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Investment Law 1 Basics, History Interpretation, Application

Investment Law 1 Basics, History Interpretation, Application. Prof. Dr. Werner Meng Director emeritus of the Europa – Institut Saarland University Saarbruecken /Germany. Dates and subject matters. 1 March : 16.30 - 19.30 3 March : 15.00 - 21.00 21 April : 15.00 - 21.00

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Investment Law 1 Basics, History Interpretation, Application

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  1. Investment Law 1Basics, HistoryInterpretation, Application Prof. Dr. Werner Meng Directoremeritusof the Europa – Institut Saarland University Saarbruecken /Germany Prof. Dr. Werner Meng - Europa Institut - Saarland University

  2. Dates andsubjectmatters 1 March : 16.30 - 19.30 3 March : 15.00 - 21.00 21 April : 15.00 - 21.00 22 April : 15.00 - 21.00 26 May : 15.00 - 21.00 27 May : 15.00 - 21.00 • History, Sources, Nature, Interpretation, Application • Investment, Investors, Investment Contracts • Admission and Establishment • Expropriation • Standards ofprotection • State Responsibilityand Attribution • Political Risk Insurance • Dispute Settlement

  3. Slidesfor the lectures • Download yourslides at • http://wmeng.me/trade-law/ • You will havetohave Microsoft Powerpoint in ordertobeabletoload the slideson yourcomputer. Prof. Dr. Werner Meng - Europa Institut - Saarland University

  4. Literature • Dolzer, Schreuer, Principles of International Investment Law, 2008 • Sornarajah, M., The international law on foreign investment, 3rd ed. 2010 • Weiler, T., International investment law and arbitration, 2005 • Ortino, F., Investment treaty law, (2006), • Subedi, International Investment Law, 2008 • OECD, International Investment Law. Understanding Conceptsand Tracking Innovations (2008) • Muchlinski, Ortino, Schreuer, The Oxford Handbook of International Investment Law, 2008 • Folsom, Gordon, Spanogle, Fitzgerald, International Business Transactions, 10th edition, 2009 • Salacuse. The law of Investment Treaties, 2010 Prof. Dr. Werner Meng - Europa Institut - Saarland University

  5. History - 1 • 1796: FCN Treaty – Protectionofforeigner‘spropertyby PIL • Through national laws • 1868: Calvoclause • 1907 Drago – Porter convention • PIL: minimumstandardforaliens • 1930 Lena Goldfieldarbitration • 1928 Hull Formula: adequate, prompt and effective

  6. History - 2 • 1962 UNGA Res. 1803: appropriatecompensation • 1974 UNGA: Charter ofthe New Economic Order • National heritageprotection • Righttoexpropriationw/o compensation • NAFTA (1974) • ECT – Energy Charter Treaty (1994) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  7. International Minimum Standard • Right to recognition of legal capacity, to a fair procedure, to equalitybefore the law • DiplomaticProtection (Barcelona Traction ICJ) • Compensation: full / adequate, prompt, effective Isit just and fair totreatforeignersbetterthanowncitizens? Prof. Dr. Werner Meng - Europa Institut - Saarland University

  8. Barcelona Traction Case – DiplomaticProtectionforcompanies • Case concerningthe Barcelona Traction, Light and Power company Ltd. (Second Phase), Judgementof Feb. 5, 1970 (ICJ Rep. 1970, 3 • Franco Spain has driven the spanish affiliate of a canadian power company into bankruptcy by preventing it from recovering of the war restrictions. Forced takeover by the state and sales to a spanish entrepreneur. • Could Belgium bring a case because a majoirity of shareholders was purportedlyBelgian? • BT haditsown legal personality. Actswere not directedagainsttheshareholders • No „piercingoftheveil“. • BT still exists outside Spain. • Itis a recognizedcompanyofCanadiannationality. Canada canexercisediplomaticprotection • Noagreement on specialprotectionbtw. Spain andBelgium Prof. Dr. Werner Meng - Europa Institut - Saarland University

  9. Rules ofCustomary International Law on property • Property • Generally definedby national law • Permits, concessions, licenses, publicrights? • Oscar Chinn Case: novestedright. Same: McHarg et al. vs. Iran • LIAMCO: protectionasincorporealpropertyrights. Same: CME v. Czech Republic • Righttoproperty - minimumstandard (lawrelatingtoaliens) • PCIJ: Factory ofChorzowcase, Mavrommatis Case • Not: Calvoclause (national treatment) • Res. 1803 (XVIII) of 14.12.1962 (compensation) • Charter ofEconomicRightsandDuties (1974) (freedomtoexpropriate) • Rightoftransfer • ofcompensationforexpropriation - yes • Ofcurrentprofits -no Prof. Dr. Werner Meng - Europa Institut - Saarland University

  10. Compensation • Special agreements • E.g. „Lump sumagreements“ • „Just compensation“ (HagueArbitral Court, NorwegianShipowners, 1922) • Completerestitutionofthestatus quo ante • Only due in caseof illegal expropriation!! • „Justeindemnité“ – (Max Huber, British Property in SpanishMorocco (RIAA II, 731), 1925) • „Just compensation“ (Restatement Third, 1987) • „Adequate, prompt andeffective“ (Hull formula, 1938) • Appropriate (Dolzer EPIL, UN Res. 1803) • Full, prompt andeffective Prof. Dr. Werner Meng - Europa Institut - Saarland University

  11. MatterstobeRegulatedby Investment Law • National Law • Restrictedbygeneralcustomary International Law • Legal rulesrelatingtoaliens • Boundoraddedby multilateral Public International Treaty Law • Material guarantees (MIGA, WTO GATS and WTO TRIMS) • Legal protection (ICSID) • Human rightsprotection • Regional law (NAFTA, Energy Charter Treaty etc.) • Boundby bilateral treaties • Comprehensiverules on all threeregulatingphases • BITs andinvestmentprotectiontreaties Prof. Dr. Werner Meng - Europa Institut - Saarland University

  12. Matterstoberegulated Prof. Dr. Werner Meng - Europa Institut - Saarland University

  13. Substantive Legal Framework • PIL: • admission, treatment, lawfulnessofexpropriations • Special regulations • Law relatingtoaliens • Human rights • Conflict of laws (Private international law): recognition of expropriations Prof. Dr. Werner Meng - Europa Institut - Saarland University

  14. RegulatingPhases • Acquisitionphase • Conditionsofadmission • See GATS, asfarasapplicable • Newer BITS ofthe USA and NAFTA: righttoaccessto national markets, ifthisis not excluded • Certaintensionrelatingtopublicregulatorygoals • Investment phase (in itsclassicalmeaning) • Framework conditions • Post - investmentphase • Investment protection • Expropriation • Expropriation-likemeasures („statutorytakings“) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  15. InternationalizedTreatiesof States with Investors • In particular, explorationandexploitationtreaties in theraw material sector • Concepts • internationalization as a persistantguarantee: exemption from the national law of the host state, from arbitrariness • Attributionto PIL, quasi-PIL, law sui generis? • General Assembly resolution 1803 (XVII) of 14 December 1962, "Permanent sovereignty over natural resources“: • 3. In cases where authorization is granted, the capital imported and the earnings on that capital shall be governed by the terms thereof, by the national legislation in force, and by international law. The profits derived must be shared in the proportions freely agreed upon, in each case, between the investors and the recipient State, due care being taken to ensure that there is no impairment, for any reason, of that State's sovereignty over its natural wealth and resources. • Loss of importancewhenthe ICSID was created Prof. Dr. Werner Meng - Europa Institut - Saarland University

  16. Cases on internationalized Agreements • SerbianLoans Case (PCIJ Ser. A 20/21, 1929) • Agreements between private personsandstatescannotbepart of PIL. • Anglo-IranianOil Company (ICJRep. 1981, 98) • Subsumption under PIL refused (112): „The Court cannot accept the view that the contract signed between the Iranian Government and the Anglo-Persian Oil Company has a double character. It is nothing more than a concessionary contract between a government and a foreign corporation.” • Rooting the Agreements in PIL in order to protect them from subsequent intervention of the host state in the agreement • ARAMCO Case • LibyanCrudeOil - Cases • Texaco / Calasiatic Case • British Petroleum Case • AminoilCase Prof. Dr. Werner Meng - Europa Institut - Saarland University

  17. Approaches of Regulation throughTreaties • Multilateral regulations • Havanna Charter (failed in 1947) • OECD attempts (failed) • MAI (OECD) failed in 1998 • ECT (Energy Charter Treaty) • NAFTA Chapter 11 • MIGA (World Bank) • TRIMs and GATS (WTO) ICSID (World Bank) 1965 • Bilateral: BITS /Investment ProtectionAgreements Prof. Dr. Werner Meng - Europa Institut - Saarland University

  18. Bilateral Investment Treaties (BITs) • 1959: BIT Germany – Pakistan (i.f. 1962) todayabout 130 • Other European States followed • 1969 Italy – Chad: firstISDS (Investor – State disputesettlement) • 1977 first BIT ofthe USA (todayabout 50) • Indiacloseto 100, China morethan 130 • More than 1300 of EU Member States • Developed – Developing, but also withinthetwogroups. • Isolated – Combined (FTA, e.g. TTIP)

  19. Bilateral vs. Multilateral • Particularly DCs prefer BITs • Isthereanyadvantagetothem? • Wouldn‘ttheybebetter off with multinational conventions? • Do developed countries need BITs or multinational agreements • Likethe ECT (Energy Charter Treaty) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  20. Development of Investment Law • Multilateral rules? • BITs (model BITs in some countries) • Consistency ? • Clarity? • Arbitraljurisprudence? Prof. Dr. Werner Meng - Europa Institut - Saarland University

  21. Layers of Laws regulating International investment Prof. Dr. Werner Meng - Europa Institut - Saarland University

  22. PIL in general • Potentially bound:subjects of PIL • Sources • Treaties • Customary Law • General Principlesof Law • Multilateral, Regional, Bilateral • What about state sovereignty? • Protected • Restricted / Conditioned Prof. Dr. Werner Meng - Europa Institut - Saarland University

  23. PIL Treaty Law • Multilateral – Bilateral • Interpretation (Vienna Convention on the law of treaties): Art. 31 (General Rules), 32 (Supplementary Rules), 33 (Language Diversity) • Authenticinterpretation (NAFTAs Free Trade Commission) • International adjudication – Precedents? Cour of Appeals? • BITs: Definitions, Standards in substance (like e.g. FET), Rules on Dispute Settlement (state-stateorstate-investor) • No binding without consent • Iuscogens? (Peremptory Law?) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  24. Bilateral Agreements • FCN treaties of the USA • BITs ofthe USA (40 in force, 7 signed, asof 2009) • Newer BITs includeaccessionrightstotheinternalinvestmentmarket • Investment promotionagreements • IPAs of the FRG (130 in force, 8 signed, as of July, 2010) • First IPA (investment protection agreement)concluded with Pakistan in 1959 • German Model Treaty as of 2005 (Archiv des Völkerrechts45 [2007], 276 ff.) • Phase 1 withdutytoendeavor, phases 2 and 3 withstrict legal duties: fairness, national treatment, mostfavoredprinciple, compensation • Dispute settlement • State - state • Investor - State (ISDS, oftenthrough or byICSID) • Rules arediffering, dependent on thenegotiating power Prof. Dr. Werner Meng - Europa Institut - Saarland University

  25. Regional Agreements • NAFTA chapter 11 • 1122 referring to ICSID (and its Additional Facility) • CAFTA-DR chapter 10 • Similarto NAFTA • MercosurProtocol of Colonia (1994) • Similarto NAFTA • ASEAN • Non-discrimination • Supplementaryagreementof 1987: protectionfromexpropriationandinvestor-statedisputesettlement • Energy Charter Treaty 1994 • Investment andtradewithenergyproducts • European states, CIS states, Japan, (Russiaand Belarus uptonowonlysignatories, provisionalapplication) • Discriminationprohibitionisonly a dutytoendeavor • Expropriation rules • Investor-statedisputesettlement (e.g. ICSID, article 26) • Comp.Vattenfall versus BRD - ICSID ARB/099/6 Prof. Dr. Werner Meng - Europa Institut - Saarland University

  26. OECD Activities • Codes • Liberalizationofcapitalmovements • Liberalizationofthe international trade in services • Decisionsofthe Ministerial Council • Article 5 • “In order to achieve its aims, the Organisation may: • (a) take decisions which, except as otherwise provided, shall be binding on all the Members; …” • Noprotectionfromexpropriation • MIA (Multilateral Investment Agreement) • fruitlessnegotiations on a multilateral agreement in theframeof OECD • noagreement on marketaccessrights (amongothers) • fruitlessattemptstoreintroduce such negotiations in the WTO Doha Round (failed in Cancún in 2003) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  27. Multilateral Treaties - 1 • WTO • TRIMS • Localcontent / localperformancerequirement • Referringtoarticle III and XI GATT • GATS • Mode 3 (commercialpresence in thestatewheretheserviceisrendered) • Most favorednationprinciple (II.1) and national treatment (XVII) • Market access (XVI), asfarasgranted • no real protectionfromexpropriation, but non-violationcomplaint after XXIII.3 possible • TRIPS • commercialpropertyrights, but noprotectionfromexpropriation Prof. Dr. Werner Meng - Europa Institut - Saarland University

  28. Multilateral Treaties - 2 • World Bank • ICSID • International Convention on the settlement of investmentdisputes (1965) • Conciliationcommissions/arbitrationcourtsforinvestor-state-disputes • institutionoforgans, rulesofprocedure, implementation • 144 Member States, 168 procedures (102 since 2000) • Additional Facility (1974) (non-Member States / investorsof non-Member States) • MIGA (1985) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  29. EU Competences Article 207 TFEU 1. „The commoncommercialpolicyshallbebased on uniform principles, particularlywithregardto ... foreigndirectinvestment, ... The commoncommercialpolicyshallbeconducted in thecontextoftheprinciplesandobjectivesoftheUnion‘sexternalaction.“ • Exclusivecompetence, seearticle 3.1 e) TFEU • Regulations in accordancewiththeordinary legislative procedure (2) • Agreements concludedaccording toarticle 218. Council authorizescommissiontonegotiate. Assisted by a special committeeappointed by the Council (3) • (4)qualifiedmajorityfornegotiationandconclusion, unanimouslyonlywhereunanimitywould also berequiredfortheadoptionofinternalrules (4) Prof. Dr. Werner Meng - Europa Institut - Saarland University

  30. OlderTreatiesbetween States • Article 351TFEU • The rightsanddutiesfrommorethan 1,200 BITs ofthe Member States are not affectedbytheprovisionsofthetreaty, but incompatibilitieshavetobeeliminated. • Article 64.1 • Old provisionsmaypersistuntil a fixeddate. • ECJ 3.3.2009 – C-249/06, COM. v. Swedenand C-205/06, COM. v. Austria • Investment protectiontreatiesof Members includeunconditionaltransferrights (andcorrespondingdutiesofthestates) • Article 64.2, 66 and 75 TFEU containtherightsofthe Council toimmediatelyrestrictthemovementofcapitalwithregardtothirdstates. • generalrestrictionsorshort-termsafeguardmeasures • measuresagainstthefinanceofterrorism • Inherentconflictsmay not onlybeeliminatedwhen a concretecasearises • nodirecteffect • negotiationstaketoolong • suspensionorcancellationtoo „insecure“ (??) • Therefore, mandatory adaptation in cooperation with other Member States Prof. Dr. Werner Meng - Europa Institut - Saarland University

  31. Internal oldtreatiesbetween EU Member States • Article 351 is not applicableinternally, not even in an analogousmeaning • Protectionofthirdstatesonly • Collision orparallelism with single market rules? • Admission andtreatment: ratheryes • investor – state – disputesettlement: no • CollisionwiththeECJ‘scompetencetogive a final interpretation? • As faras European Law haspriority, courtsofarbitrationhavetoapply European law. • Righttojudicialreference? • Permanent jurisdiction? • Of a Member State? • So far ECJ: no 👎 Prof. Dr. Werner Meng - Europa Institut - Saarland University

  32. Abolishing former internal treaties? • Between the MS without problem (priority of Union Law!) • Substantive rights of privates: to be terminated according to the rules of treaty law,if they go beyond Union Law • But: vested right of the private partner to have access to ISDS ? Prof. Dr. Werner Meng - Europa Institut - Saarland University

  33. Investment ProtectionPolicy in the EU • Proposalof a regulationfor a transitionalrule (July 2010) COM(2010)344 final • Authorization • for a provisionalcontinuationof national rules, wherenecessarywithadaptations • revocable, ifnecessary • tomodifyexisting national BITs andrenegotiatetreatiesofmerely national importance • Start of a developmenttowards a gradual Europeanisationofinvestmentprotection • Communication of 7.7.2010 COM(2010)343 final Prof. Dr. Werner Meng - Europa Institut - Saarland University

  34. Framework Conditions • Economic: „Investment climate“ • Need • Expectedadvantages: technology, management, marketaccess • Reservations • Legal • Regulation ofrightsandduties in theinvestmentphase in its sense proper • National treatment, but minimum standard of the law relating to aliens as lowest limit • Special rulesforforeigners • Transfer ofprofits • Joint ventures • Standards ofbehaviorfor MNUs /TNUs Prof. Dr. Werner Meng - Europa Institut - Saarland University

  35. Legal Relations in Investment Law investor diplomaticprotection guarantee subrogation home state Investment Contract • claimbefore a national courtortribunal • ICSID/arbitration Investment Treaty diplomaticprotection subrogatedrights investmentprotectionagreement legal protection investmentstate Prof. Dr. Werner Meng - Europa Institut - Saarland University

  36. RightsandObligations, Interests • Investment staterights / obligations /Interests • Home staterights / obligations/ interests • Investor rights / obligations / interests • Risk (political) • Configurationoftheinvestmentcontract • Shiftofthenegotiationposition? • Conformitywithlocallaw?

  37. Dutiesof Investors - 1 • OECD Guidelines for Multinational Enterprises (1976) • Labor rights (compare also theTripartiteDeclarationof ILO of 1977) • Contributiontothedevelopmentofthehostcountry • UNCTAD Set of Principles and Rules for the Control of Restrictive Business Practices (1980) • against cartels and abuse of market power • UN Norms on Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, U.N. Doc. E/CN.4/Sub.2/2002/13 at 15-21 (2002) • Human rights – to be respected • Not binding Prof. Dr. Werner Meng - Europa Institut - Saarland University

  38. Dutiesof Investors - 2 • Global Compact (2000) • Initiative by SG Kofi Annan • voluntaryself-binding initiative bymorethan 2000 companies, based on 10 principles • protectionof human rights, ofcorelaborrights, theenvironmentandfightagainst all formsofcorruption • Not legallybinding, but influence on publicopinion • Negative, ifoffensesbecomeknown? • „EquatorPrinciples“ for larger Banks Prof. Dr. Werner Meng - Europa Institut - Saarland University

  39. ELSI Case (ICJ Rep. 1989, 15) • Raytheonfactory (USA) closed in Italy • The Palermo mayorconfiscatesthefactory– occupiedbyworkers– productioniscontinued • FCN Treaty USA – I • V.1: minimumstandard: mostconstantprotectionandsecurityfortheirpersonsandproperty • V.3: Most favorednationprincipleand national treatment (but not lessthantheminimumstandard) • V.1 does not protectfromconfiscationorinfringementofpropertyrights • Localremediesruleprevailsdiplomaticprotection • The factoryremainedsafe, undamagedandprotectedbythestate • In concrete, the US company was not treatedworsethanItaliancompanies. • I.e.: confiscation was forprotectionoftheinvestment! Strikes andoccupationsarethe normal riskof an entrepreneur Prof. Dr. Werner Meng - Europa Institut - Saarland University

  40. Problems oftakingproperty • State intervention in private property • Takingorrestrictionoftherighttodisposeoftheproperty? • Taking: ELSI case • Takinglawful? • Eminent Domain – Sovereignrighttoexpropriate • But onlyforpublicpurposes, non-discriminatoryandwithpaymentofcompensation • Human rightsprotection (where existent) equivalenttotheminimumstandardofthelawofaliensandtheprotectionbyinvestmenttreaties (FCN treaties, BITs, regional orsectoralrules) • Restriction • Measuretantamounttoexpropriation? (statutorytaking) • Compensationnecessary • Measurejustifiedbylawfulregulatorypurposes (likepublicsecurityandorder) • Nocompensation Prof. Dr. Werner Meng - Europa Institut - Saarland University

  41. Recognition • Actof State doctrine • USA, GB: separationofpowers • The courtsofonecountry will not sit in judgement on theactsofanothercountry, donewithinitsownterritory (Underhill v. Fernandez 168 U.S. 250 (1897)) • Hickenlooperamendment (1962): non-recognition not to be applied on expropriations, unless the US government requires so • No PIL • Customary International Law • Noobligationtorecognize • Disputed, asfarasithasbeenexecuted on theterritory (prohibitionofintervention?) • Rumasacase (CA London) onlyconflictoflaws • Some German casesas well • noobligation not torecognizeexpropriationsthathaveviolated PIL Prof. Dr. Werner Meng - Europa Institut - Saarland University

  42. Conflictoflaws, recognitionofforeignexpropriations. • Recognition issolely a matter of national law • Differencestobeconsidered • Takingcompleted in theforeignstate • Nationalityoftheformerowners? • Applicationtogoodsandcapitalabroad • In the state of judgement? • In third states? Prof. Dr. Werner Meng - Europa Institut - Saarland University

  43. Human rightsprotection • Human rightsprotection • Article17 General Declaration on Human Rights 1948 • Article 11 and 15 International Covenant on Economic, Social and Cultural Rights 1966 • Article 1 1.Additional Protocol of theConvention for the Protection of Human Rights and Fundamental Freedoms • Article 21 American Convention on Human Rights • Article 14 African Charter of Human Rights Prof. Dr. Werner Meng - Europa Institut - Saarland University

  44. Article 17 Universal Declaration of Human Rights • 1 Everyone has the right to own property alone as well as in association with others. • 2 No one shall be arbitrarily deprived of his property. Prof. Dr. Werner Meng - Europa Institut - Saarland University

  45. Article 11 International Covenant on Economic, Social and Cultural Rights • 1. The States Parties to the present Covenant recognize the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions. The States Parties will take appropriate steps to ensure the realization of this right, recognizing to this effect the essential importance of international co-operation based on free consent. Prof. Dr. Werner Meng - Europa Institut - Saarland University

  46. Article 15 International Covenant on Economic, Social and Cultural Rights – IPR-Rights • 1. The States Parties to the present Covenant recognize the right of everyone: • … • (c) To benefit from the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author. • 2. The steps to be taken by the States Parties to the present Covenant to achieve the full realization of this right shall include those necessary for the conservation, the development and the diffusion of science and culture. • ... • See alreadyArticle 17.2 of the Universal Declaration of Human Rights 1948 Prof. Dr. Werner Meng - Europa Institut - Saarland University

  47. Article 1 of 1st addtionalprotocoltothe ECHR • Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. • The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. Prof. Dr. Werner Meng - Europa Institut - Saarland University

  48. Article 21 ACHR Prof. Dr. Werner Meng - Europa Institut - Saarland University

  49. Article 14 African Charter on Human and Peoples' Rights • Article 14 The right to property shall be guaranteed. It may only be encroached upon in the interest of public need or in the general interest of the community and in accordance with the provisions of appropriate laws. Prof. Dr. Werner Meng - Europa Institut - Saarland University

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