Foreign investment

1
Foreign investment financing institutions

•  Project financing  through international
  institutions
• International lenders (financing institutions)
• An important player is the World bank comprises
  5 institutions
• IBRD (1944) (188 members) loans for projects
  (usually in cooperation with banks) to states,
  with funds from member states or capital markets,
  short term and on interest no flow-back to
  funding states neutral assessment annual
  reports
• IDA (1960) advantageous loans for least
  developed countries long term, no or very low
  interest
• IFC (International Finance Corporation, 1956)
  loans or capital investment in private sector
  technical assistance and advice
• MIGA (Multilateral Investment Guarantee Agency
  1985) see infra
• ICSID (1965) mediation and arbitration
  institution, infra.

2
IBRD
3
Financing institutions

• International lenders (financing institutions)
• Regional development banks African DB, Asian
  DB, Inter-American DB .... often on condition of
  flow-back to funding countries
• BERD (European Bank for reconstruction and
  Development) for Eastern Europe capital from
  EU countries, US, Canada, Japan
• Investment Funds of the EU
• - ACP countries (Cotonou agreement) investment
  facilities
• - EU-internal European investment Bank
  (projects for regional development)
• - European Social Fund
• UN-organisations, esp. UNDP

4
Investment law questions - sources

• Main questions of (investment) law / investment
  regime
• requirements for foreign investment, treatment
  of foreign investors, protection against
  expropriation
• Sources for rules on foreign investment
• National law
• International Investment Agreements (IIAs),
  either (mostly) Bilateral investment treaties
  (BIT) (s. infra) or Multilateral treaties
  (regional, sectorial, TRIMS, world bank treaties)
  (s. infra)
• Customary international law, esp. concerning
  protection in case of expropriation (s. infra)
• Investment contracts, i.e. contracts between
  investor and host country
• Main questions (s. next slide)
• Applicable law domestic law or international
  public law ? quasi-international law ?
• Effect of stabilisation clauses
• Dispute resolution mechanism ?

5
Problems of applicable law

• Why may domestic law (of the host state) be
  problematic ?
• protectionism obligation to buy in the guest
  country (performance obligations, infra)
  restrictions on import / export, restrictions on
  transferring (expatriating) profit ,
• using sovereignty, eg limited protection against
  expropriation
• sometimes also reverse discrimination of
  nationals, privileges for foreign investors
• TRIMS 1994 only trade related aspects of
  investments
• Principle of national treatment
• Prohibition of quantitative measures and measures
  with similar effect
• Can investment contracts help ?
• - Contain eg stabilisation clauses (compare infra
  in BIT)
• - Effectiveness against host country depends on
  applicable law and competent jurisdiction (most
  effective is application of international public
  law and international arbitration)

6
Protection ag. expropriation

• Esp. protection against expropriation
• Types of expropriation individual expropriation
  s.s. (public interest compensation) collective
  nationalisation confiscation creeping
  expropriation or quasi-expropriation
  (disproportionate burdens or restrictions) (lot
  of disputes as to what amounts to expropriation)
• Expropriation and international law ?
• In European countries 1st Protocol to the ECHR
• Rules of customary public international law ?
  Next 2 slides

7
Protection ag. expropriation

• Traditional customary public international law
  has as rules conditions for expropriation
• - No general prohibition
• Allowed only in the public interest (but
  interpreted thus that poliical purposes are not
  excluded)
• No discrimination of foreigners (unless required
  for national security)
• Effective Prompt Appropriate Compensation
  (Hull-formule) (i.e. quick, in convertable and
  exportable currency, full value)
• Due process of law (procedural protection)

8
Protection ag. expropriation

• Traditional customary public international law
  questioned
• by the USSR 1917, Latin Am. (Calvo doctrine),
  developing countries, .
• UN-Resolution no. 1803 from 1962 stresses
  permanent sovereignty over natural resources of
  every state (host state for investments)
• A more radical  Charter of economic rights and
  duties of States  in 1974 ( new economic
  order ).
• NEO-Charter proposed to extend the sovereignty to
  include all economic activities, does not require
   public interest , grants only  reasonable 
  compensation, refuses international procedural
  control, etc.
• Such expropriations will however not be
  recognised by other countries
• Thus not accepted as customary law, meanwhile
  slipped into oblivion (Reaction after 1974s
  BITs)

9
Investment treaties

• Uncertainty about the customary international
  public law creates need for treaties
• Next slides multilateral treaties bilateral
  treaties
• Foundation of 2 new institutions under the world
  bank
• - ICSID 1965
• - MIGA 1985

10
Multilateral Investm. Treaties

• Multilateral investment treaties ?
• OECD OECD-MiA failed negotiations on a GIT in
  WTO failed
• FTAs (Free Trade Agreements) contain also
  investment protection, as in
• NAFTA Ch. 11 non-discrimination investor
  chooses dispute resolution
• Mercosur
• COMESA
• EU / Canada Parternship (2013)
• (EU internal market as a more radical solution)
• Other Regional ITs, such as
• Investments agreement of the OIC (Bagdad 1981)
• Sectorial Energy Charter Treaty 1994 on next
  slide
• Also investment aspects in Cotonou (EU / ACP),
  supra
• TRIMS, supra
• Codes of conduct of the World Bank, OECD,  UN
  Global Compact ,
• World bank related treaties infra

11
Energy Charter Treaty

• Sectorial Multilateral investment treaties ?
• Sectorial Energy Charter Treaty 1994
• 46 countries from Europe (incl. EU itself),
  former Soviet U Japan (Russia withdraw in
  2009)
• Oil electricity
• Concerns investment / exploitation / transport
• Principle of non-discrimination
• Protection against expropriation and
  quasi-expropriation
• Dispute resolution mechanism (arbitration)
• E.g. Procedures by Vattenfall v. Germany (i.a.
  decision to close nuclear plants)

12
Energy Charter Treaty
13
Bilateral Inv. Treaties (BIT)

• Bilateral investment treaties (BIT) (also known
  as Foreign Investment Promotion and Protection
  Agreements, FIPAs)
• BITs in response to the NEO-Charter
• gt In 2011 almost 3000 BITs (57 with Belgium,
  127 with Germany, etc.)
• (big countries have model BIT)
• Some countries are terminating their BITs, eg
  South Africa (BIT w. Belgium, Spain)(Black
  Economic Empowerment ) Bolivia Ecuador left
  ICSID

14
BITs
15
Bilateral Inv. Treaties (BIT)

• Fate of  Extra-EU-BITs  after Lisbon Treaty
  Reg. 1219/2012 - EU intends to replace national
  Extra-EU-Bits by common BITs. Duty of MSs to
  eliminate incompatibilities
• Scope of application (usually)
• (Inward) investment, usually broadly defined (FDI
  foreign direct investment)
• Sometimes restricted to certain investments or
  under certain conditions

16
Bilateral Inv. Treaties (BIT)

• Typical content
• Freedom to invest ? (free inflow and outflow of
  capital)
• Usually not fully liberalised
• Usually no full national treatment, but a MFN
  clause minimum standard of  proper
  equitable  treatment
• Incl. often prohibition of performance
  requirements (such as requirement of
   national  content of products ) (conflicts
  with EU quota rules)
• Protection of investments made
• Stabilisation clauses (later regulation cannot
  negatively affect the investment) observance
  clauses (later regulations not applicable)
  validity (binding character) is sometimes
  disputed
• Usually rules on protection in case of
  expropriation,
• Capital transfer guarantees (free movement of
  capital) (some coNflicts with EU law)
• Dispute resolution next slide

17
Bilateral Inv. Treaties (BIT)

• Typical content (cont.)
• Dispute resolution
• Renegotiation clauses
• Arbitration clauses
• usually ICSID arbitration (next slide)
• sometimes subject to a national court requirement
  (eg UK-Argentina first go to the Argentinian
  court if no decision within 18 months
  arbitration is open)
• Arbitration may be under the ICSID rules (infra)
  or under UNCITRAL rules (see Ch. 12) (the latter
  may impose however some transparency
  requirement, i.e. some information is to be made
  public)

18
ICSID
19
Investment treaty arbitration

• ICSID Convention 1965 Dispute resolution
  procedure for investments disputes
• now 149 ratifications ( 9 signatures) became
  much more important since the 1990s. Missing
  i.a. India, Brazil, South Africa, Russia not
  ratified, Canada not ratifed (federalism problem)
  
• Scope of application
• only investment disputes
• between a party to the ICSID Convention and an
  investor from another contracting party (or a
  local daughter company)
• jurisdiction of the ICSID has been accepted in an
  investment contract, domestic law, BIT or ad hoc
• ICSID organises the procedure, does not settle
  the dispute itself
• Conciliation procedure (not succesful)
• Arbitration procedure
• Dispute whether still possible under intra-EU
  BITs (according to EU Commission, contrary to
  344 TFEU case pending before German BGH)

20
Investment treaty arbitration

• Advantages of ICSID Arbitration
• If a choice of law was made in the contract, the
  arbitrators must apply that law
• But national law can be set aside if contrary to
  public international law (art. 42 ICSID)
• Arbitral award can be set aside only by ICSID
  itself, not by a national court limited grounds
  for annulment
• Exclusive jurisdiction national courts lose
  jurisdiction no immunity of jurisdiction for
  ICSID states before ICSID
• Member states recognise the awards as binding and
  guarantee the enforcement within their territory
  nevertheless enforcing often remains difficult
•  Additional facility  ICSID assistance in
  cases out of the scope of application of the
  Convention (eg investor not a national of an
  ICSID State)
• Awards are published in annual Reports
• Criticism no guarantees for fair trial
  impartiality, no public character, nu guarantee
  of consistent interpretation by a single
  tribunal, etc

21
MIGA

• MIGA Multilateral Investment Guarantee Agency)
  1985 mainly covers non-commercial risks of
  investors from MIGA-member countries in other
  MIGA-countries succesful (168 members))
• Coverage can be granted by MIGA after assessment
  of risks if
• An investment is made (interpreted widely)
• By an investor from a MIGA-country
• After the granting of the guarantee (only new
  investments)
• In a developing country, member of MIGA
• - Contributing to development
• Approval by the host country is required usually
  MIGA will contract with the country to limit the
  risks
• Risks that can be covered mainly 4 types
  currency transfer restrictions expropriation and
  similar measures breach of contract without
  domestic remedy sometimes war and civil
  disturbance. Not eg devaluation
• Conditions will be specified in a contract
  MIGA-investor premium to be paid uninsured
  percentage (usually 10 ), arbitration clause
• Disputes between MIGA-states on the Convention
  submitted to Board of MIGA
• Disputes MIGA - host country negotiation if
  necessary arbitration