United Nations Conference on Trade and Development Trade and Development Board Geneva, 28-29 June
28 June 2007 p.m.: Balancing Private and Public Interest in International Investment Agreements (IIAs)
Speakers:
M. Joerg WEBER, Officer in charge International Arrangements Section, DITE/UNCTAD
Mrs. Amina OUSMOI DAKKAK, Inspector of finances, Ministry of Finances and privatization, Rabat, Morocco
Mr. Felipe LOPEANDIA W, Counsellor, Permanent Mission of Chile to the WTO, Geneva
Dr. Walid BEN HAMIDA, Right professor, University of Evry and Sciences-Po Paris
This is the second challenge identified in connection with current international investment rulemaking: how to balance the rights and interests of foreign investors, on the one hand, with those of the host country on the other, and how to ensure regulatory flexibility for host countries?
How to balance the rights and interests of foreign investors and host countries is THE key issue in any IIA negotiation.
Transnational corporations (TNCs) and host countries do not have the same interests. TNCs are basically profit-centred and, by contrast, governments are primarily accountable to the public interest; their duty is to ensure that business benefits do not harm society.
In legal terms, the potential conflict of interest between investor rights and government prerogatives is taken care of by the interrelationship between international investment agreements (IIAs) and the domestic legislation of the host countries. In fact, while IIAs seek to protect the legitimate interests of foreign investors, the national laws of the host country ensure that the investment remains subject to the latter’s regulatory powers and control.
All discussions about the potential benefits and risks of IIAs boil down to the fundamental question as to whether the interplay between international treaty protection and domestic regulation achieves an appropriate balance of investor rights and obligations.
The debate over what “checks and balances” or obligations IIAs should include for investors as a counterweight to the rights these treaties accord to them is not new.
However, as more and more foreign investors go to arbitration, concerns about the possible negative effects of IIAs for host countries have become more pronounced. In particular, it has been argued that certain IIA provisions are vague and ambiguous thereby increasing the risk that an arbitral tribunal could interpret them very broadly, and that IIAs do not do enough to protect the public interest.
Changes to existing treaty language
Nonetheless, up to now only a few countries have found it necessary to respond to this criticism by introducing amendments to their IIAs. We could highlight three developments in this respect:
1) Canada and the United States have revised their model Bilateral Investment Treaties (BITs) in order to clarify individual BIT provision. These treaties spell out in more detail the content of some core provisions, in particular the minimum standard of treatment in accordance to international law and the provision dealing with indirect expropriation. This innovation can also be found in recent BITs signed by Japan and the Republic of Korea.
2) Another important new development is that some recent BITs emphasize in a stronger manner that investment protection must not be pursued at the expense of other legitimate public interests.
Thus, in addition to the “traditional” areas where such exceptions have been a common feature of BITs for many years, more agreements now also exempt host country measures related to such diverse fields as essential security and public order, protection of health, safety and natural resources, cultural diversity, and prudential measures for financial services fully or partially from the scope of the BIT.
The proliferation of general exceptions does not respond to a particular regional pattern.
3) Other recent BITs (those signed by Mexico) have also introduced innovations with regard to investor-State dispute settlement. These include more substantial transparency in arbitration proceedings, open hearings, publication of related legal documents, and the possibility for representatives of civil society to submit “amicus curiae” briefs to arbitration tribunals.
Many of the recent changes introduced into BITs reflect arbitration experience. If ever more countries become defendants in investment disputes and if they consider that arbitration tribunals have too much discretion in interpreting IIAs provisions, they might wish to follow this approach.
Corporate social responsibility
The question of whether IIAs should also include binding obligations for foreign investors as a counterweight to the granting of rights to them.
Thus, while not subjecting foreign investors to international obligations in the IIAs, their home country and host country nevertheless convey the important political message that foreign investors are expected to behave in a certain manner.
However, most existing instruments concern the “traditional” corporate social responsibility (CRS) issues related to Human Rights, environmental protection and prevention of corruption, and do not deal with economic development issues.
Another interesting question has been posed: whether in future IIA negotiations a reference to existing instruments on investor responsibility should be made?
This challenge is made the more pressing as a result of the increased use of public-private partnerships as a means of investing in major projects in developing countries, making the private investor directly involved in the provision of public services and infrastructure.
The balancing of private and public interests in IIAs is also a dynamic issue, which means that the interests may change over time. Thus, there is no uniform response to these challenges. In fact, countries may have divergent priorities concerning the protection of their own interests, and they may use different legal techniques to incorporate them in IIAs.
To conclude, one important consequence of the current situation is the growing need for policy research and analysis, as well as capacity-building to help developing countries assess the implications of different policy options for balancing private and public interests. An unbalanced IIAs system will not be sustainable over the long run.
28 June 2007 p.m.: Balancing Private and Public Interest in International Investment Agreements (IIAs)
Speakers:
M. Joerg WEBER, Officer in charge International Arrangements Section, DITE/UNCTAD
Mrs. Amina OUSMOI DAKKAK, Inspector of finances, Ministry of Finances and privatization, Rabat, Morocco
Mr. Felipe LOPEANDIA W, Counsellor, Permanent Mission of Chile to the WTO, Geneva
Dr. Walid BEN HAMIDA, Right professor, University of Evry and Sciences-Po Paris
This is the second challenge identified in connection with current international investment rulemaking: how to balance the rights and interests of foreign investors, on the one hand, with those of the host country on the other, and how to ensure regulatory flexibility for host countries?
How to balance the rights and interests of foreign investors and host countries is THE key issue in any IIA negotiation.
Transnational corporations (TNCs) and host countries do not have the same interests. TNCs are basically profit-centred and, by contrast, governments are primarily accountable to the public interest; their duty is to ensure that business benefits do not harm society.
In legal terms, the potential conflict of interest between investor rights and government prerogatives is taken care of by the interrelationship between international investment agreements (IIAs) and the domestic legislation of the host countries. In fact, while IIAs seek to protect the legitimate interests of foreign investors, the national laws of the host country ensure that the investment remains subject to the latter’s regulatory powers and control.
All discussions about the potential benefits and risks of IIAs boil down to the fundamental question as to whether the interplay between international treaty protection and domestic regulation achieves an appropriate balance of investor rights and obligations.
The debate over what “checks and balances” or obligations IIAs should include for investors as a counterweight to the rights these treaties accord to them is not new.
However, as more and more foreign investors go to arbitration, concerns about the possible negative effects of IIAs for host countries have become more pronounced. In particular, it has been argued that certain IIA provisions are vague and ambiguous thereby increasing the risk that an arbitral tribunal could interpret them very broadly, and that IIAs do not do enough to protect the public interest.
Changes to existing treaty language
Nonetheless, up to now only a few countries have found it necessary to respond to this criticism by introducing amendments to their IIAs. We could highlight three developments in this respect:
1) Canada and the United States have revised their model Bilateral Investment Treaties (BITs) in order to clarify individual BIT provision. These treaties spell out in more detail the content of some core provisions, in particular the minimum standard of treatment in accordance to international law and the provision dealing with indirect expropriation. This innovation can also be found in recent BITs signed by Japan and the Republic of Korea.
2) Another important new development is that some recent BITs emphasize in a stronger manner that investment protection must not be pursued at the expense of other legitimate public interests.
Thus, in addition to the “traditional” areas where such exceptions have been a common feature of BITs for many years, more agreements now also exempt host country measures related to such diverse fields as essential security and public order, protection of health, safety and natural resources, cultural diversity, and prudential measures for financial services fully or partially from the scope of the BIT.
The proliferation of general exceptions does not respond to a particular regional pattern.
3) Other recent BITs (those signed by Mexico) have also introduced innovations with regard to investor-State dispute settlement. These include more substantial transparency in arbitration proceedings, open hearings, publication of related legal documents, and the possibility for representatives of civil society to submit “amicus curiae” briefs to arbitration tribunals.
Many of the recent changes introduced into BITs reflect arbitration experience. If ever more countries become defendants in investment disputes and if they consider that arbitration tribunals have too much discretion in interpreting IIAs provisions, they might wish to follow this approach.
Corporate social responsibility
The question of whether IIAs should also include binding obligations for foreign investors as a counterweight to the granting of rights to them.
Thus, while not subjecting foreign investors to international obligations in the IIAs, their home country and host country nevertheless convey the important political message that foreign investors are expected to behave in a certain manner.
However, most existing instruments concern the “traditional” corporate social responsibility (CRS) issues related to Human Rights, environmental protection and prevention of corruption, and do not deal with economic development issues.
Another interesting question has been posed: whether in future IIA negotiations a reference to existing instruments on investor responsibility should be made?
This challenge is made the more pressing as a result of the increased use of public-private partnerships as a means of investing in major projects in developing countries, making the private investor directly involved in the provision of public services and infrastructure.
The balancing of private and public interests in IIAs is also a dynamic issue, which means that the interests may change over time. Thus, there is no uniform response to these challenges. In fact, countries may have divergent priorities concerning the protection of their own interests, and they may use different legal techniques to incorporate them in IIAs.
To conclude, one important consequence of the current situation is the growing need for policy research and analysis, as well as capacity-building to help developing countries assess the implications of different policy options for balancing private and public interests. An unbalanced IIAs system will not be sustainable over the long run.
29 June 2007 a.m.:
The first panellist of the afternoon session was Mr. Joachim Karl, Senior Legal Advisor in the International Arrangements Section of UNCTAD. He noted that a great majority of IIAs do not deal with development issues. He recommended including such issues in agreements pro-actively instead of dealing with them afterwards. He also advised that IIAs should include a promotion provision and an institutional mechanism to coordinate investment promotion activities.
Finally, he noted that developing countries generally lack the knowledge and know-how to properly deal with the complicated issue of IIAs. He therefore proposed the establishment of a permanent Standing Expert Group on Investment Agreements and Development to advise these countries.
Mohamed Simpara then presented the situation of IIAs in his country, Mali. He highlighted the fact that most of the agreements signed by Mali have been proposed by other countries and are often putting the host country at a disadvantage for maximising investments. Venezuela confirmed this affirmation.
Alternative dispute resolution methods (ADR) were discussed and recommended by all panellists. Indeed, the arbitration mechanism is costly, long and damages the investor-State relationship. Argentina emphasized the fact that the negotiation phase is often cancelled to jump directly to the arbitration one. This situation should be corrected and ADR should be, according to them, made compulsory. Switzerland recalled that mediators involved in ADR are often lawyers and the process is not always cheaper and shorter. The Center for International Environmental Law (CIEL)’s delegate criticized the secretive aspect of international arbitration for the public but also for other States that would like to be informed of the decisions taken in certain cases.
Ecuador introduced their model of IIAs:
-IIAs should leave a big latitude for countries but should stay within the limits fixed by the WTO
-Even developing countries should align themselves to international norms
-IIAs should allow the protection of certain sensitive sectors
-ADR should be included in IIAs, for example preliminary negotiations and consultation before arbitration.
-A bi-national committee should be created to promote exchanges.
Finally, Ecuador rejected the possibilities of IIAs signed directly between investors and States.
Professor Mushlinski of the School of Oriental and African Studies, University of London, recommended the setting up of a mechanism to lower the inequalities of bargaining power. He also highlighted the importance of investors’ behaviour. They should obey the law, be more open in their actions and actually invest after the IIA is signed.
This problem of not investing once an IIA is signed was also emphasized by Cuba who noted that of 66 IIAs signed, only 33 countries actually invested in their country, while the biggest investor in Cuba is Canada, a country with which it has no agreement. Cuba also insisted on the importance of South-South cooperation, and that IIAs should only be agreed at the bilateral level on a case by case basis.
Morocco criticized the overuse of reserves and safeguards that hinder competition and protect ineffective national firms therefore creating a loss of international profit. It also emphasized the importance of development to create favourable conditions for investment. Indeed, without infrastructure, encouraging investment is pointless. Finally, it proposed to CNUCED to create a matrix containing the investment situation, rules and procedures of all countries.
Bolivia explained that IIAs are not the only way of attracting Foreign Direct Investment. The emphasis should be put on national investment policies, national judicial system...
The UNCTAD Director’s conclusions summarized the main ideas evoked during the conference:
-the creation of a model of IIA for the developing countries
-the setting up of multilateral principles to guide future IIAs towards development issues
-a matrix of the different national policies
-the creation of a Permanent Expert Group on IIAs.
The Chairman finally called for more rationality in the IIA system instead of the current “patchwork” or “spaghetti bowl” of agreements.
29th June 2007 p.m:
During this informal meeting, the UNCTAD work was introduced. Since 1996, a program focusing on IIAs is implemented by the UNCTAD. On March 2007, the mandate of the Commission on Investment was renewed. The Commission is a focal point. It explains the contents and the impact of IIAs. This Commission also deals with most of the settlement of investment dispute between investors and states. The objectives of the Commission are:
-Research and analyses of policies
-Capacity-building
-Consensus-building
Research and analyses of policies
The Commission analyses the trends and emerging issues. The perspective of development remains the guideline of those analyses.
As a result of research and analyses, the Commission proposes many publications:
Ø The pink books dedicated to each aspect of IIA. 28 volumes have already been published, each one focusing on one part of an IIA.
Ø The yellow books more focused on policies (South-South agreements, exceptions within IIA, flexibility in law…)
Ø The IIA Monitor is a kind of newsletter where the last trends are presented. Four IIA Monitors are published each year.
The Commission has also developed “E-tools”, available on the UNCTAD’s web.
The “E-tools”:
Ø Bilateral Investment Treaties (BITs) database
Ø Country list of BITs
Ø Compendium of international investment instruments
Ø Database on settlement of investment dispute (real cases registered by UNCTAD, only disputes on treaties involving a state and an investors)
Capacity-building
This second objective aims at providing technical assistance. The Commission provided training (“Train for Trade” initiative). It also delivers regional courses aiming at increasing negotiation capacity and at improving the quality of treaties themselves. Other advanced courses are dedicated to the settlement of investment disputes. If a state asks to the Commission, the Commission can also organize training specially dedicated to its situation.
Finally, the Commission is also an adviser during negotiation.
Consensus-building
The last two days have reflected that part of the Commission’s work.
Other events are organized in order to strengthen capacity-building of states:
Ø Annual Commission on Investment
Ø Expert Meetings
Ø International Symposia
It is possible to contact directly the IIA work program:
iia@unctad.org
www.unctad.org/iia
The first panellist of the afternoon session was Mr. Joachim Karl, Senior Legal Advisor in the International Arrangements Section of UNCTAD. He noted that a great majority of IIAs do not deal with development issues. He recommended including such issues in agreements pro-actively instead of dealing with them afterwards. He also advised that IIAs should include a promotion provision and an institutional mechanism to coordinate investment promotion activities.
Finally, he noted that developing countries generally lack the knowledge and know-how to properly deal with the complicated issue of IIAs. He therefore proposed the establishment of a permanent Standing Expert Group on Investment Agreements and Development to advise these countries.
Mohamed Simpara then presented the situation of IIAs in his country, Mali. He highlighted the fact that most of the agreements signed by Mali have been proposed by other countries and are often putting the host country at a disadvantage for maximising investments. Venezuela confirmed this affirmation.
Alternative dispute resolution methods (ADR) were discussed and recommended by all panellists. Indeed, the arbitration mechanism is costly, long and damages the investor-State relationship. Argentina emphasized the fact that the negotiation phase is often cancelled to jump directly to the arbitration one. This situation should be corrected and ADR should be, according to them, made compulsory. Switzerland recalled that mediators involved in ADR are often lawyers and the process is not always cheaper and shorter. The Center for International Environmental Law (CIEL)’s delegate criticized the secretive aspect of international arbitration for the public but also for other States that would like to be informed of the decisions taken in certain cases.
Ecuador introduced their model of IIAs:
-IIAs should leave a big latitude for countries but should stay within the limits fixed by the WTO
-Even developing countries should align themselves to international norms
-IIAs should allow the protection of certain sensitive sectors
-ADR should be included in IIAs, for example preliminary negotiations and consultation before arbitration.
-A bi-national committee should be created to promote exchanges.
Finally, Ecuador rejected the possibilities of IIAs signed directly between investors and States.
Professor Mushlinski of the School of Oriental and African Studies, University of London, recommended the setting up of a mechanism to lower the inequalities of bargaining power. He also highlighted the importance of investors’ behaviour. They should obey the law, be more open in their actions and actually invest after the IIA is signed.
This problem of not investing once an IIA is signed was also emphasized by Cuba who noted that of 66 IIAs signed, only 33 countries actually invested in their country, while the biggest investor in Cuba is Canada, a country with which it has no agreement. Cuba also insisted on the importance of South-South cooperation, and that IIAs should only be agreed at the bilateral level on a case by case basis.
Morocco criticized the overuse of reserves and safeguards that hinder competition and protect ineffective national firms therefore creating a loss of international profit. It also emphasized the importance of development to create favourable conditions for investment. Indeed, without infrastructure, encouraging investment is pointless. Finally, it proposed to CNUCED to create a matrix containing the investment situation, rules and procedures of all countries.
Bolivia explained that IIAs are not the only way of attracting Foreign Direct Investment. The emphasis should be put on national investment policies, national judicial system...
The UNCTAD Director’s conclusions summarized the main ideas evoked during the conference:
-the creation of a model of IIA for the developing countries
-the setting up of multilateral principles to guide future IIAs towards development issues
-a matrix of the different national policies
-the creation of a Permanent Expert Group on IIAs.
The Chairman finally called for more rationality in the IIA system instead of the current “patchwork” or “spaghetti bowl” of agreements.
29th June 2007 p.m:
During this informal meeting, the UNCTAD work was introduced. Since 1996, a program focusing on IIAs is implemented by the UNCTAD. On March 2007, the mandate of the Commission on Investment was renewed. The Commission is a focal point. It explains the contents and the impact of IIAs. This Commission also deals with most of the settlement of investment dispute between investors and states. The objectives of the Commission are:
-Research and analyses of policies
-Capacity-building
-Consensus-building
Research and analyses of policies
The Commission analyses the trends and emerging issues. The perspective of development remains the guideline of those analyses.
As a result of research and analyses, the Commission proposes many publications:
Ø The pink books dedicated to each aspect of IIA. 28 volumes have already been published, each one focusing on one part of an IIA.
Ø The yellow books more focused on policies (South-South agreements, exceptions within IIA, flexibility in law…)
Ø The IIA Monitor is a kind of newsletter where the last trends are presented. Four IIA Monitors are published each year.
The Commission has also developed “E-tools”, available on the UNCTAD’s web.
The “E-tools”:
Ø Bilateral Investment Treaties (BITs) database
Ø Country list of BITs
Ø Compendium of international investment instruments
Ø Database on settlement of investment dispute (real cases registered by UNCTAD, only disputes on treaties involving a state and an investors)
Capacity-building
This second objective aims at providing technical assistance. The Commission provided training (“Train for Trade” initiative). It also delivers regional courses aiming at increasing negotiation capacity and at improving the quality of treaties themselves. Other advanced courses are dedicated to the settlement of investment disputes. If a state asks to the Commission, the Commission can also organize training specially dedicated to its situation.
Finally, the Commission is also an adviser during negotiation.
Consensus-building
The last two days have reflected that part of the Commission’s work.
Other events are organized in order to strengthen capacity-building of states:
Ø Annual Commission on Investment
Ø Expert Meetings
Ø International Symposia
It is possible to contact directly the IIA work program:
iia@unctad.org
www.unctad.org/iia
