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International Investment Law and Arbitration

4. Types of foreign investment.

There are four different types of foreign investment. These are Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), official flows, and commercial loans. These types of foreign investment differ primarily in who gives the loan and how engaged the investor is with the receiver of the loan.

FDIs occur when a company invests in a business that is located in another country. In order for a private foreign investment to be considered an FDI, the company that is investing must have no less than 10% of the shares belonging to the foreign company. In these international business relationships, the company that is investing is known as the parent company, whereas the foreign company is known as a subsidiary of the parent company. Multinational corporations, which spread among several nations, often begin with FDIs.

FPIs also occur when foreign investments are made by a company. They may also be made by an individual who has mutual funds. Whereas an FDI allows the investing company to own shares of the subsidiary company, an FPI may be more temporary. Investment instruments, such as stocks and bonds, are normally traded in FPIs. Stocks and bonds are examples of investments that are easily traded. A company that has stocks and bonds from a foreign company does not necessarily have a share in that company in which it is investing.

 

The foreign investment known as official flow occurs between nations instead of between companies. In cases of official flow, a more developed or economically prosperous nation will invest money in a nation that is less developed. A recipient nation of an official flow investment will typically receive financial support, as well as higher grade technology and aid in government and economic management.

A commercial loan is a type of foreign investment that normally occurs in the form of a bank loan. This kind of investment may occur between nations or between businesses that are in different countries. While a commercial loan may be made by an individual, it would normally occur between a larger organizations.

Commercial loans were the most common kind of foreign investment until the 1980s, especially in cases in which investments were going to the companies and governments of economically developing countries. Since then, FPIs and FDIs have been much more common. The term globalization is normally used to describe the phenomenon of an increased use of FPIs and FDIs. Whereas commercial loans are issued by banks and backed by a government, FPIs and FDIs are private investments.

 

10. Corruption issue in international investment law and arbitration practice.

16. Role of general principles of law in international investment law and arbitration.

Investment tribunals have stated that some legal principles, such as good faith, unjust enrichment, and res judicata constitute 'general principles of law' and applied them.The principle of 'fair and equitable treatment' is also often discussed in the context of general principles of law derived from domestic legal systems.



General principles of law are certainly considered a legitimate source of law in contemporary international investment law but their application by investment tribunals was also criticized by some authors as biased in favor of investors, and to the detriment of developing countries.

General principles of law played a significant role in the formative period of international investment law, prominently in the oil concession arbitrations and in the pre-BIT era (such as in the Iran-US Claims Tribunal) but recent empirical studies indicate that they are largely neglected by contemporary arbitral tribunals. The relative insignificant role of general principles of law in cotemporary investment jurisprudence may be explained by the interrelationships between the various sources of international investment law (the growing numbers of treaties and tribunals' pronouncements regarding customary rules) as well as inherent vague character of this source of law.

· General principles have a residual nature and international tribunals tend to use them to fill remaining gaps in treaty and customary law laws. Thus, there is a clear tradeoff between the amount of rules existing in treaty/customary law and the resort to general principles of law. The dramatic proliferation of investment treaties in the recent decades, as well as the significant increase of investment awards pronouncing numerous customary norms, explain the diminishing need to apply the residual rules drawn from general principles of law. This factor indicates that investment tribunals are more likely to apply general principles of law to disputes that are not covered by treaty provisions or customary rules.

· The second factor explaining the diminishing role of general principles of law in contemporary investment law relates to the vague nature of this source of law. As noted by some authors, the employment of this source of law is accompanied by a high degree of subjectivity79and it generally grants much latitude to international tribunals. As Schwarzenberger noted in that regard, there is a concern that this source of law lends 78 Fauchald, above n 76, p. 326. 79 Sornarajah, above n 66, 93. 18 itself "too readily to abuse".80 These concerns and need for certainty and predictability in international investment relations lead to decreased resort to this less-certain source of law. Still, it is clear that there remain numerous vague rules in international investment law, and these rules may be clarified by application of general principles of law

22. Bilateral investment treaties: scope of application ratione materiae, ratione personae, and ratione temporis.

The concept of jurisdiction is well established and is generally understood in terms of a field having three aspects or dimensions. Thus, an investment treaty typically defines a tribunal’s jurisdictional field in terms of time (ratione temporis) by providing that only disputes arising after a particular date (whether the date on which the treaty entered into force, or any other date) are governed by the treaty, and/or by establishing a time period during which claims may be brought after the expiry or termination of the treaty. Similarly, investment treaties typically define a tribunal’s jurisdictional field in terms of person (ratione personae) by providing that only disputes arising between one of the State parties (the host State) and a national of the other State (as defined in the treaty) are governed by the treaty, and excluding disputes between the host State and nationals of third States. Third, an investment treaty typically defines the tribunal’s jurisdictional field in terms of subject matter (ratione materiae) by providing that only investments, as defined in the treaty, and not any other matters, are governed by the treaty.

The jurisdiction ratione materiae, or subject-matter jurisdiction, of the ICSID under Article 25(1) is thus defined as “any legal dispute arising directly out of an investment.” Therefore, ICSID’s subject-matter jurisdiction, as defined in Article 25(1), has three components:

(a) the requirement of a legal dispute;

(b) the requirement that the legal dispute arise directly out of the underlying transaction; and

(c) that such underlying transaction qualify as an investment.

ADDITIONAL FACILITY In 1978 the Administrative Council of ICSID adopted the Additional Facility Rules (see Modules 2.2 and 2.4). These Rules authorize the Centre to administer arbitration and conciliation proceedings for certain categories of disputes that are not covered by the ICSID Convention. One category of such disputes relates to the absence of ICSID’s jurisdiction ratione materiae. Under Article 2(b) of the Additional Facility Rules these are legal disputes between a State (or a constituent subdivision or agency of a State) and a national of another State which are not within the jurisdiction of the Centre because they do not arise directly out of an investment, provided that either the State party to the dispute or the State whose national is a party to the dispute is a Contracting State.

 

 

28. Fair and equitable treatment standard in international investment law and arbitration practice.

The first reference to “equitable” treatment is found in the 1948 Havana Charter for an International Trade Organisation. Its Article 11(2) contemplated that foreign investments should be assured “just and equitable treatment”. The Article provided that the International Trade Organisation (ITO) could:

1. make recommendations for and promote bilateral or multilateral agreements on measures designed…

2. to assure just and equitable treatment for the enterprise, skills, capital, arts and technology brought from one Member country to another.

Bilateral Treaties

The influence of the OECD Draft Convention is obvious in the growing number of bilateral investment treaties which were negotiated between developed and developing countries beginning in the late 60s. One of the main features which gained a position of prominence was the reference to “fair and equitable treatment”. However, while the standard appears in the majority of BITs, it is not always mentioned in treaties concluded by certain Asian countries (e.g. some treaties signed by Pakistan, Saudi Arabia and Singapore). In recent years, even countries which traditionally were in favour of national control over foreign investments and therefore favoured the use of national treatment over the fair and equitable standard have incorporated the “fair and equitable” standard in their bilateral investment treaties. Bilateral investment treaties of Chile and China as well as between Peru and Thailand, Bulgaria and Ghana, the United Arab Emirates and Malaysia, include the fair and equitable standard. In this category it is worth noting the Latin American countries, which had embraced the Calvo doctrine since the beginning of the XXth century and had firmly avoided the terms “fair and equitable”.

The recently concluded new generation agreements, the Free Trade Agreements between the United States and Australia18, Central America (CAFTA), Chile, Morocco, and Singapore, in their Investment Chapters, provide with greater specificity that each Party has the obligation to “accord to the covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security”.

The Free Trade Agreement between Australia and Thailand, in its Article 909, also provides that each Party has the obligation to “ensure fair and equitable treatment” of foreign investment in its own territory.


Date: 2016-03-03; view: 1025


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