unctad_fdi recent trends

Recent trends in global FDI, investment policies and IIA reform

Hamed El-Kady, Investment Policy Officer

Diana Rosert, Associate Legal Affairs Officer

International Investment Agreements: Negotiating for Sustainable Development

12-15 January 2015Casablanca, Morocco

1. International investment trends

Cautious optimism returns to global FDI

FDI inflows, global and by group of economies, 19952013 and projections 20142016

(Billions of dollars)

54%

Driven mainly by developed countries, FDI flows are expectedto rise over the next three years

Source: UNCTAD, World Investment Report 2014.

The largest recipients of FDI

Developing and transition economies constitute half of the top 20 host economies



Largest investors in the world Six developing and transition economies rank among the top

20 investors



2. Recent policy developments

The international setting of investment rules

Absence of a multilateral cross-sectoral agreement on investment (unlike trade, services, IPR)

Absence of a global body administering the process

International investment rulemaking lacks system-wide coordination

Countries continue to conclude investment treaties on an individual basis (bargaining power; various models; implications for developing countries)

Perpetuating and accentuating the fragmentation of the IIA network

The network of IIAs consists of

Bilateral investment treaties (BITs)

Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs)

Regional integration agreements (EU, ECOWAS, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN)

Sectoral agreements dealing with investment in a specific sector (Energy Charter)

Core Elements in international investment agreements (IIAs)

Definitions (investment/investor)

Admission and establishment

Core standards of treatment and protection:

Principle of fair and equitable treatment

Principles of non-discrimination (NT/MFN)

Expropriation

Transfer of funds

Dispute settlement (investor-State and State-State)

The number of newly signed IIAs continues to decline

In 2013, 44 new IIAs were signed, bringing the total number of IIAs to 3,236

Trends in IIAs signed, 1983-2013

Source: UNCTAD, IIA database.

The top ten signatories of BITs in the world

91

93

93

97

100

102

105

119

130

134

0 20 40 60 80 100 120 140 160

Korea, Republic of

Italy

Belgium and Luxembourg

Netherlands

Egypt

France

United Kingdom

Switzerland

China

Germany

Source: UNCTAD, IIA database.

Number of BITs, end 2013

Top IDB signatories of BITs

Turkey

Five large-scale negotiations:

TTIP (EU-US) (~45% of global GDP)

RCEP (ASEAN plus Australia, China, India, Japan, NZ, Korea) (~50% of global population)

Trans-Pacific Partnership (12 countries) (~35% of global GDP)

EU-Canada CEPA (~26% of global GDP)

COMESA-SADC-EAC Trilateral FTA

Regional IIAs generally do not provide for the phasing out of older BITs between the parties.

The parallel existence of BITs and the more recent regional agreements with investment provisions has systemic implications and poses a number of legal and policy questions.

Regionalism can still provide an opportunity for IIA rationalization.

Rise of mega-regionals brings challenges and opportunities

The increase in IIAs has been paralleled by an increase in investor-State disputes

At least 56 new cases were initiated in 2013, constituting the highest number of known treaty-based disputes ever filed in one year.

The total number of known treaty-based cases reached 568 in 2013 and the total number of countries that have responded to one or more investment treaty arbitration increased to 98.

Among a broad range of governmental measures challenged in 2013, claims relating to measures in the renewable energy sector are the most numerous

Known investment treaty arbitrations (cumulative and newly instituted cases)

In 2013, 56 new ISDS cases were filed - the second largestannual number in history

Source: UNCTAD, ISDS database.

Trends in known ISDS cases, 19872013

3. IIA reform

The IIA regime is undergoing a period of reflection, review and reform

While almost all countries are parties to one or several IIAs, few are satisfied with the current regime for several reasons:

Growing uneasiness about the actual effects of IIAs in terms of promoting FDI or reducing policy and regulatory space;

Increasing exposure to ISDS and the lack of specific pursuit of sustainable development objectives.

Widespread concerns about the functioning and the impact of the IIA regime are resulting in calls for reform.

A broad consensus is emerging on the need to address major challenges and improve the system.

Emerging policy actions towards reform

Many countries follow a wait and see approach

At the same time, IIA reform has been occurring at different levels of policymaking

At least 40 countries (and 5 regional organizations) are currently in the process of reviewing and revising their model treaties/IIA approaches

Countries have also continued negotiating IIAs at the bilateral and regional levels, with novel provisions and reformulations (some directed at sustainable development objectives)

A few countries terminated some of their BITs or denounced international arbitration conventions

At the multilateral level, countries have come together to discuss specific aspects of IIA reform

Reform of the IIA regime four paths of action in WIR 2014


Path Policy action

Status quo Abstaining from substantive changes to IIA policies

Disengagement Eliminating international investment-related commitments

Selective adjustments Pursuing selective changes to integrate selected sustainabledevelopment elements and other features into future IIAs

Systematic reformRedesigning IIAs to promote sustainable development, balancerights and obligations and reform ISDS, including in existingtreaties

By the end of 2013, more than 1,300 BITs reached the stage where they can be terminated or renegotiated at any time Treaty expiration provides a window of opportunity for improving

the IIA regime

Countries need to analyze the pros and cons of treaty termination and its implication for the overall investment climate and existing investments


Cumulative number of BITs that can be terminated or renegotiated

Debate about the usefulness and legitimacy of the ISDS mechanism has gained momentum

Concerns with the current ISDS system relate, among others, to: a perceived deficit of legitimacy and transparency

contradictions between arbitral awards

difficulties in correcting erroneous arbitral decisions

questions about the independence and impartiality of arbitrators

concerns relating to the costs and time of arbitral procedures

UNCTAD outlined five sets of reform options for international investment arbitration in WIR 2013

Reform of the IIA regime at the core of WIF 2014

The 2014 UNCTAD IIA Conference identified a number of key and pressing issues that need to be addressed, effectively sketching the contours of a roadmap for reform.

It was broadly agreed that the IIA regime and ISDS system need to be reformed in a comprehensive and gradual way.

This requires a joint or coordinated approach towards IIA reform.

Participants called upon UNCTAD to work with other stakeholders and develop a roadmap for IIA reform that offers concrete solutions to make IIAs more supportive of sustainable development.

Next UNCTAD meeting: 25-27 February 2015, Geneva

4. Concluding remarks

Investment policies often formulated in a vacuum

Lack of coordination / consultation between negotiators of FTAs, BITs, State contracts (inter-ministerial, IPA dialogue)

Bargaining power and pressure during negotiations (pressure from other party and pressure from within)

IIAs signed for non-economic reasons

Awareness about practical options to reform the IIA regime (timeframes)

Manage overlapping and sometimes conflicting approaches between bilateral and regional IIAs

Investment treaty takers not makers

Challenges faced by developing countries arising from IIAs

Elaborate a vision on how FDI can contribute to inclusive and socially equitable economic development

Elaborate a policy vision on how IIAs can help achieving this objective (at least not hinder)

Elaborate transparent consultations with non-governmental stakeholders, civil society, academia, to help build a broad domestic support base for new policies

Reconsider past international investment commitments with the aim of achieving coherence and identifying inconsistencies (through treaty termination, amendments and renegotiations.

Establish an inter-ministerial task force responsible for supervising and monitoring international investment commitments (treaties, investor-State disputes, strategic policy orientation of FDI)

Consider new types of IIAs that focus on investment promotion and cooperation

Suggested action points

UNCTAD websites:www.unctad.org/diae www.unctad.org/wir

www.unctad.org/fdistatistics

The Investment Policy Hub:http://investmentpolicyhub.org

@unctadwif

THANK [email protected]

[email protected]

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