Integrating Sustainable Development into International Investment Agreements

Integrating Sustainable Development into International Investment Agreements

A Guide for Developing Country Negotiators You do not have access to this content

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Author(s):
J. Anthony VanDuzer, Penelope Simons, Graham Mayeda
30 May 2013
Pages:
572
ISBN:
9781848591424 (PDF)
http://dx.doi.org/10.14217/9781848591424-en

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As International Investment Agreements (IIAs) continue to evolve and become increasingly complex, a key challenge for developing countries is how to maintain coherent investment obligations that are consistent across any overlapping treaty provisions. An even greater challenge is the effective negotiation of trade in services and investment commitments in Preferential Trade Agreements to make foreign investment supportive of development.

This guide is designed to assist developing countries to negotiate IIAs that are more effective in promoting their sustainable development. It identifies and consolidates emerging best practices from existing treaty models, evaluating the costs and benefits of different approaches; suggesting new and innovative provisions to encourage foreign investment flows; and outlining how states can achieve coherence among their IIAs.

A useful reference tool for developing country negotiators and interested parties, including investment promotion agencies, policy-makers, legislative drafters and officials in government legal departments.
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Expand / Collapse Hide / Show all Abstracts Table of Contents

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  • Foreword

    The Commonwealth Secretariat has produced this practical handbook, entitled Integrating Sustainable Development into International Investment Agreements: A Guide for Developing Country Negotiators, to help enable developing countries to design international investment agreements (IIAs) that support their development needs. The Guide marks the culmination of an intense and successful consultative and expert-group process held in the Commonwealth Caribbean, Pacific, South Asian and African regions. It has also been subjected to a rigorous peer review process comprising renowned experts in the field to ensure that it meets international standards.

  • About the authors and Acknowledgements
  • List of cases
  • List of treaties
  • Abbreviations and acronyms
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  • Expand / Collapse Hide / Show all Abstracts Background

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    • Introduction

      Whether and how to negotiate international investment agreements (IIAs) are significant policy issues for virtually all countries. Most IIAs in place today are bilateral investment treaties (BITs) between capital-exporting developed countries and capitalimporting developing countries. Developed countries are interested in the protection that these treaties offer to their investors operating in host developing countries. Developing countries hope that by committing to provide protection, IIAs will improve the prospects for future inflows of foreign investment. This has been called the ‘grand bargain’ of BITs.

    • The Context for International Investment Agreement Negotiations

      This section explains the basic reasons states decide to enter into IIAs and how these reasons inform the negotiating positions of the parties.

    • Using the Guide

      Section II of the Guide identifies categories of IIA obligations accompanied by a discussion of the purpose of each category, alternative approaches to formulating provisions in each category and a sample provision with a discussion of its specific features and rationale. This chapter provides a general introduction to using the Guide.

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  • Expand / Collapse Hide / Show all Abstracts Survey of iia provisions and commentary

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    • Provisions Defining the Scope of IIA Application and Other Preliminary Matters
    • Substantive Obligations of Host States Regarding Investor Protection

      The dominant feature of existing IIAs is that they create substantive obligations that host states must observe in relation to investors from the other party state. In this chapter, the Guide discusses the main categories of the core obligations found in existing IIAs.

    • New Provisions Addressing Sustainable Development

      Foreign investment contributes to development in developing countries. However, increased investment inflows alone do not automatically lead to sustainable development. For this reason, the Guide explores various ways that states can channel increased investment into sustainable development.

    • Dispute Settlement

      Historically, only a party state had standing to make a claim that another party state had not complied with its obligations under an IIA, even if it was the state’s investor that had suffered a loss as a result. Often, the only direct recourse that foreign investors had when they were unhappy about something a host state had done was through domestic courts or other institutions in the host state under domestic law or, if the dispute related to a contract between the investor and the host state, through any dispute settlement procedure provided in the contract. Most IIAs now give an investor of one party state the right to claim compensation directly against the other party state in binding arbitration if the other party state breaches the substantive standards of investor protection set out in the agreement and cause a loss to the investor.1,2 While investor–state arbitration has some benefits for investors and host states, it also raises a number of serious concerns for host states.

    • Investment Promotion and Technical Assistance

      As noted in the review of the empirical literature,1 evidence of the impact of IIAs on increasing investment flows into party states is weak. It may seem surprising, therefore, that a recent study by UNCTAD found that only a small minority of existing IIAs contain specific investment promotion provisions.2 Agreements addressing the promotion of investment do so in a variety of ways, including committing parties to some of the categories of measures listed in Box 8.1. In general terms, investment promotion efforts involve some combination of measures to: (i) improve the host state’s regulatory framework by making it more transparent and efficient, and less burdensome for investors; and (ii) facilitate investment by means such as incentives, information dissemination and the activities of investment promotion agencies.

    • Final Provisions: Commission, Entry into Force and Termination

      Depending on the scope and nature of the obligations in an IIA, it is usually useful to have some kind of institution with representatives from both parties that are responsible for various tasks associated with the administration of the treaty. Only some IIAs provide for such an institution. Provisions for institutions are rare in BITs but more common in regional trade and investment treaties, such as FTAs.

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  • Expand / Collapse Hide / Show all Abstracts Appendices

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    • Appendix 1. Review of Evidence Regarding Whether IIAs Encourage Investment Inflows to Signatory Countries

      The views of those who have written about the anticipated effects of international investment obligations on FDI flows vary widely. Some, such as Sornarajah, suggest that ‘in reality attracting foreign investment depends more on the political and economic climate for its existence rather than on the creation of a legal structure for its protection’.1 Many others simply assume that international investment obligations will promote FDI inflows.2 Proponents of IIAs as strategies to promote inward investment, however, have had to confront the fact that some developing countries, of which Brazil is the best example, have been extremely successful in attracting FDI from countries with which they do not have IIAs.3 Other countries have signed IIAs and attracted little investment. Recently, researchers have tried to determine empirically whether international investment agreements actually result in increased foreign investment flows into signatory countries. Unfortunately, the empirical studies that have been done to date have not come to consistent conclusions regarding the effects of IIAs on investment flows.

    • Appendix 2. Overview of the General Agreement on Trade in Services

      The General Agreement on Trade in Services (GATS)1 is one of the agreements entered into as part of the Uruguay Round of multilateral trade negotiations that resulted in the formation of the WTO. It was the first multilateral agreement on trade in services, though services are dealt with in many regional and bilateral trade and investment agreements. GATS applies to all measures of a WTO member that affect trade in services, including services supplied through a commercial presence, which includes some forms of investment.

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