Tag Archives: UNCTAD

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.

The ICSID Caseload – Statistics 2014

The ICSID recently published its latest caseload statistics of ISDS cases since 1972 until 30 June 2014. According to an UNCTAD report, ICSID has administered the majority of ISDS cases, which accounts for 62% of all ISDS cases as per 31 December 2013.

Below are some interesting points from the statistics:

  1. Since 1972 until 30 June 2014, ICSID has registered 464 investment arbitration cases and 9 conciliation cases.
  2. The basis of the ICSID jurisdiction is found not only in bilateral investment treaties or free trade agreements, but also in investment law of host states and investment contracts between investors and host states.
  3. Among all ICSID cases that have been decided by tribunals so far, tribunals have declined jurisdiction in 25% of cases, dismissed all claims in 28% of cases and decided that the claims are manifestly without legal merit in 1% of cases. This means that government prevailed in 54% of cases. In 46% of cases, tribunals have upheld investor’s claims in part or in full.
  4. South American, Eastern European and Central Asian countries remain the mostly-involved State party in ICSID cases, followed by the countries in Sub-Saharan Africa, Middle East and North Africa.

Looking at the latest trend, between 1 July 2013 and 30 June 2014, tribunals declined jurisdiction in 48% of cases and dismissed all claims in 24% of cases. This means that governments prevailed in 72% of cases. In 28% of the cases the investors’ claims have prevailed in part or in full.

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.