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International Investment Agreements: Recent Trends in Investor-State Case Law and Treaty Negotiation Introduction and Background Roberto Echandi Taipei, March, 2011 Key Concepts • Foreign Direct Investment • Investor gets involved in the administration or productive activities of an enterprise • Portfolio Investment • Investor only finances the activities of an enterprise through a financial instrument, and does not get involved in the productive activity of the enterprise • Distinction between FDI and Portfolio is not always clear • Other investments: • intangible assets (IPRs), contracts Trends in international investment • Investment is powering international trade and the world economy as a whole… • More goods and services are reaching consumers through foreign affiliates than through exports… – Global exports 2009 • Merchandise: 15.775 U.S.$ billion • Commercial services:3.730 U.S.$billion (WTO secretariat) – Sales of foreign affiliates in 2009: • 29.298 U.S.$ billion (UNCTAD) • FDI generates more trade and vice-versa The different kinds of FDI and their impact on development • Natural resource-seeking FDI • Factors: – Location of natural resources • Historical perspective – Oldest type of FDI • Political economy: This type of FDI raises issues such as – Fair distribution of gains derived from exploitation of resources – Sovereignty over natural resources – Labour rights and other social conditions of workforce (i.e.health) – Environmental matters The different kinds of FDI and their impact on development • Market-seeking FDI • Factors – – – – Market dimensions and income per capita Market growth Consumers’ specific preferences Kind of goods and services to be provided • Historical perspective – Import-substitution industrialization (ISI) • Political economy: This type of FDI raises issues such as real or perceived effects over – Domestic production – National security – Role of IIAs… The different kinds of FDI and their impact on development • Efficiency-seeking FDI – Tariff liberalization promoted by GATT in more than 50 years (average tariff for manufactures decreases from 40% to 5% ) – Greater pressure over enterprises and need for lower costs of factors of production • This kind of investment tends to be: – – – – • Export oriented Net generator of foreign exchange Generator of jobs Significant potential gains in terms of expansion and diversification of export supply of host economy and transfer of technology Political economy of this type of FDI – Determined by the level of competitiveness of the host country vis-á-vis other potential host countries (importance of signals) – Increasing controversy in home countries Relationship between trade and investment… To a great extent, today FTAs are about investment… The international investment legal framework • National level – Specific laws applicable to foreign investment – Domestic regulatory framework • Bilateral level – Bilateral Investment Treaties (BITs) • Regional level – Chapters on Investment in Free Trade Agreements (FTAs) • Multilateral level – Applicable rules in the WTO Agreements – Other institutions International investment legal framework: national level National Policy changes 1992–2009 (per cent) National policy developments: increasing regulation with continued liberalization Liberalization/promotion: 98% in 2000 to 70% in 2009 of changes Regulations/restrictions: 2% in 2000 to 30% in 2009 of changes Source: UNCTAD, WIR 2010 9 Legal Framework for International Investment: Bilateral Level • Background – Treaties of Friendship Trade and Navigation • 1st USA-France 1788 – Customary International Law • State responsibility to aliens and their property – First BIT, 1959, Germany-Pakistan Legal Framework for International Investment: Bilateral Level Annual BITs worldwide, 1980-2009 250 200 150 100 50 Source: UNCTAD 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 0 Legal Framework for International Investment: Regional Level Proliferation of PTAs with investment provisions Number of IIAs (other than BITs and DTTs) 350 300 250 200 150 100 50 0 1957 – 1967 Source: UNCTAD 1968 – 1978 By period 1979 – 1989 1990 – 2000 Cumulative 2001 – 2009 The “Patchy” Legal Framework for International Investment: Multilateral Level • There is no multilateral agreement on investment • Failed attempts to bring investment into a multilateral setting • • • • Applicable rules on WTO Agreements – • Havana Charter (ITO) MAI WTO GATS, TRIMs, TRIPs, ASCM, DSU Other relevant investment-related institutions – – – – – – – – – – – International Centre for the Settlement of Investment Disputes (ICSID) Multilateral Investment Guarantee Agency (MIGA/World Bank) Arbitration Centres (ICC, Stockholm Chamber of Commerce) Other World Bank agencies (IFC,FIAS) Energy Charter Treaty UN Global Compact OECD Guidelines on Multinational Enterprises OECD Convention on Bribery and Corruption OECD Guidelines on Corporate Social responsibility OECD Policy Framework for Investment OAS Anti-bribery convention Interaction with broader spectrum of public international law • Interaction of IIAs with the WTO… not always straightforward… – GATS • MFN, National Treatment, Market Access, Schedules, etc. – TRIMs • Performance requirements – TRIPs • Definition of investment and TRIPs – ASCM • Investment incentives – DSU • Coherence interpretation of IIAs • Interaction with other matters regulated by public international law – Human rights – Labour issues – Protection of the environment International Investment Law in the making… 50 400 45 350 40 300 35 30 250 25 200 20 150 15 100 10 5 50 0 0 2009 All cases cumulative 2008 2007 2006 2005 2004 2003 2002 2001 Non-ICSID 2000 1999 1998 1997 1996 Source: UNCTAD 1995 1994 1993 1992 1991 1990 1989 ICSID Cumulative number of cases Annual number of cases Known investment treaty arbitrations (cumulative and newly instituted cases) 1989-2009 Final remarks • International Investment – Key element of international political economy and development – Need to avoid simplifications: investment is not a homogenous phenomenon – Is reshaping international economic relations as well as transforming domestic economies – Can no longer be framed in a North-South mindset – One of the most dynamic areas regulated by international economic law • International investment regime – – – – – Continues to grow as more IIAs continue to be negotiated Constantly evolving as a result of evolution of jurisprudence Is making investment relations to become increasingly “legalized” Increasing importance for developing and developed countries alike Increasing importance for private sector Thank you for your attention [email protected]