International Investment Agreements: Recent Trends in Investor-State Case Law and Treaty Negotiation Roberto Echandi Taipei, March, 2011 Introduction and Background

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: U.S.$ billion Commercial services:3.730 U.S.$billion (WTO secretariat) –Sales of foreign affiliates in 2009: U.S.$ 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

99 International investment legal framework: national level National Policy changes 1992–2009 (per cent) 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 National policy developments: increasing regulation with continued liberalization

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, Source: UNCTAD

Legal Framework for International Investment: Regional Level Source: UNCTAD Proliferation of PTAs with investment provisions

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 Havana Charter (ITO) MAI WTO Applicable rules on WTO Agreements –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… Known investment treaty arbitrations (cumulative and newly instituted cases) Source: UNCTAD

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