Week 3 Trade investment 2014 upload

The Chinese University of Hong Kong

Faculty of Law

Trans-national Legal Problems

(LAWS6303)

Dr. Julien CHAISSE Transnational investment regulation

Week 3

Outline

?Problems of foreign investment 1

?Bilateral and preferential treaties 2

?Multilateral norms

3

?Soft law

4

Foreign investment

Flows of capital from one nation to another in exchange for significant ownership stakes in domestic companies or

other domestic assets.

Typically, foreign investment

denotes that foreigners take a

somewhat active role in

management as a part of their

investment.

Foreign investment typically

works both ways, especially

between countries of relatively

equal economic stature.

Watch: The emerging field of foreign investment protection by Doug Jones, head of the International Arbitration group at Clayton Utz

Foreign Investment

GROWTH

TRADE

TECHNOLOGY TRANSFER

COMPETITION

EMPLOYEMENT

ENTERPRISE DEVELOPMENT

All countries seek to attract foreign investment – Why?

Global FDI inflows, average 2005–2007, 2007–2013 (Billions of US dollars)

Global foreign direct investment (FDI) inflows rose by

11% in 2013, to an estimated US$1.46 trillion – a level

comparable to the pre-crisis average

FDI flows to developed countries remained at a

historically low share of global total FDI flows (39%) for

the second consecutive year.

- They increased by 12% to US$576 billion, but only to 44% of their peak

value in 2007.

- FDI to the European Union (EU) increased, while flows to the United

States continued their decline.

FDI flows to developing economies reached a new high

of US$759 billion, accounting for 52% of global FDI

inflows in 2013.

- At the regional level, flows to Latin America and the Caribbean, and

Africa were up; developing Asia, with its flows at a level similar to 2012,

remained the largest host region in the world.

Published in the Global Investment Trends Monitor (No.15) 2014

2013 (Billions of dollars)

and 2013 (Billions of dollars)

FDI inflows, by region, 2010–2013 (Billions of US dollars)

Continuing their 2012 performance, developing

economies accounted for more than half of global

FDI again in 2013, as their inflows reached a new

high, at an estimated US$759 billion.

The increase was mainly driven by Latin American

and the Caribbean, and Africa while developing

Asia ? the world's largest recipient region for FDI ?

saw its flows at a level similar to 2012

Chinese Investments in Africa

Why regulating foreign investment?

Toll way Bangkok City –

Airport

Also, major infrastructure FDI (airports, highways…)

Nike factory, PRC

Many factories in the world, also company providing

services

Novotel, HK Real estate…

Why regulating foreign investment?

FDI promises several positive spillovers. ?But the benefits of FDI are not automatic. ?They depend above all on host country policies. FDI is also associated

with potential

downsides

?Corruption,

environment,

?Deterioration in balance

of payments as profits

are repatriated

The challenge of investment

treaties (the law) is to

maximise the benefits and

minimise the costs

Why regulating foreign investment?

?Most dynamic area of economic law

?No “World Investment Organisation”

?International agreements (or treaties) are contracts concluded by 2 or more States

?Part of Public International Law

?But with impact on private entities

?IIAs is a broad category into which we find

?Bilateral Investment Treaties (2 parties + only address investment)

?Regional Trade Agreements (NAFTA, ASEAN…)

?Free Trade Agreements (FTAs) with investment chapter: ASEAN-China

?We will speak most of the time of BITs but what we say could be extended to PTAs

Outline

?Problems of foreign investment 1

?Bilateral and preferential treaties 2

?Multilateral norms

3

?Soft law

4

Role of Bits and PTAs

?IIAs Contribute to the creation of a stable, predictable and transparent regulatory framework for international investment

?strengthen the enabling framework for FDI

?Facilitate the coordination of investment relations through internationally agreed common denominators

?relations between host States, home States, international investors and other development stakeholders

?Complement national laws on investment

?interface between national and international investment policies

BITs and other IIAs

Top 10 BIT signatories (in 2014) UNCTAD (2014) World Investment Report

Current key negotiations

China – USA (started in July

2013) European Union

– China (started

in January 2014)

EU – USA

(Transatlantic

Partnership

Trans Pacific

Partnership

Watch: media reports on Blackboard

Key provisions in BITs and PTAs

Restrictions

?Entry and

establishment

?Ownership and

control

?Operational

restrictions

?Authorization and

reporting

?Etc.

Standards of treatment

& protection

?Treatment

(NT, MFN, FET)

?Expropriation &

compensation

?Transfer of funds

?Dispute settlement

?Transparency

?Etc.

REDUCING BUILDING

Textbook (Chapter 21) “Making transnational law a reality through

regime-building: the case of international investment law” by Jeswald

Salacuse

Other key investments obligations

Entry of foreign investment Two basic models are currently used in BITs.

One makes the admission and establishment of foreign investment subject to the domestic laws of the host country (called the “admission clause” model), and the other grants foreign investors a right of establishment, although not in an absolute manner (hereinafter called the “right of establishment” model)

Expropriation and indirect expropriation recognize the right of the host State to expropriate investment, but impose conditions that must be satisfied when an expropriation occurs.

Due process + compensation

Other key investments obligations Full

protection

and security

Physical security

Transfer of investment-related funds out of the host state each Party shall permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory

Transfer of funds provisions are among the investment provisions that often give rise to the greatest concerns on the part of developing host countries.

The adverse consequences of capital flight can be severe