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Workshop on economic and legal aspects of International Investment Agreements Kampala, Uganda 10-14 November 2008 International Rules on FDI Thomas Westcott.

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Presentation on theme: "Workshop on economic and legal aspects of International Investment Agreements Kampala, Uganda 10-14 November 2008 International Rules on FDI Thomas Westcott."— Presentation transcript:

1 Workshop on economic and legal aspects of International Investment Agreements Kampala, Uganda November 2008 International Rules on FDI Thomas Westcott Legal Advisor UNCTAD

2 2 Topics for discussion I.International framework on investment II.Trends in IIAs

3 3 I. The international framework on investment

4 20 years ago or more, many countries had reservations about FDI and excluded or restricted FDI inflow 20 years ago or more, many countries had reservations about FDI and excluded or restricted FDI inflow Today, every single country seeks to attract FDI Today, every single country seeks to attract FDI Unilateral efforts in FDI liberalization and promotion are complemented by efforts at 3 levels: Unilateral efforts in FDI liberalization and promotion are complemented by efforts at 3 levels: bilateral - eg. BITs, FTAs bilateral - eg. BITs, FTAs regional – eg. COMESA regional – eg. COMESA multilateral – eg. GATS, TRIMs multilateral – eg. GATS, TRIMs IIAs have different purposes or objectives: IIAs have different purposes or objectives: investment protection investment protection Investment promotion Investment promotion Investment liberalisation. Investment liberalisation. 6 Interface between national and international FDI policies

5 5 Network of international investment rules National laws and regulations, investment codesNational laws and regulations, investment codes State contracts, investment agreements, stabilization agreementsState contracts, investment agreements, stabilization agreements Bilateral investment treaties (BITs) for the promotion and protection of investmentBilateral investment treaties (BITs) for the promotion and protection of investment Double taxation treaties (DTTs)Double taxation treaties (DTTs) Preferential trade and investment agreementsPreferential trade and investment agreements Regional (COMESA, OECD, APEC) and sectoral agreements (Energy Charter Treaty)Regional (COMESA, OECD, APEC) and sectoral agreements (Energy Charter Treaty) Multilateral disciplines and specific agreements (WTO GATS, TRIMs, TRIPs; ICSID, NY Convention, MIGA)Multilateral disciplines and specific agreements (WTO GATS, TRIMs, TRIPs; ICSID, NY Convention, MIGA)

6 6 Investment contracts are not IIAs State contracts and investment agreements between individual investors and the host State set rules, rights and obligations for both parties State contracts and investment agreements between individual investors and the host State set rules, rights and obligations for both parties These investment agreements are not treaties! (i.e. BITs) These investment agreements are not treaties! (i.e. BITs) Focus is on a specific investment project e.g. concession Focus is on a specific investment project e.g. concession

7 7 Recent trends in IIAs - highlights Rapid proliferation at all levelsRapid proliferation at all levels International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (FTAs)International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (FTAs) Investment provisions in the new agreements tend to be increasingly sophisticated and complex in contentInvestment provisions in the new agreements tend to be increasingly sophisticated and complex in content South-South cooperation on international investment policy is intensifyingSouth-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.Increasing activity in international investment treaty- making has been paralleled by a rise in investor-State disputes.

8 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 Contribute to the creation of a stable, predictable and transparent regulatory framework for international investment Facilitate the coordination of investment relations (relations between host States, home States, international investors and other development stakeholders) through internationally agreed common denominators 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) Complement national laws on investment (interface between national and international investment policies) Impact of IIAs on FDI flows? Diverging views Impact of IIAs on FDI flows? Diverging views

9 9 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) Expropriation & compensation Transfer of funds Dispute settlement Etc. REDUCING BUILDING These objectives can be achieved through: National policies Investment contracts/State contracts International investment agreements (IIAs)

10 10 The international framework for investment IIAs have several possible objectives: Promotion Promotion BITs Regional establishment agreements US-CAN-JAP BITS FTAS NAFTA LiberalizationProtection

11 11 Many 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 FET Guarantees and compensation in respect of expropriation Transfer of funds and repatriation of capital and profits Dispute settlement, both State-State and investor-State …but the concrete way in which they are addressed differs substantially 12

12 II. Global trends in IIAs

13 13 The spaghetti bowl of IIAs

14 A. Bilateral Investment Treaties

15 15 What are bilateral investment treaties (BITs) ?  Bilateral reciprocal agreements (between two States) aimed at protecting and promoting foreign investment through legally-binding rights and obligations.

16 For host countries (traditionally developing)   To improve their investment climate and to attract foreign investors   To portray a positive international image of ‘openness’ For home countries (traditionally developed)   To protect their investments abroad   Some countries are both capital importing and exporting (both home and host) - twin objectives: investment attraction and investment protection. Why do countries sign BITs?

17 The network of BITs continues to grow rapidly, there are now over 2500 BITs

18 BITs concluded by country group, end 2007

19 The top ten signatories of BITs, end 2007

20 20 BITs signed by 11 African countries Botswana 9Botswana 9 Cameroon 14Cameroon 14 Central African Republic 4Central African Republic 4 Ethiopia 22Ethiopia 22 Kenya 6Kenya 6 Lesotho 3Lesotho 3 Mauritius 34Mauritius 34 Rwanda 3Rwanda 3 Sudan 26Sudan 26 Tanzania 11Tanzania 11 Uganda 15Uganda 15 Intra-region BITs: Botswana – Mauritius 2005Botswana – Mauritius 2005 Cameroon – Mauritius 2001Cameroon – Mauritius 2001 Ethiopia – Sudan 2000Ethiopia – Sudan 2000 Rwanda – Mauritius 2001Rwanda – Mauritius 2001

21 21 Trend towards renegotiating BITs 109 BITs have been renegotiated 109 BITs have been renegotiated 13 renegotiated in renegotiated in 2006 Albania and Romania renegotiated two BITs each in Albania and Romania renegotiated two BITs each in 2006.

22 A new generation of BITs since 2004: innovations A new generation of BITs follows the trend set by some of the recent FTAs These contain four main innovations:   A comprehensive, but finite definition of ‘investment’ (such as in the Canadian model).   Revisions to the wording of various substantive provisions.   A broader set of issues is addressed, including health, the environment, safety and labour rights.   Innovations regarding investor-State dispute settlement procedures.

23 B. Free Trade Agreements

24 24 Economic integration agreements (EIAs) with investment provisions (eg FTAs) International investment rules are increasingly being included in agreements that cover a broader range of issues including: trade, services, competition, intellectual property Free trade agreements, economic partnerhsip agreements, regional integration agreements,or economic cooperation agreements… Coverage of investment varies. - in today’s group activity we will explore this further!

25 Over 250 EIAs with investment provisions by end 2007

26 EIAs with investment provisions by country group, end 2007

27 Recent FTAs with investment chapters   Free Trade Agreement between the United States of America and Peru   Free Trade Agreement between Singapore and Panama   Association Agreement between the European Community and Albania   Free Trade Agreement between Turkey and Morocco   Free Trade Agreement between the Hashemite Kingdom Jordan and the Republic of Singapore   Economic Partnership Agreement between Japan and Philippines   Economic Partnership Agreement between Japan and Chile   Economic Partnership Agreement between Japan and Thailand

28 28 South-South cooperation: developing countries active in IIAs  Many developing countries are active participants in negotiating IIAs  BITs between developing countries leaped from 47 in 1990 to over 650 by the end of 2006  Over 90 EIAs among developing countries had been signed by end of 2006.

29 29 South-South cooperation through IIAs is intensifying

30 30 Interregional agreements   The EU is negotiationing Economic Promotion Agreements (EPA) with all of the Africa Caribbean Pacific (ACP) regions.   EU-CARIFORUM EPA was signed in October 2008   It contains a chapter on commercial presence (investment)   ESA-EU EPA interim agreement   SADC-EU EPA interim agreement

31 African regional agreements – no investment protection provisions Common Market for Eastern and Southern Africa (COMESA), (1993) contains framework provisions on investment promotion, with some general principles on investment protection. The Treaty establishing the African Economic Community (AEC) (1991) contains provisions under which the parties agree to ensure the free movement of capital within the Community trough the elimination of restrictions on capital transfers. Treaty for the Establishment of the East African Community (EAC) (1999) contains commitments by which States parties agreed to adopt measures to achieve the free movement of persons and services. The South African Development Community (SADC, 1992), aims at the progressive establishment of free movement of goods, services, capital and persons.

32 32 Plurilateral agreements: Investment Agreement for the COMESA Common Investment Area   CCIA signed in 2007   Not yet fully implemented?   Contains provisions that depart from standard provisions in BITs   Includes detailed language on some issues in light of recent arbitral decisions   Aims to find balance between the rights of investors and the state’s right to regulate.

33 33 Investment in the multilateral context  Historical overview: Havana Charter, World Bank Guidelines, UN Code of Conduct, OECD MAI  Investment in the WTO: a missed opportunity?  Investment-specific agreements: dispute settlement (ICSID, NY Convention,..), insurance (MIGA)  Limited membership: OECD rules, APEC  Limited scope: Energy Charter Treaty, GATS, TRIMS, TRIPs.

34 34 The increase in IIAs has been paralleled by an increase in investor-State disputes  250 known claims by end 2006 (cumulative number of treaty-based cases)  Awards given in these proceedings have helped to clarify the meaning and content of individual treaty provisions, some contradictory decisions have also created uncertainty.

35 35 Known investment treaty arbitrations (cumulative and newly instituted cases, )

36 36 Thank you.


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