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Sergey Ripinsky

INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATION LECTURE 1. IIAs: types, features and trends. Sergey Ripinsky. International Investment Agreements Section. Division on Investment and Enterprise. Geneva, 4 May 2012. Plan for the course.

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Sergey Ripinsky

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  1. INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATIONLECTURE 1. IIAs: types, features and trends Sergey Ripinsky International Investment Agreements Section Division on Investment and Enterprise Geneva, 4 May 2012

  2. Plan for the course • IIAs – notion, types, features and trends • Investor-State dispute settlement (ISDS) • IIAs and sustainable developments

  3. Background: recent FDI statistics • 2011: global FDI inflows rose by 17% to US$1.5 trillion. • Developing and transition economies accounted for half of global FDI in 2011 (US$755 billion).

  4. FDI flows over time

  5. Investors and governments: examples of problems • 40-year oil concession with a stabilization clause. After 10 years, new government proposes to renegotiate the contract. Investor refuses. Government terminates the concession. • Pesticide-producing business. New scientific evidence – government bans production and marketing of that pesticide. • Tax authority imposes multiple fines and sanctions for tax avoidance. Investor says that this is a revenge for its refusal to pay bribes to tax officials. • New requirement that all enterprises employ 90% of locals and that they source 90% of their inputs locally. Foreign investors complain that this makes their products less competitive.

  6. IIA – an international treaty that promotes and protects investments from one Contracting Party in the territory of another • Preamble • Definitions of terms (esp. investment / investor) • Admission and establishment of investments • Core standards of protection: • Non-discrimination (National Treatment / MFN) • Fair and equitable treatment • Full protection and security • Expropriation • Compensation for losses due to armed conflict / civil riots • Free transfer of funds • “Umbrella clause” (obligation to observe specific undertakings) • Dispute settlement (investor-State arbitration)

  7. Why do countries conclude IIAs? • Home countries – to protect their investors abroad. • Host countries – to attract FDI. • Complicating factor: Many countries are now both importers and exporters of capital.

  8. Main FDI determinants • Market size • Availability of natural resources • Quality of infrastructure • Qualification and productivity of the workforce • Flexibility of labour legislation and exchange laws • Transparency and stability of the legal and political systems, security of property and contract rights • Tax incentives

  9. Sources of investment risk (political risk) • nationalization / expropriation • contract repudiation • crime, terrorism and kidnapping • civil unrest • constraints on repatriation of dividends/profits • ineffective legal and regulatory systems • red tape, bureaucracy and weak institutions • corruption/bribery

  10. Types of IIAs • BITs, and • “other IIAs”, which include: • Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs) • Regional integration agreements (EU, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN) • Multilateral agreements focusing on a specific sector (Energy Charter Treaty) • Multilateral agreements touching upon investment issues (GATS, TRIMs)

  11. Trends of BITs and other IIAs 1980–2011

  12. The IIA regime

  13. Top ten signatories of BITs Number of BITs

  14. Protection offered by the IIA regime 14

  15. IIA content trends Pre- and post-establishment IIAs Different formulations of the same “core” disciplines - different interpretation by arbitral tribunals. Treaty text is paramount – need to understand its implications and possible future interpretation. Increased sophistication and level of detail – learning lessons from ISDS proceedings. New types of disciplines included (performance requirements, transparency, etc.). 15

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