(International) Investment (International) Investment law – questionslaw – questions

Main questions of (investment) law / investment regime:Main questions of (investment) law / investment regime:

Requirements for foreign investment, treatment of foreign Requirements for foreign investment, treatment of foreign investors, protection against expropriation incl. dispute resolution investors, protection against expropriation incl. dispute resolution mechanismmechanism

Financing of investmentsFinancing of investments

Responsibilities of investorsResponsibilities of investors

Investment lawInvestment law- sources- sources

Sources for rules on foreign investment:Sources for rules on foreign investment:- National lawNational law- International Investment Agreements (IIAs), either (mostly) International Investment Agreements (IIAs), either (mostly)

Bilateral Investment Treaties (BIT) (s. infra) or Multilateral treaties Bilateral Investment Treaties (BIT) (s. infra) or Multilateral treaties (regional, sectorial, TRIMS, world bank treaties) (s. infra)(regional, sectorial, TRIMS, world bank treaties) (s. infra)

- Customary international law, esp. concerning protection in case of Customary international law, esp. concerning protection in case of expropriation (s. infra)expropriation (s. infra)

International investment contracts, i.e. contracts between investor International investment contracts, i.e. contracts between investor and host country, s. next slideand host country, s. next slide

Problems of applicable lawProblems of applicable law Why may domestic law (of the host state) be problematic ? Why may domestic law (of the host state) be problematic ? - protectionism: obligation to buy in the guest country (performance protectionism: obligation to buy in the guest country (performance

obligations, infra); restrictions on import / export, restrictions on obligations, infra); restrictions on import / export, restrictions on transferring (expatriating) profit , …transferring (expatriating) profit , …

- using sovereignty, eg limited protection against expropriationusing sovereignty, eg limited protection against expropriation- sometimes also reverse discrimination of nationals, privileges for sometimes also reverse discrimination of nationals, privileges for

foreign investorsforeign investors

TRIMS 1994: only trade related aspects of investments:TRIMS 1994: only trade related aspects of investments:- Prohibition of quantitative measures and measures with similar Prohibition of quantitative measures and measures with similar

effect effect - Principle of national treatment of foreign investment legaly Principle of national treatment of foreign investment legaly

‘enteed’‘enteed’

Problems of applicable lawProblems of applicable law

Can international investment contracts help ?Can international investment contracts help ? i.e. contracts between investor and host countryi.e. contracts between investor and host country Contain eg stabilisation clauses (compare infra in BIT)Contain eg stabilisation clauses (compare infra in BIT) Effectiveness against host country depends on applicable law and Effectiveness against host country depends on applicable law and

competent jurisdictioncompetent jurisdiction- Applicable law: domestic law or international public law ? Applicable law: domestic law or international public law ? quasi-quasi-

international law ?international law ?- Dispute resolution mechanism ? most effective is application of Dispute resolution mechanism ? most effective is application of

international public law and international arbitrationinternational public law and international arbitration

Protection ag. expropriationProtection ag. expropriation Esp. protection against expropriation Esp. protection against expropriation

Types of expropriation: Types of expropriation: - individual expropriation s.s. (public interest + individual expropriation s.s. (public interest +

compensation); compensation); - collective nationalisation; collective nationalisation; - confiscation; confiscation; - creeping expropriation or quasi-expropriation creeping expropriation or quasi-expropriation

(disproportionate burdens or restrictions) (disproportionate burdens or restrictions) - (lot of disputes as to what amounts to expropriation)(lot of disputes as to what amounts to expropriation) Expropriation and international law ?Expropriation and international law ?- in European countries: 1st Protocol to the ECHR in European countries: 1st Protocol to the ECHR - rules of customary public international law ? Next 2 slidesrules of customary public international law ? Next 2 slides

Protection ag. expropriationProtection ag. expropriation

Traditional customary public international law has as rules Traditional customary public international law has as rules & conditions for expropriation: & conditions for expropriation:

-- No general prohibition No general prohibition - Allowed only in the public interest (but interpreted thus that Allowed only in the public interest (but interpreted thus that

poliical purposes are not excluded) poliical purposes are not excluded) - No discrimination of foreigners (unless required for national No discrimination of foreigners (unless required for national

security) security) - Effective Prompt Appropriate Compensation (Hull-formula) Effective Prompt Appropriate Compensation (Hull-formula)

(i.e. quick, in convertable and exportable currency, full (i.e. quick, in convertable and exportable currency, full value) value)

- Due process of law (procedural protection)Due process of law (procedural protection)

Protection ag. expropriationProtection ag. expropriation Traditional customary public international law questioned:Traditional customary public international law questioned: by the USSR 1917, Latin Am. (Calvo doctrine), developing countries, ….by the USSR 1917, Latin Am. (Calvo doctrine), developing countries, ….

UN-Resolution no. 1803 from 1962: stresses permanent sovereignty UN-Resolution no. 1803 from 1962: stresses permanent sovereignty over natural resources of every state (host state for investments)over natural resources of every state (host state for investments)

A more radical « Charter of economic rights and duties of States » in A more radical « Charter of economic rights and duties of States » in 1974 (« new economic order »):1974 (« new economic order »):

- NEO-Charter proposed to extend the sovereignty to include all NEO-Charter proposed to extend the sovereignty to include all economic activities, does not require « public interest », grants only economic activities, does not require « public interest », grants only « reasonable » compensation, refuses international procedural « reasonable » compensation, refuses international procedural control, etc.control, etc.

- Such expropriations will however not be recognised by other Such expropriations will however not be recognised by other countriescountries

- Thus not accepted as customary law, meanwhile slipped into oblivion Thus not accepted as customary law, meanwhile slipped into oblivion (Reaction after 1974’s: BIT’s)(Reaction after 1974’s: BIT’s)

Investment treatiesInvestment treaties Uncertainty about the customary international public law Uncertainty about the customary international public law

creates need for treaties creates need for treaties

Next slides: multilateral treaties; bilateral treatiesNext slides: multilateral treaties; bilateral treaties

Foundation of 2 new institutions under the world bank:Foundation of 2 new institutions under the world bank:-- ICSID 1965ICSID 1965-- MIGA 1985MIGA 1985

Bilateral Inv. Treaties (BIT)Bilateral Inv. Treaties (BIT)

Bilateral investment treaties (BIT) (also known as Foreign Bilateral investment treaties (BIT) (also known as Foreign Investment Promotion and Protection Agreements, FIPAs)Investment Promotion and Protection Agreements, FIPAs)

BIT’s in response to the NEO-CharterBIT’s in response to the NEO-Charter- Starting in 1959 with Germany-Pakistan- Starting in 1959 with Germany-Pakistan almost 3000 BIT’s (57 with Belgium, ca. 130 with Germany, etc.) almost 3000 BIT’s (57 with Belgium, ca. 130 with Germany, etc.)

(more specifically end of 2013: 2857 BIT’s and 339 other (more specifically end of 2013: 2857 BIT’s and 339 other agreements with an investment dimension)agreements with an investment dimension)

Big countries have a model BITBig countries have a model BIT Sometimes followed by a larger FTA (China-Switzerland FTA 2014, Sometimes followed by a larger FTA (China-Switzerland FTA 2014,

supplementing the 2010 BIT)supplementing the 2010 BIT) Some countries are terminating their BIT’s, eg South Africa (BIT w. Some countries are terminating their BIT’s, eg South Africa (BIT w.

Benelux, Germany, Spain)(«Black Economic Empowerment »); Benelux, Germany, Spain)(«Black Economic Empowerment »); Indonesia; Bolivia & Ecuador left ICSIDIndonesia; Bolivia & Ecuador left ICSID

Others limit the scope of the dispute settlement, eg Australia Others limit the scope of the dispute settlement, eg Australia (included in 2013 safeguards in areas as public health, welfare (included in 2013 safeguards in areas as public health, welfare and environment)and environment)

BIT’sBIT’s

Bilateral Inv. Treaties (BIT)Bilateral Inv. Treaties (BIT) Fate of « Extra-EU-BIT’s » after Lisbon Treaty: Reg. 1219/2012 - EU Fate of « Extra-EU-BIT’s » after Lisbon Treaty: Reg. 1219/2012 - EU

intends to replace national extra-EU-Bits’ by common EU-BIT’s. intends to replace national extra-EU-Bits’ by common EU-BIT’s. Duty of MS’s to eliminate incompatibilitiesDuty of MS’s to eliminate incompatibilities

As it is often sufficient to invest via a company incoporated under As it is often sufficient to invest via a company incoporated under the laws of a country with a BIT, investors form third countires the laws of a country with a BIT, investors form third countires may use this indirect way.may use this indirect way.

Scope of application (usually):Scope of application (usually):- (inward) investment, usually broadly defined (FDI = foreign direct (inward) investment, usually broadly defined (FDI = foreign direct

investment)investment)- Sometimes restricted to certain investments or under certain Sometimes restricted to certain investments or under certain

conditions conditions

Multilateral Investm. Multilateral Investm. TreatiesTreaties OECD: OECD 1967 Draft Convention on the Protection of Foreign OECD: OECD 1967 Draft Convention on the Protection of Foreign

property failed; OECD-MiA failed; negotiations on a GIT in WTO failedproperty failed; OECD-MiA failed; negotiations on a GIT in WTO failed FTAs (Free Trade Agreements) contain also investment protection, as FTAs (Free Trade Agreements) contain also investment protection, as

in:in:- NAFTA Ch. 11: non-discrimination; investor chooses dispute resolution NAFTA Ch. 11: non-discrimination; investor chooses dispute resolution - MercosurMercosur- COMESA COMESA - CETA (EU / Canada Partnership, 2013), EU-Singapore FTA Oct 2014 CETA (EU / Canada Partnership, 2013), EU-Singapore FTA Oct 2014

(EUSFTA concluded, not signed yet)(EUSFTA concluded, not signed yet)- Negotiations on other FTA’s, such as TTIP and TPP (but no investment Negotiations on other FTA’s, such as TTIP and TPP (but no investment

chapter in the 2009 EU-Korea FTA)chapter in the 2009 EU-Korea FTA)- (EU: internal market as a more radical solution) (EU: internal market as a more radical solution) Other Regional IT’s, such as:Other Regional IT’s, such as:- Investments agreement of the OIC (Bagdad 1981); ASEAN Investments agreement of the OIC (Bagdad 1981); ASEAN

Comprehenisve Investment Agreement (ACIA) 2009, …Comprehenisve Investment Agreement (ACIA) 2009, … Sectorial: Energy Charter Treaty 1994, infraSectorial: Energy Charter Treaty 1994, infra Also investment aspects in Cotonou (EU / ACP), supraAlso investment aspects in Cotonou (EU / ACP), supra TRIMS, supraTRIMS, supra Codes of conduct of the World Bank, OECD, « UN Global Compact »,…Codes of conduct of the World Bank, OECD, « UN Global Compact »,… World bank related treaties, infra World bank related treaties, infra

Energy Charter Treaty Energy Charter Treaty Sectorial Multilateral investment treaties ?Sectorial Multilateral investment treaties ? Sectorial Energy Charter Treaty 1994, in force 1998Sectorial Energy Charter Treaty 1994, in force 1998- 45 countries from Europe (incl. EU itself), former Soviet U + 45 countries from Europe (incl. EU itself), former Soviet U +

Japan; (Russia withdrew in 2009; Norway and Australia did Japan; (Russia withdrew in 2009; Norway and Australia did not ratify; Italy withdraws as from Jan 1, 2016 – existign not ratify; Italy withdraws as from Jan 1, 2016 – existign investments covered for 20 years)investments covered for 20 years)

- Oil & electricity; Oil & electricity; - Concerns investment / exploitation / transport; Concerns investment / exploitation / transport; - Principle of non-discriminationPrinciple of non-discrimination- Protection against expropriation and quasi-expropriationProtection against expropriation and quasi-expropriation- Dispute resolution mechanism (arbitration) for breaches of Dispute resolution mechanism (arbitration) for breaches of

Part II ECT. Investor may choose arbitration according to Part II ECT. Investor may choose arbitration according to ICSID, Uncitral or SCC (Stockholm)ICSID, Uncitral or SCC (Stockholm)

- E.g. Procedures by E.g. Procedures by Vattenfall v. Germany Vattenfall v. Germany (i.a. decision to (i.a. decision to close nuclear plants)close nuclear plants)

- E.g. Arbitration E.g. Arbitration Youkos v. Russia Youkos v. Russia (initiated while Russia was (initiated while Russia was still bound by the ISDS)still bound by the ISDS)

Energy Charter TreatyEnergy Charter Treaty

Bilateral Inv. Treaties (BIT)Bilateral Inv. Treaties (BIT) Typical content (1)Typical content (1) Freedom to invest ? (free inflow and outflow of capital)Freedom to invest ? (free inflow and outflow of capital)- Usually not fully liberalisedUsually not fully liberalised- Usually no full national treatment, but a MFN clause + minimum Usually no full national treatment, but a MFN clause + minimum

standard of «proper & equitable» treatmentstandard of «proper & equitable» treatment- Incl. often prohibition of ‘performance requirements’ (such as Incl. often prohibition of ‘performance requirements’ (such as

requirement of « national » content of products …) (conflicts with EU requirement of « national » content of products …) (conflicts with EU quota rules)quota rules)

Protection of investments made:Protection of investments made:- Stabilisation clauses (later regulation cannot negatively affect the Stabilisation clauses (later regulation cannot negatively affect the

investment); observance clauses (later regulations not applicable); investment); observance clauses (later regulations not applicable); also called ‘umbrella clause’ (giving an umbrella to certain also called ‘umbrella clause’ (giving an umbrella to certain obligations). obligations).

Purpose: turn a contractual obligation (which can often be overruled by Purpose: turn a contractual obligation (which can often be overruled by national public law or change in legislation) into an international national public law or change in legislation) into an international obligation - validity (binding character) sometimes disputedobligation - validity (binding character) sometimes disputed

- Usually rules on protection in case of expropriation Usually rules on protection in case of expropriation - Capital transfer guarantees (free movement of capital, ‘free transfer of Capital transfer guarantees (free movement of capital, ‘free transfer of

payment’) (some conflicts with EU law)payment’) (some conflicts with EU law)

Foreign investment – Foreign investment – financing institutionsfinancing institutions

« Project financing » through international institutions« Project financing » through international institutions International lenders (financing institutions) International lenders (financing institutions) An important player is the World bank: comprises 5 An important player is the World bank: comprises 5

institutions: institutions: - IBRD (1944) (188 members): loans for projects (usually in IBRD (1944) (188 members): loans for projects (usually in

cooperation with banks) to states, with funds from member cooperation with banks) to states, with funds from member states or capital markets, short term and on interest; no flow-states or capital markets, short term and on interest; no flow-back to funding states: neutral assessment – annual reports back to funding states: neutral assessment – annual reports

- IDA (1960): advantageous loans for least developed IDA (1960): advantageous loans for least developed countries: long term, no or very low interest countries: long term, no or very low interest

- IFC (International Finance Corporation, 1956): loans or capital IFC (International Finance Corporation, 1956): loans or capital investment in private sector; technical assistance and advice investment in private sector; technical assistance and advice

- MIGA (Multilateral Investment Guarantee Agency 1985): see MIGA (Multilateral Investment Guarantee Agency 1985): see infra infra

- ICSID (1965): mediation and arbitration institution, infra.ICSID (1965): mediation and arbitration institution, infra.

IBRDIBRD

MIGAMIGA MIGA (Multilateral Investment Guarantee Agency) 1985: mainly MIGA (Multilateral Investment Guarantee Agency) 1985: mainly

covers non-commercial risks of investors from MIGA-member covers non-commercial risks of investors from MIGA-member countries in other MIGA-countries; succesful (168 members)countries in other MIGA-countries; succesful (168 members)

Coverage can be granted by MIGA after assessment of risks if:Coverage can be granted by MIGA after assessment of risks if:- An investment is made (interpreted widely)An investment is made (interpreted widely)- By an investor from a MIGA-countryBy an investor from a MIGA-country- After the granting of the guarantee (only new investments)After the granting of the guarantee (only new investments)- In a developing country, member of MIGAIn a developing country, member of MIGA-- Contributing to development Contributing to development Approval by the host country is required; usually MIGA will contract Approval by the host country is required; usually MIGA will contract

with the country to limit the riskswith the country to limit the risks Risks that can be covered: mainly 4 types: currency transfer Risks that can be covered: mainly 4 types: currency transfer

restrictions; expropriation and similar measures; breach of contract restrictions; expropriation and similar measures; breach of contract without domestic remedy; sometimes war and civil disturbance. Not: without domestic remedy; sometimes war and civil disturbance. Not: eg devaluationeg devaluation

Conditions will be specified in a contract MIGA-investor: premium to Conditions will be specified in a contract MIGA-investor: premium to be paid; uninsured percentage (usually 10 %), arbitration clause be paid; uninsured percentage (usually 10 %), arbitration clause

Disputes between MIGA-states on the Convention: submitted to Disputes between MIGA-states on the Convention: submitted to Board of MIGABoard of MIGA

Disputes MIGA - host country: negotiation; if necessary arbitrationDisputes MIGA - host country: negotiation; if necessary arbitration

Other financing institutionsOther financing institutions Other international lenders (financing institutions) Other international lenders (financing institutions) Regional development banks - often on condition of flow-Regional development banks - often on condition of flow-

back to funding countries: African DB, Asian DB (67 back to funding countries: African DB, Asian DB (67 members, strong Japanese influence), Inter-American DB, members, strong Japanese influence), Inter-American DB, new AIIB (Asian Infrastructure Investment Bank, 2014, new AIIB (Asian Infrastructure Investment Bank, 2014, strong Chinese influence)....strong Chinese influence)....EBRD (European Bank for reconstruction and Development) EBRD (European Bank for reconstruction and Development) – for Eastern Europe; 65 memebrs, capital mainly from EU – for Eastern Europe; 65 memebrs, capital mainly from EU countries, US, Canada, Japancountries, US, Canada, Japan

Investment Funds of the EU:Investment Funds of the EU:- ACP countries (Cotonou agreement): investment facilities- ACP countries (Cotonou agreement): investment facilities- EU-internal: European Investment Bank (projects for - EU-internal: European Investment Bank (projects for regional development)regional development)- European Social Fund- European Social Fund

UN-organisations, esp. UNDPUN-organisations, esp. UNDP

Responsibilities of investorsResponsibilities of investors Some elements in investment treaties, Free Trade Agreements etc. Some elements in investment treaties, Free Trade Agreements etc.

Codes of conduct of the World Bank, OECD, « UN Global Compact »,…Codes of conduct of the World Bank, OECD, « UN Global Compact »,…

Conditions imposed by financing institutionsConditions imposed by financing institutionsEsp. the performance standards of the IFC. They concern:Esp. the performance standards of the IFC. They concern:- Assessment of environmental and social risksAssessment of environmental and social risks- Labor and working conditionsLabor and working conditions- Resource efficiency and pollution preventionResource efficiency and pollution prevention- Community health, safety and securityCommunity health, safety and security- Land acquisition and involuntary resettlementLand acquisition and involuntary resettlement- Biodiversity conservation and living natural resourcesBiodiversity conservation and living natural resources- Indigenous peoplesIndigenous peoples- Cultural heritageCultural heritage

- S. also the OECD guidelines for multinational enterprisesS. also the OECD guidelines for multinational enterprises

- Reporting obligations for big companies, eg in EU Non-financial reporting Reporting obligations for big companies, eg in EU Non-financial reporting directive: report annually on social matters, human rights, ani-corruption directive: report annually on social matters, human rights, ani-corruption mesauresmesaures

Dispute resolution (in BITs)Dispute resolution (in BITs) Renegotiation clausesRenegotiation clauses Arbitration clauses:Arbitration clauses:- Arbitration may be under the ICSID rules (infra) or under Arbitration may be under the ICSID rules (infra) or under

UNCITRAL rules (see Ch. 12). UNCITRAL rules (see Ch. 12). - Sometimes subject to a national court requirement (eg UK-Sometimes subject to a national court requirement (eg UK-

Argentina BIT: first go to the Argentinian court; if no decision Argentina BIT: first go to the Argentinian court; if no decision within 18 months arbitration is open)within 18 months arbitration is open)

- The UNCITRAL rules impose a certain degree of ‘transparency’ The UNCITRAL rules impose a certain degree of ‘transparency’ (public access for third parties to hearings and documents except (public access for third parties to hearings and documents except confidential or protected information), but this applies only a) to confidential or protected information), but this applies only a) to arbitration under BIT’s concluded after April 1, 2014 or b) when arbitration under BIT’s concluded after April 1, 2014 or b) when parties agree. Under ICSID, access is much more limited parties agree. Under ICSID, access is much more limited (discretionary decision of the tribunal)(discretionary decision of the tribunal)

- 2014 UNCITRAL Draft Convention 2014 UNCITRAL Draft Convention on Transparency in treaty-based on Transparency in treaty-based investor-State arbitration (for existing BIT’s)investor-State arbitration (for existing BIT’s)

- Question whether an arbitration clause in a BIT displaces a forum Question whether an arbitration clause in a BIT displaces a forum clause in the investment contract itself: concurrent jurisdiction*, or clause in the investment contract itself: concurrent jurisdiction*, or priority of one clause over the other ? (*ICSID arb 97/3 priority of one clause over the other ? (*ICSID arb 97/3 Compania Compania de Aguas del Aconquijade Aguas del Aconquija))

ICSIDICSID

Investment treaty Investment treaty arbitrationarbitration ICSID – Convention 1965: dispute resolution procedure for ICSID – Convention 1965: dispute resolution procedure for

investment disputes investment disputes now 150 ratifications (+ 9 signatures); became much more now 150 ratifications (+ 9 signatures); became much more

important since the 1990’s. Canada ratified Nov 2013 (after important since the 1990’s. Canada ratified Nov 2013 (after solving federalism problem). Missing Russia (not ratified), i.a. solving federalism problem). Missing Russia (not ratified), i.a. India, Brazil, South Africa (not signed); Withdrawal by Ecuador, India, Brazil, South Africa (not signed); Withdrawal by Ecuador, Bolivia, Venezuela.Bolivia, Venezuela.

Scope of application:Scope of application:- only investment disputes only investment disputes - between a party to the ICSID Convention and an investor from between a party to the ICSID Convention and an investor from

another contracting party (or a local daughter company)*another contracting party (or a local daughter company)*- jurisdiction of the ICSID has been accepted in an investment jurisdiction of the ICSID has been accepted in an investment

contract, domestic law, BIT or contract, domestic law, BIT or ad hocad hoc- ICSID organises the procedure, does not settle the dispute itselfICSID organises the procedure, does not settle the dispute itself- conciliation procedure (not succesful)conciliation procedure (not succesful)- arbitration procedurearbitration procedure- no «seat»; annulment procedure organised by ICSI itselfno «seat»; annulment procedure organised by ICSI itself* Dispute whether still possible under intra-EU BIT’s (according to EU * Dispute whether still possible under intra-EU BIT’s (according to EU

Commission, contrary to 344 TFEU; not according to Frankfurt Commission, contrary to 344 TFEU; not according to Frankfurt Court)Court)

Investment treaty Investment treaty arbitrationarbitration Advantages of ICSID –ArbitrationAdvantages of ICSID –Arbitration

If a choice of law was made in the contract, the arbitrators must apply that If a choice of law was made in the contract, the arbitrators must apply that lawlaw

But national law can be set aside if contrary to public international law (art. 42 But national law can be set aside if contrary to public international law (art. 42 ICSID)ICSID)

Arbitral award can be set aside only by ICSID itself, not by a national court; Arbitral award can be set aside only by ICSID itself, not by a national court; limited grounds for annulmentlimited grounds for annulment

Exclusive jurisdiction; national courts lose jurisdiction; no immunity of Exclusive jurisdiction; national courts lose jurisdiction; no immunity of jurisdiction for ICSID states before ICSIDjurisdiction for ICSID states before ICSID

Member states recognise the awards as binding and guarantee the Member states recognise the awards as binding and guarantee the enforcement within their territory; nevertheless enforcing often remains enforcement within their territory; nevertheless enforcing often remains difficultdifficult

« Additional facility »: ICSID assistance in cases out of the scope of application « Additional facility »: ICSID assistance in cases out of the scope of application of the Convention (eg investor not a national of an ICSID State) (but awards of the Convention (eg investor not a national of an ICSID State) (but awards are then not falling under the ICSID Convention bu unde rthe NY Convention are then not falling under the ICSID Convention bu unde rthe NY Convention or arbitration)or arbitration)

Awards are published in annual ReportsAwards are published in annual Reports Criticism: no guarantees for fair trial & impartiality, no public character*, no Criticism: no guarantees for fair trial & impartiality, no public character*, no

guarantee of consistent interpretation by a single tribunal, etc…guarantee of consistent interpretation by a single tribunal, etc… * unless Uncitral Transparency rules apply* unless Uncitral Transparency rules apply