Short courses for Permanent Missions in Geneva
Thursday 3 December 2009
Recent trends and developments in
international investment rulemaking
Anna Joubin-Bret, Senior legal Advisor
Hamed El-Kady, Expert, international investment policies
Work Programme
on International Investment Agreements
United Nations Conference on Trade and Development
Geneva, 3 December 2009
PRESENTATION
I.
The international frameworks on
investment
II.
Trends in international investment
agreements
III. Key characteristics and trends in
investor-State disputes
2
I.
The international
framework on
investment
3
Evolving trends
of FDI policies

Some 20 years ago, many countries had
reservations as regards FDI and excluded or
restricted its inflow;

Today, every single country seeks to attract
FDI, in many cases not only at the national
level but also, and independently so, at
various sub-national levels;

Typically, these efforts to attract FDI take three
forms: liberalization, protection and
promotion.
4
Objectives of the legal
investment framework
Standards of treatment
& protection
Restrictions
establishment
- Ownership and
control
- Operational
restrictions
- Authorization and
reporting
Etc..
•Transparency
•Treatment
(NT, MFN, FET)
•Expropriation &
compensation
•Transfer of funds
BUILDING
REDUCING
- Entry and
•Dispute settlement
•Etc.
These objectives can be achieved through:
•National policies
• Investment contracts/State contracts
• International investment agreements (IIAs)
5
Legal framework for investment:
Hierarchy of norms
 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 (OECD, APEC) and sectoral
agreements (Energy Charter)
 Multilateral disciplines and specific agreements
(WTO GATS, TRIMs, TRIPs; ICSID, NY
6
Convention, MIGA)
Changes in national FDI policies
National policy changes towards FDI
100%
90%
80%
70%
60%
50%
82.0
94.0
92.0
5.0
6.0
8.0
1993-1996
1997-2000
2001-2004
95.0
40%
30%
20%
10%
0%
18.0
Less favourable
2005-2008
More favourable
Source: WIR 2006
An investment legal framework always more favorable
7
But the number of modifications less favorable is increasing
Investment contracts



State contracts and investment agreements
between individual investors and the host
State set rules, rights and obligations for
both parties
Focus on a specific investment project
Possible conflict between the provisions of
a contract and the provisions of a treaty
(umbrella effect of the treaty)
8
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 - strengthen the enabling framework for FDI
(promotion, protection, liberalization)
 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)
9
Impact of IIAs on FDI flows? Diverging views
The international framework for investment
BITs/IIAs have several possible objectives:
Promotion
Protection
Liberalization
US-CAN-JAP BITS
FTAS
NAFTA
10
A great number of 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 and FET
•Guarantees and compensation in respect of
expropriation
•Transfer of funds and repatriation of capital and
profits
•Operation conditions
•Dispute settlement, both State-State and
investor-State
…but the concrete way in which
they are addressed
12
differs substantially
11
II. Trends in international
investment agreements
12
The network of BITs continues to
grow rapidly, there are now over
2500 BITs
200
3000
180
2500
160
140
2000
120
100
1500
80
1000
60
40
500
20
0
0
1999
2000
2001
2002
BITs Annual
2003
2004
2005
2006
2007
2008
BITs cumulative
13
BITs concluded by country group,
mid-2009
4%
13%
25%
8%
10%
40%
Betw een developing countries
Betw een developed and developing countries
Betw een developing countries and countries of SEE&CIS
Betw een developed countries
Betw een developed and countries of SEE&CIS
Betw een countries of SEE&CIS
14
The top ten signatories of BITs in the
world, mid-2009
Germ any
China
Sw itzerland
United Kingdom
Egypt
Italy
France
Netherlands
Belgium and Luxem bourg
Korea, Republic of
0
20
40
60
80
100
120
140
160
15
New generation of BITs:
Increasingly sophisticated and complex

United States and Canadian model BITs (2004)

Tend to be increasingly sophisticated in content

Clarifying in greater detail the meaning of a number of
standard clauses

Putting more emphasis on the protection of national
security, health, safety, the environment, and labour
rights
16
Free Trade Agreements with
Investment Chapters
 International investment rules are increasingly being
formulated as part of agreements that encompass a
broader range of issues (including trade, services,
competition, intellectual property)
 Regional integration with investment disciplines:
ASEAN investment liberalization and protection
 The total number of such economic agreements with
investment provisions exceeded 287, as of end 2009
17
Over 280 trade agreements with
investment provisions by November
2009
Number of IIAs (other than BITs and DTTs)
350
300
250
200
150
100
50
0
1957 – 1967
1968 – 1978
By period
1979 – 1989
1990 – 2000
2001 – 2009
Cumulative
18
Trade agreements with investment
provisions by country group, end
2009
8%
39%
36%
2%
5%
10%
South-South
North-North
North-South
North-transition economies
Transition economies-transition economies
South-transition economies
19
Multiple overlapping FTAs with
investment provisions
• IIAs proliferate at all levels
•Constituting a complex system of multi-layered and
multi-faceted investment rules
20
Recent trends: re-negotiation

Re-negotiation of « old » treaties

BITs vs. investment chapters in FTAs
21
South-South cooperation:
Active participation of developing
countries in IIAs

Many developing countries are active participants in the
process of concluding IIAs

The total number of BITs between developing countries leaped
from 47 in 1990 to over 700 by the end of 2009.

By end 2009, over 100 of economic cooperation agreements
with investment provisions among developing countries had
been signed

Some developing countries are today both capital importing
and exporting (both home and host) - twin objectives:
investment attraction and investment protection
22
III. Key characteristics and
trends in investor-State
dispute settlement
23
Differences between two types of
dispute settlement systems




DSU under WTO
No access of private
parties to DSU.
No award of damages.
Bring the measure into
conformity with WTO.
Affected Member can
resort only to the
remedies available under
DSU.




Investor-to-State
Direct access to
international arbitration.
Monetary compensation.
No requirement to
change policies.
If non-compliance: home
State can resort to interState procedures or to
international law
remedies.
24
Types of investment dispute
settlement



State-to-State: the settlement of disputes between State
parties to the Agreement. (e.g. investment agreements; the
WTO Dispute Settlement Body).
Investor-to-State: allows private investors to submit claims
against a host State to international arbitration
(eg. BITs and many FTAs).
Most IIAs contain both types of mechanisms.
25
Two reasons to use State-State
1.
2.
Exercise of diplomatic protection
Dispute over the interpretation or application of
an investment treaty.
26
What’s in State-to-State provisions
•
•
•
•
Consultations and negotiations (time-period).
Ad-hoc arbitration.
Constitution of tribunal (standard).
Applicable law (not always specified): provisions of the IIA
and rules and principles of international law.
• Arbitral award: final and binding.
• Most IIAs are silent on the nature of remedies to be awarded
by tribunals and on the implementation of arbitral awards.
• Costs.
27
Investor-to-State
• Consultations and negotiations (time-period).
• Most IIAs do not require exhaustion of local remedies.
• In some, resort to local courts precludes subsequent submission
to international arbitration.
• Direct resort to international arbitration (institutional or ad hoc):
 ICSID Convention
 ICC or the Stockholm Chamber of Commerce
 UNCITRAL Arbitration Rules
28
Investor-to-State
• Constitution of tribunal (as per arbitral rules).
• Applicable law: IIA’s provisions; law of the host-State; investment
contract, rules of international law.
ICSID Convention (Article 42): absent agreement between
parties, the tribunal shall apply the law of the host State and the
applicable rules of international law.
• Arbitral awards: final and binding, but require exequatur (except in
the case of ICSID awards).
ICSID Members shall recognize and enforce the awards in their
territory as if they were final judgements of a State court.
29
WTO dispute settlement
•
•
•
•
Consultations (60 days).
Establishment of a panel (3 experts).
Final panel report (within 6 months).
Adoption of report (60 days) unless DSB rejects it by consensus
or one of the parties appeals it.
• Appellate Review (60 days); adoption of report (30 days).
• Bring the measure into conformity with the agreement within a
“reasonable period of time” (15 months)”; if not:
compensation (eg. tariff reductions).
suspension of concessions (cross-retaliation).
30
Access to dispute settlement


WTO DSU: only Member States can initiate
proceedings under the DSU. Nongovernmental bodies do not have direct access
to the system.
Investor-to-State: investors may submit a
dispute with a host State to an international
tribunal, without having to resort to the
diplomatic protection of their home State.
31
Access to dispute settlement
•Investors in services act as the pivotal link between
“investment law” and “trade law”.
•Services companies can either pursue a remedy under:
- the WTO General Agreement on Trade in
Services (GATS).
- ISDS.
32
Types of legal remedies


DSU:
 bring the measure into conformity with WTO
rules.
 no award of damages.
 appellate review.
Investor-to-State:
 monetary compensation or restitution in kind.
 no requirement to modify laws or policies.
 review or annulment of the award (eg.
irregularities in the procedure).
33
Implementation and enforcement


DSU:
 immediately or within “a reasonable period of time”.
 compensation or suspension of equivalent concessions.
 only DSU remedies authorized. No unilateral sanctions.
Investor-to-State:
 reference to international conventions for the
enforcement of awards (New York Convention, ICSID).
 non-compliance: home State can bring a claim under the
IIA’s State-to-State procedures, or
 resort to remedies provided under international law.
34
50
45
40
35
30
25
20
15
10
5
0
350
300
250
200
150
100
50
0
Cumulative number of cases
Yearly number of cases
Over 300 known ISDS cases
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20
ICSID
Non-ICSID
All cases cumulative
35
Known investment treaty claims, by
defendants
Argentine Republic
Mexico
Czech Republic
United States
Canada
Ecuador
India
Poland
Egypt
Romania
Russian Federation
0
10
20
30
40
50
Number of cases
36
Disputes by forum of arbitration,
cumulative as of November 2009
2%
25%
7%
62%
2% 2%
ICSID
Ad-hoc
ICC
SCC
UNCITRAL
Unknown
37
More clarity
More inconsistency
Definitions
Admission
MFN
National treatment
FET
Expropriation
Umbrella clause
38
ISDS mechanism gives rise to concerns







Increasing use of ISDS mechanism
High costs involved in conducting procedures
Arbitration awards can involve huge sums
Potential impact on coutry’s reputation as investment
location
Challenge to protect investment on the one hand and
to respect the legitimate right of governments to
regulate for the public interest
ISDS, being available exclusively to foreign investors,
puts domestic firms at disadvantage
Sheer technical complexity of ISDS. Concerns on the
technical capability of developing countries to handle
investment disputes that they face
39
To respond to these challenges:

UNCTAD conducts research and policy analysis in the form
of publications monitoring the latest trends and the emerging
issues in international investment rulemaking

provides analysis from a development perspective

conducts technical assistance activities aimed at deepening
the understanding of the international legal framework for
investment

building capacity in the negotiation of IIAs through regional
intensive training courses on the negotiations of IIAs

training courses on managing investment disputes
40
UNCTAD’s Work programme on
international investment agreements
Research and policy analysis:
 1st Series on issues in IIAs
(28 booklets): completed ongoing update
 2nd Series on international investment policies for
development: on-going
E-tools:
 BIT database (2,000 texts available)
 Country list of BITs
 Compendium of international investment
instruments (selection of relevant instruments and
model agreements)
 Database of investment dispute cases
 Network of IIA Experts to exchange information and
experiences (700 members)
41
IIA work programme
Technical assistance:
 The distance-learning course on key issues in
IIAs (5 modules) in 5 languages
 The regional training sessions for IIA negotiators
(including a negotiation skills workshop)
 The advanced training courses on managing
investment disputes
 National and regional seminars on IIAs (tailormade at the request of countries or regional
organizations)
 Ad hoc advisory services
 Facilitation of BIT negotiations and BIT signing
ceremonies
42
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