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
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