

trea

ty p

rote

ctio

n to

non

-co

mpl

ying

inve

stor

s or

giv

ing

Sta

tes

a rig

ht t

o br

ing

coun

terc

laim

s in

IS

DS

pr

ocee

ding

s).

Cha

lleng

es m

ay a

rise

from

the

fac

t th

at d

omes

tic l

aws

are

usua

lly d

irect

ed a

t loc

al e

nter

pris

es a

s op

pose

d to

thos

e w

ho o

wn

or c

ontr

ol

them

and

from

the

nee

d to

ens

ure

that

min

or/t

echn

ical

vio

latio

ns s

houl

d no

t le

ad to

com

plet

e de

nial

of t

reat

y be

nefit

s. A

lso,

the

elev

atio

n to

a tr

eaty

leve

l of

the

obl

igat

ion

to c

ompl

y w

ith d

omes

tic la

w s

houl

d no

t af

fect

the

gen

eral

pr

inci

ple

that

dom

estic

law

s m

ust n

ot b

e co

ntra

ry to

a c

ount

ry’s

inte

rnat

iona

l ob

ligat

ions

- th

is c

an b

e m

ade

expl

icit

in o

ptio

n 7.

1.1

(e.g

. by

spec

ifyin

g th

at

rele

vant

dom

estic

law

s m

ust n

ot b

e in

cons

iste

nt w

ith th

e IIA

and

inte

rnat

iona

l la

w).

Ano

ther

opt

ion

is t

o pr

omot

e re

spon

sibl

e in

vest

men

t th

roug

h IIA

lang

uage

th

at e

ncou

rage

s in

vest

ors

to c

ompl

y w

ith r

elev

ant

univ

ersa

l pr

inci

ples

or

with

app

licab

le C

SR

sta

ndar

ds.

Suc

h a

best

-end

eavo

ur c

laus

e w

ould

be

give

n ad

ditio

nal w

eigh

t if

the

trea

ty in

stru

cts

trib

unal

s to

tak

e in

to a

ccou

nt

inve

stor

s’ c

ompl

ianc

e w

ith r

elev

ant

prin

cipl

es a

nd s

tand

ards

whe

n de

cidi

ng

inve

stor

s’ IS

DS

cla

ims.

Giv

en th

e m

ultit

ude

of e

xist

ing

CS

R s

tand

ards

, it m

ay

be u

sefu

l to

refe

r to

spe

cific

doc

umen

ts s

uch

as th

e U

N G

loba

l Com

pact

.

7.1.

1R

equi

re t

hat

inve

stor

s co

mpl

y w

ith h

ost

Sta

te la

ws

at b

oth

the

entr

y an

d th

e po

st-e

ntry

st

age

of a

n in

vest

men

t. E

stab

lish

sanc

tions

for

non-

com

plia

nce:

- de

ny tr

eaty

pro

tect

ion

to in

vest

men

ts m

ade

in v

iola

tion

of th

e ho

st S

tate

law

- de

ny tr

eaty

pro

tect

ion

to in

vest

men

ts o

pera

ting

in v

iola

tion

of th

ose

host

Sta

te la

ws

that

re

flect

inte

rnat

iona

l leg

ally

bin

ding

obl

igat

ions

(e.g

. cor

e la

bour

sta

ndar

ds, a

nti-c

orru

ptio

n,

envi

ronm

ent c

onve

ntio

ns) a

nd o

ther

law

s as

iden

tified

by

the

Con

trac

ting

Par

ties

- pr

ovid

e fo

r Sta

tes’

righ

t to

brin

g co

unte

rcla

ims

in IS

DS

aris

ing

from

inve

stor

s’ v

iola

tions

of

hos

t Sta

te la

w.

7.1.

2E

ncou

rage

inve

stor

s to

com

ply

with

uni

vers

ally

rec

ogni

zed

stan

dard

s su

ch a

s th

e IL

O

Trip

artit

e M

NE

Dec

lara

tion

and

the

UN

Gui

ding

Prin

cipl

es o

n B

usin

ess

and

Hum

an

Rig

hts,

and

to c

arry

out

cor

pora

te d

ue d

iligen

ce re

latin

g to

eco

nom

ic d

evel

opm

ent,

soci

al

and

envi

ronm

enta

l ris

ks.

Pro

vide

tha

t no

n-co

mpl

ianc

e m

ay b

e co

nsid

ered

by

a tr

ibun

al w

hen

inte

rpre

ting

and

appl

ying

tre

aty

prot

ectio

ns (

e.g.

FE

T) o

r de

term

inin

g th

e am

ount

of

com

pens

atio

n du

e to

the

inve

stor

.7.

1.3

Enc

oura

ge in

vest

ors

to o

bser

ve a

pplic

able

CS

R s

tand

ards

:-

with

out s

peci

fyin

g th

e re

leva

nt C

SR

sta

ndar

ds

- by

giv

ing

a lis

t of r

elev

ant C

SR

sta

ndar

ds (e

.g. i

n an

ann

ex)

- by

spe

lling

out t

he c

onte

nt o

f rel

evan

t CS

R s

tand

ards

(e.g

. as

best

end

eavo

ur c

laus

es).

Pro

vide

tha

t no

n-ob

serv

ance

may

be

cons

ider

ed b

y a

trib

unal

whe

n in

terp

retin

g an

d ap

plyi

ng t

reat

y pr

otec

tions

(e.

g. F

ET)

or

dete

rmin

ing

the

amou

nt o

f co

mpe

nsat

ion

due

to th

e in

vest

or.

7.1.

4C

all

for

coop

erat

ion

betw

een

the

Par

ties

to p

rom

ote

obse

rvan

ce o

f ap

plic

able

CS

R

stan

dard

s, e

.g. b

y-

supp

ortin

g th

e de

velo

pmen

t of v

olun

tary

sta

ndar

ds-

build

ing

loca

l ind

ustr

ies’

cap

acity

for

the

upta

ke o

f vol

unta

ry s

tand

ards

- co

nsid

erin

g in

vest

ors’

ado

ptio

n/co

mpl

ianc

e w

ith v

olun

tary

sta

ndar

ds w

hen

enga

ging

in

pub

lic p

rocu

rem

ent

- co

nditi

onin

g th

e gr

antin

g of

ince

ntiv

es o

n th

e ob

serv

ance

of C

SR

sta

ndar

ds-

prom

otin

g th

e up

take

of C

SR

-rel

ated

rep

ortin

g (e

.g.

in t

he c

onte

xt o

f sto

ck e

xcha

nge

listin

g ru

les)

.7.

1.5

Enc

oura

ge h

ome

coun

trie

s to

con

ditio

n th

e gr

antin

g of

out

war

d in

vest

men

t pr

omot

ion

ince

ntiv

es

on a

n in

vest

or’s

soc

ially

and

env

ironm

enta

lly s

usta

inab

le b

ehav

iour

(see

als

o 10

.1.1

on

inve

stm

ent p

rom

otio

n).

8R

elat

ions

hip

to

oth

er

agre

emen

ts

… e

stab

lishe

s a

hier

arch

y in

cas

e of

co

mpe

ting

inte

rnat

iona

l no

rms

8.1.

0N

o cl

ause

.IIA

s us

ually

pro

vide

tha

t m

ore

favo

urab

le t

reat

men

t of

inv

esto

rs g

rant

ed

unde

r an

othe

r in

tern

atio

nal

trea

ty (

e.g.

a m

ultil

ater

al t

reat

y to

whi

ch b

oth

IIAs

sign

ator

ies

are

Par

ties)

wou

ld t

ake

prec

eden

ce.

It is

muc

h le

ss u

sual

to

add

ress

a r

elat

ions

hip

betw

een

an I

IA a

nd a

tre

aty

that

gov

erns

a

diffe

rent

pol

icy

area

(e.

g. p

rote

ctio

n of

env

ironm

ent,

hum

an r

ight

s, e

tc.).

A

ddre

ssin

g th

is is

sue

wou

ld h

elp

arbi

tral

trib

unal

s to

take

into

acc

ount

thes

e ot

her

inte

rnat

iona

l co

mm

itmen

ts i

n or

der

to e

nsur

e, a

s m

uch

as p

ossi

ble,

ha

rmon

ious

inte

rpre

tatio

n of

IIA

pro

visi

ons

and

see

them

as

part

of

gene

ral

inte

rnat

iona

l law

.

8.1.

1S

tipul

ate

that

if a

noth

er in

tern

atio

nal t

reat

y, t

o w

hich

the

con

trac

ting

Sta

tes

are

part

ies,

pr

ovid

es f

or m

ore

favo

urab

le t

reat

men

t of

inve

stor

s/in

vest

men

ts,

that

oth

er t

reat

y sh

all

prev

ail i

n th

e re

leva

nt p

art.

8.2.

0S

tipul

ate

that

in

case

of

a co

nflic

t be

twee

n th

e IIA

and

a h

ost

Sta

te’s

int

erna

tiona

l co

mm

itmen

ts,

such

co

nflic

ts

shou

ld

be

reso

lved

in

ac

cord

ance

w

ith

cust

omar

y in

tern

atio

nal la

w, i

nclu

ding

with

refe

renc

e to

the

Vie

nna

Con

vent

ion

on th

e La

w o

f Tre

atie

s.8.

2.1

Stip

ulat

e th

at i

n ca

se o

f a

confl

ict

betw

een

the

IIA a

nd a

hos

t S

tate

’s i

nter

natio

nal

com

mitm

ents

und

er a

mul

tilat

eral

agr

eem

ent i

n an

othe

r pol

icy

area

, suc

h as

env

ironm

ent

and

publ

ic h

ealth

, the

latt

er s

hall

prev

ail.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


9N

ot

low

erin

g

of

stan

dar

ds

clau

se

…

disc

oura

ges

Con

trac

ting

Par

ties

from

at

trac

ting

inve

stm

ent

thro

ugh

the

rela

xatio

n of

labo

ur o

r en

viro

nmen

tal

stan

dard

s

9.1.

0N

o cl

ause

.Th

ere

is a

con

cern

tha

t in

tern

atio

nal c

ompe

titio

n fo

r fo

reig

n in

vest

men

t m

ay

lead

som

e co

untr

ies

to lo

wer

the

ir en

viro

nmen

tal,

hum

an r

ight

s an

d la

bour

st

anda

rds

and

that

thi

s co

uld

lead

to

a “r

ace

to t

he b

otto

m”

in t

erm

s of

re

gula

tory

sta

ndar

ds.

Som

e re

cent

IIA

s in

clud

e la

ngua

ge t

o ad

dres

s th

is c

once

rn.

“Not

low

erin

g st

anda

rds”

pro

visi

ons,

for

exa

mpl

e, p

rohi

bit

or d

isco

urag

e ho

st S

tate

s to

co

mpr

omis

e on

env

ironm

enta

l an

d la

bour

pro

tect

ion

for

the

purp

ose

of

attr

actin

g fo

reig

n in

vest

men

t. In

doi

ng s

o, t

he II

A g

oes

beyo

nd it

s tr

aditi

onal

ro

le o

f inv

estm

ent p

rote

ctio

n an

d pu

rsue

s th

e go

al o

f mai

ntai

ning

a re

gula

tory

fra

mew

ork

that

wou

ld b

e co

nduc

ive

to S

D.

Whi

le c

urre

nt II

As

ofte

n ex

clud

e “n

ot lo

wer

ing

stan

dard

s” c

laus

es fr

om IS

DS

or

dis

pute

set

tlem

ent a

s su

ch, i

t may

be

bene

ficia

l to

fost

er c

onsu

ltatio

ns o

n th

is is

sue,

incl

udin

g th

roug

h in

stitu

tiona

l mec

hani

sms,

so

as t

o en

sure

tha

t th

e cl

ause

will

effe

ctiv

ely

be im

plem

ente

d.

9.1.

1In

clud

e en

viro

nmen

tal,

hum

an r

ight

s an

d la

bour

cla

uses

that

- in

clud

e a

com

mitm

ent

to r

efra

in f

rom

rel

axin

g do

mes

tic e

nviro

nmen

tal

and

labo

ur

legi

slat

ion

to e

ncou

rage

inve

stm

ent

(exp

ress

ed a

s a

bind

ing

oblig

atio

n or

as

a so

ft la

w

clau

se)

- re

affir

m c

omm

itmen

ts u

nder

, e.g

. int

erna

tiona

l env

ironm

enta

l agr

eem

ents

or w

ith re

gard

to

inte

rnat

iona

l hea

lth s

tand

ards

, int

erna

tiona

lly re

cogn

ized

labo

ur ri

ghts

or h

uman

righ

ts.

9.1.

2E

ncou

rage

coo

pera

tion

betw

een

trea

ty P

artie

s to

pro

vide

enh

ance

d en

viro

nmen

tal,

hum

an r

ight

s an

d la

bour

pro

tect

ion

and

hold

exp

ert c

onsu

ltatio

ns o

n su

ch m

atte

rs.

10In

vest

men

t p

rom

oti

on

… a

ims

to

enco

urag

e fo

reig

n in

vest

men

t th

roug

h ad

ditio

nal

mea

ns b

eyon

d in

vest

men

t pr

otec

tion

prov

isio

ns in

IIA

s

10.1

.0N

o cl

ause

.W

hile

ho

st

Sta

tes

conc

lude

IIA

s to

at

trac

t de

velo

pmen

t-en

hanc

ing

inve

stm

ent,

the

inve

stm

ent

enha

ncin

g ef

fect

of

IIA

s is

m

ostly

in

dire

ct

(thro

ugh

the

prot

ectio

n of

fere

d to

fo

reig

n in

vest

ors)

. O

nly

a fe

w

IIAs

incl

ude

spec

ial

prom

otio

nal

prov

isio

ns

to

enco

urag

e in

vest

men

t flo

ws

and

incr

ease

in

vest

ors’

aw

aren

ess

of

inve

stm

ent

oppo

rtun

ities

(e

.g.

by

exch

angi

ng

info

rmat

ion

or

join

t in

vest

men

t-pr

omot

ion

activ

ities

). C

reat

ing

a jo

int c

omm

ittee

resp

onsi

ble

for i

nves

tmen

t pro

mot

ion

may

hel

p to

op

erat

iona

lize

the

rele

vant

pro

visi

ons.

Thr

ough

thes

e co

mm

ittee

s, th

e P

artie

s ca

n se

t up

an

agen

da,

orga

nize

and

mon

itor

the

agre

ed a

ctiv

ities

and

tak

e co

rrec

tive

mea

sure

s if

nece

ssar

y. T

he “

prom

otio

nal”

prov

isio

ns a

re “

soft”

(u

nenf

orce

able

), an

d th

eir u

ltim

ate

usef

ulne

ss la

rgel

y de

pend

s on

the

will

and

actio

n of

the

Par

ties.

The

mec

hani

sm o

f sub

roga

tion

supp

orts

inve

stm

ent

prom

otio

n by

ens

urin

g th

e ef

fect

ive

func

tioni

ng o

f in

vest

men

t in

sura

nce

sche

mes

mai

ntai

ned

by

hom

e S

tate

s, o

r the

ir re

spec

tive

agen

cies

, to

supp

ort t

heir

outw

ard

FDI.

If th

e in

sure

r cov

ers

the

loss

es s

uffe

red

by a

n in

vest

or in

the

host

Sta

te, i

t acq

uire

s th

e in

vest

or’s

righ

t to

brin

g a

clai

m a

nd m

ay e

xerc

ise

it to

the

sam

e ex

tent

as,

pr

evio

usly,

the

inve

stor

. Sub

roga

tion

mak

es it

pos

sibl

e fo

r the

insu

rer t

o be

a

dire

ct b

enefi

ciar

y of

any

com

pens

atio

n by

the

host

Sta

te to

whi

ch th

e in

vest

or

wou

ld h

ave

been

ent

itled

.

10.1

.1E

stab

lish

prov

isio

ns

enco

urag

ing

inve

stm

ent

flow

s,

with

a

spec

ial

emph

asis

on

th

ose

whi

ch a

re m

ost

bene

ficia

l in

light

of

a co

untr

y’s

deve

lopm

ent

stra

tegy

. P

ossi

ble

mec

hani

sms

incl

ude,

e.g

.:-

enco

urag

e ho

me

coun

trie

s to

pro

vide

out

war

d in

vest

men

t in

cent

ives

, e.

g. in

vest

men

t gu

aran

tees

, po

ssib

ly c

ondi

tione

d on

the

SD

enh

anci

ng e

ffect

of

the

inve

stm

ent

and

inve

stor

s’ c

ompl

ianc

e w

ith u

nive

rsal

prin

cipl

es a

nd a

pplic

able

CS

R s

tand

ards

- or

gani

se

join

t in

vest

men

t pr

omot

ion

activ

ities

su

ch

as

exhi

bitio

ns,

conf

eren

ces,

se

min

ars

and

outr

each

pro

gram

mes

- ex

chan

ge in

form

atio

n on

inve

stm

ent o

ppor

tuni

ties

- en

sure

regu

lar

cons

ulta

tions

bet

wee

n in

vest

men

t pro

mot

ion

agen

cies

- pr

ovid

e te

chni

cal a

ssis

tanc

e pr

ogra

mm

es t

o de

velo

ping

hos

t co

untr

ies

to fa

cilit

ate

FDI

flow

s-

stre

ngth

en p

rom

otio

n ac

tiviti

es th

roug

h IIA

s’ in

stitu

tiona

l set

up

(see

11.

1.1

belo

w).

10.1

.2In

clud

e a

subr

ogat

ion

clau

se.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns


11In

stit

utio

nal

set-

up

…es

tabl

ishe

s an

inte

rnat

iona

l pl

atfo

rm

colla

bora

tion

betw

een

the

Con

trac

ting

Par

ties

11.1

.0N

o cl

ause

.W

hile

cou

ntrie

s ha

ve c

oncl

uded

num

erou

s IIA

s, g

ener

ally,

ther

e ha

s be

en li

ttle

fo

llow

-up

to e

nsur

e th

at II

As

are

prop

erly

impl

emen

ted

and

kept

up-

to-d

ate.

Rec

ent

IIAs

have

sta

rted

to

incl

ude

prov

isio

ns f

or p

erm

anen

t in

stitu

tiona

l ar

rang

emen

ts t

hat

perfo

rm a

num

ber

of s

peci

fic f

unct

ions

. Fo

r ex

ampl

e,

agre

ed in

terp

reta

tion

can

help

ens

ure

cons

iste

ncy

in a

rbitr

al a

war

ds. S

imila

rly,

delib

erat

ions

can

ens

ure

info

rmed

dec

isio

n m

akin

g on

fur

ther

inv

estm

ent

liber

aliz

atio

n, o

r pr

olon

ging

or

amen

ding

IIA

s. A

ll of

thi

s ca

n he

lp m

axim

ize

the

cont

ribut

ion

of II

As

to S

D,

for

exam

ple,

by

mon

itorin

g th

e de

velo

pmen

t im

plic

atio

ns o

f IIA

s an

d by

eng

agin

g in

dis

pute

pre

vent

ion

activ

ities

and

CS

R

prom

otio

n.

A c

lear

tre

aty

man

date

fac

ilitat

es t

he im

plem

enta

tion

of t

he li

sted

act

iviti

es.

Furt

herm

ore,

it p

rovi

des

a fo

rum

to

reac

h ou

t to

oth

er r

elev

ant

inve

stm

ent

stak

ehol

ders

in

clud

ing

inve

stor

s,

loca

l co

mm

unity

re

pres

enta

tives

an

d ac

adem

ia.

11.1

.1S

et u

p an

inst

itutio

nal f

ram

ewor

k un

der

whi

ch th

e P

artie

s (a

nd, w

here

rel

evan

t, ot

her

IIA

stak

ehol

ders

suc

h as

inv

esto

rs,

loca

l co

mm

unity

rep

rese

ntat

ives

etc

.) sh

all

coop

erat

e an

d ho

ld m

eetin

gs f

rom

tim

e to

tim

e, t

o fo

ster

the

im

plem

enta

tion

of t

he a

gree

men

t w

ith a

vie

w t

o m

axim

isin

g its

con

trib

utio

n to

SD

. M

ore

spec

ifica

lly,

this

can

inc

lude

a

com

mitm

ent t

o:

- is

sue

inte

rpre

tatio

ns o

f IIA

cla

uses

- re

view

the

func

tioni

ng o

f the

IIA

- di

scus

s an

d ag

ree

upon

mod

ifica

tion

of c

omm

itmen

ts (i

n lin

e w

ith s

peci

al p

roce

dure

s)

and

faci

litat

e ad

apta

tion

of II

As

to t

he e

volv

ing

SD

pol

icie

s of

Sta

te P

artie

s, e

.g. t

hrou

gh

rene

gotia

tion

- or

gani

ze a

nd r

evie

w in

vest

men

t pr

omot

ion

activ

ities

, in

clud

ing

by in

volv

ing

inve

stm

ent

prom

otio

n ag

enci

es,

exch

angi

ng i

nfor

mat

ion

on i

nves

tmen

t op

port

uniti

es,

orga

nizi

ng

sem

inar

s on

inve

stm

ent p

rom

otio

n-

disc

uss

the

impl

emen

tatio

n of

th

e ag

reem

ent,

incl

udin

g by

ad

dres

sing

sp

ecifi

c bo

ttle

neck

s, in

form

al b

arrie

rs, r

ed ta

pe a

nd re

solu

tion

of in

vest

men

t dis

pute

s-

regu

larly

rev

iew

Par

ties’

com

plia

nce

with

the

agr

eem

ent’s

not

-low

erin

g st

anda

rds

clau

ses

- pr

ovid

e te

chni

cal

assi

stan

ce t

o de

velo

ping

Con

trac

ting

Par

ties

to e

nabl

e th

em t

o en

gage

in th

e in

stitu

tiona

lized

follo

w-u

p to

the

trea

ty-

iden

tify/

upda

te

rele

vant

C

SR

st

anda

rds

and

orga

nize

ac

tiviti

es

to

prom

ote

thei

r ob

serv

ance

.

12Fi

nal

pro

visi

ons

…

defi

ne th

e du

ratio

n of

th

e tr

eaty

and

its

pos

sibl

e pr

olon

gatio

n

12.1

.0S

peci

fy t

he t

empo

ral a

pplic

atio

n of

the

tre

aty

(e.g

. 10

or

20 y

ears

) with

qua

si-a

utom

atic

re

new

al (t

he tr

eaty

is re

new

ed u

nles

s on

e of

the

Par

ties

notifi

es th

e ot

her(s

) of i

ts in

tent

ion

to te

rmin

ate)

.

Ther

e is

an

emer

ging

con

cern

abo

ut a

ging

trea

ty n

etw

orks

that

may

eve

ntua

lly

be u

nsui

tabl

e fo

r ch

angi

ng e

cono

mic

rea

litie

s, n

ovel

or

emer

ging

for

ms

of

inve

stm

ent

and

new

reg

ulat

ory

chal

leng

es.

This

par

tly r

esul

ts f

rom

the

fac

t th

at I

IAs

ofte

n pr

ovid

e fo

r a

fixed

per

iod

of d

urat

ion

and

quas

i-aut

omat

ic

rene

wal

(in

an a

ttem

pt to

pro

vide

a s

tabl

e in

vest

men

t reg

ime)

.

An

alte

rnat

ive

wou

ld b

e to

pro

vide

for

rene

wal

if b

oth

Par

ties

expl

icitl

y ag

ree

to it

in w

ritin

g af

ter a

join

t rev

iew

of t

he tr

eaty

and

an

asse

ssm

ent o

f its

impa

ct

on F

DI

flow

s an

d an

y at

tend

ant

deve

lopm

ent

impl

icat

ions

. Th

is e

xerc

ise

wou

ld h

elp

to a

sses

s w

heth

er t

he t

reat

y is

stil

l ne

eded

and

whe

ther

any

am

endm

ents

are

requ

ired.

Ano

ther

issu

e co

ncer

ns th

e pr

otec

tion

of in

vest

ors

afte

r th

e IIA

’s te

rmin

atio

n.

An

IIA m

ay i

nclu

de a

“su

rviv

al”

clau

se,

whi

ch e

ffect

ivel

y lo

cks

in t

reat

y st

anda

rds

for

a nu

mbe

r of

yea

rs a

fter

the

trea

ty i

s te

rmin

ated

. W

hile

it

prov

ides

lon

ger-

term

leg

al s

ecur

ity f

or i

nves

tors

, w

hich

may

be

nece

ssar

y fo

r in

vest

ors

with

lon

g-te

rm p

roje

cts

invo

lvin

g su

bsta

ntia

l co

mm

itmen

t of

ca

pita

l (e.

g. in

the

ext

ract

ive

indu

strie

s), i

t m

ay li

mit

Sta

tes’

abi

lity

to r

egul

ate

thei

r ec

onom

ies

in a

ccor

danc

e w

ith n

ew r

ealit

ies

(esp

ecia

lly i

f th

e tr

eaty

’s

prov

isio

ns d

o no

t gr

ant

suffi

cien

t po

licy

flexi

bilit

y).

Neg

otia

tors

may

opt

for

a

bala

nced

sol

utio

n by

ens

urin

g th

at th

e “s

urvi

val”

clau

se is

not

ove

rly lo

ng.

12.1

.1S

tate

a s

peci

fic d

urat

ion

of t

he t

reat

y bu

t st

ipul

ate

that

ren

ewal

is b

ased

on

a w

ritte

n ag

reem

ent o

f bot

h P

artie

s on

the

basi

s of

a (j

oint

) inf

orm

ed re

view

of t

he II

A.

12.1

.2In

clud

e a

“sur

viva

l” cl

ause

whi

ch g

uara

ntee

s th

at in

cas

e of

uni

late

ral t

erm

inat

ion

of t

he

trea

ty, i

t will

rem

ain

in e

ffect

for

a nu

mbe

r of

yea

rs a

fter

the

term

inat

ion

of th

e tr

eaty

(e.g

. fo

r ano

ther

5, 1

0 or

15

year

s) w

ith re

spec

t to

inve

stm

ents

, mad

e pr

ior t

o th

e te

rmin

atio

n.12

.1.3

Do

not s

peci

fy m

inim

um in

itial

tem

pora

l dur

atio

n bu

t allo

w fo

r te

rmin

atio

n of

the

trea

ty a

t an

y tim

e up

on th

e no

tifica

tion

of e

ither

Par

ty.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns

IV. Elements of International Investment Agreements: Policy Options 61U

NC

TA

D’s

Inve

stm

ent

Policy

Fra

mew

ork

for

Susta

inable

Deve

lopm

ent

Pol

icy

opti

ons

for

IIA

sPar

t B

. Pre

-est

ablis

hm

ent

Pol

icy

optio

ns in

Par

t B a

re s

uppl

emen

tary

to th

ose

in P

art A

and

can

be

used

by

coun

trie

s w

ishi

ng to

ext

end

thei

r IIA

to p

re-e

stab

lishm

ent m

atte

rs. A

s in

Par

t A, p

olic

y op

tions

are

org

aniz

ed fr

om m

ost

inve

stor

-frie

ndly

(i.e

. hig

hest

leve

l of l

iber

aliz

atio

n) to

the

optio

ns p

rovi

ding

few

er e

stab

lishm

ent r

ight

s an

d m

ore

flexi

bilit

y to

the

pros

pect

ive

host

Sta

te.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns

1P

re-e

stab

-lis

hmen

t o

blig

atio

ns

… g

over

n es

tabl

ishm

ent

of fo

reig

n in

vest

men

ts in

th

e ho

st S

tate

1.1.

0G

rant

the

rig

ht o

f es

tabl

ishm

ent,

subj

ect

to r

estr

ictio

ns o

n pu

blic

pol

icy

grou

nds

(EU

Tre

aty

appr

oach

).M

ost

IIAs

gran

t pr

otec

tion

to i

nves

tors

and

the

ir in

vest

men

ts

only

afte

r th

eir

esta

blis

hmen

t in

the

hos

t S

tate

; th

e ho

st c

ount

ry

thus

ret

ains

ful

l re

gula

tory

fre

edom

as

rega

rds

the

adm

issi

on o

f fo

reig

n in

vest

ors

to it

s te

rrito

ry.

For

exam

ple,

it c

an im

pose

lim

its

on f

orei

gn o

wne

rshi

p of

dom

estic

com

pani

es o

r as

sets

, ap

ply

scre

enin

g pr

oced

ures

and

blo

ck a

cqui

sitio

ns fo

r ind

ustr

ial o

r oth

er

polic

y re

ason

s (e

.g. n

atio

nal s

ecur

ity).

How

ever

, in

rec

ent

year

s an

inc

reas

ing

num

ber

of I

IAs

incl

ude

prov

isio

ns th

at a

pply

at t

he p

re-e

stab

lishm

ent p

hase

of i

nves

tmen

t, w

ith th

e ai

m o

f lib

eral

izin

g ac

cess

for i

nves

tors

from

the

othe

r Par

ty.

This

is u

sual

ly a

chie

ved

by (i

) pro

hibi

ting

coun

trie

s to

impo

se c

erta

in

rest

rictio

ns

on

mar

ket

acce

ss

(quo

tas,

m

onop

olie

s,

excl

usiv

e rig

hts

and

othe

rs),

(ii) p

rohi

bitin

g co

untr

ies

to d

iscr

imin

ate

agai

nst

cove

red

inve

stor

s at

the

stag

e of

est

ablis

hmen

t and

acq

uisi

tion

of

inve

stm

ents

, or

(iii)

usin

g bo

th a

ppro

ache

s co

ncur

rent

ly.

It is

an

impo

rtan

t po

licy

choi

ce t

o de

cide

whe

ther

to

exte

nd t

he

IIA t

o pr

e-es

tabl

ishm

ent

mat

ters

and

, if s

o, t

o fin

d a

right

bal

ance

be

twee

n bi

ndin

g in

tern

atio

nal c

omm

itmen

ts a

nd d

omes

tic p

olic

y fle

xibi

lity.

The

firs

t ste

p is

to c

hoos

e be

twee

n th

e po

sitiv

e- a

nd th

e ne

gativ

e-lis

t ap

proa

ch t

o id

entif

ying

ind

ustr

ies

in w

hich

the

pre

-es

tabl

ishm

ent

right

s w

ill be

gra

nted

. Th

e fo

rmer

offe

rs s

elec

tive

liber

aliz

atio

n by

way

of

draw

ing

up a

“po

sitiv

e lis

t” o

f in

dust

ries

in w

hich

inve

stor

s w

ill en

joy

pre-

esta

blis

hmen

t rig

hts.

Und

er t

he

latt

er, i

nves

tors

ben

efit f

rom

pre

-est

ablis

hmen

t com

mitm

ents

in a

ll in

dust

ries

exce

pt in

thos

e th

at a

re e

xplic

itly

excl

uded

.

The

nega

tive-

list

appr

oach

is

m

ore

dem

andi

ng

in

term

s of

re

sour

ces:

it re

quire

s a

thor

ough

aud

it of

exi

stin

g do

mes

tic p

olic

ies.

In

add

ition

, un

der

a ne

gativ

e-lis

t ap

proa

ch a

nd i

n th

e ab

senc

e of

spe

cific

res

erva

tions

, a

coun

try

com

mits

to

open

ness

als

o in

th

ose

sect

ors/

activ

ities

, w

hich

, at

the

tim

e an

IIA

is

sign

ed,

do

not

yet

exis

t or

whe

re t

he r

egul

ator

y fra

mew

orks

are

stil

l evo

lvin

g.

Gen

eral

ly, w

hen

aim

ing

to p

rese

rve

regu

lato

ry s

pace

, m

akin

g co

mm

itmen

ts o

n a

posi

tive-

list

basi

s is

con

side

red

to b

e sa

fer.

Pro

perly

man

agin

g a

nega

tive-

list

appr

oach

req

uire

s co

untr

ies

to

have

i) a

sop

hist

icat

ed d

omes

tic re

gula

tory

regi

me

and

ii) s

uffic

ient

in

stitu

tiona

l ca

paci

ty f

or p

rope

rly d

esig

ning

and

neg

otia

ting

the

sche

dulin

g of

libe

raliz

atio

n co

mm

itmen

ts. I

n ei

ther

cas

e m

ost

IIAs

incl

ude

a lis

t of

res

erva

tions

pre

serv

ing

spec

ific

non-

conf

orm

ing

mea

sure

s (“

hybr

id”

appr

oach

).

1.1.

1U

nder

take

to re

frain

from

impo

sing

spe

cific

rest

rictio

ns, i

nclu

ding

of a

non

-dis

crim

inat

ory

natu

re, o

n th

e es

tabl

ishm

ent i

n th

e ho

st S

tate

’s m

arke

t (G

ATS

app

roac

h), s

uch

as:

- lim

itatio

ns o

n th

e pa

rtic

ipat

ion

of fo

reig

n ca

pita

l in

term

s of

max

imum

per

cent

age

limits

on

fore

ign

shar

ehol

ding

- lim

itatio

ns o

n th

e nu

mbe

r of

est

ablis

hmen

ts (q

uota

s, m

onop

olie

s, e

xclu

sive

rig

hts)

- lim

itatio

ns o

n th

e to

tal v

alue

of t

rans

actio

ns o

r as

sets

.1.

1.2

Ext

end

natio

nal t

reat

men

t and

/or M

FN tr

eatm

ent t

o fo

reig

n in

vest

ors

with

resp

ect t

o “e

stab

lishm

ent,

acqu

isiti

on a

nd e

xpan

sion

” of

inve

stm

ents

, i.e

. pro

hibi

t di

scrim

inat

ion

vis-

à-vi

s do

mes

tic in

vest

ors

and/

or in

vest

ors

from

thi

rd c

ount

ries,

sub

ject

to

exce

ptio

ns a

nd r

eser

vatio

ns (

sect

ions

1.1

.3 a

nd

1.1.

4 be

low

).1.

1.3

Und

erta

ke p

re-e

stab

lishm

ent

com

mitm

ents

onl

y w

ith r

espe

ct t

o se

ctor

s/in

dust

ries

spec

ifica

lly

men

tione

d (p

ositi

ve li

st) o

r to

all

sect

ors/

indu

strie

s ex

cept

thos

e sp

ecifi

cally

exc

lude

d (n

egat

ive

list)

or c

ombi

ning

the

two

(“hy

brid

”). C

ount

ry-s

peci

fic re

serv

atio

ns m

ay c

arve

out

, as

nece

ssar

y, e

.g.:

- ex

istin

g m

easu

res

that

pr

ovid

e pr

efer

entia

l rig

hts

of

esta

blis

hmen

t to

do

mes

tic

inve

stor

s or

inv

esto

rs f

rom

cer

tain

thi

rd c

ount

ries

(e.g

. on

the

bas

is o

f pr

efer

entia

l tr

ade

and

inve

stm

ent

agre

emen

ts)

- ex

istin

g m

easu

res/

law

s th

at w

ould

oth

erw

ise

be i

ncon

sist

ent

with

the

new

ly c

oncl

uded

tre

aty

(gra

ndfa

ther

ing)

- se

ctor

s/in

dust

ries

whe

re t

he P

arty

wis

hes

to r

etai

n fu

ll di

scre

tion

on e

stab

lishm

ent,

incl

udin

g fu

ture

rest

rictiv

e m

easu

res

- sp

ecifi

c pr

oced

ures

suc

h as

inve

stm

ent s

cree

ning

or

an e

cono

mic

nee

ds te

st (E

NT)

.1.

1.4

Pre

serv

e ad

ditio

nal

polic

y fle

xibi

lity

on p

re-e

stab

lishm

ent

issu

es,

with

res

pect

to

“com

mitt

ed”

(lock

ed-in

) sec

tors

e.g

.:-

pres

erve

the

right

of a

Par

ty to

ado

pt n

ew n

on-c

onfo

rmin

g m

easu

res

in th

e fu

ture

, as

long

as

they

do

not

“af

fect

the

over

all l

evel

of c

omm

itmen

ts o

f tha

t Par

ty u

nder

the

Agr

eem

ent”

- in

clud

e a

wid

e “c

atch

-all”

rese

rvat

ion

into

the

sche

dule

, e.g

. tha

t est

ablis

hmen

t is

“sub

ject

to th

e re

quire

men

t tha

t no

obje

ctio

n fo

r re

ason

s of

nat

iona

l eco

nom

y is

mad

e”.

1.1.

5R

educ

e no

rmat

ive

inte

nsity

of p

re-e

stab

lishm

ent c

omm

itmen

ts e

.g.:

- po

stpo

ne t

he e

ntry

into

for

ce o

f pr

e-es

tabl

ishm

ent

oblig

atio

ns u

ntil

the

date

whe

n th

e P

artie

s ag

ree

on c

over

ed s

ecto

rs/m

easu

res

- ag

ree

to u

nder

take

neg

otia

tions

on

pre-

esta

blis

hmen

t at a

futu

re d

ate

- ex

clud

e pr

e-es

tabl

ishm

ent d

isci

plin

es fr

om d

ispu

te s

ettle

men

t pro

visi

ons

or s

ubje

ct th

em to

S

tate

-Sta

te d

ispu

te s

ettle

men

t onl

y-

use

“bes

t effo

rts”

, as

oppo

sed

to le

gally

bin

ding

, lan

guag

e.


Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns

1.1.

6P

rese

rve

polic

y fle

xibi

lity

on p

re-e

stab

lishm

ent i

ssue

s by

car

eful

ly c

rafti

ng re

leva

nt g

ener

al p

rovi

sion

s of

the

IIA, e

.g.:

The

need

for

rese

rvat

ions

and

«sa

fety

val

ves»

is a

rgua

bly

grea

test

if

a co

untr

y op

ts f

or t

he n

egat

ive

list.

From

a S

D p

ersp

ectiv

e, it

m

ay b

e pr

uden

t to

con

side

r ex

clud

ing

cert

ain

sub-

indu

strie

s or

gr

andf

athe

ring

spec

ific

non-

conf

orm

ing

mea

sure

s,

rese

rvin

g th

e rig

ht t

o ch

ange

the

cou

ntry

’s c

omm

itmen

ts u

nder

spe

cifie

d co

nditi

ons

or c

hoos

e th

e rig

ht le

vel o

f th

e no

rmat

ive

inte

nsity

of

com

mitm

ents

.

- sp

ecify

ing

the

scop

e an

d co

vera

ge o

f the

trea

ty (s

ee s

ectio

n 2.

3 of

Par

t A)

- in

clud

ing

gen

eral

and

nat

iona

l sec

urity

exc

eptio

ns (s

ee s

ectio

n 5

of P

art A

).1.

1.7

Pro

vide

that

adm

issi

on o

f inv

estm

ents

is in

acc

orda

nce

with

dom

estic

law

s of

the

host

Sta

te.

IV. Elements of International Investment Agreements: Policy Options 63U

NC

TA

D’s

Inve

stm

ent

Policy

Fra

mew

ork

for

Susta

inable

Deve

lopm

ent

Pol

icy

opti

ons

for

IIA

sPar

t C

. Spe

cial

and

Diffe

renti

al T

reat

men

t (S

DT)

SD

T pr

ovis

ions

cou

ld b

e an

opt

ion

whe

re C

ontr

actin

g P

artie

s to

an

IIA h

ave

sign

ifica

ntly

diff

eren

t lev

els

of d

evel

opm

ent,

espe

cial

ly w

hen

one

of th

e P

artie

s is

a le

ast-

deve

lope

d co

untr

y. S

DT

pres

uppo

ses

that

a tr

eaty

can

be

built

asy

mm

etric

ally,

i.e.

trea

ty o

blig

atio

ns m

ay d

iffer

bet

wee

n th

e C

ontr

actin

g P

artie

s.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns

1A

sym

met

rica

l o

blig

atio

ns

… e

nabl

e im

posi

tion

of

less

one

rous

ob

ligat

ions

on

a le

ss d

evel

oped

P

arty

1.1.

0D

elay

ed im

ple

men

tati

on

of

ob

ligat

ions

Intr

oduc

e a

timet

able

for

impl

emen

tatio

n of

IIA

com

mitm

ents

with

long

er t

ime-

fram

es f

or a

le

ss d

evel

oped

Par

ty. C

ould

be

used

for,

e.g.

:-

pre-

esta

blis

hmen

t obl

igat

ions

- na

tiona

l tre

atm

ent

- tr

ansf

er o

f fun

ds-

perfo

rman

ce re

quire

men

ts-

tran

spar

ency

- in

vest

or-S

tate

dis

pute

set

tlem

ent.

SD

T pr

ovis

ions

giv

e ex

pres

sion

to

the

spec

ial n

eeds

and

con

cern

s of

de

velo

ping

and

par

ticul

arly

leas

t-de

velo

ped

coun

trie

s (L

DC

s).

Larg

ely

abse

nt f

rom

exi

stin

g IIA

s, t

his

prin

cipl

e is

exp

ress

ed i

n nu

mer

ous

prov

isio

ns o

f th

e W

TO a

gree

men

ts a

nd h

as f

ound

its

way

into

oth

er

aspe

cts

of in

tern

atio

nal l

aw s

uch

as t

he in

tern

atio

nal c

limat

e ch

ange

fra

mew

ork.

SD

T m

ay b

e ne

cess

ary

in o

rder

to

ensu

re t

hat

a le

ss

deve

lope

d P

arty

to a

trea

ty d

oes

not u

nder

take

obl

igat

ions

that

wou

ld

be t

oo b

urde

nsom

e to

com

ply

with

or

cont

rary

to

its d

evel

opm

ent

stra

tegy

.

Ther

e ar

e di

ffere

nt w

ays

to m

ake

an I

IA a

sym

met

rical

and

to

refle

ct

spec

ial n

eeds

of l

ess

deve

lope

d P

artie

s; m

oreo

ver,

seve

ral S

DT

optio

ns

can

be c

ombi

ned

in t

he s

ame

trea

ty.

For

exam

ple,

it

can

esta

blis

h lo

nger

pha

se-in

per

iods

for

pre

-est

ablis

hmen

t ob

ligat

ions

, co

untr

y-sp

ecifi

c ca

rve-

outs

from

the

pro

hibi

tion

of p

erfo

rman

ce r

equi

rem

ents

, be

st-e

ndea

vour

obl

igat

ions

with

resp

ect t

o tr

ansp

aren

cy, a

nd a

ccou

nt

for

the

leve

l of d

evel

opm

ent i

n th

e FE

T pr

ovis

ion.

1.1.

1R

educ

ed n

orm

ativ

e in

tens

ity

Rep

lace

bin

ding

obl

igat

ions

with

bes

t-en

deav

our

oblig

atio

ns f

or a

les

s de

velo

ped

Par

ty.

Cou

ld b

e us

ed fo

r, e.

g.:

- pr

e-es

tabl

ishm

ent o

blig

atio

ns-

natio

nal t

reat

men

t -

perfo

rman

ce re

quire

men

ts-

tran

spar

ency

.

1.1.

2R

eser

vati

ons

Incl

ude

coun

try-

spec

ific

rese

rvat

ions

fro

m g

ener

al o

blig

atio

ns,

e.g.

car

ving

out

sen

sitiv

e se

ctor

s, p

olic

y ar

eas

or e

nter

pris

es o

f spe

cific

siz

e (e

.g. S

ME

s). C

ould

be

used

for,

e.g.

:-

pre-

esta

blis

hmen

t obl

igat

ions

- na

tiona

l tre

atm

ent

- M

FN tr

eatm

ent

- pe

rform

ance

requ

irem

ents

- pe

rson

nel a

nd s

taffi

ng (s

enio

r m

anag

emen

t).

1.1.

3D

evel

op

men

t-fr

iend

ly in

terp

reta

tio

nP

rom

ote

inte

rpre

tatio

n of

pro

tect

ion

stan

dard

s th

at ta

kes

into

acc

ount

Sta

tes’

diff

eren

t lev

el

of d

evel

opm

ent.

Cou

ld b

e us

ed fo

r, e.

g.:

- fa

ir an

d eq

uita

ble

trea

tmen

t-

full

prot

ectio

n an

d se

curit

y-

amou

nt o

f com

pens

atio

n aw

arde

d.

2A

dd

itio

nal

too

ls

… e

ncou

rage

po

sitiv

e co

ntrib

utio

ns

by a

mor

e de

velo

ped

Par

ty

2.1.

0Te

chni

cal a

ssis

tanc

eU

nder

take

a (

best

-end

eavo

ur)

oblig

atio

n to

pro

vide

tec

hnic

al a

ssis

tanc

e to

im

plem

ent

IIA

oblig

atio

ns a

nd fa

cilit

ate

FDI fl

ows.

SD

T ca

n al

so

man

ifest

its

elf

in

spec

ial

oblig

atio

ns

for

the

mor

e de

velo

ped

Con

trac

ting

Par

ty.

Thes

e ar

e m

eant

to

oper

atio

naliz

e th

e IIA

, so

tha

t it

perfo

rms

its F

DI-

prom

otin

g fu

nctio

n an

d, i

f ne

cess

ary,

to

hel

p th

e le

ss d

evel

oped

Par

ty i

mpl

emen

t ce

rtai

n IIA

obl

igat

ions

. In

clud

ing

such

pro

visi

ons

in t

he t

reat

y, e

ven

in a

non

-bin

ding

man

ner,

wou

ld p

rovi

de a

man

date

to th

e m

ore

deve

lope

d pa

rtne

r to

put i

n pl

ace

rele

vant

tech

nica

l-ass

ista

nce

and

prom

otio

n ac

tiviti

es.

2.1.

1In

vest

men

t p

rom

oti

on

Pro

vide

inve

stm

ent i

ncen

tives

to o

utw

ard

FDI s

uch

as in

vest

men

t gua

rant

ees.

Sec

tio

nsP

olic

y o

pti

ons

fo

r in

tern

atio

nal i

nves

tmen

t ag

reem

ents

(IIA

s)

Sus

tain

able

dev

elo

pm

ent

(SD

) im

plic

atio

ns

1.1.

6P

rese

rve

polic

y fle

xibi

lity

on p

re-e

stab

lishm

ent i

ssue

s by

car

eful

ly c

rafti

ng re

leva

nt g

ener

al p

rovi

sion

s of

the

IIA, e

.g.:

The

need

for

rese

rvat

ions

and

«sa

fety

val

ves»

is a

rgua

bly

grea

test

if

a co

untr

y op

ts f

or t

he n

egat

ive

list.

From

a S

D p

ersp

ectiv

e, it

m

ay b

e pr

uden

t to

con

side

r ex

clud

ing

cert

ain

sub-

indu

strie

s or

gr

andf

athe

ring

spec

ific

non-

conf

orm

ing

mea

sure

s,

rese

rvin

g th

e rig

ht t

o ch

ange

the

cou

ntry

’s c

omm

itmen

ts u

nder

spe

cifie

d co

nditi

ons

or c

hoos

e th

e rig

ht le

vel o

f th

e no

rmat

ive

inte

nsity

of

com

mitm

ents

.

- sp

ecify

ing

the

scop

e an

d co

vera

ge o

f the

trea

ty (s

ee s

ectio

n 2.

3 of

Par

t A)

- in

clud

ing

gen

eral

and

nat

iona

l sec

urity

exc

eptio

ns (s

ee s

ectio

n 5

of P

art A

).1.

1.7

Pro

vide

that

adm

issi

on o

f inv

estm

ents

is in

acc

orda

nce

with

dom

estic

law

s of

the

host

Sta

te.


4. Implementation and institutional mechanisms for policy effectiveness

Implementation of IIAs at the national level entails:

• Completing the ratification process. This may vary from a few months to several years, depending on the countries involved and the concrete issues at stake. The distinction between the conclusion of an agreement and its entry into force is important, since the legal rights and obligations deriving from it do not become effective before the treaty has entered into force. The time lag between the conclusion of an IIA and its entry into force may therefore have implications, for both foreign investors and their respective host countries.

• Bringing national laws and practices into conformity with treaty commitments. As with any other international treaty, care needs to be taken that the international obligations arising from the IIA are properly translated into national laws and regulations, and depending on the scope of the IIA, e.g. with regard to transparency obligations, also into the administrative practices of the countries involved.

• Disseminating information about IIA obligations. Informing and training ministries, government agencies and local authorities on the implications of IIAs for their conduct in regulatory and administrative processes is important so as to avoid other arms of the government causing conflicts with treaty commitments and thus giving rise to investor grievances, which if unresolved could lead to arbitral disputes.

• Preventing disputes, including through ADR mechanisms. This may involve the establishment of adequate institutional mechanisms to prevent disputes from emerging and avoid the breach of contracts and treaties on the part of government agencies. This involves assuring that the State and various government agencies take account of the legal obligations made under investment agreements when enacting laws and implementing policy measures, and establishing a system to identify more easily potential areas where disputes with investors can arise, and to respond to the disputes where and when they emerge.

• Managing disputes that may arise under IIAs. If dispute prevention efforts fail, States need to be prepared to engage effectively and efficiently in managing the disputes from beginning to end. This involves setting up the required mechanisms to take action in case of the receipt of a notice of arbitration, to handle the case, and ultimately to bring it to a conclusion, including possibly through settlement.

• Establishing a review mechanism to verify periodically the extent to which the IIA contributes to achieving expected results in terms of investment attraction and enhancing sustainable development – while keeping in mind that there is no mono-causal link between concluding an IIA and investment flows.

Moreover, because national and international investment policy must be considered in an integrated manner, and both need to evolve with a country’s changing circumstances, countries have to assess continuously the suitability of their policy choices with regard to key elements of investment protection and promotion, updating model treaties and renegotiating existing IIAs.

Undertaking these implementation and follow-up efforts effectively and efficiently can be burdensome for developing countries, especially the least developed, because they often lack the required institutional capabilities or financial and human resources. Similarly, they often face challenges when it comes to analyzing ex ante the scope of obligations into which they are entering when they conclude an IIA, and the economic and social implications of the commitments contained in IIAs.

This underlines the importance of capacity-building technical cooperation to help developing countries in assessing various policy options before entering into new agreements and subsequently to assist them in implementing their commitments. IIAs can include relevant provisions to this end, including setting up institutional frameworks under which the contracting parties (and, where appropriate and relevant, other IIA stakeholders such as investors or civil society) can review progress in the implementation of IIA commitments, with a view to maximizing their contribution to sustainable development. International organizations can also play an important capacity building role.

V. The way forward 65

V. The Way Forward

A new generation of investment policies is emerging, pursuing a broader and more intricate development policy agenda within a framework that seeks to maintain a generally favourable investment climate. “New generation” investment policies recognize that investment is a primary driver of economic growth and development, and seek to give investment policy a more prominent place in development strategy. They recognize that investment must be responsible, as a prerequisite for inclusive and sustainable development. And in the design of “new generation” investment policies policymakers seek to address long-standing shortcomings of investment policy in a comprehensive manner in order to ensure policy effectiveness and build a stable investment climate.

This report has painted the contours of a new investment policy framework for sustainable development. The Core Principles set out the design criteria for investment policies. The national investment policy guidelines suggest how to ensure integration of investment policy with development strategy, how to ensure policy coherence and design investment policies in support of sustainable development, and how to improve policy effectiveness. The policy options for key elements of IIAs provide guidance to IIA negotiators for the drafting of sustainable-development-friendly agreements; they form the first comprehensive overview of the myriad of options available to them in this respect.

In developing the IPFSD, UNCTAD has had the benefit of a significant body of existing work and experience on the topic. UNCTAD itself has carried out more than 30 investment policy reviews (IPRs) in developing countries over the years (box 4), analyzed in detail investment regulations in numerous countries for the purpose of investment facilitation (box 6), and produced many publications on best practices in investment policy (box 7), including in the WIR series. Other agencies have a similar track record, notably the OECD and the World Bank, various regional organizations, and a number of NGOs. In defining an IPFSD, this report has attempted to harness the best of existing

work on investment policies, investment policy frameworks, guidelines and models, and to build on experience in the field in their implementation.

The IPFSD is not a negotiated text or an undertaking between States. It is an initiative by the UNCTAD secretariat, representing expert guidance for policymakers by an international organization, leaving national policymakers free to “adapt and adopt” as appropriate.

It is hoped that the IPFSD may serve as a key point of reference for policymakers in formulating national investment policies and in negotiating or reviewing IIAs. It may also serve as a reference for policymakers in areas as diverse as trade, competition, industrial policy, environmental policy, or any other field where investment plays an important role. The IPFSD can also serve as the basis for capacity building on investment policy. And it may come to act as a point of convergence for international cooperation on investment issues.

In its current form the IPFSD has gone through numerous consultations, comprehensively and by individual parts, with expert academics and practitioners. It is UNCTAD’s intention to provide a platform for further consultation and discussion with all investment stakeholders, including policymakers, the international development community, investors, business associations, labour unions, and relevant NGOs and interest groups. To allow for further improvements resulting from such consultations, the IPFSD has been designed as a “living document”.

The dynamic nature of investment policymaking adds to the rationale for such an approach, in particular for the specific investment policy guidelines. The continuous need to respond to newly emerging challenges with regard to foreign investment makes it mandatory to review and, where necessary, modify these guidelines from time to time. Thus, from UNCTAD’s perspective, while the IPFSD will serve to inform the investment policy debate and to guide technical assistance work in the field, new insights from that work will feed back into it.


The IPFSD thus provides a point of reference and a common language for debate and cooperation on national and international investment policies. UNCTAD will add the infrastructure for such cooperation, not only through its numerous policy forums on investment, but also by providing a platform for “open sourcing” of best practice investment policies through its website, as a basis for the inclusive development of future investment policies with the participation of all.30

Notes1 Many successful developing countries maintained

a significant level of government influence over the direction of economic growth and development throughout; see Development-led globalization: Towards sustainable and inclusive development paths, Report of the Secretary-General of UNCTAD to UNCTAD XIII.

2 The G-20, in its 2010 Seoul declaration, asked international organizations (specifically, UNCTAD, WTO and OECD) to monitor the phenomenon of investment protectionism.

3 See Sauvant , K.P. (2009). “FDI Protectionism Is on the Rise.” World Bank Policy Research Working Paper 5052.

4 For example, the World Bank’s Guidelines on the Treatment of Foreign Direct Investment, the OECD’s Policy Framework for Investment (PFI), and instruments developed by various regional organizations and NGOs.

5 These include, inter alia, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the IFC’s Sustainability Framework and the OECD Guidelines for Multinational Enterprises.

6 See ILO Global Employment Trends 2012, available on www.ilo.org.

7 See, for example, “Promoting investment for development: Best practices in strengthening investment in basic infrastructure in developing countries,” note by the UNCTAD secretariat to the Investment, Enterprise and Development Commission, May 2011, TD/B/C.II/14, www.unctad.org.

8 Based on Doran, G. T. (1981). “There’s a S.M.A.R.T. way to write management’s goals and objectives.” Management Review, 70 (11 AMA FORUM); 35-36.

9 The universe of “core IIAs” principally consists of BITs and other agreements that contain provisions on investment, so-called “other IIAs”. Examples of the latter include free trade agreements (FTAs) or economic partnership agreements (EPAs). As

regards their substantive obligations, “other IIAs”, usually fall into one of three categories: IIAs including obligations commonly found in BITs; agreements with limited investment-related provisions; and IIAs focusing on investment cooperation and/or providing for future negotiating mandate on investment. In addition to “core IIAs”, there are numerous other legal instruments that matter for foreign investment, including double taxation treaties (DTTs).

10 Examples include the interaction between IIAs and other bodies of international law or policy in the field of public health (e.g. the World Health Organization Framework Convention on Tobacco Control, WHO FCTC), environment (e.g. the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes) or human rights (e.g. International Covenant on Economic, Social and Cultural Rights), to name a few. In the context of ensuring coherence between investment protection and climate change, WIR10 suggested a “multilateral declaration” clarifying that IIAs do not constrain climate change measures enacted in good faith.

11 In some countries the existence of an IIA is a prerequisite for the granting of investment guarantees.

12 This impact is generally stronger in the case of preferential trade and investment agreements (PTIAs) than with regards to BITs. See “The Role of International Investment Agreements in Attracting Foreign Direct Investment to Developing Countries,” UNCTAD Series on International Investment Policies for Development, December 2009; www.unctad.org. For a full discussion of FDI determinants, see WIR98.

13 See also Skovgaard Poulsen, Lauge N. and Aisbett, Emma (2011) “When the Claim Hits: Bilateral Investment Treaties and Bounded Rational Learning.” Crawford School Research Paper No. 5.

14 As discussed in WIR04, interaction can be either autonomous-liberalization-led or IIA-driven, or anywhere in-between.

15 Related are questions of forum-choice, double incorporation, dual liability and re-litigation of issues, all of which call for a careful consideration of how to manage the overlaps between agreements. See also Babette Ancery (2011), “Applying Provisions of Outside Trade Agreements in Investor-State Arbitration through the MFN-clause.” TDB, 8 (3).

16 This is in line with the traditional view of international law, as governing relations between its subjects, primarily between States. Accordingly, it is impossible for an international treaty to impose obligations on private actors (investors), which are not parties to the treaty (even though they are under the jurisdiction of the respective contracting parties).

V. The way forward 67

17 Article 13 “Investor Obligation” provides: “COMESA investors and their investments shall comply with all applicable domestic measures of the Member State in which their investment is made.”

18 In fact, in the course of the past century, international law has been moving away from the traditional, strict view towards including, where appropriate, non-State actors into its sphere. See, e.g., A. Bianchi (ed.) (2009), “Non-State Actors and International Law.” (Ashgate, Dartmouth).

19 Also the 2012 Revision of the International Chamber of Commerce (ICC) Guidelines for International Investment refer to investors’ obligations to comply with the laws and regulations of the host State at all times and, in particular, to their obligation to comply with national and international labour laws, even where these are not effectively enforced by the host State.

20 The aggregate amount of compensation sought by the three claimants constituting the majority shareholders of former Yukos Oil Company in the ongoing arbitration proceedings against Russia. See Hulley Enterprises Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 226; Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227; Veteran Petroleum Limited (Cyprus) v. The Russian Federation, PCA Case No. AA 228.

21 Ceskoslovenska Obchodni Banka (CSOB) v. The Slovak Republic, ICSID Case No. ARB/97/4, Final Award, 29 December 2004. The case was brought by CSOB on the basis of consent to arbitration contained in the 1992 BIT between the Czech Republic and the Slovak Republic. The findings on liability and damages were based on the underlying contract and Czech law. For more information on ISDS consult http://www.unctad.org/iia-dbcases/cases.aspx.

22 For details, see UNCTAD (2011) “Sovereign Debt Restructuring and International Investment Agreements.” IIA Issues Note, No.2, www.unctad.org, Abaclat and others v. Argentine Republic, ICSID Case No. ARB/07/5, Decision on Jurisdiction and Admissibility, 4 August 2011.

23 Nottage, Hunter (2003), Trade and Competition in the WTO: Pondering the Applicability of Special and Differential Treatment, Journal of International Economic Law, 6(1), p.28.

24 Based on six categories as identified in WTO (2000) “Implementation of Special and Differential Treatment Provisions in WTO Agreements and Decisions,” Note by Secretariat, WT/COMTD/W/77, 25 October 2000, available at www.wto.org. More recently, also the Doha Ministerial Declaration (2001) reaffirmed SDT as an integral part of the multilateral trade regime.

25 COMESA Investment Agreement (2007), Article 14(3).

26 Any comprehensive effort to reform the ISDS regime would also have to go beyond IIA clauses, and address other rules, including those for conducting international arbitrations (e.g. ICSID or UNCITRAL).

27 Experience with ISDS has revealed numerous instances of unclear or ambiguous clauses that risk being interpreted in an unanticipated and broad manner. Therefore the table includes options to clarify. However, these clarifications should not be used by arbitrators to interpret earlier clauses that lack clarifications in broad and open-ended manner.

28 Absence of ISDS – and hence of the possibility to be subject to financial liabilities arising from ISDS – may make it easier for countries to agree to certain standards of protections.

29 Similarly, one can combine far-reaching liberalization or protection clauses with a possibility to lodge reservations (e.g. for pre- and post-establishment clauses, and for existing and future measures). See “Preserving Flexibility in IIAs: The Use of Reservations”, UNCTAD Series on International Investment Policies for Development, June 2006; www.unctad.org.

30 Interested stakeholders and experts are invited to provide feedback and suggestions through the dedicated UNCTAD IPFSD website, at www.unctad.org/IPFSD.

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