Foreign investment protection within the World Trade Organization.

Prior to the advent of the World Trade Organization (‘WTO’),individual states either wanting to protect the investments of their citizens abroad or seeking to attract foreign investments entered into bilateral investment treaties (‘BITs’). Though it has yet to be proved that entry into such investment treaties directly correlates to an increase in foreign investment, it is estimated that well over 2000 of these BITs exist. Their proliferation is perhaps attributable to the belief in the need for investor protection. This belief first arose in the post-colonial era from the need of home states to conclude investment treaties to protect their multinational corporations from host states.This occurred in response to host states justifying the nationalisation of foreign-owned property by invoking the Calvo doctrine. According to the Calvo doctrine, the applicable standard of protection for foreign investment is the national standard of treatment under the laws of the host state. The belief in BITs resurfaced again in the 1990s, when the triumph of capitalism over socialism led to the liberal economic idea that inflows of foreign investment were good for the host economy. States concluded treaties offering substantial investment protection to foreign investors in the hope that this would provide a more favourable investment climate, which would consequently attract greater inflows of foreign investment. These BITs have resulted in a complex network of rules created on a bilateral basis.

The advent of the WTO in 1995 provided the Organisation for Economic Cooperation and Development (‘OECD’) with the confidence to try for a multilateral version of these BITs in an effort to harmonise the rules. However, the proposed OECD Multilateral Agreement on Investment (‘MAI’) came to a standstill because OECD member states could not come to agreement on its terms. Later, the WTO’s Doha Development Agenda (‘DDA’) proposed to look at investment protection, potentially portending greater WTO involvement in investment protection; but the investment talks within the Doha Round have since been suspended with uncertain prospects for revival.

Like bilateral investment agreements, NAFTA also contains rules related to investment protection under Articles 1110 and 1105. NAFTA incorporates strong guarantees of investment protection though the threat of expropriation of foreign investment has receded. Article 1110 does not allow nationalization or expropriation of foreign investment except for a public purpose. To offset the possibility of expropriation, NAFTA has in-built obligation to compensate the foreign investor of a NAFTA member-country. Article 1110 also provides an obligation to compensate when state regulatory measures “tantamount to nationalization.” But there is no clear definition in NAFTA as to what constitutes this type of indirect expropriation. Article 1105 also stipulates a minimum standard of treatment “in accordance with international law, including fair and equitable treatment and full protection and security” for investors. However, there is no clear definition in the NAFTA text as to what constitute “fair and equitable treatment” and “full protection and security.

Date: 2016-03-03; view: 876