Short courses for Permanent Missions in GenevaShort courses for Permanent Missions in GenevaThursday 3 December 2009Thursday 3 December 2009

Recent trends and developments in Recent trends and developments in international investment rulemakinginternational investment rulemaking

Anna Joubin-Bret, Senior legal AdvisorAnna Joubin-Bret, Senior legal AdvisorHamed El-Kady, Expert, international investment policiesHamed El-Kady, Expert, international investment policies

Work ProgrammeWork Programmeon International Investment Agreementson International Investment Agreements

United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development

Geneva, 3 December 2009 Geneva, 3 December 2009

22

PRESENTATIONPRESENTATION

I.I. The international frameworks on The international frameworks on investmentinvestment

II.II. Trends in international investment Trends in international investment agreementsagreements

III.III. Key characteristics and trends in Key characteristics and trends in investor-State disputesinvestor-State disputes

33

I.I. The international The international framework on framework on

investmentinvestment

44

Evolving trendsEvolving trendsof FDI policiesof FDI policies

Some 20 years ago, many countries had Some 20 years ago, many countries had reservations as regards FDI and excluded or reservations as regards FDI and excluded or restricted its inflow;restricted its inflow;

Today, Today, every single countryevery single country seeks to attract FDI, in seeks to attract FDI, in many cases not only at the national level but also, many cases not only at the national level but also, and independently so, at various sub-national and independently so, at various sub-national levels;levels;

Typically, these efforts to attract FDI take three Typically, these efforts to attract FDI take three forms: liberalization, protection and promotion.forms: liberalization, protection and promotion.

55

Objectives of the legal Objectives of the legal investment frameworkinvestment framework

Restrictions

- Entry and establishment- Ownership and control- Operational restrictions- Authorization and reportingEtc..

Standards of treatment & protection

•Transparency

•Treatment (NT, MFN, FET)

•Expropriation & compensation

•Transfer of funds

•Dispute settlement

•Etc.

RE

DU

CIN

G

BU

ILD

ING

These objectives can be achieved through:

•National policies

• Investment contracts/State contracts

• International investment agreements (IIAs)

66

Legal framework for investment: Legal framework for investment: Hierarchy of normsHierarchy of norms

National laws and regulations, investment National laws and regulations, investment codescodes

State contracts, investment agreements, State contracts, investment agreements, stabilization agreementsstabilization agreements

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

Double taxation treaties (DTTs)Double taxation treaties (DTTs)Preferential trade and investment agreementsPreferential trade and investment agreementsRegional (OECD, APEC) and sectoral Regional (OECD, APEC) and sectoral

agreements agreements (Energy Charter)(Energy Charter)Multilateral disciplines and specific Multilateral disciplines and specific

agreements (WTO GATS, TRIMs, TRIPs; ICSID, agreements (WTO GATS, TRIMs, TRIPs; ICSID, NY Convention, MIGA)NY Convention, MIGA)

77

Changes in national Changes in national FDI policiesFDI policies

Source: WIR 2006

An investment legal framework always more favorableAn investment legal framework always more favorableBut the number of modifications less favorable is increasingBut the number of modifications less favorable is increasing

National policy changes towards FDI

5.0 6.0 8.018.0

95.0 94.0 92.082.0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1993-1996 1997-2000 2001-2004 2005-2008

Less favourable More favourable

88

Investment contractsInvestment contracts

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

Focus on a specific investment projectFocus on a specific investment project Possible conflict between the provisions of Possible conflict between the provisions of

a contract and the provisions of a treaty a contract and the provisions of a treaty (umbrella effect of the treaty)(umbrella effect of the treaty)

99

The international investment legal The international investment legal framework: role and objectivesframework: role and objectives

International investment agreements (IIAs):International investment agreements (IIAs): Contribute to the creation of a Contribute to the creation of a stable, stable, predictablepredictable and and

transparenttransparent regulatory framework regulatory framework for international for international investment - strengthen the enabling framework for FDI investment - strengthen the enabling framework for FDI (promotion, protection, liberalization)(promotion, protection, liberalization)

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

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

Impact of IIAs on FDI flows? Diverging viewsImpact of IIAs on FDI flows? Diverging views

1010

The international framework for investmentThe international framework for investmentBITs/IIAs have several possible objectives:BITs/IIAs have several possible objectives:

PromotionPromotion

BITs

Regional

establishment

agreements

US-CAN-JAP BITSFTAS

NAFTA

LiberalizationLiberalizationProtectionProtection

1111

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 addresseddiffers substantially

12

1212

II. Trends in international II. Trends in international investment agreementsinvestment agreements

1313

The network of BITs continues to The network of BITs continues to grow rapidly, there are now over grow rapidly, there are now over

2500 BITs2500 BITs

0

20

40

60

80

100

120

140

160

180

200

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0

500

1000

1500

2000

2500

3000

BITs Annual BITs cumulative

1414

8%

10%

40%

25%

4%

13%

Between developing countries

Between developed and developing countries

Between developing countries and countries of SEE&CIS

Between developed countries

Between developed and countries of SEE&CIS

Between countries of SEE&CIS

BITs concluded by country group, BITs concluded by country group,

mid-2009mid-2009

1515

The tThe top ten signatories of BITs in the op ten signatories of BITs in the world, mid-2009world, mid-2009

0 20 40 60 80 100 120 140 160

Korea, Republic of

Belgium and Luxembourg

Netherlands

France

Italy

Egypt

United Kingdom

Switzerland

China

Germany

1616

New generation of BITs:New generation of BITs:Increasingly sophisticated and complexIncreasingly sophisticated and complex

United States and Canadian model BITs (2004)United States and Canadian model BITs (2004)

Tend to be increasingly sophisticated in contentTend to be increasingly sophisticated in content

Clarifying in greater detail the meaning of a number of Clarifying in greater detail the meaning of a number of standard clausesstandard clauses

Putting more emphasis on Putting more emphasis on the protection of national the protection of national security, health, safety, the environment, and labour security, health, safety, the environment, and labour rightsrights

1717

Free Trade Agreements with Free Trade Agreements with Investment ChaptersInvestment Chapters

International investment rules are increasingly being International investment rules are increasingly being formulated as part of agreements that encompass a formulated as part of agreements that encompass a broader range of issues (including trade, services, broader range of issues (including trade, services, competition, intellectual property)competition, intellectual property)

Regional integration with investment disciplines: Regional integration with investment disciplines: ASEAN investment liberalization and protectionASEAN investment liberalization and protection

The total number of such economic agreements with The total number of such economic agreements with investment provisions exceeded 287, as of end 2009investment provisions exceeded 287, as of end 2009

1818

Over 280 trade agreements with Over 280 trade agreements with investment provisions by November investment provisions by November

20092009

0

50

100

150

200

250

300

350

1957 – 1967 1968 – 1978 1979 – 1989 1990 – 2000 2001 – 2009

Nu

mb

er

of

IIA

s (

oth

er

than

BIT

s a

nd

DT

Ts)

By period Cumulative

1919

Trade agreements with investment Trade agreements with investment provisions by country group, end provisions by country group, end

20092009

5%2% 10%

39%

8%

36%

South-SouthNorth-NorthNorth-SouthNorth-transition economiesTransition economies-transition economies South-transition economies

2020

Multiple overlapping FTAs with Multiple overlapping FTAs with investment provisionsinvestment provisions

• IIAs proliferate at all levelsIIAs proliferate at all levels•Constituting a complex system of multi-layered and Constituting a complex system of multi-layered and multi-faceted investment rulesmulti-faceted investment rules

2121

Recent trends: re-negotiationRecent trends: re-negotiation

Re-negotiation of « old » treatiesRe-negotiation of « old » treaties

BITs vs. investment chapters in FTAsBITs vs. investment chapters in FTAs

2222

South-South cooperation: South-South cooperation: Active participation of developing Active participation of developing

countries in IIAscountries in IIAs

Many developing countries are Many developing countries are active participantsactive participants in the in the process of concluding IIAsprocess of concluding IIAs

The total number of BITs The total number of BITs between developing countriesbetween developing countries leaped leaped from from 4747 in 1990 to over in 1990 to over 700700 by the end of 2009. by the end of 2009.

By end 2009, over By end 2009, over 100 of economic cooperation agreements 100 of economic cooperation agreements with investment provisions with investment provisions among developing countries had among developing countries had been signedbeen signed

Some developing countries are today both Some developing countries are today both capital capital importingimporting and and exportingexporting (both home and host) - twin objectives: (both home and host) - twin objectives: investment attraction and investment protectioninvestment attraction and investment protection

2323

III. Key characteristics and III. Key characteristics and trends in trends in investor-State investor-State

dispute settlementdispute settlement

2424

Differences between two types of Differences between two types of dispute settlement systemsdispute settlement systems

DSU under WTODSU under WTO No access of private No access of private

parties to DSU.parties to DSU. No award of damages.No award of damages. Bring the measure into Bring the measure into

conformity with WTO.conformity with WTO. Affected Member can Affected Member can

resort only to the resort only to the remedies available under remedies available under DSU.DSU.

Investor-to-StateInvestor-to-State Direct access to Direct access to

international arbitration.international arbitration. Monetary compensation.Monetary compensation. No requirement to No requirement to

change policies.change policies. If non-compliance: home If non-compliance: home

State can resort to inter-State can resort to inter-State procedures or to State procedures or to international law international law remedies.remedies.

2525

Types of investment dispute Types of investment dispute settlementsettlement

Types of investment dispute Types of investment dispute settlementsettlement

State-to-State: State-to-State: the settlement of disputes between State the settlement of disputes between State partiesparties to the Agreement. (e.g. investment agreements; the to the Agreement. (e.g. investment agreements; the WTO Dispute Settlement Body).WTO Dispute Settlement Body).

Investor-to-State: Investor-to-State: allows private investors to submit claims allows private investors to submit claims against a host State to international arbitrationagainst a host State to international arbitration

(eg. BITs and many FTAs).(eg. BITs and many FTAs).

Most IIAs contain both types of mechanisms.Most IIAs contain both types of mechanisms.

State-to-State: State-to-State: the settlement of disputes between State the settlement of disputes between State partiesparties to the Agreement. (e.g. investment agreements; the to the Agreement. (e.g. investment agreements; the WTO Dispute Settlement Body).WTO Dispute Settlement Body).

Investor-to-State: Investor-to-State: allows private investors to submit claims allows private investors to submit claims against a host State to international arbitrationagainst a host State to international arbitration

(eg. BITs and many FTAs).(eg. BITs and many FTAs).

Most IIAs contain both types of mechanisms.Most IIAs contain both types of mechanisms.

2626

Two reasons to use State-StateTwo reasons to use State-State Two reasons to use State-StateTwo reasons to use State-State

1.1. Exercise of diplomatic protectionExercise of diplomatic protection

2.2. Dispute over the interpretation or application of an Dispute over the interpretation or application of an investment treaty.investment treaty.

1.1. Exercise of diplomatic protectionExercise of diplomatic protection

2.2. Dispute over the interpretation or application of an Dispute over the interpretation or application of an investment treaty.investment treaty.

2727

What’s in State-to-State provisionsWhat’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.

2828

Investor-to-StateInvestor-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

2929

Investor-to-StateInvestor-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.

3030

WTO dispute settlementWTO 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).

3131

Access to dispute settlementAccess to dispute settlement

WTO DSU:WTO DSU: only Member States can initiate only Member States can initiate proceedings under the DSU. Non-proceedings under the DSU. Non-governmental bodies do not have direct governmental bodies do not have direct access to the system.access to the system.

Investor-to-State:Investor-to-State: investors may submit a investors may submit a dispute with a host State to an international dispute with a host State to an international tribunal, without having to resort to the tribunal, without having to resort to the diplomatic protection of their home State.diplomatic protection of their home State.

3232

Access to dispute settlementAccess 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.

3333

Types of legal remediesTypes of legal remedies

DSU:DSU: bring the measure into conformity with WTO bring the measure into conformity with WTO

rules.rules. no award of damages.no award of damages. appellate review.appellate review.

Investor-to-State:Investor-to-State: monetary compensation or restitution in kind. monetary compensation or restitution in kind. no requirement to modify laws or policies.no requirement to modify laws or policies. review or annulment of the award (eg. review or annulment of the award (eg.

irregularities in the procedure).irregularities in the procedure).

3434

Implementation and enforcementImplementation and enforcement DSU: DSU:

immediately or within “a reasonable period of time”. immediately or within “a reasonable period of time”. compensation or suspension of equivalent concessions. compensation or suspension of equivalent concessions. only DSU remedies authorized. No unilateral sanctions.only DSU remedies authorized. No unilateral sanctions.

Investor-to-State: Investor-to-State: reference to international conventions for the reference to international conventions for the

enforcement of awards (New York Convention, ICSID).enforcement of awards (New York Convention, ICSID). non-compliance: home State can bring a claim under the non-compliance: home State can bring a claim under the

IIA’s State-to-State procedures, or IIA’s State-to-State procedures, or resort to remedies provided under international law.resort to remedies provided under international law.

DSU: DSU: immediately or within “a reasonable period of time”. immediately or within “a reasonable period of time”. compensation or suspension of equivalent concessions. compensation or suspension of equivalent concessions. only DSU remedies authorized. No unilateral sanctions.only DSU remedies authorized. No unilateral sanctions.

Investor-to-State: Investor-to-State: reference to international conventions for the reference to international conventions for the

enforcement of awards (New York Convention, ICSID).enforcement of awards (New York Convention, ICSID). non-compliance: home State can bring a claim under the non-compliance: home State can bring a claim under the

IIA’s State-to-State procedures, or IIA’s State-to-State procedures, or resort to remedies provided under international law.resort to remedies provided under international law.

3535

05

10152025

303540

4550

Yea

rly

nu

mb

er o

f ca

ses

0

50

100

150

200

250

300

350

Cu

mu

lati

ve n

um

ber

of

case

s

ICSID Non-ICSID All cases cumulative

Over 300 known ISDS casesOver 300 known ISDS cases

3636

Known investment treaty claims, by Known investment treaty claims, by defendantsdefendants

0 10 20 30 40 50

Number of cases

Russian FederationRomania

EgyptPoland

IndiaEcuadorCanada

United StatesCzech Republic

MexicoArgentine Republic

3737

Disputes by forum of arbitration, Disputes by forum of arbitration,

cumulative as of November 2009cumulative as of November 2009

2%2%62%7%

25%2%

ICSID Ad-hoc ICC

SCC UNCITRAL Unknown

3838

DefinitionsDefinitions

More clarityMore clarity More inconsistencyMore inconsistency

AdmissionAdmission

National treatmentNational treatment

ExpropriationExpropriation

MFNMFN

FETFET

Umbrella clause Umbrella clause

3939

ISDS mechanism gives rise to concernsISDS mechanism gives rise to concerns

Increasing use of ISDS mechanismIncreasing use of ISDS mechanism High costs involved in conducting proceduresHigh costs involved in conducting procedures Arbitration awards can involve huge sumsArbitration awards can involve huge sums Potential impact on coutry’s reputation as investment Potential impact on coutry’s reputation as investment

locationlocation Challenge to protect investment on the one hand and Challenge to protect investment on the one hand and

to respect the legitimate right of governments to to respect the legitimate right of governments to regulate for the public interestregulate for the public interest

ISDS, being available exclusively to foreign investors, ISDS, being available exclusively to foreign investors, puts domestic firms at disadvantageputs domestic firms at disadvantage

Sheer technical complexity of ISDS. Concerns on the Sheer technical complexity of ISDS. Concerns on the technical capability of developing countries to handle technical capability of developing countries to handle investment disputes that they faceinvestment disputes that they face

4040

UNCTAD conducts research and policy analysis in the form UNCTAD conducts research and policy analysis in the form of publications monitoring the latest trends and the emerging of publications monitoring the latest trends and the emerging

issues in international investment rulemakingissues in international investment rulemaking

provides analysis from a development perspectiveprovides analysis from a development perspective

conducts technical assistance activities aimed at deepening conducts technical assistance activities aimed at deepening the understanding of the international legal framework for the understanding of the international legal framework for

investmentinvestment

building capacity in the negotiation of IIAs through regional building capacity in the negotiation of IIAs through regional intensive training courses on the negotiations of IIAsintensive training courses on the negotiations of IIAs

training courses on managing investment disputestraining courses on managing investment disputes

To respond to these challenges: To respond to these challenges:

4141

UNCTAD’s Work programme on UNCTAD’s Work programme on international investment agreementsinternational investment agreements

Research and policy analysis:Research and policy analysis: 11stst Series on issues in IIAs Series on issues in IIAs

(28 booklets): completed ongoing update(28 booklets): completed ongoing update 22ndnd Series on international investment Series on international investment policies for policies for

development: on-goingdevelopment: on-goingE-tools:E-tools: BIT database (2,000 texts available)BIT database (2,000 texts available) Country list of BITsCountry list of BITs Compendium of international investment instruments Compendium of international investment instruments

(selection of relevant instruments and model (selection of relevant instruments and model agreements)agreements)

Database of investment dispute casesDatabase of investment dispute cases Network of IIA Experts to exchange information and Network of IIA Experts to exchange information and

experiences (700 members)experiences (700 members)

4242

IIA work programmeIIA work programme

Technical assistance:Technical assistance: The distance-learning course on key issues in The distance-learning course on key issues in

IIAs (5 modules) in 5 languagesIIAs (5 modules) in 5 languages The regional training sessions for IIA negotiators The regional training sessions for IIA negotiators

(including a negotiation skills workshop)(including a negotiation skills workshop) The advanced training courses on managing The advanced training courses on managing

investment disputesinvestment disputes National and regional seminars on IIAs (tailor-National and regional seminars on IIAs (tailor-

made at the request of countries or regional made at the request of countries or regional organizations)organizations)

Ad hoc advisory servicesAd hoc advisory services Facilitation of BIT negotiations and BIT signing Facilitation of BIT negotiations and BIT signing

ceremoniesceremonies