International co-operation and periodic review

 

Rationale | Key considerations | Assessment | Resources | Next

 

1.7  Are investment policy authorities working with their counterparts in other economies to expand international treaties on the promotion and protection of investment? Has the government reviewed existing international treaties and commitments periodically to determine whether their provisions create a more attractive environment for investment? What measures exist to ensure effective compliance with the country’s commitments under its international investment agreements?


Rationale

International investment agreements promote cross-border investment. They can reduce restrictions on sectors closed to international investment, offer investors minimum levels of protection based on international legal standards (e.g. against expropriation), and make the rights and obligations of the parties more stable and predictable. Although the government loses some policy flexibility, risks and uncertainties faced by investors are reduced, helping to mobilise additional investment. Wider country coverage of international investment agreements is thus one of the elements underpinning an attractive investment environment.

 

A country’s investment climate is not static. Terms of trade, technologies and policies in other countries change continuously. As a result, a country’s competitiveness can change even when a government has made no changes in its own rules, and its policy practices and regulations (e.g. performance requirements) can quickly become outdated vis-à-vis prevailing best practices. Both points underscore the need for a country periodically to review provisions under their international investment agreements to ensure they play fully their role in promoting investment, and to ascertain their effective implementation.

 

Related PFI questions:

A possible role for international cooperation and agreements arises throughout the PFI. See, for example, Question 2.8Question 2.9Question 3.3Question 4.7, Question 5.9, Question 7.6Question 10.6 and Question 10.9.

 

Key considerations

The international legal framework for attracting FDI
Some of the topics covered in other questions in this chapter (e.g. Questions 1.5, 1.6 and 1.8) and in other chapters (e.g. trade-related investment measures, Question 3.5) relate to provisions of international investment agreements (IIA). The main consideration here is not to revisit these issues, but to make an overall assessment of how well they and other IIA provisions in existing agreements perform in terms of providing an environment conducive to cross-border investment. It also involves reviewing efforts made by the authorities to expand the coverage of a country’s IIA agreements and their compliance with them. The related area of international tax co-operation is covered in Question 5.9.

 

Policy practices to scrutinise

Key issues in assessing international co-operation and periodic review are to take stock of the international legal framework for attracting FDI and to assess the efforts being made to review and further develop international investment co-operation and their effective implementation.

The following policy practices and criteria ought to be considered:

  • Coverage of international investment agreements
    What bilateral investment treaties (BITs) have been signed by the government and have they been ratified? If they have not been ratified, what has prevented the country from doing so? It also involves taking stock of other international agreements that facilitate cross-border investment (e.g. regional investment agreements, concession agreements, the Energy Charter Treaty, TRIMs and GATS: see also the Trade Policy Chapter, bilateral tax treaties: see also the Tax Policy chapter and treaties covering intellectual property: see also Question 1.3). Calculating the proportion of FDI inflows that are protected by IIAs offers a summary measure of the coverage of a country’s IIAs. Cross-country comparisons need to be interpreted with care, however, since the scope of IIAs can vary widely (e.g. because of the definition of investment used or the extent of sectoral exceptions).
     
  • Expanding IIAs
    Examining the institutional arrangements in place helps in understanding the strategic approach of the country towards international investment co-operation. For example, who has authority and responsibility for initiating negotiations? Is there a dedicated unit responsible for evaluating the performance of existing agreements and how do new agreements incorporate the lessons drawn from existing international co-operation? The latter might involve, for instance, countries developing and modifying a model BIT in light of emerging best practices. Review processes should also involve regular interaction with relevant stakeholders and the partners to international investment agreements. These parties are often well-placed to provide rapid feedback on emerging trends or problematic areas, as well as giving their perceptions about the investment climate. There is no golden rule on the frequency with which a country should review its international treaties and commitments. It will depend, inter alia, on the number of treaties, their average age and the specific issues that have emerged between the parties (e.g. in arbitration).
     
  • Effective compliance with IIAs
    Are there any gaps between commitments made and actual compliance under IIAs? In some agreements (e.g. TRIMs), there are transitional periods and notification requirements. It also involves assessing whether the authorities responsible for implementation have the expertise and capacity to ensure commitments are enforced and examining efforts to communicate to government agencies the implications of IIAs for their areas of responsibility (e.g. implementation guides).

 

Further resources and case studies

  • UNCTAD’s programme on International Investment Agreements helps developing countries to participate more effectively in international discussions or negotiations on investment at the bilateral, regional, plurilateral and multilateral levels. Resources include databases on bilateral investment treaties and a collection of treaty-based investor-State dispute settlement cases which were disclosed by the parties or arbitral institutions, articles on key concepts and issues relevant to international investment agreements and recent trends and developments in international investment rule-making.
     
  • An ICSID database of bilateral investment treaties lists BITs notified to ICSID by governments but is not complete.
     
  • WTO website on trade and investment provides technical and non-technical information about trade and investment at the WTO, including reports from the WTO Working Group on the relationship between trade and investment, notification of TRIMs that have been eliminated, documents on dispute settlement involving the TRIMs agreement and a handbook on TRIMs notification requirements.
     
  • The UN Commission on International Trade Law (www.uncitral.org) (see Question 1.4).
      
  • The OECD Model Tax Convention on Income and Capital is widely used by countries when negotiating bilateral tax agreements which clarify the situation when a taxpayer might find himself subject to taxation in more than one country.

 

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