Short courses for Permanent Missions in Geneva Thursday 3 December 2009 Recent trends and developments in international investment rulemaking Anna Joubin-Bret, Senior legal Advisor Hamed El-Kady, Expert, international investment policies Work Programme on International Investment Agreements United Nations Conference on Trade and Development Geneva, 3 December 2009

2PRESENTATION I.The international frameworks on investment II.Trends in international investment agreements III.Key characteristics and trends in investor-State disputes

3 I.The international framework on investment

4 Evolving trends of FDI policies Some 20 years ago, many countries had reservations as regards FDI and excluded or restricted its inflow; Some 20 years ago, many countries had reservations as regards FDI and excluded or restricted its inflow; Today, every single country seeks to attract FDI, in many cases not only at the national level but also, and independently so, at various sub-national levels; Today, every single country seeks to attract FDI, in many cases not only at the national level but also, and independently so, at various sub-national levels; Typically, these efforts to attract FDI take three forms: liberalization, protection and promotion. Typically, these efforts to attract FDI take three forms: liberalization, protection and promotion.

5 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, FET) 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)

6 Legal framework for investment: Hierarchy of norms National laws and regulations, investment codes National laws and regulations, investment codes State contracts, investment agreements, stabilization agreements State contracts, investment agreements, stabilization agreements Bilateral investment treaties (BITs) for the promotion and protection of investment Bilateral investment treaties (BITs) for the promotion and protection of investment Double taxation treaties (DTTs) Double taxation treaties (DTTs) Preferential trade and investment agreements Preferential trade and investment agreements Regional (OECD, APEC) and sectoral agreements (Energy Charter) Regional (OECD, APEC) and sectoral agreements (Energy Charter) 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)

7 Changes in national FDI policies Source: WIR 2006 An investment legal framework always more favorable But the number of modifications less favorable is increasing

8 Investment contracts  State contracts and investment agreements between individual investors and the host State set rules, rights and obligations for both parties  Focus on a specific investment project  Possible conflict between the provisions of a contract and the provisions of a treaty (umbrella effect of the treaty)

9 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 - strengthen the enabling framework for FDI (promotion, protection, liberalization)  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) Impact of IIAs on FDI flows? Diverging views

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

11 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 addressed differs substantially 12

II. Trends in international investment agreements

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

14 BITs concluded by country group, mid-2009

15 The top ten signatories of BITs in the world, mid-2009

16 New generation of BITs: Increasingly sophisticated and complex United States and Canadian model BITs (2004) United States and Canadian model BITs (2004) Tend to be increasingly sophisticated in content Tend to be increasingly sophisticated in content Clarifying in greater detail the meaning of a number of standard clauses 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 Putting more emphasis on the protection of national security, health, safety, the environment, and labour rights

17 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 287, as of end 2009

18 Over 280 trade agreements with investment provisions by November 2009

19 Trade agreements with investment provisions by country group, end 2009

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

21 Recent trends: re-negotiation Recent trends: re-negotiation Re-negotiation of « old » treaties Re-negotiation of « old » treaties BITs vs. investment chapters in FTAs BITs vs. investment chapters in FTAs

22 South-South cooperation: Active participation of developing countries in IIAs  Many developing countries are active participants in the process of concluding IIAs  The total number of BITs between developing countries leaped from 47 in 1990 to over 700 by the end of  By end 2009, over 100 of economic cooperation agreements with investment provisions among developing countries had been signed  Some developing countries are today both capital importing and exporting (both home and host) - twin objectives: investment attraction and investment protection

23 III. Key characteristics and trends in investor-State dispute settlement

24 Differences between two types of dispute settlement systems DSU under WTO DSU under WTO No access of private parties to DSU. No access of private parties to DSU. No award of damages. No award of damages. Bring the measure into conformity with WTO. Bring the measure into conformity with WTO. Affected Member can resort only to the remedies available under DSU. Affected Member can resort only to the remedies available under DSU. Investor-to-State Investor-to-State Direct access to international arbitration. Direct access to international arbitration. Monetary compensation. Monetary compensation. No requirement to change policies. No requirement to change policies. If non-compliance: home State can resort to inter- State procedures or to international law remedies. If non-compliance: home State can resort to inter- State procedures or to international law remedies.

25 Types of investment dispute settlement Types of investment dispute settlement State-to-State: the settlement of disputes between State parties to the Agreement. (e.g. investment agreements; the WTO Dispute Settlement Body). State-to-State: the settlement of disputes between State parties to the Agreement. (e.g. investment agreements; the WTO Dispute Settlement Body). Investor-to-State: allows private investors to submit claims against a host State to international arbitration Investor-to-State: allows private investors to submit claims against a host State to international arbitration (eg. BITs and many FTAs). Most IIAs contain both types of mechanisms. Most IIAs contain both types of mechanisms. State-to-State: the settlement of disputes between State parties to the Agreement. (e.g. investment agreements; the WTO Dispute Settlement Body). State-to-State: the settlement of disputes between State parties to the Agreement. (e.g. investment agreements; the WTO Dispute Settlement Body). Investor-to-State: allows private investors to submit claims against a host State to international arbitration Investor-to-State: allows private investors to submit claims against a host State to international arbitration (eg. BITs and many FTAs). Most IIAs contain both types of mechanisms. Most IIAs contain both types of mechanisms.

26 Two reasons to use State-State Two reasons to use State-State 1. Exercise of diplomatic protection 2. Dispute over the interpretation or application of an investment treaty. 1. Exercise of diplomatic protection 2. Dispute over the interpretation or application of an investment treaty.

27 What’s in State-to-State provisions What’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.

28 Investor-to-State Investor-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

29 Investor-to-State Investor-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.

30 WTO dispute settlement WTO 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).

31 Access to dispute settlement WTO DSU: only Member States can initiate proceedings under the DSU. Non- governmental bodies do not have direct access to the system. WTO DSU: only Member States can initiate proceedings under the DSU. Non- governmental bodies do not have direct access to the system. Investor-to-State: investors may submit a dispute with a host State to an international tribunal, without having to resort to the diplomatic protection of their home State. Investor-to-State: investors may submit a dispute with a host State to an international tribunal, without having to resort to the diplomatic protection of their home State.

32 Access to dispute settlement Access 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.

33 Types of legal remedies DSU: DSU:  bring the measure into conformity with WTO rules.  no award of damages.  appellate review. Investor-to-State: Investor-to-State:  monetary compensation or restitution in kind.  no requirement to modify laws or policies.  review or annulment of the award (eg. irregularities in the procedure).

34 Implementation and enforcement DSU: DSU:  immediately or within “ a reasonable period of time ”.  compensation or suspension of equivalent concessions.  only DSU remedies authorized. No unilateral sanctions. Investor-to-State: Investor-to-State:  reference to international conventions for the enforcement of awards (New York Convention, ICSID).  non-compliance: home State can bring a claim under the IIA ’ s State-to-State procedures, or  resort to remedies provided under international law. DSU: DSU:  immediately or within “ a reasonable period of time ”.  compensation or suspension of equivalent concessions.  only DSU remedies authorized. No unilateral sanctions. Investor-to-State: Investor-to-State:  reference to international conventions for the enforcement of awards (New York Convention, ICSID).  non-compliance: home State can bring a claim under the IIA ’ s State-to-State procedures, or  resort to remedies provided under international law.

35 Over 300 known ISDS cases

36 Known investment treaty claims, by defendants

37 Disputes by forum of arbitration, cumulative as of November 2009

38 Definitions More clarity More inconsistency Admission National treatment ExpropriationMFNFET Umbrella clause

39 ISDS mechanism gives rise to concerns  Increasing use of ISDS mechanism  High costs involved in conducting procedures  Arbitration awards can involve huge sums  Potential impact on coutry’s reputation as investment location  Challenge to protect investment on the one hand and to respect the legitimate right of governments to regulate for the public interest  ISDS, being available exclusively to foreign investors, puts domestic firms at disadvantage  Sheer technical complexity of ISDS. Concerns on the technical capability of developing countries to handle investment disputes that they face

40  UNCTAD conducts research and policy analysis in the form of publications monitoring the latest trends and the emerging issues in international investment rulemaking  provides analysis from a development perspective  conducts technical assistance activities aimed at deepening the understanding of the international legal framework for investment  building capacity in the negotiation of IIAs through regional intensive training courses on the negotiations of IIAs  training courses on managing investment disputes To respond to these challenges:

41 UNCTAD’s Work programme on international investment agreements Research and policy analysis:  1 st Series on issues in IIAs (28 booklets): completed ongoing update  2 nd Series on international investment policies for development: on-going E-tools:  BIT database (2,000 texts available)  Country list of BITs  Compendium of international investment instruments (selection of relevant instruments and model agreements)  Database of investment dispute cases  Network of IIA Experts to exchange information and experiences (700 members)

42 IIA work programme Technical assistance: The distance-learning course on key issues in IIAs (5 modules) in 5 languages The distance-learning course on key issues in IIAs (5 modules) in 5 languages The regional training sessions for IIA negotiators (including a negotiation skills workshop) The regional training sessions for IIA negotiators (including a negotiation skills workshop) The advanced training courses on managing investment disputes The advanced training courses on managing investment disputes National and regional seminars on IIAs (tailor- made at the request of countries or regional organizations) National and regional seminars on IIAs (tailor- made at the request of countries or regional organizations) Ad hoc advisory services Ad hoc advisory services Facilitation of BIT negotiations and BIT signing ceremonies Facilitation of BIT negotiations and BIT signing ceremonies