Trends in international investment rulemaking and
investor-State dispute settlement
Dr. Marie-Estelle Rey Policy Analyst and Project Coordinator MENA-OECD Investment Programme
Private Sector Division OECD
2
Legal framework for investment: Hierarchy of norms
National laws and regulations, investment codes
State contracts, investment agreements
Bilateral investment treaties (BITs) for the promotion and protection of investment
Double taxation treaties (DTTs)
Preferential trade and investment agreements
Regional (OECD, APEC) and sectoral agreements (Energy Charter)
Multilateral disciplines and specific agreements (WTO GATS, TRIMs, TRIPs; ICSID, NY Convention, MIGA)
3
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.
RE
DU
CIN
G
BU
ILD
ING
These objectives can be achieved through:
•National policies
• Investment contracts/State contracts
• International investment agreements (IIAs)
4
The international investment legal framework: role and objectives
International investment agreements (IIAs):
Guarantees of protection for foreign investors
Contribute to the creation of a stable, predictable and transparent regulatory framework for international investment - strengthen the enabling framework for FDI
Reinforce economic cooperation and facilitate coordination of investment relations (between host States, home States, international investors and other development stakeholders) through agreed common denominators
Complement national laws on investment (interface between national and international investment policies)
5
A great number of IIAs cover more or less the same issues
•Preamble •Definitions (investment/investor) •Admission and establishment •Core standards of protection:
– Fair and equitable treatment – Non-discrimination (NT/MFN) – Expropriation – Transfer of funds – Dispute settlement (State-State and investor-State)
…but the concrete way in which they are addressed
differs substantially 12
7
Recent trends in IIAs - highlights
• Rapid proliferation at all levels
• International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (FTAs)
• Investment provisions in new agreements tend to be increasingly sophisticated and complex in content
• South-South cooperation on international investment policy is intensifying
• Increasing activity in international investment treaty-making has been paralleled by a rise in investor-State disputes.
8
The network of BITs continues to grow rapidly, there are over 2700 BITs
0
20
40
60
80
100
120
140
160
180
200
19992000
20012002
20032004
20052006
20072008
years
An
nu
al
BIT
s
0
500
1000
1500
2000
2500
3000
Cu
mm
ula
tive B
ITs
BITs Annual DTTs Annual BITs cumulative DTTs cumulative
Source: UNCTAD
9
Top ten signatories of BITs in the world
0 20 40 60 80 100 120 140 160
Korea, Republic of
Belgium and Luxembourg
Netherlands
France
Italy
Egypt
United Kingdom
Sw itzerland
China
Germany
10
Top 10 MENA BITs signatories
Source: UNCTAD data, June 2009 0 20 40 60 80 100 120
Syria
Yemen
Algeria
Qatar
Jordan
Lebanon
Kuwait
Tunisia
Morocco
Egypt
25
20
23
13
32
40
37
33
36
71
37
37
39
42
46
49
50
54
58
101
BITs concluded worldwide
BITs in force
582 BITs signed by the MENA region (21% of all BITs concluded)
11
Over 270 economic agreements with investment provisions
0
50
100
150
200
250
300
1957-1967 1968-1978 1979-1989 1990-2000 2001-2008
Nu
mb
er
of
IIA
s o
ther
than
BIT
s a
nd
DT
Ts
By period Cumulative
Source: UNCTAD
12
Examples of integration agreements with
investment provisions in the MENA region
•US Trade and Investment Framework Agreement (TIFA) with Algeria (2001), Bahrain (2002), Egypt (1999), Iraq (2004), Kuwait (2004), Lebanon (2006), Oman (2004), Qatar (2004), Saudi Arabia (2003), Tunisia (2002), United Arab Emirates (2004) and Yemen (2004) – Investment promotion • US FTA with Bahrain (2006), Jordan (2001), Morocco (2006), Oman (2009) – substantive investment provisions • EU Association Agreements with Morocco (2000), Egypt (2001), Jordan (2002), Algeria (2002), Lebanon (2002), Tunisia (1998), Syria (1978, revised in 2004, still pending EU council approval) – Investment promotion • EFTA Free Trade Agreements with Egypt (2007), GCC (signed 2009), Jordan (2002), Lebanon (2007), Morocco (1999), Palestine (1999), Tunisia (2006) – Investment promotion •FTA Singapore - Jordan (2004) •FTA Canada - Jordan (signed 2009, not in force) •FTA Turkey – Morocco (signed in 2004) •FTA Turkey – Tunisia (signed in 2005) • Agadir Agreement: the Arab Mediterranean FTA (Jordan, Tunisia, Egypt, Morocco) (2007) – provisions on services •Greater Arab Free Trade Area (GAFTA) (1998) – 18 members of the Arab League •Investment Agreement for the COMESA Common Investment Area, 2007 - substantive investment provisions
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New generation of IIAs: Increasingly sophisticated and complex
• United States and Canadian model BITs (2004) and investment chapters in FTAs
• Tend to be increasingly sophisticated in content
• Clarifying in greater detail the meaning of a number of standard clauses (FET, expropriation, exceptions, ISDS)
• Putting more emphasis on the protection of national security, health, safety, the environment, and labour rights
14
The increase in IIAs has been paralleled by an increase in investor-State disputes
→ The cumulative number of known treaty-based cases reached 357 known claims by end 2009.
→ 57% were initiated during the last 5 years.
→ While the awards have helped to clarify the meaning and content of individual treaty provisions, some contradictory decisions have also created uncertainty.
16
Disputes by forum of arbitration
• 225 cases filed under ICSID (or the ICSID Additional Facility) • 91 under the United Nations Commission on International Trade Law (UNCITRAL) • 19 with the Stockholm Chamber of Commerce • 8 administered by the Permanent Court of Arbitration (PCA) • 5 with the International Chamber of Commerce • 4 ad-hoc arbitration • One case filed with CRCICA • 4 cases with unknown applicable rules
17
Countries involved
• 81 countries faced investment treaty arbitrations → 49 developing countries → 17 developed countries → 15 economies in transition • Most claims are initiated by investors by developed countries → only 23 cases filed by investors from developing countries
18
Known investment treaty claims, by defendants
0 20 40 60
Egypt
Poland
Venezuela
Ukraine
Canada
United States
Ecuador
Czech Republic
Mexico
Argentine Republic
Number of cases
19
Conclusions
• End 2009, 164 cases had been brought to a conclusion → 38% in favor of the State → 29% in favor of the investor → 34% were settled
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ISDS mechanism: concerns
Increasing use of ISDS mechanism by foreign investors
High costs involved in conducting procedures
Arbitration awards can involve huge sums
Technical complexity of ISDS. Concerns on the technical capability of countries to handle investment disputes that they face
Implications
→ Challenges: complexity, overlaps, inconsistency
→ The negotiation of IIAs includes interrelated and complicated policy issues that touch upon a whole range of domestic concerns
→ This may render economic policies of host countries more complicated and lead to lack of policy coherence (challenge to formulate coherent investment policy)
Countries 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
Implementing IIA obligations (ratification, conformity with national laws)
Developing alternative dispute resolution (ADR) methods and dispute prevention policies
Dispute management techniques
Strengthening the development dimension
of IIAs
Challenges
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