Tag Archives: IIA

IIA reform continues

IIAsBlogStates continue to sign new international investment agreements (IIAs) in recent years, where by the end of 2015, the IIA universe consisted of 3,286 agreements. Among these agreements, 2,928 are bilateral investment treaties (BITs) and 358 are other IIAs (for example, trade agreements with investment chapters).

At the same time, as many as at least sixty countries have developed or are developing new model IIAs.

Here we bring out some progress of the reform.

As noted by the United Nations Conference on Trade and Development (UNCTAD) in its latest report, IIA reform is happening against the backdrop of the global trend to formulate a “new generation of investment policies” that place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment.

In general, most of the new models include provisions safeguarding the right to regulate, including for sustainable development objectives. It is also clear that states intend to move away from the “protection (only) model” to a more balanced “investment for sustainable development” model.

India’s new model BIT is particularly interesting because it includes some provisions not found in many other BITs. For instance, it promotes transparency by requiring states to ensure that all laws and regulations are published or available for those who are interested. This model also tries to provide more balance in the state-investor relationship by providing obligations to foreign investor, which consists of requirement to comply with host state’s laws, including environmental and human rights law. It further mandates foreign investors to voluntarily incorporate internationally-recognized standards of corporate social responsibility (CSR) in their practices and internal policies.

Meanwhile, the Netherlands model BIT excludes “mailbox” companies from the scope of the BIT. Finally, the recently-signed Trans-Pacific Partnership includes some clarification on expropriation provisions and a special denial of benefits clause for tobacco-related claims.

UNCTAD at the Stockholm Energy Charter Treaty Forum

summer meadow with high-voltage towers rowThe need to scale up energy investment was address by Deputy Secretary-General of the United Nations Conference of Trade and Development (UNCTAD), Joakim Reiter, at the recent Stockholm Energy Charter Treaty Forum, In his speech, Mr Reiter also remarked that international investment agreements (IIAs) can play a critical role in achieving this objective.

The Deputy Secretary General emphasized that energy poverty is the immense challenge of our time, when almost a fifth of the world’s population today have no access to electricity of any kind.  The amount of investment needed to address this problem is staggering, where for sustainable energy alone, the required amount reaches USD 800 billion. In this respect, he pointed out that the Energy Charter Treaty, as the only multilateral investment agreement in the field of energy, can play an important role in fostering sustainable energy future.

DSG Reiter remarked that international investment agreements (IIAs) have the potential to reinforce investor confidence by fostering predictability and transparency. It can also foster good governance and therefore improving the host country climate. However, he viewed that the new IIAs should strike a better balance between investment protection and the right to regulate of host government.

When it comes to ISDS, he noted the increasing number of ISDS has raised concerns. However, he asserted that the choice is not between having ISDS and not having ISDS. The choice is between having ISDS that works for sustainable development and ISDS that does not.

Read our previous posts about ISDS in support of climate change mitigation, about more environmental languages in IIAs and also about ISDS at COP 21.

Stockholm Energy Charter Treaty Forum was held on 8 February 2016 as a result of collaboration between the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), Energy Charter Secretariat, the International Centre for Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration. The theme of this year’s forum was how to boost energy investment as well as to remove related barriers and risks. Among the speakers were high-level government officers from Asia, South America and Africa as well as energy investors, law practitioners and academics.

2014: A Strong Year for New Investment Protection Regimes

sustainabledevA lot of new development took place last year in the investment protection regime. This is demonstrated for example by a yearly report from the United Nations Conference on Trade and Development (UNCTAD), which summarizes statistics and development surrounding the regime and ISDS.

States, to a large extent, continue to display interest and trust in the investment protection regime. This year’s finding shows that States have concluded 27 international investment agreements (IIAs), which means one every other week.

Sustainable development is at the heart of the newly-adopted IIAs. Most treaties concluded in 2014 include sustainable-development oriented features, for examples by preserving regulatory space for public policies of host countries and discouraging parties to relax environmental standards in order to attract foreign investments.

States maintain control in investment treaty-making and the design of ISDS provisions. In parallel to the adoption of new IIAs, 45 countries are revising their model Bilateral Investment Treaties. New model agreements have been concluded, notably by Brazil and India. This trend may also open up opportunities to include carefully-drafted investment protection in the IIA in support of sustainable development.

The total number of known ISDS claims decreased in 2014, from 54 cases in 2012 and 59 cases in 2013 to 42 cases last year.

Sustainable development target for future treaties

Reform of the international investment agreement (IIA) regime was discussed at a recent Expert Meeting hosted by the United Nations Conference on Trade and Development (UNCTAD) in Geneva. On 25-27 February 2015, more than 250 participants including governmental representatives, academics, business organizations and other civil organizations engaged in constructive discussions on how to enhance investments and sustainable development. The Stockholm Chamber of Commerce delegations were also present, which were the Trade Policy Advisor and the Legal Counsel of the Arbitration Institute.

The point of departure of the discussion is that a large number of IIAs will expire soon – and in parallel to that, there are negotiations of mega-regional investment pacts such as the TTIP and TPP. This recent development opens up the opportunity to further develop the IIA and ISDS regime, essentially to promote sustainable development. The meeting sought insights and expertise from participants to achieve this goal.

For the substantive part, provisions of early IIAs have been viewed as broad and vague. The discussions revolved around whether to specify these provisions (such as indirect expropriation and fair and equitable treatment) or to leave the issues to be developed through case laws.

For the procedural part, participants still voiced strong supports for ISDS.

The question is how to design ISDS to be more cost-efficient and to safeguard consistency in the outcome of the cases. Options such as establishment of appellate mechanism and international investment court were discussed, even though participants still differed to a great extent on whether these reform options will address the problems or will add the problems.

There was however a broader consensus that it is rather more difficult to reform the IIA regime as it is not codified in one single system, for instance such as the WTO.

A good note to take home was a reminder from participants that the design of the new IIA and ISDS regime should focus on the main purpose of the regime, which is to promote investment, most importantly investment in sustainable development. To this end, government representatives agreed to learn from one another’s best practices and to continuously seek expertise from the UNCTAD.

Positive Impact of Investment Agreement and ISDS on Foreign Investment

The United Nations Conference on Trade and Development (UNCTAD) recently released a paper on the relationship between International Investment Agreement (IIA) and Foreign Direct Investment (FDI). The research concludes the followings:

a. The majority of empirical studies found that IIA does have a positive impact on the flow of FDI.

b. IIA plays a complementary role among several factors which may boost FDI, among others economic, political and social stability as well as protection of property rights.

c. The existence of ISDS was associated with a positive impact of IIA on FDI.

The roles of IIA, however, have to be seen within the context. The report notes that since its role is complementary; it cannot substitute for the need of sound domestic policies, regulatory and institutional frameworks. IIA is not an insurance that more FDI will come, if the country’s domestic policies are not favorable and stimulating enough for foreign investors. Similarly, we may not expect that IIA can turn a weak domestic policy into a strong one.

Let’s take renewable energy as an illustration. Investment in renewable energy is of great importance since it is seen as one of the solutions to tackle climate change. Many countries have great potentials for renewable energy, but not all have favorable domestic policy to support its development. It would be hard to imagine that foreign investment will come just because of the fact that a country has an IIA in place; domestic policy is also a necessary prerequisite.

As addressed in the paper, attracting FDI is neither the prime nor the only role of IIAs. Its key role is to contribute to predictability, stability and transparency in investor relation. IIA thus ensures that for example a renewable energy investor can reasonably rely on the laws and regulations currently in place when making the investment,  and also that the investor should be able to rely on permits and contracts with government. This stability allows foreign investors to plan its investment – which in the end will boost investor’s confidence.

The fact that IIA has a positive impact on the flow of FDI opens up opportunities for governments to boost investment in a particular area, such as for example sustainable development. ISDS, in turn, safeguards the implementation of the IIA by providing an efficient enforcement mechanism for the terms of the treaty.