Bilateral Investment Treaties and Regional Initiatives and Investment

Report
Bilateral Investment Treaties and Regional
Initiatives and Investment Agreement
Frameworks:
Multiplying Incoherence in Response to
External Threats?
Yao Graham at
Colloquium on Africa’s Economic Integration:
Internal Challenges and External Threats
6-8 May, 2014, Accra
1
Scope-Types of International
Investment Agreements
• Bilateral Investment Treaties
• Free Trade Agreements with Investment
provisions e.g. Cariforum EPA, North African
Free Trade Agreements, NAFTA
• Regional Investment Agreements, e.g.
COMESA Investment Area, SADC Protocol on
Finance and Investment, ECOWAS Energy
Protocol
2
Declining trend in new signing
3
New mega regional agreements
– The Trans-Pacific Partnership (TPP)
– The Regional Comprehensive Economic Partnership (RCEP)
• ASEAN, Australia, China, India, Japan, NZ, and South Korea
– The US-EU Transatlantic Trade and Investment Partnership
(TTIP)
– The Trilateral FTA between SADC-EAC-COMESA
• These four potential future agreements alone involve
76 countries with a total population of over 4.5
billion people and a combined GDP representing over
90% of world GDP
These agreements may change the landscape of the
international investment regime
4
Map of African IIAs
• Close to 1000 (793 by end 2013 according to
UNCTAD, 27% of all BITs)
• Canada Africa FIPA - Egypt (1997) Tanzania, Cote d’Ivoire,
Cameroon, Madagascar, Mali, Nigeria, Senegal, Zambia
(2013)
– Ongoing Ghana, Tunisia, Burkina Faso
• USA BITs -Cameroon, DRC, Congo Rep., Egypt, Morocco,
Mozambique, Senegal, Rwanda (2012)
– 16 TIFAs (COMESA, UEMOA, EAC, Angola, Mauritius,
Ghana, Liberia, Mozambique, Nigeria, Rwanda, South
Africa, Algeria, Egypt, Libya, Tunisia
• Germany BITs - 42 African countries (2013)
• China BITs - Africa 34 countries
• UK BITs - Africa 22 countries
5
African Trends
80
70
60
50
40
30
20
10
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
6
Credit: Hamed El-Kady UNCTAD
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
African leaders
Credit: Hamed El-Kady UNCTAD
7
• Do BITs really attract investment? –
strong basis for doubt
8
3
99
Importance of BITs- What do investors
say? American multinationals, 2010
Percent
40
20
0
1
2
BITs are not at all
familiar/important
3
4
5
BITs are very
familiar/important
Familiarity among non-lawyer senior executives
Importance to typical FDI decision
Adapted from: Yackee, ‘Do Bilateral Investment Treaties Promote Foreign Direct
Investment?,’ 51 Virginia Journal of International Law 51(2). Credit Poulsen 2014
9
What do investors say?
European multinationals, 2000
4
10
10
Source: European Commission, Survey of the Attitudes of the European Business
Community to International Investment Rules, conducted by T.N. Sofres Consulting10
on behalf of the European Commission, DG Trade, 2000.
Issues with IIAs
• Broad application restricts State’s powers to
regulate investment to protect identified public
policies
• Establish broad standards to be interpreted by
tribunals
• Investor –state dispute resolution mechanism/
arbitration provides for treaty based intrusion
and enforcement
– One sidedness in disciplining role of arbitration
because only investor can initiate process
– Threat of suit or award can force abandonment of
important policy initiatives rooted in public interest
• Zimbabwe and Tanzania
11
Issues with IIAs
• Imbalance between rights and obligations of state and
investor in favour of investor
• Wide coverage of BITs- consequence of wide definition of
investment and state “measure”
• Measure
– 2013 Canada-Benin BIT “any law, regulation, procedure, requirement,
or practice”
– Same definition in 2008 USA-Rwanda BIT
– Applies to all branches and levels of government
• Wide definition of investment in draft Ghana-Japan BIT and
USA-Mozambique BIT
12
African challenges
• Not demandeurs but takers
• Coherence and coordination
– Across policy
– Within investment policy and practice
• Treaties, contracts and national laws
– Across spheres
• Constraints on Development strategy and choices
– Freeze regulatory environment
• Burdensome obligations
– Institutional challenges
– Implementation challenges
• Costs of litigation
13
Key areas of policy impact
• Main areas:
– national treatment; (Normally post establishment so can set
entry requirements but Canada US BITs seek pre-establishment
national treatment, leading to provisions for exceptions)
– most favoured nation (MFN);
– fair and equitable treatment;
– restraint on performance requirements;
– limits on expropriation
– Senior management and board of directors
– Improving investment climate (Ghana Japan eliminate or
reduce restrictive measures
– Provision of Information
• Drawing from discussions on other countries and regions
but looking at African agreements
14
German Model BIT 2008
•
•
•
•
•
•
•
•
•
•
•
Article 3
National and most-favoured-nation treatment
(1) Neither Contracting State shall in its territory subject investments owned or controlled by
investors of the other Contracting State to treatment less favourable than it accords to
investments of its own investors or to investments of investors of any third State.
(2) Neither Contracting State shall in its territory subject investors of the other Contracting
State, as regards their activity in connection with investments, to treatment less favourable
than it accords to its own investors or to investors of any third State. The following shall, in
particular, be deemed treatment less favourable within the meaning of this Article:
different treatment in the event of restrictions on the procurement of raw or auxiliary
materials, of energy and fuels, and of all types of means of production and operation;
different treatment in the event of impediments to the sale of products at home and abroad;
and
other measures of similar effect.
15
USA/Canada
• (USA-Rwanda) Article 3: National Treatment
1.
Each Party shall accord to investors of the other Party treatment no less
favorable 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.
2. Each Party shall accord to covered investments treatment no less favorable than
that it
accords, in like circumstances, to investments in its territory of its own investors with
respect to the establishment, acquisition, expansion, management, conduct,
operation, and sale or other disposition of investments.
• Canada-Tanzania BIT Article 4 - National Treatment
1. 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.
2. 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.
16
Effects of NT/MFN
• National Treatment
– Local content legislation in Extractives
• World Bank West Africa study
– Reserving areas for locals
– Affirmative action (BEE)
– Most Favoured Nation Treatment (MFN)
• Multilateralising effect
– Effect on special development arrangements with
particular countries
– South-south cooperation
– Regional cooperation
17
Unbalanced Exceptions
• Areas – National Treatment, MFN, Performance
requirements and nationality requirement for Senior
management and Board of directors
• E.g. Canada vs. Tanzania, Benin and Egypt, USA vs
Rwanda
– USA-Rwanda prohibition of performance requirements
applies to third party investors
• Ghana low capital areas
• Imbalance in favour of capital exporter reflects not only
power but also more clarity about economic interests
and planning for them
• AMV and provisions on preconditions for value
addition and local enterprise ownership
18
Other issues
• Dispute settlement
– Power of tribunals, composition, processes
and decisions
– Ghana case
– Mineral cases
– Zimbabwe
– Vulture funds
• Expropriation
– Attempt to define scope of regulatory takings in US
Canada BITs
19
EPAs and Performance requirements
•
Provisions under the Services, Investment and Competition Agreements in the CARIFORUM EPA
combine to limit the powers of CARIFORUM countries to regulate the entry of EU capital, set the terms on
which EU firms enter and under which they operate. All these Agreements provide for the national treatment
of EU capital in the CARIFORUM countries meaning that they cannot be disadvantaged in any way in
comparison with local economic actors, by measures such as performance requirements. Under the
Investment Agreement the parties agreed, in respect of the areas they have decided to liberalise, to remove
restrictions on foreign ownership, prohibit the use of instruments normally used to screen foreign investment
for its local benefits and to provide national treatment for foreign capital which implies outlawing performance
requirements “that encourage economic linkages or protect domestic enterprises” (Van Harten,2008).
•
“Thus, by sidelining domestic tools to encourage foreign investment, the EPA model displaces the
adaptability that domestic instruments offer in terms of the tailoring and staging of regulation as the costs and
benefits of market access in different sectors become more apparent over time. It is in this sense that the EPA
model demands that ACP states relinquish core policy space; they must accept legal restrictions in a treaty
instrument that lacks adaptability and that will be very difficult to adjust or withdraw from.” (Van Harten,2008).
•
Similar to detailed prohibitions in US/Canada BITs
20
EPA Issues and Carribean lessons
• Pending EPAs with rendevous clauses to negotiate Investment
issues on Cariforum Model
– West Africa, East Africa, ESA, SADC and CEMAC
21
Cariforum EPA effects
• Provisions under the Services, Investment and Competition Agreements in the
CARIFORUM EPA combine to limit the powers of CARIFORUM countries to regulate the
entry of EU capital, set the terms on which EU firms enter and under which they
operate. All these Agreements provide for the national treatment of EU capital in the
CARIFORUM countries meaning that they cannot be disadvantaged in any way in
comparison with local economic actors, by measures such as performance
requirements. Under the Investment Agreement the parties agreed, in respect of the
areas they have decided to liberalise, to remove restrictions on foreign ownership,
prohibit the use of instruments normally used to screen foreign investment for its local
benefits and to provide national treatment for foreign capital which implies outlawing
performance requirements “that encourage economic linkages or protect domestic
enterprises” (Van Harten,2008).
• “Thus, by sidelining domestic tools to encourage foreign investment, the EPA model
displaces the adaptability that domestic instruments offer in terms of the tailoring and
staging of regulation as the costs and benefits of market access in different sectors
become more apparent over time. It is in this sense that the EPA model demands that
ACP states relinquish core policy space; they must accept legal restrictions in a treaty
instrument that lacks adaptability and that will be very difficult to adjust or withdraw
from.” (Van Harten,2008).
22
Kicking away the ladder
• Industrialisation experiences implications of
NT/MFN ad performance requirement limitations
– Most recently Asia
•
•
•
•
•
Performance requirements
Directing capital
Fostering local ownership
Joint ventures
Technology transfer/ R&D
• Performance requirements –BITs and EPAs
– Asian lessons
– Structural transformation in mining
• Local content issues
• Local ownership
– EPA market access
23
How to change?
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•
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•
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Interpretation
Revision/amendment
Replacement/consolidation
Termination
Revocation of treaty (awareness about expiration
timeframes)
• South Africa has been leading change in this
regard
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25
Responses to challenges
• Denouncing BITs - Latin American countries, South
Africa , Indonesia
• New Provisions seeking to address key issues (SADC
model BIT, SA national law
• Preserving regulatory space
– Narrow definition of investment, detailed clauses on FET
or indirect expropriation, exceptions to free transfer of
funds, carve-outs for prudential measures).
– Minimizing exposure to ISDS (e.g. excluding treaty
provisions or policy areas from ISDS, limiting time period
for submitting claims.
26
Responses to challenges
• Balancing the rights and obligations of States and
investors
– Reflecting investor responsibilities in IIAs
– Learning from CSR principles
• Integrating international investment policies into national
development strategies
• Strengthening the development dimension in IIAs
– Reference to the protection of health, labour,
environmental standards
– General exceptions (e.g. for protection of human,
animal or plant life or health)
– Not lowering standards clauses
– Investment promotion provisions
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