Capital transfer provisions in bilateral investment treaties.

The primary purpose of a transfer provision is to set forth a host country’s obligation to permit the payment, conversion and repatriation of the funds that relate to an investment. The key issues that arise in the design of a transfer provision can be divided into two categories. The first category relates to the scope of the general obligation undertaken by the host country; this category includes issues relating to the types of transfers that are covered by the transfer provision and the nature of the obligation that applies to these transfers. The second category relates to the principal exceptions and qualifications to this general obligation, the most important of which relate to a derogation for economic reasons.

Since the first BIT was signed in 1959 between then West Germany and Pakistan, their number has been constantly growing by the end of 2011. Most BITs contain detailed provisions guaranteeing investors the right to transfer funds related to an investment. An increasing number of BITs now contain transfer provisions covering both inward and outward transfers of funds linked to inward investments. BITs do not usually cover outward investments made by residents of the host country, which is an Important difference from the OECD codes on capital liberalization which aim to liberalize both inward and outward investments, by both residents and non-residents.

The types of transfers protected under the transfer provisions normally contained in bilateral and regional investment agreements may be described as falling into three general categories.

The first category consists of the outward transfer of amounts derived from or associated with protected investments. Assuming that the investment in question is covered under the agreement (some investment may be specifically excluded), a very comprehensive transfer provision will normally include:

(i) “returns ” on investments, which are normally defined as including all profits, dividends, interest, capital gains, royalty payments (arising from the licensing of intellectual property rights), management, technical assistance or other fees or returns in kind;

(ii) proceeds from the sale or liquidation of all or any part of the investment;

(iii) payments under a contract including a loan agreement (including payments arising from cross-border credits) ; and

(iv) earnings and other remuneration of personnel engaged from abroad in connection with an investment.

Several comparative observations can be made with respect to the above category of transfers. First, it includes all transfers that are covered under the OECD Codes, i.e. all capital and income derived from an international investment.

Second, like the Fund’s Articles, it includes earnings of foreign personnel that are employed in connection with an investment. Although such transfers are clearly not “derived” from an investment (hence the use of the term “associated with an investment ” ) their coverage is generally considered an important feature of investment protection: in the absence of such coverage, a foreign investor may not be able to attract foreign labour to be employed in connection with its investment, which could undermine its viability.

Third, by including transfers “in kind” , the comprehensive transfer provisions of bilateral and regional investment agreements are broader than both the OECD Codes and the Fund’ s Articles, which only include monetary payments.

The second category of transfer covered under transfer provisions consists of the outward transfer of amounts arising from the host country’ s performance of other investor protection obligations under an agreement. The transfers falling within this category are outward transfers of payments that the Government of a host country is required to make to the foreign investor pursuant to other investment protection provisions contained in an agreement. If the investment agreement is comprehensive, these payment obligations consist of the following, none of which are provided for in the OECD Codes or the Fund’ s Articles:

(i) payments received as compensation for a host country’s expropriation of the investment;

(ii)payments received as compensation for losses suffered by an investor as result of an armed conflict or civil disturbance (“protection from strife” );

(iii)payments arising from the settlement of disputes; and

(iv)payments of contractual debts owed by the Government of a host country to the foreign investor.

The third category of transfer consists of the inward transfer of amounts to be invested by a foreign investor. There are, in fact, two types of inward transfers that fall into this category. The first type are those that are made for purposes of making a new investment; the second type are those that are made to develop or maintain an existing investment (e.g. increased capitalization of a foreign affiliate). Almost all foreign investment agreements cover the latter type, on the basis that the right of an investor to provide additional infusions of capital into an existing investment is an important attribute of investment protection. However, only those agreements that require the host country to admit new investments include the first type of transfers in the transfer provisions. Most bilateral investment agreements do not include such admission obligations

32. Means of resolving investor/state disputes.

ISDS is a neutral, international arbitration procedure. Like other forms of commercial, labor, or judicial arbitration, ISDS seeks to provide an impartial, law-based approach to resolve conflicts. Various forms of ISDS are now a part of over 3,000 agreements worldwide, of which the United States is party to 50. Though ISDS is invoked as a catch all term, there are a wide variety of differences in scope and process. ISDS in U.S. trade agreements is significantly better defined and restricted than in other countries’ agreements.

Governments put ISDS in place for at least three reasons:

1. To resolve investment conflicts without creating state-to-state conflict
2. To protect citizens abroad
3. To signal to potential investors that the rule of law will be respected

Disputes between investors and foreign countries have required adjudication for as long as there has been cross-border investment. Prior to the evolution of the modern rules-based system, unlawful behavior by States targeting foreign investors tended either to go unaddressed or to escalate into conflict between States. Military interventions in the early years of U.S. history – gunboat diplomacy – were often in defense of private American commercial interests. As recently as 1974, a United Nations report found that in the previous decade and a half there had been 875 takings of the private property of foreigners by governments in 62 countries for which there was no international legal remedy. Though diplomatic solutions were possible, they were often ineffective and political in character, rather than judicial.

ISDS represented a better way.

Though the modern form of ISDS did not emerge until the 1960s, the idea of using special purpose panels to resolve disputes between private citizens and foreign governments dates to the earliest days of the Republic. One of the forerunners of modern investor-State arbitration mechanisms, the Jay Treaty between the United States and Britain, was negotiated by our first Chief Justice and included a process for resolving property disputes that arose during the Revolutionary War to ensure that investors received “full compensation for [their] losses and damages” where those could not be obtained “in the ordinary course of justice.” Over the subsequent century, governments established more than 100 additional arbitration mechanisms, such as a series of U.S.-Mexican Claims Commissions, which heard thousands of private claims over the course of decades on issues ranging from cattle theft to denial of justice.

Opponents criticize ISDS for “elevating” corporations and investors to equal standing with countries by allowing corporations to “drag” sovereign governments to dispute settlement. But the right of private parties to challenge the actions of government is one of the oldest and most established legal principles (dating back 800 years to the Magna Carta): that “the king, too, is bound by law.”

Importantly, while it provides a venue for conflict resolution, ISDS protects the sovereign right of States to regulate. Under U.S. agreements, ISDS panels are explicitly limited to providing compensation for loss or damage to investments. They cannot overturn domestic laws or regulations.

Date: 2016-03-03; view: 875