WORKSHOP ON INTERNATIONAL INVESTMENT POLICIES,
INVESTMENT PROMOTION STRATEGIES AND SUSTAINABLE
DEVELOPMENT
Casablanca, Morocco, November 2012
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1. Definition of “investment”
2. Definition of “investor”
3. Temporal scope of application
4. What is admission and establishment
5. Two main IIA approaches
6. Exceptions to pre-establishment
7. “In accordance with local law” requirement
8. Case study
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–   IIA expose States to international legal proceedings and financial liabilities
–   Traditional BITs of the 1990s - overly broad and investororiented
–   Treaty text is paramount
–   The role of disputes and arbitral decisions
–   Capacity-building is essential
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–   Economic definition: Investment – expenditure of capital in the expectation of future economic benefit
–   Treaty defines “protected”/“covered” investment
–   Traditional chapeau :
“ The term “investment” means every kind of asset invested by investors of one Party in accordance with the laws and regulations of the other Party in the territory of the latter, and particularly, though not exclusively, includes: […] ”
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–   movable and immovable property and any other property rights
–   shares in companies and debt instruments
–   claims to money or to any performance under contract having a financial value
–   certain intellectual property rights
–   business concessions, e.g. to exploit natural resources
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–   “ Investment means the following assets invested in the territory of a Contracting Party in accordance with its laws and regulations:
[list assets covered]
But investment does not mean:
[list assets excluded]
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–   Portfolio investment
–   Claims to money under certain commercial contracts such as ordinary one-off sales and services contracts
–   Government bonds
–   Short-term loans and debt securities
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–   Reinvestments – covered or not?
–   Change in the form of investment – covered or not?
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–   Natural persons
–   Legal entities
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–   Typical definition: “ physical persons who, according to the law of that Contracting Party, are considered to be its nationals ”
–   Citizenship criterion
–   Status of permanent residents and dual nationals? Possible solutions
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–   Typical definition: “ any entity constituted or organized under the law of the Contracting Party ”
–   Advantages: easy to apply and permanent
–   Disadvantages: possibly no real economic link to the country of incorporation, opportunities for “treaty shopping”
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–   Investment by an investor from a non-Contracting Party through an intermediate company established in the
Contracting Party
–   Investment by an investor from the host State through an intermediate company established in the Contracting Party
–   Possible solutions:
–   Requirement of “seat” and/or “real economic activities”
–   Denial-of-benefits clauses
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–   “ A Party may deny the benefits of this Treaty to an investor of the other Party that is an enterprise of such other Party and to investments of that investor if the enterprise has no substantial business activities in the territory of the other
Party and persons of a non-Party, or of the denying
Party, own or control the enterprise.
”
–   Two elements of the test:
–   substantial business activities
–   where does the company’s owner/controller come from?
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–   Protection of investments made only after the treaty’s entry into force
–   Protection of investments made both prior to and after the entry into force. But then a limitation:
–   “ This Agreement applies to investments made before or after its entry into force, but not to claims or disputes arising out of events which occurred prior to that date .”
–   Protection after termination (“survival clause” – 10-20 years)
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–   Admission and establishment = market access
–   General international law – entry of aliens is in the discretion of States
–   Entry regulations for FDI are common:
–   Closing certain sectors for foreigners completely
–   Restrictions for foreign ownership in certain industries
–   Restricted admission to privatization
–   Screening/authorization of foreign investments
–   Minimum capital requirements, etc
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–   Post-establishment
–   Pre-establishment
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–   Most European BITs
–   Typical formulation: “ Each Contracting Party shall admit investments by investors of the other Contracting Party in accordance with its laws and regulations.
”
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–   IIAs of Canada, Japan, United States
–   How? Prohibition of discrimination vis-à-vis domestic investors (National Treatment) and other foreign investors
(MFN)
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Canada-Peru FTA of 2009:
–   Article 803: National Treatment
–   Each Party shall accord to investors of the other Party treatment no less favourable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion , management, conduct, operation and sale or other disposition of investments in its territory
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–   Each Party shall accord to covered investments treatment no less favourable than that it accords, in like circumstances, to investments of its own investors with respect to the establishment, acquisition, expansion , management, conduct, operation and sale or other disposition of investments in its territory
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Usually two types of exceptions:
–   exclude certain sectors or sub-sectors
–   exclude existing non-conforming measures
Difference – the first type provides more flexibility for the future
Negative list vs. positive list
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–   Illegal investment are deprived of treaty protection.
Examples:
–   Fraport v. The Philippines (2007) – circumvention of local law requirements
–   Plama v. Bulgaria (2008) – fraud
–   World Duty Free v. Kenya – corruption
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–   Investors claims may be inadmissible as bribery is against transnational public policy; contracts procured by bribes are void ( World Duty Free v Kenya )
–   Denial of treaty based protections ( Plama v Bulgaria )
–   Enforcement of arbitral award.
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These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources.
Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP’s affiliated undertakings.
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