Bilateral Investment Treaties and Regional Initiatives and Investment Agreement Frameworks: Multiplying Incoherence in Response to External Threats?

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Bilateral Investment Treaties and Regional
Initiatives and Investment Agreement
FrameworksMultiplying Incoherence in Response
to External Threats?

• Yao Graham at
• Colloquium on Africas Economic Integration
  Internal Challenges and External Threats
• 6-8 May, 2014, Accra

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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

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Declining trend in new signing
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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

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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
  dIvoire, 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

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African Trends

• Credit Hamed El-Kady UNCTAD

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African leaders

• Credit Hamed El-Kady UNCTAD

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• Do BITs really attract investment? strong basis
  for doubt

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Importance of BITs- What do investors say?
American multinationals, 2010
Adapted from Yackee, Do Bilateral Investment
Treaties Promote Foreign Direct Investment?, 51
Virginia Journal of International Law 51(2).
Credit Poulsen 2014
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What do investors say? European multinationals,
2000
Source European Commission, Survey of the
Attitudes of the European Business Community to
International Investment Rules, conducted by T.N.
Sofres Consulting on behalf of the European
Commission, DG Trade, 2000.
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Issues with IIAs

• Broad application restricts States 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

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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

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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

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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

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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.

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USA/Canada

• (USA-Rwanda) Article 3 National Treatment
• 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.
• 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.

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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

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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

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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

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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

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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

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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).

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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/ RD
• Performance requirements BITs and EPAs
• Asian lessons
• Structural transformation in mining
• Local content issues
• Local ownership
• EPA market access

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How to change?

• 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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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.

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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