International Business Structures & Regulation Sol Picciotto

1. Law School International Business Structures & Regulation Sol Picciotto 4: Investment Agreements and their Impact on National Regulation host state regulation of foreign investment controlling market access & contestability investor protection in public international law expropriation; National Treatment investment protection treaties bilateral multilateral: draft MAI, NAFTA, WTO? arbitration: state-state, investor-state enforcement of arbitral awards impact of investor rights on domestic regulation IBSR Topic 4

2. Host State Control of Admission/Establishment restricted sectors: e.g. defence, transport, communications screening & authorisation, conditions: minimum capital requirements development criteria location restrictions/requirements restrictions on form of entry new/green-field, not M&A local incorporation investment incentives capital grants/loans; tax holidays IBSR Topic 4

3. Host State Measures on Ownership/Control Limits on Foreign Ownership (e.g. 49%) obligation to transfer over time Joint Venture requirements: Public: National Development Agency etc Private: local shareholder requirement Restrictions on Shareholders’ Rights voting/control; government `golden share’ dividend payment limits Technology Licensing Restrictions prohibiting e.g. grant-back, territoriality limits, etc Land Ownership restrictions IBSR Topic 4

4. Performance Requirements & Operational Controls Local Content/ Sourcing to prevent `screwdriver’ assembly plants Import Restrictions/ Trade Balancing Foreign Exchange Limits/ Balancing Personnel Restrictions/ Obligations entry only for key foreign staff indigenisation & staff training obligations Access Restrictions telecomms networks, membership of business associations, clearing arrangements IBSR Topic 4

5. Investor Protection: Public International Law No Obligation to Allow Admission State Responsibility- to Home state not to person directly Minimum IL standard of treatment? exhaustion of local remedies Treatment equal to nationals? Calvo doctrine, Calvo clause Taking property: 19C state bond defaults; 20C nationalisations (USSR, Mexico, oil & natural resources) non-discriminatory, public purpose, no breach of contract compensation: prompt, adequate, effective: Hull formula OR `appropriate’: CERDS 1974 art.2 `creeping’ nationalisation via regulation? ICJ: Barcelona Traction 1970; ELSI (Raytheon) 1989 (bankruptcies) cancellation of contracts/concessions refusal of necessary permit, e.g. waste landfill? IBSR Topic 4

6. Liberalisation of Investment Regulation Reduction/elimination of border barriers (entry restrictions) regulatory requirements as a barrier; `level playing field'? Non-discrimination: National Treatment (NT) NLFT - treatment no less favourablethan for domestic firms Most-Favoured-Nation MFN: no preferences between different home countries Fair & Equitable Treatment: open-ended De facto discrimination by facially neutral regulation? `in like circumstances'? e.g. requirement to use domestic waste disposal facilities; recycle bottles granting of licences, eg. TV stations, telecomms, banks membership of associations, exchanges, distribution networks national deregulation introduces competition for local firms; TNCs may dominate? IBSR Topic 4

7. Investment Protection Treaties ML drafts: Abs-Shawcross 1959; OECD 1967; MAI 1998 Bilateral Investment Treaties: BITs since 1959 1989: 385 >>1999: 1,857, among 173 countries Investor = national of Contracting Party directly or indirectly owned (via subsidiaries: only in some BITs) Investment =Assets: contractual rights? IPRs? NT/ Fair & equitable treatment: post-entry pre-entry NT = Right of Establishment (no admissions controls) expropriation compensation - varying standards US Model 1980: 31 in force by 2001 USDoS pre-entry NT = right of establishment, open door subject to listed exceptions (opt-out) IBSR Topic 4

8. Towards a Multilateral Agreement? WTO > OECD – MAI (failed) >WTO Doha Declaration, Cancun 2003 High Standard (of protection) Investor = national/permanent resident of CP Investments = directly/indirectly owned/controlled Assets = include contractual rights, debts, claims, concessions/permissions, IPRs Treatment: NT/MFN NLFT: no less favourable than Expropriation: direct or indirect; must be: in public interest; non-discriminatory; due process of law; compensation Disciplines on states: transparency; performance requirements; entry of key personnel IBSR Topic 4

9. Impact on National Regulation Exceptions (General): national security; public order; culture? Exclusions: Opt-Out (MAI)/Opt-In (WTO = GATS): national commitments (balance via negotiations) subject to standstill, roll-back Carve-Outs (from NT and anti-expropriation) taxation; IPRs; privatisation; state monopolies, etc Social/environmental Deregulation? Non-lowering of standards clause: draft MAI State’s `right to regulate in the public interest’? WTO Doha Declaration para. 22 IBSR Topic 4

10. Enforcement: Dispute-Settlement Negotiation: informal pressures Right to Arbitration: State-State; Investor-State? (NAFTA, BITs) Arbitration Panels Ad Hoc/ chosen from Roster (e.g. NAFTA) 3-Person Panel: one by each side, they choose Chair Confidential to Parties: publication of Award optional (ILR/ILM) NAFTA: Commission. Cross-Border Trucking Applicable Law often unspecified `general principles of law’; `public international law’ Effect of Award binding in international law Treaty (& Award?) may be directly applicable in domestic law of CP IBSR Topic 4

11. Investor-State WB Washington Convention 1966: ICSID ICSID investment disputes, not commercial transactions Negotiation/conciliation pressures: e.g. 26 claims pending against Argentina Arbitration: ICSID CP and investor of another CP Additional Facility Consent: may be Advance Consent BITs: may be conditional, requires ad hoc agreement Rapid growth of claims: 63 claims now pending at ICSID IBSR Topic 4

12. Investor-State: enforcement of award Binding in IL, may be directly applicable Enforceable under law of place of arbitration Metalclad: BC Sup Ct review, partially set aside Ad Hoc awards: not binding precedent effects of review decisions by national courts? `interpretation’ by CPs? amendment of treaty? Effects on Host State Sovereignty legal certainty for investors, against arbitrary actions? special supranational law for TNCs? private property protection may block social regulation? IBSR Topic 4