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Investment treaties and constraints on policy space
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Investment treaties and constraints on policy space


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Presented at the People's Conference in Dec 2011 at Majlis Bandaraya Petaling Jaya.

Presented at the People's Conference in Dec 2011 at Majlis Bandaraya Petaling Jaya.

Published in: Economy & Finance, Business

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  • 1. Investment treaties and constraints on policy space: The relevant state obligations (based on Resources from Week of Action against BITs and for an Alternative Investment Regime, Seattle to Brussels Network)
  • 2. • HISTORY: A short overview of multilateral frameworks• • 1948: Havana Charter (established GATT)• • 1995: WTO Uruguay Round (GATS, TRIMS)• • 1997: OECD Multilateral Agreement on Investment• (MAI): Rejected by developing countries• • WTO Singapore issue: Rejected by developing• countries at Cancun Ministerial• • OECD Policy Framework for Investment• • UNCTAD: Consolidation?
  • 3. • Fragmentation: Regional and bilateral approaches• • BITS (Bilateral Investment Treaties): 1959, Germany- Pakistan• • RTA (Regional Trade Agreements): 1992, NAFTA• • Today: 3000 bilateral or regional agreements• • Over 200 FTAs or RTAs with investment chapters• • The integration of investment into trade agreements,• 1990s and forward:• – Rapid expansion from 2005 on• – Bypassing Singapore and Cancun decisions• – Developing country rush to participate• • Blocks negotiate (EU, ASEAN….)
  • 4. • THE POLITICAL CHALLENGE OF NEGOTIATING• INVESTMENT AGREEMENTS: Why do it?• • Original purpose: protect Western capital from impacts of decolonization and expansion of communism• • Move to building demand: How do we sell these things?• – Investment agreements will attract investment, build the right investment climate (but is there evidence?)• – Developing countries are now capital exporters and need them (but should they repeat the post-colonial model?)• • The Photo-opportunity• • The fear of being left out: what if we do not do it?
  • 6. • The architecture of investment treaties• • State hosting the investment provides guarantees to the investor of the other state• • Typical Guarantees:• – National Treatment (NT) and Most Favoured Nation Treatment (MFN)• – Fair and Equitable Treatment and Full Protection and Security under “international law”• – Compensation for expropriation• – Free transfer of investment funds• • Investor-state arbitration
  • 7. • National treatment and MFN• Each Contracting Party shall accord to investments and returns of investors of the other Contracting Party, treatment which shall not be less favourable than that accorded either to investments of its own investors or to investments of investors of any third State.
  • 8. • Fair and equitable treatment• Investment of nationals or companies of each Contracting Party shall at all times be accorded fair and equitable the territory of the other Contracting Party
  • 9. • Expropriation -• Investments of investors of either Contracting Party in the territory of the other Contracting Party shall not be nationalised, expropriated or subjected to measures having effects equivalent to nationalisation or expropriation except for public purposes, under due process of law, on a nondiscriminatory basis and against prompt, adequate and effective compensation. Such compensation shall be made without delay, and be effectively realizable.
  • 10. • Umbrella clause• Each Contracting Party shall observe any obligation it may have entered into with regard to investments of nationals or companies of the other Contracting Party.
  • 12. Known investment treaty arbitrations (cumulative andnewly instituted cases), 1989–2008 (Source: UNCTAD)
  • 13. Overview on Investor State Arbitration• allows companies and individuals to sue states before international arbitration tribunals• arbitrations are conducted under various rules: e.g. International Centre for Settlement of Investment Disputes (ICSID), UN Commission on International Trade Law (UNCITRAL), International Chamber of Commerce (ICC)• unusually, the primary remedy is a damages award providing for retrospective compensation against the state
  • 14. • Problems of transparency, consistency and• judicial independence• • Arbitration system lacks transparency• • Investment arbitrators are untenured, generally• chosen by the parties, by the fellow arbitrators or• an appointing authority; arbitrators can be• arbitrators in one investment treaty case and• counsel in another• • Decisions are final and binding – no appeal: legal• and factual errors cannot generally be corrected
  • 16. • In sum: Lack of balance• (States have lots of obligations, no rights!)• • Lack of balance: All obligations on host state to protect the investor• • Home state and investors have no obligations• • Host state obligations are short, vague and imprecise and have led to expansive and contradictory interpretations• • Investor rights are enforceable through a very powerful dispute settlement mechanism (investor- State arbitration)
  • 17. • New approaches to investment treaties• • Brazil (No investment agreements ratified)• • Ecuador, Bolivia (Withdrawal from ICSID)• • Ecuador, EI Salvador, Venezuela: (Renunciation of BITs = unilateral withdrawal)• • South Africa, Norway (Review; moratorium; renegotiation)• • Intra-EU BITs; some EU BITs: Termination by mutual agreement• • COMESA, US, Canada, ASEAN (More careful drafting)• • Australia (no more investor-state); Philippines (???)• • India (???)• • EU??• Malaysia???