INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATION LECTURE 1. IIAs: types, features and trends Sergey Ripinsky International Investment Agreements Section Division on Investment and Enterprise Geneva, 4 May 2012

Plan for the course IIAs – notion, types, features and trends Investor-State dispute settlement (ISDS) IIAs and sustainable developments

Background: recent FDI statistics 2011: global FDI inflows rose by 17% to US$1.5 trillion. Developing and transition economies accounted for half of global FDI in 2011 (US$755 billion).

FDI flows over time

Investors and governments: examples of problems 40-year oil concession with a stabilization clause. After 10 years, new government proposes to renegotiate the contract. Investor refuses. Government terminates the concession. Pesticide-producing business. New scientific evidence – government bans production and marketing of that pesticide. Tax authority imposes multiple fines and sanctions for tax avoidance. Investor says that this is a revenge for its refusal to pay bribes to tax officials. New requirement that all enterprises employ 90% of locals and that they source 90% of their inputs locally. Foreign investors complain that this makes their products less competitive.

IIA – an international treaty that promotes and protects investments from one Contracting Party in the territory of another Preamble Definitions of terms (esp. investment / investor) Admission and establishment of investments Core standards of protection: Non-discrimination (National Treatment / MFN) Fair and equitable treatment Full protection and security Expropriation Compensation for losses due to armed conflict / civil riots Free transfer of funds “Umbrella clause” (obligation to observe specific undertakings) Dispute settlement (investor-State arbitration)

Why do countries conclude IIAs? Home countries – to protect their investors abroad. Host countries – to attract FDI. Complicating factor: Many countries are now both importers and exporters of capital.

Main FDI determinants Market size Availability of natural resources Quality of infrastructure Qualification and productivity of the workforce Flexibility of labour legislation and exchange laws Transparency and stability of the legal and political systems, security of property and contract rights Tax incentives

Sources of investment risk (political risk) nationalization / expropriation contract repudiation crime, terrorism and kidnapping civil unrest constraints on repatriation of dividends/profits ineffective legal and regulatory systems red tape, bureaucracy and weak institutions corruption/bribery

Types of IIAs BITs, and “other IIAs”, which include: Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs) Regional integration agreements (EU, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN) Multilateral agreements focusing on a specific sector (Energy Charter Treaty) Multilateral agreements touching upon investment issues (GATS, TRIMs)

Trends of BITs and other IIAs 1980–2011 65 newly concluded IIAs in 2010  more than 1 per week

The IIA regime

Top ten signatories of BITs Number of BITs

Protection offered by the IIA regime 14

IIA content trends Pre- and post-establishment IIAs Different formulations of the same “core” disciplines - different interpretation by arbitral tribunals. Treaty text is paramount – need to understand its implications and possible future interpretation. Increased sophistication and level of detail – learning lessons from ISDS proceedings. New types of disciplines included (performance requirements, transparency, etc.). 15