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Foreign investment – financing institutions

Foreign investment – financing institutions. « Project financing » through international institutions International lenders (financing institutions) An important player is the World bank: comprises 5 institutions:

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Foreign investment – financing institutions

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  1. Foreign investment – financing institutions • « Project financing » through international institutions • International lenders (financing institutions) • An important player is the World bank: comprises 5 institutions: • IBRD (1944) (188 members): loans for projects (usually in cooperation with banks) to states, with funds from member states or capital markets, short term and on interest; no flow-back to funding states: neutral assessment – annual reports • IDA (1960): advantageous loans for least developed countries: long term, no or very low interest • IFC (International Finance Corporation, 1956): loans or capital investment in private sector; technical assistance and advice • MIGA (Multilateral Investment Guarantee Agency 1985): see infra • ICSID (1965): mediation and arbitration institution, infra.

  2. IBRD

  3. Financing institutions • International lenders (financing institutions) • Regional development banks : African DB, Asian DB, Inter-American DB ....: often on condition of flow-back to funding countries BERD (European Bank for reconstruction and Development) – for Eastern Europe; capital from EU countries, US, Canada, Japan • Investment Funds of the EU: - ACP countries (Cotonou agreement): investment facilities - EU-internal: European investment Bank (projects for regional development) - European Social Fund • UN-organisations, esp. UNDP

  4. Investment law– questions - sources • Main questions of (investment) law / investment regime: requirements for foreign investment, treatment of foreign investors, protection against expropriation • Sources for rules on foreign investment : • National law • International Investment Agreements (IIAs), either (mostly) Bilateral investment treaties (BIT) (s. infra) or Multilateral treaties (regional, sectorial, TRIMS, world bank treaties) (s. infra) • Customary international law, esp. concerning protection in case of expropriation (s. infra) • Investment contracts, i.e. contracts between investor and host country Main questions (s. next slide) • Applicable law: domestic law or international public law ? quasi-international law ? • Effect of stabilisation clauses • Dispute resolution mechanism ?

  5. Problems of applicable law • Why may domestic law (of the host state) be problematic ? • protectionism: obligation to buy in the guest country (performance obligations, infra); restrictions on import / export, restrictions on transferring (expatriating) profit , … • using sovereignty, eg limited protection against expropriation • sometimes also reverse discrimination of nationals, privileges for foreign investors • TRIMS 1994: only trade related aspects of investments: • Principle of national treatment • Prohibition of quantitative measures and measures with similar effect • Can investment contracts help ? - Contain eg stabilisation clauses (compare infra in BIT) - Effectiveness against host country depends on applicable law and competent jurisdiction (most effective is application of international public law and international arbitration)

  6. Protection ag. expropriation • Esp. protection against expropriation • Types of expropriation: individual expropriation s.s. (public interest + compensation); collective nationalisation; confiscation; creeping expropriation or quasi-expropriation (disproportionate burdens or restrictions) (lot of disputes as to what amounts to expropriation) • Expropriation and international law ? • In European countries : 1st Protocol to the ECHR • Rules of customary public international law ? Next 2 slides

  7. Protection ag. expropriation • Traditional customary public international law has as rules & conditions for expropriation: - No general prohibition • Allowed only in the public interest (but interpreted thus that poliical purposes are not excluded) • No discrimination of foreigners (unless required for national security) • Effective Prompt Appropriate Compensation (Hull-formula) (i.e. quick, in convertable and exportable currency, full value) • Due process of law (procedural protection)

  8. Protection ag. expropriation • Traditional customary public international law questioned: by the USSR 1917, Latin Am. (Calvo doctrine), developing countries, …. • UN-Resolution no. 1803 from 1962: stresses permanent sovereignty over natural resources of every state (host state for investments) • A more radical « Charter of economic rights and duties of States » in 1974 (« new economic order »). • NEO-Charter proposed to extend the sovereignty to include all economic activities, does not require « public interest », grants only « reasonable » compensation, refuses international procedural control, etc. • Such expropriations will however not be recognised by other countries • Thus not accepted as customary law, meanwhile slipped into oblivion (Reaction after 1974’s: BIT’s)

  9. Investment treaties • Uncertainty about the customary international public law creates need for treaties • Next slides: multilateral treaties; bilateral treaties • Foundation of 2 new institutions under the world bank: - ICSID 1965 - MIGA 1985

  10. Multilateral Investm. Treaties • Multilateral investment treaties ? • OECD: OECD 1967 Draft Covention on the Protection of Foreign property failed; OECD-MiA failed; negotiations on a GIT in WTO failed • FTAs (Free Trade Agreements) contain also investment protection, as in: • NAFTA Ch. 11: non-discrimination; investor chooses dispute resolution • Mercosur • COMESA • CETA (EU / Canada Partnership, 2013) • (EU: internal market as a more radical solution) • Other Regional IT’s, such as: • Investments agreement of the OIC (Bagdad 1981) • Sectorial: Energy Charter Treaty 1994 on next slide • Also investment aspects in Cotonou (EU / ACP), supra • TRIMS, supra • Codes of conduct of the World Bank, OECD, « UN Global Compact »,… • World bank related treaties: infra

  11. Energy Charter Treaty • Sectorial Multilateral investment treaties ? • Sectorial Energy Charter Treaty 1994 • 46 countries from Europe (incl. EU itself), former Soviet U + Japan; (Russia withdraw in 2009) • Oil & electricity; • Concerns investment / exploitation / transport; • Principle of non-discrimination; • Protection against expropriation and quasi-expropriation • Dispute resolution mechanism (arbitration) • E.g. Procedures by Vattenfall v. Germany (i.a. decision to close nuclear plants)

  12. Energy Charter Treaty

  13. Bilateral Inv. Treaties (BIT) • Bilateral investment treaties (BIT) (also known as Foreign Investment Promotion and Protection Agreements, FIPAs) • BIT’s in response to the NEO-Charter - Starting in 1959 with Germany-Pakistan • almost 3000 BIT’s (57 with Belgium, 127 with Germany, etc.) (more specifically end of 2013: 2857 BIT’s and 339 other agreements with an investment dimension) • Big countries have a model BIT • Some countries are terminating their BIT’s, eg South Africa (BIT w. Benelux, Germany, Spain)(«Black Economic Empowerment »); Indonesia; Bolivia & Ecuador left ICSID • Others limit the scope of the dispute settlement, eg Australia (included in 2013 safeguards in areas as public health, welfare and environment)

  14. BIT’s

  15. Bilateral Inv. Treaties (BIT) • Fate of « Extra-EU-BIT’s » after Lisbon Treaty: Reg. 1219/2012 - EU intends to replace national Extra-EU-Bits’ by common BIT’s. Duty of MS’s to eliminate incompatibilities • Scope of application (usually): • (Inward) investment, usually broadly defined (FDI = foreign direct investment) • Sometimes restricted to certain investments or under certain conditions

  16. Bilateral Inv. Treaties (BIT) • Typical content (1) • Freedom to invest ? (free inflow and outflow of capital) • Usually not fully liberalised • Usually no full national treatment, but a MFN clause + minimum standard of «proper & equitable» treatment • Incl. often prohibition of ‘performance requirements’ (such as requirement of « national » content of products …) (conflicts with EU quota rules) • Protection of investments made: • Stabilisation clauses (later regulation cannot negatively affect the investment); observance clauses (later regulations not applicable); also called ‘umbrella clause’ (giving an umbrella to cerain obligations). Purpose: turn a contractual obligation (which can often be overruled by national public law or change in legislation) into an international obligation - validity (binding character) sometimes disputed • Usually rules on protection in case of expropriation • Capital transfer guarantees (free movement of capital, ‘free transfer of payment’) (some conflicts with EU law)

  17. Bilateral Inv. Treaties (BIT) • Typical content (2): Dispute resolution: • Renegotiation clauses • Arbitration clauses: • usually ICSID arbitration (next slide) • sometimes subject to a national court requirement (eg UK-Argentina BIT: first go to the Argentinian court; if no decision within 18 months arbitration is open) • Arbitration may be under the ICSID rules (infra) or under UNCITRAL rules (see Ch. 12). • The UNCITRAL rules impose a certain degree of ‘transparency’ (public access for third parties to hearings and documents except confidential or protected information), but this applies only a) to arbitration under BIT’s concluded after April 1, 2014 or b) when parties agree. Under ICSID, access is much more limited (discretionary decision of the tribunal) • 2014 UNCITRAL Draft Convention on Transparency in treaty-based investor-State arbitration (for existing BIT’s) • Question whether an arbitration clause in a BIT displaces a forum clause in the investment contract itself: concurrent jurisdiction*, or priority of one clause over the other ? (*ICSID arb 97/3 Compania de Aguas del Aconquija)

  18. ICSID

  19. Investment treaty arbitration • ICSID – Convention 1965: Dispute resolution procedure for investments disputes • now 150 ratifications (+ 8 signatures); became much more important since the 1990’s. Missing (not ratified) i.a. India, Brazil, South Africa, Russia; Canada ratified Nov 2013 (after solving federalism problem) … • Scope of application: • only investment disputes • between a party to the ICSID Convention and an investor from another contracting party (or a local daughter company)* • jurisdiction of the ICSID has been accepted in an investment contract, domestic law, BIT or ad hoc • ICSID organises the procedure, does not settle the dispute itself • Conciliation procedure (not succesful) • Arbitration procedure * Dispute whether still possible under intra-EU BIT’s (according to EU Commission, contrary to 344 TFEU; case pending before German BGH)

  20. Investment treaty arbitration • Advantages of ICSID –Arbitration • If a choice of law was made in the contract, the arbitrators must apply that law • But national law can be set aside if contrary to public international law (art. 42 ICSID) • Arbitral award can be set aside only by ICSID itself, not by a national court; limited grounds for annulment • Exclusive jurisdiction; national courts lose jurisdiction; no immunity of jurisdiction for ICSID states before ICSID • Member states recognise the awards as binding and guarantee the enforcement within their territory; nevertheless enforcing often remains difficult • « Additional facility »: ICSID assistance in cases out of the scope of application of the Convention (eg investor not a national of an ICSID State) • Awards are published in annual Reports • Criticism: no guarantees for fair trial & impartiality, no public character, no guarantee of consistent interpretation by a single tribunal, etc…

  21. MIGA • MIGA Multilateral Investment Guarantee Agency) 1985: mainly covers non-commercial risks of investors from MIGA-member countries in other MIGA-countries; succesful (168 members)) • Coverage can be granted by MIGA after assessment of risks if: • An investment is made (interpreted widely) • By an investor from a MIGA-country • After the granting of the guarantee (only new investments) • In a developing country, member of MIGA - Contributing to development • Approval by the host country is required; usually MIGA will contract with the country to limit the risks • Risks that can be covered: mainly 4 types: currency transfer restrictions; expropriation and similar measures; breach of contract without domestic remedy; sometimes war and civil disturbance. Not: eg devaluation • Conditions will be specified in a contract MIGA-investor: premium to be paid; uninsured percentage (usually 10 %), arbitration clause • Disputes between MIGA-states on the Convention: submitted to Board of MIGA • Disputes MIGA - host country: negotiation; if necessary arbitration

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