anna joubin-bret, senior legal adviser division on investment unctad
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Anna Joubin-Bret, Senior Legal AdviserDivision on InvestmentUNCTADRecent Trends in foreign direct investment (FDI) and international investment agreementsWORKSHOP ON KEY SUBSTANTIVE ISSUES RELEVANT TO THE ANALYSIS AND NEGOTIATION OF BILATERAL INVESTMENT TREATIES Organized jointly bythe Secretariat of the United Nations Conference on Trade and Development (UNCTAD), and the Department of International Economic Affairs, Ministry of Foreign Affairs of Thailand
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Trends in FDI
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Key messages: FDI trends and prospectsGlobal foreign direct investment (FDI) flows rose moderately to $1.24 trillion in 2010, but were still 15 per cent below their pre-crisis average.For the first time, developing and transition economies together attracted more than half of global FDI flows.Some of the poorest regions continued to see declines in FDI flows. International production is expanding.State-owned TNCs are an important emerging source of FDI.UNCTAD estimates that global FDI will recover to its pre-crisis level in 2011, increasing to $1.41.6 trillion, and approach its 2007 peak in 2013.
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*Global FDI inflows rose moderately in 2010, but were still 15 per cent below their pre-crisis averageBillions of dollars
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*For the first time, developing and transition economies together attracted more than half of global FDI flows Developing countries: $574 billion, 12% increase Developed: $602 billion, 0.2% decline Transition (South-East Europe and the CIS): $68 billion, 5% declineBillions of dollarsIn 2010
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FDI flows to major emerging markets (East and South-East Asia and Latin America) rose strongly, while flows to some of the poorest regions (LDCs, LLDCs, SIDS and Africa) continued to decline (Billions of dollars)Billions of dollars
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*Outward FDI from developing and transition economies reached record highs, with most of their investment directed towards other countries in the SouthPer cent
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* Top 10 home and host countries for FDI (Billions of dollars)FDI outflowsFDI inflowsNote: The number in bracket after the name of the country refers to the ranking in 2009.(Billions of dollars)
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Thailand FDI flows in 2009(million of dollars) Total Inward FDI: 4 492Total Outward FDI: 2 182InflowsOutflows
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Trends in IIAs
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Core Elements in international investment agreements (IIAs)PreambleDefinitions (investment/investor)Admission and establishmentCore standards of protection:Principle of fair and equitable treatmentPrinciple of non-discrimination (NT/MFN)ExpropriationTransfer of fundsDispute settlement
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The network of International Investment Agreements (IIAs)
Bilateral investment treaties (BITs)
Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs)
Regional integration agreements (EU, ECOWAS, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN)
Multilateral agreements dealing with investment (GATS, TRIMs, TRIPs)
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Thailand's IIA Network39 BITs
62 DTTs
23 other IIAs (including ASEAN agreements and ASEAN +1 FTAs)
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A. Bilateral Investment Treaties
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The network of BITs continues to grow, there are now over 2600 BITs
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The top ten signatories of BITs in the world, January 2010Number of BITs
Chart1
89
94
95
98
101
102
104
117
125
135
Sheet1
Korea, Republic of89
Italy94
Belgium and Luxembourg95
Netherlands98
DataEgypt101
DataFrance102
DataUnited Kingdom104
DataSwitzerland117
DataChina125
DataGermany135
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Sheet1
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Increased sophistication and complexityUnited States and Canadian model BITs (2004)
Tend to be increasingly sophisticated in content
Clarifying in greater detail the meaning of a number of standard clauses
Putting more emphasis on the protection of national security, health, safety, the environment, and labour rights
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B. Free Trade Agreements
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B. Free Trade Agreements with Investment ChaptersInternational investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (including trade, services, competition, intellectual property)
Regional integration with investment disciplines: ASEAN investment liberalization and protection
The total number of such economic agreements with investment provisions exceeded 290, as of end 2009
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Over 300 economic cooperation agreements with investment provisions
Chart1
55
611
1627
103130
157287
By period
Cumulative
Number of IIAs (other than BITs and DTTs)
Sheet1
1957 19671968 19781979 19891990 20002001 2009
By period5616103157
Cumulative51127130287
Sheet1
&A
Page &P
By period
Cumulative
Number of IIAs (other than BITs and DTTs)
Sheet2
Sheet3
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Multiple overlapping FTAs with investment provisions IIAs proliferate at all levelsConstituting a complex system of multi-layered and multi-faceted investment rules
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Recent developments in investor-State dispute settlement
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The increase in IIAs has been paralleled by an increase in investor-State disputes
In 2010, at least 25 new cases were filed, bringing the total number of known treaty-based cases to 390
Of the total 390 known disputes:245 were filed with ICSID (or the ICSID Additional Facility)109 under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules19 with the Stockholm Chamber of Commercesix with the International Chamber of Commerce and four were ad hoc. One further case was filed with the Cairo Regional Centre for International Commercial Arbitration.In six cases, the applicable arbitration rules are unknown so far.
Thailand: 1 case - Walter Bau v. Thailand, UNCITRAL (Germany/Thailand BIT).
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Some disputes in 2010In Latin and Central America, Bolivia and Venezuela responded to three new claims each as a result of nationalization measures aiming at strengthening state control over strategic sectors.
Uruguay is responding to its first claim arising from consumer protection legislation involving marketing restrictions and labeling requirements of cigarettes
In Central Asia, Kazakhstan and Turkmenistan responded to two new cases each relating to energy and power facilities and construction projects
In Africa, Zimbabwe responded to two new cases relating to timber processing and commercial farms while Tanzania faced one new case dealing with a power purchase agreement.
In Europe, Lithuania, Romania and Slovakia responded to a new case each relating to alcohol industry, press distribution and claims arising out of alleged reversal of health insurance policy.
Canada faced one NAFTA case dealing with an investment in a pulp and paper mill.
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Known investment treaty arbitrations (cumulative and newly instituted cases
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Known investment treaty claims, by defendantsNumber of cases
Chart1
10
11
14
14
15
15
16
18
19
51
Sheet4
CountryCasesEgypt10
Poland11
Ukraine14
United States14
Canada15
Venezuela15
Ecuador16
Czech Republic18
Mexico19
Argentina51
Russian Federation9
Kazakhstan9
India9
Bolivia9
Turkey8
Romania8
Unknown7
Georgia7
Slovak Republic5
Moldova, Republic of5
Jordan5
Hungary5
Peru4
Mongolia4
Costa Rica4
Zimbabwe3
Turkmenistan3
Sri Lanka3
Paraguay3
Pakistan3
Lithuania3
Lebanon3
Guatemala3
Estonia3
El Salvador3
Congo, Democratic Republic of3
Chile3
Algeria3
Yemen2
Uzbekistan2
United Arab Emirates2
Slovenia2
Philippines2
Morocco2
Malaysia2
Macedonia2
Latvia2
Kyrgyz Republic2
Ghana2
Germany2
Dominican Republic2
Croatia2
Burundi2
Azerbaijan2
Albania2
Viet Nam1
Uruguay1
United Kingdom1
Tunisia1
Trinidad and Tobago1
Thailand1
Tanzania, United Republic of1
Tanzania1
Spain1
South Africa1
Slovak1
Serbia1
Senegal1
Saudi Arabia1
Portugal1
Panama1
Nigeria1
Nicaragua1
Myanmar1
Kyrgyzstan1
Kazakhstan1
Iran1
Indonesia1
Hungary1
Guyana1
Grenada1
Gabon1
France1
Congo, Democratic Republic of (former Republic of Zaire)1
Cambodia1
Bulgaria1
Bosnia and Herzegovina1
Belize1
Bangladesh1
Bangladesh1
Armenia1
Total207
Sheet4
Sheet1
ctynum
Zimbabwe1
Zimbabwe1
Zimbabwe1
Yemen1
Yemen1
Viet Nam1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Venezuela1
Uzbekistan1
Uzbekistan1
Uruguay1
Unknown1
Unknown1
Unknown1
Unknown1
Unknown1
Unknown1
Unknown1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United States1
United Kingdom1
United Arab Emirates1
United Arab Emirates1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Ukraine1
Turkmenistan1
Turkmenistan1
Turkmenistan1
Turkey1
Turkey1
Turkey1
Turkey1
Turkey1
Turkey1
Turkey1
Turkey1
Tunisia1
Trinidad and Tobago1
Thailand1
Tanzania, United Republic of1
Tanzania1
Sri Lanka1
Sri Lanka1
Sri Lanka1
Spain1
South Africa1
Slovenia1
Slovenia1
Slovak Republic1
Slovak Republic1
Slovak Republic1
Slovak Republic1
Slovak Republic1
Slovak1
Serbia1
Senegal1
Saudi Arabia1
Russian Federation1
Russian Federation1
Russian Federation1
Russian Federation1
Russian Federation1
Russian Federation1
Russian Federation1
Russian Federation1
Russian Federation1
Romania1
Romania1
Romania1
Romania1
Romania1
Romania1
Romania1
Romania1
Portugal1
Poland1
Poland1
Poland1
Poland1
Poland1
Poland1
Poland1
Poland1
Poland1
Poland1
Poland1
Philippines1
Philippines1
Peru1
Peru1
Peru1
Peru1
Paraguay1
Paraguay1
Paraguay1
Panama1
Pakistan1
Pakistan1
Pakistan1
Nigeria1
Nicaragua1
Myanmar1
Morocco1
Morocco1
Mongolia1
Mongolia1
Mongolia1
Mongolia1
Moldova, Republic of1
Moldova, Republic of1
Moldova, Republic of1
Moldova, Republic of1
Moldova, Republic of1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Mexico1
Malaysia1
Malaysia1
Macedonia1
Macedonia1
Lithuania1
Lithuania1
Lithuania1
Lebanon1
Lebanon1
Lebanon1
Latvia1
Latvia1
Kyrgyzstan1
Kyrgyz Republic1
Kyrgyz Republic1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Kazakhstan1
Jordan1
Jordan1
Jordan1
Jordan1
Jordan1
Iran1
Indonesia1
India1
India1
India1
India1
India1
India1
India1
India1
India1
Hungary1
Hungary1
Hungary1
Hungary1
Hungary1
Hungary1
Guyana1
Guatemala1
Guatemala1
Guatemala1
Grenada1
Ghana1
Ghana1
Germany1
Germany1
Georgia1
Georgia1
Georgia1
Georgia1
Georgia1
Georgia1
Georgia1
Gabon1
France/United Kingdom1
Estonia1
Estonia1
Estonia1
El Salvador1
El Salvador1
El Salvador1
Egypt1
Egypt1
Egypt1
Egypt1
Egypt1
Egypt1
Egypt1
Egypt1
Egypt1
Egypt1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Ecuador1
Dominican Republic1
Dominican Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Czech Republic1
Croatia1
Croatia1
Costa Rica1
Costa Rica1
Costa Rica1
Costa Rica1
Congo, Democratic Republic of (former Republic of Zaire)1
Congo, Democratic Republic of1
Congo, Democratic Republic of1
Congo, Democratic Republic of1
Chile1
Chile1
Chile1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Canada1
Cambodia1
Burundi1
Burundi1
Bulgaria1
Bosnia and Herzegovina1
Bolivia1
Bolivia1
Bolivia1
Bolivia1
Bolivia1
Bolivia1
Bolivia1
Bolivia1
Bolivia1
Belize1
Bangladesh1
Bangladesh1
Azerbaijan1
Azerbaijan1
Armenia1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Argentina1
Algeria1
Algeria1
Algeria1
Albania1
Albania1
Sheet2
Sheet3
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international investment agreements ininvestment treaty arbitrations, end 2009
Chart1
1.5
1.5
5
7
85
NAFTA5%
Energy Charter Treaty 7%
Bilateral investment treaties 84%
Sheet1
CAFTA1.5
ASEAN1.5
ALENA5
Trait sur la Charte de l'Energie7
Trait bilatral d'investissement85
Sheet1
0
0
0
0
0
Sheet2
Sheet3
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Key issues and challenges
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Developing countries and economies in transition 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 (always keep in mind national investment laws)
How to strengthen the development dimension of IIAs (investment promotion V.S. investment protection)
Many capital importing countries becoming capital exporters: implications with regard to their negotiation position in IIAs. These countries now have to attract inward FDI, but also protect their own investors abroad
Result: developing countries and economies in transition need to ensure policy coherence between their various international investment commitments, including those at the national level.
This entails coherence with national strategies on investment and how it can contribute to sustainable development.
Challenges
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Overarching principles
Investment in sustainable developmentPolicy coherenceGood governancePolicy making dynamicsBalanced rights and obligationsRight to regulateOpenness to investmentInvestment protectionCorporate responsibilityOutward investmentInternational cooperation
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Thank you
www.unctad.org/iia
World Investment Report 2009World Investment Report 2009World Investment Report 2009World Investment Report 2009World Investment Report 20091) The preamble does not create rights and obligations, but they are relevent for the general interpretation of the treaty. Usually the parties reafirm their desire to enhance economic cooperation, to promote and to protect investment.2) The scope of application determines the object to which the BIT shall aplly. Definitions, therefore, are important to know for example what constitutes an investment and what constitutes an investor. 3) Admission of investment. Typically, BITs provide for the admission of investment of nationals and companies of the other contracting party, but only in accordance with the law of the host country. That means that in most BITs FDI projects should still be approved by a specific ministry or authority despite the existence of the BIT. The admission of investment facilitates the entry of investment. 4) Standards of treatment. BITs use two different standards that are directed at preventing discirminatory treatment to investments made by a contracting party: the most-favoured-nation treatment and the national treatment. MFN standard guarantees that investment of one contracting party will be treated no less favourably than investment by nationals or companies of any third country. This also means that if one party gives any special advantage to investment from a third party, it must grant that same advantage to its treaty partner. 6) Expropriation. Many developed countries (especially in the 1960s and 1970s) signed BITs primarly to protect their investments abroad against the risk of expropriation or nationalization. BITs specifically prohibit the expropriation unless it is done for the public good and accompanied by fair and prompt compensation7) Free transfer of funds. Most BITs guarantee the free transfer of all payments related to an investment. The timely transfer of income is important to foreign investors to benefit from their projects and to meet their obligations vis a vis sharholders. It should be noted that the sudden repatriation of large profits made by foreign investors can have adverse effect on the host countries. 8) Dispute Settelment. BITs provide for provisions for the settelment of investment disputes. This is of critical importance because such provisions ensure that the standards of treatment and protection granted by a treaty are effectively enforced. Under dispute settelment provisions, the investor can bring a claim against the host country for violating any of the BIT provisions. The dispute can be submitted either to a domestic court or to international arbitration such as ICSID (the foreign investor would usually prefer international arbitration).
The network of international investment agreements is composed of bilateral treaties for the promotion and protection of investment (or bilateral investment treaties) there are over 2500 BITs worldwide, free trade agreements with investment chapters and regional integration agreements (250 such agreements), as well as various multilateral agreements that contain a commitment to liberalize, protect and/or promote investment.
In this presentation I will focus first on bilateral investment treaties and free trade agreements with investment provisions. As you can see from the chart, during 2005, 74 new BITs were concluded. This brought the total number of BITs to 2,466.
Please note that the number of BITs concluded per year has been steadily declining.
Developed countries seeking to protect their investments abroad continue to be the largest concluders of BITs. Seven of the top 10 countries with the most BITs signed are developed countries.
However, China is the country with the second highest number of BITs concluded, and Egypt ranks 6th.
Some new generation BITs and BIT models have deviated from the traditional open-ended asset-based definition of investment in order no to cover assets that are not really intended by the Parties to be covered investments (non-economic activities). Clarify the meaning of provisions dealing with absolute standards of protection, in particular, the meaning of minimum standard of treatment in accordance with international law and the concept of indirect expropriation. New generation BIT models include annexes specifying guidelines and criteria to determine whether in a particular situation an indirect expropriation.The protection of health, safety, the environment, and the promotion of internationally recognized labor rights are areas on which the new generation of BITs include specific language generally aimed at clarifying that the investment protection and liberalization objectives of investment agreements cannot be pursued at the expense of these other key public policy objectives.
Another tool to attract and protect investments are free trade agreements, the new FTAs increasingly encompass investment provisions and are therefore counted as investment instruments. They cover not only trade and investment but also services, IPRs and other disciplines. Most active countries in the conclusion of such comprehensive FTAs are the U.S., Australia, Japan, Chile and Singapore. As mentioned earlier, the number of such agreements exceeded 230 by the end of 2005.
By the end of 2007, at least 250 such economic agreements with investment provisions had been concluded.Among the most important recent trends is the further proliferation of international investment agreements at bilateral, regional and interregional levels. This has resulted in a "spaghetti bowl" of IIAs. The existing system of such multi-layered and multi-faceted international investment rules is becoming increasingly complex.
Examples of investment promotion measures: (a) transparency and exchange of investment-related information; (b) fostering linkages between foreign investors and domestic companies; (c) capacity-building and technical assistance; (d) granting of investment insurance; (e) encouragement of transfer of technology; (f) easing informal investment obstacles; (g) joint investment promotion activities; (h) access to capital; (i) financial and fiscal incentives; and (j) the setting up of an institutional mechanism to coordinate the respective measures.
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