Trends in international investment rulemaking and

investor-State dispute settlement

Dr. Marie-Estelle Rey Policy Analyst and Project Coordinator MENA-OECD Investment Programme

Private Sector Division OECD

2

Legal framework for investment: Hierarchy of norms

National laws and regulations, investment codes

State contracts, investment 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 Convention, MIGA)

3

Objectives of the legal investment framework

Restrictions

-- Entry and

establishment

- Ownership and

control

- Operational

restrictions

- Authorization and

reporting

Etc..

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)

4

The international investment legal framework: role and objectives

International investment agreements (IIAs):

Guarantees of protection for foreign investors

Contribute to the creation of a stable, predictable and transparent regulatory framework for international investment - strengthen the enabling framework for FDI

Reinforce economic cooperation and facilitate coordination of investment relations (between host States, home States, international investors and other development stakeholders) through agreed common denominators

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

5

A great number of IIAs cover more or less the same issues

•Preamble •Definitions (investment/investor) •Admission and establishment •Core standards of protection:

– Fair and equitable treatment – Non-discrimination (NT/MFN) – Expropriation – Transfer of funds – Dispute settlement (State-State and investor-State)

…but the concrete way in which they are addressed

differs substantially 12

6

Trends in international investment agreements and investor-State dispute settlement

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Recent trends in IIAs - highlights

• Rapid proliferation at all levels

• International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (FTAs)

• Investment provisions in new agreements tend to be increasingly sophisticated and complex in content

• South-South cooperation on international investment policy is intensifying

• Increasing activity in international investment treaty-making has been paralleled by a rise in investor-State disputes.

8

The network of BITs continues to grow rapidly, there are over 2700 BITs

0

20

40

60

80

100

120

140

160

180

200

19992000

20012002

20032004

20052006

20072008

years

An

nu

al

BIT

s

0

500

1000

1500

2000

2500

3000

Cu

mm

ula

tive B

ITs

BITs Annual DTTs Annual BITs cumulative DTTs cumulative

Source: UNCTAD

9

Top ten signatories of BITs in the world

0 20 40 60 80 100 120 140 160

Korea, Republic of

Belgium and Luxembourg

Netherlands

France

Italy

Egypt

United Kingdom

Sw itzerland

China

Germany

10

Top 10 MENA BITs signatories

Source: UNCTAD data, June 2009 0 20 40 60 80 100 120

Syria

Yemen

Algeria

Qatar

Jordan

Lebanon

Kuwait

Tunisia

Morocco

Egypt

25

20

23

13

32

40

37

33

36

71

37

37

39

42

46

49

50

54

58

101

BITs concluded worldwide

BITs in force

582 BITs signed by the MENA region (21% of all BITs concluded)

11

Over 270 economic agreements with investment provisions

0

50

100

150

200

250

300

1957-1967 1968-1978 1979-1989 1990-2000 2001-2008

Nu

mb

er

of

IIA

s o

ther

than

BIT

s a

nd

DT

Ts

By period Cumulative

Source: UNCTAD

12

Examples of integration agreements with

investment provisions in the MENA region

•US Trade and Investment Framework Agreement (TIFA) with Algeria (2001), Bahrain (2002), Egypt (1999), Iraq (2004), Kuwait (2004), Lebanon (2006), Oman (2004), Qatar (2004), Saudi Arabia (2003), Tunisia (2002), United Arab Emirates (2004) and Yemen (2004) – Investment promotion • US FTA with Bahrain (2006), Jordan (2001), Morocco (2006), Oman (2009) – substantive investment provisions • EU Association Agreements with Morocco (2000), Egypt (2001), Jordan (2002), Algeria (2002), Lebanon (2002), Tunisia (1998), Syria (1978, revised in 2004, still pending EU council approval) – Investment promotion • EFTA Free Trade Agreements with Egypt (2007), GCC (signed 2009), Jordan (2002), Lebanon (2007), Morocco (1999), Palestine (1999), Tunisia (2006) – Investment promotion •FTA Singapore - Jordan (2004) •FTA Canada - Jordan (signed 2009, not in force) •FTA Turkey – Morocco (signed in 2004) •FTA Turkey – Tunisia (signed in 2005) • Agadir Agreement: the Arab Mediterranean FTA (Jordan, Tunisia, Egypt, Morocco) (2007) – provisions on services •Greater Arab Free Trade Area (GAFTA) (1998) – 18 members of the Arab League •Investment Agreement for the COMESA Common Investment Area, 2007 - substantive investment provisions

13

New generation of IIAs: Increasingly sophisticated and complex

• United States and Canadian model BITs (2004) and investment chapters in FTAs

• Tend to be increasingly sophisticated in content

• Clarifying in greater detail the meaning of a number of standard clauses (FET, expropriation, exceptions, ISDS)

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

14

The increase in IIAs has been paralleled by an increase in investor-State disputes

→ The cumulative number of known treaty-based cases reached 357 known claims by end 2009.

→ 57% were initiated during the last 5 years.

→ While the awards have helped to clarify the meaning and content of individual treaty provisions, some contradictory decisions have also created uncertainty.

15

Known investment treaty arbitrations

16

Disputes by forum of arbitration

• 225 cases filed under ICSID (or the ICSID Additional Facility) • 91 under the United Nations Commission on International Trade Law (UNCITRAL) • 19 with the Stockholm Chamber of Commerce • 8 administered by the Permanent Court of Arbitration (PCA) • 5 with the International Chamber of Commerce • 4 ad-hoc arbitration • One case filed with CRCICA • 4 cases with unknown applicable rules

17

Countries involved

• 81 countries faced investment treaty arbitrations → 49 developing countries → 17 developed countries → 15 economies in transition • Most claims are initiated by investors by developed countries → only 23 cases filed by investors from developing countries

18

Known investment treaty claims, by defendants

0 20 40 60

Egypt

Poland

Venezuela

Ukraine

Canada

United States

Ecuador

Czech Republic

Mexico

Argentine Republic

Number of cases

19

Conclusions

• End 2009, 164 cases had been brought to a conclusion → 38% in favor of the State → 29% in favor of the investor → 34% were settled

20

ISDS mechanism: concerns

Increasing use of ISDS mechanism by foreign investors

High costs involved in conducting procedures

Arbitration awards can involve huge sums

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

Implications

→ Challenges: complexity, overlaps, inconsistency

→ The negotiation of IIAs includes interrelated and complicated policy issues that touch upon a whole range of domestic concerns

→ This may render economic policies of host countries more complicated and lead to lack of policy coherence (challenge to formulate coherent investment policy)

Countries often lack the necessary human resources to negotiate agreements that appropriately reflect their interests and needs

Risk of overlapping and sometimes conflicting commitments in IIAs

Implementing IIA obligations (ratification, conformity with national laws)

Developing alternative dispute resolution (ADR) methods and dispute prevention policies

Dispute management techniques

Strengthening the development dimension

of IIAs

Challenges