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Workshop on economic and legal aspects of International Investment Agreements Kampala, Uganda 10-14 November 2008 International Rules on FDI Thomas Westcott Legal Advisor UNCTAD. Topics for discussion. I. International framework on investment II. Trends in IIAs. 2.

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Workshop on economic and legal aspects of International Investment Agreements

Kampala, Uganda

10-14 November 2008

International Rules on FDI

Thomas Westcott

Legal Advisor

UNCTAD


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Topics for discussion Investment Agreements

I. International framework on investment

II. Trends in IIAs

2


I the international framework on investment l.jpg
I. The international framework Investment Agreementson investment


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Interface between national and international FDI policies Investment Agreements

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

  • Today, every single country seeks to attract FDI

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

    • bilateral - eg. BITs, FTAs

    • regional – eg. COMESA

    • multilateral – eg. GATS, TRIMs

  • IIAs have different purposes or objectives:

    • investment protection

    • Investment promotion

    • Investment liberalisation.

  • 6


    Network of international investment rules l.jpg
    Network of international Investment Agreementsinvestment rules

    • National laws and regulations, investment codes

    • State contracts, investment agreements, stabilization agreements

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

    • Double taxation treaties (DTTs)

    • Preferential trade and investment agreements

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

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


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    Investment contracts are not IIAs Investment Agreements

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

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

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


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    Recent trends in IIAs - highlights Investment Agreements

    • Rapid proliferation at all levels

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

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

    • South-South cooperation on international investment policy is intensifying

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


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    The international investment legal framework: role and objectives

    International investment agreements (IIAs):

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

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

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

    • Impact of IIAs on FDI flows? Diverging views


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    Objectives of the legal objectives

    investment framework

    Standards of treatment

    & protection

    Restrictions

    - Entry and

    establishment

    - Ownership and

    control

    - Operational

    restrictions

    - Authorization and

    reporting

    Etc..

    • Transparency

    • Treatment

    • (NT, MFN)

    • Expropriation &

    • compensation

    • Transfer of funds

    • Dispute settlement

    • Etc.

    REDUCING

    BUILDING

    • These objectives can be achieved through:

    • National policies

    • Investment contracts/State contracts

    • International investment agreements (IIAs)


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    The international framework for investment objectivesIIAs have several possible objectives:

    Promotion

    BITs

    Regional establishment agreements

    Protection

    Liberalization

    US-CAN-JAP BITS

    FTAS

    NAFTA


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    Many IIAs cover more or less the same issues objectives

    • 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 addressed

    differs substantially

    12





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    What are bilateral investment treaties (BITs) ? objectives

    • Bilateral reciprocal agreements (between two States) aimed at protecting and promoting foreign investment through legally-binding rights and obligations.


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    Why do countries sign BITs? objectives

    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.




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    The t over 2500 BITsop ten signatories of BITs, end 2007


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    BITs signed by 11 African countries over 2500 BITs

    • Botswana 9

    • Cameroon 14

    • Central African Republic 4

    • Ethiopia 22

    • Kenya 6

    • Lesotho 3

    • Mauritius 34

    • Rwanda 3

    • Sudan 26

    • Tanzania 11

    • Uganda 15

    Intra-region BITs:

    • Botswana – Mauritius 2005

    • Cameroon – Mauritius 2001

    • Ethiopia – Sudan 2000

    • Rwanda – Mauritius 2001


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    Trend towards renegotiating BITs over 2500 BITs

    109 BITs have been renegotiated

    13 renegotiated in 2006

    Albania and Romania renegotiated two BITs each in 2006.

    21


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    A new generation of BITs since 2004: innovations over 2500 BITs

    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.


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    B. Free Trade Agreements over 2500 BITs


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    Economic integration agreements (EIAs) 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!




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    Recent FTAs with investment chapters provisions (eg FTAs)

    • 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: provisions (eg FTAs)developing countries active in IIAs

    • Many developing countries are active participants in negotiating IIAs

    • BITs between developing countries leaped from 47 in 1990 to over 650 by the end of 2006

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


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    South-South cooperation through provisions (eg FTAs)IIAs is intensifying


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    Interregional agreements provisions (eg FTAs)

    • 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


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    African regional agreements – no investment protection 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: provisionsInvestment Agreement for theCOMESA 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.

    32


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    Investment in the multilateral context provisions

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

    Investment in the WTO: a missed opportunity?

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

    Limited membership: OECD rules, APEC

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

    33


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    The increase in IIAs has been paralleled by an increase in investor-State disputes

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

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


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    Known investment treaty arbitrations investor-State disputes

    (cumulative and newly instituted cases, 1987-2006)


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    Thank you. investor-State disputes


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