1 Anna Joubin-Bret, Senior Legal Adviser Division on Investment UNCTAD Recent Trends in foreign direct investment (FDI) and international investment agreements WORKSHOP ON KEY SUBSTANTIVE ISSUES RELEVANT TO THE ANALYSIS AND NEGOTIATION OF BILATERAL INVESTMENT TREATIES Organized jointly by the Secretariat of the United Nations Conference on Trade and Development (UNCTAD), and the Department of International Economic Affairs, Ministry of Foreign Affairs of Thailand

2 Trends in FDI

3 Key messages: FDI trends and prospects  Global foreign direct investment (FDI) flows rose moderately to $1.24 trillion in 2010, but were still 15 per cent below their pre-crisis average.  For the first time, developing and transition economies together attracted more than half of global FDI flows.  Some of the poorest regions continued to see declines in FDI flows.  International production is expanding.  State-owned TNCs are an important emerging source of FDI.  UNCTAD estimates that global FDI will recover to its pre-crisis level in 2011, increasing to $1.4–1.6 trillion, and approach its 2007 peak in 2013.

4 4 Global FDI inflows rose moderately in 2010, but were still 15 per cent below their pre-crisis average Billions of dollars

5 5 For the first time, developing and transition economies together attracted more than half of global FDI flows  Developing countries: $574 billion, 12% increase  Developed: $602 billion, 0.2% decline  Transition (South-East Europe and the CIS): $68 billion, 5% decline Billions of dollars In 2010

6 6 FDI flows to major emerging markets (East and South-East Asia and Latin America) rose strongly, while flows to some of the poorest regions (LDCs, LLDCs, SIDS and Africa) continued to decline (Billions of dollars) Billions of dollars

7 7 Outward FDI from developing and transition economies reached record highs, with most of their investment directed towards other countries in the South Per cent

8 8 Top 10 home and host countries for FDI (Billions of dollars) FDI outflowsFDI inflows Note: The number in bracket after the name of the country refers to the ranking in (Billions of dollars)

9 Thailand FDI flows in 2009 (million of dollars) Total Inward FDI: Total Outward FDI: Primary Agriculture and hunting 7- Mining and quarrying Secondary Food products and beverages Textiles Coke, petroleum products and nuclear fuel Chemicals and chemical products Non-metallic mineral products Metal and metal products 33 1 Machinery and equipment Electrical and electronic equipment Tertiary Construction Trade Finance Financial Intermediation Business activities Real estate Inflows Outflows

10 Trends in IIAs

11 Core Elements in international investment agreements (IIAs)  Preamble  Definitions (investment/investor)  Admission and establishment  Core standards of protection:  Principle of fair and equitable treatment  Principle of non-discrimination (NT/MFN)  Expropriation  Transfer of funds  Dispute settlement

12  Bilateral investment treaties (BITs)  Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs)  Regional integration agreements (EU, ECOWAS, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN)  Multilateral agreements dealing with investment (GATS, TRIMs, TRIPs) The network of International Investment Agreements (IIAs)

13 Thailand's IIA Network 39 BITs 62 DTTs 23 other IIAs (including ASEAN agreements and ASEAN +1 FTAs)

14 A. Bilateral Investment Treaties

15 The network of BITs continues to grow, there are now over 2600 BITs

16 The top ten signatories of BITs in the world, January 2010 Number of BITs

17 Increased sophistication and complexity United States and Canadian model BITs (2004) Tend to be increasingly sophisticated in content Clarifying in greater detail the meaning of a number of standard clauses Putting more emphasis on the protection of national security, health, safety, the environment, and labour rights

18 B. Free Trade Agreements

19 B. Free Trade Agreements with Investment Chapters  International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (including trade, services, competition, intellectual property)  Regional integration with investment disciplines: ASEAN investment liberalization and protection  The total number of such economic agreements with investment provisions exceeded 290, as of end 2009

20 Over 300 economic cooperation agreements with investment provisions

21 Multiple overlapping FTAs with investment provisions IIAs proliferate at all levels Constituting a complex system of multi-layered and multi-faceted investment rules

22 Recent developments in investor-State dispute settlement

23 The increase in IIAs has been paralleled by an increase in investor-State disputes In 2010, at least 25 new cases were filed, bringing the total number of known treaty-based cases to 390 Of the total 390 known disputes: 245 were filed with ICSID (or the ICSID Additional Facility) 109 under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules 19 with the Stockholm Chamber of Commerce six with the International Chamber of Commerce and four were ad hoc. One further case was filed with the Cairo Regional Centre for International Commercial Arbitration. In six cases, the applicable arbitration rules are unknown so far. Thailand: 1 case - Walter Bau v. Thailand, UNCITRAL (Germany/Thailand BIT).

24 Some disputes in 2010… In Latin and Central America, Bolivia and Venezuela responded to three new claims each as a result of nationalization measures aiming at strengthening state control over strategic sectors. Uruguay is responding to its first claim arising from consumer protection legislation involving marketing restrictions and labeling requirements of cigarettes In Central Asia, Kazakhstan and Turkmenistan responded to two new cases each relating to energy and power facilities and construction projects In Africa, Zimbabwe responded to two new cases relating to timber processing and commercial farms while Tanzania faced one new case dealing with a power purchase agreement. In Europe, Lithuania, Romania and Slovakia responded to a new case each relating to alcohol industry, press distribution and claims arising out of alleged reversal of health insurance policy. Canada faced one NAFTA case dealing with an investment in a pulp and paper mill.

25 Known investment treaty arbitrations (cumulative and newly instituted cases

26 Known investment treaty claims, by defendants Number of cases

27 international investment agreements in investment treaty arbitrations, end 2009

28 Key issues and challenges

29  Developing countries and economies in transition 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 (always keep in mind national investment laws)  How to strengthen the development dimension of IIAs (investment promotion V.S. investment protection)  Many capital importing countries becoming capital exporters: implications with regard to their negotiation position in IIAs. These countries now have to attract inward FDI, but also protect their own investors abroad  Result: developing countries and economies in transition need to ensure policy coherence between their various international investment commitments, including those at the national level.  This entails coherence with national strategies on investment and how it can contribute to sustainable development. Challenges

30 Overarching principles Investment in sustainable development Policy coherence Good governance Policy making dynamics Balanced rights and obligations Right to regulate Openness to investment Investment protection Corporate responsibility Outward investment International cooperation

31 Thank you