Workshop on economic and legal aspects of Workshop on economic and legal aspects of International Investment AgreementsInternational Investment Agreements

Kampala, UgandaKampala, Uganda10-14 November 2008 10-14 November 2008

International Rules on FDIInternational Rules on FDI

Thomas WestcottThomas WestcottLegal AdvisorLegal Advisor

UNCTADUNCTAD

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Topics for discussionTopics for discussion

I.I. International framework on International framework on investmentinvestment

II.II. Trends in IIAsTrends in IIAs

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I. The international framework I. The international framework on investmenton investment

• 20 years ago or more, many countries had reservations about 20 years ago or more, many countries had reservations about FDI and excluded or restricted FDI inflowFDI and excluded or restricted FDI inflow

• Today, every single country seeks to attract FDIToday, every single country seeks to attract FDI

• Unilateral efforts in FDI liberalization and promotion are Unilateral efforts in FDI liberalization and promotion are complemented by efforts at 3 levels: complemented by efforts at 3 levels:

• bilateral - eg. BITs, FTAsbilateral - eg. BITs, FTAs• regional – eg. COMESAregional – eg. COMESA• multilateral – eg. GATS, TRIMsmultilateral – eg. GATS, TRIMs

• IIAs have different purposes or objectives:IIAs have different purposes or objectives:• investment protectioninvestment protection• Investment promotionInvestment promotion• Investment liberalisation. Investment liberalisation. 6

Interface between national and Interface between national and international FDI policiesinternational FDI policies

55

Network of international Network of international investment rulesinvestment rules

• National laws and regulations, investment codesNational laws and regulations, investment codes

• State contracts, investment agreements, stabilization agreementsState contracts, investment agreements, stabilization agreements

• Bilateral investment treaties (BITs) for the promotion and protection Bilateral investment treaties (BITs) for the promotion and protection of investmentof investment

• Double taxation treaties (DTTs)Double taxation treaties (DTTs)

• Preferential trade and investment agreementsPreferential trade and investment agreements

• Regional (COMESA, OECD, APEC) and sectoral agreements Regional (COMESA, OECD, APEC) and sectoral agreements (Energy Charter Treaty)(Energy Charter Treaty)

• Multilateral disciplines and specific agreements (WTO GATS, TRIMs, Multilateral disciplines and specific agreements (WTO GATS, TRIMs, TRIPs; ICSID, NY Convention, MIGA)TRIPs; ICSID, NY Convention, MIGA)

66

Investment contracts are not IIAsInvestment contracts are not IIAs

• State contracts and investment agreements between State contracts and investment agreements between individual investors and the host State set rules, rights individual investors and the host State set rules, rights and obligations for both partiesand obligations for both parties

• These investment agreements are not treaties! (i.e. BITs)These investment agreements are not treaties! (i.e. BITs)

• Focus is on a specific investment project e.g. concessionFocus is on a specific investment project e.g. concession

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Recent trends in IIAs - highlightsRecent trends in IIAs - highlights• Rapid proliferation at all levelsRapid proliferation at all levels

• International investment rules are increasingly being International investment rules are increasingly being formulated as part of agreements that encompass a formulated as part of agreements that encompass a broader range of issues (FTAs)broader range of issues (FTAs)

• Investment provisions in the new agreements tend to be Investment provisions in the new agreements tend to be increasingly sophisticated and complex in contentincreasingly sophisticated and complex in content

• South-South cooperation on international investment South-South cooperation on international investment policy is intensifyingpolicy is intensifying

• Increasing activity in international investment treaty-Increasing activity in international investment treaty-making has been paralleled by a rise in investor-State making has been paralleled by a rise in investor-State disputes.disputes.

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The international investment legal The international investment legal framework: role and objectivesframework: role and objectives

International investment agreements (IIAs):International investment agreements (IIAs):

• Contribute to the creation of a Contribute to the creation of a stable, predictable and stable, predictable and transparent regulatory frameworktransparent regulatory framework for international investment for international investment

• Facilitate the Facilitate the coordination of investment relationscoordination of investment relations (relations (relations between host States, home States, international investors and between host States, home States, international investors and other development stakeholders) through internationally agreed other development stakeholders) through internationally agreed common denominatorscommon denominators

• Complement national lawsComplement national laws on investment (interface between on investment (interface between national and international investment policies)national and international investment policies)

• Impact of IIAs on FDI flows? Diverging viewsImpact of IIAs on FDI flows? Diverging views

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Objectives of the legal Objectives of the legal investment frameworkinvestment framework

Restrictions

- Entry and establishment- Ownership and control- Operational restrictions- Authorization and reportingEtc..

Standards of treatment & protection

•Transparency

•Treatment (NT, MFN)

•Expropriation & compensation

•Transfer of funds

•Dispute settlement

•Etc.

RE

DU

CIN

G

BU

ILD

ING

These objectives can be achieved through:

•National policies

• Investment contracts/State contracts

• International investment agreements (IIAs)

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The international framework for investmentThe international framework for investmentIIAs have several possible objectives:IIAs have several possible objectives:

PromotionPromotion

BITs

Regional

establishment

agreements

US-CAN-JAP BITSFTAS

NAFTA

LiberalizationLiberalizationProtectionProtection

1111

Many IIAs cover more or less the same issues

•Scope and definition of foreign investment

•Admission of investment or pre-establishment NT and MFN

•Treatment of investment, i.e. national treatment, MFN

•FET

•Guarantees and compensation in respect of expropriation

•Transfer of funds and repatriation of capital and profits

•Dispute settlement, both State-State and investor-State

…but the concrete way in which they are addresseddiffers substantially

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II. Global trends in IIAsII. Global trends in IIAs

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The spaghetti bowl of IIAs The spaghetti bowl of IIAs

A. Bilateral Investment Treaties

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What are bilateral investment What are bilateral investment treaties (BITs) ?treaties (BITs) ?

Bilateral reciprocal agreements (between two Bilateral reciprocal agreements (between two

States) aimed at States) aimed at protectingprotecting and and promoting promoting foreign foreign investment through legally-binding rights and investment through legally-binding rights and obligations.obligations.

For host countries (traditionally developing) To improve their investment climate and to attract

foreign investors

To portray a positive international image of ‘openness’

For home countries (traditionally developed) To protect their investments abroad

Some countries are both capital importing and exporting (both home and host) - twin objectives: investment attraction and investment protection.

Why do countries sign BITs?Why do countries sign BITs?

The network of BITs continues to grow rapidly, there are now over

2500 BITs

0

50

100

150

200

250

Years

Ann

ual B

ITs

0

500

1000

1500

2000

2500

3000

Cum

ulat

ive

BIT

s

8%

10%

40%

25%

4%

13%

Between developing countries

Between developed and developing countries

Between developing countries and countries of SEE&CIS

Between developed countries

Between developed and countries of SEE&CIS

Between countries of SEE&CIS

BITs concluded by country group,

end 2007

The top ten signatories of BITs, end 2007

0 20 40 60 80 100 120 140

Number of BITs concluded

Republic of KoreaBelgium andNetherlands

FranceItaly

EgyptUnited Kingdom

SwitzerlandChina

Germany

2020

BITs signed by 11 African countries

• Botswana 9Botswana 9• Cameroon 14Cameroon 14• Central African Central African

Republic 4Republic 4• Ethiopia 22Ethiopia 22• Kenya 6Kenya 6• Lesotho 3Lesotho 3• Mauritius 34Mauritius 34• Rwanda 3Rwanda 3• Sudan 26Sudan 26• Tanzania 11Tanzania 11• Uganda 15Uganda 15

Intra-region BITs:Intra-region BITs:

• Botswana – Mauritius 2005Botswana – Mauritius 2005• Cameroon – Mauritius 2001Cameroon – Mauritius 2001• Ethiopia – Sudan 2000Ethiopia – Sudan 2000• Rwanda – Mauritius 2001Rwanda – Mauritius 2001

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Trend towards renegotiating BITs

109 BITs have been renegotiated109 BITs have been renegotiated

13 renegotiated in 2006 13 renegotiated in 2006

Albania and Romania renegotiated two BITs each Albania and Romania renegotiated two BITs each in 2006. in 2006.

A new generation of BITs since 2004: innovations

A new generation of BITs follows the trend set by some of the recent FTAs

These contain four main innovations:

A comprehensive, but finite definition of ‘investment’ (such as in the Canadian model).

Revisions to the wording of various substantive provisions.

A broader set of issues is addressed, including health, the environment, safety and labour rights.

Innovations regarding investor-State dispute settlement

procedures.

B. Free Trade Agreements

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Economic integration agreements (EIAs) Economic integration agreements (EIAs) with investment provisions (eg FTAs)with investment provisions (eg FTAs)

• International investment rules are increasingly being included in agreements that cover a broader range of issues including:

• trade, services, competition, intellectual property

• Free trade agreements, economic partnerhsip agreements, regional integration agreements,or economic cooperation agreements…

• Coverage of investment varies.

- in today’s group activity we will explore this further!

Over 250 EIAs with investment provisions by end 2007

0

50

100

150

200

250

300

Agr

eem

ents

oth

er th

an B

ITs

with

in

vest

men

t pro

visi

ons

By period Cumulative

EIAs with investment provisions by country group, end 2007

5%2% 10%

39%

8%

36%

South-SouthNorth-NorthNorth-SouthNorth-transition economiesTransition economies-transition economies South-transition economies

Recent FTAs with investment chapters

Free Trade Agreement between the United States of America and Peru

Free Trade Agreement between Singapore and Panama

Association Agreement between the European Community and Albania

Free Trade Agreement between Turkey and Morocco

Free Trade Agreement between the Hashemite Kingdom Jordan and the Republic of Singapore

Economic Partnership Agreement between Japan and Philippines

Economic Partnership Agreement between Japan and Chile

Economic Partnership Agreement between Japan and Thailand

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South-South cooperation: South-South cooperation: developing countries active in IIAsdeveloping countries active in IIAs

Many developing countries are active participants in Many developing countries are active participants in negotiating IIAsnegotiating IIAs

BITs BITs between developing countriesbetween developing countries leaped from leaped from 4747 in in 1990 to over 1990 to over 650650 by the end of 2006 by the end of 2006

Over Over 90 EIAs 90 EIAs among developing countries had been among developing countries had been signed by end of 2006.signed by end of 2006.

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South-South cooperation through South-South cooperation through IIAs is intensifyingIIAs is intensifying

0

100

200

300

400

500

600

700

Nu

mb

er

of

ag

reem

en

ts

0

100

200

300

400

500

600

700

800

900

1'000

FD

I o

utw

ard

sto

ck

Total BITs Total DTTs FDI outward stock

3030

Interregional agreementsInterregional agreements

The EU is negotiationing Economic Promotion Agreements (EPA) with all of the Africa Caribbean Pacific (ACP) regions.

EU-CARIFORUM EPA was signed in October 2008

It contains a chapter on commercial presence (investment)

ESA-EU EPA interim agreement SADC-EU EPA interim agreement

African regional agreements – no investment African regional agreements – no investment protection provisionsprotection provisions

Common Market for Eastern and Southern Africa (COMESA), (1993) contains framework provisions on investment promotion, with some general principles on investment protection.

The Treaty establishing the African Economic Community (AEC) (1991) contains provisions under which the parties agree to ensure the free movement of capital within the Community trough the elimination of restrictions on capital transfers.

Treaty for the Establishment of the East African Community (EAC) (1999) contains commitments by which States parties agreed to adopt measures to achieve the free movement of persons and services.

The South African Development Community (SADC, 1992), aims at the progressive establishment of free movement of goods, services, capital and persons.

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Plurilateral agreements:Plurilateral agreements:Investment Agreement for theInvestment Agreement for the

COMESA Common Investment AreaCOMESA Common Investment Area

CCIA signed in 2007

Not yet fully implemented?

Contains provisions that depart from standard provisions in BITs

Includes detailed language on some issues in light of recent arbitral decisions

Aims to find balance between the rights of investors and the state’s right to regulate.

3333

Investment in the multilateral contextInvestment in the multilateral context

Historical overview: Havana Charter, World Bank Historical overview: Havana Charter, World Bank Guidelines, UN Code of Conduct, OECD MAIGuidelines, UN Code of Conduct, OECD MAI

Investment in the WTO: a missed opportunity?Investment in the WTO: a missed opportunity?

Investment-specific agreements: Investment-specific agreements: dispute settlement dispute settlement (ICSID, NY Convention,..), insurance (MIGA)(ICSID, NY Convention,..), insurance (MIGA)

Limited membership: OECD rules, APECLimited membership: OECD rules, APEC

Limited scope: Energy Charter Treaty, GATS, TRIMS, TRIPs. Limited scope: Energy Charter Treaty, GATS, TRIMS, TRIPs.

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The increase in IIAs has been The increase in IIAs has been paralleled by an increase in paralleled by an increase in

investor-State disputesinvestor-State disputes

250 known claims by end 2006 (cumulative 250 known claims by end 2006 (cumulative number of treaty-based cases)number of treaty-based cases)

Awards given in these proceedings have helped Awards given in these proceedings have helped to clarify the meaning and content of individual to clarify the meaning and content of individual treaty provisions, some contradictory decisions treaty provisions, some contradictory decisions have also created uncertainty. have also created uncertainty.

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Known investment treaty arbitrations (cumulative and newly instituted cases, 1987-2006)

0

10

20

30

40

50

6019

87

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Ann

ual n

umbe

r of

cas

es

0

50

100

150

200

250

300

Cum

ulat

ive

num

ber

of c

ases

ICSID Non-ICSID All cases cumulative

3636

Thank you.Thank you.