1、1,Anna Joubin-Bret, Senior Legal Adviser Division on Investment UNCTAD,Core elements in bilateral investment treaties,WORKSHOP ON KEY SUBSTANTIVE ISSUES RELEVANT TO THE ANALYSIS AND NEGOTIATION OF BILATERAL INVESTMENT TREATIESOrganized jointly by the Secretariat of the United Nations Conference on T
2、rade and Development (UNCTAD), and the Department of International Economic Affairs, Ministry of Foreign Affairs of Thailand,2,Objectives of the international legal framework,Restrictions,.Entry andestablishmentOwnership andcontrolOperational restrictionsAuthorization and reporting Etc,Standards of
3、treatment& protection,TransparencyTreatment (NT, MFN.FET)Nationalization &compensation (PEA),Transfer of fundsDispute settlementEtc.,REDUCING,BUILDING,These objectives can be achieved through:National policiesInvestment contracts/State contractsInternational investment agreements (IIAs),3,Definition
4、s,International investment agreements (IIAs). Agreement: binding international instrument. Treaty: binding international instrument involving States. Instrument: all kinds of agreements, whether binding or non-binding. Actors: Host State, Home State, Investor.,4,Hierarchy of norms,National laws and
5、regulations Investment codes. State contracts, investment agreements, stabilization agreements. Bilateral investment treaties for the promotion and protection of investment. Regional agreements, Preferential trade and investment agreements. Multilateral disciplines and specific agreements.,5,IIAs ha
6、ve several possible objectives,Promotion,BITs,Regional establishment agreements,US-CAN-JAP BITS FTAs NAFTA,Liberalization,Protection,6,A great number of IIAs cover more or less the same issues,Scope and definition of foreign investment; Admission of investment or pre-establishment NT and MFNTreatmen
7、t of investment, i.e. National Treatment, MFN and FET; Guarantees and compensation in respect of expropriation;Transfer of funds and repatriation of capital and profits;Operation conditions; andDispute settlement, both State-State and investor-State.,but the concrete way in which they are addressed
8、differs substantially,7,1- DEFINITIONS,8,DEFINITIONS,Definitions are key: What/who are we talking about? Who benefits from investment liberalization policies? Who is protected? Who is entitled to claim?,9,DEFINITIONS,Definition of investment Definition of investor Link investment of an investor: own
9、ership and control The laws and regulations of the host country Definition of territory Other definitions,10,DEFINITION OF INVESTMENT,Depending on the purpose of the treaty:Open-ended asset-based definition Enterprise-based Additional criteria Closed list and/or exceptions,11,DEFINITION OF INVESTMEN
10、T,Open-ended asset-based definition : broad protectionIllustrative list including usually:Movable and immovable property rightsVarious types of interest in companies Claims to money and claims under a contract having a financial valueIntellectual Property RightsBusiness concessions and other contrac
11、tual rights,12,DEFINITION OF INVESTMENT,Thailand-Bulgaria BIT1. The term “investments” shall mean every kind of assets Invested by the investors of one Contracting Party in the territory of the other Contracting Party in accordance with the respective laws and regulations of the latter Contracting P
12、arty, and shall include in particular though not exclusively: (a) movable and immovable property and any other property rights; (b) shares, stocks and debentures and any other forms of participation in companies; (c) claims to money or to any performance under any contracts having an economic value;
13、 (d) intellectual property rights, including in particular copyrights, patents, industrial design, trademarks and trade names, technical processes, know-how and goodwill; (e) business concessions conferred by law, under a contract, or an administrative act by competent State authorities to search fo
14、r, cultivate, extract or exploit natural resources.,13,DEFINITION OF INVESTMENT,Enterprise-based definition: targeted investment liberalization + protection,14,(a) the term “investments” means every kind of asset owned or controlled, directly or indirectly, by an investor, including: (i) an enterpri
15、se; (ii) shares, stocks or other forms of equity participation in an enterprise, including rights derived therefrom; (iii) bonds, debentures, loans and other forms of debt, including rights derived therefrom; (iv) rights under contracts, including turnkey, construction, management, production or rev
16、enue-sharing contracts; (v) claims to money and claims to any performance under contract having a financial value; (vi) intellectual property rights, including copyrights, patent rights and rights relating to utility models, trademarks, industrial designs, layout-designs of integrated circuits, new
17、variety of plants, trade names, indications of source or geographical indications and undisclosed information; (vii) rights conferred pursuant to laws and regulations or contracts such as concessions, licenses, authorizations, and permits; and (viii) any other tangible and intangible, movable and im
18、movable property, and any related property rights, such as leases, mortgages, liens and pledges;Note: Investments also include amounts yielded by investments, in particular, profit, interest, capital gains, dividends, royalties and fees. A change in the form in which assets are invested does not aff
19、ect their character as investments.,JAPAN-INDONESIA EPA ART: X02,15,DR-CAFTA : CRITERIA,investment means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resource
20、s, the expectation of gain or profit, or the assumption of risk. Forms that an investment may take include:(a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivat
21、ives; (e) turnkey, construction, management, production, concession, revenue-sharing, and other similar contracts; (f) intellectual property rights; (g) licenses, authorizations, permits, and similar rights conferred pursuant to domestic law; and (h) other tangible or intangible, movable or immovabl
22、e property, and related property rights, such as leases, mortgages, liens, and pledges.,16,DEFINITION OF INVESTMENT,Key issues:Claims to money: will all claims to money be covered? Even those claims to money not related to FDI? What about payments derived from commercial transactions or from the sal
23、e of goods and services? Debt instruments: will all debt instruments be covered? What about those debt instruments with short-term maturity? Should there be a minimum maturity term specified? Intellectual property rights (IPRs): should a reference to a legal framework be included? Would only those I
24、PRs provided in accordance to domestic legislation be considered an investment? Those IPRs existing pursuant international agreements? State Contracts: need for special treatment in definitions or substantive parts of the agreement. Exclusions: Public debt? Property acquired not for an economic acti
25、vity (i.e. real estate)? Criteria: what about the Salini test? Contribution to development; Malaysian Historical Salvors,17,DEFINITION OF INVESTMENT,New trend: the Closed-list: Canada-Peru Investment means: (I) an enterprise; (II) an equity security of an enterprise; (III) a debt security of an ente
26、rprise but does not include a debt security, regardless of original maturity, of a state enterprise; (IV) a loan to an enterprise but does not include a loan, regardless of original maturity, to a state enterprise; but investment does not mean, (X) claims to money that arise solely from (i) commerci
27、al contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of the other Party, or (ii) the extension of credit in connection with a commercial transaction, such as trade financing, other than a loan covered by subparagraph
28、s (IV) or . (XI) any other claims to money, that do not involve the kinds of interests set out in subparagraphs (I) through (IX);,18,Recent Cases,Issue: Scope of ICSID Convention art. 25 Investment is a necessary condition but not definedDouble keyhole Wording Criteria,Should not be contradictory,19
29、,Definition of Investor,Natural personsJuridical personsThe link with investments: Owned and controlled Directly or indirectly,20,DEFINITION OF INVESTOR,Natural Persons Criteria: Nationals/citizens of the Parties Protection for double nationals ? dominant and effective nationality criteria Permanent
30、 residents: Canadian approach Nationality criterion more often used than residence criterion. Sometimes combination: NZ/Singapore CEP Agreement.,21,Natural Persons - Example,Thailand-Cambodia BIT For the purpose of this Agreement: 1. “investor“ means: (a) any natural person possessing the citizenshi
31、p or nationality in a Contracting Party in accordance with its law; or (b) any juridical persons which include corporation, partnership, trust, joint-venture, organization, association or enterprise incorporated or duly constituted in accordance with applicable laws of that Contracting Party,22,Juri
32、dical Persons,Criteria to determine the nationality of the legal entity/investor: country of organization or incorporation Country of the seat Combination of criteriaThe link with investment: ownership and control,23,Juridical Persons Example 1,Traditional approach: definition of the investor Articl
33、e 1: Definition (China-Germany BIT of 2003) The term “investor“ means:(a) in respect of the Federal Republic of Germany: any juridical person as well as any commercial or other company or association with or without legal personality having its seat in the territory of the Federal Republic of German
34、y, irrespective of whether or not its activities are directed at profit; (). (b) in respect of the Peoples Republic of China: economic entities, including companies, corporations, associations, partnerships and other organizations, incorporated and constituted under the laws and regulations of and w
35、ith their seats in the Peoples Republic of China, irrespective of whether or not for profit and whether their liabilities are limited or not.,24,Direct and indirect control: implications on dispute settlementImplications on shell companies, third-Party investors,On possible technical solution: Denia
36、l of benefits clause,Juridical Persons,25,Investor,Key issues in recent FTAs:Pre-establishment disciplinesDefinition of the potential investor: treaty coverage for an investor that has made or is in the process of making or is seeking to (or attempts to) make an investment.,26,2- ADMISSION AND ESTAB
37、LISHMENT,27,Admission Model,Host country discretion: laws and regulations relating to entry may change. Ex: older Australian treaties: laws and regulations from time to time applicable Once admitted, foreign investment is granted treatment (NT, MFN) and protection No (or only few) exceptions to NT a
38、nd MFN in the treaty: no need.,28,Entry of Foreign Investment,Two approaches in IIAs:Admission model: entry in accordance with laws and regulations of the host country: NO LIBERALIZATIONPre-establishment model: right of establishment . National treatment at the pre-establishment stage (Western Hemis
39、phere, Japan, Korea): LIBERALIZATION : removal of barriers to access,29,Pre-Establishment NT and MFN,NT and MFN at all stages of the investment, including at the pre-establishment stage: establishment, acquisition and expansion Lists of exceptions: all countries have closed sectors or non conforming
40、 measures.Mostly negative lists. Very few exceptionsThe right of establishment is granted in the Treaty, the national laws must be in conformity with Treaty obligations,30,Two issues for discussion,In the light of recent cases and treaty practice of States: Admission in accordance with the laws and
41、regulations of the host State the trigger of investment protection ? What is the level of protection granted to “pre-investors” ?,31,Admission in conformity with the laws and regulations,Two preliminary questions:Reference to the laws and regulations of the host country in several places in the trea
42、ty: definitions, admission, other provisions.What are the laws and regulations of the host country: investment laws, formalities, general legal framework ?,32,Admission in conformity with the laws and regulations,Salini vs. Morocco: Definition “in accordance with the laws and regulations of the afor
43、ementioned party”. Tribunal found that it is not a definitional issue but a validity issue. “Seeks to prevent the Bilateral Treaty from protecting investments that should not be protected, particularly because they would be illegal.”,33,Admission in conformity with the laws and regulations,Same appr
44、oach in Tokios Tokeles vs. Ukraine: severity of deviations from national law. In Bayindir vs. Pakistan: reference to host State laws refers to legality and since it did not violate Pakistani laws and regulations: tribunal had jurisdiction.,34,Admission in conformity with laws and regulations,Aguas d
45、el Tunari vs. Bolivia: included in the admission clause: “Subject to its right to exercise powers conferred by its laws and regulations, each Party shall admit such investment”.Tribunal interprets reference to the “framework of its laws and regulations” as a reference “limited to the details of how
46、each contracting party undertakes in its national laws and regulations to promote economic cooperation through the protection of investments”.,35,Admission in conformity with the laws and regulations,Fraport vs. Philippines: Violation of the Anti Dummy Law (secret shareholders agreement). Tribunal f
47、ound a violation of the ADL. Found that a failure to comply with the national law to which a treaty refers will have an international legal effect. Subjective assessment: good faith or intentional violation. No jurisdiction. Jurisdictional matter vs. Issue belonging to the merits (Cremades dissentin
48、g opinion).,36,Admission in conformity with the laws and regulations,Inceysa V. Republic of El Salvador (6August 2006, ICSID ARB/0326) Inceysa argued that denial of exclusivity was an expropriation of its rights under the contract and violated El Salvador-Spain BIT Tribunal found that Inceysa had ma
49、de false representations to secure the contract Thus the investment violated the laws of El Salvador and could not be arbitrated pursuant to the BIT. CONTRAST: Ioannis Kardassopoulos v. Georgia (6 July 2007, ICSID Case No. ARB/05/18) Where it was the host states own actions that may have rendered th
50、e agreement illegal, the investment does not lose protection under the BIT.,37,Violation of the Right of Establishment,Not necessary to have an investment:ICSID: NoOften: Yes.,38,Recent cases: conclusions?,Admission by the host State in accordance with its laws and regulations deserves further attention. Not a definitional issue but a validity issue. Analysis in relation to the purpose of a BIT: not meant to protect unlawful investmentsNot many cases addressing pre-establishment rights Tribunals reluctant to consider pre-establishment expenditures as an investment under the ICSID Convention,
