Transcript Lecture 3. IIAs and sustainable development

INTERNATIONAL INVESTMENT AGREEMENTS
AND INVESTOR-STATE ARBITRATION
LECTURE 3. IIAs and Sustainable Development
Sergey Ripinsky
International Investment Agreements Section
Division on Investment and Enterprise
Geneva, 4 May 2012
Plan
• Reactions to the perceived drawbacks of the IIA/ISDS
system:
– “Business as usual”
– Exiting the system
– Renegotiations of IIAs/modernizing treaty content
• Sustainable development dimension of IIAs
– UNCTAD’s IPFSD (2012)
– Examples – making treaties SD-friendly
Exiting the system
1. Unilateral termination of BITs?
Survival clauses:
“Notwithstanding termination of this Agreement, it shall
continue to be effective for a further period of 15 years
from the date of its termination in respect of investments
made or acquired before the date of termination of this
Agreement.”
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Few terminated BITs:
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In 2008 Ecuador terminated nine BITs : with Cuba, the
Dominican Republic, El Salvador, Guatemala,
Honduras, Nicaragua, Paraguay, Romania and Uruguay.
Venezuela terminated its BIT with the Netherlands.
Withdrawals from the ICSID Convention
• Bolivia (2007), Ecuador (2009), Venezuela (2012)
• Venezuela:
– A wave of nationalizations under Chávez, disputes about
amount of compensation
– 20 cases pending at ICSID (10 of them initiated in 2011): no
effect on them
– 6-month period available for new claims
– Out of 26 BITs in force for Venezuela, only two (Chile, Germany)
name ICSID as the sole arbitral venue. What about UNCITRAL?
– Chávez: the Republic “will not recognize any ICSID decisions”.
– Is ICSID the one to blame?
Improving investment treaty law
1. Review of countries’ model BITs
Review process concluded or under way:
Austria, Argentina, Bolivia, Colombia, Ecuador, France,
Germany, Mexico, Morocco, South Africa, Turkey,
United Kingdom, United States, Venezuela.
Main reasons for review:
- establish clearer rules;
- seek balance: investor & host country interests;
- adjust model to new developments.
Improving investment treaty law
2. Renegotiations of existing IIAs
– A significant part of new IIAs are renegotiations.
– Sometimes BITs are replaced by broader economic
agreements with a BIT-like chapter.
– Renegotiation on regional level: ASEAN replaced its
investment agreement in 2009.
– “ASEAN plus” agreements: e.g., ASEAN-Aus-NZ, ASEANChina, ASEAN-Korea.
– TransPacific Partnership (TPP) - under negotiation.
Negotiating countries – Australia, Brunei, Chile, Malaysia,
New Zealand, Peru, Singapore, United States and
Vietnam (+Canada and Japan joined recently).
EU Developments
• Lisbon treaty (2009) transferred competence over FDI
• The number of extra-EU BITs is almost 1200 (plus intraEU)
• Ireland – no BITs, Germany leading with almost 120
• All new negotiations – Union level. In the long run, all
existing BITs will be replaced
• First partners-to-be: Canada, India, Singapore and
Mercosur, China, Russia.
• An opportunity to update and modernize old BITs.
Sustainable development impact of IIAs
• Investment protection – not an aim in itself but a means
for sustainable development
• Ensure that States retain right to regulate for public
policy objectives, even if this causes harm to businesses
• Shield countries from exorbitant financial liabilities
• Promote responsible investment: compliance with
national laws, CSR standards
• Increase degree of certainty and predictability of rules.
UNCTAD’s 2012 Investment Policy Framework
for Sustainable Development (IPFSD)
• Comprehensive set of policy guidelines
• Builds on previous work by UNCTAD and others,
experience in the field and successful examples in
individual countries
• Particular emphasis on balanced relationship between
foreign investment and sustainable development
1. Core Principles for investment policy making
2. National policy guidelines
3. Policy options for IIAs (goes through all treaty
clauses)
Treaty preamble
• Plays a role in the interpretation of treaty provisions
• Especially important when interpreting vague provisions such as
FET.
• Most IIAs emphasize the parties’ intention to create “a stable
framework for investments” or “favourable conditions for
investments”.
• To counterbalance, the preamble may set out other objectives, e.g.:
– sustainable development;
– the right to regulate in public interest;
– commitment to high human rights, labour and environmental
standards;
– corporate social responsibility.
Definition of investment
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What investments should an IIA protect?
Positive list: those investment that contribute to the
economic development of the host State (criteria?)
Negative list: all investments except those explicitly
excluded, e.g.:
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one-off commercial transactions
short-term loans
portfolio investments
assets acquired not for business purpose
General exceptions
• Inspired by WTO law (Article XX GATT)
• If a State shows that its measure falls within one of the
exceptions, a violation will not be found.
• Examples of exceptions:
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to protect human, animal, plant life or health
to protect public morals or public order
to preserve cultural and/or linguistic diversity
to preserve the integrity and stability of the financial
system
• The measure must be genuine and not a disguised way
of breaching the treaty protections.
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Free Transfer – Balance-of-Payments
exception
• An investor should be able to make free use of invested capital and
returns on investment.
• A host country's should be able to deal with sudden and massive
outflows or inflows of capital, balance-of-payments difficulties and
other macroeconomic problems.
• An exception increasingly found in recent IIAs allows States to
impose restrictions on the free transfer of funds in specific
circumstances:
– serious balance-of-payments difficulties or threat thereof
– serious difficulties in macroeconomic management, in particular,
related to monetary and exchange rate policies.
• Condition these exceptions to prevent their abuse (e.g. respecting
conditions of temporality, equity, non-discrimination, good faith and
proportionality)
Expropriation
• The problem of regulatory expropriation.
• Some recent IIAs introduce a regulatory carve-out such
as this:
“Non discriminatory regulatory actions by a Party that are
designed and applied to protect legitimate public welfare
objectives, such as public health, safety, and the
environment, do not constitute indirect expropriations.”
Investor obligations
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Most IIAs – only State obligations (investor rights).
An obligation for investors to comply with laws and regulations of the host
State? Possible consequences:
– Denying treaty protection to non-complying investors for serious
violations
– Giving States a right to bring counterclaims in ISDS proceedings.
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Encourage to comply with relevant universal principles and applicable CSR
standards, e.g.:
– ILO MNE Declaration,
– the UN Guiding Principles on Business and Human Rights,
– ICC Guidelines for International Investment
– ISO 26000 standard “Guidance on Social Responsibility”.
Instruct tribunals to take into account investors’ compliance with relevant
principles and standards when deciding investors’ ISDS claims.
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